AMPAL AMERICAN ISRAEL CORP /NY/ - 10-K Annual Report

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 27 – Segment reporting

	Segment reporting by products and services:

	The accounting principles applied in the Segment reporting are in accordance with those used for preparing the consolidated financial statements of the Company.

	Year ended December 31, 2002

	Fuel and Gas		Paints and Chemicals	Others		Consolidated

	NIS. (thousands)

Profit and loss data: Income
External sales	2,436,459		403,271	110,127		2,949,857
Sales within segments	-		-	-		-

Net Sales	2,436,459		403,271	110,127		2,949,857


Results
Segment results	145,908		43,030	(537	)	188,401
Unallocated expenses						(14,254	)


Income from operations						174,147
Financing expenses						(90,988	)
Financing income						4,212
Other expenses, net						(24,289	)
Taxes on income						(30,853	)
Minority interests in consolidated Companies						(2,312	)
Equity income (loss) of affiliated companies, net	(324	)	764	(5,724	)	(5,284	)

Net income						24,633

Additional information
Segment assets	2,124,701		643,080	229,620		2,997,401
Investments on equity basis	9,155		12,756	97,724		119,635
Unallocated assets						160,089

Total consolidated assets						3,277,125


Segment liabilities	271,576		85,022	46,403		403,001
Unallocated liabilities						2,228,468

Total consolidated liabilities						2,631,469


Capital investments	101,291		16,487	32,527
Depreciation	90,397		22,579	7,426

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 27 – Segment reporting (continued)

Segment reporting by products and services

	Year ended December 31, 2001*

	Fuel and Gas		Paints and Chemicals	Others		Consolidated

	NIS. (thousands)


Profit and loss data:
Income
External sales	2,493,313		191,017	58,616		2,742,946
Sales within segments	-		-	-		-

Net Sales	2,493,313		191,017	58,616		2,742,946


Results
Segment results	143,077	*	14,302	10,310		167,689
Unallocated expenses						(9,551	)


Income from operations						158,138
Financing expenses						(80,146	)*
Financing income						3,067
Other expenses, net						10,014
Taxes on income						(38,813	)
Minority interests in consolidated Companies						(1,795	)
Equity income (loss) of affiliated companies, net	(946	)	-	951		5

Net income						50,470

Additional information
Segment assets	2,069,850	*	639,037	194,580	*	2,903,467
Investments on equity basis	12,689		12,148	112,401		137,238
Unallocated assets						168,593

Total consolidated assets						3,209,298


Segment liabilities	244,758		101,154	33,512		379,424
Unallocated liabilities						2,197,126

Total consolidated liabilities						2,576,550


Capital investments	123,128	*	11,023	7,503	*
Depreciation	77,130		9,255	3,896

* Reclassified
**The results of Tambour and its consolidated subsidiaries have been included as of their acquisition date.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities

A.	Floating and fixed charges

		December 31, 2002 NIS.(thousands)	Collateralized by

	Bank overdrafts	13,185	Floating charges on current assets of the main subsidiaries.

	Short-term loans from Banks	994,805	Floating charges on the assets of the Company and its main subsidiaries

	Accrued interest on short- term bank loans is included in Other payables	9,536	Floating charges on the assets of the Company and of the main subsidiaries

	Long-term bank loans (a)	1,076,143	A charge on the shares of a subsidiary company and floating charges on the assets of the main subsidiaries and fixed charges on portions of the fixed assets of some of the Company’s main subsidiaries.
			(see note 15.A.2, 28.C.2.a and note (a) below)

	Investment grants	705	Floating charges on part of the fixed assets of consolidated companies

	Convertible debentures	-	The balance of convertible debentures was redeemed on November 30, 2002. A floating charge subordinated to other floating charges on all the assets of the Company has not yet been canceled.

(a)

At the end of the second quarter of 2001, the Company acquired 87% of Tambour’s shares for approximately NIS. 488 million and in the third quarter acquired the remaining shares through a public tender offer for an amount of approximately NIS. 73 million. As a result of the acquisition, Tambour’s shares were de-listed from the Tel-Aviv Stock Exchange. The acquisition was financed by long-term index linked and unlinked bank loans. The acquired shares were collateralized to the bank. 50% (2001-80%) of the loans are non-recourse.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

B.	Liabilities and contingencies

	1.	Indemnification exemption and Insurance of directors and senior officers

		In September 2002, a special general meeting of the Company approved the following resolutions:

		a.	To indemnify eligible directors and senior officers of the Company and its subsidiaries, in the past, present and future, beginning as of January 1, 1995. This indemnificantion is limited to the events and to the amounts stated in the resolution.

		b.	To exempt eligible directors and senior officers of the Company and its subsidiaries from all liabilities on account of their obligation to act judiciously in regard to the Company.

		c.	To provide liability insurance for eligible directors and officers of the Company and its subsidiaries, in the past, present and future, beginning as of January 1, 1995. Pursuant the above, the Company insured its directors and senior officers in a total amount of $ 10 million.

	2.	Pending litigation

		a.	Claims (mostly legal claims) arising in the normal course of business have been lodged against consolidated and affiliated companies. In the opinion of the management, based on the opinions of their legal counsel, litigation costs which are both probable and estimable have been accrued. In certain cases, it is not possible to determine the final outcome of such claims.

		b.	As a result of arbitration proceedings between the Fuel Authority and the agents’ and station owners’ organization, to 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 award was confirmed by the district court. The Fuel Authority, in turn, demanded that the oil marketing companies reimburse the station owners for the depreciation (to the extent payable) 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. By virtue of the award, twenty five 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. The total of these proceedings amounts to NIS. 43 million. In a ruling dated October 4, 2002, the Jerusalem district court rejected all the claims made by the various station owners against Sonol in third party proceedings, for the reimbursement of their investments in stations. This ruling was appealed to the supreme court. In the opinion of the company’s legal counsel, the appeal’s prospects are not favorable.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28- Collateral, commitments and contingent liabilities (continued)

B.	Liabilities and contingencies (continued)

	2.	Pending litigation (continued)

		c.	In the years 1993-1995, three claims were lodged against a formerly affiliated company and against its shareholders, which included Sonol. The total amount of the claims is approximately NIS 65 million relating to the sale of fuel products pursuant to restrictive trade practices (as the plaintiffs allege) among the fuel companies. In the opinion of Sonol’s and the formerly affiliated company’s legal counsels, the companies have a sound defense against the claims.

		d.	In 1999, a filling station operator, who received operating rights within the framework of an agreement between war invalids and the rehabilitation department of the Ministry of Defense, the Israel Land Authority and the fuel marketing companies, filed an action in the district court for a ruling declaring the cancellation of agreements between him and Sonol, claiming them to be illegal restrictive trade agreements in accordance with the Law for Restrictive Trade Practices. The operator’s claim was rejected by the Court. The operator filed an appeal with the Supreme Court contesting the facts of the case and the court’s conclusions. The appeal was referred to mediation which was unsuccessful. Therefore the appeal will be heard. In the opinion of Sonol’s legal counsel it is impossible to predict the outcome of the appeal.

			In two separate divergent rulings by district courts dealing with similar cases against another oil company, two divergent decisions were handed down. In one case the claimants claim was rejected, and in another case, the claimants claim was accepted. Appeals were filed against the two rulings with the Supreme Court who will hear both appeals.

			Another war invalid operating a different filling station has also submitted a claim to the court for a declarative judgement claiming that agreements between him and Sonol are restrictive trade arrangements and, therefore, void. In addition, the claimant is asking for a declaration that the operating agreement includes discriminatory provisions in a standard contract, and that Sonol be ordered to pay him approximately NIS. 2.1 million as a result of inflated prices which he claims Sonol charged him over the years. The case is at the hearing stage. It can be assumed, the ruling regarding this claim, as far as it concerns that of a restrictive trade agreement, will be the same as the above claim. If the arguments for the nullification of the agreements, as a result of their being restrictive arrangements, will be rejected by the court, Sonol’s defenses against the station operators’ financial claims have a reasonable to good chance of succeeding.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

B.	Liabilities and contingencies (continued)

	2.	Pending litigation (continued)

		e.	In 2000, the operators of one of Sonol’s filling stations, against whom Sonol filed a claim in the district court in Tel-Aviv, instituted legal proceedings against Sonol. In one proceeding, they requested a declarative judgement stating that inasmuch as a filling station operated by them was to be “freed” under the terms of the arrangement reached between the fuel companies and the Controller of Restrictive Trade Practices, the contractual relationships between them and Sonol should be related to as having been terminated. It was also claimed that all agreements between the plaintiffs and Sonol be considered restrictive agreements and, thereby, cancelled. In another proceeding, the above operators are claiming an amount of approximately NIS 16 million, alleging having paid exorbitant prices on account of the fuel products they purchased from Sonol, and maintaining that inasmuch as the contractual arrangements between them and Sonol have been terminated as claimed in the other proceeding, Sonol had no right to charge such prices. In the opinion of Sonol’s legal counsel defense prospects are good, even though they are unable to determine the defense prospects regarding the claim of a restrictive agreement. See also sub-paragraph (d) above. If this claim is accepted there is a risk that the financial claim against Sonol will also be accepted (even though, in such a case, the amount of the claim is exaggerated). Should the above claim regarding a restrictive agreement not be accepted, the prospects of the financial claim against Sonol will be weak.

		f.	In the year 2000, former operators of a filling station filed a monetary claim against Sonol in the amount of approximately NIS 4.5 million on account of alleged exorbitant prices paid for of fuel products purchased from Sonol, maintaining that the contractual arrangements between them and Sonol have been cancelled and/or terminated, being restrictive arrangements. At this time, Sonol’s legal counsel are of the opinion that Sonol’s defense claims, although difficult to assess, are not insignificant. The matter was referred to mediation which was unsuccessful and, therefore, the case will be heard before the court.

		g.	Sonol filed a claim against one of its agencies for approximately NIS 40 million in the Tel Aviv district court on account of an unpaid balance and damages caused to the Company, alleging that the agency violated the terms of the agency agreement by dealing with one of Sonol’s competitors. The agency, in turn, filed a counterclaim in the amount of approximately NIS 62 million, stating various causes, including a claim that the contractual agreement between it and Sonol is a restrictive agreement.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

B. Liabilities and contingencies (continued)

2.	Pending litigation (continued)

		In the opinion of Sonol’s management, based on opinion of the company’s legal counsel, the prospects of Sonol’s claim against the agency relating to amounts owed to Sonol are good and, regarding the amount claimed for compensation on account of the violation of the agency agreement, such amount is subject to deliberation by the court. Regarding the prospects of the agency’s counterclaim, Sonol’s legal counsel are unable, at this time, to estimate its prospects, insofar as it relates to the claim of a restrictive agreement. Should the claim of a restrictive arrangement be rejected by the court, the prospects of the counterclaim will not be favorable. At this time, the dispute has been referred to mediation.

	h.	In 1999, an agency of Sonol, which also operates stations on Sonol’s behalf, filed a claim against Sonol asking for declarative and monetary relief. The agency claims that the agreement in effect with Sonol, in regard to one of the stations is a restrictive trade arrangement, and is also a uniform contract with discriminatory provisions and is thus void. In addition the agency is asking that the station be “freed” under the terms of the arrangement with the Controller of Restrictive Trade Practices, and is, therefore, requesting declaratory relief from the court regarding the cancellation of rights granted Sonol to the land on which the station is located, including leasehold and other proprietary rights. The agency is also asking that Sonol be required to pay approximately NIS. 16 million on account of the inflated prices which Sonol is alleged to have charged over the years. It should be noted that Sonol filed a monetary counterclaim against the same agency in the amount of approximately NIS. 20 million on account of amounts due from the agency from the purchase of fuel products from Sonol. A date has been set for pre-trial deliberations.

		At this time, legal counsel is unable to assess the defense prospects in regard to the alleged restrictive agreement. See also note (d). Should the district court rule in favor of this claim, there is also a risk that the court will accept the monetary claim against Sonol (which, even in such case, the amount of claim is by all accounts exaggerated). If the agency’s claim of a restrictive agreement is not accepted by the court, the prospects of the monetary claim against Sonol, are weak.

	i.	In May 1997 a filling station owner filed a claim against Sonol in the amount of approximately NIS. 7 million, claiming that the company owes him commission differentials on account of prior years. In addition, the station owner is asking the court to declare the contracts signed between him and Sonol as void, claiming, inter-alia, that they are a restrictive arrangement .At this time, legal counsel is unable to estimate the defense prospects regarding the claim of a restrictive trade agreement. If the claim regarding a restrictive agreement is not accepted, Sonol’s prospects for a favorable decision are reasonable.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

B. Liabilities and contingencies (continued)

2.	Pending litigation (continued)

		Two additional claims were submitted by two filling station operators in the amount of approximately NIS 4.3 million, for commission differentials they claim, are due them. These were submitted subsequent to Sonol’s demand that the station operators relinquish the operation of Sonol’s stations. In one claim, in the amount of NIS. 1.2, million, Sonol reached an agreement subsequent to the balance sheet date, whereby the parties would rescind their claims against one another. In the opinion of Sonol’s legal counsel, the second claim’s prospects against Sonol are weak.

	j.	In April 2001 Sonol filed legal claims four of its station operators for their eviction from all four stations and also for the recovery of a debt in the amount of NIS. 9.6 million. Regarding the eviction claim, the defendants claimed that Sonol entered into a new agreement with them which granted them the right to continue operating the stations for an additional period, and simultaneously, the station operators filed a counter claim for damages in the amount of NIS. 10 million. In November 2002, the Tel-Aviv magistrate’s court ruled in favor of Sonol for the defendants’ eviction, and the stations were returned to Sonol. The mutual financial claims have not yet been heard by the court. In the opinion of the Sonol’s management, based on its legal counsel, the prospects in regard to the claim against Sonol are weak, while, on the other hand, Sonol has a sound basis for its claim against the station operators.

	k.	In December, 2001 filling station operators filed a claim in court against Sonol asking for declarative relief, by granting them rights in the station, preventing Sonol from terminating the agreement appointing them as the station operators and integrally connecting theirs and Sonol’s rights to the station. Furthermore, they asked the court to be recognized as protected tenants regarding the station. In addition, they asked the court to declare the agreements between them and Sonol to be a restrictive trade arrangement and to order Sonol to sell them fuel products at “free market” conditions and prices. The station operators are also claiming an amount of approximately NIS. 4.7 million, claiming that as a result of a restrictive trade arrangement, Sonol charged them prices in excess of those they would have paid under “free market” conditions, and, also, claiming that Sonol acted in a prejudiced way against them by charging them higher prices than those which Sonol sells to other operators and agents. Sonol submitted its defense and, also filed a counterclaim for the eviction of the station operators.

		In the opinion of the company’s legal counsel, Sonol has a sound defense albeit, at this time, they are unable to predict the defense prospects regarding the claim of a restrictive trade arrangement.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 – Collateral, commitments and contingent liabilities (continued)

B. Liabilities and contingencies (continued)

3.	Pending litigation (continued)

		If the claim to nulify the agreements on the grounds that they are a restrictive trade arrangement is not accepted, then according to the estimate of the company’s legal counsel, on the basis of the facts submitted to them stating, inter-alia, that the station and agency in question purchase fuel products at similar prices as those paid by other filling stations of the same type within the Sonol network of stations and other agencies, then Sonol’s defense prospects as they relate to the financial claim are reasonable.

	l.	In February 2000 a motion was filed against Sonol, together with Paz Oil Company Ltd. and “Delek” the Israel Fuel Corporation Ltd. to allow a class action relating to the alleged collusion in the fixing of the price of gasoil to consumers. This claim, after being updated and if allowed as a class action, will amount to approximately NIS. 249.6 million against all the companies, of which Sonol’s share is approximately to NIS. 58.6 million, Sonol denies the claim and, according to its legal counsel, chances are good that it will not be allowed as a class action.

	m.	In May, 2001 a motion was filed in the Jerusalem district court against Sonol and its subsidiary company, Sprint Motors Ltd. (“Sprint”) and four additional companies by customers who purchased fuel products in filling stations, contending that the defendants charged an illegal “service charge” from their customers over a period of many years. The plaintiffs have asked the court to recognize their claim as a class action. The amount of the claim is NIS. 5.30 and, should the court allow a class action, it will total approximately NIS. 404 million. From the claim, it is not clear as to what is Sonol’s and Sprint’s share of this amount. In the opinion of the Company’s management and its legal counsel, the chances of the claim to be recognized as a class action are weak.

	n.	In April 1999, a claim in the amount of approximately NIS 8 thousand was filed in the Tel-Aviv district court against Supergas and four other gas companies by several consumers claiming non performance of periodic inspection of gas systems used by the consumers, the sale of a product by deception causing damages, loss of comfort and damage to their safety, thus endangering the lives of consumers. The claim was subsequently amended to NIS. 4.9 thousand. The plaintiffs have asked that the court order the gas companies to make the periodic inspections, to pay damages in the amount mentioned above of approximately NIS 0.8 thousand per plaintiff, and/or issue a declarative order stating that the plaintiffs are entitled to a refund of the amount paid to the defendants from the time agreements were entered into and, also, other orders. Concurrently, the plaintiffs asked that the court consider the claim as a class action.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 – Collateral, commitments and contingent liabilities (continued)

B. Liabilities and contingencies (continued)

2.	Pending litigation (continued)

		The court ruled only partially in favor of the class action, allowing the claim to be submitted as a class action for declaratory relief only, in accordance with the Consumer Protection Law, regarding the gas companies’ obligation to refund to their customers amounts actually paid for periodic inspections which did not take place, retroactive to the date of agreements entered into with each customer. The court rejected the claim for financial and other remedies against the gas companies. Supergas has requested permission from the Supreme Court to appeal the above ruling and, in the opinion of its legal counsel, has valid causes for appeal, both factually and legally. In the opinion of the Company’s management, Supergas has recorded an adequate provision in its books for any potential exposure.

	o.	In June, 2001, a claim was filed in the Tel Aviv district court against Supergas, together with a request that the claim be recognized as a class action, in the amount of NIS. 133 million. In addition, Supergas was informed of two additional claims filed against two other gas companies and to which Supergas was included on a formal basis only. The plaintiffs claim to be Supergas’ customers of central gas and contend, inter-alia, that Supergas and other gas companies unlawfully charge their customers a periodic fixed charge which was not agreed upon in contracts signed between them and Supergas. Therefore, they contend that Supergas should refund the amounts paid and, in addition, should make an “appropriate” compensatory payment in a manner as to be determined by the court. In the opinion of Supergas’s legal counsel, based on the data presently available, Supergas’ prospects of success are greater than those of the plaintiffs.

	p.	In August, 2001 Petroleum and Energy Infrastructures Ltd. and Oil Products Pipeline Ltd. (“plaintiffs”) filed a claim in the amount of NIS. 6.7 million against Sonol and two other fuel companies. According to the plaintiffs, who are engaged in the pumpover of fuel products through a network of pipelines, they also serve as a “clearing house” for the defendants whereby the defendants sell and buy through the plaintiffs the excess/shortage of amounts of fuel that have accumulated. The plaintiffs claim that Sonol and others unlawfully netted amounts from payments due to them, thus causing financial losses to the plaintiffs. The amount claimed from Sonol is approximately NIS. 1.3 million. Sonol has not yet submitted its defense. In the opinion of its legal counsel, inasmuch as the claim is at an early stage, it is difficult to assess its prospects. Nevertheless Sonol has good defense claims.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 – Collateral, commitments and contingent liabilities (continued)

B. Liabilities and contingencies (continued)

2.	Pending litigation (continued)

	q.	A group of greenhouse owners, claiming damage caused to them in the amount of approximately NIS. 9.6 million as a result of the use of defective light fuel oil produced by Oil Refineries Ltd. and sold to them by the oil marketing companies, has filed a claim against, Sonol, Oil Refineries Ltd., Paz Oil company Ltd., “Delek” the Israel Fuel Corporation Ltd. and Alon Israel Fuel Company Ltd. Sonol’s share of this claim amounts to approximately NIS. 3.4 million. In the opinion of Sonol’s management, Sonol has a sound defense against this claim and, in addition, has insurance coverage included in a product liability policy.

	r.	Pi-Gliloth Petroleum Terminals and Pipeline Ltd. filed a financial claim against Petroleum Products Pipeline Ltd. and the fuel marketing companies “Sonol” “Paz” “Delek” and “Dor” in the amount of approximately NIS. 8.1 million. The plaintiff claims that it was entitled by law to payment from the defendants on account of storage of fuel products in storage transfer tanks it owns in its Ashdod installation. The amount claimed from Sonol is approximately NIS. 1.2 million. The claim has been forwarded to arbitration. In the opinion of the Sonol’s legal counsel, its prospects for receiving a favorable ruling are good.

	s.	Petroleum Infrastructures Ltd. filed a financial claim in a summary procedure in the amount of approximately NIS. 2.8 million against “Sonol” “Paz”, and “Delek” on account of the netting of the said amount by the defendants from payments, under the pretext that gasoil stored by the plaintiff on their behalf was deleted, at some stage, from its records. The amount claimed from Sonol is NIS. 0.7 million. To date, no reply has been received. The prospects of Sonol’s defense claims are good.

	t.	Following the filing of a claim against Dan–Cooperative for Public Transportation Ltd (“Dan”) in the amount of NIS. 1.6 million for the return of equipment loaned to Dan by Sonol for the construction of an internal filling station, in accordance with an agreement signed between Dan, Sonol, Paz Oil Company Ltd., “Delek” the Israel Fuel Corporation Ltd. and Sonol. Dan, in June 2002, submitted a counterclaim in the magistrate’s court in Tel-Aviv in the amount of NIS. 10 million.

		In its counterclaim, Dan contends that the agreement signed with the three fuel companies is illegal and, being a restrictive arrangement entered into as a result of the companies taking advantage of their monopolistic power, is therefore, null and void. Dan maintains that during the period between 1980-1989 when it purchased fuel products from the fuel companies, it paid exorbitant prices in amounts totalling NIS. 15 million. However, due to the cost of the court fee, its counterclaim was submitted in an amount of NIS. 10 million. Sonol’s share of this claim amounts to approximately NIS. 2 million. The company has submitted its defense. In the opinion of Sonol’s legal counsel, the defense prospects are more favorable than these of the plantiffs.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 – Collateral, commitments and contingent liabilities (continued)

B. Liabilities and contingencies (continued)

2.	Pending litigation (continued)

	u.	Two investigations have been instituted by the Israel Police and the Ministry of Energy against Supergas regarding two instances of deaths of customers from leaks of poisonous gas from gas heaters. In one instance, the prosecution decided to prosecute a Supergas technician and not to prosecute Supergas or any of its managers. In the second, no recommendation has yet been received from the police or from the prosecution.

	v.	In August 2000, Bank Hapoalim filed a claim against Supergas for the payment of an amount of NIS. 3.6 million they claim is owed to the bank by Etzion Gas Products (1998) Ltd. (50% ownership). No date has yet been set for deliberations. Supergas filed for the total cancellation of this claim inasmuch as it did not provide any guarantees for amounts owed by Etzion Gas Products (1998) Ltd. Supergas’ request was denied and it has appealed the decision. In the opinion of the Company’s management and its legal counsel, Supergas’ defense prospects are good.

	w.	In November, 2002, a claim for declaratory relief was filed against Mini Israel Limited Partnership, (“Mini Israel”) in which the Company holds a 35% interest, claiming that project built and managed by Mini Israel was illegally taken from a resource project written by two students working on their master’s degree in business administration. According to the claimants, the research project included a business plan and feasibility studies to be used in constructing a similar project and that use of the claimants’ research project in building the project constitutes unjust enrichment, the theft of proprietary secrets, breach of trust and breach of contractual liability. As of the date of the financial statements, Mini Israel has not yet submitted its defense. In the opinion, of the Mini Israel’s management, based on the opinion of its legal counsel, the defense prospects are good.

	x.	Concerning an additional claim against Sonol – see note 31(E).

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

	C.	The consolidated companies are committed as of balance sheet date as follows:

		(1) Commitments:			NIS. thousands

		Acquisition of fixed assets			186,624
		Suppliers of fuel, luboils and equipment
		(delivery January-December 2003)			711,432

		Completion of projects			78,421
		Rental leases and obligations regarding stations, facilities and
		buildings in accordance with signed agreements (*)			1,313,843

		Lease obligation for a computer and other equipment for
		a period of up to one year			1,065

		Automobile operating lease agreements (**)			8,566

		Amounts payable on account of management services (see note 30b)			6,821

		(*) Rental and leasing liabilities:
		2003			107,011
		2004			106,651
		2005			96,920
		2006			88,990
		2007			102,165
		2008 and thereafter			812,106

					1,313,843

		(**)Liability in respect of automobile operating lease agreements:
		2003			3,741
		2004			3,170
		2005			1,655

					8,566

		(2) Commitments for investments:

			a.	In 1998, a consolidated company entered into a joint venture to construct a building project on jointly owned land. Construction which began in September 2000, will include a 23 story office building covering an area of approximately 23,000 square meters and underground parking facilities. In addition, the company signed an agreement whereby it agreed to pay the city of Tel Aviv an amount of NIS. 12.2 million, linked to the Index, for betterment taxes. As of the balance sheet date, the balance of the liability payable amounted to NIS. 9.2 million. The partners in the joint venture, also entered into an agreement with a bank whereby the bank will provide construction financing throughout the construction period. In return, the consolidated company collateralized its rights to the land and future payments from the project to the bank.

			b.	Should the restructuring of the companies in the group be realized (see note 1), it is expected that the Company will incur costs, primarily professional fees, taxes on the transfer of assets between companies and other fees. At this time, the extent of these costs is not known.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

	C.	(2)	Commitments for investments: (continued)

			c.	In the year 2000, The Controller of Oil Interests in the Ministry of National Infrastructures (“Controller”) granted a license to Granite – Sonol Oil and Gas Drilling Limited Partnership for oil exploration on a tract of land of over 400,000 dunam located between Or Yehuda in the north, Kiryat Malachi in the south and Mishmar Ayalon in the east and known as License No. 302/ “Modiin”. Under the terms of the license, the Limited Partnership was obligated to carry out certain preliminary activities by October 1, 2001. A dispute has arisen between the Controller and the Partnership in regard to carrying out the preliminary activities. On January 9, 2002 the Controller issued a warning to the Company informing it of his intention to revoke its license, due to the non-fulfillment by the company of the agreed upon work plan, with a recommendation that the Company make all the necessary corrections within 60 days in order to prevent the revocation of the rights granted to the Limited Partnership under the terms of the license. The Company appealed the decision. Subsequently, on March 3, 2002, the Company received a notice in accordance with Paragraph 55(c) of Oil Law, stating that the license will not be revoked prior to a ruling by the Minister.

			d.	On September 30, 2001 an agreement was signed between the Company and Naspen Ltd. of the Baran group, whereby the parties to the agreement will invest in equal shares in Oganim Beyarok Ltd. which has been assigned to deal in the country and abroad with leasing land and masts for constructing antennas for communication equipment (TM-Tower Management). According to the terms of the agreement, the Company will invest up to approximately 5 million U.S. dollars. As of the balance sheet date, the Company invested NIS. 2.2 million.

			e.	A consolidated company constructed a water purification plant which it has agreed to operate for a period of 10 years beginning January 2000.

			f.	Agreements have been signed by consolidated companies to pay royalties on account of knowhow they have acquired. The royalties, paid as a percentage of the sales of certain products, amounted to approximately NIS. 1 million over each of the past three years.

			g.	On December 9, 2002 a consolidated company signed a licensing agreement with the German company, Henkel KGaG whereby Henkel granted the company an exclusive license to manufacture and sell various chemical products, glues and sealants in Israel, Jordan and the Occupied territories. In accordance with the agreement, the company is entitled to import the products or to manufacture them according to the knowhow and planning of Henkel.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

	C.	(2)	Commitments for investments: (continued)

			h.	A consortium companies, of which the Company through a consolidated company is a member, was awarded a tender for the desalination of sea water. For this purpose, the consortium formed a company, Via Maris Desalination Ltd.(“Derech Hayam”), of which the Company holds 26.5%.On October 28, 2002 Derech Hayam signed an agreement with the State of Israel (“Rights agreement”) whereby it will plan, finance, construct, operate and maintain a sea water desalination plant having an annual capacity of 30 million cubic meters under the “BOO” (Build, Own and Operate) method (“Project”). The agreement is subject to the approval of the finance committee of the Knesset. Until such approval is guaranted each party is entitled to cancel the agreement within a period of a half year from the date the rights agreement was signed. The Rights agreement is for a period of 24 years and 11 months (“Rights period”), during which time, within a period of 2½ years, Derech Hayam is obligated to construct a desalination plant having a yearly capacity of 30 million cubic meters. In return for constructing and operating the plant, Derech Hayam will be entitled to receive a fixed amount for providing available desalination capacity and, also, a variable amount for quantities of sea water actually desalinated. The amount of water to be desalinated yearly will be determined jointly, in advance annually, by Derech Hayam and the Desalination Authority.

				The shareholders and Derech Hayam have jointly and individually guaranteed to the State of Israel the fulfillment of the terms of the Rights agreement signed with Derech Hayam and other agreements signed among themselves.

				The shareholders of Derech Hayam provided a performance guarantee to the State of Israel in amounts totaling NIS. 35 million of which the Company’s share is approximately NIS. 9.3 million. At the beginning of construction, the shareholders’ guarantees will be increased to a total of approximately NIS. 92.5 million of which the Company’s share will be NIS. 24.5 million. Each of the shareholders of Derech Hayam provided a guarantee for its share of a loan taken from a bank based on its proportionate share in the Company. The Company’s share of the guarantee amounted to approximately NIS. 500 thousand. As of the date of the financial statements, the Company provided guarantees on behalf of Derech Hayam totaling approximately NIS. 9.8 million.

				Derech Hayam and its shareholders also signed an agreement to form a partnership for the construction of the desalination plant. The shareholders will most likely be required to provide a performance bond to Derech Hayam for an amount equal to approximately 12.5% of the estimated NIS. 380-400 million construction cost based on their proportionate ownership share of the Company. The Company’s share of this bond, if required, will amount to approximately NIS. 13 million. Derech Hayam intends to finance the construction of the plant through outside source and through capital provided by its shareholders for 12-15% of the requirements. The Company’s share of

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

	C.	(2)	Commitments for investments: (continued)

				this capital amounts to approximately NIS. 21 million. The consolidated company’s portion of the shareholders’ loans to Derech Hayam amounts to NIS. 778 thousand. The loans are index linked. As of the balance sheet date, the consolidated Company recorded an investment of NIS. 950 thousand which includes the shareholder’s loan and various capitalized costs.

			i.	In October 2002, a group in which a consolidated company is a member won a tender published by Mekorot Water Company Ltd. for the planning, construction and initial operation of a water desalination plant in Ashod having an annual capacity of 45 million cubic meters. The total cost of the project, approximately NIS. 426 million, will be financed through a bank loan within the framework of a financing agreement which will be in effect throughout the construction period. The construction is expected to continue for approximately 1½ years and the plant is expected to be operational in the summer of 2004. The consolidated Company’s share in the project is 24%.

				On October 31, 2002 a protest was filed in the Tel-Aviv district court by one of the tender participants against the decision to award the tender to the group and was rejected. The matter is pending in the supreme court, together with a temporary restraining order preventing any additional agreements and work on the project until a decision is handed down by the court.

			j.	On November 4, 2002 a joint venture agreement was signed in equal parts between a consolidated Company and Hefer Ecologies Aguda Shitufit Agricultural Cooperative Ltd. to construct and operate a plant for treating agricultural and other residues in the Emek Hefer area. The agreement is for a period of 18 years and it’s estimated cost will be approximately NIS. 20 million. In accordance with the terms of the agreement, the consolidated company will provide capital and financing of up to NIS. 10 million to the partnership. As of the balance sheet date, another consolidated company has committed itself to providing guarantees amounting to approximately NIS. 6.5 million to a consortium of banks on behalf of a consolidated company. As of the balance sheet date, the consolidated company has recorded an investment of approximately NIS. 2.8 million.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 28 - Collateral, commitments and contingent liabilities (continued)

The consolidated companies have contingent liabilities as of the balance sheet date as follows:

NIS.(thousands)

1. Open letters of credit for purchase of equipment

2,043

2. Bank guarantees in respect of customers

and an affiliated company

42,932

3. Performance guarantees to customers and others

32,405

4. Guarantees to municipalities and tax authorities

11,871

5. Guarantees to banks for credit and other liabilities of

affiliated companies

2,031

6. Other guarantees

3,408

7. Guarantees given to a government agency on account of

the liabilities of a consolidated company regarding its

Unlimited

share in an oil and gas exploration agreement

Amount

8. Guarantee on account of the liabilities of a consolidated

Unlimited

company in regard to a tender

Amount

Credit Risks

The maximum credit risks of the Company regarding its financial assets do not exceed the book value of the financial assets less the existing collateral held by the Company.

The concentration of credit risks results from the consolidated company’s customers and long-term receivables (long-term loans granted) being of a similar character (independent fuel agencies). The highest balance is that of an agent whose current balance (included in trade receivables) and whose long-term balance (included in long-term loans) total approximately NIS. 36.2 million. A portion of amounts due from customers are collateralized as is customary in the industry. The financial statements include specific provisions for receivables, whose the collection in the opinion of the management, is questionable.

Currency Future Transactions

Currency futures

Currency

Date of

Amount

Contracts

Receivable

Payable

expiration

receivable

Payable

Fair value

NIS.thousands

Futures transaction

U.S.dollars

NIS.

(1)

3,647

3,522

125

Euro

NIS.

(2)

10,995

10,435

560

14,642

13,957

685

(1)

February 3, 2003 to April 2, 2003

(2)

January 7, 2003 to February 27, 2003

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 29 – Events in the fuel sector

		In accordance with the Law for Arrangements in the State Economy (2001) and the regulations thereto, changes have been enacted regarding the holding of Emergency stocks of fuel products. The new regulations established two categories of Emergency stocks: Security inventories and Civilian inventories (see note 2.C.1). The Security inventories are stored in separate tanks at specified locations and are designated to be used in case of an emergency. The Security stocks are therefore included in the financial statements as Non-current inventories. The government will continue to finance and guarantee the value of inventories defined as Security inventories.

			Regarding the Civilian inventories, fuel companies selling gasoil to the civilian market were required to hold gasoil stocks as determined by the Law for Arrangements in the State Economy (2001) and its regulations. These regulations were suspended following an interim order by the supreme court on August 26, 2002 canceling the requirement that the fuel companies hold Civilian inventories. As a result, in November and December 2002, Sonol sold its Civilian inventories. It continued holding Security inventories and Commercial inventories to meet its current needs. As a result of the above changes, the commercial inventories increased as did its exposure to fluctuations in the value of its inventories, due to fluctuations in the market prices of petroleum products. Price fluctuations of petroleum products may materially affect the periodic operating results of the Company. The Company is exploring ways to minimize those effects. It is not possible to predict the effects of these changes on the Company’s financial results.

NOTE 30 - Transactions and balances with interested and related parties

	a.			Income and expenses from interested and related parties.

				1.		Consist of:
							Year ended December 31,

							2002		2001		2000

							NIS. (thousands)

							Interested	Related	Interested	Related	Interested	Related
							parties	parties	Parties	Parties	parties	parties

					Financing income		-	943	-	862	-	1,128
					Income from
					management
					services		-	811	-	466	-	1,668
					Purchases of fuel
					products		347,715	-	408,717	-	454,035	-
					Services
					purchased		443	-	701	-	849	-

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 30 - Transactions and balances with interested and related parties (continued)

		a.	Income and expenses from interested and related parties (continued)

			2.	The decision as to the price at which purchases of fuel products are made from an interested party is determined by comparison to the price at the gate of the Oil Refineries Ltd. and the prices charged by other competing suppliers a that time. The price paid by Sonol at any given time was lower than any other alternative available. Credit terms were not less than those available from the Oil Refineries Ltd. or from any other supplier.

			3.	Other 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.

			4.	Sonol purchases most of its fuel products from Oil Refineries Ltd. which is obligated to supply its products to the fuel marketing companies at the refinery gate price which is under government control.

		b.	Benefits to interested parties

					Number Of Persons		Year ended December 31,

							2002		2001		2000

							NIS. (thousands)


1. Interested party employed
by the Company						1		3,699		3,232		3,391

2. Directors						13		1,064		1,093		1,028

3. Management services*								2,132		-		-

*	The Company has a commitment to pay $ 40,000 per month to an interested party for management services for a period of 36 months commencing on January 1, 2003. The expenses for management services are contingent upon the approval of the General Meeting of the Company.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 30 - Transactions and balances with interested and related parties (continued)

	c.	Balances with interested and related parties

	Year ended December 31,

	2002				2001

	NIS. (thousands)

	Interested		Related		Interested		Related
	Parties		Parties		Parties		Parties

Current assets:
Trade receivables		1,079		13,907		1,125		27,639
Other receivables		-		203		-		216

		1,079		14,110		1,125		27,855

Loans and capital notes
to subsidiary companies				20,740				10,079

The highest balance with
Interested parties during
the year		3,921				2,984

Current liabilities:
Trade payables		33,475		3,664		24,298		7,247
Other payables		-		5		-		539

		33,475		3,669		24,298		7,786

The highest balance with
Interested parties during
the year		47,909				46,699

Commitment to purchase
products from an interested
party		108,951				20,055


NOTE 31 - Subsequent events

	A.	On February 4, 2003 Granite-Sonol Oil and Gas Drilling Limited Partnership notified licence owners “Matan” and “Michal” in the Gal A and B exploration sites, that it will not participate in the drilling at “Tamar 1”. As a result, the Limited Partnership relinquished .its rights in the Gal A + B exploration sites. The Partnership’s investment in these exploration sites, was written off in the current year’s financial statements. (See notes 11,25 ).

	B.	In anticipation of the expiration of the chief executive officer’s employment contract with the Company on June 30, 2003, a contract which provided for an automatic extension in the absence of notification otherwise, by the parties to the agreement, the chief executive officer notified the chairman of the board of the company that he will end his term on the above date. His announcement to the chairman of the board was made for personal reasons. A new chief executive officer was appointed in his place.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 31 - Subsequent events (continued)

	C.	On January 21, 2003 the Pi-Gliloth Petroleum Terminals and Pipelines Ltd. (“Pi-Gliloth”) fuel dispensing installation, situated north of Tel-Aviv, was closed. The Company holds approximately 13.21% of the shares of Pi-Gliloth. The remaining installations of Pi-Gliloth throughout the country continue to operate as usual.

		On January 21, 2003 an agreement between Israel Lands Authority (“Lands Authority”) and Pi-Gliloth was approved.

		Following are the main terms of the agreement:

		(1)	The supplying of fuel products at the Pi-Gliloth installation will terminate upon the approval of the agreement by the Lands Authority, at which time, the agreement takes effect.

		(2)	Pi-Gliloth will absorb all the costs related to the cessation of the dispensing of fuel products.

		(3)	The leasing agreement for the land at the Gliloth site by Pi-Gliloth will remain in effect. The Lands Authority will initiate a plan for redesignating the land at the site (“Authority plan”). Pi-Gliloth will be entitled to use the newly designated land, subject to the conditions provided for under Ruling No. 933 of the Lands Authority which requires the lessee, using the land for a purpose other than that previously designated, to pay a permit fee.

		(4)	If as a result of a judiciary ruling the Lands Authority will be prevented from utilizing the newly designated land, or if the Authority plan is not approved by February 1, 2018, Pi-Gliloth will be entitled to a reimbursement of the costs related to vacating and relocating the installations to an alternate site. The reimbursement for the costs of vacating the site will be paid in full to Pi-Gliloth by the Lands Authority, no later than 15 years from the date of the agreement, and subject to the cancellation of the leasing agreement.

		(5)	If required, the Land Authority will absorb the land reclaiming costs.

		(6)	Pi-Gliloth will withdraw its alternate plan for redesignating the land (The Safdie plan) and will withdraw its objection to the plan presented by the Lands Authority.

	D.	Following an offering by Nitzba Hevra Le-Hitnahalut (“Nitsba Hitnahalut”) to sell the shares of Nitsba Hinahalut held by its owners, the company, on February 2, 2003, submitted an offer to purchase the shares. On March 5, 2003, Nitsba Hitnahalut notified the Company, without providing any reason, that it is terminating the negotiations with the Company and is continuing negotiations with another party. The Company is considering actions to be taken.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 31 - Subsequent events (continued)

	E.		On February 16, 2003, a filling station operator filed a counterclaim against Sonol and another oil company for NIS. 2.9 million, claiming restrictive and discriminatory provisions in a standard contract.

			The counterclaim was filed following a claim filed by Sonol for the eviction of the filling station operator due to non payment of his debts. The company has not yet submitted its defense and in unable, at this time, to estimate the counter claims prospects.

	F.		The Board of Directors of the company decided to propose the declaration of a dividend in the amount of NIS. 80 million at General Meeting of the Company which will take place on April 3, 2003. Assuming the proposal will be approved, the determination date will be April 4, 2003, the ex-dividend date April 6, 2003 and the dividend will be paid on April 15, 2003.

NOTE 32 – Financial statements translated into U.S. dollars

		The financial records of the Company and its consolidated companies are maintained on a current basis in historical nominal New Israel Shekels and U.S. dollars.

		The translated consolidated financial statements, stated in U.S. dollars, have been prepared in accordance with generally accepted accounting principles 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. The consolidated financial statements in U.S. dollars are prepared 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.

		The financial statements of subsidiaries, whose functional currency is NIS., were translated into U.S. dollars according to the exchange rate in effect on the balance sheet date. Differences arising from the Company’s investment in its subsidiaries based on the U.S. dollars, and the Company’s share in the equity of these subsidiaries, translated to U.S. dollars at the current exchange rate, are included in “Accumulated foreign currency translation adjustments” in shareholders’ equity. Exchange rate differences arising from loans taken in NIS. for the financing of investments in subsidiaries, have also been included in that component of shareholders’ equity.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 32 – Financial statements translated into U.S. dollars (continued)

CONSOLIDATED BALANCE SHEETS
(In thousands)


	Translated to U.S. Dollars

	December 31,

	2002		2001

Current assets
Cash and cash equivalents		7,103		7,717
Marketable securities		3,716		6,070
Trade receivables, net		222,744		194,229	*
Other receivables and current assets		26,973		23,769	*
Receivables on account of projects
in progress		3,672		4,213
Inventories		46,055		58,620

		310,263		294,618


Non-current inventories		25,344		28,578

Investments, long-term loans and
receivables
Affiliated companies
and others		32,804		40,377
Long-term loans		27,521		27,750
Deferred taxes, net		3,627		3,259

		63,952		71,386


Fixed assets net of accumulated
Depreciation		246,240		253,309

Intangible assets and deferred
charges, net		30,040		27,406

		675,839		675,297

*Reclassified

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 32 – Financial statements translated into U.S. dollars (continued)

CONSOLIDATED BALANCE SHEETS
(In thousands)


	Translated to U.S. Dollars

	December 31,

	2002		2001

Current liabilities
Credit from banks and others		242,237		281,311
Current portion of convertible
Debentures		-		3,047
Trade payables		42,532		36,390
Other payables		38,464		41,512

		323,233		362,260


Long-term liabilities
Long-term loans		198,762		150,571
Customers’ deposits		13,136		13,936
Liabilities for employee rights upon
retirement, net		6,210		6,892
Deferred taxes		14,614		16,161
Capital notes issued by a consolidated
company		45		191

		232,767		187,751


Minority interest		1,740		2,938


Shareholders’ equity		118,099		122,348


		675,839		675,297

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 32 – Financial statements translated into U.S. dollars (continued)

CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)

	Translated to U.S. Dollars

	Year ended December 31,

	2002			2001			2000


Sales		902,737			906,300	*		980,292	*
Less: Government imposts		291,354			301,286			313,010


Net sales		611,383			605,014			667,282
Cost of sales		450,659			461,856	*		537,696	*

Gross profit		160,724			143,158			129,586


Selling, general and
administrative expenses		103,722			88,816	*		79,941	*
Depreciation and amortization		20,432			18,653			19,115

		124,154			107,469			99,056


Income from operations		36,570			35,689			30,530


Financing expenses, net		(19,892	)		(9,074	)*		(20,883	)*
Other (expenses) income, net		(9,844	)		2,011			13,383

		(29,736	)		(7,063	)		(7,500	)


Income before income taxes
and other items		6,834			28,626			23,030
Income tax expense		6,453			6,506			9,791


Income before other items		381			22,120			13,239

(Losses) Income of affiliates, net		(995	)		2,687			2,375

Minority interest in consolidated
subsidiaries, net		(545	)		(476	)		(605	)


Net (loss) income		(1,159	)		24,331			15,009


Earnings per ordinary share
(in U.S. dollars):

Basic and diluted		(0.01	)		0.18			0.11

*Reclassified

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 32 – Financial statements translated into U.S. dollars (continued)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)

Translated to U.S. Dollars

	Common Stock		Capital reserves		Company’s Shares held by a consolidated company			Retained earnings			Accumulated other comprehensive income*			Cumulative foreign currency translation adjustment			Total


Balance as at January 1, 2000		59,599		64,328		(141	)		(13,436	)		585			-			110,935
Changes in 2000:
Net income for the year									15,009						-			15,009
Acquisition of the Company’s
shares held by a consolidated
company		-		-		(669	)		-			-			-			(669	)
Conversion of debentures to
share		97		714		-			-			-			-			811
Reclassification adjustment for
gains included in net income		-		-		-			-			280						280


Balance as at December 31, 2000		59,696		65,042		(810	)		1,573			865			-			126,366
Changes in 2001:
Net income for the year		-		-		-			24,331			-			-			24,331
Divided paid		-		-		-			(27,934	)		-			-			(27,934	)
Acquisition of the Company’s
shares held by a consolidated
company		-		-		(62	)		-			-			-			(62	)
Reclassification adjustment for
gains included in net income		-		-		-			-			(353	)		-			(353	)


Balance as December 31, 2001		59,696		65,042		(872	)		(2,030	)		512			-			122,348
Changes in 2002:
Net loss for the year		-		-		-			(1,159	)		-			-			(1,159	)
Acquisition of the Company’s
shares held by a consolidated
company		-		-		(1,234	)		-			-			-			(1,234	)
Unrealized losses on securities		-		-		-			-			(1,198	)		-			(1,198	)
Foreign currency translation
adjustment		-		-		-			-			-			(235	)		(235	)
Reclassification adjustment for
gains included in net income		-		-		-			-			(423	)		-			(423	)


Balance as December 31, 2002		59,696		65,042		(2,106	)		(3,189	)		(1,109	)		(235	)		118,099

* Deriving from unrealized gains (losses) on marketable securities, net of tax effect.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 32 – Financial statements translated Into U.S. dollars (continued)

The material differences between Israeli GAAP and U.S. GAAP as applicable to the financial statements are:

a)	Deferred taxes in respect of differences in measuring non-monetary items:
	Deferred taxes in respect of differences in the measuring of non-monetary items (mainly fixed assets and inventories) for accounting purposes (U.S. dollar) and for tax purposes (Adjusted NIS).

	In accordance with Israeli GAAP:
	Companies record deferred taxes in respect of all such differences.

	In accordance with U.S. GAAP:
	According to paragraph 9(f) of FAS No. 109, deferred taxes should not be provided in respect of such differences.

b)	Marketable securities

	In accordance with Israeli GAAP:
	Israeli GAAP divides marketable securities into two categories:
	Marketable securities that constitute a “current investment” are stated at market value.
	Marketable securities, that constitute a “permanent investment” are stated at cost (and in respect to debentures – include accumulated interest), except where their market value is lower, and the decline in value is not considered to be temporary. Changes in value are charged to the statement of income. See also note 2F above.

	In accordance with U.S. GAAP:

	FAS No. 115 divides marketable securities into three categories:

	(1)	Marketable securities that are acquired and held principally for the purpose of selling them in the near future, are classified as “trading securities” and are reported at their fair value. Unrealized gains and losses are included in the statement of income.

	(2)	Debt securities that the company intends hold to maturity are classified as “held-to-maturity” securities are reported at their amortized cost.

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 32 – Financial statements translated Into U.S. dollars (continued)

	(3)	Marketable securities, not classified as either “held-to-maturity” securities or “trading securities”, are classified as “available-for-sale” securities and are reported at their fair value. Unrealized gains and losses are included in a separate item within the shareholders equity, and reported as other comprehensive income.

c)	Amortization of goodwill

	In accordance with Israeli GAAP:

	Under Israeli GAAP goodwill is amortized over the estimated benefit period, but usually no longer than 10 years.

	In accordance with U.S. GAAP:

	Under US GAAP, commencing January 1, 2002, goodwill is no longer amortized but is reviewed annually (or more frequently if impairment indicators arise) for impairment.

	Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

	In connection with SFAS No. 142’s transitional goodwill impairment evaluation, the Statement required the Company to perform an assessment of whether there was an indication that goodwill is impaired as of the date of adoption. The implied fair value of this reporting unit exceeded its carrying amount and the Company was not required to recognize an impairment loss.

	Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over the expected periods to be benefited, generally 10 years, and assessed for recoverability by determining whether the amortization of the goodwill balance over its remaining life could be recovered through undiscounted future operating cash flows of the acquired operation.

d)	Other disclosures

	Government imposts – consist of excise taxes imposed on fuel products mainly gasoline and gasoil

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

List of the main subsidiaries and affiliates

	Holdings and Control as of December 31,2002 %

Consolidated Subsidiaries:
Sonol Israel Ltd.		100
Sprint Motors Ltd.		100
Sprint Motors Transport (1999) Ltd.		100
Milchen Sonol Agency Ltd.		66	.67
Sonol J-M Ltd.		70
Sonol Dan (1992) Ltd.		100
Sonol Darom Ltd.		100
Sonol Cnaan Ltd		51
Sonol Shani Agencies Ltd.		51
Sonor Ltd.		100
After Holdings Ltd.		100
Granita Holdings Ltd.		51
Granite-Sonol Oil and Gas Drilling-Limited Partnership		100
Tambour Ltd.		100
Tambour Ecology Ltd.		100
Tambourechev 1997 Ltd.		100
Safety Kleen (Israel) Ltd.		77
Tzach Serafon Ltd.		100
Serafon Trading 1997 Ltd.		100
Tambour Distribution Ltd.		100
Texma Chemicals Ltd.		100
Supergas Israel Gas Distribution Company Ltd.		100
Supergas Hanegev Ltd.		65
Supergas Rehovot (1989) Ltd.		100
M. Solomon & Co. Gas Agencies Ashkelon Ltd.		51
Supergas Hagalil Ltd.		100
Rav Gas Ltd.		55
Allied Oils and Chemicals Ltd.		100
Granite Hacarmel Holdings (1993) Ltd.		100
Granite Hacarmel Properties (1993) Ltd.		100
Granite Hacarmel Development Holdings Ltd		100
Granite Hacarmel Industries Ltd.		100
Granite Hacarmel Y.A. Holdings Ltd.		100
Granite Hacarmel NZV Holdings Ltd.		100
Granite Hacarmel Energy (1997) Ltd.		100
Granite Hacarmel Tourism Ltd.		100
Otzem Promotion and Investments (1991) Ltd.		100

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

List of the main subsidiaries and affiliates (cont.)

	Holdings and Control as of December 31, 2002 %


Affiliated Companies (accounted for by the equity method):

Kleesson Holdings (1999) Ltd.		50
International Ilios Cotachem S.A.		43
Derech Hayam Desalination – Joint Venture		24
Derech Hayam Ltd.		26	.5
Tambour – Hefer Ecolgy – Partnership		50
Yarok Az Ltd.		22	.9
Nitzba Holdings 1995 Ltd.		9	.82
Orpak Industries (1983)Ltd.		10	.1
Park Mini Israel – Limited Partnership		35
L.D.I.-Leasing Dynamics International Ltd.		25	.1
Green Anchors Ltd.		50




The above list does not include inactive and/or
immaterial affiliated companies and others

New York		13-0435685
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

555 Madison Avenue, New York, New York		10022
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 593-9842.
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Class A Stock, par value $1.00 per share
4% Cumulative Convertible Preferred Stock, par value $5.00 per share
6 1/2% Cumulative Convertible Preferred Stock, par value $5.00 per share
(Titles of Classes)

Industry Segment	Principal Business	Percentage as of December 31, 2002⁽¹⁾

Telecommunication
MIRS Communications Ltd.	Wireless Communications Service Provider	25.0
Energy
Granite Hacarmel Investments Ltd. (TASE)	Distribution of Refined Petroleum Products	20.4
High-Technology
Babylon Ltd.	Translation Software for the Internet	1.6
BridgeWave Communications, Inc.	Broadband Wireless Technology	6.0
Camelot Information Technologies Ltd.	Systems-Safeguarding Software	N/A
Clalcom Ltd.	Communications	0.7
Courses Investment in Technology Ltd.	Venture Capital Fund	3.2	⁽³⁾
CUTe Ltd.	Designs Intellectual Property Rights	20.0
ElephantX dot com LLC.	Software for E-Trading	0.5
Enbaya Ltd.	3D Browser/Publisher	N/A
Identify Solutions Ltd.	Defect-Detecting Software	6.5
Modem Art Ltd.	Fabless Semiconductor Company	5.2
mPrest Technologies Ltd.	Web-Based Applications for Cellular Phones	9.5
Netformx Ltd.	Network Design Tools	19.6	⁽²⁾
Oblicore Ltd.	Service Performance Tracking Software	13.9
Ophir Holdings Ltd. (“Ophir”)	Holding Company	42.5
Ophirtech Ltd. (“Ophirtech”)	Holding Company	42.5
Carmel Bio-Sensors Ltd.	Glucose-measuring products	N/A
Celvibe Ltd.	Digital Video Technologies	5.4	⁽²⁾
Cerel Ceramic Technologies Ltd.	Electrophoretic Deposition	6.1	⁽²⁾
Cipheractive Ltd.	Video Coding Technology	2.8	⁽²⁾
Elpas Ltd.	Products Using Infra-Red Based Data Communication Technologies	5.0	⁽²⁾
Expand Networks Ltd.	Internet Data Compression	4.7	⁽²⁾
Indocs Online Ltd.	E-Commerce Software	5.0	⁽²⁾
Interlink Computer Communications Ltd.	Web-Based Application Integration Software	N/A
iRadius.com, Inc.	Family-Friendly E-Commerce Platforms	N/A
Mainsoft Corporation	UNIX Tools	0.8	⁽²⁾
Pelican Security Ltd.	Internet Data Protection Software	6.7	⁽²⁾
Praxell, Inc.	Prepaid Charge Card Software	3.5	⁽²⁾
Romidot Ltd.	Optical Checking Instruments	N/A
StoreAge Networking Technologies Ltd.	Data Storage Software	4.6	⁽²⁾
Techimage Ltd.	Computer Animation Software	N/A
Viola Networks	Computer Network Software	6.8	⁽²⁾
Peptor Ltd.	Pharmaceutical Products	0.5
PowerDsine Ltd.	Telecommunications Components	8.1
Qronus Interactive Israel (1994) Ltd.	Software Quality Products	9.5
ShellCase Ltd. (CDNX:SSD)	Packaging Process for Semiconductor Chips	14.0
Shiron Satellite Communications (1996) Ltd.	Satellite Modems and Fast Internet Access	9.8
Smart Link Ltd.	Software-Based Communications Products	13.6
Star Management of Investments No. II (2000) L.P.	Venture Capital Fund	10.0

Industry Segment	Principal Business	Percentage as of December 31, 2002⁽¹⁾

High-Technology and Communications - Continued
Trinet Venture Capital Ltd.	Venture Capital Fund	50.0
VisionCare Ophthalmic Technologies Ltd.	Advanced Optical Products	2.5
XACCT Technologies Ltd.	TCP/IP Network Software	16.9
Xpert Integrated Systems Ltd.	Software and Systems Integrator Specializing in Systems Security	12.7
Real Estate
Am-Hal Ltd.	Chain of Senior Citizen Facilities	100.0
Ampal Development (Israel) Ltd.	Holding Company	100.0
Ampal (Israel) Ltd.	Holding Company and Real Estate	100.0
Bay Heart Limited	Shopping Mall Owner/Lessor	37.0
Etz Vanir Ltd. and Yakhin Mataim Ltd.	Citrus Groves		⁽⁴⁾
Nir Ltd.	Commercial Real Estate	99.9
Ophir Holdings Ltd. (“Ophir Holdings”)	Holding Company	42.5
Industrial Buildings Corporation Ltd. (TASE)	Industrial Real Estate	5.0	⁽³⁾
Lysh The Coastal High-way Ltd.	Commercial Real Estate	10.6	⁽³⁾
Meimadim Investments Ltd.	Commercial Real Estate	4.2	⁽³⁾
New Horizons (1993) Ltd.	Commercial Real Estate	34.0	⁽³⁾
Shmey-Bar Group	Commercial Real Estate	9.4	⁽³⁾
Leisure-Time
Coral World International Limited	Underwater Observatories and Marine Parks	50.0
Country Club Kfar Saba Limited	Country Club Facility	51.0
Hod Hasharon Sport Center (1992) Limited Partnership	Country Club Facility	50.0
Capital Markets and Other Holdings
Ampal Industries (Israel) Ltd.	Holding Company	100.0
Alvarion (Nasdaq:ALVR)	Wireless Local Area Network	1.5
Arel Communications and Software Ltd. (Nasdaq:ARLC)	Interactive Distance Learning Systems	3.0
Blue Square-Israel Ltd. (NYSE:BSI and TASE)	Supermarket Chain	3.9
Carmel Container Systems Limited (AMEX:KML)	Packaging Materials and Carton Production	21.8
Compugen Ltd. (Nasdaq:CGEN)	Bioinformatics	1.4
Epsilon Investment House Ltd. and
Renaissance Investment Company Ltd.	Portfolio Management and Underwriting Services	20.0

	Carmel Bio-Sensors Ltd.	N/A
	Celvibe Ltd.	12.8
	Cerel Ltd	14.2
	Cipheractive Ltd.	6.6
	Elpas Ltd.	11.8
	Expand Networks Ltd.	11.2
	Indocs Online Ltd.	11.9
	Interlink Computer Communications Ltd.	N/A
	iRadius.com, Inc.	N/A
	Mainsoft Corporation Ltd.	1.9
	Netformx Ltd.	5.5
	Pelican Security Ltd.	15.7
	Praxell, Inc.	8.2
	Romidot Ltd.	N/A
	StoreAge Networking Technologies Ltd.	10.9
	Techimage Ltd.	N/A
	Viola Networks	16.0

	Courses Investment in Technology Ltd.	3.5
	Industrial Buildings Corporation Ltd.	11.7
	Lysh The Coastal High-way Ltd.	25.0
	Meimadim Investments Ltd.	10.0
	New Horizons (1993) Ltd.	80.0
	Shmey-Bar (I.A.) 1993, Ltd., Shmey-Bar (T.H.) 1993 Ltd. and Shmey-Bar Real Estate (1993) Ltd.	22.2

Year Ended Dec. 31	Israel Annual Inflation Rate⁽¹⁾	Closing Exchange Rate⁽²⁾	Annual Devaluation⁽³⁾		U.S. Annual Inflation Rate⁽⁴⁾

1994	14.5	3.018	1.1		2.6
1995	8.1	3.135	3.9		2.8
1996	10.6	3.251	3.7		3.3
1997	7.0	3.536	8.8		1.7
1998	8.6	4.160	17.6		1.6
1999	1.3	4.153	(0.2	)	2.7
2000	0.0	4.041	(2.7	)	3.4
2001	1.4	4.416	9.3		1.6
2002	6.5	4.737	7.3		2.0

⁽¹⁾	“Israel Annual Inflation Rate” is the percentage increase in the Israeli Consumer Price Index 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⁾	“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.

	High	Low

2002:
Fourth Quarter	$ 2.94	$ 1.77
Third Quarter	3.63	2.69
Second Quarter	4.40	3.49
First Quarter	5.70	4.18
2001:
Fourth Quarter	6.42	3.51
Third Quarter	6.19	3.82
Second Quarter	6.90	4.12
First Quarter	8.62	4.75

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total

	(Dollars in thousands, except per share data)

Year Ended December 31, 2002
Revenues⁽¹⁾	$ 5,532		$ 5,235		$ 4,905		$ 1,060		$ 16,732
Net interest expense	(2,188	)	(1,376	)	(1,735	)	(2,392	)	(7,691	)
Net (loss)	(6,175	)	(9,158	)	(11,439	)	(17,275	)	(44,047	)
Basic EPS:
(Loss) per Class A share⁽²⁾	(0.32	)	(0.47	)	(0.58	)	(0.9	)	(2.27	)
Diluted EPS:
(Loss) per Class A share	(0.32	)	(0.47	)	(0.58	)	(0.9	)	(2.27	)
Year Ended December 31, 2001
Revenues⁽¹⁾	$ 12,711		$ 7,426		$ 3,760		$ 5,165		$ 29,062
Net interest expense	(3,983	)	(2,763	)	(1,930	)	(2,025	)	(10,701	)
Net income (loss)	$ 360		$ (3,811	)	$ (3,067	)	$ (456	)	$ (6,974	)
Basic EPS:
Earnings (loss) per Class A share⁽²⁾	$ 0.01		$ (0.20	)	$ (0.16	)	$ (0.03	)	$ (0.38	)
Diluted EPS:
Earnings (loss) per Class A share	$ 0.01		$ (0.20	)	$ (0.16	)	$ (0.03	)	$ (0.38	)

	•	$4.0 million guarantee to Leumi with respect to the MIRS loan as described above ($3.5 million guarantee will expire on March 31, 2003).

	•	$5.7 million guarantee on indebtedness incurred by Bay Heart ($3.5 million of which was recorded as a loss in the Company’s financial statements at December 31, 2002) in connection with the development of its property. Bay Heart recorded increased losses in 2002 as a result of decreased rental revenues. There can be no guarantee that Bay Heart will become profitable or that it will generate sufficient cash to repay its outstanding indebtedness without relying on the Company’s guarantee.

	•	$4.8 million guarantee to Am- Hal tenants as described above.

	•	$0.8 million guarantee to Galha 1960 Ltd as described in Item 3 of this Report.

	Assets As At

	December 31, 2002	December 31, 2001

	(Dollars in thousands)

Cash and cash equivalents	$ 1,557	$ 7,973
Deposits, notes and loans receivable (Note 3)	10,962	17,172
Investments (Notes 2, 4 and 12)	215,094	260,175
Real estate property, less accumulated depreciation of $9,166 and $7,500	65,598	66,643
Other assets	30,488	31,870

TOTAL ASSETS	$ 323,699	$ 383,833

	Liabilities and Shareholders’ Equity As At

	December 31, 2002		December 31, 2001

	(Dollars in thousands)

LIABILITIES
Notes and loans payable (Note 5)	$ 114,257		$ 122,805
Debentures (Note 6)	22,546		23,096
Accounts payable, accrued expenses and others (Note 7)	86,718		86,712

Total liabilities	223,521		232,613

Commitments and Contingencies (note 16)

SHAREHOLDERS’ EQUITY (Note 8)

4% Cumulative Convertible Preferred Stock, $5 par value; authorized 189,287 shares; issued 139,391 and 146,226 shares; outstanding 136,041 and 142,876 Shares	697		731
6-1/2% Cumulative Convertible Preferred Stock, $5 par value; authorized 988,055 shares; issued 706,450 and 726,680 shares; outstanding 583,914 and 604,144 shares	3,532		3,633
Class A Stock $1 par value; authorized 60,000,000 shares; issued 25,502,805 and 25,407,940 shares; outstanding 19,671,141 and 19,247,276 shares	25,503		25,408
Additional paid-in capital	58,125		58,253
Retained earnings	67,475		111,740
Treasury stock, at cost	(31,096	)	(33,238	)
Accumulated other comprehensive loss	(24,058	)	(15,307	)

Total shareholders’ equity	100,178		151,220

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 323,699		$ 383,833

	(1)	Ampal is a New York corporation founded in 1942. The Company primarily acquires interests in businesses located in the State of Israel or that are Israel-related.

	(2)	As used in these financial statements, the term the “Company” refers to Ampal-American Israel Corporation (“Ampal”) and its consolidated subsidiaries. As to segment information see note 14.

	(3)	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.

(a)	In 2002, the Company made investments aggregating $3 million, as follows:

		1.	An additional investment of $1.3 million in Shellcase, a developer of chip – size packing technology for semiconductors using wafer – level process. The company holds an approximate 14% equity interest in Shellcase.

		2.	An additional investment of $0.7 million in PowerDsine Ltd. (total equity interest of 8.1%), a leading developer of power supply devices for the telecommunications industry.

		3.	A loan to CUTe Ltd of $0.2 million (total equity interest of 20%),a developer of bandwidth efficient techniques for the delivery of digital media over wireless networks.

		4.	A loan to Camelot Information Technologies Ltd. of $0.5 million, a developer of security solution for organizations.

		5.	An additional investment of $0.3 million in other investees.

(b)	On December 2002, the Company recorded a $0.7 million pretax gain on the sale of real estate rental property.

(c)	In 2002, the Company recorded loss from impairment of investments of $15.1 million as follows:

		1.	Bridgewave Communication Inc. ($2.8 million investment).
		2.	Shiron Satellite Communication (1996) Ltd. ($0.4 million investment).
		3.	Enbaya Ltd. ($0.5 million investment).
		4.	Modem Art Ltd. ($1.0 million investment).
		5.	Oblicore Ltd. ($2.2 million investment).
		6.	Star Management of Investment ($0.6 million investment).
		7.	VisionCare Ophthalmic Technologies Ltd. ($0.3 million investment).
		8.	Shellcase Ltd. ($2.3 million investment).
		9.	Carmel Container Systems Limited ($0.9 million investment).
		10.	Bay Heart Limited ($2 million investment and $0.9 million loan).
		11.	Netformx Ltd. ($0.5 million loan).
		12.	Camelot Information Technologies Ltd. ($0.5 million loan).
		13.	$0.2 million in other investment.

(d)	In 2001, the Company made investments aggregating $14 million, as follows:

		1.	An additional investment of $5 million in XACCT, a provider of business infrastructure software for the next-generation public network. The Company holds an approximate 16.9% equity interest in XACCT.

		2.	An additional investment of $1.5 million (including $0.4 million conversion of loans) in Enbaya Ltd., a developer of a 3-D browser that enables fast viewing, compression and steaming of 3-D models, and increased its equity interest in the company from 12.9% to 19.1%.

		3.	An additional investment of $1.7 million (includes the conversion of a $0.5 million loan) in Shellcase Ltd. (“shellcase”)(CDNX: SSD), a developer of chip-size packaging technology for semiconductors using a wafer-level process. The Company holds an approximate 13.2% equity interest in Shellcase.

		4.	An additional investments of an aggregrate of $0.9 million in CUTe Ltd. (“CUTe”), a developer of bandwidth efficient techniques for the delivery of digital media over wireless networks. The Company holds an approximate 20% equity interest in CUTe.

		5.	An additional investment of $0.6 million in the share of Breezecom Ltd. (NASDAQ: “BRZE”), a developer of wireless local area network products, and $0.6 million in the share of Floware Wireless Systems Ltd. (NASDAQ:“FLRE”), a developer of broadband wireless transmission solution. These two companies merged during 2001 to create a company called Alvarion (NASDAQ: ALVR).

		6.	An additional investment of $0.6 million in Star Management of Investment No. II (2000) L.P., a venture capital fund which focuses in investment in communications, Internet, software and medical devices. (total equity interest of 10%).

		7.	An additional investment of $0.5 million in PowerDsine Ltd. (total equity interest of 8.4%), a leading developer of power supply devices for the telecommunications industry.

		8.	A loan to Netformx Ltd. of $1.5 million, (net equity interest of 20%) a developer of network design tools.

		9.	A loan to Camelot Information Technologies Ltd., of $0.5 million (total equity interest of 20%), a developer of security solution for organizations.

		10.	A loan to Shiron Satellite Communications (1996) Ltd. of $0.3 million, (equity interest 10%), a developer and marketer of two-way satellite communication products.

(e)		1.	On March 2001, the Company sold its interest in an office building located at 800 Second Avenue, New York, New York, to Second 800 LLC, for $33 million and recorded a pre tax gain of approximately $8 million.

		2.	On May 2001, the Company sold its interest in an office building in Bnei Brak for $3.1 million and recorded a pre tax gain of $2.1 million.

		3.	On December 2001 the Company sold its interest in the Amethyst fund in Korea for $0.9 million and recorded a pre tax loss of $0.2 million.

			During 2001, the Company received $0.4 million as management fees from Amethyset and reimbursed Cavallo Capital (a related party) for $0.1 million of expenses.

(f)	In 2001, the Company recorded loss from impairment of investments of $13 million as follows:

		1.	Netformx Ltd. ($1.6 million investment and $1 million loan).

		2.	RealM Technologies Ltd. ($1.3 million).

		3.	mPrest Technologies Ltd. ($0.8 million).

	Year Ended December 31,

	2002		2001		2000

	(Dollars in thousands)

Cash flows from operating activities
Net (loss) income	$ (44,047	)	$ (6,974	)	$ 813
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Equity in losses (earnings) of affiliates	3,334		2,174		(11,876	)
Realized and unrealized losses (gains) on investments	20,394		1,722		(7,795	)
Gain on sale of real estate rental property	(663	)	(10,038	)	—
Depreciation expense	2,014		2,293		2,208
Amortization expense	22		252		823
Impairment of investments	15,078		12,988		7,595
Minority interests	866		(226	)	(1,127	)
Translation (gain) loss	(1,577	)	(2,127	)	1,257
(Increase) decrease in other assets	1,174		(7,796	)	(4,331	)
Increase in accounts payable, accrued expenses and other	5,043		5,601		9,619
Investments made in trading securities	(5,476	)	(409	)	(23,341	)
Proceeds from sale of trading securities	6,475		9,289		42,759
Dividends received from affiliates	688		27,128		6,784

Net cash provided by operating activities	3,325		33,877		23,388

Cash flows from investing activities:
Deposits, notes and loans receivable collected	3,380		2,744		8,896
Deposits, notes and loans receivable granted	(1,472	)	(7,977	)	(2,089	)
Investments made in:
Available-for-sale securities	—		(1,257	)	(2,127	)
Affiliates and others	(2,221	)	(10,089	)	(42,136	)
Proceeds from sale of investments:
Available-for-sale securities	—		3,054		—
Others	—		1,047		2,149
Return of capital by partnership	209		120		722
Capital improvements	(1,406	)	(2,180	)	(16,762	)
Proceeds from sale of real estate property, net	818		34,906		—

Net cash (used in) provided by investing activities	(692	)	20,368		(51,347	)

	Year Ended December 31,

	2002		2001		2000

	(Dollars in thousands)

Cash flows from financing activities:
Notes and loans payable received:
Related parties	$ —		$ —		$ 25
Others	5,605		11,779		58,879
Notes and loans payable repaid:
Related parties	—		(5,190	)	(3,143	)
Others	(12,378	)	(57,571	)	(23,983	)
Proceeds from exercise of stock options	1,973		—		759
Debentures repaid	(2,232	)	(1,894	)	(6,402	)
Contribution to partnership by minority interests	—		1,295		—
Issuance of shares to related parties and others	—		—		10
Dividends paid on preferred stock	(218	)	(227	)	(234	)

Net cash (used in) provided by financing activities	(7,250	)	(51,808	)	25,911

Effect of exchange rate changes on cash and cash equivalents	(1,799	)	(306	)	481

Net (decrease) increase in cash and cash equivalents	(6,416	)	2,131		(1,567	)
Cash and cash equivalents at beginning of year	7,973		5,842		7,409

Cash and cash equivalents at end of year	$ 1,557		$ 7,973		$ 5,842

Supplemental Disclosure of Cash Flow Information
Cash paid during the year:
Interest:
Related parties	$ —		$ 173		$ 25
Others	6,596		7,763		6,502

Total interest paid	$ 6,596		$ 7,936		$ 6,527

Income taxes paid	$ 402		$ 5,514		$ 382

Supplemental Disclosure of None cash Investing and
Financing Activities:

	Year Ended December 31,

	2002		2001		2000

	(Dollars in thousands, except share amounts per share data)

TREASURY STOCK
4% PREFERRED STOCK
Balance, beginning and end of year	$ (84	)	$ (84	)	$ (84	)

6-1/2% PREFERRED STOCK
Balance, beginning and end of year	$ (1,853	)	$ (1,853	)	$ (1,853	)

CLASS A STOCK
Balance, beginning of year – 6,160,664, 6,168,164 and 6,528,181 shares, at cost	$ (31,301	)	$ (31,338	)	$ (33,615	)
Issuance of 329,000, 7,500 and 360,017 shares	2,142		37		2,277
Balance, end of year – 5,831,664, 6,160,664, and 6,168,164 shares, at cost	(29,159	)	(31,301	)	(31,338	)

Balance, end of year	$ (31,096	)	$ (33,238	)	$ (33,275	)

ACCUMULATED OTHER COMPREHENSIVE LOSS
Cumulative translation adjustments:
Balance, beginning of year	$ (20,163	)	$ (17,217	)	$ (17,676	)
Foreign currency translation adjustments	(587	)	(2,946	)	459

Balance, end of year	(20,750	)	(20,163	)	(17,217	)

Unrealized gain (loss) on marketable securities:
Balance, beginning of year	4,856		7,945		3,699
Unrealized (loss) gain, net	(7,463	)	(603	)	4,246
Sale of available-for-sale securities	(701	)	(2,486	)	—

Balance, end of year	(3,308	)	4,856		7,945

Balance, end of year	$ (24,058	)	$ (15,307	)	$ (9,272	)

	Cost	Unrealized (Losses)		Market Value

	(Dollars in thousands)

December 31, 2002
Bonds	$ 1,278	$ (1	)	$ 1,277
Equity Securities	14,161	(10,205	)	3,956

Total Trading Securities	$ 15,439	$ (10,206	)	$ 5,233

December 31, 2001
Bonds	$ 10	$ —		$ 10
Equity Securities	17,311	(7,398	)	9,913

Total Trading Securities	$ 17,321	$ (7,398	)	$ 9,923

		4.	Shiron Satellite Communications (1996) Ltd. ($1.4 million).

		5.	Enbaya Ltd. ($1.4 million).

		6.	Camelot Information Technologies Ltd. ($4.5 million investment and $0.5 million of loan).

		7.	Babylon Ltd. ($0.3 million).

		8.	ElephantX Dot Com LLC ($0.2 million).

(g)	In 2000, the Company made the following investments, aggregating $37 million:

		1.	a $6.2 million investment to acquire a 4.9% interest in Arel Communications and Software Ltd., a leading provider of interactive distance learning systems;

		2.	an additional $3.3 million investment in Camelot Information Technologies Ltd. (“Camelot”) (total equity interest is 20.7%, including net indirect equity through Ophirtech Ltd. (“Ophirtech”)), a developer of innovative software solutions to secure organizational communication networks;

		3.	a $2.8 million investment to acquire a 4% interest in BridgeWave Communications Inc., a developer of wireless solutions for cable companies;

		4.	an additional $2.75 million investment in Netformx Ltd. (“Netformx”) (net equity interest is 20.2%, including net indirect equity through Trinet Venture Capital Ltd. (“Trinet”) and Ophirtech), a developer of network design tools;

		5.	a $2.75 million investment to acquire a 16.6% interest in Xpert Integrated Systems Ltd., a software and systems integrator specializing in systems security;

		6.	an additional $2.2 million investment in Identify Solutions Ltd. (“Identify”) (total equity interest is 6.1%), a developer and marketer of software solutions that improve the availability of business critical software applications;

		7.	a $2.2 million investment to acquire a 17% interest in Oblicore Ltd., a provider of a unique solution that enables businesses to track service performance relative to service targets and allocate service resources to maximize their success;

		8.	a $2 million investment to acquire a 0.4% interest in Sonic Foundry Inc., a developer of digital media and Internet software tools, services and systems;

		9.	an additional $1.8 million investment in PowerDsine Ltd. (“PowerDsine”) (total equity interest-10.8%), a leading developer of power supply devices for the telecommunications industry;

		10.	a $1.65 million investment to acquire a 7.6% interest in Modem Art Ltd., a developer of system-on-a-chip solutions for wideband and broadband communication systems;

		11.	a $1.25 million investment to acquire a 13% interest in RealM Technologies Ltd. (total equity interest-19.2%, including net indirect equity through Ophirtech), a developer of a network of servers, which will allow the introduction of the next generation of applicable services, while maximizing performance and optimizing bandwidth usage;

		12.	a $1.25 million investment in Star Management of Investments No. II (2000) L.P., a venture capital fund which focuses on investments in communications, Internet, software and medical devices;

		13.	an additional $1.1 million investment in Compugen Ltd. (total equity interest-1.5%), a pioneer in the field of computational genomics and proteomics;

		14.	a $1.1 million investment to acquire a 20% interest in Ampal Cavallo Intervest Fund, a new Korean venture capital fund.

		15.	a $1 million investment to acquire a 0.5% interest in SeraNova, Inc., a provider of E-business services;

		16.	a $0.9 million investment to acquire a 20% interest in CUTe Ltd., a designer of intellectual property rights and software modules on key components of the physical layer of wireless telecommunications systems;

		17.	a $0.75 million investment to acquire a 9.5% equity interest in mPrest Technologies Ltd. (formerly WapDWap Ltd), a developer of web-based applications for cellular phones;

		18.	an additional $0.6 million investment to maintain its interest in Shiron Satellite Communications (1996) Ltd. (total equity interest-9%), a developer and marketer of two-way multimedia satellite communication products;

		19.	a $0.5 million investment to acquire a 12.9% interest in Enbaya Ltd., a developer and marketer of a 3D browser that enables fast viewing, compression and streaming of 3D models;

		20.	a $0.5 million investment to acquire a 5.6% interest in Zactus, Inc., a developer of a web site for musicians;

		21.	an additional $0.4 million investment in Shellcase Ltd., (total equity interest - - 17.6%), a developer of the smallest packages for semiconductor chips.

(h)	In 2000, the Company recorded an $11.1 million loss from impairment of investments attributable to the $3.5 million bank guarantees paid on behalf of M.D.F. Industries Ltd. (“M.D.F.”) and to the impairment in values of the Company’s investments in SmartLight Ltd. ($3 million), Netformx Ltd. ($2.5 million), Qronus Interactive Israel (1994) Ltd. ($1.1 million), Zactus Inc. ($0.5 million) and ContactNOW Inc. ($0.5 million).

	Cost	Other than temporarily decline		Unrealized Gains (Losses)		Market Value

	(Dollars in thousands)


December 31, 2002
Equity Securities	$ 32,243	$ (17,687	)	$ (1,176	)	$ 13,380

December 31, 2001
Equity Securities	$ 31,743	$ —		$ (1,025	)	$ 30,718

	As of December 31,

	2002	2001

	(Dollars in thousands)
Ampal:
Fifteen Year 11% Discount Debenture, maturing 2003	$ 17,428	$ 18,016
Ampal Development (Israel) Ltd.:
Series with interest rate of 6.2% , linked to the Consumer Price Index in Israel maturing 2003-2005, secured by pledge on assets of $5.6 million and $7.5 million, respectively	5,443	7,268

	22,871	25,284
Less: Unamortized discounts	325	2,188

Total	$ 22,546	$ 23,096

	Year Ended December 31, 2002

			Weighted Average

	Options		Exercise Price

	(In thousands, except per share data)

Outstanding at beginning of year	2,815		$ 23.03
Granted	1,298		$ 3.12
Exercised	(329	)	$ 6.00
Forfeited/Expired	(932	)	$ 26.33

Outstanding at end of year	2,852		$ 14.77

Exercisable at end of year	1,630		$ 23.51

Weighted average fair value of options granted			$ 1.62

	Year Ended December 31, 2001

			Weighted Average

	Options		Exercise Price

	(In thousands, except per share data)


Outstanding at beginning of year	3,161		$ 24.43
Granted	205		$ 5.94
Exercised	—		$ —
Forfeited/Expired	(551	)	$ 24.72

Outstanding at end of year	2,815		$ 23.03

Exercisable at end of year	912		$ 16.78

Weighted average fair value of options granted			$ 3.51

	Year Ended December 31, 2000

			Weighted Average

	Options		Exercise Price

	(In thousands, except per share data)

Outstanding at beginning of year	762		$ 8.55
Granted	2,972		$ 25.48
Exercised	(511	)	$ 8.59
Forfeited/Expired	(62	)	$ 10.00

Outstanding at end of year	3,161		$ 24.43

Exercisable at end of year	884		$ 20.09

Weighted average fair value of options granted			$ 6.94

	Year Ended December 31, 2002

	Income (Loss)		Shares	Per Share Amounts

	(In thousands, except per share data)

Basic and diluted EPS:
Net (loss) attributable to Class A Stock	$ (44,265	)⁽¹⁾	19,538	$ (2.27	)

	Year Ended December 31, 2001

	Income (Loss)		Shares	Per Share Amounts

	(In thousands, except per share data)

Basic and diluted EPS:
Net (loss) attributable to Class A Stock	$ (7,201	)⁽¹⁾	19,184	$ (0.38	)

	Year Ended December 31, 2000

	Income (Loss)		Shares	Per Share Amounts

	(In thousands, except per share data)

Basic EPS:
Net income attributable to Class A Stock	$ 579	⁽¹⁾	18,916	$ 0.03

Effect of Dilutive Securities:
Exercise of stock options			141

Diluted EPS:
Net income attributable to Class A Stock	$ 579		19,057	$ 0.03

Consolidated Balance Sheets

Adjusted to the Index of December 2002

Consolidated Balance Sheets

Adjusted to the Index of December 2002

Consolidated Statements of Income

Adjusted to the Index of December 2002

Consolidated Statements of Shareholders’ Equity

Adjusted to the Index of December 2002

Consolidated Statements of Cash Flows

Adjusted to the Index of December 2002

Consolidated Statements of Cash Flows (continued)

Adjusted to the Index of December 2002

Consolidated Statements of Cash Flows (continued)

Adjusted to the Index of December 2002

Consolidated Statements of Cash Flows (continued)

Adjusted to the Index of December 2002

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 1 – General

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 1 – General (continued)

NOTE 2 – Summary of significant accounting policies and practices

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 – Summary of significant accounting policies and practices

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTE 3 — The consolidated financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 2 — Summary of significant accounting policies and practices (continued)

NOTE 3 — The consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 5 – Cash and cash equivalents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 6 — Trade receivables and Other receivables and debit balances

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 7 – Inventories

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 8 — Affiliated companies and others (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 9 -Long-term loans and receivables

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 9 –Long-term loans and receivables (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 10 – Fixed assets

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 11 – Intangible assets and deferred charges, net

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 12 – Credit from banks and others

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 14 — Other payables

NOTE 15 – Long-term liabilities

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 15 – Long-term liabilities (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 15 – Long-term liabilities (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 16 – Customers’ deposits

NOTE 17 – Liabilities for employee rights upon retirement, net

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 17 – Liabilities for employee rights upon retirement, net (continued)

NOTE 18 – Linkage of monetary balances

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 19 – Capital

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

NOTE 19 – Capital (continued)

NOTE 20 – Net sales

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002

AUDITORS’ REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TRINET VENTURE CAPITALLTD.

TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001

TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001

TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001

TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001

TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001

(1)	After deduction of Preferred Stock dividends of $218, $227 and $234 in 2002, 2001 and 2000 respectively.
(2)	In 2002 and 2001, the conversion of the 4% and 6½% Preferred Stocks was excluded from the diluted EPS calculation due to the antidilutive effect.

*	Valuation allowance is composed of tax benefits on foreign net operating loss carryforwards of $6.6 million, realized and unrealized loss of investment in securities of $6.3 million and of loss from impairment of investment of $4.7 million.

	As of December 31, 2002, the Company has U.S. federal net operating loss carryforwards of approximately $32 million that will expire in the years 2020 through 2022. The utilization of net operating loss carryforwards may be subject to substantial annual limitations if there has been a significant “change in ownership”. Such a “change in ownership”, as described in Section 382 of the Internal Revenue Code, may substantially limit the Company’s utilization of the net operating loss carryforwards.

(a)	At December 31, 2002, 2001 and 2000, the Company had a note receivable from Bay Heart Limited in the amount of $0.4 million.

(b)	At December 31, 2001 and 2000, the Company had a non-interest bearing note receivable from Trinet Venture Capital Ltd. in the amount of $2.3 million and $2.5 million, respectively.

(c)	On December 31, 2001, the Company acquired 50% of the holdings of Trinet Venture Capital Ltd (“Trinet”) in Smart Link Ltd., Peptor Ltd and Netformx Ltd for consideration of Capital notes, in the total amount of $ 2.3 million.

	(1)	The Company provided a $4.8 million guarantee to AM – Hal tenants .

	(2)	The Company provided a $5.7 million guarantee on indebtness incurred by Bay Heart.

	(3)	The Company provided a $4 million guarantee to Leumi with respect to the MIRS loan ($3.5 million if Motorola (Israel) Ltd. does not make a guaranteed payment to the Company in March 2003 and $0.5 million beginning in 2006 with respect to the Company’s repayment obligation under the loan).

	(4)	The Company provided a $0.8 million guarantee to Galha (1960) Ltd, for the payment of the Company’s subsidiary of a final judgment, if entered against the Company’s subsidiary.

Name		Position

Yosef A. Maiman		Chairman of the Board of Directors and Director
Jack Bigio ⁽¹⁾		President, Chief Executive Officer and Director
Leo Malamud⁽¹⁾		Director
Michael Arnon^{(2) (3)}		Director
Dr. Joseph Yerushalmi⁽¹⁾		Director
Yehuda Karni^{(1) (2) (3)}		Director
Eitan Haber^{(2) (3)}		Director
Shlomo Shalev		Senior Vice President-Investments
Dafna Sharir		Senior Vice President-Investments
Irit Eluz		CFO, Vice President - Finance and Treasurer
Yoram Firon		Vice President-Investments and Corporate Affairs and Secretary
Amit Mantzur		Vice President-Investments
Giora Bar-Nir		Controller
Alla Kanter		Vice President-Accounting

	(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.

	(2)	Member of the Audit Committee of the Board which reviews functions of the outside auditors, auditors' fees and related matters. Mr. Arnon is the Chairman of the Audit Committee.

	(3)	Member of the Stock Option and Compensation Committee

	(4)	Mr. Mantzur was appointed Vice President – Investments of Ampal on March 24, 2003.

								Annual Compensation

Name and Principal Position	Year		Salaries			Bonus		Other Annual Compensation⁽¹⁰⁾		Long-Term Compensation Awards Number of Securities Underlying Options ⁽¹¹⁾			All Other Compensation⁽¹⁶⁾

			$			$		$					$
Yosef A. Maiman⁽¹⁾
Chairman of the Board		2002		324,376			—		15,765		250,000			410
Jack Bigio ⁽²⁾
President and CEO		2002		280,130	⁽⁸⁾		—		43,498		150,000			40,740
Nitsan Yanovski ⁽³⁾		2002		194,975			77,712		27,526		78,500			98,711
(Former Vice President –		2001		142,691			75,634		17,984		20,000	⁽¹⁵⁾		34,329
Business		2000		132,187			60,000		13,048		495,000	⁽¹⁵⁾		93,237
Development)
Shlomo Shalev ⁽⁴⁾		2002		149,225			63,240		27,815		90,000			37,279
Senior Vice President		2001		143,093			61,406		17,408		20,000			36,137
Investments		2000		146,873			65,000		14,178		545,000			39,300
Alla Kanter ⁽⁵⁾		2002		133,598			11,105				78,500			18,757
(Vice President-		2001		133,538			11,105				15,000	⁽¹⁴⁾		18,138
Accounting and		2000		126,036			10,476				15,000	⁽¹⁴⁾		17,007
Controller)
Raz Steinmetz ⁽⁶⁾		2002		82,993			—		9,792					189,707	⁽⁹⁾
(Former CEO and		2001		318,344			98,459		24,859		30,000	⁽¹²⁾		74,997
President)		2000		175,369			49,822		20,555		655,000	⁽¹²⁾		51,644
Shlomo Meichor⁽⁷⁾		2002		170,525			48,427		28,784					49,514
(FormerVice President-		2001		169,567			53,578		15,205		24,000	⁽¹³⁾		51,110
Finance and Treasurer)		2000		156,150			44,056		14,849		374,000	⁽¹³⁾		46,281

(1)		Mr. Maiman has been employed by Ampal since April 25, 2002 as Chairman of the Board. Mr. Maiman is entitled to receive a base salary of $420,000 (payable in NIS) per annum (plus benefits).

(2)		Mr. Bigio has been employed by Ampal since April 25, 2002 as President and CEO. Mr. Bigio is entitled to receive a base salary of $250,000 (payable in NIS) per annum (plus benefits).

(3)		Mr. Yanovski was appointed Vice President Business Development since May 21, 2002. Mr. Yanovski retired from Ampal on December 31, 2002 (the amounts include salary for an additional three months).


(4)		Mr. Shalev was appointed Senior Vice President of Investments since May 21, 2002. Mr. Shalev is entitled to receive a base salary of $150,000 (payable in NIS) per annum (plus benefits).

(5)		Ms. Kanter has been Vice President – Accounting of Ampal since September 1995 and Controller of Ampal since August 1990.

(6)		Mr. Steinmetz was employed by Ampal since January 1, 1997 untill April 25 ,2002 and was appointed CEO and President effective July 1, 1999. Mr. Steinmetz was entitled to receive a base salary of $250,000 (payable in NIS) per annum (plus benefits). Mr. Steinmetz resigned from all positions he held in Ampal on April 25, 2002.

(7)		Mr. Meichor had been employed by Ampal since March 1, 1998, and served as Vice President-Finance and Treasurer of Ampal from April 1, 1998 until May 21, 2002. Mr. Meichor receives a base salary of $164,000 per annum, adjusted annually in accordance with the United States Consumer Price Index (payable in NIS) plus benefits and use of a car. Based on his agreement with Ampal, Mr. Meichor received an additional 8 months of salary (2 months notice and 6 months as the result of a change in control of Ampal). Mr. Meichor ceased to receive additional salary from Ampal on January 19, 2003.

(8)		Including $86,481 payment advance that have been returned on February 1, 2003.

(9)		Consists of payment for accrued vacation.

(10)		Consists of amounts reimbursed for the payment of taxes.

(11)		Represents the number of shares of Class A Stock underlying options granted to the named executive officers.

(12)		Expired on April 25, 2002.

(13)		Expired on January 26, 2003.

(14)		Expired on February 20, 2003.

(15)		Expired on January 7, 2003.

(16)		Comprised of Ampal (Israel)'s contribution pursuant to: (i) Ampal (Israel)'s pension plan, (ii) Ampal's (Israel)'s education fund, (iii) use of car and (iv) use of automobile.

	Shares Acquired on Exercise		Value Realized		Number of Securities Underlying Unexercised Options at Fiscal Year-End⁽¹⁾

Name					Exercisable		Unexercisable

Yosef A. Maiman		—		—		15,625		234,375
Jack Bigio		—		—		9,375		140,625
Nitsan Yanovski		40,000		$240,000		499,906		73,594
Shlomo Shalev		40,000		$240,000		550,625		84,375
Alla Kanter		30,000		$180,000		19,906		73,594
Raz Steinmetz		60,000		$360,000		—		—
Shlomo Meichor		48,000		$288,000		372,000		—