Item 1. Business --------
As used in this report (the "Report"), the term "Ampal" only refers to Ampal-American Israel Corporation, the parent company; the term "Company" refers to Ampal and its consolidated subsidiaries. Ampal is a New York corporation founded in 1942.
For industry segment financial information, see Note 10 to the Company's consolidated financial statements included elsewhere herein.
The Company acquires interests in businesses located in the State of Israel or that are Israel-related. An important objective of Ampal is to make investments in companies that take advantage of growth in Israel's domestic economy. The Company has diversified interests in the following sectors: hotels and leisure-time, real estate, energy distribution, basic industry and high technology and communications.
The Company emphasizes long-term appreciation over short-term returns and liquidity. The Company often makes equity investments accompanied by more significant loans or loan guarantees with the intention that cash flow from operations of the investee companies will repay these loans within a relatively short period. In determining whether to acquire an interest in a specific company, the Company considers quality of management, qualification of investment partners, potential return on investment, projected cash flow, market share and growth potential.
The Company generally seeks to acquire and maintain a sufficient equity interest in a company to permit it, on its own or with investment partners, to have a significant influence in the management and operation of that company. The Company often seeks investment partners who have expertise in the business in which an investment is being made or whose operations and associations provide the investee company with additional markets, sources of supply, financing or other competitive advantages. Frequently, the Company enters into arrangements with its investment partners or with the company in which it is investing in order to ensure board representation or other rights relating to its investments. Bank Hapoalim B.M. ("Hapoalim"), the largest bank in Israel, is Ampal's controlling shareholder and principal lender. The Company usually makes investments with or through affiliated companies. Members of the Hapoalim group of companies, including Investment Company of Bank Hapoalim Ltd., sometimes invest jointly with the Company.
Ampal was founded prior to the establishment of the State of Israel as part of the effort of the Jewish community in Palestine to provide resources for and benefit from the growth of its economy. Ampal has participated in the economic development of Israel by providing capital and management to commercial, banking, credit, industrial and agricultural enterprises located in Israel or that are Israel-related. Ampal intends to continue to adhere to its historical policy of focusing its business interests primarily on long-term holdings in Israel-related enterprises.
The growth of the Israeli economy, the recent success of a number of Israeli-based companies, particularly in the area of high technology, the privatization of government-owned companies and the recent acceleration of the peace process, have prompted numerous potential investors to search for investment opportunities in Israel and have made it possible for certain of such companies to gain direct access to Israeli and foreign public securities markets. The Company competes for investment opportunities with other established and well-capitalized investing entities. There can be no assurance that opportunities will continue to be available to the Company at valuations and on terms which are favorable.
Prior to 1989, Ampal was primarily engaged in making loans to businesses in Israel through its industrial banking subsidiaries and, to a lesser extent, investing in Israeli companies. In 1989, the Company discontinued this lending activity, and in 1990 substantially all of the loan portfolios of its industrial banking subsidiaries were sold to Hapoalim.
Listed below by industry segment are the Company's most significant investees, the principal business of each, the percentage of equity owned, directly or indirectly, by Ampal and if listed on the American Stock Exchange ("AMEX"), or quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), NASDAQ National Market System ("NASDAQ NMS") or Tel Aviv Stock Exchange ("TASE"). For further information with respect to the investees, see below.
- - -------------- (1) Ampal's ownership reflects 42.5% of Ophir's 12.8% ownership of Industrial Buildings. (2) As a result of the exercise of warrants and conversion of debentures, Ampal's ownership of Granite was diluted to 21.2% as of March 15, 1994. (3) In March 1994, Ampal's ownership was reduced to 66.7% and may be further reduced pending completion of Pri Ha'emek's public offering (see "Pri Ha'emek"). (4) As a result of the exercise of options, Ampal's ownership of Orlite was diluted to 29.5% as of March 15, 1994. (5) Ampal's ownership includes 2.5% of Teledata owned directly and 42.5% of Ophir's 19.7% ownership of Teledata. (6) Ampal's ownership includes 3.6% of DSP Group owned directly and 42.5% of Ophir's 3.1% ownership of DSP Group. Following the initial public offering of DSP Group in February 1994, Ampal's ownership of DSP Group was reduced to 3.6% including 2.6% of DSP Group owned directly and 42.5% of Ophir's 2.3% ownership of DSP Group. (7) Ampal's ownership reflects 42.5% of Ophir's 4.4% ownership of DSP Telecommunications.
1994 Public Offering
On February 1, 1994, Ampal completed a public offering of 4.5 million units, sold for $12.125 per unit, consisting of one share of Class A Stock and one redeemable warrant to purchase one share of Class A Stock at $16.00 per share. The warrants are exercisable until January 31, 1999 but are callable by Ampal, in whole or in part, from and after February 1, 1996, without payment to the holder. Net proceeds from the offering were approximately $50.8 million. Since February 2, 1994, the Class A Stock and warrant components of the units are trading separately.
Certain Pending Transactions
The Company, through Ophir Holdings Ltd. ("Ophir"), which is 42.5% owned by Ampal, has recently agreed, subject to the receipt of certain approvals, to make equity investments and loans totalling approximately $2.5 million, for a 16.7% interest in each of three new Israeli companies formed to acquire certain commercial real estate holdings of a major Israeli cooperative wholesale supply company. The aggregate purchase price for this commercial real estate is expected to be approximately $52.5 million and is expected to be financed principally with mortgage loans which may be guaranteed in whole or in part by the shareholders. Development costs of the properties may also be paid or guaranteed by the shareholders.
In Israel, cellular telephone service is currently operated solely by one entity. The Israeli Ministry of Communications requested bids for a second cellular telephone service in Israel. In February 1994, Cellphone, Ltd., in which the Company holds an approximate 4.99% equity interest, filed an application with the Israeli Ministry of Communications for the license to provide this cellular service.
There is no assurance that any of these pending transactions or prospective ventures will be completed or that the proposed terms of investment will not be modified.
Recent Transactions
- - - In February, 1994, the Company established, together with an affiliate of Hapoalim, a venture capital fund which will make investments in high-technology ventures, including investments in start-up entities. The Company and the Hapoalim affiliate are expected to each invest up to $2.5 million in this fund. As of March 15, 1994, the fund had made investments of $300,000. - - - In January 1994, the Company invested approximately $66,000 for 50% of the equity of, and made a loan of $1 million to, M.D.F. Boards Industry Ltd. ("MDF"). MDF is a joint venture between the Company and a subsidiary of Etz Lavud Ltd., a publicly-owned Israeli lumber manufacturer. MDF intends to establish a plant in Israel to manufacture medium density fiber products for the construction and furniture industries. - - - In August 1993, the Company invested approximately $3.5 million in Idan Software Industries I.S.I. Ltd. ("Idan") for approximately 8.4% of Idan's shares. Idan provides telecommunications services and markets telecommunications products in Israel and overseas. Following Idan's private placement in October 1993, the Company holds approximately 7.8% of Idan's shares. - - - In February and June 1993, the Company invested an aggregate of approximately $4.3 million in Paradise Mattresses (1992) Ltd. ("Paradise") for an aggregate of approximately 85.1% of the shares of Paradise. Paradise is one of Israel's largest manufacturers and distributors of mattresses and fold-out beds. - - - In March 1993, the Company, through Ophir, participated in the purchase from the Government of Israel of a controlling interest in Industrial Buildings Corporation Ltd. ("Industrial Buildings"), the largest owner/lessor of industrial properties in Israel. Ophir purchased 12.8% of the shares of Industrial Buildings for approximately $50 million. Ampal owns 42.5% of Ophir.
- - - In 1992 and 1993, Ampal purchased approximately $1.1 million from an unrelated DSP Group shareholder, shares of DSP Group which currently approximate 2.6% of DSP Group's equity. In 1992, Ophir invested approximately $1.9 million for securities which it exchanged for 2.3% of the shares of DSP Group. DSP Group is a leading developer of cost effective, high performance digital signal processing software and integrated circuits for digital speech processing. - - - In the first quarter of 1993, the Company invested approximately $300,000 in Davidson-Atai Publishers Ltd. ("Davidson-Atai") for 22.5% of the shares of Davidson-Atai. Davidson-Atai is a recently- established Israeli publishing house.
HOTELS AND LEISURE-TIME
MORIAH HOTELS LTD. ("MORIAH")
Moriah, which is 46%-owned by the Company is the largest hotel chain in Israel based both upon the number of rooms and the number of locations.
The following chart provides certain information with respect to hotels Moriah owns or operates:
NO. OF MORIAH'S LOCATION CATEGORY ROOMS INTEREST -------- -------- ------ -------- Jerusalem Luxury 295 Owns Eilat Luxury 325 Owns Dead Sea Luxury 200 Owns Tel Aviv Luxury 350 Leases(1) Tiberias Luxury 270 Leases(2) Dead Sea First Class 195 Manages(3) Zichron Yaakov Economy 110 Manages(4) Nazareth Economy 110 Manages(4) Maalot Economy 110 Manages(4)
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(1) Net lease which expires in 1996. (2) Net lease which expires in 2001. (3) Management agreement which expires in 1995. (4) No formal management agreement has yet been signed.
Moriah's competitive position has been enhanced by operating out of more locations than any other chain in Israel, improving its facilities and providing high quality service to its guests. During 1993, Moriah spent approximately $4 million on general improvements and renovations.
Tourist arrivals increased in Israel by approximately 10% in 1993 as compared to 1992. Moriah's occupancy rate was 73% in 1993 and 74% in 1992 (which excluded the Moriah Eilat Hotel which was closed for renovation for part of 1992) (in both years, excluding the three economy hotels which came under Moriah management in 1993). The average occupancy rate in the Israeli hotel industry during 1993 was 67% and during 1992 was 68%.
Moriah's competitive position could be adversely affected by economic changes in foreign countries, construction of new hotels in locations which compete with Moriah's hotels or unrest in Israel or other areas of the Middle East. As a result of the significant rise in tourism in Israel, additional hotels have been constructed and competition is expected to intensify.
Moriah employed approximately 1,750 persons as of December 31, 1993.
The Moriah-owned Dead Sea hotel is located on the shore of a pool adjacent to the Dead Sea. Because of industrial activities at the pool, its water level has been rising to levels that threaten the hotel structure. Moriah is currently in litigation with respect to the costs of protective measures and other related matters.
CORAL WORLD INTERNATIONAL LIMITED ("CORAL WORLD")
Coral World, which is 50%-owned by the Company, owns or controls marine parks in Eilat (Israel), St. Thomas (United States Virgin Islands), Nassau (Bahamas), which also includes a 22 villa luxury hotel and Perth and Manly (Australia). In addition, Coral World provides consulting services to an unrelated group of investors regarding construction of an underwater facility in the Pacific Rim. The Company's marine parks, other than those in Australia, are located within or next to coral reefs and visitors at these parks view marine life in its natural coral habitat through large underwater windows. Coral World's marine parks in Perth and Manly, Australia allow visitors to walk through transparent acrylic tubes on the bottom of a man-made aquarium surrounded by marine life.
In 1993 Coral World's parks had a total of approximately 1.3 million visitors. In addition to admission charges, Coral World's food and beverage concessions and retail outlets are a significant revenue source. Coral World expects to build, acquire or manage new facilities in the future. Coral World employed a total of 275 persons as of December 31, 1993.
COUNTRY CLUB KFAR SABA LTD. ("KFAR SABA")
Kfar Saba operates a country club facility (the "Club") in Kfar Saba, a town north of Tel Aviv. Kfar Saba holds a long term lease to the real property on which the Club is situated. The Club's facilities include swimming pools, tennis courts and a clubhouse.
During 1992 and 1993, the Club had approximately 2,000 member families and operated at capacity. The construction cost of the Club was $5.2 million, which was financed principally with debt which is expected to be repaid by 1997. Kfar Saba's revenues are principally attributable to annual memberships.
The Company owns 51% of Kfar Saba and the remaining 49% is owned by an unrelated party. Kfar Saba and another investor are each 50% owners of a project to construct a second country club in nearby Hod Hasharon. Construction began during 1993 and is expected to be completed in the first half of 1994. Kfar Saba's investment is expected to be approximately $1.7 million.
REAL ESTATE, FINANCE AND OTHER HOLDINGS
In Israel, most land is owned by the Israeli Government. In this Report, reference to ownership of land means either direct ownership of land or a long-term lease from the Israeli Government, which is in most respects regarded in Israel as the functional equivalent of ownership. It is the Israeli Government's policy and practice to renew its long-term leases (which usually have a term of 49 years) upon their expiration.
INDUSTRIAL BUILDINGS CORPORATION LTD. (MIVNEI TAASIYA LTD.) ("INDUSTRIAL BUILDINGS")
Industrial Buildings, Israel's largest owner/lessor of industrial property, is engaged principally in the development and construction of buildings in Israel for industrial and commercial use and in project management. Industrial Buildings carries out infrastructure development projects for industrial and residential purposes, principally for a number of government agencies and authorities. Industrial Buildings hires and coordinates the work of contractors, planners and suppliers of various engineering services.
Industrial Buildings owns approximately 10.4 million square feet of space in industrial buildings throughout Israel (including approximately 10% in the
administered territories). It owns both multi-purpose buildings and built-to-suit buildings which are constructed in accordance with the specific requirements of tenants. In certain cases, there is an option in the tenant's favor to purchase the leased property, and, in the case of most built-to-suit properties, a commitment on the part of the tenant to purchase the property. Industrial Buildings also owns approximately 118 acres of vacant land for industrial purposes throughout Israel.
The buildings which are owned by Industrial Buildings are leased to approximately 1,900 lessees under net leases having terms of up to ten years. See "Conditions in Israel--Certain Israeli Real Estate Tax Matters" for a discussion of Israeli real estate tax considerations that may be applicable to certain real property leases of Industrial Buildings. The average vacancy rate in buildings owned or leased by Industrial Buildings was approximately 7% at December 31, 1993.
Industrial Buildings' plans include building a project in the Tel Aviv area comprising approximately 400 apartments, a commercial center of approximately 43,000 square feet, an office building of approximately 25,000 square feet and parking facilities of approximately 800,000 square feet. Industrial Buildings has also entered into agreements with a fuel company and an Israeli supermarket chain for the joint development of properties.
Industrial Buildings was founded as an Israeli Government company in 1961. In 1988, Industrial Buildings first offered its shares to the public and its shares are traded on the TASE. In 1993, the Government of Israel privatized the company by selling its 51.3% stake in Industrial Buildings. Since the privatization, Industrial Buildings has focused on improving results by decreasing staff and overhead costs and aggressively negotiating lease renewal terms. A holding company in which Ophir has a 25% interest purchased the Government's interest in Industrial Buildings. Ophir's investment in the holding company is approximately $50 million. Ampal owns 42.5% of Ophir. Industrial Buildings has announced a policy to distribute as a dividend not less than 60% of each year's earnings during the period 1993 through 1996. In January 1994, Industrial Buildings distributed as a dividend approximately NIS 195 million to its shareholders, which was funded with a portion of NIS 244 million of long-term debt. This dividend represents an amount significantly in excess of 60% of Industrial Buildings 1993 earnings.
Ophir's interest in the holding company and the holding company's interest in Industrial Buildings are subject to foreclosure in the event of a default by any of the investors under the bank credit agreements entered into in connection with the acquisition. See "Certain Relationships and Related Transactions." Any amounts distributed as a dividend by Industrial Buildings are required to be applied first to pay then due borrowings.
Industrial Buildings had a staff of approximately 42 permanent employees as of December 31, 1993.
BAY HEART LIMITED (LEV HAMIFRATZ LIMITED) ("BAY HEART")
Bay Heart was established in 1987 to develop and lease a shopping mall (the "Mall") in the Haifa Bay area. Haifa is the third largest city in Israel. The Mall, which opened in May 1991, is a modern three story facility with approximately 279,760 square feet of rentable space. The Mall is located at the intersection of two major roads and provides a large mix of retail and entertainment facilities including seven movie theaters. Approximately 37,500 square feet of the Mall are occupied by Supersol Ltd., one of the two largest Israeli supermarket chains, and the parent of a co-investor in Bay Heart. Shekem Department Stores, a major Israeli department store, is the other anchor tenant under a net lease for approximately 57,600 square feet of retail and approximately 17,750 square feet of storage and other space expiring in 2001. Approximately 98% of the Mall premises is now occupied, primarily under two-year leases, except for anchor tenants. The total cost of the Mall was approximately $53 million which was financed principally with debt.
Bay Heart is negotiating with the Port and Railway Authority for Bay Heart to build a station for a suburban railway line adjacent to the Mall which will provide direct access to the Mall. If negotiations are successful and necessary approvals are obtained, Bay Heart's investment in that project is expected to be approximately $1.2 million. Bay Heart is also negotiating the purchase, for approximately $1.6 million, of a 50% interest in a partnership to purchase property in the vicinity of the Mall for the purpose of developing a commercial center. The Company owns 37% of the shares of Bay Heart.
An assessment was made against Bay Heart by the Israeli tax authorities for the payment of approximately $11.5 million based on taxes claimed due on certain long term leases entered into by Bay Heart. This assessment has been dropped. See "Certain United States and Israeli Regulatory Matters--Certain Israeli Real Estate Tax Matters" for a discussion of Israeli real estate tax considerations that may be applicable to certain real property leases of Bay Heart.
BANK HAPOALIM (CAYMAN) LTD. ("CAYMAN")
Cayman is a bank holding company which owns 50% of Hapoalim (Latin America) Casa Bancaria S.A. ("Casa Bancaria"), an Uruguayan commercial bank, invests in Israeli and other mutual funds and administers a small loan portfolio. In 1994, Cayman sold to an unrelated bank 50% of Casa Bancaria at a price based upon the net equity of Casa Bancaria at December 31, 1993. In recent years, other than in 1992, Cayman has paid out a significant portion of its retained earnings as dividends to its two shareholders, causing a contraction in its size and volume of activity. It intends to continue to pay dividends from its retained earnings in the future. Ampal owns 49% of the outstanding shares of common stock of Cayman, and Hapoalim owns the remaining 51%. Each of them owns $2 million of 7% preferred shares of Cayman. See "Certain Relationships and Related Transactions." In 1992, Cayman did not pay a dividend on its common stock but paid the required dividend on its 7% preferred shares. In 1993, Cayman paid a $4 million dividend on its common stock and the required dividend on its 7% preferred shares.
AMPAL (ISRAEL) LTD. ("AMPAL (ISRAEL)")
Ampal (Israel), a wholly-owned subsidiary of Ampal, owns an approximately 57,000 square foot commercial property located in Tel Aviv. A portion of this property is net leased to Hapoalim and another portion is net leased to Moriah. See "Certain Relationships and Related Transactions." Ampal (Israel) also acts as a holding company for other investments discussed elsewhere in this Report.
OPHIR HOLDINGS LTD. ("OPHIR")
Ophir is a holding company that holds interests in Teledata, Industrial Buildings, DSP Group and DSP Telecommunications. These companies are discussed elsewhere in this Report. In addition, Ophir has also made investments in two unaffiliated mutual funds and a newly-formed biotechnology company and has recently agreed, subject to the receipt of certain governmental and other approvals, to make an investment in each of three new Israeli companies formed to acquire certain commercial real estate holdings of a major Israeli cooperative wholesale supply company. The aggregate purchase price for this commercial real estate is expected to be approximately $52.5 million and is expected to be financed principally with mortgage loans which may be guaranteed in whole or in part by the shareholders. Development costs of the properties may also be paid or guaranteed by the shareholders.
Ophir owns, through a wholly owned subsidiary, nine real estate properties located in Israel aggregating approximately 179,700 square feet. Three of these properties are net leased to Hapoalim or its subsidiaries. See "Certain Relationships and Related Transactions." For a discussion of Israeli real estate tax considerations that may be applicable to certain real property leases of Ophir, see "Certain United States and Israeli Regulatory Matters--Certain Israeli Real Estate Tax Matters."
Until November 1993, Ampal owned 60% of the voting shares and 49.4% of the equity interest in Ophir, and the balance was owned by a Hapoalim affiliate. In November 1993, the two shareholders' interests in Ophir were equalized.
Subsequently, 15% of the shares in Ophir were issued to another Hapoalim affiliate for approximately $10.2 million. As a result of these transactions, Ophir is now 42.5%-owned by Ampal and its results are no longer consolidated in the Company's financial statements and are now recorded by the equity method of accounting. In 1993, the Company recorded a gain on issuance of shares of approximately $3.2 million (approximately $2.1 million after taxes) as a result of Ophir's sale of shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations" and "Certain Relationships and Related Transactions."
Ophir intends to develop on property owned by it in Petach Tikva, Israel, approximately 60,300 square feet of office and commercial space and approximately 59,200 square feet of parking space. The estimated cost of this project is $5 million.
Ophir owns a 60% interest in a partnership that recently purchased two acres of land in an industrial park in Netanya, Israel for $2.7 million. On this site, the partnership intends to develop a 120,000 square foot building for both industrial and commercial uses. The estimated cost of development of this project is $6 million.
ETZ VANIR LTD. ("ETZ VANIR") AND YAKHIN MATAIM LTD. ("YAKHIN MATAIM")
Both Etz Vanir Ltd. and Yakhin Mataim Ltd. cultivate orange, grapefruit, clementine, lemon and avocado groves in Israel pursuant to various long-term land leases which, including renewal options, do not expire until the mid-21st century. These properties are located near the city of Netanya between an existing and a proposed highway. Approximately 1,200 acres are presently under cultivation by these two companies. The majority of their crops is exported.
Ampal owns 50% of the equity of Etz Vanir and Yakhin Mataim. The remaining 50% of the equity of these companies is owned by Yakhin Hakal Ltd. ("Yakhin Hakal"), a company which is not related to Ampal, which manages their operations. Because of a dispute between Ampal and Yakhin Hakal regarding the operating agreement for the companies, the Company has requested that an Israeli court declare the agreement null and void, and in its response Yakhin Hakal has stated that the companies owe it approximately $4.0 million for services it has rendered to the companies. This litigation is pending.
AM-HAL LIMITED ("AM-HAL")
Am-Hal has developed and operates a luxury senior citizens center in Rishon Lezion, a city located approximately 10 miles from Tel Aviv. The senior citizens center, which was completed in March 1992, includes 160 apartments of which 70% are occupied, an 80-bed geriatric ward which is fully occupied, a swimming pool and other recreational facilities. The geriatric ward is leased by Am-Hal to a non-affiliated health care provider until 2002. Rental payments are based upon the profits of the geriatric ward.
The Company and a subsidiary of The Israel Corporation, a major Israeli company, each own 50% of Am-Hal. The aggregate cost of the center was approximately $21 million, and was financed principally by loans made or guaranteed by the shareholders and refundable tenant deposits.
AMPAL DEVELOPMENT (ISRAEL) LTD. ("AMPAL DEVELOPMENT"), NIR LTD. ("NIR") AND AMPAL FINANCIAL SERVICES LTD. ("AMPAL FINANCIAL") TOGETHER, THE "HOLDING COMPANIES")
Ampal Development, Nir and Ampal Financial, each of which is wholly-owned by the Company, are engaged in the business of financing acquisitions by the Company and holding and leasing commercial real estate in Israel. Prior to 1989, these companies had acted primarily as lenders, and their financing activities were the principal activities of the Company. In 1990, the Holding Companies sold substantially all their loan portfolios to Hapoalim, and they relinquished their banking licenses. The Holding Companies still service certain loans made by them prior to their ceasing lending activity which are guaranteed by Hapoalim. See "Certain Relationships and Related Transactions."
Ampal Development owns five commercial properties located in Israel
aggregating approximately 36,900 square feet. Four of these properties are net leased to Hapoalim. Nir owns four commercial properties located in Israel aggregating approximately 17,750 square feet. Three of these properties are net leased to Hapoalim. Ampal Finance owns two commercial properties located in Israel aggregating approximately 7,250 square feet. Both of these properties are net leased to Hapoalim. See "Certain Relationships and Related Transactions." For a discussion of Israeli real estate tax considerations that may be applicable to certain real property leases of the Holding Companies, see "Certain United States and Israeli Regulatory Matters--Certain Israeli Real Estate Tax Matters."
The Holding Companies hold interests in other companies discussed elsewhere in this Report and also make loans to these and other investees in furtherance of their businesses.
Ampal Development issued debentures which are publicly traded on the TASE. An aggregate of approximately $43.1 million of these debentures were outstanding as of December 31, 1993. Ampal Development has deposited with Hapoalim funds sufficient to pay all principal and interest on these debentures.
ENERGY DISTRIBUTION
GRANITE HACARMEL INVESTMENTS LTD. ("GRANITE")
Granite owns the Sonol group of companies, the third largest Israeli distributor of refined petroleum products. Supergas, a wholly-owned subsidiary of Granite, is the third largest marketer and distributor in Israel of liquified petroleum gas. Through its subsidiaries, Granite also manufactures and markets lubricating oils and automotive batteries.
As of December 31, 1993, Sonol supplied gas to 149 gas stations in Israel, of which 106 are owned by or leased on a long-term basis to Sonol. The Sonol group sold approximately 1.8 million metric tons of refined petroleum products and lubricating oils in each of 1992 and 1993, representing approximately 25.7% and 24.8% of the total sales of such products in Israel by the three major fuel companies in Israel in 1992 and 1993, respectively.
Prior to 1988, Sonol and the other two major fuel companies had a monopoly in the importation of oil into and the distribution of gasoline, fuel oil and diesel in Israel. Since 1988, the Israeli government has licensed new fuel companies and also recently allowed Oil Refineries Ltd., the sole oil refinery operator in Israel, and large industrial customers, such as Israel Electric Corp., to engage in the importation of oil. As a result, Granite's sales volume and share in the refined petroleum products market have declined and may decline further. Beginning in 1992, the Israeli government also lifted price controls on many of the fuel products sold by Sonol. Moreover, the Israeli Ministry of Energy recently has declared its intention to permit new gas stations to be licensed more quickly and in locations not previously permitted. Although Granite is unable to determine the effect of these changes on future sales volume and profits, their impact may be material.
In order to attempt to offset the possible adverse effects of reforms in the energy market, Granite continues to emphasize improving efficiency through modernization, selective expansion and staff reductions. Furthermore, Granite expects to pursue a policy of diversification. Recently, Granite established a subsidiary which will invest in real estate projects in Israel. The new subsidiary has contracted to participate in two real estate projects and is studying other opportunities. Granite is also conducting a strategic survey to identify other potential areas of investment.
In 1993, warrants to purchase convertible debentures of Granite were exercised for an aggregate of approximately $18.8 million. As a result of the exercise of warrants and conversion of debentures, the Company's ownership of Granite was diluted to 21.2% as of March 15, 1994. The Company also owns warrants to purchase additional shares in Granite. Depending upon whether and to what extent the Company and the public exercise their warrants and debenture conversion rights, the Company's ownership of the equity of Granite could be reduced to 12.9%. The Company is party to an agreement with the other shareholders of Granite which expires February 8, 1998 and which entitles the
Company to appoint three out of the eleven members of Granite's board. The Company and these shareholders, who currently collectively own an aggregate of 83.1% of Granite, have also agreed to certain restrictions on transfer and to vote together at general meetings of Granite's shareholders. This agreement is terminable on 120 days' notice if a party (or a related group) acquires more than 43% of Granite's share capital. Recently, one of the parties to the agreement acquired the interest of another and now owns 54% of Granite's share capital. The shareholder and the Company have agreed to negotiate a new or amended agreement and have entered into an interim agreement which provides for the Company's continuing right to designate three members of Granite's board until February 8, 1998 (the stated expiration date of the current agreement), provided that there is no change in control over Ampal. If Ampal ceases to exercise "significant influence" over Granite under applicable accounting principles (which the Company believes it continues to exercise by virtue of its board representation), Ampal will no longer be permitted to account for its holdings in Granite under the equity method of accounting, and the Company's reported earnings could be adversely affected.
On June 29, 1993, the Controller of Restrictive Trade Practices of the Israeli Ministry of Industry and Commerce issued a determination regarding the exclusive agreements between the Israeli oil marketing companies and filling station operators stating that these agreements violate Israeli antitrust law. In his determination the Controller stated that his ruling would affect approximately 77% of the Sonol stations (which are those stations not owned by Sonol). The Controller postponed the effective date of his decision, and Sonol has filed an appeal. Until there is a decision on the appeal, Granite has slowed its investments in non-owned filling stations. If upheld in its current form, the Controller's determination will be considered prima facie evidence in legal proceedings between station operators and Sonol and may have a material adverse effect on Granite.
BASIC INDUSTRY
PRI HA'EMEK (CANNED AND FROZEN FOOD) 88 LTD. ("PRI HA'EMEK")
Pri Ha'emek processes and packages frozen vegetables, canned juices and other vegetable and citrus products in Israel and markets its products primarily in Israel and Europe and, to a lesser extent, in North America. Pri Ha'emek has facilities for processing frozen vegetables, citrus and other fruit products and tomatoes and owns a cannery and a freezer plant. Pri Ha'emek also uses a large freezer plant which is partially owned by the Company.
Pri Ha'emek sells to large retail chains. Its products are marketed in Israel principally under its "Pri Ha'emek" and "Priman" names and elsewhere principally under private label. Pri Ha'emek also does some food processing for other food companies, mainly for export out of Israel. Pri Ha'emek intends to expand its food product lines and to seek agreements for the marketing of its products under private labels.
Pri Ha'emek's principal growth market is the domestic Israeli market. Because of the increase in domestic Israeli sales, exports which had accounted for a majority of sales in 1993 only accounted for approximately 55% of its sales. Pri Ha'emek's main product lines have a significant share of the Israeli market.
Historically Pri Ha'emek has not experienced substantial import restrictions for its products in the overseas markets it serves, but there can be no assurance that trade barriers will not be established in the future that could materially and adversely affect Pri Ha'emek's export businesses.
Pri Ha'emek employed 97 persons on a full time basis as of December 31, 1993. Pri Ha'emek also employs workers on a temporary basis to assist it with its seasonal needs.
At December 31, 1993, the Company owned 74.9% of the shares of Pri Ha'emek. In February 1994, Pri Ha'emek's other shareholder purchased additional shares in Pri Ha'emek at the same price the Company paid for its shares in 1991, diluting the Company's ownership to 66.7%. In March 1994, Pri Ha'emek conducted an initial public offering in Israel on the TASE. The offering did not meet the distribution requirement under the regulations of the TASE, and as
a result, Pri Ha'emek's underwriters deposited for sale by a trustee shares which are expected to be sold, at such prices as the trustee may realize, over a thirty day period. The Company has agreed to pay to the trustee up to NIS 2 million (approximately $670,000) to fund its pro-rata share of the difference between the proceeds of those sales and the amount which would have been received if the shares were sold at the public offering price. The Company's interest in Pri Ha'emek will be initially diluted to 51.3%, and upon exercise of all options and convertible debentures, the Company's interest may be diluted to 35.3%. If the Company's interest in Pri Ha'emek decreases below 50%, Pri Ha'emek's results will no longer be consolidated with the Company's but will be recorded by the equity method of accounting.
Pri Ha'emek's assets were purchased from another operating entity in 1988 and 1990. The Company and Pri Ha'emek's other shareholder have agreed, among other matters, to appoint directors in proportion to their respective share holdings, to rights of first refusal, to certain restrictions on transfer and to require approval for certain corporate actions.
PARADISE MATTRESSES (1992) LTD. ("PARADISE")
Paradise is a leading manufacturer and distributor of mattresses and fold-out beds in Israel. Paradise manufactures and distributes its mattresses under the brand names "Paradise," "Mefi" and "Sealy." "Sealy" mattresses are manufactured and distributed by Paradise under a ten-year exclusive license covering the Israeli market expiring in 2002 with an option for an additional five-year term. Paradise owns its own manufacturing facilities and employs approximately 100 persons. It distributes mattresses through independent stores and by direct sales to hotels. Paradise commenced business in 1992 when it purchased a 40-year old division of an unrelated company.
The Company currently owns approximately 85.1% of the share capital of Paradise, approximately half of which was purchased in February 1993 and half of which was purchased in June 1993 for $2 million and $2.3 million, respectively.
CARMEL CONTAINER SYSTEMS LIMITED ("CARMEL")
Carmel is one of the leading Israeli designers and manufacturers of paper-based packaging and related products. Carmel manufactures a varied line of products, including corrugated shipping containers, moisture-resistant packaging, consumer packaging, triple-wall packaging and wooden pallets and boxes.
The Company estimates that Carmel manufactures approximately 25% of the corrugated board, approximately 85% of the corrugated triple wall, and approximately 35% of the corrugated board packaging in Israel. Carmel's products are marketed to a wide variety of customers for diverse uses, but its principal market is packaging for agricultural products and for the food and beverage industry. Although sales of packaging products to exporters of agricultural products have declined slightly, an increase in domestic sales has compensated for this decline.
As of December 31, 1993, Carmel employed 670 persons. Carmel has in the past experienced labor difficulties, including a two-week strike in 1992 at one of its plants.
Recently, Carmel initiated measures to reduce its work force, consolidate certain operations and upgrade certain equipment. Carmel expects to make additional investment in equipment of approximately $12.5 million between 1993 and 1995 for these purposes, of which $5.5 million has already been committed.
Shares of Carmel are listed for trading on the AMEX under the symbol "KML."
In July 1992, the Company acquired 20% of the shares of Carmel for approximately $2.2 million. The Company, American Israel Paper Mills Ltd., the largest paper producer in Israel, and Robert Kraft, a United States investor, are parties to a shareholders' agreement with respect to their shareholdings (which aggregate approximately 78% of the shares) in Carmel. The agreement includes provisions governing board representation, required votes for
specified corporate actions, matters on which the shareholders agree to cooperate and rights of first refusal with respect to the shares owned by the parties. Carmel has granted to International Forest Products Corporation, an affiliate of Mr. Kraft, a right to supply up to 80% of Carmel's requirements for imported paper and forest products in the ordinary course of Carmel's business and on a competitive basis.
ORLITE ENGINEERING COMPANY LTD. ("ORLITE")
Orlite is one of Israel's largest manufacturer of composite material products for military and civilian applications, including specialized fireproof ammunition storage containers for the Israeli Merkava tank, ballistic helmets for military and police use, outdoor storage boxes for telecommunications, cable and electrical switching equipment and specialized aerospace components.
Orlite's markets are changing due to spending cuts undertaken by the Israeli Ministry of Defense ("MOD"). As a result, Orlite expects no growth in sales to MOD, which at one point had represented almost 90% of Orlite's sales, and is focusing on sales of its civilian products which have grown in recent years and which Orlite believes will continue to constitute its most important growth segment.
Orlite's largest growth products are its composite outdoor storage cabinets which house electrical, cable and telecommunications equipment and are less susceptible to adverse weather conditions than metal cabinets. In 1993, Israel Electric Corp. and Bezeq (the Israeli telephone company) accounted for a substantial portion of Orlite's civilian sales. Orlite seeks to expand its sales base by, among other methods, developing other applications for its technology and exporting its products.
As of December 31, 1993, Orlite employed 144 permanent workers and 17 temporary workers. Orlite owns its manufacturing facilities.
As of December 31, 1993, the Company owned 30.1% of the shares of Orlite. Due to exercise of options by the public, the Company's ownership of Orlite was diluted to 29.5% as of March 15, 1994. Another Hapoalim affiliate owns an identical interest. Depending upon whether and to what extent the Company and the public exercise their options, the Company's ownership of the equity of Orlite could be reduced to 24.9%.
DAVIDSON-ATAI PUBLISHERS LTD. ("DAVIDSON-ATAI")
Davidson-Atai is a recently-established publishing house. As its first project, Davidson-Atai has begun publishing, in Hebrew, the initial volumes of a multi-volume series entitled "The World of the Bible," an illustrated series about the Bible. Davidson-Atai expects to translate this series and publish it abroad. Davidson-Atai distributes its books through subscriptions and book stores.
The Company owns 22.5% of Davidson-Atai, which it purchased for approximately $300,000 in 1993 upon initial capitalization of this company.
HIGH TECHNOLOGY AND COMMUNICATIONS
TELEDATA COMMUNICATION LTD. ("TELEDATA")
Teledata designs, develops, manufactures, markets and supports concentrators and multiplexers for integration in the "local loop" of telephone networks (the portion of the network that links individual subscribers to a local exchange). Multiplexers eliminate the requirement of a single, dedicated connection extending the entire distance from each subscriber's premises to the local exchange. This is accomplished by permitting groups of subscribers to be connected by individual twisted pairs of copper wires to a remote terminal which is connected, in turn, to a central terminal at the local exchange by means of a single link (which may consist of copper cables, fiber optic cables, radio or domestic satellite). A multiplexer can utilize this single link to transmit many conversations simultaneously. Line concentrators enable telephone operating companies to utilize the links from the remote terminal to the central terminal more efficiently by allocating the capacity of these links
among a greater number of subscribers. Teledata currently produces a single line of multiplexers and line concentrators. Teledata is in the process of developing three new lines of products including those for digital and wireless platforms.
In 1993, Teledata invested $6.2 million in research and development as compared to $4 million in 1992. In addition to Israel, Teledata markets its products in Europe, Asia, South America, Central America and Oceania (Australia and the surrounding islands). Teledata maintains marketing activities in 60 countries, and has installed its equipment in 37 countries. As of December 31, 1993, Teledata employed 187 persons, as compared to 138 at December 31, 1992.
The sector of the telecommunications industry in which Teledata operates is highly competitive. Teledata competes directly with manufacturers of equipment similar to Teledata's products. Teledata experiences competition from providers of alternative solutions for local loop enhancement.
Teledata's shares are quoted on the NASDAQ NMS under the symbol "TLDCF."
In 1993, the Company recorded a gain of $1.5 million (approximately $700,000 after taxes) from the sale of a portion of its shares of Teledata. As a result of these transactions Ampal's ownership of Teledata was diluted to 2.5% and Ophir's remained at 19.7%.
MERCURY INTERACTIVE CORPORATION ("MERCURY")
Mercury develops, markets and supports a family of automated software quality ("ASQ") products that automate testing and quality assurance for developers of client/server software and systems. By using Mercury's ASQ products, corporate software development organizations, system integrators and independent software vendors can identify software errors, commonly referred to as bugs, more quickly and efficiently than traditional methods allow. This enables developers of software to compress software development cycles, reduce costs and improve software quality.
Mercury's products are targeted to the workstation and personal computer platforms. Mercury's current ASQ products include those for single-user application testing for UNIX/X Windows, MS Windows and Windows NT as well those for multi-user system testing. Its announced products include those for OS/2 and Macintosh. Mercury has licensed over 4,000 copies of its ASQ products to over 300 customers worldwide in a broad range of industries.
The market for ASQ products is relatively new and undeveloped, and Mercury faces competition from several companies in the United States and Europe.
Mercury is a Delaware corporation with its headquarters in California. Mercury's research and development facility is located in Israel. In October 1993, Mercury completed an initial public offering of its shares. Its shares are quoted on the NASDAQ NMS under the symbol "MERQ." Following the public offering, the Company owns 3.8% of the shares of Mercury which it purchased in March 1992 for approximately $1.5 million.
DSP GROUP, INC. ("DSP GROUP") AND DSP TELECOMMUNICATIONS LTD.("DSP TELECOMMUNICATIONS")
DSP Group is a leading developer of high performance, cost effective, digital signal processing ("DSP") software and integrated circuits for digital speech products, targeted at the convergence of the personal computer, communications and consumer electronics markets. Digital speech technology provides fundamental advantages over analog speech technology and represents an enabling technology for a broad range of major applications in these markets. DSP Group pioneered the all-digital telephone answering machine market. DSP Group has developed TrueSpeechTM, a proprietary digital speech compression technology, which offers significant advantages over competing technologies and is being positioned as an industry standard. DSP Group also has interests in related companies engaged in telecommunications and video compression technologies.
As of December 31, 1993, Ampal owned directly 3.6% of the equity of DSP Group which it purchased from an unaffiliated DSP Group shareholder in 1993 for
approximately $1.1 million and Ophir, which is 42.5% owned by the Company, owned 2.3% of DSP Group for which it paid approximately $1.9 million in 1992. Another Hapoalim affiliate also owned 3.6% of DSP Group. In February 1994, DSP Group completed an initial public offering of its shares. It shares are quoted on the NASDAQ NMS under the symbol "DSPG." Following the offering Ampal, Ophir and the Hapoalim affiliate own 2.6%, 2.3% and 2.6%, respectively, of DSP Group.
Ophir also owns 4.4% of DSP Telecommunications, a DSP Group investee, for which it paid $1 million in 1992. DSP Telecommunications is a leading developer of cost effective, high performance DSP software and integrated circuits for digital communications products targeted at the emerging wireless communications market.
IDAN SOFTWARE INDUSTRIES I.S.I. LTD. ("IDAN")
Idan, through its direct and indirect subsidiaries, is a provider of telecommunications services and products. To date, Idan has provided these services and products in Israel, although during 1994 Idan plans to begin marketing certain of its services and products in Europe and selected countries elsewhere.
Idan's subsidiary, Elitec Industries 77 Ltd. ("Elitec"), installs and operates coin-operated pay telephones, installs and provides bedside telephone service to hospital patients and provides tenant communication services to office buildings and other facilities. Elitec, through a subsidiary, provides outbound international telephone and facsimile services to Israeli business customers and issues a telephone calling card to Israeli business executives, professionals and others for use primarily in placing direct-dial inter-country calls. In January 1994, this subsidiary reduced its prices for these services in response to a price reduction for these services implemented by Bezek, the Israeli national telephone company. This price reduction has had an adverse impact on this subsidiary, Elitec and Idan. Elitec, through another subsidiary, provides paging services in central Israel. Elitec shares are publicly traded on the TASE.
During the past two years, Idan's subsidiaries have sought to benefit from the Israeli Government's decision to open up segments of the telecommunications industry to competition. These companies have focused on obtaining Israeli Government licenses to enable them to provide certain telecommunications and value-added services and products in Israel and to commence the operation of businesses which provide these services and products. Idan faces substantial competition for the services and products it offers. Idan is dependent on short-term licenses from the Israeli Ministry of Communications for the services it offers.
In February 1994, Olam 1 Advanced Communications Ltd., in which Idan holds an approximate 9% equity interest filed an application with the Israeli Ministry of Communications for a license to provide the second cellular telephone service in Israel.
The Company has entered into a shareholders' agreement pursuant to which it has agreed to vote all of its shares in favor of all of Idan's nominees to its board of directors, and for so long as it holds at least 70% of the shares it purchased in the private placement from Idan, the other shareholders have agreed to vote in favor of the Company's nominee to Idan's board of directors.
In July 1993, the Company purchased 8.4% of Idan's shares for approximately $3.5 million. In October 1993, Idan completed a private placement of 6.7% of its shares for $3.2 million. As a result of this placement, the Company's ownership of Idan was reduced to 7.8%.
Idan is quoted on NASDAQ under the symbol "IDANF."
EMPLOYEES - - ---------
As of December 31, 1993, Ampal had 12 employees plus 4 employees whose compensation is reimbursed to Ampal by Moriah and 1 employee whose compensation is shared with Hapoalim. Ampal (Israel) had 9 employees and Ampal Industries (Israel) Ltd. had 4 employees as of that date. Relations between Ampal and its employees are satisfactory.
CONDITIONS IN ISRAEL
Most of the companies in which Ampal directly or indirectly invests, conduct their principal operations in Israel and are directly affected by the economic, political, military, social and demographic conditions there. The following information is included in order to describe certain of these conditions in Israel. All figures and percentages are approximate. A substantial portion of the information with respect to Israel presented hereunder has been taken from Annual Reports of the Bank of Israel, the Israeli Central Bureau of Statistics and from economic reports of Hapoalim. No independent verification has been made of such information.
Operations in Israel
A state of hostility has existed, varying as to degree and intensity, between Israel and the Arab countries. In addition, Israel, and companies doing business with Israel, have been the subject of an economic boycott by the Arab countries since Israel's establishment. Following the Six-Day War in 1967, Israel has administered the territories of the West Bank and the Gaza Strip. A peace agreement between Israel and Egypt was signed in 1979 under which full political relations have been established, but economic relations have been very limited. Beginning in December 1987, increased civil unrest has existed in the administered territories. To date, the ongoing civil unrest has not had a material adverse impact on the financial condition or operations of the Company's investees. No prediction can be made whether a resolution of these problems will be achieved or the nature thereof, or whether the continuation of the civil unrest in these territories may have a material adverse impact on the operations of the investees in the future.
The Persian Gulf crisis, which took place in 1990 and 1991, had an adverse effect on the Israeli economy as a whole and on the operations of the Company. A decline in tourism during this period decreased revenues for Moriah. and Coral World. In January 1991, a direct hit by an Iraqi scud missile caused damage to a shopping mall under construction by Bay Heart. Pri Ha'emek, a food processing company, also experienced a downturn in business as a result of this crisis.
Since 1991, negotiations have taken place between Israel, its Arab neighbors and the Palestinians to end the state of hostility in the region. In September 1993, a breakthrough occurred in Israeli-Palestinian relations. A joint Israeli-Palestinian Declaration of Principles was signed by Israel and the Palestine Liberation Organization ("PLO") in Washington, D.C., outlining interim Palestinian self-government arrangements. These arrangements include implementation of Palestinian self-rule in the Gaza Strip and Jericho, proposed elections of a Palestinian council and plans for extensive economic cooperation. In addition, PLO Chairman Arafat sent a letter to Israeli Prime Minister Rabin in which the PLO recognized Israel's right to exist in peace and security, renounced terrorism and violence and affirmed that the clauses of the PLO Covenant denying Israel's right to exist are no longer valid. In reply, Israel recognized the PLO as the representative of the Palestinians in the peace negotiations. Since then, Israel and the PLO have conducted a series of discussions, which have been periodically interrupted due to events in the region, designed to implement the Declaration of Principles.
All male adult permanent residents of Israel under the age of 54 are, unless exempt, obligated to perform up to 44 days of military reserve duty annually. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances. Some of the employees of the Company and its investees are currently obligated to perform annual reserve duty. While the Company and its investees have operated effectively under these and similar requirements, no assessment can be made of the full impact of such requirements on the Company or its investees.
Industrial Buildings, a major owner/lessor of industrial properties in Israel, owns approximately 1.0 million square feet of industrial buildings in the administered territories (approximately 10% of its total holdings). The future status of buildings owned and property leased by Industrial Buildings in the administered territories is uncertain, but historically the Government of Israel has compensated property owners for forfeitures resulting from
government actions.
Demographics
Since the beginning of 1990, Israel has been experiencing a new wave of immigration, primarily from the former Soviet Union. Approximately 77,000 new immigrants arrived through the end of 1993. During the period 1990 through 1993, Israel's population increased by approximately 16.7%. Although the increased immigration from the former Soviet Union may benefit Israel and its economy in the long-term by providing highly educated, cost competitive labor and by stimulating its economic growth, it has placed an increased strain on government services and national resources. A sustained decrease in immigration would alleviate some of the strain, but a decrease may also have a negative effect on those investees whose revenue is derived mainly from the sale of products and services in Israel. The impact of a significant change in the flow of immigration on the operations of the investees is unclear.
The Israeli Government has found it necessary to raise additional revenue and to dedicate substantial funds to support programs, including housing, education and job training, designed to assist in the absorption of the new immigrants. No prediction can be made as to the policies that will be adopted in the future or the effect thereof on these and other government spending programs.
Assistance from the United States
The State of Israel receives approximately $3 billion of annual grants for economic and military assistance from the United States and has received approximately $10 billion of United States Government loan guarantees, subject to reduction in certain circumstances. The Government loan guarantees were granted over a period of five years ($2 billion per annum) commencing in 1993. The Israeli economy could suffer material adverse consequences were such aid or guarantees to be significantly reduced. There is no assurance that foreign aid from the United States will continue at or near amounts received in the past.
Inflation and Devaluation
Over the past four years, Israel's economy has experienced very high rates of growth, exceeding 6% in 1990-92 (an average of 7.5% a year in the business sector) and amounting to 3.5% in 1993. The lower growth rate of 1993 was due to an anticipated 27% drop in investment in residential construction. Economic growth in Israel over the past two years has been fueled by the export sector. Exports of goods and services rose by 14.4% in 1992 and amounted to 20.8 billion dollars and increased by an additional 11.8% in 1993 to reach an estimated 22 billion dollars. The Israeli Government's monetary policy contributed to relative price and exchange rate stability during most of the year despite fluctuating rates of economic growth during the year and a high rate of unemployment.
In 1993, the number of tourists who arrived in Israel increased to approximately 2 million from approximately 1.5 million and 1 million in 1992 and 1991, respectively.
Israel's average unemployment rate was reduced to 10% at the end of 1993 from 11.2% at the end of 1992 and 10.6% at the end of 1991.
The Israeli Government's primary economic policy objective has been to increase business sector employment, and the Government has adopted several economic policy measures in order to stimulate public and private sector investment and expand business activity. In this respect, in early 1993 there were reductions in the corporation tax and value added tax and the elimination of marginal taxes that were viewed as interfering with economic activity. The overseas travel tax and the levy on some imported services were abolished in January 1993. Earlier, in May 1992, the payroll tax on businesses was abolished. A customs agreement with the European Free Trade Association countries was implemented in January 1993.
During 1993, the New Israeli Shekel ("NIS") was devalued by 8% relative to the dollar from NIS 2.764 to NIS 2.986. This devaluation resulted primarily
from the overall appreciation of the dollar in world money markets.
To offset the effects of inflation on the purchasing power of the Israeli currency, the Government of Israel has instituted "linkage" policies which have also been followed by most private organizations. Through linkage, the amount of an obligation or payment is increased from time to time by an amount related to changes in an index which may be the exchange rate of a foreign currency or a price index. The payee is thus compensated for the relative decline in the purchasing power of the NIS. Linkage adjustments may be based upon the total or only a specified percentage of the change in the index being used. Many obligations or payments in Israeli currency are linked to the dollar or the CPI, including payment obligations and receivables of many of the Companies' investees.
The following table sets forth for the periods indicated the effects of annual inflation on linkage adjustments and annual devaluations, as discussed in the preceding paragraph.
- - -------------- (1) "Israel Annual Inflation Rate" is the percentage increase in the Israeli CPI between December of the year indicated and December of the preceding year. (2) "Closing Exchange Rate" is the rate of exchange of one 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 dollar in relation to the NIS during the calendar year. (4) "Annual Inflation Adjusted for Devaluation" is obtained by dividing the December Israeli CPI by the Closing Exchange Rate, thus first obtaining a dollar-adjusted Israeli CPI, and then calculating the yearly percentage changes in this adjusted index. (5) "U.S. Annual Inflation Rate" is obtained by calculating the percentage change in the United States Consumer Price Index for All Urban Consumers, as published by the Bureau of Labor Statistics of the United States Department of Labor. (6) The official closing exchange rate on December 31, 1988, was NIS 1.685 to the dollar. On January 1, 1989, a devaluation of the NIS was declared and a new exchange rate of NIS 1.807 to the dollar was determined.
Israeli Investment
Since the establishment of the State of Israel in 1948, the Government of Israel has promoted the development of industrial and agricultural projects through a variety of methods including tax abatements and tax incentives.
Industrial research and development projects in Israel may qualify for government aid if they deal with the development of commercial products to be made in Israel for sale abroad. Direct incentives usually are provided in the forms of grants, regulated in accordance with the Law for Encouragement of
Industrial Research and Development 1984.
Since 1988, the Government of Israel's policy has been one of privatization aimed at reducing its direct ownership interest in enterprises, and the Government of Israel has sold or is planning to sell all or part of its stake in many Government-owned companies.
Trade Agreements
Israel is a member of the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development and the International Finance Corporation. Israel is also a signatory to the General Agreement on Tariffs and Trade which provides for reciprocal lowering of trade barriers among its members.
Israel became associated with the European Economic Community by an agreement concluded on July 1, 1975 which confers certain advantages with respect to Israeli exports to most European countries and obliges Israel to lower its tariffs with respect to imports from those countries over a number of years.
In 1985, Israel and the United States entered into an agreement to establish a Free Trade Area ("FTA") which is intended ultimately to eliminate all tariff and certain nontariff barriers on most trade between the two countries. Under the FTA agreement, most products received immediate duty-free status in 1985, stated reductions are taking place on others and reductions in tariffs relative to a third category may be accelerated between 1990 and 1995, by which year all tariffs are to have been eliminated.
The end of the Cold War has enabled Israel to establish commercial and trade relations with a number of nations, including Russia, China and the nations of Eastern Europe, with which Israel had not previously had such relations.
Economic Factors
Israel's defense expenditures, debt service and expenditures for the absorption of immigrants are very high. As a result, the share of Israeli resources available for other national purposes is limited. The defense burden, debt service and expenditures for the absorption of immigrants, development of the economy and the provision of a minimum standard of living, particularly for the members of the lower income segments of the community, and the maintenance of a minimum level of net foreign reserves, have resulted in high balance of payments deficits for many years. This deficit has been covered primarily by military and economic aid from the United States, personal remittances from abroad, sales of Israel Government bonds, primarily in the United States, institutional and free market loans and contributions from the Jewish community worldwide.
Israel does not have an abundance of raw materials, including oil, and therefore it is dependent to a large degree on the import of such raw materials.
At December 31, 1991, December 31, 1992 and September 30, 1993, Israel's outstanding net foreign debt was approximately $15.1 billion, $14.7 billion and $16.4 billion, respectively. Israel had approximately $6.4 billion of foreign exchange reserves at the end of 1993 compared to $5.1 billion at the end of 1992 and $6.3 billion at the end of 1991.
Economic and Monetary Policies
In order to stimulate economic growth, the Israeli Government has continued a more liberal monetary policy adopted in 1989 aimed at reducing interest rates and increasing the availability of investment capital. This policy increased the availability of such capital by loosening restrictions on the importation of foreign capital into the country and freeing additional foreign currency deposits held in Israeli banks for domestic lending by reducing bank liquidity requirements.
In an effort to stimulate exports and economic growth, the Israeli
Government abandoned the fixed exchange rate policy which was followed in previous years. Commencing in 1989 the rate of exchange was allowed to fluctuate, within a range of 3% (later changed to 5%) up or down, after an initial devaluation of 13.4%. Further fluctuations and devaluations have occurred or have been declared since then, including a 13.3% devaluation in the fourth quarter of 1992. The current exchange rate mechanism adopted in December 1991 allows the exchange rate to fluctuate around a diagonal mid-band rate which will rise by up to 9% per annum and would allow for a total nominal depreciation of the NIS of up to 18% for 1993.
In the past several years the Israeli Government has also liberalized regulations relating to the Israeli securities market.
CERTAIN UNITED STATES AND ISRAELI REGULATORY MATTERS
S.E.C. Exemptive Order
In 1947, the Securities and Exchange Commission (the "Commission") granted Ampal an exemption from the Investment Company Act of 1940, as amended (the "1940 Act") pursuant to an Exemptive Order. The Exemptive Order was granted based upon the nature of Ampal's operations, the purposes for which it was organized, which have not changed, and the interest of purchasers of Ampal's securities in the economic development of Israel. There can be no assurance that the Commission will not reexamine the Exemptive Order and revoke, suspend or modify it. A revocation, suspension or material modification of the Exemptive Order would materially and adversely affect the Company. In the event that Ampal becomes subject to the provisions of the 1940 Act, it could be required, among other matters, to make material changes to its management, capital structure and methods of operation, including its dealings with Hapoalim and related companies.
Certain Israeli Real Estate Tax Matters
Under Israeli law, a lease of real property with a term of more than 10 years is required to be reported to the Israeli Appreciation Tax Authorities and is subject to a land appreciation tax or an income tax and an acquisition tax. The Israeli Tax Commissioner has recently taken the position that certain arrangements for the lease of real property, including multiple leases, leases with renewal options and leases or options to lease between affiliated companies, which in the aggregate provide a term exceeding 10 years, are subject to the above reporting and taxes.
Certain of the investees, including Ophir, Industrial Buildings and Carmel, are parties (mostly as lessors) to lease transactions which, under the Commissioner's interpretation, may be deemed leases for terms in excess of 10 years. These investees have all reported their lease income as taxable income and have recently reported such transactions to the tax authorities. Should the tax authorities decide to enforce their position and prevail, these investees would be in breach of Israeli law, and could be subject to material taxes and to civil and criminal penalties. An assessment made against Bay Heart in this regard by the tax authorities has been dropped.
The Company's investees have taken the position, which the Company believes is shared by many of the other affected taxpayers in Israel, that the Commissioner's position in this matter is incorrect. The Company cannot predict whether the Commissioner's position will be upheld or, if upheld, the effect on the Company and its investees.
Israeli Banking Regulations
In October 1993, the Bank Share Settlement Act (Temporary Provisions) 1993 (the "Bank Shares Act") was enacted by the Knesset, the Israeli parliament. Under the Bank Shares Act, in October 1993, the shares of several Israeli banks, including a majority of the shares of Hapoalim, were transferred to the State of Israel. The purpose of the Bank Shares Act is to facilitate the sale by the Government of Israel of shares in Israeli banks. In addition, the Bank Shares Act is intended to limit the Government's interference in the day-to-day operations of the banks. Control over such shares of each bank will be exercised by a supervisory committee appointed for that bank by a public advisory committee which is in turn approved by the Israeli Government. These supervisory committees will appoint directors for each of the banks.
In May 1993, the Government of Israel sold a total of approximately 8% of the shares of Hapoalim in a public offering and also sold options to purchase an additional approximately 10% of the shares of Hapoalim. In November 1993, the Government of Israel sold 5.4% of the shares of Hapoalim in a public offering and an additional 1% of Hapoalim's shares in an offering to its employees.
A provision of the Banking (Licensing) Law, 1981 (the "Banking Law") imposes limitations on the purchase and holding of means of control of non-banking corporations by Israeli banks. The Banking Law does not permit Hapoalim to acquire additional means of control in Ampal. Additionally, not more than 25% of the capital of Hapoalim may be invested in non-banking business corporations, including Ampal. Under the Banking Law, the Company may not use financing directly or indirectly provided by Hapoalim to make acquisitions of means of control in non-banking corporation. Hapoalim may not extend credit to the Company except in the ordinary course of business and on terms similar to those on which credit is extended to other customers of the same class.
In March, 1994, an amendment to the Banking Law was enacted by the Knesset. Under the amendment, banks, including Hapoalim, are required to reduce their holdings of individual non-banking business corporations, including Ampal, to 25% or less by and not later than December 31, 1996. In addition, it has been proposed by the Government, that the Minister of Finance form a committee to examine the overall economic implications of a further reduction in the permitted holdings of banking corporations in non-banking business corporations.
From time to time, the Company engages in transactions with Hapoalim and its affiliates. Currently, the Company maintains substantial deposits with Hapoalim and its subsidiaries. See "Certain Relationships and Related Transactions."
United States Banking Regulations
Due to its status as a subsidiary of Hapoalim which is subject, through the United States International Banking Act of 1978 ("IBA"), to the provisions of the United States Bank Holding Company Act of 1956 ("BHC"), there may be limitations upon the direct or indirect investment activities of Ampal in the United States. While Ampal itself is a "grandfathered" investment of Hapoalim under the IBA for purposes of the BHC, Ampal may not invest in more than 5% of the voting shares or 25% of the equity of United States corporations or non-United States corporations which have a majority of their assets in or revenues derived from the United States, subject to certain exceptions. Management of the Company does not believe that these limitations contained in the BHC and the regulations of the Board of Governors of the Federal Reserve System thereunder have had or will have any material adverse impact upon the Company or its operations.
Israeli Foreign Exchange Regulations
Foreign exchange regulations are in effect in Israel. The regulations are administered by the Controller of Foreign Currency, an official of the Bank of Israel, who is appointed by the Minister of Finance. The Company's capital investments in Israeli enterprises and the payment in U.S. dollars of dividends on such investments do not require prior approval by the Controller. Under Israeli law, foreign investors who make foreign currency investments in Israeli companies are entitled to receive payments of dividends and proceeds upon resale of the investment in that foreign currency.
To the extent that loans or investments have been or will be made by Ampal or any of its subsidiaries in or to Israeli enterprises, substantially all such loans or investments have been, and will be, made in such manner as to permit the payment of dividends, interest and principal and proceeds of resale thereon in U.S. dollars.
TAX INFORMATION
Israeli Taxation Of Ampal
Ampal (to the extent that it has income derived in Israel) and Ampal's Israeli subsidiaries are subject to taxes imposed under the Israeli Income Tax Ordinance. For 1993, Israeli companies are taxed on their income at a rate of 39%. For 1994 through 1996, this tax rate will be reduced to 38%, 37% and 36%, respectively. These reductions represent the final stage of reforms begun in 1987. These reforms consisted of combining two separate types of taxes on company income, company tax and income tax, into one tax, and reducing the effective tax rate on company income in 1987 from 61% to 45%, with further reductions to 43.5%, 41%, 40% and 39% in 1990 through 1993.
Ampal has income from interest, rent and dividends resulting from its investments in Israel. Under Israeli law, Ampal has been filing reports with the Israeli tax authorities with respect to such income. In addition, as noted below, Ampal is subject to withholding tax on dividends received from Israeli companies at a rate of 25%. Under an arrangement with the Israeli tax authorities, such income has been taxed based on principles generally applied in Israel to income of non-residents. Ampal has filed reports with the Israeli tax authorities through 1991 and has received "final assessments" with respect to such reports (which final assessments are, under Israeli law, subject to reconsideration by the tax authorities only in certain limited circumstances, including fraud). Based on the tax returns filed by Ampal through 1991, it has not been required to make any additional tax payments in excess of the withholding on its dividends. In addition, under Ampal's arrangement with the Israeli tax authorities, the aggregate taxes paid by Ampal in Israel and the United States on interest, rental and dividend income derived from Israeli sources has not exceeded the taxation which would have been payable by Ampal in the United States had such interest, rental and dividend income been derived by Ampal from United States sources. There can be no assurance that this arrangement will continue in the future. This arrangement does not apply to taxation of Ampal's Israeli subsidiaries.
Under the provisions of the Income Tax Ordinance, income paid to non-residents of Israel by residents is generally subject to withholding tax at the rate of 25%. No withholding has been made on interest and rent payable to Ampal under an exemption which Ampal has received from the income tax authorities on an annual basis. There can be no assurance that this exemption will continue in the future. With regard to dividends, however, payments to Ampal are withheld at the 25% rate (as opposed to dividends payable to Israeli companies, which are exempt from tax). The continued tax treatment of Ampal by the Israeli tax authorities in the manner described above is based on Ampal continuing to be treated, for tax purposes, as a non-resident of Israel that is not doing business in Israel.
Under Israeli law, a tax is payable on capital gains of residents and non-residents of Israel. With regard to non-residents, this tax applies to gains on sales of assets either located in Israel or which represent a right to assets located in Israel (including gains arising from the sale of shares of stock in companies resident in Israel). The portion of the gain attributable to inflation is taxable at 10%, while the remainder of the profit, if any, is taxable to corporations at 39% in 1993 (and is scheduled to be reduced to 38% and further to 36% in stages during 1994 through 1996). Non-residents of Israel are exempt from the 10% tax on the inflationary gain derived from the sale of shares in companies that are considered Israeli residents if they choose to compute the inflationary portion of the gain based on the change in the rate of exchange between Israeli currency and the foreign currency in which the shares were purchased from the date the shares were purchased until the date the shares were sold.
The Income Tax Law (Adjustment for Inflation), 5745-1985, which applies to companies which have business income in Israel or which claim a deduction in Israel for financing costs, has been in force since the 1985 tax year. The law provides for the preservation of equity whereby certain corporate assets are classified broadly into Fixed (inflation resistant) and Non-Fixed (non-inflation resistant) Assets. Where shareholders' equity, as defined therein, exceeds the depreciated cost of Fixed Assets, a tax deduction which takes into account the effect of the annual inflationary change on such excess
is allowed, subject to certain limitations. If the depreciated cost of Fixed Assets exceeds shareholders' equity, then such excess, multiplied by the annual inflation change, is added to taxable income.
A proposed tax treaty between Israel and the United States was signed in 1975, and amended by protocols signed in 1980 and January 1993. Ratification of the treaty is pending in both countries. The Company believes that this treaty will not have a substantial impact on the taxation of the Company in the United States or in Israel.
Individuals and companies in Israel pay VAT at a rate of 17% of the price of assets sold and services rendered. They can deduct VAT paid on goods and services acquired by them.
United States Taxation Of Ampal
Ampal and its United States subsidiaries (in the following tax discussion, generally "Ampal") are subject to United States taxation on their consolidated taxable income from foreign and domestic sources. The gross income of Ampal for tax purposes includes or may include (i) income earned directly by Ampal, (ii) Ampal's share of "subpart F income" earned by certain foreign corporations controlled by Ampal, (iii) Ampal's share of income earned by certain electing "passive foreign investment companies" or (under a pending tax bill) "passive foreign corporations" of which Ampal is a stockholder and (iv) an amount (if any) generally equal to Ampal's share of a controlled foreign corporation's "excess passive assets." Subpart F income includes dividends, interest and certain rents and capital gains. Excess passive assets of a controlled foreign corporation for a taxable year are the excess of the average of the amounts of passive assets held by the corporation as of the close of each quarter of a taxable year over 25% of the average of the amounts of total assets held by the corporation at such times. For calendar years 1993 and 1994, the maximum rate applicable to domestic corporations is 35%.
Ampal is entitled to claim as a credit against its United States income tax liability all or a portion of income taxes, or of taxes imposed in lieu of income taxes, paid to foreign countries. If Ampal receives dividends from a foreign corporation in which it owns 10% or more of the voting stock, in determining total foreign income taxes paid by Ampal for purposes of the foreign tax credit, Ampal is treated as having paid the same proportion of the foreign corporation's post-1986 foreign income taxes as the amount of such dividends bears to the foreign corporation's post-1986 undistributed earnings.
In general, the total foreign tax credit that Ampal may claim is limited to the proportion of Ampal's United States income taxes that its foreign source taxable income bears to its taxable income from all sources, foreign and domestic. The Internal Revenue Code of 1986, as amended (the "Code"), also limits the ability of Ampal to offset its United States tax liability with foreign tax credits by subjecting various types of income to separate limitations. Source of income and deduction rules may further limit the use of foreign taxes as an offset against United States tax liability. As a result of the operation of these rules, Ampal may choose to take a deduction for foreign taxes in lieu of the foreign tax credit.
Ampal may be subject to the alternative minimum tax ("AMT") on corporations. Generally, the tax base for the AMT on corporations is the taxpayer's taxable income increased or decreased by certain adjustments and tax preferences for the year. The resulting amount, called alternative minimum taxable income, is then reduced by an exemption amount and subject to tax at a 20% rate. As with the regular tax computation, AMT can be offset by foreign tax credits (separately calculated under AMT rules and generally limited to 90% of AMT liability as specially computed for this purpose).
In connection with the transfer in 1992 of its stock in Granite to a foreign subsidiary, Ampal entered into a gain recognition agreement with the Internal Revenue Service. Under this agreement, if the foreign subsidiary sells all or a portion of its stock in Granite before 2003, Ampal generally will be required to recognize for tax purposes a proportionate amount of gain based upon the fair market value of the stock in Granite on the date of the transfer to the foreign subsidiary, and to pay tax due in respect of such gain
together with interest accrued on such tax since the date of the gain recognition agreement.
RETURN ON EQUITY AND ASSETS - - ---------------------------
The following table sets forth information regarding the return on equity and assets of the Company for the years indicated:
Year Ended December 31, ----------------------------- 1993 1992 1991 -----------------------------
Return on Assets (net income divided by average total assets).............. .06%* 2.88% .27%
Return on Equity (net income divided by average shareholders' equity)...... .19%* 8.91% 1.04%
Dividend Payout Ratio Per Class A Share (dividends declared per share divided by net income per share)...... - - -
Equity to Assets Ratio (average equity divided by average total assets)...... 33.17% 32.29% 26.31%
* Includes cumulative effect on prior years of change in accounting principle of $(4,982,000).
Item 2.
Item 2. PROPERTY --------
Ampal currently occupies executive office space leased by Hapoalim at 1177 Avenue of the Americas, New York City and will pay Hapoalim base rent of approximately $168,000 per year commencing in September 1994, subject to escalation. Ampal has space located at 10 Rockefeller Plaza subleased until September 30, 1994 from Hapoalim for an annual rental, subject to escalation. The rental payments for 1993 amounted to approximately $178,000. Until November, 1990 Ampal occupied the entire floor, constituting 10,710 square feet. At that time, Ampal modified the sublease to return 65% of that space to Hapoalim, which then subleased it to an unrelated party subject to Ampal's guarantee of total rent payments equivalent to the rent previously paid under Ampal's sublease in the event the third party defaults.
The Company leases office space in various locations in the United States and Israel to Hapoalim and its subsidiaries in exchange for total annual rental payments of approximately $3,251,000. These lease transactions consist of the following:
Hapoalim leases a portion of premises owned by Ampal located at 105 Arlozoroff Street, Tel Aviv under a lease which expires March 9, 2003, with annual rental payments based upon 11% of the cost of the property. In 1993, Ampal received $352,000 as rental payments for these premises.
Hapoalim leases premises owned by Ampal (Israel) Ltd ., an Ampal subsidiary, located at 111 Arlozoroff Street, Tel Aviv under a lease which expires on September 30, 2000, with annual rental payments based upon 10% of the value of the property linked to the CPI. In 1993, Ampal (Israel) received $220,000 as rental payments for these premises.
Hapoalim leases two premises owned by Ampal Development (Israel) Ltd ., an Ampal subsidiary, located at 65 Allenby Street and 99 Ben Yehuda Street, Tel Aviv. These leases expire December 31, 1996 (with options to extend the lease term through December 31, 2002) with annual rental payments based upon 10% of the value of the property linked to the CPI. In 1993, Ampal Development (Israel) received $326,000 as rental payments for these premises.
Hapoalim leases two premises owned by Ampal Development (Israel) Ltd . located at 39 Shenker Street, Holon and 111 Yaffe Nof Street, Haifa. These leases expire on September 30, 2000, with annual rental payments approximately equal to 10% of the cost of the property linked to the CPI. In 1993, Ampal Development (Israel) received $705,000 as rental payments for these premises.
Hapoalim and its affiliates lease two premises owned by Mercazim Investments Ltd., a subsidiary of a company 42.5% owned by Ampal. These leases expire on May 30, 2000, November 30, 2002 and July 30, 2003, respectively, with the annual rental payments at market rates. In 1993, Mercazim received $662,000 as rental payments for these premises.
Hapoalim leases two premises owned by Ampal Financial Services Ltd ., an Ampal subsidiary, in Ramat Hasharon and Rosh Pina. These leases expire on September 30, 2000, with the annual rental payments based upon 10% of the cost of the premises, linked to the CPI. In 1993, Ampal Financial Services received $469,000 as rental payments for these premises.
Hapoalim leases two premises owned by Nir Ltd., an Ampal subsidiary, one in Tel Aviv and one in B'nai Brak, with the annual rental payments based upon 10% of the cost of the premises, linked to the CPI. The lease on the premises in Tel Aviv expires on September 30, 2000, and the lease on the premises in B'nai Brak expires on July 10, 1997 (on June 10, 2002, if an option is exercised). In 1993, Nir received $377,000 as rental for these premises.
Hapoalim leases an office building owned by Ampal located at 174 North Michigan Avenue, Chicago, Illinois. This lease expires on in 2007 for a net rental of $140,000 per year. At the conclusion of the term, Ampal has the option of requiring Hapoalim to purchase the building at its then fair market value. In 1993, Ampal received $140,000 as rental payments for these premises.
Under agreements initially made in 1984 and extended in 1989, Ophir separately leases a hotel and parking area in Herzelia, Israel from an unrelated party. Ophir subleases these properties to Hapoalim on terms identical to those it pays. In 1993, Ophir received $250,000 as rental payments for these premises.
Ampal-Israel, Ampal Development, Nir and Mercazim own several properties in Jerusalem, Kfar Saba, Kiryat Aryeh, Tel Aviv, Beersheva and B'nai Brak, including industrial plants, four supermarkets, and other properties which are leased to various parties. The rent received by these companies for all of these properties in 1993 totalled $1,171,000.
Other properties of the Company are discussed elsewhere in this Report .
Item 3.
Item 3. Legal Proceedings -----------------
None.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
Not Applicable.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ---------------------------------------------------------------------
PRICE RANGE OF CLASS A STOCK
Ampal's Class A Stock is listed on the AMEX under the symbol "AIS.A." The following table sets forth the high and low sales prices for the Class A Stock, as reported on the American Stock Exchange Composite Tape for each calendar quarter during the periods indicated:
HIGH LOW ---- ---
1992: First Quarter........................................... 5 7/8 3 1/3 Second Quarter.......................................... 6 7/8 4 1/2 Third Quarter........................................... 6 1/4 5 1/8 Fourth Quarter.......................................... 6 1/4 4 3/4 1993: First Quarter........................................... 9 7/8 5 1/4 Second Quarter.......................................... 9 1/2 7 1/4 Third Quarter........................................... 12 1/4 7 5/8 Fourth Quarter.......................................... 13 10 1/4
As of March 23, 1994, there were 1,459 record holders of Class A Stock.
DIVIDEND POLICY
Ampal has not paid cash dividends on its Class A Stock since 1989 and has no present intention of declaring a cash dividend on the Class A Stock. Past decisions not to pay cash dividends reflected the policy of Ampal to apply retained earnings, including funds realized from the disposition of holdings, to finance its business activities and to redeem debentures. The payment of cash dividends in the future will depend upon the Company's operating results, cash flow, working capital requirements and other factors deemed pertinent by its board of directors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA -----------------------
* Includes cumulative effect on prior years of change in accounting principle of $(4,982), equal to $(.21) per share.
** Includes extraordinary income of $726, equal to $.03 per share.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS ---------------------
GENERAL - - -------
The Company acquires interests in businesses located in the State of Israel or that are Israel-related. An important objective of Ampal is to make investments in companies that take advantage of growth in Israel's domestic economy. The Company has diversified interests in the following sectors: hotels and leisure-time, real estate, energy distribution, basic industry and high technology and communications. Ampal generally seeks to acquire and maintain a sufficient equity interest in a company to permit it, on its own or with investment partners, to have a significant influence in the management and operation of that company. In determining whether to acquire an interest in a specific company, the Company considers quality of management, qualifications of investment partners, potential return on investment, projected cash flow, market share and growth potential.
The Company emphasizes long-term appreciation over short-term returns and liquidity. The Company often makes equity investments accompanied by more significant loans or loan guarantees with the intention that cash flow from operations of the investee companies will repay these loans within a relatively short period. The Company believes that recent progress in peace negotiations between Israel, the Palestinians and certain Arab states may improve the economic climate in the region, benefit the Company's investees and create additional investment opportunities.
The Company's results of operations are directly affected by the results of operations of its investees.
Companies which are greater than 50%-owned are included in the consolidated financial statements of the Company. The Company accounts for its holdings in investees over which the Company exercises significant influence, generally 20%- to 50%-owned companies, under the equity method. Under the equity method, the Company recognizes its proportionate share of such companies' income based on its percentage of direct and indirect equity interests in earnings of those companies. If the Company's interest in a subsidiary were to be reduced to 20%-50%, the investment would be recorded under the equity method. The Company's results of operations may be affected by capital transactions of investee companies which are 20%- to 50%-owned. Thus, the issuance of shares by an investee company which is accounted for under the equity method at a price per share above the Company's carrying value per share for such investee company results in the Company recognizing income for the period in which such issuance is made, while the issuance of shares by such an investee at a price per share that is below the Company's carrying value per share for such investee company results in the Company recognizing a loss for the period in which such issuance is made. The Company accounts for its holdings in investees, other than those described above, on the cost method. Under the cost method, the Company accounts for its investment at the lower of cost or market.
A comparison of the Company's financial statements from year to year must be considered in light of the Company's acquisitions and divestitures during the period.
The Company's effective tax rates have been and in the future may be above United States statutory rates, in part, because of taxes paid in foreign jurisdictions by investees for which Ampal does not fully receive tax credits in the United States.
Effective January 1, 1993, the Company was required to adopt Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" which requires a change from the deferred method to the liability method of accounting for income taxes. The cumulative effect on prior years of this change in accounting principle was reflected as a nonrecurring reduction of net income and an increase in deferred income tax liability of approximately $5 million. This was reported separately in the consolidated statement of income for the year ended December 31, 1993. This change required no payments to any taxing jurisdiction and had no material effect on the current year's provision for income taxes and on income before cumulative effect of change in accounting
principle. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109.
Based on the guidelines of SFAS No. 52, "Foreign Currency Translation," the economy in Israel is no longer considered hyper-inflationary as a result of changes in the economic conditions and the decrease in the rate of inflation in Israel. During 1993, for those subsidiaries and affiliates whose functional currency is considered to be the New Israeli Shekel ("NIS"), assets and liabilities are translated at the rate of exchange at the end of the reporting period and revenues and expenses are translated at the average rates of exchange during the reporting period. Translation differences of those foreign companies' financial statements are included in the cumulative translation adjustment account of shareholders' equity at December 31, 1993. Prior to 1993, translation gains and losses for these subsidiaries and affiliates were reflected in the Company's consolidated statements of income. Should the NIS continue to be devalued against the dollar, such cumulative translation adjustments are likely to result in reductions of shareholders' equity. As of December 31, 1993, the effect on shareholders' equity was a decrease of approximately $2.2 million. Upon disposition of an investment, the related cumulative translation adjustment balance will be recognized in determining gains or losses.
Moriah Hotels Ltd. ("Moriah") and Orlite Engineering Company Ltd. ("Orlite") report their financial statements on a three-month lag. Consequently, their results for the 12-month period ended September 30, 1993 were incorporated into the Company's 1993 consolidated annual financial statements.
RESULTS OF OPERATIONS - - ---------------------
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Consolidated net income before the cumulative effect of a change in accounting principle decreased to $5.2 million in 1993 from $10.3 million in 1992. In 1993 and 1992, there were special factors which impacted both years' reported net income. 1993 net income included approximately $3 million of gains on issuance of shares by affiliates and gains on sales of investments (net of minority interests and income taxes), whereas 1992's net income included approximately $6.2 million of similar gains. Furthermore, in 1993 the Company was required to record a nonrecurring charge of approximately $5 million with respect to its adoption of SFAS No. 109 which resulted in net income of $.2 million as compared with $10.3 million in 1992.
The decrease in net interest earnings in 1993 as compared to 1992 resulted from additional interest income earned by the Company from a prepayment of a deposit receivable in 1992, and additional interest expense in 1993 resulting from Ophir's bank borrowings to finance its investment in Industrial Buildings Ltd. ("Industrial Buildings"). In the first quarter of 1993, Ophir Holdings Ltd. ("Ophir"), which is now 42.5%-owned by the Company, participated in the purchase from the Government of Israel of 51.3% of the shares in Industrial Buildings, the largest owner/lessor of industrial buildings in Israel. The remainder of the shares of this company are held by the public. Ophir's approximately $50 million investment in Industrial Buildings was financed primarily by borrowings from two unrelated banks. Ophir owns an equivalent of 12.8% of the equity of Industrial Buildings.
Equity in earnings of affiliates decreased for the year ended December 31, 1993 as compared to the same period in 1992. The decrease was mainly attributable to the Company's share of losses of its real estate affiliates which recorded high finance expenses on their borrowings linked to the Consumer Price Index in Israel ("CPI"). In the past, these finance expenses were substantially offset by the translation gains resulting from the devaluation of the Israeli shekel to the U.S. dollar. In 1993, based on the guidelines of SFAS No. 52 (see General), these companies changed the method of translating their shekel financial statements to U.S. dollars, and the translation gains are no longer reflected in the statement of income but are included in the cumulative translation adjustment account of shareholders' equity. The losses from real estate affiliates were partially offset by the Company's share of the earnings of the Moriah Group of companies which increased in 1993 as a result of higher occupancy reflecting the rise in tourism to Israel as well as the Company's share of earnings of newly acquired affiliates.
Food processing revenues which reflect sales of the Company's then 74.9%-owned subsidiary, Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), decreased because sales were affected by foreign currency fluctuations. In February 1994, Pri Ha'emek's other shareholder purchased additional shares in Pri Ha'emek at the same price the Company paid for its shares in 1991, diluting the Company's ownership to 66.7%. In March 1994, Pri Ha'emek conducted an initial public offering in Israel on the Tel Aviv Stock Exchange ("TASE"). The offering did not meet the distribution requirement under the regulations of the TASE and as a result, Pri Ha'emek's underwriters deposited for sale by a trustee shares which are expected to be sold, at such prices as the trustee may realize, over a thirty-day period. The Company has agreed to pay to the trustee up to NIS 2 million (approximately $670,000) to fund its pro-rata share of the difference between the proceeds of those sales and the amount which would have been received if the shares were sold at the public offering price. The Company's interest in Pri Ha'emek will be initially diluted to 51.3% and upon exercise of all options and convertible debentures, the Company's interest may be diluted to 35.3%. If the Company's interest in Pri Ha'emek decreases below 50%, Pri Ha'emek's results will no longer be consolidated with the Company's but will be recorded by the equity method of accounting.
In February and June 1993, the Company invested an aggregate of approximately $4.3 million in Paradise Mattresses Industries (1992) Ltd. ("Paradise") for approximately 85.1% of the shares of Paradise. Paradise's assets and liabilities were consolidated commencing June 30, 1993; its manufacturing and distribution operations were included in equity in earnings of affiliates for the six months ended June 30, 1993 and consolidated for the six months ended December 31, 1993. Paradise is a company which manufactures and markets mattresses and fold-out beds in Israel and is a licensee of the Sealy Posturepedic Mattress name and manufacturing process.
In November 1993, the capital structure of Ophir was reorganized to equalize the voting and equity interests of its two shareholders. Subsequently, Ophir concluded a private placement to a different related party under which it issued 15% of its shares for approximately $10.2 million. As a result, the Company's interest in Ophir was diluted from 50% to 42.5%. Until September 30, 1993, Ophir's financial statements were consolidated by the Company. As a result of these transactions, in the fourth quarter of 1993 Ophir was accounted for under the equity method, and the Company recorded a gain on issuance of shares of approximately $3.2 million (approximately $2.1 million after taxes).
In February and October 1992, Granite Hacarmel Investments Limited ("Granite") concluded two public offerings in Israel on the TASE for proceeds of approximately $60 million and $42 million, respectively, which Granite intends to use for expansion, diversification and the repayment of high-interest debt. As a result of these transactions the Company's ownership interest in Granite was diluted from 26% to 21.6%. Also in February 1992, Moriah concluded a private placement of 20% of its shares with a related party in Israel for a price of $12.5 million. These funds were used, together with internal sources, bank borrowings and a $7 million government grant, to finance the approximately $32 million renovation and expansion of the Moriah Eilat Hotel which was reopened in August 1992. As a result of the private placement, the Company's ownership in Moriah was diluted from 57.5% to 46%. Thus, effective in the first quarter of 1992, the Company no longer consolidates the results of Moriah in its financial statements but accounts for its investment in Moriah under the equity method. The Moriah and Granite offerings resulted in gains on issuance of shares of $7 million (approximately $2.7 million after taxes).
In April 1992, Teledata Communication Ltd. ("Teledata") concluded a public offering of its securities in the United States. This offering resulted in a gain on issuance of shares of $5.8 million ($2.1 million after taxes and a deduction for Ophir's minority interest). In connection with Teledata's public offering, the Company and Ophir (then a consolidated subsidiary of the Company) sold a portion of their interests in Teledata and realized a gain on sale of $3.8 million ($1.2 million after taxes and a deduction for Ophir's minority interest). During 1993, the Company sold additional shares in Teledata and realized a gain on sale of $1.5 million (approximately $.7 million after taxes). As a result of these transactions, the Company's ownership of Teledata was reduced to 2.5% and Ophir's to 19.7%.
Year Ended December 31, 1992 Compared to Year Ended December 31, 1991
Consolidated net income increased to $10.3 million in 1992 from $1.1 million in 1991. This increase was primarily attributable to gains on issuance and sale of shares, which resulted from offerings of shares by investee companies as described above.
Interest revenue declined in 1992 as compared to 1991 as a result of repayments of existing deposits, notes and loans receivable. During the same period interest expense also declined as a result of the repayment of debentures, notes and loans payable. In addition, net interest earnings in 1992 were greatly reduced in the fourth quarter by a 13% devaluation of the NIS to the dollar.
In December 1991, the Company acquired an additional 24.9% interest in its food processing subsidiary, Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), for $2 million (a 50% interest was acquired in 1988). This brought the Company's total ownership to 74.9%. Therefore, Pri Ha'emek's assets and liabilities have been consolidated in the Company's consolidated balance sheet at December 31, 1992 and 1991; its results of operations were consolidated in the Company's consolidated statement of income in 1992 and included in equity in earnings of affiliates in 1991. Pri Ha'emek showed significant increases in revenues, operating costs and net income in 1992 resulting from increased sales to the domestic market as well as sales of new product lines.
Equity in earnings of affiliates and others increased significantly in 1992. The income of Moriah increased substantially as a result of higher occupancy rates which reflected increased tourism as well as higher room rates. In 1991, the occupancy rates in the hotels were much lower as a result of the virtual standstill in tourism to Israel during the Persian Gulf crisis and its aftermath. Moriah's income for the twelve-month period ended September 30, 1992 was reported in this category in the Company's 1992 financial statements. The earnings of the Company's real estate affiliates also increased significantly in 1992 because of the effect which the fourth quarter devaluation had on their borrowings which are linked to the CPI.
In 1992, the Company recorded gains on issuance of shares, primarily as a result of offerings of shares by Granite, Moriah and Teledata, and a gain on sale of shares of Teledata described in the discussion covering the year ended December 31, 1993 as compared to the year ended December 31, 1992.
Other expenses declined in 1992 from 1991 primarily as a result of a reduction of headquarters expenses and the deconsolidation of Moriah in 1992.
There was a translation loss of $1.4 million in 1992 as compared to a gain of $300,000 in 1991. Translation gains and losses in 1992 and 1991 resulted from the effect of devaluations which approximated 21% and 11%, respectively. Increases in the rates of inflation in Israel (as of November of each year) were 9% for 1992 and 18% for 1991, respectively.
The decrease in the effective income tax rate to 56% in 1992 from 75% in 1991 (net of utilization of tax loss carryforwards) resulted from changes in the components of taxable income, changes in tax rates relating to previously recorded deferred income taxes and reported losses of certain subsidiaries for which no tax benefits were available.
LIQUIDITY AND CAPITAL RESOURCES - - -------------------------------
As of December 31, 1993, the Company had cash and cash equivalents totalling approximately $3.2 million and had a committed $10 million bank line of credit which expires in October 1994. Any new investments which the Company may make are likely to be funded from the Company's internal cash flow, a portion of the net proceeds of the offering (described below) or bank borrowings.
On January 25, 1994, the Company sold in a public offering 4.5 million units consisting of one share of Class A stock and one redeemable warrant to purchase one share of Ampal's Class A stock, for $12.125 per unit. The warrants are exercisable at $16 per share at any time until January 31, 1999, and are callable by Ampal, in whole or in part, from and after February 1, 1996,
without payment to the holder. The net proceeds, which the Company received from this offering, amounted to approximately $51 million. The Company intends to use the proceeds of this offering for the financing of acquisitions, additions to existing holdings and other working capital and general corporate purposes, including early redemptions of outstanding Ampal debentures.
At December 31, 1993, the Company's debt to equity ratio was 1.31 to 1 as compared with 1.48 to 1 at December 31, 1992. On a pro forma basis, at December 31, 1993, giving effect to the proceeds of the public offering, the ratio would have been .91 to 1.
Deposits receivable have continued to decline since 1990 as a result of repayments. During 1993, the decreases in cash and cash equivalents and debentures payable were mainly attributable to the early redemption of approximately $14 million of high interest-bearing debentures which Ampal called and to new investments made.
Since 1989, Ampal has called for early redemption an aggregate of approximately $121 million principal amount of debentures. In 1992, debentures were redeemed or paid at maturity in the principal amount of $54.7 million, of which the early redemption of high interest-bearing debentures amounted to $39.4 million. In March 1994, Ampal made an optional redemption of approximately $6.5 million of its 7.5% variable rate debentures which were scheduled to mature in 1996. Later in 1994, Ampal intends to make further optional redemptions of approximately $9.1 million of its 8% to 10% debentures maturing in 2000. These redemptions have been and are expected to be funded from internal cash flow, a portion of the net proceeds of the offerings or bank borrowings. At December 31, 1993, Ampal had $48.2 million aggregate principal amount, net of discounts, of its debentures outstanding which are scheduled to mature by 2003, including debentures which may be called for early redemption. Most of these debentures bear interest at fixed rates ranging from 10% to 13%. Of the $48.2 million of Ampal's outstanding debentures, $22.1 million principal amount, net of discounts, of non-callable debentures are scheduled to mature between January 1, 1994 and December 31, 1996. A portion of such debentures may be presented to Ampal for payment prior to scheduled maturity. An additional $43.1 million principal amount of the Company's outstanding debentures were issued by an Israeli subsidiary and are secured by $45 million of deposits with Hapoalim. The cash flow from these deposits is matched to scheduled payments of principal and interest on the Israeli subsidiary's debentures. The Company's outstanding debentures includes an aggregate principal amount, net of discounts, of $75.7 million which is not callable prior to scheduled maturity. At December 31, 1993, the Company had deposits and notes and loans receivable aggregating $116.4 million with varying interest rates and maturities and repayment is guaranteed by Hapoalim.
As of December 31, 1993, the Company had issued guarantees on certain outstanding loans to its investees in the aggregate principal amount of $18.9 million, and has a share of the commitments issued by and to its investees of up to $25.7 million.
In 1993, the Company acquired interests in five companies for an aggregate of $9.7 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Ampal-American Israel Corporation:
We have audited the accompanying consolidated balance sheets of Ampal-American Israel Corporation and subsidiaries (the "Company") as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements of certain consolidated subsidiaries, which statements reflect assets and revenues of 43% and 77%, respectively, of the consolidated totals as of and for the year ended December 31, 1993, 29% and 56%, respectively, of the consolidated totals as of and for the year ended December 31, 1992 and revenues of 53% of the consolidated total for the year ended December 31, 1991. Also, we did not audit the financial statements of certain companies, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The Company's equity in earnings of these companies represents $9,236,000, $11,167,000 and $5,436,000 for the years ended December 31, 1993, 1992 and 1991, respectively. The statements of these subsidiaries and companies were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Ampal-American Israel Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in Item 14(a)(2) are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion based on our audits and the reports of other auditors, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
As explained in Note 1(f) to the Consolidated Financial Statements, effective January 1, 1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN & CO. New York, NY March 23, 1994
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, ASSETS AS AT 1993 1992 - - ------------------------------------------------------------------------------ (Dollars in thousands)
Cash and cash equivalents...................... $ 3,178 $ 9,698
Deposits (Note 3): Related parties.............................. 99,481 125,220 Others....................................... - 593
Notes and loans receivable (Note 3): Related parties.............................. 11,948 13,439 Others....................................... 4,964 6,111
Investments: Related parties (Notes 2 and 9).............. 103,319 97,243 Others....................................... 8,322 12,669
Property and equipment, less accumulated depreciation of $10,554 and $9,687............ 30,496 32,675
Other assets (Note 1(i))........................ 42,352 35,619 ---------- ----------
TOTAL ASSETS................................... $ 304,060 $ 333,267 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- CONSOLIDATED BALANCE SHEETS
LIABILITIES AND DECEMBER 31, DECEMBER 31, SHAREHOLDERS' EQUITY AS AT 1993 1992 - - ------------------------------------------------------------------------------- (Dollars in thousands)
LIABILITIES Deposits and notes and loans payable (Note 4): Related parties............................... $ 42,752 $ 53,261 Others........................................ 18,091 19,023 Debentures outstanding (Note 5): Related parties............................... - 3,051 Others........................................ 91,270 100,795 Accounts and income taxes payable and accrued expenses: Related parties............................... 1,169 3,041 Others........................................ 33,621 25,303 ---------- ---------- Total liabilities....................... 186,903 204,474 ---------- ----------
MINORITY INTERESTS Related parties............................... - 9,591 Others........................................ 340 - ---------- ---------- Total minority interests................ 340 9,591 ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY (Notes 6 and 13) 4% Cumulative, Participating, Convertible Preferred Stock, $5 par value; authorized 650,000 shares; issued 213,720 and 240,528 shares; outstanding 213,720 and 232,170 shares 1,068 1,202
6-1/2% Cumulative, Convertible Preferred Stock, $5 par value; authorized 4,282,850 shares; issued 1,202,342 and 1,510,924 shares; out- standing 1,202,342 and 1,507,100 shares........ 6,011 7,554
Class A Stock, $1 par value; authorized 30,000,000 shares; issued 16,224,779 and 15,163,685 shares; outstanding 16,042,713 and 15,034,781 shares.......................... 16,225 15,164
Common Stock, $1 par value; authorized, issued and outstanding 3,000,000 shares............... 3,000 3,000
Additional paid-in capital...................... 10,605 9,989
Retained earnings............................... 82,079 82,293 Cumulative translation adjustments (Note 1(c)).. (2,171) - ---------- ---------- Total shareholders' equity.............. 116,817 119,202 ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $ 304,060 $ 333,267 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993 1992 1991 - - ------------------------------------------------------------------------------- (Dollars in thousands)
Cash flows from operating activities: Net income.................................. $ 226 $ 10,324 $ 1,126 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Equity in earnings of affiliates and others (9,037) (11,195) (5,593) Gains on issuance of shares by affiliates.. (3,185) (13,062) - Cumulative effect on prior years of change in accounting principle................... 4,982 - - Gain on sale of investments................ (1,973) (3,820) (4,600) Translation loss (gain).................... 225 1,413 (329) Depreciation expense....................... 2,346 1,865 3,500 Amortization expense....................... 5,127 6,011 6,321 Minority interests......................... (403) 4,785 1,609 Deconsolidation of investee company pre- viously accounted for as a subsidiary...... 1,946 (1,093) - Consolidation of subsidiary previously accounted for by the equity method......... - - 418 (Increase) decrease in other assets......... (6,594) 3,412 1,744 (Decrease) increase in accounts and income taxes payable and accrued expenses: Related parties............................ (1,841) 1,029 (2,778) Others..................................... 2,694 5,634 838 Dividends received from affiliates.......... 3,369 7,065 1,886 -------- -------- --------
Net cash (used in) provided by operating activities................................ (2,118) 12,368 4,142 -------- -------- --------
Cash flows from investing activities: Deposits receivable collected: Related parties............................ 27,361 47,492 48,844 Others..................................... 600 2,775 21,231 Notes and loans receivable granted: Related parties............................ (5,645) (3,513) (13,090) Others..................................... (176) - - Notes and loans receivable collected: Related parties............................ 5,510 5,473 2,186 Others..................................... 1,778 6,935 1,865 Investments made: Related parties............................ (820) (3,323) (2,645) Others..................................... (6,054) (8,438) (2,547) Proceeds from sales of investments: Others..................................... 9,281 5,272 7,937 Purchase of property and equipment.......... (4,292) (765) (9,953) -------- -------- --------
Net cash provided by investing activities.. 27,543 51,908 53,828 -------- -------- --------
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993 1992 1991 - - ------------------------------------------------------------------------------- (Dollars in thousands)
Cash flows from financing activities: Deposits and notes and loans payable received: Related parties............................. 19,715 14,321 9,085 Others...................................... 6,777 6,981 1,221 Deposits and notes and loans payable repaid: Related parties............................. (31,837) (19,880) (34,766) Others ..................................... (8,137) (1,803) (4,400) Debentures outstanding repaid: Related parties............................. (3,217) (3,243) - Others...................................... (14,422) (57,719) (39,449) Investment in subsidiary by minority shareholder................................. 686 - - Dividends paid: Others...................................... (440) (540) (551) Minority interests.......................... - - (177) -------- -------- --------
Net cash used in financing activities....... (30,875) (61,883) (69,037)
Effect of exchange rate changes on cash and cash equivalents......................... (1,070) (210) 611 -------- -------- --------
Net (decrease) increase in cash and cash equivalents.................................. (6,520) 2,183 (10,456) Cash and cash equivalents at beginning of year...................................... 9,698 7,515 17,971 -------- -------- --------
Cash and cash equivalents at end of year......$ 3,178 $ 9,698 $ 7,515 ======== ======== ========
Supplemental Disclosure of Cash Flow Information (see Note 2(a) for non-cash financing and investing activities) Cash paid during the year: Interest: Related parties.............................$ 2,599 $ 5,507 $ 16,443 Others...................................... 7,495 10,573 6,847 -------- -------- -------- Total interest paid.......................$ 10,094 $ 16,080 $ 23,290 ======== ======== ========
Income taxes paid, net......................$ 3,853 $ 5,820 $ 401 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1993 1992 1991 - - ------------------------------------------------------------------------------ (Dollars in thousands, except per share data)
4% PREFERRED STOCK Balance, beginning of year................... $ 1,202 $ 1,259 $ 1,310 Conversion of 26,808; 11,413 and 10,128 shares into Class A Stock................... (134) (57) (51)
Balance, end of year......................... $ 1,068 $ 1,202 $ 1,259 ======== ======== ========
6-1/2% PREFERRED STOCK Balance, beginning of year................... $ 7,554 $ 7,733 $ 8,027 Conversion of 309,018; 35,748 and 58,586 shares into Class A Stock................... (1,543) (179) (294) -------- -------- -------- Balance, end of year......................... $ 6,011 $ 7,554 $ 7,733 ======== ======== ========
CLASS A STOCK Balance, beginning of year................... $ 15,164 $ 14,999 $ 14,773 Issuance of shares upon conversion of Preferred Stock............................. 1,061 165 226 -------- -------- --------
Balance, end of year......................... $ 16,225 $ 15,164 $ 14,999 ======== ======== ========
ADDITIONAL PAID-IN CAPITAL Balance, beginning of year................... $ 9,989 $ 9,918 $ 9,803 Conversion of Preferred Stock................ 616 71 119 Purchase of treasury shares - 4% Preferred Stock and 6-1/2% Preferred Stock............ - - (4) -------- -------- --------
Balance, end of year......................... $ 10,605 $ 9,989 $ 9,918 ======== ======== ========
RETAINED EARNINGS Balance, beginning of year................... $ 82,293 $ 72,509 $ 71,934 Net income................................... 226 10,324 1,126 Dividends: 4% Preferred Stock - $.20 per share........ (43) (47) (49) 6-1/2% Preferred Stock - $.325 per share... (397) (493) (502) -------- -------- -------- Balance, end of year......................... $ 82,079 $ 82,293 $ 72,509 ======== ======== ========
CUMULATIVE TRANSLATION ADJUSTMENTS Balance, beginning of year................... $ - $ - $ - Foreign currency translation adjustment...... (2,171) - - -------- -------- -------- Balance, end of year......................... $ (2,171) $ - $ - ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
Note 1 - Summary of Significant Accounting Policies
(a) The Company
As used in these financial statements, the term the "Company" refers to Ampal-American Israel Corporation ("Ampal") and its consolidated subsidiaries. A substantial portion of the Company's operations involves transactions with Bank Hapoalim B.M. ("Hapoalim") and companies affiliated or related thereto. Hapoalim, an Israeli banking corporation, owns controlling voting rights in Ampal.
In October 1993, the Bank Share Settlement Act (Temporary Provisions) 1993 (the "Bank Shares Act") was enacted by the Knesset, the Israeli Parliament. Under the Bank Shares Act, in October 1993, the shares of several Israeli banks, including a majority of the shares of Hapoalim, were transferred to the State of Israel. The purpose of the Bank Shares Act is to facilitate the sale by the Government of Israel of its shares in Israeli banks. In addition, the Bank Shares Act is intended to limit the Government's interference in the day-to-day operations of the banks. Control over such shares of each bank will be exercised by a supervisory committee appointed for that bank by a public advisory committee which is in turn approved by the Israeli Government. These supervisory committees will appoint directors for each of the banks.
In May 1993, the Government of Israel sold a total of approximately 8% of the shares of Hapoalim in a public offering and also sold options to purchase an additional approximately 10% of the shares of Hapoalim. In November 1993, the Government of Israel sold 5.4% of the shares of Hapoalim in a public offering and an additional 1% of Hapoalim's shares in an offering to its employees. A provision of the Banking (Licensing) Law, 1981 (the "Banking Law") imposes limitations on the purchase and holding of means of control of non-banking corporations by Israeli banks. The Banking Law does not permit Hapoalim to acquire additional means of control in Ampal. Additionally, not more than 25% of the capital of Hapoalim may be invested in non-banking business corporations, including Ampal. Under the Banking Law, the Company may not use financing directly or indirectly provided by Hapoalim to make acquisitions of means of control in non-banking corporations. Hapoalim may not extend credit to the Company except in the ordinary course of business and on terms similar to those on which credit is extended to other customers of the same class.
In March 1994, an amendment to the Banking Law was enacted in the Knesset. Under the amendment, banks, including Hapoalim, are required to reduce their holdings of individual non-banking business corporations, which would include Ampal, to 25% or less not later than December 31, 1996. In addition, it has been proposed by the Government that the Minister of Finance form a committee to examine the overall economic implications of a further reduction in the permitted holdings of banking corporations in non-banking business corporations.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to November 1993 Hapoalim was controlled by Hevrat Ha'ovdim. Companies controlled by Hevrat Ha'ovdim which are not part of the Hapoalim family of companies and companies controlled by the Government of Israel are not deemed affiliates or related parties.
(b) Consolidation
The consolidated financial statements include the accounts of Ampal and its subsidiaries. Certain prior year amounts have been reclassified to conform with the current year's presentation.
(c) Translation of Foreign Currencies
Based on the guidelines of Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," the Company determined that the economy in Israel should no longer be considered hyperinflationary as a result of changes in the economic conditions and the decrease in the rate of inflation in Israel. During 1993, for those subsidiaries and affiliates whose functional currency is considered to be the Israeli shekel, assets and liabilities were translated at the rate of exchange at the end of the reporting period and revenues and expenses were translated at the average rates of exchange during the reporting period. Translation differences of those foreign companies' financial statements are included in the cumulative translation adjustment account of shareholders' equity at December 31, 1993. Prior to 1993 translation gains and losses were reflected in the consolidated statement of income. Prior to 1993, all Israeli companies were deemed to have the U.S. dollar as their functional currency.
Assets and liabilities of foreign subsidiaries and companies accounted for by the equity method whose functional currency is the U.S. dollar are translated using year-end rates of exchange, except for property and equipment and certain investment and equity accounts which are translated at rates of exchange prevailing on the dates of acquisition. Revenues and expenses are translated at average rates of exchange during the year for certain subsidiaries, while others are translated at rates of exchange at the transaction date. Revenue and expense items relating to assets translated at historical rates are translated on the same basis as the related asset. Translation gain and losses for these companies are reflected in the consolidated statement of income.
(d) Investments
Investments in which the Company exercises significant influence,
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
generally 20%-50% owned companies, are accounted for by the equity method, whereby the Company recognizes its share of such companies' income. The equity in earnings of two companies, Moriah Hotels Ltd. ("Moriah") and Orlite Engineering Company Ltd. ("Orlite"), are reflected through their year ending September 30th.
Investments, other than those reflected by the equity method, are stated at cost, which in the aggregate approximates fair value.
The Company has not adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The effect of implementing this accounting standard in 1993 would have resulted in an increase in investments of $7.4 million, an increase in deferred income taxes payable of $3.1 million and an increase in shareholders' equity of $4.3 million. The Company will be required to adopt SFAS No. 115 in 1994.
(e) Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation, computed by the straight-line method over the estimated useful lives of the assets.
(f) Income Taxes
Effective January 1, 1993, the Company was required to adopt SFAS No. 109, "Accounting for Income Taxes," which requires a change from the deferred method to the liability method of accounting for income taxes. The cumulative effect on prior years of this change in accounting principle was reflected as a nonrecurring reduction of net income and an increase in deferred income tax liability of approximately $5 million. This was reported separately in the consolidated statement of income for the year ended December 31, 1993. This change required no payments to any taxing jurisdiction and had no material effect on the current year's provision for income taxes and on income before cumulative effect of change in accounting principle. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109.
Deferred income taxes are not provided on the temporary differences related to the undistributed earnings of foreign subsidiaries totalling approximately $45 million, since such earnings are currently expected to be permanently reinvested outside the United States. If the earnings were not considered permanently invested, approximately $15 million of deferred income taxes, would have been provided. Deferred income taxes are provided on equity in earnings of, and gains on issuances of shares by, affiliates. Ampal's foreign subsidiaries file separate tax returns and provide for taxes accordingly.
(g) Extraordinary Income
Extraordinary income includes tax loss carryforwards utilized by subsidiaries.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) Cash Equivalents
Cash equivalents include time deposits and notes receivable with original maturities of 90 days or less.
(i) Other Assets
Other assets include inventory in the amount of $18 million ($15.4 million in 1992).
Note 2 - Acquisitions and Dispositions
(a) In February and June 1993, the Company invested an aggregate of approximately $4.3 million in Paradise Mattresses (1992) Ltd. ("Paradise") for approximately 85.1% of the shares of Paradise. Paradise's assets and liabilities were consolidated commencing June 30, 1993; its manufacturing and distribution operations were consolidated for the six months ended December 31, 1993 and included in equity in earnings of affiliates for the six months ended June 30, 1993. Paradise is a company which manufactures and markets mattresses and fold-out beds in Israel and is a licensee of the Sealy Posturepedic Mattress name and manufacturing process.
(b) In April 1992, the Company's investee, Teledata Communication Ltd. ("Teledata"), concluded a public offering of its securities in the United States. In connection with this offering, the Company sold a portion of its interest in Teledata, and realized a gain on sale of $3.8 million (approximately $1.2 million after taxes and a deduction for minority interest). In addition, this offering resulted in a gain on issuance of shares of $5.8 million (approximately $2.1 million after taxes and a deduction for Ophir Holdings Ltd.'s ("Ophir") minority interest). As a result of these transactions the Company's ownership of Teledata was diluted from 21.7% to 13.1%.
During 1993, the Company sold additional shares in Teledata and realized gains on sales of $1.5 million (approximately $.7 million after taxes). As a result of these transactions the Company's ownership of Teledata was decreased from 13.1% to 12.2%. As a result of the Company's dilution in Ophir, the Company's ownership in Teledata was further reduced to 10.9%.
(c) In March 1993, Ophir, then a subsidiary of the Company, made an investment in approximately 12.8% of the equity of Industrial Buildings Corporation Ltd. ("Industrial Buildings") in the amount of approximately $50 million, which is being accounted for by the equity method of accounting. Industrial Buildings owns approximately one million square meters of industrial buildings in Israel. The investment was financed primarily by borrowings from unrelated banks and was made, together with other investors, as part of a group which acquired approximately 51% of Industrial Buildings. Ophir's interest in Industrial Buildings has been pledged to secure borrowings by it and other investors in the group.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 1993, the capital structure of Ophir was reorganized to provide for only one class of shares, instead of the two classes which previously existed. In connection with the recapitalization, Ophir received a "fairness" opinion from an independent investment consultant. As part of that transaction, the Company's equity interest in Ophir was increased from 49.4% to 50%. Immediately thereafter, Ophir made a private placement of its shares to a related party under which it issued 15% of its shares for approximately $10.2 million and the Company's interest in Ophir was diluted from 50% to 42.5%.
Until September 30, 1993, Ophir's financial statements were consolidated by the Company. As a result of the above-mentioned transactions, in the fourth quarter of 1993 Ophir was accounted for under the equity method of accounting and the Company recorded a gain on issuance of shares of approximately $3.2 million (approximately $2.1 million after taxes).
(d) In August 1993, the Company invested approximately $3.5 million in Idan Software Industries I.S.I. Ltd. ("Idan") for approximately 8.4% of Idan's shares. Following Idan's private placement in October 1993, the Company holds approximately 7.8% of Idan's shares.
(e) In the first quarter of 1993, the Company invested approximately $300,000 in Davidson-Atai Publishers ("Davidson-Atai") for 22.5% of the shares of Davidson-Atai, which is a recently established Israeli publishing house.
(f) In February and October 1992, the Company's investee, Granite Hacarmel Investments Ltd., concluded public offerings of shares, warrants and convertible debentures in Israel on the Tel Aviv Stock Exchange for an aggregate price of approximately $102 million. As a result of these transactions the Company's ownership of Granite was diluted from 26% to 21.7% with further dilutions possible, subject to the exercise of warrants or conversion of debentures. As of December 31, 1993 the Company's ownership was further reduced to 21.6%.
Also, in February 1992, the Company's then subsidiary Moriah concluded a private placement of its shares with a related party in Israel for a price of $12.5 million for 20% of the company. The financial statements of the Moriah group of companies are consolidated through their year ending September 30th. Effective with the first quarter of 1992, the Company no longer consolidated the results of the Moriah group of companies in its financial statements, but accounts for its investment in these companies by the equity method. The Company's interest in the Moriah group was diluted from 57.5% to 46% as a result of a private placement transaction.
These offerings resulted in gains on issuance of shares of $7 million (approximately $2.7 million after taxes).
(g) In May 1992, Orlite concluded a public offering of its shares in Israel which diluted the Company's investment to 31.1% from 41.9%. As of December 31, 1993 the Company's ownership was further reduced to 30.1%.
(h) In July 1992, the Company acquired 20% of the shares of Carmel Container Systems Ltd., Israel's second largest carton producer, for $2.2 million.
(i) In 1991, the Company sold its holdings of Clal (Israel) Ltd. shares. The resulting pretax gain amounted to $4.6 million ($1.4 million, net of taxes and minority interest).
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(j) On December 15, 1991, the Company acquired an additional 24.9% interest in Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek") for $2 million (50% interest was acquired in 1988). This transaction brought the total investment to 74.9%. Accordingly, Pri Ha'emek's assets and liabilities have been consolidated in the Company's consolidated balance sheet at December 31, 1993 and 1992; its results of operations were consolidated in the Company's consolidated statement of income in 1993 and 1992 and included in equity in earnings of affiliates in 1991 (See Note 13).
Note 3 - Deposits and Notes and Loans Receivable
Deposits and notes and loans receivable earn interest at varying rates depending upon their linkage provisions and are guaranteed by Hapoalim. Deposits have maturities of up to 12 years and notes and loans receivable have maturities of up to 6 years.
Note 4 - Deposits and Notes and Loans Payable
Deposits, notes and loans payable consist primarily of borrowings from banks at rates of interest either based on London Interbank Offered Rates or linked to the U.S. Dollar and mature through 2001. The Company has a $10 million committed bank line of credit which expires in October 1994.
Note 5 - Debentures Outstanding
Debentures outstanding as at December 31 consist of:
1993 1992 ------------------- Ampal: Various series with interest rates ranging from 8%-13%, maturing 1994-2003..................................... $ 68,828 $ 83,424
Ampal Development (Israel) Ltd.: Various series with interest rates ranging from 6.2%-7.5%, linked to the Consumer Price Index in Israel, maturing 1994-2005, secured by assets of $45 million............................................ 43,071 44,749 -------- --------
111,899 128,173
Less: Unamortized discounts............................. 20,629 24,327 -------- --------
Total................................................... $ 91,270 $103,846 ======== ========
Certain debentures are presentable for early maturity. If presented for early maturity, maturities (including required obligations) for the five years
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ending December 31 would be:
1994 - $31,148* 1995 - 19,347 1996 - 20,345 1997 - 5,074 1998 - 5,074
* If no debentures are presented for early redemption, scheduled maturities will amount to $20,668.
The 1994 amounts shown above include $6.5 million of debentures with an interest rate of 7.5%, maturing in 1996, which were redeemed in the first quarter of 1994.
Note 6 - Shareholders' Equity
Capital Stock
Shares of the 4% and 6-1/2% Preferred Stock are convertible into 5 and 3 shares of Class A Stock, respectively. At December 31, 1993, a total of 4,674,318 shares of Class A Stock is reserved for issuance upon the conversion of the Preferred Stock.
The 4% and 6-1/2% Preferred Stock are preferred as to dividends on a cumulative basis. Preferred shares are nonvoting unless dividends are in arrears for three successive years. At December 31, 1993, there are no dividend arrearages. If dividends are paid on Class A Stock in amounts exceeding certain levels, then the Preferred and Common stocks are entitled to additional dividends in accordance with a specified formula.
Retained Earnings
At December 31, 1993, retained earnings include $73.6 million for affiliates accounted for by the equity method, of which $33.9 million and approximately $32.9 million from subsidiaries is not available for the payment of dividends. In most cases this results from Israeli requirements that dividends may only be paid on the basis of shekel-denominated and not dollar- denominated retained earnings.
Note 7 - Earnings Per Class A Share ("EPS")
Earnings per share is reflected for Class A Stock and not for Common Stock since Class A Stock is publicly held whereas the Common Stock is not. EPS assumes the conversion of the 4% and 6-1/2% Preferred Stock into Class A Stock at the beginning of the year and gives effect to the participatory rights of 3 million shares of the Common Stock. Therefore, EPS is calculated by dividing net income by 23.7 million shares.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Income Taxes 1993 1992 1991 ------------------------------
The components of current and deferred income tax expense (benefit) are as follows: Current: State and local............................. $ 8 $ 60 $ (69) Federal..................................... 1,254 2,056 1,255 Foreign..................................... 1,668 3,647 1,546 Deferred: Federal..................................... 3,319 7,518 1,362 Foreign..................................... (640) - - -------- -------- -------- Total.................................... $ 5,609 $ 13,281 $ 4,094 ======== ======== ========
The components of deferred income tax expense are as follows: Equity in earnings of affiliates and others.. $ 2,563 $ 4,484 $ 1,971 Gains on issuance of shares.................. 1,115 3,549 - Debenture selling expenses................... (294) (501) (637) Other........................................ (705) (14) 28 -------- -------- -------- Total..................................... $ 2,679 $ 7,518 $ 1,362 ======== ======== ========
The domestic and foreign components of income (loss) before income taxes are as follows:
Domestic..................................... $ (1,418) $ (452) $ (3,737) Foreign...................................... 12,235 24,057 8,231 -------- -------- -------- Total..................................... $ 10,817 $ 23,605 $ 4,494 ======== ======== ========
A reconciliation of income taxes between the statutory and effective tax follows:
Federal income tax at 34%.................... $ 3,678 $ 8,026 $ 1,528 Taxes on equity in earnings of affiliates in excess of U.S. tax rate..................... 221 2,931 2,012 Taxes on foreign income in excess of U.S. rate........................................ 1,704 2,175 377 Other........................................ 6 149 177 -------- -------- -------- Total effective tax: 52%, 56% and 91%........ $ 5,609 $ 13,281 $ 4,094 ======== ======== ========
Total effective tax, net of extraordinary income: 52%, 56% and 75%.................... $ 5,609 $ 13,281 $ 3,368 ======== ======== ========
Other assets include approximately $3 million of deferred tax assets which represent the tax benefit of the temporary differences between the carrying values of the fixed assets in the financial statements and their income tax bases. Accounts and income taxes payable and accrued expenses include approximately $22.5 million of deferred tax liability provided on the temporary differences related to the equity in the undistributed earnings of the affiliates.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Investments in Affiliates and Others
The companies accounted for by the equity method and the Company's share of equity in those investments are:
1993 1992 1991 --------------------------
Am-Hal Ltd................................. 50% 50% 50% Bank Hapoalim (Cayman) Ltd................. 49 49 49 Bay Heart Limited.......................... 37 37 37 Carmel Containers Ltd...................... 20 20 - Coral World International Ltd.............. 50 50 50 Davidson-Atai Publishers Ltd............... 22.5 - - Etz Vanir Ltd.............................. 50 50 50 Granite Hacarmel Investments Ltd........... 21.6 21.7 26 Moriah Hotels Ltd. (Note 1(b))............. 46 46 - Ophir Holdings Ltd. (Note 2(c))............ 42.5 - - Orlite Engineering Company Ltd............. 30.1 31.1 41.9 Teledata Communication Ltd................. 2.5** 13.1* 21.7* Yakhin Mataim Ltd.......................... 50 50 50
* Net of minority interest.
** In addition, Ophir Holdings Ltd. holds 19.7% of Teledata's shares.
Combined summarized financial information for the above companies is as follows:
1993 1992 1991 ----------------------------
Revenues.................................... $558,979 $570,756 $485,736 Gross profit................................ 104,833 130,546 96,024 Net income................................ 23,246 36,664 22,314
Fixed assets................................ $247,616 $239,860 $179,755 Other assets................................ 452,546 417,946 353,459 -------- -------- -------- Total assets.............................. $700,162 $657,806 $533,214 ======== ======== ========
Total liabilities, including bank borrowings $419,328 $373,815 $383,228 ======== ======== ========
The Company's investments in shares of its publicly traded affiliates and others at December 31, 1993 amounted to $38.6 million and had a market value of $71.3 million, which is based upon quoted market prices of shares traded on the American Stock Exchange, NASDAQ and the Tel Aviv Stock Exchange. There can be no assurance that these values could be realized by the Company.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Segment Information
Segment information presented below results primarily from operations from Israel.
Interest expense and corporate office expense are principally applicable to the financing operation and have been charged to that segment above. Revenues and pretax operating income above exclude equity in earnings of affiliates and minority interests.
* - Operations in Australia (1992 and 1991 only), Bahamas, Israel and U.S. Virgin Islands.
** - Operations in Israel (1993 only) and Cayman Islands.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
a) Cash and Cash Equivalents
Short-term investments, the carrying amount is a reasonable estimate of fair value.
b) Deposits and Notes and Loans Receivable
The fair value of these deposits, notes and loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
c) Deposits Payable, Notes and Loans Payable and Debentures Outstanding
The fair value of notes and loans payable, deposits payable and debentures outstanding is estimated by discounting the future cash flows using the current rates offered by lenders for similar borrowings with similar credit ratings and for the same remaining maturities.
1993 1992 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Financial assets:
Cash and cash equivalents...... $ 3,178 $ 3,178 $ 9,698 $ 9,698 Deposits and notes and loans receivable.................... 116,393 123,910 145,363 152,849 -------- -------- -------- -------- $119,571 $127,088 $155,061 $162,547 ======== ======== ======== ======== Financial liabilities:
Deposits and notes and loans payable....................... $ 60,843 $ 61,628 $ 72,284 $ 73,908 Debentures outstanding......... 91,270 102,429 103,846 113,602 -------- -------- -------- -------- $152,113 $164,057 $176,130 $187,510 ======== ======== ======== ========
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Commitments and Contingencies
(a) For the years 1994 through 1998, the combined minimum annual lease payments on the Company's corporate offices, Country Club Kfar Saba and Paradise, without giving effect to future escalations, are approximately $549,000 per year, and $2.7 million in the aggregate, thereafter. These leases expire in 1994, 2009, 1998 and 2000, respectively.
(b) For the years 1994 through 1998, the combined minimum lease receipts to be received by the Company from rental properties are approximately $2.4 million in 1994; $2.4 million in 1995; $2.4 million in 1996; $1.6 million in 1997; $1.5 million in 1998; and $2.7 million in the aggregate, thereafter.
(c) The Company has issued guarantees on bank loans to its investees and subsidiaries totalling $18.9 million.
The Company's share of the commitments issued by and to its investees amounted to approximately $25.7 million.
A consolidated subsidiary pledged the majority of its assets in the amount of $33.4 million to banks (including a related party) in order to secure a mortgage.
Note 13 - Subsequent Events
On January 25, 1994, the Company sold in a public offering 4.5 million units consisting of one share of Class A stock and one redeemable warrant to purchase one share of Ampal's Class A stock, for $12.125 per unit. The warrants are exercisable at $16 per share at any time until January 31, 1999 and are callable by Ampal, in whole or in part, from and after February 1, 1996, without payment to the holder. The net proceeds, which the Company received from this offering, amounted to approximately $51 million.
On November 5, 1993, Ampal's Board of Directors approved a stock option plan which provides for grants of options to purchase up to 200,000 shares of Class A stock in the aggregate to employees, officers and directors of Ampal and certain subsidiaries of Ampal. On January 25, 1994, the Stock Option Committee of the Board of Directors approved the issuance of 134,900 options in the aggregate at an exercise price of $10.91 per share (a 10% discount from market price on the date of grant). The Stock Option Plan is subject to approval by Ampal's shareholders.
In February 1994, Pri Ha'emek's other shareholder purchased additional shares in Pri Ha'emek at the same price the Company paid for its shares in
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES - - -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1991, diluting the Company's ownership to 66.7%. In March 1994, Pri Ha'emek conducted an initial public offering in Israel on the Tel Aviv Stock Exchange ("TASE"). The offering did not meet the distribution requirement under the regulations of the TASE and as a result, Pri Ha'emek's underwriters deposited for sale by a trustee shares which are expected to be sold, at such prices as the trustee may realize, over a thirty-day period. The Company has agreed to pay to the trustee up to NIS 2 million (approximately $670,000) to fund its pro-rata share of the difference between the proceeds of those sales and the amount which would have been received if the shares were sold at the public offering price. The Company's interest in Pri Ha'emek will be initially diluted to 51.3% and upon exercise of all options and convertible debentures, the Company's interest may be diluted to 35.3%. If the Company's interest in Pri Ha'emek decreases below 50%, Pri Ha'emek's results will no longer be consolidated with the Company's but will be recorded by the equity method of accounting.
SELECTED QUARTERLY FINANCIAL DATA - - --------------------------------- (Unaudited)
* Includes cumulative effect on prior years of change in accounting principle of ($4,982), equal to $(.21) per share.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND ------------------------------- FINANCIAL DISCLOSURE --------------------
None
PART III --------
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS -------------------------------- OF THE REGISTRANT -----------------
MANAGEMENT
The following table sets forth certain information regarding Ampal's directors and executive officers:
NAME POSITION - - ------------------------------------------------------------------------------- Michael Arnon(1).......................... Chairman of the Board and Director Shlomo Recht(1)........................... Vice Chairman of the Board and Director Lawrence Lefkowitz(1)..................... President, Chief Executive Officer and Director Moshe Mor................................. Vice President--Israel Operations Alan L. Schaffer.......................... Vice President--Finance and Treasurer Alla Kanter............................... Controller Michael K. Marks.......................... Secretary Miri Lent................................. Assistant Vice President--Israel Operations Susan Rosenberg........................... Assistant Treasurer Yair Youtzis.............................. Assistant Vice President--Hotel Operations Harry B. Henshel(2)....................... Class A Director Leon Riebman.............................. Class A Director Evelyn Sommer(2)(3)....................... Class A Director Stanley Batkin(1)(3)...................... Director Yaacov Elinav(1)(4)....................... Director Eitan Raff(3)............................. Director Shimon Ravid(4)........................... Director
- - ---------------
(1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Related Party Transactions Committee (4) Member of the Stock Option Committee
MICHAEL ARNON, 68, has been Chairman of the Board of Directors of Ampal since November 1990. From July 1986 until November 1990, he was President and Chief Executive Officer of Ampal. From March 1983 until April 1990 he also served as a director of Israel Continental Bank Ltd., a partially-owned subsidiary of Hapoalim, where he had been an Alternative Chairman of the Board until 1987. He became a director of Ampal in 1986.
LAWRENCE LEFKOWITZ, 56, has been President and Chief Executive Officer of Ampal since November 1990. He joined Ampal in 1977 as Vice President-Legal and Secretary. In August 1990 he also became Counsel to Hapoalim in charge of the Legal Department for the United States Branches. He became a director of Ampal in 1990. See "Certain Relationships and Related Transactions."
SHLOMO RECHT, 52, has been Vice Chairman of the Board of Directors of Ampal since March 1994. From April 1990, until March 1994, he was Managing Director of Poalim Capital Markets and Investments Ltd. From October 1988 until March 1990, he was Assistant Managing Director of Hapoalim. From 1988 until 1989, he served as a director of Ampal. He again became a director of Ampal in March 1994.
MOSHE MOR, 58, has been Vice President-Israel Operations of Ampal since 1986. He is primarily responsible for reviewing and negotiating business opportunities presented to the Company.
ALAN L. SCHAFFER, 51, has been Vice President-Finance and Treasurer since August 1990. From December 1988 until then, he was Vice President-Accounting and Controller of Ampal. From 1984 to 1988 he was Controller of Ampal and has been employed by Ampal since 1983.
ALLA KANTER, 36, has been Controller of Ampal since August 1990. From January 1986 to August 1990 she served as Assistant Controller of Ampal.
MICHAEL K. MARKS, 29, has been Secretary of Ampal since December 1992 and has been employed by Ampal since August 1992. From January 1992 until July 1992 he was an attorney for the law firm of Weitz and Luxenberg, P.C. From August 1988 until May 1991 he attended Emory University School of Law.
MIRI LENT, 37, has been Assistant Vice President-Israel Operations of Ampal since July 1988 and has been employed by Ampal (Israel) for more than five years.
SUSAN ROSENBERG, 50, has been Assistant Treasurer of Ampal since November 1990 and has been employed by Ampal for more than five years.
YAIR YOUTZIS, 56, has been Assistant Vice President-Hotel Operations of Ampal and Managing Director of Moriah for more than five years.
HARRY B. HENSHEL, 75, has been Chairman of the Board of Bulova Corporation since 1974. He also serves as Chairman of the Chief Executives Council of Omega Group since 1990 and as a Director of the Ponce Hotel Corporation for more than 20 years and the Universal Holdings Corp. since 1993. He is a member of the advisory Board of the New York State Business Partnership for more than 5 years and a Trustee of the New York Backstretch Employees Pension Trust for more than 10 years. He became a director of Ampal in September 1993.
LEON RIEBMAN, 73, is Chairman and Chief Executive Officer and a director of AEL Industries, Inc., an electronic defense system manufacturer, for more than five years. He is also a director of the Bank and Trust Company of Old York Road. He became a director of Ampal in 1979.
EVELYN SOMMER, 55, has been President of Women's International Zionist Organization-USA, and a representative of Women's International Zionist Organization to the United Nations for more than five years, and has been Chairman, American Section of the World Jewish Congress, since December 1990. She became a director of Ampal in 1982.
STANLEY I. BATKIN, 79, served on the Board of Directors of Ampal Industries from 1983 until 1990 and was a member of its Executive Committee from 1986 until 1990. He became a director of Ampal in 1991. During 1993, Mr. Batkin filed, not on a timely basis, one Initial Statement of Beneficial Ownership of Securities and one Statement of changes in Beneficial Ownership of Securities regarding one transaction.
YAACOV ELINAV, 49, has been a Senior Deputy Managing Director of Hapoalim since August 1992 and a Member of the Board of Management of Hapoalim since October 1991. From October 1991 to August 1992, he was a Deputy Managing Director of Hapoalim. From October 1988 to October 1991, he was head of the corporate division of Hapoalim. From 1983 to October 1988 he was Manager of the New York Branches of Hapoalim. He became a director of Ampal in July 1992. See "Certain Relationships and Related Transactions."
EITAN RAFF, 52, has been Alternate Chairman of the Board of Maritime Bank since November 1992, where he had been Chairman of the Board from August 1988 until November 1992. He also serves as a Director of Wolfson Clore Mayer Ltd., a diversified investment company, where he had been Managing Director from July 1987 until April 1992 and as Chairman of Mirage Development Ltd., Yozma Venture Capital Ltd. and Karta Jerusalem Development Centre. He became a director of Ampal in 1987.
SHIMON RAVID, 57, has been Senior Deputy Managing Director of Hapoalim since October 1989. From February 1988 until June 1989 he was Chief Financial and Operating Officer of Koor Ltd. He became a director of Ampal in 1990. See "Certain Relationships and Related Transactions."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION ----------------------
The table below presents information regarding remuneration paid or accrued for services to Ampal and its subsidiaries by the executive officers named below during the three fiscal years ended December 31, 1993. Ampal has no bonus or stock option plans for executive officers.
SUMMARY COMPENSATION TABLE - - --------------------------
- - ---------------------
(1) Services of Mr. Lefkowitz are shared by Ampal and Hapoalim and Hapoalim reimburses Ampal $100,000 per year under an arrangement begun in August, 1990.
(2) There were 27 pay periods in 1992 and 26 pay periods in each of 1993 and 1991.
(3) Mr. Lefkowitz is employed pursuant to an employment agreement expiring September 12, 1997, renewable thereafter automatically for successive one-year terms unless one year's prior notice is given, providing for the payment of salary which shall not be less than the salary paid to him in 1992 and which salary is subject to annual review.
(4) Comprised of Ampal's contribution pursuant to Ampal's Savings Plan of $500 per year and the remainder pursuant to Ampal's Pension Plan, described below.
(5) Comprised of Ampal (Israel)'s contribution to a pension plan on behalf of Mr. Mor and Ms. Lent.
Other Compensation
Directors of Ampal who are not employees of the Company or of its parent company receive $250 per board meeting attended. Such persons also receive $250 for attendance at meetings of committees of the Board of Directors, provided that such committee meetings are held on separate days and a day other than the day of a regularly scheduled board meeting.
Other Benefits
Ampal maintains a defined contribution pension plan for its eligible employees ("Pension Plan"). Eligible employees are all full-time employees of Ampal except non-resident aliens. In 1990, the Pension Plan was amended so that Ampal's contribution was equal to 7% of each employee's basic wages plus 5.4% of the employee's basic wages for that year in excess of the Social Security taxable wage base for that year. In 1994, the Pension Plan was amended so that Ampal's contribution will be equal to 7% of each employee's basic wages plus 5.7% of the employee's basic wages for that year in excess of the Social Security taxable wage base for that year.
Employees become vested in amounts contributed by Ampal depending on the number of years of service worked, as provided in the following table:
Vested Years of Service Percentage: ---------------- ----------- less than 2 years 0% 2 but less than 3 years 20% 3 but less than 4 years 40% 4 but less than 5 years 60% 5 but less than 6 years 80% 6 or more years 100%
Benefits under the Pension Plan are usually paid either in a lump sum or as an annuity.
Ampal adopted a Severance Plan effective January 1, 1985 for the benefit of employees of Ampal who were employed as of December 31, 1982 and who continued to be so employed as at December 31, 1985. The purpose of the Severance Plan is to provide certain severance compensation to eligible employees which will equal the amount of severance compensation which would have been paid as of the day prior to the adoption of the Pension Plan. The severance compensation to be paid pursuant to this Severance Plan will be adjusted downward to account for any past service amount which has been allocated to such employees' Pension Plan accounts pursuant to the terms of the Pension Plan. The severance compensation will also be adjusted as of December 31 of each year by a percentage which equals the rate of return on assets in the Pension Plan. Payment of severance compensation is required to be made in a lump sum as soon after employment is terminated as practicable unless the full amount of the severance compensation has been previously allocated to such employees' Pension Plan accounts.
Ampal maintains a Savings Plan for its eligible employees pursuant to Section 401(k) of the Internal Revenue Code of 1954. Eligible employees are all employees of Ampal except non-resident aliens and night-shift employees. Participation by employees in the Savings Plan is voluntary. Participating employees may elect to defer a specific limited percentage of their annual compensation (up to 15%) and contribute the same to a self-directed 401(k) savings account. The amount which any employee could contribute to his or her 401(k) savings account in 1993 was limited by the Tax Reform Act of 1986 to $8,994. For each plan year Ampal matches 50% of each employee's contribution up to a maximum matching contribution of $500 for each participant. Participating employees are 100% vested at all times in the account balances maintained in their 401(k) savings account. Benefits under the Savings Plan are required to be paid in a single, lump-sum distribution. Payment is usually made upon attainment of retirement age or termination of employment.
STOCK OPTION PLAN
In November 1993, Ampal's Board of Directors approved a stock option plan (the "Stock Option Plan") which provides for grants of options to purchase up to 200,000 shares of Ampal Class A Stock in the aggregate to employees, officers and directors of Ampal and certain subsidiaries of Ampal. Options granted under the Stock Option Plan may be either options which are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code ("ISOs"), or options that are not intended to so qualify ("Non-ISOs"). The Stock Option Plan's effectiveness is subject to the approval of Ampal's shareholders.
The Stock Option Plan is administered by the Board of Directors or by a Stock Option Committee thereof (the "Committee") consisting exclusively of directors who are not to be granted options under the Stock Option Plan. The Board of Directors (or the Committee) determines, subject to the terms of the Stock Option Plan, the individuals to whom options are to be granted and the terms of the options, including the exercise price, number of shares subject to each option, whether the option is to qualify as an ISO and the vesting of rights to exercise each option.
The exercise price of each ISO granted under the Plan must be not less than the fair market value of the shares on the date of grant or 110% of the fair market value on the date of grant if the ISO grantee owns stock representing more than 10% of the voting power of Ampal's capital stock or value of all classes of stock of Ampal or a subsidiary corporation. The exercise price of each Non-ISO granted under the Stock Option Plan, which may be less than fair market value on the date of grant, will be fixed by the Board of Directors (or the Committee) at the time the Non-ISO is granted.
The Board of Directors (or the Committee) shall determine the dates on which each option shall be exercisable and the conditions precedent to such exercise. However, all options, other than those granted to non-employee
directors of Ampal, must not be exercisable prior to the second anniversary of their date of grant. Options granted to non-employee directors of Ampal shall be exercisable immediately upon grant. The terms of options granted under the Stock Option Plan may not exceed five years.
The aggregate fair market value, determined at the date of grant, of shares that may first become exercisable in any calendar year under all ISOs granted to any one employee under any plans of Ampal or a subsidiary may not exceed $100,000.
In January 1994, pursuant to the Stock Option Plan, Non-ISO Options to purchase 134,900 Class A shares were granted to employees, officers, and directors of Ampal and certain subsidiaries of Ampal. The grant of these options is subject to the approval of Ampal's shareholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSHIP AND MANAGEMENT -----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following tables set forth information as at March 23, 1994 as to the holders known to Ampal to beneficially own more than 5% of any class of voting securities of Ampal and, as to all directors and officers as a group, concerning the beneficial ownership of any class of equity securities of Ampal. For purposes of computation of the percentage ownership of Class A Stock set forth in the table, conversion of any 4% Cumulative Convertible Preferred Stock (the "4% Preferred") and 6-1/2% Cumulative Convertible Preferred Stock (the "6-1/2% Preferred") owned by such beneficial owner has been assumed, without increasing the number of shares of Class A Stock outstanding by amounts arising from possible conversions of convertible securities held by shareholders other than such beneficial owner. As at March 23, 1994, there were issued and outstanding 20,710,594 shares of Class A Stock of the Company and 3,000,000 shares of Common Stock. In addition, there were issued and outstanding 1,148,884 non-voting shares of 6-1/2% Preferred (each convertible into 3 shares of Class A Stock) and 212,218 non-voting shares of 4% Preferred (each convertible into 5 shares of Class A Stock).
Certain Beneficial Owners
(1) Based upon number of shares outstanding as of March 23, 1994.
(2) As reported by Bank Hapoalim B.M. on Form 4 - Statement of Changes in Beneficial Ownership filed with the Securities and Exchange Commission on or about March 5, 1992. Assumes conversion of 122,536 shares of 6-1/2% Convertible Preferred Stock and 3,350 shares of 4% Preferred Stock.
Security Ownership Of Management
The following table sets forth information as at March 23, 1994 as to each class of equity securities of Ampal, its parent or any of its subsidiaries beneficially owned by each director and officer of Ampal and by all directors and officers of Ampal as a group:
Ampal-American Israel Corporation ---------------------------------
(1) All ownerships are direct, unless otherwise noted. The table does not include directors who do not own any shares.
(2) Includes 8,700 shares of Class A Stock and 4,800 shares of 6-1/2% Preferred Stock held by a trust under an estate as to which Mr. Lefkowitz is co-personal representative.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
The Board of Directors of Ampal maintains a Related Party Transactions Committee comprised of independent directors which, on an annual basis, reviews and passes upon the fairness of any business dealings and arrangements (other than borrowings on then prevailing market terms or deposits made in the ordinary course of business) between the Company and Hapoalim or any other affiliated party. If the Committee determines that such dealings are no longer in the Company's best interests or involve terms less advantageous to the Company than could be obtained from unaffiliated third parties, Ampal will use its best efforts to modify or discontinue such arrangements. With certain exceptions, the Company may not enter into transactions with Hapoalim or its affiliates, or any officer, director or principal stockholder of the Company, without first obtaining the approval of the Related Party Transactions Committee.
The management of the Company believes that all of the following transactions were done on terms which were no less advantageous to the Company than could have been obtained from unaffiliated third parties.
The Company borrows and receives deposits from Hapoalim and its subsidiaries. During 1993 the largest amount of such indebtedness outstanding at any one time was $51,015,000. The amount of interest expense paid by the Company to Hapoalim was $4,819,000. Additionally, the Company makes loans to and maintains deposits with Hapoalim and its subsidiaries. The largest amount of such loans and deposits at any one time during 1993 was $131,002,000 and interest income thereon was $15,583,000. As of December 31, 1993, the amount of borrowings and deposits from Hapoalim and its subsidiaries was $40,257,000 and the amount of loans to and deposits with Hapoalim and its subsidiaries was $104,241,000. Ampal is the beneficiary of a $10 million committed line of credit from Hapoalim which expires in October 1994. Borrowings under this line of credit bear interest at a variable rate of interest equal to LIBOR plus 1/2%. Such loans and borrowings are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unrelated persons and, in the opinion of the management of the Company, do not involve more than normal risk of collectibility or present other unfavorable features. Hapoalim also guarantees loans secured by the Holding Companies which were made by them prior to their ceasing lending activity.
Until November 1993, Ampal owned 60% of the voting shares and 49.4% of the equity interest in Ophir, and the balance was owned by a Hapoalim affiliate. In November 1993, the two shareholders' interests in Ophir were equalized. In connection with the equalization, the Company obtained a fairness opinion from an independent investment consultant. Concurrently, 15% of the shares in Ophir were issued to another Hapoalim affiliate for approximately $10.2 million. As a result, Ophir is now 42.5%-owned by Ampal and its results have not been consolidated in the Company's financial statements after September 30, 1993 but are now recorded on the equity method of accounting.
In March 1993, Ophir and another Hapoalim affiliate shareholder in the holding company that purchased 51.3% of the shares in Industrial Buildings Ltd. have together pledged their shares in this company and this company's shares in Industrial Buildings to secure borrowings from unaffiliated lenders to finance the acquisition. Moreover, loans from Hapoalim to an unaffiliated shareholder in this holding company are also collateralized by shares in Industrial Buildings owned by the holding company and, under cross-default provisions, a default by any of the shareholders in the holding company could cause acceleration of Ophir's obligations, and, potentially, foreclosure on the Industrial Buildings shares held by this holding company.
Ophir, which has no employees, pays to another Hapoalim affiliate a management fee of approximately $50,000 per year for administrative services. Moreover, under a recent agreement among Ophir's three shareholders, Ophir has agreed to pay annually to each of Ampal and a Hapoalim affiliate shareholder of Ophir an additional management fee of approximately $85,300 in NIS linked to the dollar. In 1993, Ophir paid $78,000 to Ampal and $132,000 to the Hapoalim affiliate for management fees.
In connection with Ampal's purchases in 1992 and 1993 of 5.2% of DSP Group, Inc., company granted a Hapoalim subsidiary, an option to purchase, and the Hapoalim subsidiary granted Ampal an option to sell, 50% of Ampal's interest in the DSP Group for $1.1 million, the same purchase price the Company paid, plus interest. In October 1993, the Hapoalim subsidiary exercised its option to purchase this interest.
In 1991, the Company agreed that its third lien on certain assets of Pri Ha'emek would rank behind the lien of Hapoalim on those assets.
The services of Mr. Lefkowitz are shared by Ampal and Hapoalim pursuant to an arrangement renewable semi-annually whereby Hapoalim reimburses Ampal for a portion of his compensation. In 1993, Hapoalim reimbursed Ampal $100,000 for the services of Mr. Lefkowitz under the arrangement.
Ampal owns $2 million of 7% preferred shares of Bank Hapoalim (Cayman) Ltd. In 1994, an equivalent amount of 7% preferred shares in Bank Hapoalim (Cayman) Ltd. was issued to Hapoalim for $2 million.
For additional information regarding real estate transactions between the Company and Hapoalim, see "Item 2. Property," discussed above.
PART IV -------
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ---------------------------------------------------------------
(a) The following documents are filed as a part of this report:
Page Reference* ---------- (1) Financial Statements and Supplementary Data
Ampal-American Israel Corporation and Subsidiaries
Report of Independent Public Accountants............... 37 Consolidated Statements of Income for the years ended December 31, 1993, 1992 and 1991.... 38 Consolidated Balance Sheets as at December 31, 1993 and 1992.......................... 39 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991.............. 41 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991....................................... 43 Notes to Consolidated Financial Statements.......................................... 44
Supplementary Data:
Selected quarterly financial data for the years ended December 31, 1993 and 1992....................... 58
(2) Financial Statement Schedules
Schedules which have been omitted are not applicable or the required information is shown in the financial statements or notes thereto.
(i) Ampal-American Israel Corporation and Subsidiaries
Schedule IV............................................ 71 Schedule IX............................................ 74 Schedule X............................................. 75
(ii) Schedule of Representative Rates of Exchange between the U.S. dollar and Israeli shekel for three years ended December 31, 1993................ 76
Page Reference* ----------
(iii) Consolidated financial statements filed pursuant to Rule 3-09 of Regulation S-X
Granite Hacarmel Investments Limited and Subsidiaries Report of Certified Public Accountants...................... 77 Consolidated Balance Sheets as at December 31, 1993, and 1992......................... 79 Consolidated Statements of Income for the years ended December 31, 1993, 1992 and 1991.................... 81 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991....................................... 82 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991.............. 83 Notes to Consolidated Financial Statements............. 85
(iv) Reports of Other Certified Public Accountants filed pursuant to Rule 2-05 of Regulation S-X:
AM-HAL Ltd............................................. 127 AM-HAL Ltd. (Special Purpose).......................... 128 Ampal Enterprises Ltd.................................. 129 Ampal Financial Services Ltd........................... 130 Ampal Holdings (1991) Ltd.............................. 131 Ampal (Israel) Ltd..................................... 132 Ampal Industries (Israel) Ltd.......................... 134 Ampal Properties Ltd................................... 135 Bank Hapoalim (Cayman) Ltd............................. 137 Bay Heart Ltd.......................................... 138 Bay Heart Ltd. (Special Purpose)....................... 139 Carmel Containers Systems Limited...................... 140 Carmel Containers Systems Limited (U.S. Dollars)....... 142 Country Club Kfar Saba Limited......................... 143 Davidson-Atai Publishers Ltd........................... 145 Hapoalim (Latin America) Casa Bancaria S.A............. 146 Mivnat Holding Ltd..................................... 148 Moriah Hotels Ltd. and its subsidiaries................ 149 Ophir Holdings Ltd..................................... 150 Orlite Engineering Company Ltd......................... 151 Paradise Mattresses (1992) Ltd. (U.S. Dollars)......... 152 Pri Ha'emek (Canned and Frozen Food) 88 Ltd............ 153 Red Sea Marineland Holding (1973) Ltd.................. 154 Red Sea Underwater Observatory Ltd..................... 155 The Snow and Cool Palace (Limited Partnership)......... 156 Teledata Communication Ltd............................. 157
(3) List of Exhibits (separately bound)
Exhibit 3 - Articles of Incorporation and By-Laws
3a. --Restated Certificate of Incorporation dated December 23, 1982 (filed as Exhibit 3t to Registration Statement No. 2-81156 and incorporated herein by reference). 3b. --Certificate of Amendment of the Certificate of Incorporation dated March 17, 1983 (filed as Exhibit 3r to Form 10-K for the fiscal year ended December 31, 1982 and incorporated herein by reference. File No. 0-538).
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the Registrant during the last quarter of the year ended December 31, 1993.
* Page references preceded by the letter "E" refer to the separately bound volume of exhibits.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES --------------------------------------------------
INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT Schedule IV ---------------------------------------------------- ----------- (Amounts in thousands)
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES --------------------------------------------------
INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT Schedule IV ---------------------------------------------------- ----------- (Amounts in thousands)
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES --------------------------------------------------
INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT Schedule IV ---------------------------------------------------- ----------- (Amounts in thousands)
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES --------------------------------------------------
SHORT-TERM BORROWINGS Schedule IX --------------------- ----------- (Amounts in thousands)
(1) Based on quarter-end balances.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES --------------------------------------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION Schedule X ------------------------------------------ ---------- (Amounts in thousands)
--------------------------------------------- Column A Column B --------------------------------------------- Charged to Costs Item and Expenses ---------------------------------------------
Year Ended December 31, 1993: ----------------------------
1. Maintenance and repairs $ 1,078
5. Advertising costs 833
Year Ended December 31, 1992: ----------------------------
1. Maintenance and repairs $ 4,221
5. Advertising costs 101
Year Ended December 31, 1991: ----------------------------
1. Maintenance and repairs $ 1,170
5. Advertising costs 1,116
REPRESENTATIVE RATES OF EXCHANGE BETWEEN THE U.S. DOLLAR AND THE NEW ISRAELI SHEKEL FOR THE THREE YEARS ENDED DECEMBER 31, 1993 -------------------------------------------
The following table shows the amount of New Israeli Shekels equivalent to one U.S. Dollar on the dates indicated:
1993 1992 1991 ------------------------------
March 31 2.768 2.404 2.261
June 30 2.805 2.444 2.395
September 30 2.864 2.439 2.393
December 31 2.986 2.764 2.283
Haifa, February 15, 1994
Independent Auditor's Report to the Shareholders of Granite Hacarmel Investments Limited
We have audited the consolidated balance sheets of Granite Hacarmel Investments Limited and its subsidiaries ("the Company") as at December 31, 1993 and 1992, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
We did not audit the financial statements of a consolidated subsidiary, whose statements reflect total assets and total revenues constituting 4.2% and 2.4% (1992 - 3.9% and 2.6%), respectively, of the related consolidated totals. These statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such subsidiary, is based solely on the report of the other auditor.
In our opinion, based on our audit and the report of the other auditor, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1993 and 1992, the results of its operations, the changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993, in conformity with accounting principles generally accepted in Israel, consistently applied.
The consolidated financial statements, stated in U.S. dollars in accordance with U.S. generally accepted accounting principles, are translated according to the principles prescribed by Statement of Financial Accounting Standards No.52 (F.A.S.B. 52). Those statements are based on historical nominal amounts and are included in Note 28 to the financial statements.
Without qualifying our opinion we would like to bring to attention Note 26 to the financial statements regarding a ruling by the Controller of Restrictive Trade Practices of the Ministry of Trade and Commerce that in his opinion, part of the exclusive agreements between the oil marketing companies and filling station operators are restrictive agreements. At this time it is too early to estimate whether the ruling of the Controller will be accepted by the Court of Restrictive Trade Practices and, if so, the effects of the ruling on the overall fuel market in general, and on the Company in particular.
Certified Public Accountants (Israel)
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Adjusted for the Index of December 1993
N o t Adjusted NIS. (thousands) e December 31, December 31, s 1993 1992
Current assets Cash and cash equivalents 5,476 16,424 Marketable securities 4 10,689 75 Compulsory Government loan 6.C. 605 - Accounts receivable and debit balances 4.A. 320,475 269,004 Inventories 5 302,881 405,807 --------- --------- 640,126 691,310 --------- ---------
Investment Unconsolidated subsidiaries and others 6 70,873 56,626 Long-term loans receivable 7 12,378 12,761 Compulsory Government loan 6.C. 1,095 2,054 --------- --------- 84,346 71,441 --------- ---------
Fixed assets Property, plant and equipment 8 719,810 664,974 Less: Accumulated depreciation 340,744 304,798 --------- --------- 379,066 360,176 --------- ---------
Other assets and deferred charges, net 9 15,031 14,753 --------- ---------
--------- --------- 1,118,569 1,137,680 ========= =========
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Adjusted for the Index of December 1993
N o t Adjusted NIS. (thousands) e December 31, December 31, s 1993 1992 ---- Current liabilities Short-term bank credit 10 86,063 104,914 Loans from others 11 10,205 14,548 Accounts payable and credit balances 12 199,326 218,792 --------- --------- 295,594 338,254 --------- ---------
Long-term liabilities Long-term loans 13.A. 7,637 7,503 Debentures convertible into shares of the company 13.B. 253,720 202,686 Debentures convertible into shares of a subsidiary 13.C. 7,176 7,158 Customers' deposits 14 52,516 64,409 Liabilities for post-retirement benefits, net 15 4,815 5,145 Deferred taxes, net 16,23 13,603 14,207 Capital notes issued to affiliated companies 285 1,275 --------- --------- 339,752 302,383 --------- --------- Minority interest in consolidated subsidiaries 5,444 5,207 --------- ---------
Collaterals, commitments and contingent liabilities 25,26
Shareholders' equity Capital and capital reserves 18,19 217,900 216,000 Retained earnings 259,879 275,836 --------- --------- 477,779 491,836 --------- ---------
1,118,569 1,137,680 ========= =========
J. Rosen - Chairman of the Board
M. Mor - Director
A. Shachar - Managing Director
Date: February 15, 1994.
The accompanying notes are an integral part of the financial statements.
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
The accompanying notes are an integral part of the financial statements.
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
The accompanying notes are an integral part of the financial statements.
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
The accompanying notes are an integral part of the financial statements.
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES
A. General -------
1. The financial records of the Company and its consolidated subsidiaries are maintained on a current basis in historical New Israel Shekels. In accordance with Opinions issued by the Institute of Certified Public Accountants in Israel, the consolidated financial statements are stated in terms of December 1993 New Israel Shekels ("adjusted shekels") which reflect a uniform purchasing power. Such shekel statements are henceforth referred to as "adjusted statements".
The comparative figures (including the monetary items) in the adjusted statements (balance sheets, statements of income, statements of changes in shareholders' equity, statements of cash flows) are also stated in terms of December 1993 adjusted shekels.
2. The adjusted values presented in the adjusted statements do not necessarily reflect realizable value or current economic value, but rather the original historical value or the value including excess of cost over net asset value related to specific assets, adjusted for the changes in the general purchasing power of the Israel currency, to permit comparison of the data on a uniform basis.
3. The term "cost" used in the adjusted statements means cost in adjusted shekels unless otherwise stated.
B. Basis of Adjustment - Consumer Price Index ------------------------------------------
The adjusted amounts are expressed in New Israel Shekels, the purchasing power of which reflects the average price level of the month of December 1993, based on the Consumer Price Index ("Index") published on January 15, 1994 (see Note 2.G.)
C. Principles of Adjustment ------------------------
1. Balance Sheet -------------
a. The non-monetary items (the balance sheet amounts which represent their historical value at the time of their acquisition or creation-see below) were adjusted for the changes in the Index since their acquisition or creation to December 1993.
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES
The following items were treated as non-monetary items: property, plant and equipment and related accumulated depreciation, investments carried at cost, inventories, except for inventories of crude oil and refined products, deferred charges and the related accumulated amortization, and shareholders' equity.
b. The value of the investments in affiliated companies carried on the equity basis was computed on the basis of the adjusted statements of the affiliated companies.
c. Deferred taxes, net were computed on the basis of the adjusted data.
d. Monetary items are stated in the adjusted statements at their historical value.
2. Statement of Income -------------------
The items of the statement of income were adjusted in accordance with the changes in the consumer price index as follows:
a. Amounts relating to non-monetary items in the balance sheet (e.g. depreciation and amortization), or provisions included in the balance sheet (e.g. severance indemnities, vacation pay) were adjusted in accordance with the changes in the corresponding balance sheet items.
b. Other amounts in the statement of income (e.g. sales, purchases, other current costs), except for financing expenses (income) net, are stated at their adjusted amounts based on the index for the month of the related transactions.
c. The net financing item, which cannot be independently calculated, is derived from the other items in the statement of income. The item includes, inter alia, amounts required for the adjustment of various items in the statement of income in respect of the inflationary component of the financing included therein.
d. The Company's equity in the operating results of the affiliated companies and the minority interest in the results of consolidated subsidiaries were determined on the basis of the adjusted statements of the investee companies.
3. Comparative figures -------------------
Comparative figures were adjusted to the December 1993 index.
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES
A. Principles of consolidation ---------------------------
1. The consolidated financial statements of the Company include the consolidated financial statements of the Company and its subsidiaries. The list of subsidiaries which are included in the consolidated financial statements and the percent ownership and control therein are included in a separate schedule to the financial statements.
2. Intercompany balances and transactions of consolidated companies have been eliminated.
B. Investments in subsidiary and affiliated companies --------------------------------------------------
1 The investments in subsidiaries and affiliated companies (including a company in which the Company has a substantial influence) are reflected in the financial statements in accordance with their equity adjusted to the balance sheet date together with the balance of the excess cost or net of the balance of deferred credits. Other investments are stated at cost which does not exceed equity as of the balance sheet date.
Subsidiary companies own several other inactive and/or insignificant subsidiaries and therefore are not consolidated and are carried at cost, which does not exceed equity as at the balance sheet date.
2. The excess of cost of investments in consolidated subsidiaries, which is not related to specific assets, over the value of net assets acquired ("Goodwill"), is included in "Other assets and deferred charges, net" and is amortized on the straight-line method over a period of ten years.
The excess value of net assets acquired over cost of investments in affiliated companies, which is not related to specific assets, is set off against excess of cost included in "Other assets and deferred charges, net" and is amortized on the straight line method over a period of ten years.
3. A list of affiliated companies is included in a schedule attached to the financial statements.
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
C. Valuation of inventories ------------------------
1. Change in the method of evaluation of Emergency crude oil and refined --------------------------------------------------------------------- products inventories --------------------
Sonol recorded the cumulative effect resulting from a change in the method of valuing its Emergency inventories as defined by the Commodities and Services Control Order (Arrangements in the Oil Economy) - 1988 ("The Control Order"). The overwhelming portion of the crude oil and refined product inventories consists of Emergency inventories. In the previous method for valuing inventories, inventories of crude oil and refined products were valued at the lower of their adjusted cost or their market value. According to the new method, the Emergency inventories are valued based on current value, which does not exceed market value in accordance with the lower of the changes in the exchange rate determined by the Fuel Authority ("Fuel Authority rate") or the dollar exchange rate. In all instances, the Emergency inventories valued at the Fuel Authority rate are guaranteed by the Government by way of setting Sonol's recovery price from the market based on the Fuel Authority rate in accordance with the Control Order. The change in the inventory valuation method as mentioned above has no effect on Retained Earnings as of December 31, 1991 and on the statement of income for the year then ended. As a result of the change, net income for 1992 was increased by NIS. 16,700 thousand, comprising NIS. 0.14 in primary earnings per share and NIS. 0.09 in fully diluted earnings per share.
The emergency crude oil inventory is valued on the basis of the first-in, first out method and the emergency refined products inventory and the commercial inventories (crude oil and refined products) are valued on the basis of the moving average method.
2. Other inventories -----------------
The inventories of luboils, spare parts and others are stated at the lower of cost or market.
The cost is determined by the first-in, first out method except for spare parts which are valued by the moving average method.
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
D. Property, plant and equipment -----------------------------
Property, plant and equipment are carried at cost, net of investment grants, or at cost together with the addition of excess of cost over net asset value related to specific assets. Betterments and improvements are charged to assets while maintenance and repair expenses are charged as incurred to the statement of income.
E. Depreciation ------------
Depreciation is computed on the straight line method at annual rates considered to be sufficient for depreciating the assets over their estimated useful lives.
The annual rates of depreciation are as follows:
% ------- Buildings (including temporary buildings) 4- 6.5 Machinery and equipment 5-15 Vehicles 15-20 Computers 20 Furniture and office equipment (reflected in machinery and equipment) 6-10
The excess of cost over net asset value related to specific assets is depreciated over the remaining useful life as determined at the time the excess of cost was related to those assets.
Leasehold rights are amortized over the term of the lease.
F. Debentures convertible into shares ----------------------------------
1. Convertible debentures are presented in accordance with the Opinion No. 53 of the Institute of Certified Public Accountants in Israel on the basis of the probability of their conversion into shares. Debentures are reflected in the financial statements at their liability value.
2. Costs relating to the issuance of convertible debentures are amortized over the remaining period until their maturity.
G. Foreign currency and linkage basis ----------------------------------
1. Assets (other than securities) and liabilities in foreign currencies or linked thereto are stated at the exchange rates in effect for the balance sheet date.
Assets (other than securities) and liabilities linked to the Consumer Price Index ("the Index"), are stated according to the linkage conditions applying to each asset.
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
1. The index, the exchange rates and the rate of changes therein were as follows: December 31, Changes in % --------------------- --------------------- 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ----
Index 253.2 227.6 208.1 11.2 9.4 18.0 Exchange rate of the U.S. dollar 2.986 2.7884 2.2992 7.1 21.3 11.8
2. Income and expenses for items paid or linked to foreign currencies are included in the appropriate paragraphs of the statements of income based on the exchange rate in effect when such items were recorded.
3. Exchange rate or linkage differences resulting from the adjustment of assets or liabilities in foreign currency or of assets and liabilities linked to the consumer price index are included in the nominal statements of income in the appropriate items at the time incurred.
H. Investments -----------
1. Government loan ---------------
The investment in a Government Loan is reflected at its present discounted value as calculated in accordance with directions specified in the opinions of the Institute of Certified Public Accountants in Israel. The change in the value of the Government loan is included in the statement of income.
2. Marketable Securities ---------------------
The marketable securities are carried at their market value on the date of the balance sheet. The changes in the value of the securities are reflected in the statement of income.
3. Capital notes -------------
The investment in capital notes, which are not capital notes of subsidiary companies and which are unlinked and non-interest bearing are carried at their present value, discounted at an annual rate of 11%.
I. Provision for doubtful receivables ----------------------------------
The Company provides specifically for receivables the collection of which is doubtful in the opinion of the management.
J. Deferred taxes --------------
Deferred taxes are computed for the purpose of the adjusted financial statements in respect of those components which create the difference between results measured in the adjusted financial statements and the results measured for income tax purposes.
The deferred taxes are calculated according to the liability method at tax rates that will be in effect when the deferred taxes will be utilized, using tax rates that are known at the time of preparation of the financial statements (See note 16.C.).
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
1. The main factors in respect of which deferred taxes have been included are as follows:
a. Differences in depreciation and amortization for accounting and tax purposes;
b. Differences between the value of inventories for accounting and tax purposes;
c. Timing differences in recognition of income and expense items for accounting and tax purposes (mainly linkage differences on customers' deposits and provisions for employee post-retirement benefits).
2. The main factors in respect of which deferred taxes have not been computed:
a. Amounts of adjustment for the change in the purchasing power of the New Israel Shekels relating to lands, buildings and private motor cars, in accordance with the rules determined by the Institute of Certified Public Accoutants in Israel.
b. Investments in subsidiaries and affiliates, because it is the Company's intention to hold these investments rather than to sell them.
K. Liabilities for post-retirement benefits ----------------------------------------
1. The liabilities of the Company and its subsidiaries in respect of pension and severance indemnities are fully covered by provisions for severance indemnities, by deposits in approved funds and by managers' insurance policies. The deposits in approved funds and in managers' insurance plans are not included in the financial statements as they are not under the control of the Company.
2. The Provision for pension benefits in case of early retirement of employees is computed at the discounted present value of the future liabilities of the Company for such retired employees. The Company's liability for early retirement is generally up to the time when the employee reaches retirement age and is measured as a fixed percentage of the maximum amount due to the employee from the pension fund. The rate of capitalization for computing the provision is 3% per annum.
3. In accordance with the labor agreements between subsidiaries and their employees, retiring employees (men at age 65 and women at age 60-65) are entitled to receive a partial redemption of unutilized sick leave, subject to a ceiling of 60 days. A provision based on an actuarial calculation has been made in the financial statements for covering the aforesaid liabilities. The actuarial calculation is based, inter alia, on a capitalization rate of 6% and on an annual real increase of wages at the rate of 3%.
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
L. Provision for linkage increments on customers' deposits -------------------------------------------------------
Supergas is obligated under a Government decree to pay customers terminating their gas purchasing agreement an amount equal to the latest approved deposit together with linkage increments from the date of the last approval to the date of payment. In periods subsequent in the last approval, Supergas provides for updating the amounts of the deposits on the basis of the expected next updating that it will request. Supergas provides for this liability on a discounted present value basis.
M. Earning per share -----------------
1. Primary earnings ----------------
The earnings per share are computed in accordance with the Opinion No. 55 of the Institute of Certified Public Accountants in Israel, based on the weighted average of shares outstanding, taking into consideration the retroactive effect to the stock dividend and options.
2. Fully diluted earnings ----------------------
The fully diluted earnings per share are computed on the basis of the computation of the primary earnings per share taking into consideration theoretical conversion of the convertible securities subject to an anti dilutive test as stated in the aforementioned Opinion.
N. Reclassification ----------------
1. As a result of the change in the inventory valuation method (Note 2.C.) in 1992, differences arose in the cost of sales amounts as compared to amounts reported for this item in the past and, as a result cost of sales and financing expenses have been reclassified.
2. The results of accounting with the Fuel Authority, which were charged to the Government imposts in the past, have been reclassified to cost of sales. Comparative figures have been reclassified accordingly.
O. Foreign currency futures transactions -------------------------------------
The results of futures transactions for the purchase of foreign currency, meant to provide protection for the costs of imports against fluctuations in foreign currencies (Hedging transactions) are reflected on the statement of income at the time the import is recorded.
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR
A. Sonol -----
1. Amounts due to or from the Fuel Authority, to the extent still provisional, are included each year in the accounts according to estimates prepared by Sonol based on past experience. Differences which subsequently arise are reflected in the results of the year in which such differences are determined.
2. In June 1988, the oil marketing companies entered into a comprehensive agreement ("the Agreement") with the Ministries of Finance and Energy providing mainly as follows:
a. The oil marketing companies accept the Reform Program for the Energy Sector ("the Reform"), as it is described in the Agreement;
b. Announcement, through a Government order, of a monthly price structure for refined products which determines the maximum price to consumers and which includes an element of profit and a recovery of non-direct expenses, similar rates, in general, to those that would have been in existence had the Price Structure Agreement remained in force.
The Reform, which was enacted as of August 8, 1988, is being implemented in stages, the first of which will remain in force at least until the implementation of the second stage, the timetable of which is as yet unknown. The first stage of the Reform allows for the licensing of new oil and gas marketing companies, direct imports of refined products for self-consumption by large customers and the import of crude oil by the refineries. The refineries can sell refined products only to licensed oil marketing companies. The Reform also provides for two categories of crude oil and refined product inventories; Emergency and Commercial. Furthermore, purchases are divided into two categories; Contract and Free (Spot). Contract purchases enter the Emergency inventories and refined products emanating from refining of crude oil from Emergency inventories are absorbed into the Commercial inventory.
All costs and expenses related to contract purchase and to the holding of Emergency inventories continue to be fully recoverable from the Government while free purchases and the holding of Commercial inventories are at the risk of the oil marketing company.
The implementation of the first stage of the Reform caused increased competition and, as a result, had an impact on quantities sold and caused an increase in discounts granted and expanded customer credits.
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR (CONTINUED)
3. In September 1991, the Government decided, inter alia, as follows:
a. To effect the transfer of ownership of the Emergency inventories of crude oil and refined products from the oil marketing companies to the Government.
b. To reduce the Emergency inventories by a third, and the annual procurement of Contract purchases to one third of annual consumption, with the intent that the Contract purchases be carried out via tender offers, thus eliminating the accounting between the oil marketing companies and the Fuel Authority in regard to the costs of such purchases. As of January 1993 contract purchases were reduced by 25% and as of January 1, 1994 the contract purchases are carried out via governmental tender offers. The import for such contract purchases is at the full responsibility of the importers.
It is the opinion of Sonol's management that implementation of the decision to transfer or to reduce the Emergency inventories will not adversely affect Sonol's profitability.
As of January 1, 1994, the requirement to purchase heavy fuel oil and kerosine by large customers has been cancelled. It is the opinion of Sonol's management that this will not adversely affect Sonol's profitability.
4. Beginning in December 1992, Government price controls were lifted from fuel products sold outside public stations. As of July 14, 1993 Government price controls were lifted from various fuel products marketed by Sonol in public stations and as of October 26, 1993 Government price controls were lifted from the maximum price of the refined products at the gate of installation marketed by Sonol in public stations.
5. Beginning November 1, 1993 the method for updating the basket of expenses used in setting and updating the maximum consumer prices of fuel products still subject to price controls was changed.
At this stage, the negative impact of this change on the financial results of Sonol cannot be determined.
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR (CONTINUED)
B. Supergas --------
1. As of August 1, 1989 the Law of Arrangements in the State Economy (Amended Statutes) - 1989, entered into effect which provides inter-alia for the following:
a. Licensing of new gas marketing companies;
b. Direct sales of gas by the refineries to gas marketing companies;
c. Allowing the cancellation of existing contracts between gas suppliers and individual customers, at the customers' election, even if bound by contract.
The above changes ("the Gas Reform") have resulted in increased competition, particularly in the more profitable bulk supply sector. Such competition has manifested itself primarily through price discounting and increased customer credit. As of the balance sheet date, the Gas Reform has not materially affected Supergas' market share.
Supergas operates on a maximum price controlled market, except for bulk sales and sales to commercial customers.
2. Supergas lodged a claim for a declarative judgement against the Ministry of Energy and Infrastructure, the Fuel Authority, regarding certain subjects which partly relate to the period before the Gas Reform and partly thereafter.
As a result of the rejection of a claim of an other gas company in the Supreme Court, Supergas cancelled its claim regarding subjects relating to the period beginning after the Gas Reform.
Unsuccessful result in the legal litigation will not cause deterioration in the financial position of Supergas as reflected in its financial statements.
NOTE 4 - MARKETABLE SECURITIES Adjusted NIS. (thousands) ------------------------- December 31, ------------ 1993 1992 ----- ----
Debentures linked to the consumer price index 6,618 - Debentures linked to foreign currency 1,201 - Shares, options and convertible debentures 2,133 - Others 737 75 ------ ------ 10,689 75 ====== ======
NOTE 4.A.-ACCOUNTS RECEIVABLE AND DEBIT BALANCES Adjusted NIS. (thousands) ------------------------- December 31, ------------ 1993 1992 ---- ---- Customers - open accounts 189,887 198,939 Checks and notes receivable 26,640 20,926 Less - provision for doubtful receivables(*) (6,640) (4,856) ------- -------- 209,887 215,009 Fuel Authority 79,033 22,448 Government Institutions 1,514 778 Income receivable 5,370 6,330 Short-term loans granted and current portion of long-term loans granted 8,073 15,585 Employees 638 554 Prepaid expenses 4,008 2,146 Future tax benefits, net(**) 3,483 3,224 Others 8,469 2,930 ------- ------- 320,475 269,004 ======= ======= Including related and interested parties 7,577 8,434 ======= ======= The largest balance of interested parties during the year 4,806 2,090 ======= =======
(*) See note 2.I. (**) See note 16.
NOTE 5 - INVENTORIES
Consist of: Adjusted NIS. (thousands) ------------------------- December 31, ------------ 1993 1992 ------- ------- Crude oil and raw materials 87,930 146,837 Finished products 207,556 250,436 Materials and supplies 7,395 8,534 ------- ------- 302,881 405,807 ======= =======
NOTE 6 - INVESTMENTS
A. Investments in unconsolidated subsidiaries and others consist of:
Adjusted NIS. (thousands) ------------------------- December 31, 1993 December 31, 1992 ----------------------- ----------------------- Shares Loans Total Shares Loans Total ------ ----- ----- ------ ----- ----- Unconsolidated subsidiaries, at cost 132 4 136 132 4 136
Affiliated companies carried on equity basis (1) 5,366 - 5,366 6,376 - 6,376
Capital notes of interested parties(2) - 31,589 31,589 - 31,660 31,660
Others, at cost (3) 33,782 - 33,782 18,454 - 18,454 ------ ------ ------ ------ ------ ------ 39,280 31,593 70,873 24,962 31,664 56,626 ====== ====== ====== ====== ====== ====== (1) In the year of account dividends were received from affiliated companies amounting to NIS. 1,878 thousand (1992 - NIS. 195 thousand) which include NIS. 750 thousand from previous years income.
(2) Capital notes reflected in the balance sheet are comprised as follows: Adjusted NIS. (thousands) ------------------------- December 31, ------------ 1993 1992 ---- ---- Face value (a)(c) 36,066 40,123 Present value discount (b) 4,477 8,463 ------ ------ Discounted value 31,589 31,660 ====== ======
(a) These notes at face value mature as follows:
January 10, 1995 25,966 January 10, 1996 10,100 ------ 36,066 ====== (b) See Note 2.H.(3).
(c) The capital notes are non-marketable, unlinked and bear no interest.
NIS.3,152 thousand of the capital notes (1992 - NIS.3,507 thousand) is guaranteed by interested party and the balance is unsecured.
NOTE 6 - INVESTMENTS (CONTINUED)
(3) Include NIS. 15,328 thousand (1992 - Nil) relating to an investment, through a subsidiary company, in 50% of the shares of "Otzem Promotion and Investments Ltd." (hereafter "Otzem"). Otzem is the owner of a new shopping center "Kanor" in Or Yehuda and of 45.2% of the shares of "Moraz Profiles Ltd." a producer of P.V.C. profiles for the construction industry. Furthermore, a consolidated subsidiary undertook to provide a shareholders' loan in the amount of NIS. 9,400 thousand. The agreement, signed on September 27, 1993, is subject to examinations and final signature. The aforementioned shopping center was opened to the public in September 1993 and more than 95% of its area has been rented.
B. Consolidated subsidiaries:
1. Vulcan Batteries Ltd. --------------------- In May 1990, Vulcan Batteries Ltd. completed a public offering of its ordinary shares, convertible debentures and options (expired as of June 30, 1992) thereby reducing Sonol's immediate equity interest to 81.6%, and, assuming full conversion of debentures to 70.8%. The debentures are convertible into ordinary shares at any time prior to maturity (Note 13.C.).
2. Sprint Motors Ltd. ------------------ In 1991, Sprint Motors Ltd. (a wholly owned subsidiary of Sonol) sold the franchise for import and marketing of motor vehicles together with the inventory of motor vehicles, spare parts, amounts due from customers at a price slightly in excess of the cost reflected in the financial statements and its part in the property utilized for the purpose of operating the franchise. As a result of the aforesaid, Sprint Motors Ltd. ceased its car business activities.
C. Compulsory Government loan -------------------------- The compulsory Government loan is Hagalil Peace loan [Note 2.H.(1)].
The nominal value of the Hagalil Peace loan is linked, at the Company's discretion, to the increase in the index at the rate of 80% in addition to an index linked interest at the rate of 1% per annum or is linked to the increase in the representative rate of exchange of the dollar, without interest. The loans are redeemable in four equal annual payments commencing in the year 1993.
NOTE 7 - LONG-TERM LOANS RECEIVABLES
a. Consist of: Adjusted NIS. (thousands) ------------------------- December 31, ------------ 1993 1992 ---- ---- Loans to customers 17,710 18,296 Loans to employees 127 84 Others 597 3,556 ------ ------ 18,434 21,936 Less: included in current assets 6,056 9,175 ------ ------ 12,378 12,761 ====== ====== The years of maturity of the loans:
First year - current portion 6,056 9,175 Second year 3,392 4,846 Third year 727 1,453 Fourth year 693 574 Fifth year 7,566 5,888 ------ ------ 18,434 21,936 ====== ====== b. Linkage terms and interest rates: Adjusted NIS. (thousands) ------------------------- Unlinked Linked to Linked to Total index foreign currency -------- --------- ---------- ----- Interest rates: 0% 10-20% 0-4% 4-10% 0% 5-9% -- ------ ---- ----- -- ---- December 31, 1993 ----------------- Loans to: Customers 1,054 2,684 8,932 2,073 2,016 951 17,710 Employees - - 127 - - - 127 Others - 542 55 - - - 597 ----- ----- ----- ----- ----- --- ------ 1,054 3,226 9,114 2,073 2,016 951 18,434 ===== ===== ===== ===== ===== === Less: included in current assets 6,056 ----- 12,378 ====== December 31, 1992 ----------------- Loans to: Customers - 4,138 7,705 3,115 909 2,429 18,296 Employees - - 84 - - - 84 Others - - 77 - - 3,479 3,556 ----- ----- ----- ----- --- ----- ------ - 4,138 7,866 3,115 909 5,908 21,936 ===== ===== ===== ===== === ===== Less: included in current assets 9,175 ------ 12,761 ======
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
a. Consist of: Adjusted NIS. (thousands) ------------------------- Land Machinery and and Buildings Equipment Vehicles Others Total --------- --------- -------- ------ ----- Cost ---- Balance at beginning of year 236,013 375,625 25,191 28,145 664,974 Additions 22,421 27,147 5,947 3,042 58,557 Disposals (493) (970) (2,258) - (3,721) ------- ------- ------ ------ ------- Balance at end of year 257,941 401,802 28,880 31,187 719,810(*) ------- ------- ------ ------ ------- Accumulated depreciation ------------ Balance at beginning of year 66,242 203,914 17,822 16,820 304,798 Depreciation charged 6,987 26,027 3,095 2,267 38,376 Depreciation in respect of disposals - (566) (1,864) - (2,430) ------- ------- ------ ------ ------- Balance at end of year 73,229 229,375 19,053 19,087 340,744 ------- ------- ------ ------ ------- Depreciated balance as of December 31, 1993 184,712 172,427 9,827 12,100 379,066 ======= ======= ====== ====== ======= Depreciated balance as of December 31, 1992 169,771 171,711 7,369 11,325 360,176 ======= ======= ====== ====== =======
(*) Net of investment grants in the amount of NIS. 9,655 thousand.
b. Land and buildings include buildings on lease-hold lands, the cost of which is NIS. 83,366 thousand, for various original periods of 49 - 98 years, ending in the years 1998 - 2072. Land and buildings at a cost of NIS. 80,977 thousand have not yet registered in the name of the Company or consolidated subsidiaries at the Land Registry Office. The main reason for the absence of registration is that the land settlement and division process has not yet been arranged.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
c. Differences between the depreciated balance of property, plant and equipment in the adjusted financial statements and the future depreciable balance of those assets for tax purposes are treated partly as timing differences (for these differences a deferred tax provision has been made) and partly as permanent differences.
The amounts treated as permanent differences are as follows:
Adjusted NIS. (thousands) ------------------------- Balance as of January 1, 1992 60,509 Changes in the year 1992 (4,310) ------- Balance as of December 31, 1992 56,199 Changes in the year 1993 (4,334) -------
Balance as of December 31, 1993 51,865 ======
d. The item land and buildings includes NIS. 12,417 thousand, payment on account of the acquisition of 50% of the rights of the company "Magor Holdings Ltd. (hereafter "Magor") in land and buildings in a project under construction in Holon, which is known as "Lev-Magor Holon". The estimated completion date of the project is May 31, 1994. The whole amount the Company will pay (through a wholly owned subsidiary) for the project, when completed and title transferred is estimated to be approximately NIS. 15,200 thousand. Furthermore, a contract has been signed by the parties for cooperation and management of the project, under which "Magor" has undertaken that the rent from the project, which the wholly owned subsidiary will receive for 10 years, will be not less than NIS. 700 thousand per year, linked to the index.
e. For floating and fixed charges on the above assets see Note 25.
NOTE 9 - OTHER ASSETS AND DEFERRED CHARGES, NET
Consist of: Adjusted NIS. (thousands) ------------------------- Balance to be amortized as of December 31, ------------------- 1993 1992 ---- ---- Other assets: ------------- Deferred rent (1) 4,551 4,266 Goodwill in consolidated subsidiaries (2) 2,462 2,704 Others 2,518 2,072 ----- ----- 9,531 9,042
Deferred charges: ----------------- Expenses incurred in the issuance of debentures by the Company (3) 8,296 8,916 Expenses incurred in the issuance of debentures by a consolidated subsidiary (3) 494 633 ------ ------ 18,321 18,591
Less: Deferred credit in a consolidated subsidiary (2) 3,290 3,838 ------ ------ 15,031 14,753 ====== ======
(1) Includes leasehold rights not yet amortized in the amount of NIS. 2,349 thousand (1992 - NIS. 1,271 thousand). The aforementioned leasehold rights are for periods ending between the years 2001 - 2044.
(2) For amortization see note 2.B.2
(3) For amortization see note 2.F.
NOTE 10 - SHORT TERM BANK CREDIT
Linkage terms and interest rates: --------------------------------- Adjusted NIS. (thousands) ------------------------- December 31, 1993 ----------------- Unlinked linked Linked to Total to foreign Index currency -------- -------- --------- ----- Interest rates: 10-19.7% 0.5-2.5% 3-9.3% -------- -------- ------ Overdrafts 1,923 - - 1,923 Short-term loans 60,863 - 22,403 83,266 Current portion of long-term loans 52 109 713 874 ------ --- ------ ------ 62,838 109 23,116 86,063 ====== === ====== ======
Adjusted NIS. (thousands) ------------------------- December 31, 1992 ----------------- Unlinked linked Linked to Total to foreign Index currency -------- ------- -------- ----- Interest rates: 10-18% 0.5-2.5% 3-9% ------ -------- ---- Overdrafts 691 - 20 711 Short-term loans 43,869 - 59,191 103,060 Current portion of long-term loans 49 128 966 1,143 ------ --- ------ ------- 44,609 128 60,177 104,914 ====== === ====== =======
NOTE 11 - LOANS FROM OTHERS
Adjusted NIS. (thousands) Adjusted NIS. (thousands) ------------------------- ------------------------- December 31, 1993 December 31, 1992 ----------------- ----------------- Unlinked Linked to Total Unlinked Linked to Total foreign foreign currency currency -------- -------- ------ ------- -------- ------ Short term liabilities 3,238(*) 6,967 10,205 4,788(*) 9,760 14,548 ======== ===== ====== ======== ===== ======
(*) Include NIS. 2,067 thousand (1992 - NIS. 1,343 thousand) capital notes to related parties. The capital notes are not linked, bearing no interest and redeemable at any time.
The above liabilities are non interest bearing.
NOTE 12 - ACCOUNTS PAYABLE AND CREDIT BALANCES
Adjusted NIS. (thousands) ------------------------- December 31, December 31, ------------ ------------ 1993 1992 ---- ---- Suppliers (mainly crude oil suppliers) 71,903 121,805 Institutions (mainly V.A.T. and customs) 21,125 19,558 Salaries and related expenses (including provisions) 15,258 14,021 Accrued expenses 6,388 7,843 Income tax payable 13,647 22,586 Dividend declared payable 60,000 20,025 Others 11,005 12,954 ------- ------- 199,326 218,792 ======= =======
Include related and interested parties 3,277 9,548 ======= =======
NOTE 13 - LONG-TERM LIABILITIES
A. Long-term loans --------------- Rate of Adjusted NIS. (thousands) interest ------------------------- % December 31, December 31, ------- ------------ ------------ 1993 1992 ---- ---- U.S. Dollar loans from banks(*) 6-9.3 1,370 2,393 Customers' deposit - linked to index - 2,280 2,263 Customer's deposit - linked to foreign currency - 51 3,497 Other loans - linked to index(**) 0-2.5 4,717 341 Other loans - unlinked 18-19.7 93 152 ----- ----- 8,511 8,646 Less: current portion 874 1,143 ----- ----- 7,637 7,503 ===== =====
NOTE 13 - LONG-TERM LIABILITIES (CONTINUED)
Adjusted NIS. (thousands) ------------------------- December 31, December 31, ------------ ------------ 1993 1992 ---- ---- First year - current portion 874 1,143 ----- ----- Second year 480 911 Third year 317 494 Fourth year 9 329 Fifth year - 9 No due date 6,831 5,760 ----- ----- 7,637 7,503 ----- ----- 8,511 8,646 ===== ===== (*) Fixed rate of interest for the whole period of the loan
(**)1993 - includes NIS. 4,500 thousand from an affiliated company.
Accruded interest is included in "accounts payable and credit balances" in the current liabilities.
B. Convertible debentures into shares of the Company ------------------------------------------------- Adjusted NIS. (thousands) ------------------------- December 31, December 31, ------------ ------------ 1993 1992 ---- ---- Debentures (Series 1)(*) 71,616 73,595 Debentures (series 2)(**) 182,104 129,091 ------- ------- 253,720 202,686 ======= =======
(*) Registered debentures (Series 1) NIS. 1.- par value each. Every NIS. 55.- par value of debentures are convertible into 10 ordinary shares NIS. 1.- per value each. The debentures bear interest at an annual rate of 0.1%. The principal, interest and the price for conversion into ordinary shares are linked to the representative rate of exchange of the U.S. dollar. The debentures mature in 8 equal yearly installments on November 30 in each of the years commencing in 1995 and ending in 2002.
As of the balance sheet date there are 54,999,912 outstanding debentures (Series 1).
NOTE 13 - LONG-TERM LIABILITIES (CONTINUED)
(**) Registered debentures (Series 2) NIS. 1.- par value each. Every NIS. 5 par value of debentures (Series 2) are convertible into ordinary share of NIS. 1.- par value. The debentures (Series 2) bear interest at an annual rate of 2.5%. The principal, interest and the price for conversion into ordinary shares are linked to the representative rate of exchange of the U.S. dollar. The debentures mature in 7 equal yearly installments on November 30 in each of the years commencing in 1996 and ending in 2002.
As of the balance sheet date there are 152,647,948 outstanding debentures (Series 2).
See also Note 18.D.
Regarding collaterals see Note 25.
C. Convertible debentures into shares of a subsidiary -------------------------------------------------- Pursuant to a prospectus of Vulcan as of May 1990, Vulcan issued to the public 4,516,750 registered debentures (Series 1) at par value. The debentures are linked to the index published for April 1990 and bear interest at an annual rate of 0.1%.
The debentures mature in four equal yearly installments commencing in 1995 and ending in 1998 and they are convertible at any time up to December 26, 1998 into ordinary shares of NIS. 1.- par value at a conversion rate of 200% (1 share for every NIS. 2.- par value of debentures converted, subject to adjustments).
The debentures are secured by a senior floating charge, equal to all other present and future senior floating charges on all the assets of Vulcan.
D. All the aforementioned debentures are listed for trading on the Tel-Aviv Stock Exchange.
E. The real financial cost of all the above debentures is NIS. 906 thousand, (1992 - NIS. 19,149 thousand).
NOTE 14 - CUSTOMERS' DEPOSITS
a. Customers' deposits as of December 31, 1993 are computed based on the deposit amount approved by the Government decree of February 10, 1994.
b. Customers' deposits held by Supergas include NIS. 38,042 thousand (1992 - NIS. 49,229 thousand) linkage increments accrued on those deposits (Note 2.L.).
NOTE 15 - LIABILITIES FOR POST-RETIREMENT BENEFITS, NET
Consist of: Adjusted NIS. (thousands) ------------------------- December 31, December 31, ------------ ------------ 1993 1992 ---- ---- Provision for severance pay 3,133 3,228 Less: deposits in approved funds (*) (1,115) (1,332) ----- ----- 2,018 1,896 Provision for early retirement pension (**) 1,321 1,818 Provision for redemption of unutilized sick leave 1,476 1,431 ----- ----- 4,815 5,145 ===== =====
(*) The deposits can be withdrawn subject to law. Accrued income on the deposits is included in the statements of income.
(**)Excluding NIS. 609 thousand (1992 - NIS. 882 thousand) current early retirement pension which is included in accounts payable and credit balances.
NOTE 16 - DEFERRED TAXES
a. Consist of: Adjusted NIS. (thousands) ------------------------- Regarding current Regarding non- Balance Sheet current Balance items Sheet items Total ----------------- --------------- ------ Balance as of January 1, 1992 (3,623) 19,372 15,749 Adjustment regarding changes in the tax rate (see c. below) 82 (1,473) (1,391) Other changes in 1992 317 (3,692) (3,375) ------ ------ ------ Balance as of December 31, 1992 (3,224) 14,207 10,983 Changes in 1993 (259) (604) (863) ------ ------ ------ Balance as of December 31, 1993 (3,483) 13,603 10,120 ====== ====== ======
NOTE 16 - DEFERRED TAXES (CONTINUED)
b. Presented in the balance sheet:
Adjusted NIS. (thousands) -------------------------- December 31, December 31, ------------ ------------ 1993 1992 ---- ---- Deferred Taxes in long-term liabilities 13,603 14,207
Future tax benefits in current assets (3,483) (3,224) ------ -----
10,120 10,983 ====== ======
c. Pursuant to the amendment of the Income Tax Law as of December 22, 1992 the rate of company tax decreased from 40% by 1% for a year commencing from 1993 and ending in 1996 to the rate of 36%.
The impact of the decreased rate of the tax on the net deferred taxes included in the 1992 financial statements is a decrease in the taxes on income in the statements of income and an increase in the adjusted net income by NIS. 1,391 thousand.
NOTE 17 - LINKAGE OF MONETARY BALANCES
NOTE 18 - CAPITAL
a. Nominal values.
Consists of: Authorized Issued and Paid(*) ---------- ------------------ NIS. (thousands) NIS. (thousands) ---------------- ---------------- December 31, December 31, ------------ ------------ 1993 1992 1993 1992 ---- ---- ---- ---- 225,000,000 Ordinary shares of NIS. 1.- each 225,000 225,000 120,380 120,007 ======= ======= ======= =======
(*) 120,379,753 ordinary shares (1992 - 120,006,964 ordinary shares).
NOTE 18 - CAPITAL (CONTINUED)
b. Stock options (Series 1) ------------------------ In accordance with a prospectus dated February 1992, the Company issued, inter alia, 20,000,000 registered stock options (Series 1) each of which entitled the holders to acquire an ordinary share of NIS. 1.- par value in consideration for a payment of the exercise price of NIS. 4.25 (linked to the consumer price index). The last day for exercising options was on February 28, 1993.
Until February 28, 1993 (the expiration date of the stock options) 379,721 stock options were exercised and the balance of stock options, which were not exercised, expired.
c. Stock options (Series 2) ------------------------ In accordance with a prospectus dated February 1992 and with a resolution to allocate to the Company's shareholders prior to the aforementioned issuance, the Company issued 39,984,124 registered stock options (Series 2). Each stock option entitles the holders to acquire an ordinary share of NIS. 1.- par value each in consideration for a payment of the exercise price of NIS. 4.80 (linked to the consumer price index). The last day for exercising options (Series 2) is on February 28, 1997.
As of the balance sheet date 16 stock options have been exercised. The balance of stock options outstanding is 39,984,108 options.
d. Subsequent events ----------------- After the balance sheet date until February 1, 1994, 7,777,130 debentures (Series 2) (see note 13.B.) have been converted into 1,555,426 ordinary shares of NIS. 1.- par value each.
NOTE 18 - CAPITAL (CONTINUED)
e. Earnings per ordinary share --------------------------- 1. The net income used in computing earnings per NIS. 1.- par value of shares:
Adjusted NIS. (thousands) ------------------------- Year ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- The net income used in computing primary earnings per share 43,791 52,523 32,085 Add - theoretical income deriving from: Exercise of options (series 1) - 1,777 - Exercise of options (series 2) 1,608 8,021 - Exercise of options (series A) - 3,454 - Exercise of debentures (series 1) 1,677 - - Exercise of debentures (series 2) (734) - - ----- ------ ------ Net income used in computing diluted earnings per share 46,342 65,775 32,085 ====== ====== ======
2. The par value of shares used in computing earning per NIS. 1.- par value share: Adjusted NIS. (thousands) ------------------------- Year ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- Share capital used in computing primary earnings per share 120,318 117,501 119,500 Add-share capital that may derive from: Exercise of options (series 1) - 17,494 - Exercise of options (series 2) 39,984 37,437 - Exercise of options (series A) - 13,105 - Exercise of debentures (series 1) 10,000 - - Exercise of debentures (series 2) 28,944 - - ------- ------ ------- The total share used in computing diluted earnings per share 199,246 185,537 119,500 ======= ======= =======
3. In 1992: in computing the diluted earnings per share the following were not included, because of their anti-dilutive effect:
Debentures (series 1) Debentures (series 2)
4. For examining the probability of conversion or exercise of convertible securities, the present value was computed using a capitalization rate of 3% (1992 - 2.5%, 1991 - 3.5%) for securities linked to the index and 3.5% (1992 - 4%, 1991 - 5%) for securities linked to the exchange rate of the U.S. dollar.
NOTE 19 - CAPITAL RESERVES Adjusted NIS. (thousands) ------------------------- Year ended December 31, ----------------------- Nominal values 1993 1992 -------------- ---- ---- Share premium 60,668 59,286 Share of the Company and a subsidiary in the revaluation reserve of an affiliate 240 126 ------ ------ 60,908 59,412 ====== ====== See also Note 28.C.
NOTE 20 - COST OF SALES Adjusted NIS. (thousands) ------------------------- Year ended December 31, ----------------------- 1993 1992(*) 1991(*) Material used: ---- ------- ------- -------------- Crude oil and refined petroleum products 712,950 784,667 784,381 Raw materials and auxiliary materials 42,664 40,564 41,994 Finished luboil products purchased 2,084 2,676 1,599 ------- ------- ------- 757,698 827,907 827,974 ------- ------- -------
Labor and sub-contract work --------------------------- Labor (including related expenses) 8,764 9,658 8,819 Sub-contract work - (refining and terminal charges) 62,272 80,825 91,427 ------- ------- ------- 71,036 90,483 100,246 ------- ------- ------- Production costs 41,714 49,506 43,370 ------- ------- ------- Depreciation 2,085 2,277 2,315 ------- ------- ------- Automobiles - - 14,283 ------- ------- ------- Batteries 5,172 10,029 10,366 ------- ------- ------- Total cost of sales 877,705 980,202 998,554 ======= ======= ======= Increase (decrease) in inventories (102,926) 30,067 (274,606) ======= ======= ======= (*) Reclassified, Note 2.N.
NOTE 21 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include a provision for doubtful receivables and receivables written off amounting to NIS. 2,303 thousand (1992 - NIS. 2,927 thousand; 1991 - NIS. 2,058 thousand).
NOTE 22 - FINANCING INCOME, NET
a. Includes income of NIS. 7,877 thousand resulting from the retroactive adjustment of a subsidiary company's liability prescribed by law in connection with customers' deposits. Furthermore, in the year of account, income of NIS. 4,322 thousand is included resulting from cancellation of provision for interest and linkage increments. The cancellation became possible as a result of receiving final tax assessments in respect of previous years.
b. In the year 1992, income of NIS. 5,096 thousand is included resulting from a reduction in the discount rate on capital notes of related parties from 20% to 11%. (see Notes 2.H. and 6).
NOTES 23 - TAXES ON INCOME
a. The Company opted to be taxed commencing from the tax year 1986 and ending in the tax year 1991 under the Income Tax Regulations (Rules Relating to the Bookkeeping of Foreign Invested Companies and of Certain Partnerships and to the Determination of their Taxable Income) - 1986. Commencing from the tax year 1992, the Company opted not to be taxed under the above mentioned income tax regulations. Beginning from the tax year 1992 (Sonol, Supergas and Aloc in prior years too) the taxable income of the Company and its aforesaid subsidiaries is computed under the Income Tax Law (Inflationary Adjustments) - 1985.
Vulcan, having the status of an approved enterprise, is entitled to a reduced income tax rate in accordance with the the Law for the Encouragement of Capital Investments - 1959. A portion of the benefits terminated in 1992 (approx. 40%) and the remaining part will conclude in 1995. Up to the date of these financial statements, Vulcan complied with all the conditions required a result of its approved enterprise status.
NOTES 23 - TAXES ON INCOME (CONTINUED)
b. The provision for taxes on income in the statements of income consists of:
Adjusted NIS. (thousands) ------------------------- Year ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- Current taxes including inflationary erosion of advance tax payments 30,029 39,172 21,428 Deferred taxes, net (*) (863) (4,766) 3,471 ------ ------ ------ 29,166 34,406 24,899
Overprovisions pertaining to prior years, net (4,145) - (657) ------ ------ ------ 25,021 34,406 24,242 ====== ====== ====== (*) See note 16.C.
c. Final tax assessments --------------------- The Company, Supergas, Aloc, Sonapco, Sprint, Chem Ami and Sonol Yad Mordechai have received final tax assessments through tax year 1991. Sonol and Vulcan have received final tax assessments through the tax year 1990.
d. Reconciliation between the theoretical tax on the reported income and the ------------------------------------------------------------------------- tax on income charged in the statements of income -------------------------------------------------
Adjusted NIS. (thousands) ------------------------- Year ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- Taxes at statutory rate 39% 40% 41% ==== ==== ====
The theoretical tax at the applicable tax rate 26,670 33,995 21,679 Erosion of advanced tax payments 859 810 1,312 Differences in the definition of capital and assets for tax purposes and others, net 1,637 992 1,908 Adjustment of deferred taxes due to changes in the tax rate - (1,391) - Taxes for prior years (4,145) - (657) ------ ------ ------ 25,021 34,406 24,242 ====== ====== ======
NOTE 24 - ADJUSTMENT OF PROVISIONS
In prior years Sonol included in its financial statements certain provisions for amounts that in the opinion of its management Sonol might be requested to pay. These provisions have not been recognized for income tax purposes and the tax has been paid.
The policy of Sonol is to estimate at every financial reporting date its exposure as aforesaid prevailing of that date. Accordingly, Sonol reflected in its statements of income the decrease of such provisions and the cancellation of the remaining balance in the year ended December 31, 1991 amounted to NIS. 9,200 thousand, net after tax effect.
NOTE 25 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES
a. Floating and fixed charges -------------------------- Adjusted NIS. (thousands) -------------------------- December 31, 1993 Collateralized by ----------------- ----------------- Short-term bank Floating charges on credits 1,923 current assets of the main subsidiaries.
Loans from others Floating charges on 83,266 current assets of Sonol.
Accounts payable and credit Floating charges on balances (including accrued current assets of Sonol interest on short-term bank loans) 225
Long-term bank loans 1,682 Floating charge on current assets of Sonol and fixed charges on all the assets of Vulcan and fixed charges on part of the fixed assets of Milchen.
Investment grant 2,922 Floating charge on all the assets of Vulcan.
Convertible debentures of Senior floating charge a subsidiary 7,176 equal to all other senior floating charges on all the assets of Vulcan.
Convertible debentures 253,720 Floating charge subordinated to other floating charges on all the assets of the Company.
NOTE 25 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
b. Liabilities and contingencies ----------------------------- 1. Indemnification and Insurance of senior officers ------------------------------------------------ A general meeting of the shareholders resolved to amend the Articles of Association of the Company in order to enable the indemnification and insurance of directors and senior officers according to the law. The Company insures, subject to provisions of the law, the directors' and senior officers' liability.
2 Pending litigation ------------------ a. Claims (mainly legal claims) arising in the normal course of business have been lodged against subsidiaries and affiliated companies. Regarding part of the said claims appropriate provisions have been made. In the opinion of the companies' managements, and based on the opinion of legal counsel, the provisions made are sufficient to cover the possible costs.
b. A claim in the amount of approximately NIS. 4 million was lodged against the Company. The plaintiffs are requesting, inter alia, the enforcement of an operating agreement of a station being operated by someone else, who, according to them, transferred to them, with the Company's consent, the operation of the station. The Company denies all of the plaintiffs' claims and has submitted its defense arguments which counter all the plaintiffs' claims. In the opinion of Sonol's legal counsel no substantial risk exists in this claim.
c. A claim was submitted against Sonol by a customer owning land leased to Sonol on which a station was built, the substance of which is the cancellation of all agreements between Sonol and the plaintiff and a monetary claim against Sonol in the amount of approximately NIS. 4 million. In the opinion of Sonol's legal counsel the claim's prospects (as far as the amount of the claim is concerned) are weak.
d. Within the framework of arbitration proceedings between Sonol and one of its agencies (which is owned and managed by a related party to the Company who ceased to be a related party subsequent to the balance sheet date), the agency submitted a claim in the amount of approximately NIS. 36 million, primarily on account of the loss of current and future earnings. The Company contends that this was done contrary to the arbitration agreement between the parties. Sonol applied to the Court to cancel the arbitration agreement. In the opinion of Sonol's legal counsel, the plaintiff's prospects are negligible.
NOTE 25 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
e. In November 1993 a claim was lodged against an affiliated company and against its shareholders, which include Sonol. The total claim is approximately NIS. 15 million regarding the sale of fuel products under restrictive trade practices (as the plaintiff claims) among the fuel companies. In the opinion of the legal counsels of Sonol and the affiliated company, the companies have a good defense against the claim.
f. A claim in the amount of NIS. 688 thousand was lodged in court against Vulcan by a former distributor of its products regarding losses and damage to its goodwill caused by the cancellation of the distribution agreement with him.
Vulcan has denied the above claim and has lodged a counter-claim in court amounting to NIS. 1,057 thousand. In the opinion of Vulcan's management, based on the opinion of legal counsel, the claim probably will be denied.
C. The consolidated subsidiary companies are committed as follows:
Adjusted NIS. (thousands) ------------------------- Future fixed assets expenditures 30,285
Rental leases and obligations in accordance with signed agreements with agencies for the use of their outlets for marketing of Sonol's products over various periods(*) 17,939
Lease obligation for a computer and other equipment over periods of up to five years 1,252
(*) The rental liability for each of the years following 1993 is as follows: 1994 1,275 1995 969 1996 973 1997 993 1998 994 1999 and thereafter 12,735 ------ 17,939 ======
NOTE 25 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Adjusted NIS. (thousands) ------------------------- D. The consolidated subsidiaries have contingent liabilities in respect of:
1. Acquisition of crude oil or refined products - open letter of credits 8,471
2. The subsidiary Supergas has given a guarantee in favor of a bank regarding a loan given by 1,450 the bank to a partnership (in which Supergas is a partner).
3. The subsidiary Sonol has guaranteed the liability of Vulcan in regard to the acquisition of the land and building on which it is situated 3,022
4. The consolidated subsidiary, Granite Properties, undertook to grant a shareholder's loan to Otzem (see Note 6.a) 9,400
5. Various guarantees 1,816
6. Guarantees given to Customs and Excise Department for payment of customs duty, purchase and other taxes that may be due to that Department by the Company, Sonol and a related Company Unlimited account
NOTE 26 - RULING BY THE CONTROLLER OF RESTRICTIVE TRADE PRACTICES
On June 29, 1993, the Controller of Restrictive Trade Practices of the Ministry of Industry and Commerce, submitted his ruling given in accordance with paragraph 43(a) of the Law of Restrictive Trade Practices in regard to the exclusive agreements between the oil marketing companies and filling station operators stating that, in his opinion, such exclusive agreements are restrictive agreements as defined by the Law of Restrictive Trade Practices - 1988.
The Controller, in his ruling, reviewed various types of relationships between the oil marketing companies and station operators and stated that his ruling will effect approximately 77% of the stations of the company's subsidiary, Sonol Israel Ltd. and 75% of all the stations in the country. The ruling does not relate to specific agreements and does not affect Company owned stations.
The Controller ruled that he is postponing the effective date of his decision and recommendations in accordance with paragraph 43(e) of the Law of Restrictive Trade Practices due to the "significant influences" that may result from his decision and will allow the oil marketing companies to protest the decision within thirty days of the receipt of his ruling by the Court of Restrictive Trade Practices.
NOTE 26 - RULING BY THE CONTROLLER OF RESTRICTIVE TRADE PRACTICES (CONTINUED)
The controller's ruling will not be considered as prima facie evidence in any legal proceedings unless the Court of Restrictive Trade Practices will so determine.
Sonol has filed a protest to the Court for Restrictive Trade Practices.
At this time, it is too early to estimate whether the ruling of the Controller will be confirmed by the Court of Restrictive Trade Practices and if so, the effects of the ruling on the overall fuel market, in general, and on the Company in particular.
NOTE 27 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
a. Benefits to interested parties and transactions with them. ---------------------------------------------------------- 1. Finance income and expenses from interested parties --------------------------------------------------- Year ended December 31, ----------------------------- 1993 1992 1991 ---- ---- ---- NIS. in Thousands ----------------- Adjusted Nominal Nominal -------- ------- ------- Financing income 729 536 717
Financing expenses 14 1,233 1,002
- Transactions conducted in the normal course of the Company's consolidated business with banking groups and others having and indirect interest in the Company have not been separately disclosed.
- In 1992, the Company paid commission in the amount of NIS. 3,057 thousand to indirect interested parties for public offerings of shares, options and debentures.
2. Benefits to interested parties ------------------------------ Year ended December 31, Number ----------------------------- of 1993 1992 1991 persons ---- ---- ---- ------- NIS. in Thousands ----------------- (1) Interested party employed in the group 1 970 834 784
(2) Directors (in 1991 -1) 3 126 123 72
NOTE 27 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES (CONTINUED)
3. Transactions and commitments with interested and related parties ----------------------------------------------------------------
Year ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- NIS. in Thousands ----------------- Income: Sales (*) 40,160 18,104 17,010 Management fee 472 741 780 (Amortization) addition to capital notes, net (71) 7,448 396
Expenses: Management fee - 1,565 4,064 Rent 500 478 481 Participation in expenses 106 60 169
(*) All the sales to interested parties are made in the normal course of business and under accepted financial conditions.
A consolidated subsidiary paid management fees to related parties in the amount of NIS. 287 thousand (1992 - 311 thousand; 1991 - 370 thousand).
b. Balances with interested and related parties -------------------------------------------- Balances with interested and related parties are detailed in the financial statements and the notes attached thereto.
NOTE 28 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS
The financial records of the Company and its consolidated subsidiaries are maintained on a current basis in historical nominal New Israel Shekels.
The translated consolidated financial statements, stated in U.S. dollars, have been prepared for use in connection with the preparation of the financial statements of a U.S. shareholder.
The functional currency of the Company is the U.S. Dollar. Despite the significant reduction in Israel's rate of inflation, the Company has continued to prepare its consolidated financial statements in U.S. dollars in accordance with translation principles identical to those prescribed by Statement of Financial Accounting Standards No. 52 ("F.A.S.B. 52"), based on the historical nominal amounts.
CONSOLIDATED BALANCE SHEETS --------------------------- (In thousands)
Translated to U.S. Dollars December 31, --------------------------- 1993 1992 -------- -------- Current assets: Cash and cash equivalents 1,833 5,296 Investments in securities 3,792 32 Accounts receivable and debit balances 107,485 85,959 Inventories 102,542 131,754 ------- ------- 215,652 223,041 ------- ------- Investments: Unconsolidated subsidiaries and others 20,482 15,251 Compulsory Government loans 366 660 ------- ------- 20,848 15,911 ------- ------- Long-term receivables 4,145 4,113 ------- ------- Property, plant and equipment 158,531 139,949 Less: Accumulated depreciation 67,783 59,087 ------- ------- 90,748 80,862 ------- ------- Other assets and deferred charges, net 5,278 5,069 ------- ------- 336,671 328,996 ======= =======
NOTE 28 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED BALANCE SHEETS --------------------------- (In thousands)
Translated to U.S. Dollars -------------------------- December 31, ------------ 1993 1992 ---- ---- Current liabilities: Short-term bank credits 28,823 33,819 Loans from others 3,417 4,690 Accounts payable and credit balances 66,803 70,557 ------- ------- 99,043 109,066 ------- ------- Long-term liabilities: Long-term loans 2,558 2,418 Debentures convertible into shares of the company (I) 80,994 60,627 Debentures convertible into shares of a subsidiary 2,403 2,308
Customers' deposits 17,587 20,763
Liabilities for post-retirement benefits, net 1,613 1,659
Deferred taxes, net (II) 2,864 8,238
Capital notes issued to affiliated companies 95 411 ------- ------- 108,114 96,424 ------- ------- Minority shareholders' interest in consolidated subsidiaries 1,687 1,557 ------- ------- Shareholders' equity:
Capital 54,965 54,831 Capital reserves (II) 32,371 31,874 Retained earnings 40,491 35,244 ------- ------- 127,827 121,949 ------- ------- 336,671 328,996 ======= =======
NOTE 28 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (In thousands)
Translated to U.S. Dollars -------------------------- Year ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- Revenues: Sales 578,338 643,475 585,994 Less: Government imposts 207,119 221,100(*) 181,081(*) ------- ------- ------- Net sales 371,219 422,375 404,913 Other income, net 872 762 1,602 ------- ------- ------- 372,091 423,137 406,515 ------- ------- ------- Costs and expenses: Cost of sales 293,536 337,653(*) 335,295(*) Selling, general and administrative expenses 46,034 47,758 44,672 Depreciation and amortization 9,078 8,180 7,774 Financing (income) expenses, net (3,604) 1,611 (5,588) ------- ------- ------- 345,044 395,202 382,153 ------- ------- ------- Operating income before taxes on income 27,047 27,935 24,362 Taxes on income 8,591 10,626 6,339 ------- ------- ------- Operating income after taxes on income 18,456 17,309 18,023 Company's share in income of affiliates, net 355 510 885 Minority interest in income of consolidated subsidiaries (198) (11) (129) ------- ------- ------- 18,613 17,808 18,779 Cumulative effect of the change in accounting for taxes on income (III) 6,728 - - ------- ------- ------- Net income 25,341 17,808 18,779 ======= ======= =======
(*) Reclassified
NOTE 28 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ----------------------------------------------- (In thousands)
Translated to U.S. Dollars -------------------------- Retained Capital Reserves Earnings Total ------- -------- --------- -----
Balance as at January 1, 1991 5,153 3,247 74,399 82,799
Changes in 1991:
Net income for the year - - 18,779 18,779
Dividend, net - - (25,451) (25,451) ------ ------ ------ ------ Balance as at December 31, 1991 5,153 3,247 67,727 76,127
Changes in 1992:
Net income for the year - - 17,808 17,808
Cancellation of deferred shares (2,686) 2,686 - -
Issuance of ordinary shares 8,505 31,865 - 40,370
Issuance of stock dividend 43,857 (5,933) (37,924) -
Exercise of stock options 2 9 - 11
Dividend - - (12,367) (12,367) ------ ------ ------ ------ Balance as at December 31, 1992 54,831 31,874 35,244 121,949
Changes in 1993:
Net income for the year - - 25,341 25,341
Exercise of stock options 134 497 - 631
Proposed dividend - - (20,094) (20,094) ------ ------ ------ ------ Balance as at December 31, 1993 54,965 32,371 40,491 127,827 ====== ====== ====== =======
NOTE 28 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
(I) During 1992 the company completed initial public offerings of shares, options and debentures.
The proceeds of the public offerings have been allocated to the securities issued on the basis of their fair market prices at the beginning of trading on the stock exchange. As a result, the debentures are carried at their discounted values as follows:
U.S. Dollars (thousands) ------------------------- December 31, ------------ 1993 1992 ---- ---- Debentures (Series 1 and 2) - face value 84,920 65,338 Discount (Series 1) (*) 3,976 4,711 ------ ------ 80,994 60,627 ====== ======
(*) The discount is being amortized over the remaining period until their maturity.
See note 13.B.
(II) In the public offering in February 1992, the company issued stock options to employees. The excess of the value of the options granted over the cost to the employees in the amount $ 1,296 (thousand) was charged to the statement of income and credited to capital reserves. On this amount the company recorded deferred tax benefits in the amount of $ 548 (thousand) which will be recognized for tax purposes when the options are transferred to the employees and income tax will be paid thereon.
(III) As of January 1, 1993, the Company adopted F.A.S.B. 109 of the American Institute of Certified Public Accountants. The cumulative effect of this change as of December 31, 1992, $ 6,728 thousand, was recorded by the Company on a consolidated basis as a deferred taxes asset and reduced the deferred taxes liability on the financial statements.
(IV) As of 1993 the Company adopted F.A.S.B. 115 (Accounting for certain Investments in Debt and Equity Securities) of the American Institute of Certified Public Accountants. The effect of the change in 1993 was to increase Marketable Securities by $ 18 thousands, Net Income by $ 11 thousands and Taxes on Income by $ 7 thousands. The change had no effect on prior years.
LIST OF THE MAIN SUBSIDIARIES AND AFFILIATES --------------------------------------------
Holding and Control at balance sheet date --------------------- % - Consolidated Subsidiaries - - ------------------------- Sonol Israel Ltd. 100 Vulcan Batteries Ltd. 82 Sprint Motors Ltd. 100 Milchen Sonol Agency Ltd. 67 Allied Oils and Chemicals Ltd. 100 Sonol Yad Mordechai (1972) Ltd. 59 Chem Ami Ltd. 100 Sonapco Bank Street Corporation 100 Supergas Israel Gas Distribution Company Ltd. 100 Supergas Hanegev Ltd. 65 Supergas Rehovot 89 Ltd. 90 Supergas Heating (1984) Ltd. 100 Granite Hacarmel Holdings (1993) Ltd. 100 Granite Hacarmel Properties (1993) Ltd. 100 Granite Hacarmel O.Y. Holdings Ltd. 100
Affiliated Companies - - -------------------- Aviation Services Ltd. 22.5 Tanker Services Ltd. 25 United Petroleum Export Company Ltd. 25
Igal Brightman & Co. [Logo] 3 Daniel Frisch Street Telephone: 972 (3) 696-4263 -------------- Tel Aviv 64731, ISRAEL Facsimile: 972 (3) 696-0130 P.O.B. 16593, Tel Aviv 61164
AUDITOR'S REPORT TO THE SHAREHOLDERS OF AM-HAL LTD. --------------
We have audited the balance sheets of AM-HAL LTD. As of December 31, 1993 and 1992, the statements of profit and loss, changes in shareholders' equity and cash flows for each of the three years then ended. Our audits were made in accordance with generally accepted auditing standards, including those prescribed under the Auditor's Regulations (Auditor's Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The primary financial statement of the company were drawn up in accordance with generally accepted accounting principles in Israel, and as explained in note 2B, were accordingly presented in terms of constant New Israeli Shekels. The attached financial statements have been prepared at the request of a shareholder on the basis of the primary financial statements by adjusting those statements to generally accepted accounting principles in the United States as explained in note 2E.
In our opinion, the attached financial statements present fairly, in terms of constant New Israeli Shekels, the financial position of the company as of December 31, 1993, and 1992, the results of its operations, changes in shareholders' equity and cash flows for each of the three years then ended, in conformity with generally accepted accounting principles in the United States.
Pursuant to section 211 of the Companies Ordinance (New Version) 1983, we state that we have received all the information and explanations required by us and our opinion on the above statements is given according to the best of our knowledge and the explanations received by us and as shown by the books of the company.
/s/ Igal Brightman & Co. ------------------------ IGAL BRIGHTMAN & CO. Certified Public Accountants Tel-Aviv, February 14, 1994.
Igal Brightman & Co. [Logo] 3 Daniel Frisch Street Telephone: 972 (3) 696-4263 -------------- Tel Aviv 64731, ISRAEL Facsimile: 972 (3) 696-0130 P.O.B. 16593, Tel Aviv 61164
To the Board of Directors of Am-Hal Ltd.
At your request, we have audited the translation into U.S. dollars of the audited financial statements of Am-Hal Ltd. as of December 31, 1993 which were prepared in adjusted N.I.S. and our audited report on them was made on February 14, 1994. The translation of the above mentioned financial statements into U.S. dollars was made solely for the purpose of Ampal-American Israel Corporation (hereafter - Ampal) and in accordance with the guidelines described in Note 2, which were prescribed by Ampal.
Our audit of the translation was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditors Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
In our opinion the attached financial data was translated into U.S. dollars in accordance with the guidelines described in Note 2.
/s/ Igal Brightman & Co. ------------------------- IGAL BRIGHTMAN & CO. Certified Public Accountants Tel-Aviv, February 20, 1994
COHEN, EYAL, YEHOSHUA & CO. Certified Public Accountants(Isr.)
51 Weismann St., PO BOX 21592 COHEN ELIAHU C.P.A.(ISR.) TEL AVIV 61214, ISRAEL 61214 EYAL ITAMAR C.P.A. (ISR.) TEL 03-6952210, FAX 03-6953517 YEHOSHUA NISSIM C.P.A. (ISR.)
AUDITOR'S REPORT TO THE SHAREHOLDERS OF --------------------------------------- AMPAL ENTERPRISES LTD. ---------------------- SPECIAL PURPOSE STATEMENTS --------------------------
We have examined the Balance Sheet of Ampal Enterprises Ltd. as at December 31, 1993, the Statement of Profit and Loss and the Statement of Changes in Shareholders' Equity for the year ended on that date. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditor's Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above financial statements have been prepared on the basis of the historical cost adjusted to reflect the changes in the general purchasing power of the Israel currency, in accordance with rules prescribed by the Institute of Certified Public Accountants in Israel. Condensed nominal Israel currency data, on the basis of which the adjusted financial statements were prepared, is presented in Note 6.
The data in the financial statements relating to the investment in the included company and to the Company's share in its profits, amounting to N.I.S. 1,326 thousand, are based on financial statements examined by other Certified Public Accountants.
In our opinion, based on our examination and the opinion of other Certified Public Accountants, as aforesaid above, the abovementioned financial statements, present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1993, the results of its operations and the changes in its shareholders' equity for the year ended on that date. Also, in our opinion, the financial statements based on the nominal data (Note 6) present fairly, in nominal terms, the financial position of the Company as at December 31, 1993, and the results of its operations and the changes in its shareholder's equity for the year ended on that date, on the basis of the historical cost convention.
Pursuant to Section 211A of the Companies Ordinance (New Version), 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above financial statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
Pursuant to the United States Securities and Exchange Commission requirements, we state that the auditing standards and procedures mentioned above are Israel auditing standards and procedures, which are substantially similar to standards in the United States. /s/ Cohen, Eyal, Yehoshua & Co. -------------------------------- Cohen, Eyal, Yehoshua & Co. Certified Public Accountants (Isr.)
March 8, 1994
FAHN, KANNE & Co. Certified Public Accountants (Isr.)
5, DRUYANOV ST., TEL-AVIV 63143 Number: 52 P.O.B. 11535, TEL-AVIV 61114 Tel-Aviv, March 8, 1994 TEL 03-294946, FAX 03-201386
AUDITOR'S REPORT TO THE SHAREHOLDERS OF AMPAL FINANCIAL SERVICES LTD. ---------------------------------------
We have examined the Balance Sheets of AMPAL FINANCIAL SERVICES LTD. as of December 31, 1993 and 1992 and the Statements of Income, Changes in Shareholders' Equity and the Statements of Cash Flows for the three years ended December 31, 1993, 1992 and 1991. We have also examined the data in nominal values in the Balance Sheets as of December 31, 1993 and 1992 and in the Statements of Income and the Statements of Cash Flows for the three years ended December 31, 1993, 1992 and 1991 (Note 12). Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditors Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above financial statements were prepared on the basis of the historical cost convention adjusted for changes in the general purchasing power of the Israeli Shekel according to Opinions issued by the Institute of Certified Public Accountants in Israel.
In our opinion, the above financial statements present fairly in conformity with generally accepted accounting principles, the financial position of the Company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the three years ended December 1993, 1992 and 1991. Also, in our opinion, the financial statements based on nominal data (Note 12) present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the three years ended December 31, 1993, 1992 and 1991, on the basis of the historical cost convention.
We also state that we have obtained all the information and explanations we have required and that our opinion on the above financial statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
Pursuant to the United States Securities and Exchange Commission requirements, we state:-
a) The abovementioned generally accepted accounting principles were supplied on a consistent basis.
b) The auditing standards and procedures mentioned above are Israeli auditing standards and procedures which are substantially similar to the standards in the United States.
/s/ FAHN, KANNE & CO. --------------------- FAHN, KANNE & CO. Certified Public Accountants (Isr.)
SHLOMO ZIV & C0. Certified Public Accountants (Isr.)
Tel-Aviv 61500 Gibor House 6 Kaufman St. P.O.B. 50322 Tel. 03-5179611 Fax 03-5179418
Haifa 31018 2 Hanamal St. P.O.B. 1886 Tel. 04-675025-6 Fax 04-679461
Report of Independent Public Accountants ----------------------------------------
To the Shareholders of Ampal Holdings (1991) Ltd.
We have audited the accompanying balance sheet of Ampal Holdings (1991) Ltd. (an Israeli corporation) as of December 31, 1993 and 1992, and the related statements of income, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 1993, translated into U.S. dollars. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ampal Holdings (1991) Ltd., as of December 31, 1993 and 1992, and the results of its operations, changes in its shareholders' equity and cash flows for each of the two years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
/s/ Shlomo Ziv & Co. -------------------- Shlomo Ziv & Co. Certified Public Accountants
March 23, 1994
[LOGO] HAFT & HAFT & CO. ------------------ INCL. STRAUSS, LAZAR & CO.
Certified Public Accountants (Isr.)
AUDITOR'S REPORT TO THE SHAREHOLDER OF AMPAL (ISRAEL) LTD. -------------------------------------- SPECIAL PURPOSE STATEMENTS --------------------------
We have examined the Consolidated Balance Sheet of Ampal (Israel) Ltd. and its subsidiaries as at December 31, 1993 and 1992, the Consolidated Statement of Profit and Loss, the Statement of Changes in Shareholders' Equity for the two years ended December 31, 1993 and the consolidated statement of cash flows for the year ended December 31, 1993. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above financial statements have been prepared on the basis of the historical cost adjusted to reflect the changes in the general purchasing power of the Israel currency, in accordance with directives issued by the Institute of Certified Public Accountants in Israel. Condensed nominal Israel currency data, on the basis of which the adjusted financial statements of the company were prepared, is presented in Note 23.
The financial statements of consolidated subsidiaries whose assets constitutes 5% (1992: 24%) of the total assets included in the consolidated balance sheet, and whose income constitute 4% (1992: 60%) of the total income in the Statement of Profit and Loss were examined by other auditors. Also, the financial statements of included companies which were presented at their book equity, were examined by other auditors.
In our opinion, based on our examination and on the reports of other auditors as stated above, the above financial statements present fairly, in the conformity with generally accepted accounting principles, the financial position of the Company and its consolidated subsidiaries as at December 31, 1993 and 1992, the results of their operations, and the changes in shareholders' equity for the two years ended December 31, 1992, and their cash flows for the year ended on that date. Also in our opinion, the unconsolidated financial statements based on nominal data (Note 23) present fairly, the unconsolidated financial position of the Company as at December 31, 1993 and 1992, and the unconsolidated results of its operations, changes in the shareholders' equity, and cash flows, for the three years ended December 31, 1993, on the basis of the historical cost
convention.
We also state that we have obtained all the information and explanations we have required and that our opinion on the above financial statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
----------------------------------------------------------------- TEL AVIV: HAFT BUILD. 51 WEIZMAN ST. P.O.B, 18115. CODE 61180. TEL. 972-3-6967231, FAX 972-3-6953517 MAYA BUILD. 74 DEREKH PETAH TIKVA. CODE 67215. TEL. 972-3- 5613545, FAX. 972-3-5613824 HAIFA: 55 PINHAS MARGOLIN ST. P.O.B. 8081, CODE 31080. TEL. 972- 4-525202, FAX. 972-4-555813 JERUSALEM: 16 BILU ST. P.O.B. 790, CODE 91007. TELEPHONE 972-2- 638276, FAX. 972-2-635534
Pursuant to the United States Securities and Exchange Commission requirements, we state:
(a) The above-mentioned generally accepted accounting principles were supplied on a consistent basis. (b) The auditing standards and procedures mentioned above are Israeli auditing standards and procedures, which are substantially similar to standards in the United States.
/s/ H.H.S.L. Haft & Haft & Co. ------------------------------ H.H.S.L. Haft & Haft & Co. Certified Public Accountants (Isr.)
March 8, 1994
Number: 480 Tel-Aviv, March 10, 1994
AUDITOR'S REPORT TO THE SHAREHOLDERS OF AMPAL INDUSTRIES (ISRAEL) LTD. ---------------------------------------
We have examined the Balance Sheets of AMPAL INDUSTRIES (ISRAEL) LTD. as of December 31, 1993 and 1992 and the Statements of Income, Changes in Shareholders' Equity and the Statements of Cash Flows for the two years ended December 31, 1993, and 1992. We have also examined the data in nominal values in the Balance Sheets as of December 31, 1993 and 1992 and in the Statements of Income and the Statements of Cash Flows for the three years ended December 31, 1993, 1992 and 1991 (Note 13). Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above financial statements were prepared on the basis of the historical cost convention adjusted for the changes in the general purchasing power of the Israeli Shekel according to Opinions issued by the Israel Institute of Certified Public Accountants in Israel.
In our opinion, the data included in the Company's financial statements relating to the equity in an investee company and in a limited partnership and relating to the Company's share in the results of their operations are based on financial statements which were audited by other auditors.
The abovementioned financial statements do not include the consolidated financial statements of the Company and its subsidiary as required by Opinion No. 15 of the Institute for Certified Public Accountants in Israel.
In our opinion, except as stated above and relying on our examination and the opinions of other auditors as mentioned above, the above financial statements present fairly in conformity with generally accepted accounting principles, the financial position of the Company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended. Also, in our opinion, the financial statements based on nominal data (Note 13) present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the three years ended December 31, 1993, 1992 and 1991, on the basis of the historical cost convention.
Pursuant to Section 211(A) of the Companies Ordinance (New
Version), we state that we have obtained all the information and explanations we have required and that our opinion on the financial statements is given according to the best of our information and the explanations received by us and as shown by the books of the company.
Pursuant to the United States Securities and Exchange Commission requirements, we state:-
a) The abovementioned generally accepted accounting principles were supplied on a consistent basis.
b) The auditing standards and procedures mentioned above are Israeli auditing standards and procedures which are substantially similar to the standards in the United States.
/s/ FAHN, KANNE & CO. --------------------- FAHN, KANNE & CO. Certified Public Accountants (Isr.)
COHEN, EYAL, YEHOSHUA & CO. Certified Public Accountants(Isr.)
51 Weizmann St., PO BOX 21592 COHEN ELIAHU C.P.A.(ISR.) TEL AVIV 61214, ISRAEL 61214 EYAL ITAMAR C.P.A. (ISR.) TEL 03-6952210, FAX 03-6953517 YEHOSHUA NISSIM C.P.A. (ISR.)
AUDITOR'S REPORT TO THE SHAREHOLDERS OF --------------------------------------- AMPAL PROPERTIES LTD. --------------------- SPECIAL PURPOSE STATEMENTS --------------------------
We have examined the Balance Sheet of Ampal Properties Ltd. as at December 31, 1993, the Statement of Profit and Loss, the Statement of Changes in Shareholders' Equity and the Statement of Cashflows for the year ended on that date. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditor's Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above financial statements have been prepared on the basis of the historical cost adjusted to reflect the changes in the general purchasing power of the Israel currency, in accordance with rules prescribed by the Institute of Certified Public Accountants in Israel. Condensed nominal Israel currency data, on the basis of which the adjusted financial statements were prepared, is presented in Note 7.
A. The above financial statements do not include consolidated financial statements of the Company with those of its subsidiary as required by Opinion 15 of the Institute of Certified Public Accountants in Israel.
B. The data in the financial statements relating to the investment in the unconsolidated subsidiary and to the Company's share in its profits, amounting to N.I.S. 1,330 thousand, are based on financial statements examined by other Certified Public Accountants.
In our opinion, based on our examination and the opinion of other Certified Public Accountants, as aforesaid in Paragraph B, the abovementioned financial statements, except for the non- inclusion of consolidated financial statements as aforesaid in Paragraph A, present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1993, the results of its operations, the changes in its shareholders' equity and its cash flows for the year ended on that date. Also, in our opinion, the financial statements based on the nominal data (Note 7) present fairly, in nominal terms, the financial position of the Company as at December 31, 1993, and the results of its operations, the changes
in its shareholders equity and its cash flows for the year then ended, on the basis of the historical cost convention.
Pursuant to Section 211A of the Companies Ordinance (New Version), 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above financial statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
Pursuant to the United States Securities and Exchange Commission requirements, we state that the auditing standards and procedures mentioned above are Israel auditing standards and procedures, which are substantially similar to standards in the United States. /s/ Cohen, Eyal, Yehoshua & Co. -------------------------------- Cohen, Eyal, Yehoshua & Co. Certified Public Accountants (Isr.)
March 10, 1994
S A MORRIS MORRIS BRANKIN & CO. W J MATTHEW CHARTERED ACCOUNTANTS D R COTTINGHAM P.O. BOX 1044 West Wind Building Grand Cayman British West Indies
Telephone: (809 94) 98588 Facsimile (809 94) 97325 Telex: 4248 MIDSL CP
INDEPENDENT AUDITORS' REPORT ----------------------------
To the Shareholders of BANK HAPOALIM (CAYMAN) LTD
We have audited the accompanying consolidated balance sheet of Bank Hapoalim (Cayman) Ltd. (a subsidiary of Bank Hapoalim B.M.) as at December 31, 1993 and 1992, and the related consolidated statements of income, changes in shareholders' equity and cash flows, for each of the three years in the period ended December 31, 1993. These consolidated financial statements are the responsibility of the Banks' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Hapoalim (Latin America) Casa Bancaria S.A., a consolidated subsidiary, which statements reflect total assets and revenues constituting 44.1% and 45.4% respectively of the related consolidated totals at December 31, 1993 (1992: 43.3% assets, 47.5% revenues, 1991: 38.4% revenues). These statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for the subsidiary, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that out audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly in all material respects, the financial position
of Bank Hapoalim (Cayman) Ltd. as at December 31, 1993 and 1992, and its results of operations, changes in shareholders equity, and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
/s/ Morris Brankin & Co. ------------------------ Morris Brankin & Co.
February 15, 1994
TEL. (4) 532291 FAX (4) 515873 RONEL STETTNER & CO. 35 HAMEGINIM AVE. P.O.B. 466 CERTIFIED PUBLIC ACCOUNTANTS HAIFA 31033 ISRAEL
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS OF BAY HEART LIMITED on Special-Purpose Financial Statements ---------------------------------------
We have audited the accompanying special-purpose balance sheet of Bay Heart Limited (hereafter: the Company) as of December 31, 1993 and the related special-purpose statements of income and changes in shareholders' equity for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, the evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
The primary financial statements of the Company audited by us were drawn up in accordance with accounting principles generally accepted in Israel and in accordance with the Israel Securities Regulations (Preparation of Financial Statements), 1993. The primary financial statements were accordingly presented in terms of constant New Israel Shekels. As information to Ampal Industries, Inc. (hereafter: Ampal), a shareholder of the Company, we state that, in terms of constant Shekels, the aforesaid Israel accounting principles, are similar in all material respects to accounting principles generally accepted in the United States.
The accompanying special-purpose financial statements have been prepared for the purpose of complying with the guidelines submitted to us by Ampal and described in Note 2.
In our opinion, based on our audit, the accompanying special- purpose financial statements of the Company as of and for the year ended December 31, 1993, fairly present in all material respects the primary financial statements as adjusted to comply with the aforesaid guidelines of Ampal. We do not express an opinion on the said guidelines. Our opinion on the primary
financial statements of the Company was given on January 20, 1994.
This report is intended solely for the information and use of the board of directors of the Company and of Ampal.
/s/ RONEL, STETTNER & CO. ------------------------- RONEL, STETTNER & CO. Certified Public Accountants (Israel)
Haifa, January 21, 1994
TEL. (4) 532291 FAX (4) 515873 RONEL STETTNER & CO. 35 HAMEGINIM AVE. P.O.B. 466 CERTIFIED PUBLIC ACCOUNTANTS HAIFA 31033 ISRAEL
AUDITORS' REPORT TO THE SHAREHOLDERS OF BAY HEART LIMITED ---------------------------------------
We have examined the accompanying Balance Sheets of Bay Heart Limited (hereafter: the Company) as of December 31, 1992 and 1993, and the related Statements of Operations and Statements of Changes in Shareholders' Equity and of Cash Flows for the three years ended December 31, 1993. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The financial statement of the Company were drawn up in accordance with accounting principles generally accepted in Israel and, as explained in note 2, were accordingly presented in constant New Israel Shekels. Nominal financial statements are presented in note 23.
In our opinion, the above financial statements present fairly the financial position of the Company as at December 31, 1993, and the results of its operations and its cash flows for the three years ended December 31, 1993, in conformity with accounting principles generally accepted in Israel. As information to Ampal Industries, Inc., a shareholder in the Company, we also state that, in terms of constant shekels, the aforesaid accounting principles are similar in all material respects to accounting principles generally accepted in the United States.
We further state that in our opinion the above financial statements are presented in accordance with the Israel Securities Regulations (Preparation of Financial Statements), 1993.
/s/ RONEL, STETTNER & CO. ------------------------- RONEL, STETTNER & CO. Certified Public Accountants (Israel)
Haifa, January 20, 1994
KOST LEVARY and FORER C.P.A. (ISRAEL)
Messrs. Ampal Ltd.
Gentlemen,
Re: Financial statements of Carmel Container Systems (hereafter - "the Company") remeasured into U.S. dollars --------------------------------------------------------
As you know, the Company publishes to the public in Israel and in the United States financial statements in NIS adjusted to the changes in the Consumer Price Index, in accordance with Statements of the Institute of Certified Public Accountants in Israel.
The annual financial statements of the Company for the year 1993, which were audited by us, and on which we expressed our opinion on March 3, 1994, have been provided to you.
At your request we have translated into U.S. dollars, according to the principles determined in SFAS 52, the consolidated income statement figures for the year ended December 31, 1993, resulting from subtracting the income statement data for the year ended December 31, 1993 from the audited income statement data for the whole year 1993.
In our opinion, based upon our audit and the reports of the other auditors, the nominal consolidated financial statements, apart from the absence of the data regarding the effects of inflation in Israel on the financial statements, present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at December 31, 1993 and the related consolidated results of operations and changes in shareholders' equity for the year ended December 31, 1993, in conformity with generally accepted accounting principles in Israel and in the United States, on the basis of historical cost convention, (as applicable to these financial statements such principles are in all material respects identical, except for the accounting for discount of debentures).
Also, in our opinion, the translation of the aforementioned nominal figures into U.S. dollars is proper, and was made in accordance with the principles set forth in SFAS 52.
The aforementioned translated income statements and this letter are designated solely for you as shareholders of the Company and are not to be published or delivered to others.
Sincerely,
/s/ KOST, LEVARY AND FORER -------------------------- KOST, LEVARY AND FORER Certified Public Accountants
Tel-Aviv, Israel March 3, 1994
KOST LEVARY and FORER C.P.A. (ISRAEL)
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of CARMEL CONTAINER SYSTEMS LIMITED
We have audited the accompanying consolidated balance sheets of Carmel Container Systems Limited (hereafter - the "Company") and its subsidiaries as of December 31, 1992 and 1993, and the related consolidated statements of Income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in the United States and in Israel, including those prescribed by the Auditors (Mode of Performance) Regulations (Israel), 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Financial statements of consolidated subsidiaries, the assets of which at December 31, 1992 and 1993 constitute approximately 23% and 24%, respectively, of total assets included in the consolidated balance sheet and the revenues of which for the years ended December 31, 1991, 1992 and 1993 constitute approximately 25%, 29% and 30%, respectively, of total revenues included in the consolidated statement of operations, have been audited by other auditors. Our opinion expressed herein, insofar as it relates to amounts included for these subsidiaries, is based solely upon the reports of the other auditors.
The aforementioned consolidated financial statements have been prepared on the basis of the historical costs adjusted for the changes in the general purchasing power of the Israeli currency as measured by the changes in the Israeli Consumer Price Index, in accordance with statements No, 36 and 50 of the Institute of Certified Public Accountants in Israel.
In our opinion, based upon our audit and the reports of the
other auditors, the aforementioned financial statements present fairly, in all material respects the consolidated financial position of the Company and its subsidiaries at December 31, 1992 and 1993 and the related consolidated results of operations, changes in shareholders' equity and cash flows for the each of the three years ended December 31, 1993, in conformity with generally accepted accounting principles in Israel and in the United States, (as applicable to these financial statements such principles are in all material respects identical considering the remeasured Israeli currency data, as described in the preceding paragraph, to the historical costs, except for the accounting for discount debentures, See Note 25).
Also, in our opinion, the financial statements comply with the requirements of the Israeli Securities Regulations (Preparation of Annual Financial Statements), 1993.
Sincerely,
/s/ KOST, LEVARY AND FORER -------------------------- KOST, LEVARY AND FORER Certified Public Accountants (Israel)
Tel-Aviv, Israel March 3, 1994
PORAT & Co. Certified Public Accountants (ISR.)
AUDITORS' REPORT TO THE SHAREHOLDERS ------------------------------------
OF --
COUNTRY CLUB KFAR-SABA LIMITED ------------------------------
We have examined the balance sheet of Country Club Kfar-Saba Limited as of December 31, 1993 and 1992, the statement of income, the statement of retained earnings (deficits) and the statement of cash flows for the two years then ended. We have also examined the information presented on the nominal (historical) basis in the Balance Sheet as of December 31, 1993 and 1992, the statement of income, the statement of retained earnings (deficits) and the statement of cash flows for each of the three years ended December 31, 1993, 1992, 1991. Our examination was made in accordance with generally accepted auditing standards, including those prescribed by the Auditors (Mode of Performance) Regulations, 1973, and accordingly included other auditing procedures as we considered necessary in the circumstances.
The aforementioned financial statements have been prepared on the basis of the historical cost adjusted to reflect the changes in the general purchasing power of the Israeli currency, in accordance with the Opinions of the Institute of Certified Public Accountants in Israel. The nominal Israeli currency data used as the basis for the compilation of the adjusted financial statements is presented in Note 21. The method of determining the nominal shekel amounts for 1993 is as set out in note 2G.
In our opinion the aforementioned financial statements presented in adjusted New Israeli Shekels present fairly in conformity with generally accepted accounting principles, the financial position of the company as at December 31, 1993 and 1992, and the results of its operations, the changes in shareholders' equity and its cash flows for the two years then ended. Also, in our opinion, the aforementioned financial statements presented in nominal (historical) New Israeli Shekels, present fairly in conformity with generally accepted accounting principles, the financial position of the company as at December 31, 1993 and 1992, and the results of its operations, the changes in shareholders' equity and its cash flows for the three years then ended.
(Continued)
PORAT & Co. Certified Public Accountants (ISR.)
AUDITORS' REPORT TO THE SHAREHOLDERS ------------------------------------
OF --
COUNTRY CLUB KFAR-SABA LIMITED ------------------------------
Pursuant to section 211 of the Companies Ordinance (New Version) 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the aforementioned financial statements is given to the best of our information and the explanations received by us and as shown by the books of the Company.
Pursuant to the United States Securities and Exchange Commission requirements, we state that:
The aforementioned auditing standards and procedures are Israeli auditing standards and procedures, which are substantially similar to standards in the United States.
March 11, 1994
Porat and Co.
Certified Public Accounts (Isr.)
_________________________________________________________________ 28 Hayezira st. Ramat-Gan 52521 FAX: 03-7527673 Tel: 03-7527657, 7527651, 7527646
COHEN, EYAL, YEHOSHUA & CO. Certified Public Accounts (Isr.)
51 WEIZMANN ST., P.O.BOX 21592 COHEN ELIAHU C.P.A.(ISR.) TEL AVIV 61214, ISRAEL 61214 EYAL ITAMAR C.P.A. (ISR.) TEL: 03-6952210,FAX: 03-6953517 YEHOSHUA NISSIM C.P.A. (ISR.)
AUDITORS' REPORT TO THE SHAREHOLDERS OF ---------------------------------------
DAVIDSON-ATAI PUBLISHERS LTD. -----------------------------
SPECIAL PURPOSE STATEMENTS --------------------------
We have examined the Balance Sheet of Davidson-Atai Publishers Ltd. as at December 31, 1993, the Statement of Profit and Loss, the Statement of Changes in Shareholders' Equity and the Statement of Cashflows for the period from February 10, 1993 to December 31, 1993. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above financial statements have been prepared on the basis of the historical cost adjusted to reflect the changes in the general purchasing power of the Israel currency, in accordance with rules prescribed by the Institute of Certified Public Accountants in Israel. Condensed nominal Israel currency data, on the basis of which the adjusted financial statements were prepared, is presented in Note 20.
In our opinion, the abovementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1993, the results of its operations, the changes in its shareholder's equity and its cashflows for the period from February 10, 1993 to December 31, 1993. Also, in our opinion, the financial statements based on nominal data (Note 20) present fairly, in nominal terms, the financial position of the Company as at December 31, 1993, and the results of its operations, the changes in its shareholders' equity and its cashflows for the period from February 10, 1993 to December 31, 1993, on the basis of the historical cost convention.
Pursuant to Section 211A of the Companies Ordinance (New Version), 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above financial statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
Pursuant to the United States Securities and Exchange Commission requirements, we state that the auditing standards and procedures mentioned above are Israel auditing standards and procedures, which are substantially similar to standards in the United States.
Cohen, Eyal, Yehoshua & Co. March 10, 1994 Certified Public Accountants (Isr.)
Cr.R.Villarmarzo Y Asoc. Av. 18 De Julio 984 P.4 TELS: 92 31 47 ERNST & YOUNG INTERNATIONAL Casilia De Correa 1303 FAX: 92 13 31 Contadores Publicos-Auditores 11100 Montevideo - Uruguay Asesores Fiscales-Consultores, Gerenciales
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
The Board of Directors and Stockholders Hapoalim (Latin America) Casa Bancaria S.A.
We have audited the accompanying balance sheets of Hapoalim (Latin America) Casa Bancaria S.A. at December 31, 1993, 1992 and 1991; the related statements of income, cash flows and changes in equity for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As mentioned in Note 1.5, the historical cost of land, buildings and equipment, expressed in Uruguayan peso, has been revalued as established by the Uruguayan Central Bank.
In our opinion, except for the restatement of land, buildings and equipment discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Hapoalim (Latin America) Casa
Bancaria S.A. at December 31, 1993, 1992 and 1991, the results of operations, the cash flows and changes in equity for the years then ended in conformity with generally accepted accounting principles in the United States.
We have also reviewed the accompanying statements express in U.S. dollars. In our opinion, they have been properly translated on the basis described in Note 1.8.
CR. R. VILLARMARZO Y ASOC. Ernst & Young International January 18, 1994
KOST LEVARY AND FORER C.P.A. (ISRAEL)
REPORT OF INDEPENDENT AUDITORS To the Shareholders of MIVNAT HOLDING LIMITED
We have audited the financial statements of Mivnat Holding Limited (hereafter - "the Company") and the consolidated financial statements of the Company and its subsidiary (hereafter - "the subsidiary"), as detailed below: balance sheets, consolidated and of the Company, as at December 31, 1993; statements of income and statements of cash flows, consolidated and of the Company, and the statement of changes in shareholders' equity of the Company for the nine months ended December 31, 1993. Our audit was made in accordance with generally accepted auditing standards including those prescribed by the Auditors (Mode of Performance) Regulations (Israel), 1973, and, accordingly, included such test of the accounting records and such other auditing procedures as we have considered necessary in the circumstances.
The aforementioned financial statements have been prepared on the basis of the historical costs adjusted for the changes in the general purchasing power of the Israeli currency as measured by the changes in the Israeli Consumer Price Index, as required by Statements of the Institute of Certified Public Accountants in Israel.
In our opinion, the aforementioned financial statements present fairly the financial position, consolidated and of the Company, as at December 31, 1993 and the results of its operations, changes in its shareholders' equity and cash flows for the period as mentioned above, in conformity with accounting principles generally accepted in Israel.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. Financial data based on application of the latter and translations of these data into U.S. dollars based on the principles set forth in FASB 52, are presented in Note 25 to the financial statements.
Pursuant to Section 211 of the Companies Ordinance, we state that we have obtained all the information and explanations we have required and that our opinion on the above statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
Tel-Aviv, Israel KOST, LEVARY and FORER March 21, 1994 Certified Public Accountants (Israel)
HAGGAI WALLENSTEIN & Co. C.P.A. (Isr.)
AUDITORS' REPORT ----------------
To the shareholders of
MORIAH HOTELS LTD. ------------------
We have audited the accompanying consolidated balance sheets of Moriah Hotels Ltd. (hereinafter - the company) and its subsidiaries at December 31, 1993 and 1992 and the related consolidated statements of income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the abovementioned financial statements present fairly, in conformity with generally accepted accounting principles applied on a consistent basis, the consolidated financial position of the company and its subsidiaries as at December 31, 1993 and 1992 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993.
In accordance with Section 211 of the Companies Ordinance (New Version), 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the abovementioned financial statements is given
according to the best of our information and the explanations received by us and as shown by the books of the company and its subsidiaries.
Tel-Aviv HAGGAI WALLENSTEIN & CO. March 14, 1994 Certified Public Accountants (Isr.)
________________________________________________________________ IZCHACK SHTALBERG C.P.A.(Isr.) HAGGAI WALLENSTEIN C.P.A.(Isr.) 8 Eliash St. DANNI LEVIN C.P.A.(Isr.) Jerusalem 94586 ELANA DREIHER C.P.A.(Isr.) Tel: 02-244787,243518 OFFER ORLICKY C.P.A.(Isr.) Fax: 02-241368 20 Heh Eyar St. Tel Aviv 62998 Tel: 03-6966171-2-3 Fax: 03-695754
KESSELMAN & KESSELMAN Certified Public Accounts (ISR.)
AUDITORS' REPORT ----------------
To the shareholders of
OPHIR HOLDINGS LTD. -------------------
We have examined the consolidated balance sheets of Ophir Holdings Ltd. (the "Company") and its subsidiaries at December 31, 1993 and 1992 and the related consolidated statements of income, changes in shareholders' equity (capital deficiency) and cash flows for each of the three years in the period ended December 31, 1993. Our examinations were made in accordance with generally accepted auditing standards, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances. The financial statements of consolidated subsidiaries, whose assets at December 31, 1993 and 1992 constitute approximately 51% and 7%, respectively, of total consolidated assets, and whose revenues for each of the three years in the period ended December 31, 1993 constitute approximately 83%, 15% and 23%, respectively, of total consolidated revenues, as well as the financial statements of the associated companies, have been examined by other certified public accountants.
The aforementioned financial statement have been prepared on the basis of the historical cost convention in nominal Israeli currency. Information as to the effect of the changes in the general purchasing power of Israeli currency on the financial statements, as prescribed by the Institute of Certified Public Accountants in Israel, is not presented in these financial statements. The Company's primary financial statements, which are presented under separate cover in Hebrew, are drawn up on the basis of historical cost adjusted to reflect the changes in the general purchasing power of Israeli currency, in accordance with Opinions of the Institute of Certified Public Accountants in Israel.
In our opinion, based upon our examinations and the reports of the other accountants mentioned above, the aforementioned financial statements, except for the exclusion of the information mentioned in the preceding paragraph, present fairly, in conformity with generally accepted accounting principles, the consolidated financial position of the Company and its subsidiaries at December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, on the basis of historical-nominal cost.
The financial statements are prepared in accordance with accounting principles generally accepted in Israel. As to compliance with accounting principles generally accepted in the United States, see note 2a.
/s/ KESSELMAN & KESSELMAN
Tel-Aviv, Israel March 7, 1994
BRAUDE & CO. CERTIFIED PUBLIC ACCOUNTS (ISRAEL)
REF 4021 AUDITOR'S REPORT TO THE SHAREHOLDERS OF ORLITE ENGINEERING COMPANY LTD. -------------------------------
We have examined the balance sheets of ORLITE ENGINEERING COMPANY LTD. (hereinafter - the company) at December 31, 1993 and at December 31, 1992, and the statements of income, changes in shareholders' equity and cash flows for three years ended at December 31, 1993, 1992 and 1991. We have also examined the information presented on the nominal (historical) basis in the balance sheet as at December 31, 1993 and 1992, the statement of profit and loss, the statement of changes of shareholders' equity for the three years ended December 31, 1993.
Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors' Regulations (Auditor's Mode of Performance) - 1973, and accordingly, we have applied such auditing procedures as we considered necessary in the circumstances.
The above financial statements are based on the historical cost adjusted to the general purchasing power of the new Israel shekel, in accordance with the Opinions of the Institute of Certified Public Accountants in Israel.
In our opinion, the above financial statements present fairly, and in conformity with generally accepted accounting principles, the financial position of the company at December 31, 1993 and 1992, and the results of its operations, the changes in shareholders' equity, and its cash flows for the years ended December 31, 1993, 1992 and 1991.
Also in our opinion, the financial statements based on nominal data (note 20), present fairly, in conformity with generally accepted accounting principles, the financial position of the company as at December 31, 1993 and 1992, and the results of its operations, the changes in its shareholders' equity, for the three years ended December 31, 1993, on the basis of the historical cost convention.
These financial statements have been prepared in accordance with the Securities Regulations (Preparation of Financial Statements), 1993.
BRAUDE & CO., C.P.A.(ISRAEL) Tel-Aviv, February 14, 1994
SHLOMO ZIV & CO. Certified Public Accountants (Isr.)
Tel-Aviv 61500 Gibor House 6 Kaufman St. P.O.B. 50322 Tel: 03-5179611 Fax: 03-5179418
Haifa 31018 2 Hanamal St. P.O.B. 1886 Tel: 04-675025-6 Fax: 04-679461
Report of Independent Public Accountants ----------------------------------------
To the Shareholders of Paradise Mattresses Industries (1992) Ltd.
We have audited the accompanying balance sheet of Paradise Mattresses Industries (1992) Ltd. (an Israeli corporation) as of December 31, 1993, and the related statement of income, changes in shareholders' equity and cash flows for the year ended December 31, 1993, translated into U.S. Dollars. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Paradise Mattresses Industries (1992) Ltd., as of December 31, 1993 and 1992, and the results of its operations, changes in its shareholders' equity and cash flows for the year ended December 31, 1993, in conformity with generally accepted accounting principles.
Also, in our opinion, the translated amounts in the accompanying summary financial statements translated into U.S. dollars have been computed on the basis set forth in note 24 in the financial statements.
Shlomo Ziv & Co. Certified Public Accountants (Isr.)
22 March 1994
REUVENI, HARTUV, TEPPER & CO. MEMBERS CERTIFIED PUBLIC ACCOUNTANTS (ISR.) [logo] ----------------------------------- WORLDWIDE 30 ACHAD HA'AM ST. TEL-AVIV ISRAEL P.O.B. 29870, DOCE 61298 S. TEPPER C.P.A. (ISR.) TEL - 972-3-5604281 FAX - 972-3-5605001 I. REUVENI C.P.A. (ISR.) M. COHEN C.P.A. (ISR.) S. TABACH C.P.A. (ISR.)
CONSULTANT K.D. HARTUV C.P.A. (ISR.)
AUDITOR'S REPORT TO THE SHAREHOLDERS OF PRI HA'EMEK (CANNED AND FROZEN FOOD) 88 LTD.
We have examined the balance sheet of Pri Ha'emek (Canned and Frozen Food) 88 Limited (the Company) and the consolidated balance sheet of the Company and its subsidiaries as at December 31, 1993 and 1992, and the statements of profit and loss, shareholders' equity and cash flows of the Company and consolidated for each of the three years ended December 31, 1993. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors' Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The abovementioned financial statements have been prepared in New Israeli Shekels and remeasured into U.S. Dollars in accordance with the principles of remeasurement set forth in Statement No. 52 of the Financial Accounting Standards Board of U.S.A. (See Note 1A).
We draw your attention to differences between the above dollar financial statements and the adjusted shekel financial statements, see Note 20.
In our opinion, the abovementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position of the Company and of the Company and its subsidiaries consolidated as at December 31, 1993 and 1992, and the results of their operations, statements of shareholders' equity and cash flows for each of the three years ended December 31, 1993.
Pursuant to Section 211 of the Companies Ordinance (New Edition) 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above financial statements is given according to the best our information and the explanations received by us and as shown by the books of the Company.
/s/ REUVENI, HARTUV, TEPPER & CO. Certified Public Accountants (Isr.)
Tel-Aviv, March 29, 1994
DOV KAHANA & CO. Certified Public Accountants (Isr.)
54 Bezalel St. Ramat-Gan P.O.Box 3532, Ramat-Gan 52134
Tel. 5759581 Fax. 5759584
Dov Kahana, C.P.A. (Isr.) Joseph Benaltabet, C.P.A. (Isr.) Michael Levy, C.P.A. (Isr.)
Auditors' Report to the Shareholders
of
Red Sea Marineland Holding (1973) Ltd.
We have examined the Balance Sheet of Red Sea Marineland Holding (1973) Ltd. as at December 31, 1993, and the Statement of Income for the year then ended. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
Information as to the effect of the changes in the general purchasing power of the Israeli currency on the financial statements in accordance with opinions of the Institute of Certified Public Accountants in Israel, has not been included in the above statements.
In our opinion, except for the omission of the information referred to in the preceding paragraph, the above Balance Sheet and Statement of Income present fairly, in conformity with generally accepted accounting principles, the financial position of the company as at December 31, 1993 and the results of its operations for the year then ended, on the basis of the historical cost convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above Balance Sheet and Statement of Income is given according to the best of our information and the explanations received by us and as shown by the books of the company.
Ramat-Gan, Israel, March 29, 1994
/s/ Dov Kahana & Co. -------------------- Dov Kahana & Co. Certified Public Accountants (Isr.)
AUDITOR'S REPORT ---------------- TO THE SHAREHOLDERS OF ---------------------- RED SEA UNDER WATER OBSERVATORY LTD. ------------------------------------
We have examined the Balance Sheet of Red Sea Under Water Observatory Ltd. ("The Company") and the Consolidated Balance Sheet of the Company and its subsidiaries as at December 31, 1993; the Statement of Income, and the Statement of Cash Flows of the Company for the year then ended stated in Adjusted New Israeli Shekels. The said adjusted Statements have been prepared on the basis of the Financial Statements of the Company and the Consolidated Balance Sheet of the Company and its subsidiaries in nominal Shekel values. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
Financial Statements of subsidiaries abroad, whose assets constitute approximately 47% of the total assets contained in the Consolidated Balance Sheet were audited by other auditors.
Based on our examination and the reports of the other auditors referred to above, we rendered an unqualified opinion on the above mentioned Financial Statements.
The attached Financial Statements comprise the Financial Statements in nominal Shekel values of The Company, and the Consolidated Balance Sheet of the Company and its subsidiaries in nominal Shekel values, translated into U.S. Dollars in accordance with the principles described in note 2.
Ramat Gan, Israel, March 29, 1994
----------------------------------------- Dov Kahana & Co. Certified Public Accountants (Isr.)
REUVENI, HARTUV, TEPPER & CO. MEMBER OF CERTIFIED PUBLIC ACCOUNTANTS (Isr.) [LOGO] worldwide -------------------------------------- 30 ACHAD HA'AM ST., TEL-AVIV ISRAEL P.O.B. 29870, CODE 61298 TEL: 972-3-5604281 FAX: 972-3-5605001
S. TEPPER, C.P.A. (Isr.) I. REUVENI, C.P.A. (Isr.) M. COHEN, C.P.A. (Isr.) S. TABACH, C.P.A. (Isr.) Consultant K.D. HARTUV, C.P.A. (Isr.)
AUDITOR'S REPORT TO THE PARTNERS OF THE SNOW AND COOL PALACE (LIMITED PARTNERSHIP)
We have examined the Balance Sheet of The Snow and Cool Palace (Limited Partnership) - (hereinafter the Partnership) as at December 31, 1993 and the Statements of Profit and Loss, Partnerships' Equity and Cash Flows for the year then ended. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors' Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above mentioned Financial Statements have been prepared in New Israeli Shekels and remeasured into U.S. Dollars in accordance with the principles of remeasurement set forth in Statement No. 52 of the Financial Accounting Standards Board of the U.S.A. (See Note 2B).
In our opinion, the above mentioned Financial Statements present fairly, in conformity with generally accepted accounting principles, the financial position of the partnership as at December 31, 1993, the results of its operations and its cash flows for the year then ended.
We state that we have obtained all the information and explanations we have required that our opinion on the above financial statements is given according to the best of our information and the explanations received by us and as shown by the books of the partnership.
REUVENI, HARTUV, TEPPER & CO. Certified Public Accountants (Isr.)
Tel Aviv, February 20, 1994.
[LOGO] ALMAGOR & CO. - CPA (ISR) 7, Abba Hillel Rd. P.O. Box 3600 Zip 52134, Ramat-Gan, Israel Tel. 972-3-5760606, Fax. 972-3-5754671
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------
TO THE SHAREHOLDERS OF TELEDATA COMMUNICATION LTD. --------------------------------------------------
We have examined the consolidated balance sheets of Teledata Communication Ltd. ("the Company") and its subsidiaries at December 31, 1993 and 1992 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1993, 1992 and 1991. Our examinations were made in accordance with generally accepted auditing standards, including those prescribed by the Israeli Auditors' (Mode of Performance) Regulations, 1973, and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. Such auditing standards are substantially identical to generally accepted auditing standards in the United States.
The financial statements of consolidated subsidiaries, whose assets constitute approximately 7% of the total consolidated assets at December 31, 1993, and whose sales revenues constitutes approximately 22% of consolidated sales revenue for the year ended December 31, 1993 have been examined by other certified public accountants whose reports thereon have been furnished to us. Our opinion expressed herein, insofar as it relates to the amounts included for the abovementioned subsidiaries, is based solely upon the reports of the other accountants.
In our opinion, based upon our examinations and the reports of the other accountants referred to above, the aforementioned financial statements present fairly the consolidated financial position of the Company and its subsidiaries at December 31, 1993, 1992 and 1991, in conformity with accounting principles generally accepted in Israel and in the United States. As applicable to these financial statements, such accounting principles are substantially identical.
Almagor & Co. Certified Public Accountants (Israel)
Ramat-Gan, Israel February 21, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 30th day of March, 1994.
AMPAL-AMERICAN ISRAEL CORPORATION
By /s/ Lawrence Lefkowitz ------------------------------ Lawrence Lefkowitz, President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons (who included a majority of the Board of Directors) on behalf of the registrant and in the capacities indicated on March 30, 1994.
Signatures Title Date - - ---------- ----- ----
Michael Arnon Director Stanley I. Batkin Director Yaacov Elinav Director Harry B. Henshel Director Lawrence Lefkowitz Director Eitan Raff Director Shimon Ravid Director Shlomo Recht Director Leon Riebman Director Evelyn Sommer Director
By /s/ Lawrence Lefkowitz March 30, 1994 - - -------------------------------------------------- Lawrence Lefkowitz, individually and as attorney-in-fact for the Foregoing Persons
By /s/ Alan L. Schaffer March 30, 1994 - - --------------------------------------------------- Alan L. Schaffer, Vice President-Finance (Principal Financial Officer)
By /s/ Alla Kanter March 30, 1994 - - ---------------------------------------------------- Alla Kanter, Controller (Principal Accounting Officer)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993
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AMPAL-AMERICAN ISRAEL CORPORATION (Exact name of Registrant as specified in its Charter)
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