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. 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. The Company sometimes makes investments with or through affiliated companies. Frequently, the Company enters into arrangements with its investment partners or with the company in which it is investing in order to ensure board representation or other rights relating to its investments. Bank Hapoalim B.M. ("Hapoalim"), the largest bank in Israel, is Ampal's controlling shareholder and principal lender. 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. The Company 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. The Company intends to continue to adhere to its historical policy of focusing its business interests primarily on long-term holdings in Israel-related enterprises. The earnings of its Israeli subsidiaries are customarily reinvested in Israel, rather than being distributed as dividends.
The growth of the Israeli economy, the success of a number of Israeli-based companies, particularly in the area of high technology, the privatization of government-owned companies and the acceleration of the peace
process over the last few years, have prompted numerous potential investors to search for investment opportunities in Israel and have made it possible for certain of such companies to gain direct access to Israeli and foreign public securities markets. The Company competes for investment opportunities with other established and well-capitalized investing entities. There can be no assurance that opportunities will continue to be available to the Company at valuations and on terms which are favorable.
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.
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(1) Investment made in January 1995.
(2) The Company's ownership reflects 42.5% of Ophir's 13.3% ownership of Industrial Buildings.
(3) The Company's ownership reflects 42.5% of Ophir's holdings of 16.7% in each of the following three companies: Shmey-Bar (I.A.) 1993 Ltd.; Shmey-Bar (T.H.) 1993 Ltd. and Shmey-Bar Real Estate 1993 Ltd.
(4) As a result of Company purchases in 1995, the Company's ownership was increased to 22.6% as of March 22, 1995.
(5) As a result of Company purchases in 1995, the Company's ownership was increased to 55.9% as of March 22, 1995.
(6) The Company's ownership includes 2.5% of Courses Investment owned directly and 42.5% of Ophir's 5% ownership of Courses Investment.
(7) The Company's ownership includes 1% of DSP Group owned directly and 42.5% of Ophir's 2.1% ownership of DSP Group. As a result of Company sales in 1995, the Company's ownership was decreased to 1.4% as of March 22, 1995.
(8) As a result of Company sales in 1995, the Company's ownership was reduced to 1.3% as of March 22, 1995.
(9) The Company's ownership includes 11.5% of Qronus owned directly and 2.3% of Mercury's 42.1% ownership of Qronus.
(10) The Company's ownership includes 2.2% of Teledata owned directly and 42.5% of Ophir's 19.7% ownership of Teledata.
STOCK REPURCHASE PROGRAM
At its March 28, 1995 meeting, the Board of Directors of Ampal approved the repurchase by Ampal of up to 2 million shares of its Class A Stock, at market prices from time to time.
1994 PUBLIC OFFERING
On February 1, 1994, Ampal completed a public offering of 4.5 million units, which sold for $12.125 per unit, each 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 $51 million. Since February 2, 1994, the Class A Stock and warrant components of the units are trading separately.
HOTELS AND LEISURE-TIME
CORAL WORLD INTERNATIONAL LIMITED ("CORAL WORLD")
Coral World, which is 50%-owned by the Company, owns or controls marine parks in Eilat (Israel), 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 management of an underwater facility in Jakarta, Indonesia. Coral World'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 a transparent acrylic tube on the bottom of a man-made aquarium surrounded by marine life.
In 1994 Coral World's parks had a total of approximately 1.3 million visitors. In addition to admission charges, Coral World's food and beverage facilities and retail outlets are a significant revenue source. Coral World employed a total of 275 persons as of December 31, 1994.
Coral World's global expansion is continuing with new parks in various planning stages including Maui, Hawaii and Hurghada, Egypt.
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.
The Club had approximately 1,900 member families for the 1994/95 season compared with 2,000 for the 1993/94 season, when it 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 another country club in nearby Hod Hasharon that opened on July 1, 1994. This club had 650 member families for the 1994/95 season and as of January 3, 1995, 830 member families had subscribed for the 1995/96 season. This club has a capacity of 1,600 member families. Kfar Saba's investment in this project was approximately $1 million.
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:
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(1) Net lease which expires in 1996. The renewal of this lease is under negotiation. (2) Net lease which expires in 2001. (3) Management agreement which expires on March 31, 1995. The renewal of this agreement is under negotiation. (4) No formal management agreement has yet been signed. (5) On October 1, 1994, Moriah ceased managing this hotel.
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 1994, Moriah spent approximately $3 million on general improvements and renovations.
Tourist arrivals in Israel during both 1994 and 1993 were 2 million. Moriah's occupancy rate was 72% in 1994 and 73% in 1993 (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 1994 was 65% and during 1993 was 67%. Moriah's average room rate (expressed in dollars) rose by 3% in 1994 compared to 1993, reflecting improved competitive conditions.
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 or are being constructed and competition is expected to intensify.
Moriah employed approximately 1,800 persons as of December 31, 1994.
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 compensatory damages.
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.
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 88% were occupied on December 31, 1994, compared with 70% on December 31, 1993, 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, with a minimum of $270,000 per year.
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 37,000 square feet. Four of these properties are net leased to Hapoalim. Nir owns four commercial properties located in Israel aggregating approximately 18,000 square feet. Three of these properties are net leased to Hapoalim. Ampal Finance owns two commercial properties located in Israel aggregating approximately 7,000 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 $43.2 million of these debentures were outstanding as of December 31, 1994. Ampal Development has deposited with Hapoalim funds sufficient to pay all principal and interest on these debentures.
AMPAL (ISRAEL) LTD. ("AMPAL (ISRAEL)")
Ampal (Israel), a wholly-owned subsidiary of Ampal, owns an approximately 57,000 square 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.
BANK HAPOALIM (CAYMAN) LTD. ("CAYMAN")
Cayman, 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. In 1994 and 1993, Cayman paid $1 million and $4 million in dividends on its common stock, respectively, as well as the required dividend on its 7% preferred shares.
BAY HEART LIMITED ("BAY HEART")
Bay Heart was established in 1987 to develop and lease a shopping mall (the "Mall") in the Haifa Bay area. Haifa is the third largest city in Israel. The Mall, which opened in May 1991, is a modern three-story facility with approximately 280,000 square feet of rentable space. The Mall is located at the intersection of two major roads and provides a large mix of retail and entertainment facilities including seven movie theaters. Approximately 37,500 square feet of the Mall are occupied by Supersol Ltd., one of the two largest Israeli supermarket chains, and the parent of a co-investor in Bay Heart. Shekem Department Stores, a major Israeli department store, is the other anchor tenant under a net lease for approximately 57,600 square feet of retail and approximately 17,750 square feet of storage and other space expiring in 2001. 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.
In July 1994, Bay Heart purchased a 50% interest in 90,000 square feet of land adjacent to the Mall for $1.7 million. The remaining 50% interest is held by an unrelated group of investors with whom Bay Heart entered into a joint venture agreement. In October 1994, Bay Heart purchased 30,000 square feet of land adjacent to the Mall for $1.1 million. These plots of land are intended to be used for the construction of an addition to the Mall.
Bay Heart has recently signed a Letter of Intent with both the Ports and Railways Authority and a subsidiary of the Egged bus company regarding the establishment of a joint company, in which each will be equal investors, for the construction of a transportation and business complex next to the Mall. This project will include the construction of both a bus terminal and train station. The land for this project is owned by the Ports and Railways Authority which is expected to make it available to the joint company.
See "Certain United States and Israeli Regulatory Matters--Certain Israeli Real Estate Tax Matters" for a discussion of Israeli real estate tax considerations that may be applicable to certain real property leases of Bay Heart.
EPSILON INVESTMENT HOUSE LTD. ("EPSILON")
In January 1995, the Company invested $1.5 million and acquired 20% of Epsilon and its affiliate Renaissance Investment Company Ltd. Epsilon is an investment bank which provides portfolio management and this affiliate provides underwriting services in Israel through its subsidiaries.
ETZ VANIR LTD. ("ETZ VANIR") AND YAKHIN MATAIM LTD. ("YAKHIN MATAIM")
Both Etz Vanir and Yakhin Mataim cultivate orange, grapefruit, clementine, lemon and avocado groves in Israel 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, Ampal 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 million for services it has rendered to the companies. This litigation is pending.
In February 1995, Yakhin Hakal and its affiliates commenced a legal proceeding seeking to cause Etz Vanir and Yakhin Mataim to redeem the perpetual debentures owned by Ampal for approximately $700,000 and to require Ampal to surrender all of its preferred shares of Etz Vanir and Yakhin Mataim for their par value. Ampal intends to vigorously contest this legal proceeding. See, "Legal Proceedings."
INDUSTRIAL BUILDINGS CORPORATION LTD. ("INDUSTRIAL BUILDINGS")
Industrial Buildings, Israel's largest owner/lessor of industrial property, is engaged principally in the development and construction of buildings in Israel for industrial and commercial use and in project management. Industrial Buildings carries out infrastructure development projects for industrial and residential purposes, principally for a number of government agencies and authorities. Industrial Buildings hires and coordinates the work of contractors, planners and suppliers of various engineering services.
Industrial Buildings owns approximately 10.7 million square feet of space in industrial buildings throughout Israel. It owns both multi-purpose buildings and built-to-suit buildings which are constructed in accordance with the specific requirements of tenants. In certain cases, there is an option in the tenant's favor to purchase the leased property, and, in the case of most built-to-suit properties, a commitment on the part of the tenant to purchase the property.
The buildings which are owned by Industrial Buildings are leased to approximately 1,900 lessees under net leases having terms of up to tenyears. See "Conditions in Israel--Certain Israeli Real Estate Tax Matters" for a discussion of Israeli real estate tax considerations that may be applicable to certain real property leases of Industrial Buildings. The average occupancy rate in buildings owned or leased by Industrial Buildings was approximately 91% at December 31, 1994.
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 145,000 square feet and parking facilities of approximately 860,000 square feet.
Approximately 9% of Industrial Buildings' space is located in the administered territories. Industrial Buildings cannot predict whether the ongoing peace process will have an effect on this space. See "Conditions in Israel."
Industrial Buildings was founded as an Israeli Government company in 1961. In 1988, Industrial Buildings first offered its shares to the public and its shares are traded on the TASE. In 1993, the Government of Israel privatized the company by selling its 51.3% stake in Industrial Buildings. Since the privatization, Industrial Buildings has focused on improving 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 was approximately $50 million. Ampal owns 42.5% of Ophir. Industrial Buildings' policy is to distribute as a dividend not less than 60% of each year's earnings during the period 1993 through 1996. In January 1994, Industrial Buildings distributed as
a dividend approximately NIS 195 million ($66 million) to its shareholders, which was funded with a portion of NIS 244 million ($82 million) of long-term debt. This dividend represents an amount significantly in excess of 60% of Industrial Buildings' 1993 earnings. In December 1994, Industrial Buildings' distributed a dividend of NIS 55 million ($18 million) to its shareholders.
Ophir's interest in the holding company and the holding company's interest in Industrial Buildings are subject to foreclosure in the event of a default by any of the investors under the bank credit agreements entered into in connection with the acquisition. Any amounts distributed as a dividend by Industrial Buildings are required to be applied first to pay then due borrowings.
Industrial Buildings had a staff of approximately 43 permanent employees as of December 31, 1994.
OPHIR HOLDINGS LTD. ("OPHIR")
Ophir is a holding company that holds interests in Teledata Communication, Ltd., Industrial Buildings, DSP Group, Inc. and DSP Communications, Inc. These companies are discussed elsewhere in this Report. In addition, Ophir has invested in two unaffiliated mutual funds and a newly-formed biotechnology company.
Ophir owns, through a wholly-owned subsidiary, nine real estate properties located in Israel aggregating approximately 180,000 square feet. Three of these properties are net leased to Hapoalim or its subsidiaries. For a discussion of Israeli real estate tax considerations that may be applicable to certain real property leases of Ophir, see "Certain United States and Israeli Regulatory Matters--Certain Israeli Real Estate Tax Matters."
Ophir is 42.5%-owned by the Company and since September 30, 1993, its results are no longer consolidated in the Company's financial statements and are now recorded by the equity method of accounting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations."
In March 1994, the Company and the Investment Company of Bank Hapoalim entered into a shareholders' agreement regarding joint voting, directorships and rights of first refusal.
Ophir intends to develop approximately 60,000 square feet of office and commercial space and approximately 59,000 square feet of parking space on property owned by it in Petach Tikva, Israel. The estimated cost of this project is $5 million.
In February 1994, Ophir purchased two acres of land in an industrial park in Netanya, Israel for $2.7 million, together with an unrelated party. In August 1994, these parties entered into a joint venture agreement regarding this site on which they intend to develop a 120,000 square foot building for both industrial and commercial uses. The estimated cost of development of this project is $6 million. Ophir's share of the property and joint venture is 70%.
In April 1994, Ophir acquired a 16.7% interest in the Shmey-Bar group of companies ("Shmey-Bar"). Shmey-Bar acquired 2.3 million square feet of real estate properties from Hamashbir Hamerkazi, Ltd. ("Hamashbir Hamerkazi"), for $27.7 million. In the same transaction, Shmey-Bar received an option to acquire, for $26.3 million, an additional 700,000 square feet of real estate properties from Hamashbir Hamerkazi. These properties are situated in various locations in Israel and are primarily either presently or previously occupied by Hamashbir Hamerkazi. Ophir's interest in Shmey-Bar was acquired with a nominal investment accompanied by a $2 million shareholder's loan.
In August 1994, Ophir acquired a limited partnership interest in Clark/67 Associates L.P. ("Clark/67") which purchased an office building in New Jersey for $3.2 million. Ophir invested $250,000 of Clark/67's $500,000 capital and provided a guarantee for Clark/67's $2.7 million bank loan.
In September 1994, Ophir acquired a 10% interest in Memco Software Ltd. ("Memco") for $1.25 million. In the same transaction, Ophir received options to acquire an additional 10% interest in Memco for $1.25 million, subject to Memco's achievement of certain milestones and should Memco not achieve certain sales results, Ophir will be entitled to receive an additional 6% of Memco. Memco is engaged in the development and manufacturing of software products which secure open systems based on UNIX. Their product is currently being tested in Israel and elsewhere. In October 1994, Memco established a wholly-owned subsidiary which will market, and supply support and maintenance for, its products in the United States.
In December 1994, Ophir invested approximately $6 million and acquired 33% of a 60,000 square-foot property in Tel Aviv. The owners of the property expect to construct a building on the property consisting of 229,000 square feet of office space, 22,000 square feet of commercial space and 500 parking spaces at a total cost of approximately $30 million. In addition, Granite Hacarmel Investments Ltd. invested $3 million and acquired 17% of this property.
RENAISSANCE ISRAEL
In July 1994, the Company agreed to invest $3 million for 15% of Renaissance Israel, a fund that invests in Israel-related companies generally on the same terms and conditions as the Renaissance Fund LDC. (the "Renaissance Fund"). The Renaissance Fund was formed in 1994 to invest primarily in emerging markets, basic industry and government privatizations in Israel and elsewhere in the Middle East. As of December 31, 1994, Renaissance Israel and the Renaissance Fund had committed capital of $20.3 million and $135.2 million, respectively. The Company had invested an aggregate of $750,000 and $1,325,000 in Renaissance Israel as of December 31, 1994 and March 9, 1995, respectively. The Company has a representative on the Executive Committee of the Renaissance Fund and is entitled to certain potential co-investment opportunities.
In March 1995, Renaissance Israel and the Renaissance Fund (together, the "Funds") invested a total of approximately $29 million and acquired a 24.9% interest in a holding company which acquired 100% of the shares of Shikun U'Fituach le-Israel Ltd. ("SHOP") from the Israeli Government for approximately $293 million, of which approximately $176 million consisted of non-recourse debt financing from banks. The Company's interest and share of the investment in this holding company is 0.7% and $850,000, respectively. SHOP is one of Israel's largest housing and development companies whose activities include residential and industrial construction as well as infrastructure for residential areas.
In March 1995, the Funds invested a total of approximately $8 million and acquired 25.1% of Clalcom Ltd. ("Clalcom"). The Company's interest and share of the investment in Clalcom is 0.7% and $250,000 respectively. Clalcom is engaged in the telecommunications business in Israel and is expected to take part in a bid for the second international telecommunications operator in Israel.
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, 1994, Sonol supplied gas to 146 gas stations in Israel, of which 111 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 1994 and 1993, representing approximately 25.8% and 24.8% of the total sales of such products in Israel by the three major fuel companies in Israel in 1994 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, during 1994 a law was passed cancelling certain zoning limitations and permitting new gas stations in locations not previously permitted. Also, proposals for legislation were submitted which would limit the maximum duration of supply and leasing contracts between the oil marketing companies and gas station owners. 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, Sonol continues to emphasize improving efficiency through modernization, selective expansion and staff reductions. Furthermore, Granite expects to pursue a policy of diversification. In 1993, Granite established a subsidiary, Granite Hacarmel Properties, Ltd. ("Granite Properties") which invests in real estate projects in Israel. Through December 31, 1994, Granite Properties contracted to invest approximately $27 million in commercial real estate projects and is studying other opportunities. Through its newly formed subsidiary, Granite Hacarmel Holdings and Development, Ltd., Granite is also examining possible investments in the tourism and industrial sectors.
During 1994, as a result of the conversion of debentures, the Company's ownership of Granite was diluted to 21.2% and the Company recorded a gain on issuance of shares of $.3 million ($.2 million after taxes). 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 of the eleven members of Granite's board. The Company and these shareholders, who currently collectively own an aggregate of 83.0% of Granite, have also agreed to certain restrictions on transfer and to vote together at general meetings of Granite's shareholders. This agreement is terminable on 120 days' notice if a party (or a related group) acquires more than 43% of Granite's share capital. During 1994, one of the parties to the agreement acquired the interest of another and now owns 54.2% of Granite's share capital. The shareholder and the Company have agreed to negotiate a new or amended agreement and have entered into an interim agreement which provides for the Company's continuing right to designate three members of Granite's board until February 8, 1998 (the stated expiration date of the current agreement), provided that there is no change in control of Ampal. If the Company ceases to exercise "significant influence" over Granite under applicable accounting principles (which the Company believes it continues to exercise by virtue of its board representation), the Company 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. In 1992, Granite concluded two public offerings on the TASE and raised approximately $102 million.
In June, 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. 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
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 folding board, approximately 85% of the corrugated triple wall, and approximately 35% of the corrugated board packaging in Israel. Carmel's products are marketed to a wide variety of customers for diverse uses, but its principal market is packaging for agricultural products and for the food and beverage industry. Although sales of packaging products to exporters of agricultural products have declined slightly, an increase in domestic sales has compensated for this decline.
Recently, Carmel initiated measures to reduce its work force, consolidate certain operations and upgrade certain equipment. In 1994, Carmel invested $5.5 million and expects to make additional investments of approximately $15 million in total in 1995 and 1996 for machinery and infrastructure. In 1996, Carmel expects to consolidate two of its plants and move them to a leased property in Caesarea. As of December 31, 1994, Carmel employed 695 persons.
In July 1992, the Company acquired 20% of the shares of Carmel for approximately $2.2 million. Shares of Carmel are listed for trading on the AMEX under the symbol "KML." The Company, American Israel Paper Mills Ltd., the largest paper producer in Israel, and Robert Kraft, a United States investor, are parties to a shareholders' agreement with respect to their shareholdings (which aggregate approximately 78% of the shares) in Carmel. The agreement includes provisions governing board representation, required votes for specified corporate actions, matters on which the shareholders agree to cooperate and rights of first refusal with respect to the shares owned by the parties. Carmel has granted to International Forest Products Corporation, an affiliate of Mr. Kraft, a right to supply up to 80% of Carmel's requirements for imported paper and forest products in the ordinary course of Carmel's business and on a competitive basis.
DAVIDSON-ATAI PUBLISHERS LTD. ("DAVIDSON-ATAI")
Davidson-Atai is the publisher of a multi-volume series entitled "The World of the Bible," a contemporary scientific interpretation of the Bible with ample documentation of which 19 out of 24 volumes have been published. In addition Davidson-Atai has published a multi-volume illustrated series on the Bible for children. Davidson-Atai expects to translate this series and publish it abroad. Davidson-Atai distributes its books through subscriptions and book stores.
Davidson-Atai is also a publisher of magazines. It publishes the Hebrew edition of "Popular Science" magazine and expects to soon publish the Hebrew edition of "Prevention" magazine.
As a result of private placements during 1994, the Company's interest in Davidson-Atai was diluted from 22.5% to 20.7%.
MDF BOARDS INDUSTRY LTD. ("MDF")
In January 1994, the Company agreed to acquire 50% of MDF which is establishing a plant for the production and marketing of medium density fiber boards in Israel. The original estimated cost of establishing the MDF plant was approximately $28 million of which $10.7 million has been granted, and loans of $9 million have been guaranteed, by the Israel Government Investment Center. As of December 31, 1994, the Company had invested $1.8 million and made loans of $1.3 million to MDF. MDF currently estimates that the cost of
the plant will be approximately $42 million.
MDF has sought approval from the Israeli Government Investment Center for an additional grant of $5.3 million and additional government guaranteed loans of $4.5 million. Should such approvals be granted, Ampal's 50% share of the investment which was estimated at $4.5 million, would increase to $6.3 million. Should such approvals not be granted in full, Ampal's 50% share of the investment may be increased up to a total of $10.3 million.
ORLITE ENGINEERING COMPANY LTD. ("ORLITE")
Orlite is one of Israel's largest manufacturers of composite material products for military and civilian applications, including specialized fireproof ammunition storage containers for the Israeli Merkava tank, ballistic helmets for military and police use, specialized aerospace components, outdoor storage distribution cabinets for telecommunications and cable and electrical switching equipment.
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 to more than 50% of Orlite's sales and which Orlite believes will continue to constitute its most important growth segment.
Orlite's largest growth products are its composite outdoor storage cabinets which house electrical, cable and telecommunications equipment and are less susceptible to adverse weather conditions than metal cabinets. In 1994, 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, 1994, Orlite employed 148 permanent workers and 25 temporary workers. Orlite owns its manufacturing facilities.
As of December 31, 1993, the Company owned 30.1% of the shares of Orlite. The Company's ownership of the shares of Orlite was reduced to 22% as of December 31, 1994, as a result of exercises of options by the Company and others, as well as purchases of shares on the TASE by the Company. The Company's ownership of the shares of Orlite was increased to 22.6% as of March 22, 1995, as a result of additional purchases on the TASE.
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 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.
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 and Japan. 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 in Petach Tikvah which is partially owned by the Company.
Pri Ha'emek sells primarily 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. In 1994, Pri Ha'emek became the Israeli-licensed producer, importer and distributor of Del Monte products.
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 45% of its sales in 1994. 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 108 persons on a full time basis as of December 31, 1994. Pri Ha'emek also employs workers on a temporary basis to assist it with its seasonal needs. In addition, in 1994, Pri Ha'emek received $250,000 in rental income.
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.
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 from 74.9% to 66.7%. In March 1994, Pri Ha'emek conducted an initial public offering in Israel on the TASE. In connection with this offering, the Company realized a gain on issuance of shares of $2.3 million ($1.5 million, after taxes). The Company's interest in Pri Ha'emek was initially diluted to 51.3%. Subsequent to the public offering, the Company has purchased additional shares and convertible debentures on the TASE and at December 31, 1994 and March 22, 1995 its interests were 54.7% and 55.9%, respectively. Upon exercise of all warrants and convertible debentures, the Company's interest may be diluted to 38.5% based on its March 22, 1995 interest. 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.
HIGH TECHNOLOGY AND COMMUNICATIONS
COURSES INVESTMENT IN TECHNOLOGY LTD. ("COURSES INVESTMENT")
In 1994, the Company invested $375,000 and in 1993, Ophir invested $700,000 and acquired 2.5% and 5% of Courses Investment, respectively. Courses Investment is a venture capital fund which invests primarily in media, software and technology infrastructure companies.
DSP GROUP, INC. ("DSP GROUP") AND DSP COMMUNICATIONS, INC.("DSP COMMUNICATIONS")
DSP Group is a leading developer of high performance, digital signal processing ("DSP") based software and hardware solutions 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 TrueSpeech(TM), 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, video compression and audio algorithm technologies.
In February 1994, DSP Group completed an initial public offering of its shares in which it raised $27.6 million. Its shares are quoted on the NASDAQ NMS under the symbol "DSPG."
In 1994, Ampal recorded a gain of $2 million ($1.3 million after taxes) from the sale of a portion of its shares of DSP Group. As a result of these transactions, Ampal owned directly 1% of the equity of DSP Group and Ophir owned 2.1% of DSP Group at December 31, 1994. From January 1, 1995 until March 22, 1995, Ampal sold additional shares of DSP Group, reducing its direct ownership further to 0.5%.
As of December 31, 1994, Ophir owned 4.8% of DSP Telecommunications Ltd. ("DSP Telecom"), and DSP Group owned approximately 5%. DSP Telecom a former subsidiary of DSP Group, primarily engaged in the development and marketing of DSP based integrated circuits for the wireless communications market under a license granted by DSP Group. In March 1995, Ophir's interest in DSP Telecom was exchanged for the same interest in DSP Communications, which assumed the business of DSP Telecom. Immediately thereafter, DSP Communications completed an initial public offering of its shares in which it raised $19.6 million, diluting Ophir's interest to 2.7%. DSP Communications' shares are quoted on the NASDAQ NMS under the symbol "DSPC."
IDAN SOFTWARE INDUSTRIES I.S.I. LTD. ("IDAN")
Idan, through its direct and indirect subsidiaries, is a provider of telecommunications services and products in Israel. Idan's subsidiary, Elitec Industries 77 Ltd. ("Elitec"), 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 Bezeq, 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.
In May 1994, Idan acquired 51% of the voting capital stock of ASP Computer Products, Inc. for $2.9 million. ASP designs, manufactures and distributes peripheral equipment for computers including sharing devices between personal computers, laser printers and facsimile machines.
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 ("MOC") for the services it offers.
In December 1994, the MOC announced that it will invite qualified bidders in early 1995 to submit competitive bids for two General Licenses, each of which will entitle the licensee to operate an unrestricted, bi-directional, international telephone service. Idan is planning to participate in a consortium which will submit a bid for these licenses.
The Company has entered into a shareholders' agreement pursuant to which it has agreed to vote all of its shares in favor of all of the nominees nominated by the other parties to this agreement to Idan's 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.
The Company owns 7.9% of Idan. Idan is quoted on NASDAQ under the symbol "IDANF."
MERCURY INTERACTIVE CORPORATION ("MERCURY")
Mercury develops, markets and supports a complete family of automated software quality ("ASQ") solutions that automate and manage 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 software platforms such as UNIX/X Windows, MS Windows and Windows NT as well as those for multi-user system testing. Its announced products include those for hardware platforms such as OS/2 and Macintosh. 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."
In 1994, the Company recorded a gain of approximately $1.5 million (approximately $1 million after taxes) from the sale of a portion of its shares of Mercury. As a result of these transactions, the Company's ownership of Mercury was reduced to 2.4% on December 31, 1994. From January 1, 1995 until March 22, 1995, the Company sold additional shares of Mercury reducing its ownership further to 1.3%.
M SYSTEMS FLASH DISK PIONEERS LTD. ("M SYSTEMS")
In January 1995, the Company acquired 260,416 common shares, equal to a 4.1% interest in M Systems, for $1 million and received warrants to purchase an additional 130,206 common shares at $4.61 per share until June 30, 1998. M Systems is an Israeli company engaged in the development, manufacturing and marketing of data storage media based on "flash memory," a new silicon memory chip. In 1994, M Systems entered into a license agreement with Intel Corporation, established a state-of-the-art surface mount technology manufacturing facility, expanded its marketing and sales force and completed the design of its broad Flash Disk product line.
M Systems has announced that it has received a letter from the Personal Computer Memory Card International Association stating that Sun Disk Corporation (a competitor of M Systems) has alleged that its patents may apply to certain of M Systems' products. M Systems has announced that its attorneys have closely examined these patents and feel strongly that Sun Disks' claims are entirely groundless.
M Systems is quoted on NASDAQ under the symbol "FLSHF."
QRONUS INTERACTIVE ISRAEL (1994) LTD. ("QRONUS")
In June 1994, the Company acquired an 11.5% interest in Qronus for $1 million. Qronus is engaged in the research, development, manufacturing and marketing of automated software quality solutions for non-standard
platforms, embedded systems and real-time computer systems. Qronus was established by Mercury, which holds a 42.1% interest in Qronus.
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 markets four product lines for use in the local loop. In addition to Israel, Teledata markets its products in Europe, Asia, South America, Central America and Oceania (Australia and the surrounding islands).
During 1994 Teledata experienced a sharp decline in sales and earnings, due primarily to a slowdown in the sales of the DCS-20, its flagship product, which resulted from increased competition in its traditional markets and persistent pressure on prices and delayed introduction of new products. As a result of this decline, Teledata has taken several measures to reverse the downturn.
Teledata is currently undergoing a reorganization, which has included replacing its chief executive officer, reducing its workforce to 170 employees as of the end of February 1995 as compared with 251 as of the beginning of December 1994 and downsizing its premises.
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 1994, the Company recorded a small gain from the sale of a portion of its shares of Teledata. As a result of these transactions, Ampal's ownership of Teledata was reduced to 2.2% and Ophir's remained at 19.7%.
TRINET VENTURE CAPITAL LTD. ("TRINET")
In February 1994, the Company and an affiliate of Hapoalim established Trinet, a venture capital fund for investments in high-technology ventures, including investments in start-up entities, in Israel. Each of the Company and the Hapoalim affiliate has committed to invest up to $2.5 million in Trinet. Trinet is managed by Trinet Investment in High-Tech Ltd. which is 37.5%- owned by each of the shareholders of Trinet.
In 1994, Trinet acquired a 51% interest in Imagenet Ltd. which is developing and marketing computer aided network engineering software products, for $700,000 and an option to purchase an additional 15% interest for $800,000; a 10.7% interest in Comfy Interactive Movies Ltd., which is developing and marketing a computer keyboard and interactive movies specially designed for children ages 2-6, for $769,000; a 7.8% interest in Logal Software and Educational Systems Ltd., which is developing and marketing computerized educational systems for learning science in high schools and colleges, for $500,000 and a 1.8% interest in Peptor Ltd., which is developing advanced pharmaceutical products based on synthetic peptides, for $300,000. In February 1995, Trinet, acquired a 35% interest in Smart Link Ltd., which is developing and marketing multimedia
products, for $500,000.
EMPLOYEES ---------
As of December 31, 1994, Ampal had 12 employees plus 5 employees whose compensation is reimbursed to Ampal by Moriah and 1 employee whose compensation is shared with Hapoalim. Ampal (Israel) had 8 employees and Ampal Industries (Israel) Ltd. had 5 employees as of that date. Relations between Ampal and its employees are satisfactory.
CONDITIONS IN ISRAEL
Most of the companies in which Ampal directly or indirectly invests, conduct their principal operations in Israel and are directly affected by the economic, political, military, social and demographic conditions there. The following information is included in order to describe certain of these conditions in Israel. All figures and percentages are approximate. A substantial portion of the information with respect to Israel presented hereunder has been taken from Annual Reports of the Bank of Israel, the Israeli Central Bureau of Statistics and from economic reports of Hapoalim. No independent verification has been made of such information.
Operations in Israel
A state of hostility has existed, varying as to degree and intensity, between Israel and the Arab countries. In addition, Israel, and companies doing business with Israel, have been the subject of an economic boycott by the Arab countries since Israel's establishment, although its impact has decreased since 1993, with the progress in the peace process, as discussed below. Following the Six-Day War in 1967, Israel has administered the territories of the West Bank and the Gaza Strip. A peace agreement between Israel and Egypt was signed in 1979 under which full political relations have been established. 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.
Since 1991, negotiations have taken place between Israel, its Arab neighbors and the Palestinians to end the state of hostility in the region. In September 1993, a breakthrough occurred in Israeli-Palestinian relations with the signing of the Oslo Agreement. This was followed by a joint Israeli-Palestinian Declaration of Principles (the "Declaration") which was signed by Israel and the Palestine Liberation Organization ("PLO") in Washington, D.C., outlining interim Palestinian self-government arrangements. As a result of these agreements, Palestinian self-rule in the Gaza Strip and Jericho has been implemented and proposed elections of a Palestinian council and plans for extensive economic cooperation are contemplated. 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 complete these arrangements. Israel signed a peace agreement with Jordan which has led to diplomatic and commercial relations. Israel is currently negotiating a peace agreement with Syria.
All male adult permanent residents of Israel under the age of 51 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 million square feet of industrial buildings in the administered territories (approximately 9% 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 80,000 new immigrants arrived during 1994. During the period 1990 through 1994, Israel's population increased by approximately 19.1%. This 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.
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. These loan guarantees were granted over a period of five years ($2 billion per annum) commencing in 1993. The Israeli economy could suffer material adverse consequences were such aid or guarantees to be significantly reduced. There is no assurance that foreign aid from the United States will continue at or near amounts received in the past.
Inflation and Devaluation
Israel's gross domestic product ("GDP") increased by 6.8% in 1994 while business sector GDP rose by 7.9%, the highest rates of growth since 1972. Per capita GDP increased by 4.3%. 1994 marked the fifth consecutive year of rapid growth since 1990 at the onset of mass immigration. During this period, GDP rose by an annual average of 5.8% and business sector GDP went up by 6.9%.
Rapid economic growth in 1994 was fueled primarily by exports and private consumption. Exports of goods and services increased by 10.6% over 1993, leading to a notable cumulative export growth of 10% in 1992-1994, following four years of low rates of export growth during 1988-1991. Within the same three year period, imports of goods and services grew at the similarly high rate of 38%. The concurrent increase in the import surplus amounted to $10 billion. After deducting unilateral transfers of $7 billion, the deficit in the current account for 1994 totalled $3 billion, double the amount recorded in 1993.
In 1994, private consumption rose by the rate of 9.3%, amounting to 6.7% in per capita terms. Consumption of durables increased even more, by 12.2%. Private consumption has been growing rapidly since 1990 and nearly always at a higher rate than the growth in GDP. This development led to a decline in gross saving from 24% to 20.7% of GDP, and to the aforementioned rise in the current account deficit.
The rapid growth in the economy was accompanied by a very notable decrease in the unemployment rate, from an average of 10% in 1993 to 7.6% in 1994 following an increase of 120,000 in the number of employed
persons, 100,000 of whom are in the business sector. During 1992-1994, employment increased by 287,000, with the business sector accounting for 236,000. The unemployment rate among immigrants fell very steeply, and at the end of 1994 reached 15%.
Together with these favorable developments and apart from the aforementioned current account deficit, the economy experienced a rise in inflation in 1994, to a level of 14.5%, compared with the officially targeted annual inflation rate of 8%. The rise in inflation was largely due to the highly expansionary monetary policy maintained until the end of 1993, and to an upsurge in the prices of housing (24%) and fruit and vegetables (56%). At the end of 1994 the level of housing prices was 80% higher in real terms than in 1987, which represents a critical problem over and above its effect on the consumer price index.
The Bank of Israel's expansionary monetary policy of the past few years was reversed in 1994. The lending rate was increased repeatedly during 1994, resulting in high short-term interest rates. This restrictive monetary policy was the result of the rising inflation rate over and above the 8% goal set for 1994 by the Finance Ministry and the Bank of Israel.
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 and 1994 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 1994, the New Israeli Shekel ("NIS") was devalued by 1.1% relative to the dollar from NIS 2.986 to NIS 3.018. This modest devaluation resulted primarily from the overall depreciation 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 United States dollar for the NIS at December 31 of the year indicated as reported by the Bank of Israel.
(3) "Annual Devaluation" is the percentage increase in the value of the United States dollar in relation to the NIS during the calendar year.
(4) "Annual Inflation Adjusted for Devaluation" is obtained by dividing the December Israeli CPI by the Closing Exchange Rate, thus first obtaining a United States dollar-adjusted Israeli CPI, and then calculating the yearly percentage changes in this adjusted index.
(5) "U.S. Annual Inflation Rate" is obtained by calculating the percentage change in the United States Consumer Price Index for All Urban Consumers, as published by the Bureau of Labor Statistics of the United States Department of Labor.
(6) The official closing exchange rate on December 31, 1988, was NIS 1.685 to the United States 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.
In each of 1993 and 1994, the number of tourists who arrived in Israel was approximately 2 million compared with 1.3 million in 1992.
At December 31, 1992, December 31, 1993 and September 30, 1994, Israel's outstanding net foreign debt was approximately $15.2 billion, $15.7 billion and $17.7 billion, respectively. Israel had approximately $6.8 billion of foreign exchange reserves at the end of 1994 compared to $6.4 billion at the end of 1993 and $5.1 billion at the end of 1992.
Economic and Monetary Policies
In order to stimulate economic growth, the Israeli Government has continued a policy adopted in 1989 aimed at increasing the availability of investment capital. This policy increased the availability of such capital by loosening restrictions on the importation of foreign capital into the country and freeing additional foreign
currency deposits held in Israeli banks for domestic lending by reducing bank liquidity requirements.
In an effort to stimulate exports and economic growth, the Israeli Government abandoned the fixed exchange rate policy which was followed in previous years. Commencing in 1989 the rate of exchange was allowed to fluctuate, within a range of 3% (later changed to 5%) up or down, after an initial devaluation of 13.4%. Further fluctuations and devaluations have occurred or have been declared since then, including a 13.3% devaluation in the fourth quarter of 1992. The current exchange rate mechanism adopted in December 1991 allows the exchange rate to fluctuate around a diagonal mid-band rate which initially was allowed to increase by 9% per annum, and since July 1993, to increase by 6% per annum.
In the past several years the Israeli Government has also liberalized regulations relating to the Israeli securities market.
CERTAIN UNITED STATES AND ISRAELI REGULATORY MATTERS
S.E.C. Exemptive Order
In 1947, the 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 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 1993, the Government of Israel sold a portion of the shares of Hapoalim in public offerings resulting in the public owning 23.3% of Hapoalim's shares. In December 1994, the Government of Israel publicly requested bids for the purchase from the Government of a controlling interest (between 20% and 40%) of the shares of Hapoalim. The bidding period ended in March 1994. It has been reported that two groups of bidders have participated in this bidding process, however, the results have not been announced.
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 interests in a non-banking corporation exceeding 24.9%. 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 1994, Israeli companies are taxed on their income at a rate of 38%. For 1995 through 1996, this tax rate will be reduced to 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% 39% and 38% in 1990 through 1994.
A tax treaty between Israel and the United States became effective on December 30, 1994. 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.
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 either 25%, 15% or 12.5%, depending on percentage ownership of the investment and the type of income generated by that company (as opposed to dividends payable to Israeli companies, which are exempt from tax, except for the dividends paid by an approved enterprise to either residents or non-residents, the tax on which is withheld at a rate of 15%). Under an arrangement with the Israeli tax authorities, such income has been taxed based on principles generally applied in Israel to income of non-residents. Ampal has filed reports with the Israeli tax authorities through 1993 and has received "final assessments" with respect to such reports filed through 1992 (which final assessments are, under Israeli law, subject to reconsideration by the tax authorities only in certain limited circumstances, including fraud). Based on the tax returns filed by Ampal through 1993, it has not been required to make any additional tax payments in excess of the withholding on its dividends. In addition, under Ampal's arrangement with the Israeli tax authorities, the aggregate taxes paid by Ampal in Israel and the United States on interest, rental and dividend income derived from Israeli sources has not exceeded the taxation which would have been payable by Ampal in the United States had such interest, rental and dividend income been derived by Ampal from United States sources. There can be no assurance that this arrangement will continue in the future. This arrangement does not apply to taxation of Ampal's Israeli subsidiaries.
Generally, under the provisions of the Income Tax Ordinance, income paid to non-residents of Israel by residents of Israel is generally subject to withholding tax at the rate of 25%. However, withholding rates on income paid to United States residents by residents of Israel are subject to the United States-Israel tax treaty. No withholding has been made on interest and rent payable to Ampal under an exemption which Ampal has
received from the income tax authorities on an annual basis. There can be no assurance that this exemption will continue in the future. The continued tax treatment of Ampal by the Israeli tax authorities in the manner described above is based on Ampal continuing to be treated, for tax purposes, as a non-resident of Israel that is not doing business in Israel.
Under Israeli law, a tax is payable on capital gains of residents and non-residents of Israel. With regard to non-residents, this tax applies to gains on sales of assets either located in Israel or which represent a right to assets located in Israel (including gains arising from the sale of shares of stock in companies resident in Israel). Since January 1, 1994, the portion of the gain attributable to inflation prior to that date is taxable at a rate of 10%, while the portion since that date is exempt from tax, while the remainder of the profit, if any, is taxable to corporations at 38% in 1994 and is scheduled to be reduced to 37% and further to 36% in stages during 1995 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), 1985, which applies to companies which have business income in Israel or which claim a deduction in Israel for financing costs, has been in force since the 1985 tax year. The law provides for the preservation of equity whereby certain corporate assets are classified broadly into Fixed (inflation resistant) and Non-Fixed (non-inflation resistant) Assets. Where shareholders' equity, as defined therein, exceeds the depreciated cost of Fixed Assets, a tax deduction which takes into account the effect of the annual inflationary change on such excess is allowed, subject to certain limitations. If the depreciated cost of Fixed Assets exceeds shareholders' equity, then such excess, multiplied by the annual inflation change, is added to taxable income.
Individuals and companies in Israel pay VAT at a rate of 17% of the price of assets sold and services rendered. They can deduct VAT paid on goods and services acquired by them for the purpose of their business. United States Taxation Of Ampal
Ampal and its United States subsidiaries (in the following tax discussion, generally "Ampal") are subject to United States taxation on their consolidated taxable income from foreign and domestic sources. The gross income of Ampal for tax purposes includes or may include (i) income earned directly by Ampal, (ii) Ampal's share of "subpart F income" earned by certain foreign corporations controlled by Ampal, (iii) Ampal's share of income earned by certain electing "passive foreign investment companies" or "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. Since 1993, the maximum rate applicable to domestic corporations is 35%.
Ampal is entitled to claim as a credit against its United States income tax liability all or a portion of income taxes, or of taxes imposed in lieu of income taxes, paid to foreign countries. If Ampal receives dividends from a foreign corporation in which it owns 10% or more of the voting stock, in determining total foreign income taxes paid by Ampal for purposes of the foreign tax credit, Ampal is treated as having paid the same proportion of the foreign corporation's post-1986 foreign income taxes as the amount of such dividends bears to the foreign corporation's post-1986 undistributed earnings.
In general, the total foreign tax credit that Ampal may claim is limited to the proportion of Ampal's United States income taxes that its foreign source taxable income bears to its taxable income from all sources, foreign
and domestic. The Internal Revenue Code of 1986, as amended (the "Code"), also limits the ability of Ampal to offset its United States tax liability with foreign tax credits by subjecting various types of income to separate limitations. Source of income and deduction rules may further limit the use of foreign taxes as an offset against United States tax liability. As a result of the operation of these rules, Ampal may choose to take a deduction for foreign taxes in lieu of the foreign tax credit.
Ampal may be subject to the alternative minimum tax ("AMT") on corporations. Generally, the tax base for the AMT on corporations is the taxpayer's taxable income increased or decreased by certain adjustments and tax preferences for the year. The resulting amount, called alternative minimum taxable income, is then reduced by an exemption amount and subject to tax at a 20% rate. As with the regular tax computation, AMT can be offset by foreign tax credits (separately calculated under AMT rules and generally limited to 90% of AMT liability as specially computed for this purpose).
In connection with the transfers in 1992 of its stock in Granite and in 1994 of its stock in Orlite to separate foreign subsidiaries, Ampal entered into gain recognition agreements with the Internal Revenue Service. Under these agreements, if either foreign subsidiary sells all or a portion of its stock in Granite before 2003 or in Orlite before 2005, Ampal generally will be required to recognize for tax purposes a proportionate amount of gain based upon the fair market value of the stock sold on the date of the 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:
* Includes cumulative effect on prior years of change in accounting principle of $(4,982,000).
Item 2.
Item 2. PROPERTY --------
Ampal subleases 4,936 square feet of office space leased by Hapoalim at 1177 Avenue of the Americas, New York City under a sublease which expires on August 30, 2009 and pays Hapoalim base rent of approximately $170,000 per year which commenced in September 1994, subject to escalation.
Ampal had space located at 10 Rockefeller Plaza subleased until September 30, 1994 from Hapoalim. The rental payments for 1994 amounted to approximately $134,000. Until November, 1990 Ampal occupied the entire floor, constituting 10,710 square feet. At that time, the sublease was modified 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 defaulted. The third party did not, in fact, pay the full rental, prior to the expiration of its sublease and Hapoalim has sued it for collection of amounts due of $140,000.
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 $2,769,000. 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 7, 2003, with annual rental payments based upon 11% of the cost of the property. In 1994, 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 1994, Ampal (Israel) received $234,000 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 1994, Ampal Development (Israel) received $357,000 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 1994, Ampal Development (Israel) received $773,000 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 1994, Ampal Financial Services received $512,000 as rental payments for these premises.
Hapoalim leases three premises owned by Nir Ltd., an Ampal subsidiary, two 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 1994, Nir received $400,000 as rental for these premises.
Hapoalim leases an office building owned by Ampal located at 174 North Michigan Avenue, Chicago, Illinois. This lease expires in 2007 and provides 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
1994, Ampal received $140,000 as rental payments for these premises.
Ampal-Israel, Ampal Development, and Nir each own a commercial property in Tel Aviv, which are leased to various parties. The rent received by these companies for all of these properties in 1994 totalled $371,000.
Other properties of the Company are discussed elsewhere in this Report.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
In February 1995, Yakhin Hakal and its affiliates commenced a legal proceeding in Tel Aviv District Court seeking to cause Etz Vanir and Yakhin Mataim to redeem the perpetual debentures owned by Ampal for approximately $700,000 and to require Ampal to surrender all of its preferred shares of Etz Vanir and Yakhin Mataim for their par value, on the alleged grounds that these are debt and not equity investments. It is Ampal's view, that its investments in these companies, which were made in the 1950's, are equity investments and are not subject to redemption by these companies, other than upon liquidation. Ampal intends to vigorously contest this legal proceeding.
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 consolidated transaction reporting system for each calendar quarter during the periods indicated:
HIGH LOW ---- ---
1994: Fourth Quarter....................................... 9 1/2 6 1/4 Third Quarter........................................ 10 5/8 6 3/4 Second Quarter....................................... 9 3/4 6 3/4 First Quarter........................................ 13 1/8 8 7/8 1993: Fourth Quarter....................................... 13 9 7/8 Third Quarter........................................ 12 1/4 7 5/8 Second Quarter....................................... 9 1/2 7 1/4 First Quarter........................................ 9 7/8 5 1/4
As of March 22, 1995, there were 1,448 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.
Items 7 & 8.
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. 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. In determining whether to acquire an interest in a specific company, the Company considers quality of management, qualifications of investment partners, potential return on investment, projected cash flow, market share and growth potential.
The Company emphasizes long-term appreciation over short-term returns and liquidity. The Company often makes equity investments accompanied by more significant loans or loan guarantees with the intention that cash flow from operations of the investee companies will repay these loans.
The Company's results of operations are directly affected by the results of operations of its investees. Companies which are greater than 50%-owned are included in the consolidated financial statements of the Company. The Company accounts for its holdings in investees over which the Company exercises significant influence, generally 20%- to 50%-owned companies ("affiliates"), under the equity method. Under the equity method, the Company recognizes its proportionate share of such companies' income based on its percentage of direct and indirect equity interests in earnings of those companies. If the Company's interest in a subsidiary were to be reduced to 20%-50%, the investment would be recorded under the equity method. The Company's results of operations may be affected by capital transactions of the affiliates. Thus, the issuance of shares by an affiliate at a price per share above the Company's carrying value per share for such affiliate results in the Company recognizing income for the period in which such issuance is made, while the issuance of shares by such affiliate at a price per share that is below the Company's carrying value per share for such affiliate results in the Company recognizing a loss for the period in which such issuance is made. The Company accounts for its holdings in investees, other than those described above, on the cost method or in accordance with Statement of Financial Accounting Standards ("SFAS") No.115, "Accounting for Certain Investments in Debt and Equity Securities."
A comparison of the Company's financial statements from year to year must be considered in light of the Company's acquisitions and divestitures during 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 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 provision for income taxes and on income before cumulative effect of change in accounting principle for the year ended December 31, 1993. The financial statements for the year ended December 31, 1992 were not 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. Starting in 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, 1994. Prior to 1993, translation gains and losses for these subsidiaries and affiliates were reflected in the Company'sconsolidated statements of income.
Should the NIS be devalued against the dollar, cumulative translation adjustments are likely to result in reductions of shareholders' equity. As of December 31, 1994, the effect on shareholders' equity was a decrease of approximately $2.6 million. Upon disposition of an investment, the related cumulative translation adjustment balance will be recognized in determining gains or losses.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which requires that marketable equity securities, other than equity securities accounted for by the equity method, be reported at fair value. For those securities which are classified as trading securities, unrealized gains and losses are reported in the statement of income. Unrealized gains and losses from those securities which are classified as available-for-sale are reported as a separate component of shareholders' equity. The cumulative effect of adopting this accounting principle as of January 1, 1994 was 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. At December 31, 1994, the net effect of market fluctuations resulted in a $.5 million decrease in shareholders' equity. At December 31, 1994 the aggregate fair value of available-for-sale securities was $.8 million and gross unrealized losses were $2.7 million.
In 1993 and 1992, Moriah Hotels Ltd. ("Moriah") and Orlite Engineering Company Ltd. ("Orlite") reported their financial statements on a three-month lag. Consequently, their results for the twelve-month period ended September 30, 1993 and 1992 were incorporated into the Company's 1993 and 1992 consolidated annual financial statements. In 1994, the Company reflected these companies' earnings on a December 31 year-end basis. The effect of this change on the Company's consolidated financial statements is immaterial.
RESULTS OF OPERATIONS ---------------------
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 ---------------------------------------------------------------------
Consolidated net income increased from $.2 million for the year ended December 31, 1993 to $7.3 million for the year ended December 31, 1994. In 1993, the Company was required to record a nonrecurring charge to net income of approximately $5 million with respect to its adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Net income in 1994 increased as a result of increased gains on sales of investments, unrealized gains on marketable securities, and a reduction in net interest expense. These increases were partially offset by reductions in equity in earnings of affiliates and rental income.
The decreases in interest expense and therefore in net interest expense for the year ended December 31, 1994 as compared to the same period in 1993 resulted from the repayment of notes, loans and debentures. Also, Ophir Holdings Ltd.'s ("Ophir") results, which were consolidated in the first nine months of 1993, are reflected by the equity method in 1994 because the Company's interest in Ophir was diluted to 42.5% in November 1993. In 1993, Ophir incurred significant interest expense on bank borrowings used to finance its March 1993 investment in Industrial Buildings Corporation Ltd. ("Industrial Buildings") and as a result recorded a loss in that year.
Equity in earnings of affiliates decreased for the year ended December 31, 1994 as compared to the same period in 1993 because Ophir's 1993 loss was not reported by the equity method in 1993 (see above). In 1994, Ophir reported further losses due to significant financing expense associated with its acquisition of Industrial Buildings. Equity in earnings of affiliates was also reduced in 1994 because the Company's 49%-owned affiliate, Bank Hapoalim (Cayman) Ltd. recorded unrealized losses on its marketable securities. The Company's share of earnings in Teledata Communication Ltd. ("Teledata"), of which the Company owns 2.2% directly and 19.7% (8.4% net to the Company) through Ophir, also decreased significantly because of a sharp decrease in Teledata's sales and earnings in 1994 primarily due to increased competition and delayed introduction of new products. These decreases were partially offset by the increase in the Company's share of Granite Hacarmel Investments Limited's ("Granite") earnings in 1994, because of increased capital gains recorded by Granite as well as significant tax savings that Granite was able to achieve. The Company's 50% share of earnings of Coral World International Ltd.'s marine park in Eilat also increased in 1994 due to the increased number of visitors and higher admission prices.
In February 1994, the other shareholder of Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), the Company's then 74.9%-owned subsidiary,
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"). In connection with this offering, the Company realized a gain on issuance of shares of $2.3 million ($1.5 million after taxes). The Company's interest in Pri Ha'emek was initially diluted to 51.25%. Subsequent to the public offering, the Company has purchased additional shares and convertible debentures and at December 31, 1994 its interest was 54.7%. If all warrants and convertible debentures are exercised, the Company's interest would be diluted to 37.6%.
During the first quarter of 1994, Granite issued additional shares upon conversions of its debentures. The Company's interest in Granite was diluted from 21.6% to 21.2% and the Company recorded a gain on issuance of shares of $.3 million ($.2 million after taxes).
In 1993, as a result of a dilution of the Company's interest in Ophir, the Company recorded a gain on issuance of shares of approximately $3.2 million (approximately $2.1 million after taxes). See Results of Operations for the year ended December 31, 1993 compared to the year ended December 31, 1992.
In February and June 1993, the Company invested an aggregate of approximately $4.3 million in Paradise Mattresses (1992) Ltd. ("Paradise") for 85.1% of the shares of Paradise. Paradise's assets and liabilities were consolidated commencing June 30, 1993; since July 1, 1993 its manufacturing and distribution operations have been consolidated and were 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.
In 1994, the Company recorded realized and unrealized gains on investments in the amount of $5.5 million as follows:
In the third quarter of 1994, the Company received gross proceeds in the amount of $2.6 million from sales of 120,000 shares of DSP Group, Inc. ("DSP Group") and realized gains of $2 million ($1.3 million after taxes). As of December 31, 1994, the Company held approximately 174,000 shares (1.9% of DSP Group's outstanding shares), including its share of Ophir's holdings of DSP Group.
In 1994, mainly during the fourth quarter, the Company received gross proceeds in the amount of $1.9 million from sales of 155,000 shares of Mercury Interactive Corporation ("Mercury"), which the Company acquired in 1992, and recorded a gain of approximately $1.5 million ($1 million after taxes). As of December 31, 1994, the Company held approximately 311,000 shares (approximately 2.4% of Mercury's outstanding shares).
In the year ended December 31, 1994, the Company recorded $2.4 million of unrealized gains on marketable securities, which are classified as trading securities, in the statement of income. Included in that amount were gross gains of $4.6 million and gross losses of $2.2 million on available-for-sale securities which have been determined to be permanently impaired in value.
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%. Because of the Company's dilution in Ophir, and additional sales during 1994, the Company's ownership in Teledata was further reduced to 10.6%.
Rental income decreased because Ophir's financial statements, are reflected by the equity method commencing on October 1, 1993.
The increase in other expenses is mainly attributable to the consolidation of Paradise's financial statements commencing July 1, 1993.
The decrease in the effective income tax rate to 43% in 1994 from 52% in 1993 resulted from changes in the components of taxable income and certain subsidiaries' losses for which no tax benefits were available in 1993.
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. In the first quarter of 1993, Ophir which is 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 of Pri Ha'emek decreased because sales were affected by foreign currency fluctuations.
In February and June 1993, the Company invested an aggregate of approximately $4.3 million in Paradise for 85.1% of the shares of Paradise. Paradise's assets and liabilities were consolidated commencing June 30, 1993; since July 1, 1993 its manufacturing and distribution operations have been consolidated and were 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.
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 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%. 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 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%.
LIQUIDITY AND CAPITAL RESOURCES -------------------------------
As of December 31, 1994, cash and cash equivalents were $42.1 million; an increase of $38.9 million from December 31, 1993. This increase is mainly attributable to proceeds received by Ampal from its public offering (see below), of which $32.4 million was invested in cash and cash equivalents at December 31, 1994. The Company's food processing subsidiary, Pri Ha'emek, raised $11.4 million ($7 million of equity and $4.4 million of convertible debentures) in a public offering in Israel (see Results of Operations).
On February 1, 1994, Ampal completed a public offering of 4.5 million units, each unit 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. This offering resulted in net proceeds to Ampal of approximately $51 million.
In 1994, the Company's investments increased by approximately $20 million. This increase is primarily related to the investment of a portion of the proceeds of the public offering in short-term interest-bearing securities and new investments.
At December 31, 1994, the Company's debt to equity ratio was .74 to 1 as compared with 1.3 to 1 at December 31, 1993.
Deposits, notes and loans receivable, and deposits, notes and loans payable declined as a result of scheduled repayments. Debentures declined primarily as a result of the early redemption of $15.5 million of high interest-bearing debentures and the scheduled repayment of approximately $5 million of other debentures. All remaining outstanding Ampal debentures are not subject to call provisions and are expected to remain outstanding until they mature in accordance with their terms. In addition, Pri Ha'emek issued convertible debentures in the amount of $4.4 million.
At December 31, 1994, Ampal had $36.6 million aggregate principal amount, net of discounts, of its debentures outstanding which are scheduled to mature by 2003. Most of these debentures bear interest at fixed rates ranging from 10% to 13%. A portion of such debentures may be presented to Ampal for payment prior to scheduled maturity. Also outstanding at December 31, 1994 was $43 million principal amount of debentures issued by an Israeli subsidiary. Cash flow from deposits is matched to scheduled payments of principal and interest on the Israeli subsidiary's debentures. At December 31, 1994, the Company had deposits, notes and loans receivable aggregating $94 million with varying interest rates and maturities. The deposits are guaranteed by Hapoalim.
As of December 31, 1994, the Company had issued guarantees on certain outstanding loans to its investees and subsidiaries in the aggregate principal amount of $14.9 million, and has a share of the commitments issuedby and to its investees of up to $49.1 million.
In March 1995, Ampal's Board of Directors approved the repurchase of up to 2 million shares of its Class A Stock through open market purchases from time to time.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Ampal-American Israel Corporation:
We have audited the accompanying consolidated balance sheets of Ampal- American Israel Corporation (a New York corporation) and subsidiaries (the " Company") as of December 31, 1994 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, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain consolidated subsidiaries, which statements reflect assets and revenues of 43% and 70% in 1994, 43% and 77% in 1993, respectively, and revenues of 56% in 1992. Also, we did not audit the financial statements of certain affiliated companies, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The Company's equity in net earnings (loss) of these companies represents $5,881,000, $9,236,000 and $11,167,000 for the years ended December 31, 1994, 1993 and 1992, 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 1(d) to the consolidated financial statements, effective January 1, 1994, the Company changed its method of accounting for certain investments in debt and equity securities. Also, 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 LLP
New York, New York March 22, 1995
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
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the consolidated financial statements.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
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
* Issuance of 4,500,000 shares, including 182,066 held in treasury.
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.
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 interests in a non-banking corporation exceeding 24.9%. 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.
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.
Investments in which the Company exercises significant influence, generally 20%-50% owned companies ("affiliates"), are accounted for by the equity method, whereby the Company recognizes its proportionate share of such companies' net income or loss.
(c) Translation of Foreign Currencies
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1993 and 1994, for those subsidiaries and affiliates whose functional currency is considered to be the New Israeli Shekel, assets and liabilities were translated at the rate of exchange at the end of the reporting period and revenues and expenses were translated at the average rates of exchange during the reporting period. Translation differences of those foreign companies' financial statements are included in the cumulative translation adjustment account of shareholders' equity at December 31, 1994 and 1993.
Assets and liabilities of foreign subsidiaries and companies accounted for by the equity method whose functional currency is the U.S. dollar are translated using year-end rates of exchange, except for property and equipment and certain investment and equity accounts which are translated at rates of exchange prevailing on the dates of acquisition. Revenues and expenses are translated at average rates of exchange during the year except for revenue and expense items relating to assets translated at historical rates which are translated on the same basis as the related asset. Translation gains and losses for these companies are reflected in the consolidated statement of income. Prior to 1993, all Israeli companies were deemed to have the U.S. dollar as their functional currency and translation gains and losses were reflected in the consolidated statement of income.
(d) Investments
The equity in earnings of two companies, Moriah Hotels Ltd. ("Moriah") and Orlite Engineering Company Ltd. ("Orlite"), which was reflected through their year ending September 30th in the consolidated statement of income in 1993 and 1992, was reflected on a December 31 year-end basis in 1994. The effect of this change on the Company's consolidated financial statements is immaterial.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which requires that marketable equity securities, other than equity securities accounted for by the equity method, be reported at fair value. For those securities which are classified as trading securities, unrealized gains and losses are reported in the statement of income. Unrealized gains and losses from those securities which are classified as available-for-sale are reported as a separate component of shareholders' equity. The cumulative effect of adopting this accounting principle as of January 1, 1994 was 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. At December 31, 1994, the net effect of market fluctuations resulted in a $.5 million decrease in shareholders' equity. At December 31, 1994 the aggregate fair value of available-for-sale securities was $.8 million and gross unrealized losses were $2.7 million. Prior to January 1, 1994 the Company recorded its investments in marketable securities at the lower of cost or market.
In the year ended December 31, 1994, the Company recorded $2.4 million of unrealized gains on marketable securities in the statement of income. Included in that amount were gross gains of $4.6 million on trading securities
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and gross losses of $2.2 million on available-for-sale securities which have been determined to be permanently impaired in value.
In the quarter ended December 31, 1994, the Company's 49%- owned affiliate, Bank Hapoalim (Cayman) Ltd., recorded an unrealized loss on marketable securities of approximately $1.6 million which resulted from the transfer of securities from the available-for-sale category to the trading security category.
During 1994 the Company invested approximately $1 million in marketable securities.
(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 provision for income taxes and on income before cumulative effect of change in accounting principle for the year ended December 31, 1993. The financial statements for the year ended December 31, 1992 were not restated to apply the provisions of SFAS No. 109.
Deferred income taxes are not provided on undistributed earnings of foreign subsidiaries totalling approximately $39 million, since such earnings are currently expected to be permanently reinvested outside the United States. If the earnings were not considered permanently invested, approximately $14 million of deferred income taxes would have been provided. Deferred income taxes are provided on equity in earnings of affiliates, and gains on issuances of shares by affiliates, and unrealized gains on investments. Ampal's foreign subsidiaries file separate tax returns and provide for taxes accordingly.
(g) Cash Equivalents
Cash equivalents include time deposits and notes receivable with original maturities of 90 days or less.
(h) Other Assets
Other assets include inventories of the food processing and manufacturing subsidiaries in the amount of $17.6 million ($18 million in 1993).
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisitions and Dispositions
(a) In 1994, the Company invested in 50% of the equity of M.D.F. Boards Industry Ltd. ("MDF") in the amount of $1.8 million and made loans of $1.3 million to the company. MDF was established to produce medium density fiber boards in Israel.
(b) In February 1994, the other shareholder of Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), the Company's then 74.9%-owned subsidiary, 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. In connection with this offering, the Company realized a gain on issuance of shares of $2.3 million ($1.5 million after taxes). The Company's interest in Pri Ha'emek was initially diluted to 51.25%. Subsequent to the public offering, the Company has purchased additional shares and convertible debentures and at December 31, 1994 its interest was 54.7%. If all warrants and convertible debentures were to be exercised, the Company's interest would be diluted to 37.6%.
(c) In the third quarter of 1994, the Company received gross proceeds in the amount of $2.6 million from sales of 120,000 shares of DSP Group, Inc. ("DSP Group") and realized gains of $2 million ($1.3 million after taxes). As of December 31, 1994, the Company held approximately 174,000 shares (1.9% of DSP Group's outstanding shares), including its share of Ophir Holdings Ltd.'s ("Ophir") holdings of DSP Group.
(d) In 1994, mainly during the fourth quarter, the Company received gross proceeds in the amount of $1.9 million from sales of 155,000 shares of Mercury Interactive Corporation ("Mercury"), which the Company acquired in 1992, and recorded a gain of approximately $1.5 million ($1 million after taxes). As of December 31, 1994, the Company held approximately 311,000 shares (approximately 2.4% of Mercury's outstanding shares).
(e) In February and June 1993, the Company invested an aggregate of approximately $4.3 million in Paradise Mattresses (1992) Ltd. ("Paradise") for 85.1% of the shares of Paradise. Paradise's assets and liabilities were consolidated commencing June 30, 1993; since July 1, 1993 its manufacturing and distribution operations have been consolidated and were included in equity in earnings of affiliates for the six months ended June 30, 1993.
(f) 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
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares of $5.8 million (approximately $2.1 million after taxes and a deduction for Ophir's 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 (see Note 2(g)) and additional sales during 1994, the Company's ownership in Teledata was further reduced to 10.6% (see Note 9).
(g) 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 it is accounting for by the equity method. 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.
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).
(h) 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 7.9% of Idan's shares.
(i) In the first quarter of 1993, the Company invested approximately $.3 million in Davidson-Atai Publishers ("Davidson- Atai") for 22.5% of the shares of Davidson-Atai, which is a recently established Israeli publishing house. As a result of private placements during 1994, the Company's interest in Davidson- Atai was diluted to 20.7%.
(j) In February and October 1992, the Company's investee, Granite Hacarmel Investments Ltd. ("Granite"), concluded public offerings of shares, warrants and convertible debentures in Israel on the Tel Aviv Stock Exchange for an
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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%.
During the first quarter of 1994, Granite issued additional shares upon conversions of its debentures. The Company's interest in Granite was diluted from 21.6% to 21.2%.
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 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 $.3 million ($.2 million after taxes) in 1994 and $7 million (approximately $2.7 million after taxes) in 1992.
(k) 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, 1994, the Company's ownership was further diluted to 22%.
(l) In July 1992, the Company acquired 20% of the shares of Carmel Container Systems Ltd. ("Carmel"), Israel's second largest carton producer, for $2.2 million.
Note 3 - Deposits, Notes and Loans Receivable
Deposits, notes and loans receivable earn interest at varying rates depending upon their linkage provisions. The deposits are guaranteed by Hapoalim. Deposits have maturities of up to 11 years and notes and loans receivable have maturities of up to 5 years.
Note 4 - Deposits, Notes and Loans Payable
Deposits, notes and loans payable consist primarily of bank borrowings either in U.S. Dollars, linked to the U.S. Dollar or in unlinked shekels with interest rates varying depending upon their linkage provision and mature through 2003.
The weighted average interest rates on the balances of short-term borrowings at year-end are as follows: 11.83% on $22.3 million, 5.71% on $30.7 million and 6.81% on $36.6 million in 1994, 1993 and 1992, respectively.
Note 5 - Debentures
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debentures outstanding as at December 31 consist of:
Certain debentures are presentable for early redemption. If presented for early redemption, maturities (including required obligations) for the five years ending December 31 would be:
1995 - $22,269* 1996 - 29,876 1997 - 5,571 1998 - 6,380 1999 - 6,380 Thereafter - 18,544
* If no debentures are presented for early redemption, scheduled maturities will amount to $10,779.
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. 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, 1994, 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
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
specified formula.
On February 1, 1994, Ampal completed a public offering of 4.5 million units, each consisting of one share of Class A stock and one redeemable warrant to purchase one share of Ampal's Class A stock for $12.125 per unit. The warrants are exercisable at $16 per share at any time until January 31, 1999, and are callable by Ampal, in whole or in part, from and after February 1, 1996, without payment to the holder. The net proceeds which Ampal received from this offering amounted to approximately $51 million.
On November 5, 1993, Ampal's Board of Directors approved a stock option plan which provides for grants of options to purchase up to 200,000 shares of Class A stock in the aggregate to employees, officers and directors of Ampal and certain subsidiaries of Ampal. On January 25, 1994, the Stock Option Committee of the Board of Directors approved the issuance of 134,900 options (of which 225 options have been canceled) in the aggregate at an exercise price of $10.91 per share (a 10% discount from market price on the date of grant). The entire discount was recorded as compensation expense. The Stock Option Plan was approved by Ampal's shareholders on September 22, 1994. At December 31, 1994, 32,500 options are exercisable and 102,175 options become exercisable on January 25, 1996.
At December 31, 1994, an aggregate of 9,012,496 shares of Class A Stock is reserved for issuance upon the conversion of the Preferred Stock and the exercise of warrants and options.
Retained Earnings
At December 31, 1994, retained earnings include $61.5 million for affiliates accounted for by the equity method, of which $31.9 million and an additional approximately $37.5 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. The exercise of warrants and options is not included in the calculation of EPS because their effect would be anti-dilutive. Therefore, EPS is calculated by dividing net income by 27.5 million shares in 1994 and 23.7 million in 1993 and 1992.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Income Taxes
Other assets include approximately $2 million ($3 million in 1993) 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 $24.6 million ($22.5 million in 1993) of deferred tax liability provided on 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:
* 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:
The carrying value of the Company's investments in shares of its publicly traded affiliates and others at December 31, 1994 amounted to $41.1 million and had a market value of $52.8 million, which is based upon quoted market prices of shares traded on the American Stock Exchange, NASDAQ and the Tel Aviv Stock Exchange.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Segment Information
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, Bahamas, Israel and U.S. Virgin Islands.
** - Operations in Israel (1994 and 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
For short-term investments, the carrying amount is a reasonable estimate of fair value.
b) Deposits, Notes and Loans Receivable
The fair value of these deposits, notes and loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
c) Investments
For financial instruments with maturities between 91 days and 1 year, and all marketable securities, the carrying amount is a reasonable estimate of fair value.
d) Deposits, Notes and Loans Payable and Debentures
The fair value of notes and loans payable, deposits payable and debentures outstanding is estimated by discounting the future cash flows using the current rates offered by lenders for similar borrowings with similar credit ratings and for the same remaining maturities.
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Commitments and Contingencies
(a) The combined minimum annual lease payments on Ampal's corporate offices, Country Club Kfar Saba and Paradise, without giving effect to future escalations, are approximately $595,000 a year for the years 1995 through 1998, and $476,000 for 1999 and $2 million in the aggregate, thereafter. The leases expire in 2009, 1998 and 1999, respectively.
(b) For the years 1995 through 1999, the combined minimum lease receipts to be received by the Company from rental properties (primarily from related parties) are approximately $2.8 million in 1995; $2.8 million in 1996; $2.3 million in 1997; $2.1 million in 1998; $2.1 million in 1999; and $2.2 million in the aggregate, thereafter.
(c) The Company has issued guarantees on bank loans to its investees and subsidiaries totalling $14.9 million.
The Company's share of the commitments issued by and to its investees amounted to $49.1 million.
A consolidated subsidiary pledged all of its assets in the amount of approximately $48 million to banks (including a related party) in order to secure a mortgage and its debt to debenture holders. In addition, the Company's share of an investee's assets pledged in order to secure a mortgage amounts to $14 million.
The Company's share of floating charges of the assets of an investees is $47.4 million.
(d) In June 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, including a subsidiary of the Company's investee, Granite, 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 that subsidiary's stations (which are those stations not owned by the subsidiary). The Controller postponed the effective date of his decision, and the subsidiary has filed an appeal. If upheld in its current form, the Controller's determination will be considered prima facie evidence in legal proceedings between station operators and the subsidiary and may have a material adverse effect on Granite.
(e) Under Israeli law, a lease of real property with a term of more than 10 years is required to be reported to the Israeli Appreciation Tax Authorities and is subject to a land appreciation tax or an income tax and an acquisition tax. The Israeli Tax Commissioner has taken the position that certain arrangements for the lease of real property, including multiple leases, leases with renewal options and leases or options to lease between affiliated companies, which in the aggregate provide a term exceeding 10 years, are subject to the above reporting and taxes.
Certain of the investees, including Ophir, Industrial Buildings and Carmel, are parties (mostly as lessors) to lease transactions which, under the Commissioner's interpretation, may be deemed leases for terms in excess of 10 years. These investees have all reported their lease income as taxable income and have recently reported such transactions to the tax authorities. Should the tax authorities decide to enforce their position and prevail, these investees would be in breach of Israeli law, and could be subject to material taxes and to civil and criminal penalties. An assessment made against Bay Heart Limited in this regard by the tax authorities has been 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.
Note 13 - Subsequent Events
(a) In February 1995, Yakhin Hakal Ltd. and its affiliates commenced a legal proceeding seeking to cause Etz Vanir Ltd. ("Etz Vanir") and Yakhin Mataim Ltd. ("Yakhin Mataim") to redeem the perpetual debentures owned by Ampal for approximately $.7 million (which approximates the Company's carrying value)
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES -------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and to require Ampal to surrender all of its preferred shares of Etz Vanir and Yakhin Mataim for their par value. Ampal intends to contest this legal proceeding vigorously.
(b) In March 1995, Ampal's Board of Directors approved the repurchase of up to 2 million shares of its Class A Stock through open market purchases from time to time.
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:
--------------
(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
SHLOMO RECHT, 53, has been Chairman of the Board of Directors of Ampal since July 1994. From March 1994 until July 1994, he was Vice Chairman of the Board of Directors of Ampal. From April 1990, until March 1994, he was Managing Director of Poalim Capital Markets and Investments Ltd. From October 1988 until March 1990, he was an Assistant Managing Director of Hapoalim. From 1988 until 1989, and since March 1994, he has served as a director of Ampal.
LAWRENCE LEFKOWITZ, 57, has been President and Chief Executive Officer of Ampal since November 1990. From 1977 until then, he was Vice President-Legal and Secretary of Ampal. 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."
MOSHE MOR, 59, has been Vice President-Israel Operations of Ampal for more than five years.
ALAN L. SCHAFFER, 52, has been Vice President-Finance and Treasurer since August 1990. From December 1988 until then, he was Vice President-Accounting and Controller of Ampal.
ALLA KANTER, 37, has been Controller of Ampal since August 1990. From January 1986 to August 1990 she served as Assistant Controller of Ampal.
MICHAEL K. MARKS, 30, 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, 38, 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, 51, has been Assistant Treasurer of Ampal since November 1990 and has been employed by Ampal for more than five years.
HARRY B. HENSHEL, 76, has been Chairman of the Board of Bulova Corporation since 1974. He has also served as Chairman of the Chief Executives Council of Omega Group since 1990 and as a Director of the Ponce Hotel Corporation for more than 20 years and the Universal Holdings Corp. since 1993. He has been a member of the advisory Board of the New York State Business Partnership for more than 5 years and a Trustee of the New York Backstretch Employees Pension Trust for more than 10 years. He served on the Board of Directors of Ampal Industries, Inc. from 1982 until 1990. He became a director of Ampal in 1993.
HERBERT KRONISH, 68, has been a Senior Partner of Kronish, Lieb, Weiner & Hellman and its predecessor partnerships ("KLWH") since 1958. KLWH has been legal counsel to Ampal since 1982. He became a director of Ampal in September 1994.
LEON RIEBMAN, 73, has been 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 Sectionof the World Jewish Congress, since December 1990. She became a director of Ampal in 1982.
ARIE ABEND, 57, has been a Joint Managing Director of Hapoalim since February 1994. From 1986 until February 1994, he was a Senior Deputy Managing Director of Hapoalim. From 1984 until 1985, in 1991 and since September 1994, he has served as a director of Ampal. See "Certain Relationships and Related Transactions."
MICHAEL ARNON, 69, was Chairman of the Board of Directors of Ampal from November 1990 to July 1994. From July 1986 until November 1990, he was President and Chief Executive Officer of Ampal. 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.
STANLEY I. BATKIN, 80, 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.
YAACOV ELINAV, 50, has been a Member of the Board of Management of Hapoalim since October 1991
and Senior Deputy Managing Director of Hapoalim since August 1992. From October 1991 to August 1992, he was a Deputy Managing Director of Hapoalim. From October 1988 to October 1991, he was head of the Corporate Division of Hapoalim. He became a director of Ampal in July 1992. See "Certain Relationships and Related Transactions."
IRWIN HOCHBERG, 66, has been a Senior Partner and President of Bloom Hochberg & Co., P.C., CPA's, which provides professional and consulting services to investment banking firms, for more than five years. He also serves as a director of Transmedia Network, Inc. He became a director of Ampal in September 1994.
EITAN RAFF, 53, 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, 58, has been a Joint Managing Director of Hapoalim since February 1994. From October 1989 until February 1994, he was a Senior Deputy Managing Director of Hapoalim. 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 ----------------------
SUMMARY COMPENSATION TABLE --------------------------
The table below presents information regarding remuneration paid or accrued for services to Ampal and its subsidiaries by the executive officers named below during the three fiscal years ended December 31, 1994.
---------------------
(1) There were 26 pay periods in each of 1994 and 1993 and 27 pay periods in 1992.
(2) 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. 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.
(3) Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of $15,596; (ii) Ampal's Supplementary Executive Retirement Plan of $8,523 and (iii) Ampal's Savings Plan of $500.
(4) Comprised of Ampal's contribution pursuant to Ampal's Savings Plan of $500 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.
OPTIONS GRANTS IN 1994
The following table sets forth information regarding the grant of stock options during 1994 under Ampal's 1993 Stock Option Plan (the "1993 Plan") to each of the executive officers named in the Summary Compensation Table:
INDIVIDUAL GRANTS -----------------
#### (1) Generally, the 1993 Plan prohibits the exercise of these options prior to January 25, 1996. However, options granted to directors of Ampal who are not also employees of Ampal were exercisable immediately upon grant, which occurred on January 25, 1994, subject to shareholder approval which was obtained on September 22, 1994.
(2) These presumed potential values are mathematically derived from certain prescribed rates of stock appreciation over the price of the stock on the date of grant of the option. The actual value of these option grants is dependent on the future performance of Ampal's Class A Stock. There is no assurance that the values reflected in this table will be achieved.
FISCAL YEAR-END OPTION VALUES(1)
(1) No options were exercised by any named executive officer during 1994.
Other Compensation
Directors of Ampal who are not employees of the Company or of its parent company received $250 prior to July 6, 1994 and receive $500 thereafter per board meeting attended. Such persons also receive the same amount 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 money purchase pension plan for its eligible employees ("Pension Plan"). Eligible employees are all full-time employees of Ampal except non-resident aliens, night shift employees and employees represented by a collectively bargained unit. In 1990, the Pension Plan was amended so that Ampal's annual contribution was equal to 7% of each employee's compensation plus 5.4% of the employee's compensation in excess of the Social Security taxable wage base for that year. In 1994, the Pension Plan was amended so that Ampal's contribution is equal to 7% of each employee's compensation plus 5.7% of the compensation in excess of the Social Security taxable wage base for that year.
Employees become vested in amounts contributed by Ampal depending on the number of years of service worked, as provided in the following table: Vested Years of Service Percentage: ---------------- ----------- less than 2 years 0% 2 but less than 3 years 20% 3 but less than 4 years 40% 4 but less than 5 years 60% 5 but less than 6 years 80% 6 or more years 100%
Benefits under the Pension Plan are paid in a lump sum, in an annuity form or in installments.
Ampal maintains a Savings Plan for its eligible employees pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). Eligible employees are all employees of Ampal except non-resident aliens, night-shift employees and employees represented by a collective bargaining unit. Participation by employees in the Savings Plan is voluntary. Participating employees may direct that a specific percentage of their annual compensation
(up to 15%) be contributed to a self-directed 401(k) savings account. The amount which any employee could contribute to his or her 401(k) savings account in 1994 was limited under the Code to $9,240. 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 after termination of employment.
In 1994, Ampal established a Supplementary Executive Retirement Plan ("SERP") for its eligible employees. Ampal's obligation under the SERP is to pay to affected employees the amount that would have been paid to them by the Pension Plan but for the operation of Section 401(a)(17) of the Internal Revenue Code of 1986.
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 was approved by Ampal's shareholders on September 22, 1994.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, members of the Executive Committee of the Board of Directors which functions as the compensation committee of the Company included: Mr. Arnon, then Chairman of the Board of the Company; Mr. Lefkowitz, President and Chief Executive Officer of the Company and Counsel to Hapoalim; Mr. Stanley I. Batkin; Mr. Yaacov Elinav, Senior Deputy Managing Director of Hapoalim; and Mr. Alexander Yuhjtman, then Executive Vice President,
Regional Manager, Western Hemisphere of Hapoalim. For a description of business transactions between the Company and Hapoalim, see "Certain Relationships and Related Transactions."
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 22, 1995 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 Stock") and 6-1/2% Cumulative Convertible Preferred Stock (the "6-1/2% Preferred Stock") owned by such beneficial owner has been assumed, without increasing the number of shares of Class A Stock outstanding by amounts arising from possible conversions of convertible securities held by shareholders other than such beneficial owner. As at March 22, 1995, there were issued and outstanding 20,859,860 shares of Class A Stock of the Company and 3,000,000 shares of Common Stock. In addition, there were issued and outstanding 1,109,182 non-voting shares of 6-1/2% Preferred Stock (each convertible into 3 shares of Class A Stock) and 206,135 non-voting shares of 4% Preferred Stock (each convertible into 5 shares of Class A Stock).
Certain Beneficial Owners
(1) Based upon number of shares outstanding as of March 22,
(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% Preferred Stock and 3,350 shares of 4% Preferred Stock.
Security Ownership Of Management
The following table sets forth information as at March 22, 1995 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. The directors and officers of Ampal individually and as a group do not own in excess of 1% of any class of the equity securities of Ampal's parent or any of Ampal's subsidiaries. All ownerships are direct unless otherwise noted. The table does not include directors who do not own any such shares:
Ampal-American Israel Corporation ---------------------------------
CLASS A STOCK ------------- Amount and Nature Name of Beneficial Ownership ---- -----------------------
Michael Arnon 7,500(1) Stanley I. Batkin 15,000(2) Harry B. Henshel 8,000(2) Irwin Hochberg 3,000(3) Herbert Kronish 1,000(4) Lawrence Lefkowitz 10,700(5) Michael K. Marks 1,500 Moshe Mor 1,000 Eitan Raff 5,000(2) Shlomo Recht 2,000 Leon Riebman 29,600(2) Evelyn Sommer 5,000(2) ------- All Directors and Officers as a Group 89,300(6)
WARRANTS TO PURCHASE CLASS A STOCK ------------- Amount and Nature Name of Beneficial Ownership ---- -----------------------
Harry B. Henshel 14,000 Michael K. Marks 500 ------- All Directors and Officers as a Group 14,500
6-1/2% PREFERRED STOCK ---------------------- Amount and Nature Name of Beneficial Ownership ---- -----------------------
Lawrence Lefkowitz 7,225(7) ------- All Directors and Officers as a Group 7,225
Bank Hapoalim B.M. ------------------
ORDINARY SHARES --------------- Amount and Nature Name of Beneficial Ownership ---- -----------------------
Arie Abend 187,720 Michael Arnon 83,300 Yaacov Elinav 183,970 Shimon Ravid 190,610 Shlomo Recht 128,810 ------- All Directors and Officers as a Group 774,410
(1) Includes options to purchase 7,500 shares of Class A Stock issuable upon the exercise of currently exercisable stock options.
(2) Includes options to purchase 5,000 shares of Class A Stock issuable upon the exercise of currently exercisable stock options.
(3) Includes 1,000 shares held of record by Mr. Hochberg's wife.
(4) Mr. Kronish and his wife share voting and investment power over the shares.
(5) Includes 8,700 shares of Class A Stock held by a trust under an estate as to which Mr. Lefkowitz is co-personal representative.
(6) Includes options to purchase 32,500 shares of Class A Stock issuable upon the exercise of currently exercisable stock options.
(7) Includes 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 1994 the largest amount of such indebtedness outstanding at any one time was $40,257,000. The amount of interest expense paid by the Company to Hapoalim was $3,314,000. 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 1994 was $104,241,000 and interest income thereon was $6,898,000. As of December 31, 1994, the amount of borrowings and deposits from Hapoalim and its subsidiaries was $20,550,000 and the amount of loans to and deposits with Hapoalim and its subsidiaries was $79,281,000. Ampal is the beneficiary of a $2 million committed line of credit from Hapoalim which expires in October 1995. 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.
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 1994, Hapoalim reimbursed Ampal $100,000 for the services of Mr. Lefkowitz under the arrangement.
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................. 40 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992...... 41 Consolidated Balance Sheets as at December 31, 1994 and 1993............................ 43 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992................ 44 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992......................................... 46 Notes to Consolidated Financial Statements............................................ 47
Supplementary Data:
Selected quarterly financial data for the years ended December 31, 1994 and 1993.......................... 61
(2) Financial Statement Schedules
Schedules which have been omitted are not applicable or the required information is shown in the financial statements or notes thereto.
(i) Schedule of Representative Rates of Exchange between the U.S. dollar and Israeli shekel for three years ended December 31, 1994................... 77
Page Reference* ---------- (ii) Consolidated financial statements filed pursuant to Rule 3-09 of Regulation S-X
Granite Hacarmel Investments Limited and Subsidiaries Report of Certified Public Accountants....................... 78 Consolidated Balance Sheets as at December 31, 1994, and 1993............................... 79 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992.......................... 81 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992............................................. 82 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.................... 83 Notes to Consolidated Financial Statements................... 86
(iii) Reports of Other Certified Public Accountants filed pursuant to Rule 2-05 of Regulation S-X:
AM-HAL Ltd................................................... 127 Ampal Enterprises Ltd........................................ 128 Ampal Financial Services Ltd................................. 129 Ampal Holding (1991) Ltd..................................... 130 Ampal (Israel) Ltd........................................... 131 Ampal Industries (Israel) Ltd................................ 133 Ampal Properties Ltd......................................... 134 Bank Hapoalim (Cayman) Ltd................................... 136 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. (Special Purpose).............. 145 Hapoalim (Latin America) Casa Bancaria S.A................... 146 Imagenet Ltd................................................. 148 Mivnat Holdings Ltd.......................................... 149 Moriah Hotels Ltd............................................ 150 Ophir Holdings Ltd........................................... 151 Orlite Engineering Company Ltd............................... 152 Orlite Engineering Company Ltd. (U.S. Dollars)............... 153 Paradise Mattresses (1992) Ltd. (U.S. Dollars)............... 154 Pri Ha'emek (Canned and Frozen Food) 88 Ltd.................. 156 Red Sea Marineland Holding (1973) Ltd........................ 157 Red Sea Underwater Observatory Ltd........................... 158 The Snow and Cool Palace (Limited Partnership)............... 159 Teledata CommunicationLtd.................................... 160 Trinet Investment in High-Tech Ltd........................... 161 Trinet Venture Capital Ltd................................... 162
(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).
(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, 1994.
* Page references preceded by the letter "E" refer to the separately bound volume of exhibits.
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Haifa, February 21, 1995
Independent Auditor's Report to the Shareholders of Granite Hacarmel Investment Limited
We have audited the balance sheets of Granite Hacarmel Investment Limited and its subsidiaries ("the Company") as at December 31, 1994 and 1993, 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 the purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
We did not audit the financial statements of a consolidated subsidiary, whose statements reflect total assets and total revenues constituting 3.8% and 2.8% (1993 - 4.2% and 2.4%), 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, 1994 and 1993, 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, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
A Member of the Price Waterhouse Worldwide Organization
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 amount and are included in Note 28 to the financial statements.
Without qualifying our opinion we would like to bring to attention Note 25 to the financial statements regarding judicial proceedings concerning the ruling by the controller of restrictive trade practices pertaining to a proposed law dealing with the shortening of the periods of exclusive agreements entered into by a subsidiary company and filing station operators, the legislation proposed by the Ministry of Energy dealing with the fuel market, and the law cancelling the minimal distance requirement between filing stations. At this time, it is not possible to estimate the effects of the legal proceedings and of the proposed legislation on the fuel market in general, and on the Company in particular.
CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL)
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Adjusted to the Index of December 1994
N o Adjusted NIS. (thousands) t -------------------------- e December 31, December 31, s ------------ ------------ 1994 1993 ---- ---- Current assets Cash and cash equivalents 6,063 6,267 Marketable securities 4 4,783 12,234 Short-term bank deposit 30,128 - Compulsory Government loan 6.B. 619 692 Accounts receivable and debit balances 4.A. 390,617 366,784 Inventories 5 308,139 346,647 ---------- ---------- 740,349 732,624 ---------- ----------
Investment Unconsolidated subsidiaries and others 6.A. 64,737 81,114 Long-term loans receivable 7 15,484 14,167 Compulsory Government loan 6.B. 664 1,253 ---------- ---------- 80,885 96,534 ---------- ----------
Fixed assets Property, plant and equipment 8 900,306 823,823 Less: Accumulated depreciation 432,198 389,982 ---------- ---------- 468,108 433,841 ---------- ----------
Other assets and deferred charges, net 9 16,237 17,203 ---------- ----------
---------- ---------- 1,305,579 1,280,202 ========== ==========
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GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS Adjusted to the Index of December 1994
N o Adjusted NIS. (thousands) t -------------------------- e December 31, December 31, s ------------ ------------ 1994 1993 ---- ---- Current liabilities Short-term bank credit 10 160,527 98,499 Suppliers 12A 128,572 82,293 Loans from others 11 15,724 11,680 Accounts payable and credit balances 12 61,396 77,165 Dividend declared 27 39,869 68,670 ---------- ---------- 406,088 338,307 ---------- ---------- Long-term liabilities Long-term loans, less current portion 13.A. 7,659 8,740 Debentures convertible into shares of the company, less current portion 13.B. 233,425 290,382 Debentures convertible into shares of a subsidiary, less current portion 13.C. 5,127 8,213 Customers' deposits 14 53,413 60,105 Liabilities for post-retirement benefits, net 15 8,162 5,511 Deferred taxes, net 16,23 10,061 15,569 Capital notes issued by an affiliated company 285 326 ---------- ---------- 318,132 388,846 ---------- ---------- Minority interest in consolidated subsidiaries 7,461 6,231 ---------- ---------- Collaterals, commitments and contingent liabilities 25,24
Shareholders' equity Capital and capital reserves 18,19 264,278 249,387 Retained earnings 309,620 297,431 ---------- ---------- 573,898 546,818 ---------- ---------- 1,305,579 1,280,202 ========== ==========
-------------------------------- J. Rosen - Chairman of the Board
-------------------------------- M. Mor - Director
-------------------------------- A. Shachar - Managing Director
Date: February 21, 1995. The accompanying notes are an integral part of the financial statements.
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GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Adjusted to the Index of December 1994
The accompanying notes are an integral part of the financial statements.
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GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Adjusted to the Index of December 1994
(*) Net of related issue expenses in the amount of NIS. 7,944 thousand. (**) Including proposed dividend in the amount of NIS. 22,919 thousand.
The accompanying notes are an integral part of the financial statements.
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GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Adjusted to the Index of December 1994
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GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
Adjusted to the Index of December 1994
The accompanying notes are an integral part of the financial statements.
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GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED) Adjusted to the Index of December 1994
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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 1994 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 1994 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 1994, based on the Consumer Price Index published by the Central Bureau of Statistics ("Index"), on January 15, 1995 (see Note 2.G.1.)
C. Principles of Adjustment
1. Balance Sheet
a. The non-monetary items (the balance sheet amounts which represent their historical value at the time of their acquisition or creation-see below) were adjusted for the changes in the Index since their acquisition or creation and until December 1994.
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NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES (CONTINUED)
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,(see Note 2.C.2) 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.
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NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES (CONTINUED)
e. Current taxes are composed of payments on account during the year in addition to amounts payable as of the balance sheet date (or net of refunds claimed as of the balance sheet date). The payments on account were adjusted based on the prevailing index on the date of each payment, while the amounts payable (or claimed as refund) are included without adjustment. Accordingly, the current taxes include the expenses arising from the erosion of the payments on account taxes from the date of payments to the balance sheet date.
Deferred taxes - see Note 2.J.
3. Comparative figures were adjusted to the December 1994 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 two companies 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.
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NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
C. Valuation of inventories
1. Inventory of crude oil and refined products
The overwhelming portion of the crude oil and refined product inventories of the wholly-owned subsidiary, Sonol, consists of Emergency inventories. The Emergency inventories are valued based on current value, which does not exceed market value in accordance with the lower of the changes in the exchange rate determined by the Fuel Authority ("Fuel Authority rate") or the dollar exchange rate. In all instances, the Emergency inventories valued at the Fuel Authority rate are guaranteed by the Government by way of setting Sonol's recovery price based on the Fuel Authority rate in accordance with the Commodities and Services Control Order (Arrangements in the Oil Economy - 1988).
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.
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 and Amortization
Depreciation is computed on the straight line method at annual rates considered to be sufficient for depreciating the assets over their estimated useful lives.
The annual rates of depreciation are as follows: % ---
Buildings (including temporary buildings) 2- 6.5 Machinery and equipment 5-15 Vehicles 15-20 Computers 20 Furniture and office equipment (reflected in machinery and equipment) 6-10
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NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
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.
The index, the exchange rates and the rate of changes therein were as follows:
December 31, Changes in % --------------------- --------------------- 1994 1993 1992 1994 1993 1992 ---- ---- ---- --- ---- ----
Index 289.8 253.2 227.6 14.5 11.2 9.4 Exchange rate of the U.S. dollar 3.018 2.986 2.7884 1.1 7.1 21.3
3. 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.
4. 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 discouted 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.
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NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
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 23.B.).
1. The main factors in respect of which deferred taxes have been included are as follows:
a. Differences in depreciation and amortization for accounting and tax purposes;
b. Differences between the value of inventories for accounting and tax purposes;
c. Timing differences in recognition of income and expense items for accounting and tax purposes (mainly linkage differences on customers' deposits and provisions for employee post-retirement benefits).
2. The main factors in respect of which deferred taxes have not been computed:
a. Amounts of adjustment for the change in the purchasing power of the New Israel Shekels relating to 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.
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NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
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 4% 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 3% and on an annual real increase of wages at the rate of 3%.
L. Provision for linkage increments on customers' deposits
The wholly-owned subsidiary, 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.
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NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
N. Foreign currency futures transactions
1. The results of futures transactions in the year 1993 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.
2. Sonol entered into a "free dollar transaction" by which it acquired U.S. dollars in a bank bearing interest at changing rates, against an unlinked shekel loan, bearing interest at changing rates. The transaction may be closed at any time by netting the liability against the asset. The accumulated effect of the transaction is reflected on the statements of income.
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM IN THE ENERGY SECTOR
A. Sonol
1. Amounts due to or from the Fuel Authority, to the extent still provisional, are included each year in the accounts according to estimates prepared by Sonol based on past experience. Differences which subsequently arise are reflected in the results of the year in which such differences are determined.
2. 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 and the cancellation of the Price Structure Agreement;
b. Issuance, through a Government order, of a monthly price structure for refined products setting the maximum price to consumers and including an element of profit and a recovery of non-direct expenses, rates similar, 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 timetable of which is as yet unknown. The first stage of the Reform allowed 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 provided for two categories of crude oil and refined product inventories: Emergency and Commercial.
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NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR (CONTINUED)
All costs and expenses related to the holding of Emergency inventories continue to be fully recoverable from the Government while the holding of Commercial inventories is at the risk of the oil marketing companies.
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 credit.
3. In September 1991, the Government decided, inter alia, to reduce the Emergency inventory levels and to effect the transfer of ownership of the Emergency inventories of crude oil and refined products from the oil marketing companies to the Government. To date, the Emergency inventories have been reduced, but no timetable has been set for any transfer of ownership.
It is the opinion of Sonol's management that implementation of the decision to transfer or to further reduce the Emergency inventories 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 retail price controls were lifted from some fuel products marketed by Sonol through public stations and as of October 26, 1993 Government wholesale price controls were lifted from the maximum price of all refined products marketed by Sonol through 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. The negative effect of this change was offset by increased sales volume of the products involved.
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.
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NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR (CONTINUED)
The above changes ("the Gas Reform") resulted in increased competition, particularly in the more profitable bulk supply sector. Such competition manifested itself primarily through price discounting and increased customer credit. As of the balance sheet date, the Gas Reform has not materially affected Supergas' market share.
Supergas' prices to gas customers are subject to government maximum price controls, except for bulk sales and sales to commercial customers.
2. Supergas lodged a claim in the District Court for a declarative judgement against the Ministry of Energy and Infrastructure, the Fuel Authority, regarding certain amounts which partly relate to the period before the Gas Reform and partly thereafter.
As a result of the ruling overturning a claim of another gas company by the Supreme Court, Supergas cancelled its claim regarding certain amounts relating to the period beginning after the commencement of the Gas Reform.
An unsuccessful judgement in the said litigation will not result in any negative impact on the financial position of Supergas, as reflected in its financial statements.
In January 1995, a declaration was signed between the Ministry of Energy and several gas companies, among them Supergas, establishing standards of service to their clients. Based on this declaration, the Ministry of Energy recommended that the Ministry of Finance rescind price controls in effect on the price of gas. Concurrently, the companies who are parties to the declaration have undertaken not to deviate, when setting their prices to the consumer, from an agreed upon formula for an as to yet undetermined transition period. As of the date of these financial statements price controls have not yet been rescinded.
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NOTE 4 - MARKETABLE SECURITIES
NOTE 4.A.- ACCOUNTS RECEIVABLE AND DEBIT BALANCES
NOTE 5 - INVENTORIES
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NOTE 6 - INVESTMENTS
A. Investments in unconsolidated subsidiaries and others consist of:
(1) In 1994, dividends were received from affiliated companies amounting to NIS. 1,538 thousand (1993 - NIS. 2,149 thousand which include NIS. 858 thousand from previous years' income).
(2) Capital notes reflected in the balance sheet are comprised as follows:
(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).
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NOTE 6 - INVESTMENTS
(c) The capital notes are non-marketable, unlinked and bear no interest. NIS. 3,152 thousand of the capital notes (1993 - NIS.3,607 thousand) are guaranteed by interested parties (including former interested parties) and the balance is unsecured.
(3) The capital note is unsecured, non marketable, linked to the consumer price index and bears no interest.
(4) (a) In 1993 - includes NIS. 17,543 thousand relating to an investment, through a subsidiary company, in 50% of the shares of "Otzem Promotion and Investments (1991) 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 now in receivership. Furthermore, in 1994, a consolidated subsidiary provided a shareholders' loan in the amount of NIS. 10,885 thousand. The aforementioned shopping center was opened to the public in September 1993. In 1994, the investment is included in Affiliated companies carried on equity basis.
(b) Loans to Otzem are linked to the index and bear interest at the rate of 5.5% per annum. The date of maturity is subject to the financial capability of Otzem.
B. Compulsory Government loan
The compulsory Government loan is Hagalil Peace loan [Note 2.H.(1)].
The nominal value of the Hagalil Peace loan is linked, at the Company's discretion, to 80% of the increase in the Index in addition to index linked interest of 1% per annum, or to the increase in the representative rate of exchange of the dollar, without interest. The loans are redeemable in four annual payments commencing in the year 1993.
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NOTE 7 - LONG-TERM LOANS RECEIVABLES
a. Consist of:
b. Linkage terms and interest rates:
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NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
a. Consist of:
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NOTE 8 - PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The amounts treated as permanent differences are as follows:
Adjusted NIS. (thousands) ------------------------- Balance as of January 1, 1993 64,320 Changes in the year 1993 (4,960) Balance as of December 31, 1993 59,360 Changes in the year 1994 (3,423) ------
Balance as of December 31, 1994 55,937 ======
d. Land and buildings includes:
1. NIS. 17,494 thousand, for the acquisition by a wholly-owned subsidiary of 50% of the rights of Magor Holdings Ltd. (hereafter "Magor") in land and buildings in a project under construction in Holon, known as "Lev-Magor Holon". A contract was also signed for cooperation and management of the project, pursuant to which "Magor" has undertaken that the income net of expenses from the project, which the wholly-owned subsidiary will receive for 10 years, will be not less than NIS. 787 thousand per year, linked to the Index.
2. NIS. 30,893 thousand, on account of acquisition of 50% of the rights of the Cible Israel Investments (1992) Ltd. (hereafter "Cible") in land and buildings in a project under construction in the new industrial park of Rosh Haayin. The total cost of the purchase (through a wholly-owned subsidiary) of the project, when completed and title transferred, is approximately NIS. 39,800 thousand, adjusted to the December 1994 Index. The anticipated completion date of the project is in mid-1995. As of January 1995, two out of five planned buildings have been completed and have begun to be occupied. Cible has undertaken that the income, net of expenses, from the project which the wholly owned subsidiary will receive for seven years, will be not less than NIS. 1,624 thousand for the first year and NIS. 2,102 thousand for each of the following six years. The amounts are linked to the Index. The guaranteed income periods begin one month after the completion of each of the buildings.
3. NIS. 1,480 thousand on account of acquisition of 17% of the rights in land in Tel Aviv for the construction of an office building and commercial area project, known as "Rubinstein Towers". The Company's share in the project (including construction costs) will amount to approximately NIS. 25,000 thousand and the expected completion date is late 1996.
e. Commitments and contingent liabilities - See note 24.
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NOTE 9 - OTHER ASSETS AND DEFERRED CHARGES, NET
Consist of:
NOTE 10 - SHORT-TERM BANK CREDIT
Linkage terms and interest rates:
Adjusted NIS. (thousands) ---------------------------------------------- December 31, 1994 ---------------------------------------------- Unlinked linked Linked to Total to foreign Index currency ---------- ----- -------- ---- Interest rates: 17.2-24.4% 2.5% 5.9-9.2% ---------- ----- -------- Overdrafts 1,230 - - 1,230 Short-term loans 158,723 - - 158,723 Current portion of long-term loans 41 87 446 574 ------- --- ------ ------- 159,994 87 446 160,527 ======= === ====== =======
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NOTE 10 - SHORT-TERM BANK CREDIT (CONTINUED)
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 2,201 - - 2,201 Short-term loans 69,658 - 25,640 95,298 Current portion of long-term loans 59 125 816 1,000 ------ --- ------ -----
71,918 125 26,456 98,499 ====== === ====== ======
NOTE 11 - LOANS FROM OTHERS
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NOTE 12 - ACCOUNTS PAYABLE AND CREDIT BALANCES
Adjusted NIS. (thousands) -------------------------- December 31, December 31, ------------ ------------ 1994 1993 ---- ----
Liabilities to employees and other salary related liabilities 14,242 17,463 Institutions 33,246 24,177 Accrued expenses 5,174 7,311 Income tax payable - 15,619 Others 8,734 12,595 ------- -------
61,396 77,165 ======= =======
NOTE 12.A - LIABILITIES TO SUPPLIERS
Include balances amounting to NIS. 2,764 thousand (1993 - 3,586 thousand) with related parties.
NOTE 13 - LONG-TERM LIABILITIES
A. Long-term loans
Rate of Adjusted NIS. (thousands) -------------------------- interest December 31, December 31, ------------ ------------ % 1994 1993 -------- ---- ----
U.S. Dollar loans from banks(*) 6-9.3 923 1,568 Index linked loans from banks 2.5 124 - Customers' deposit - linked to index - 2,594 2,609 Customer's deposit - linked to foreign currency - 51 58 Other loans - linked to index(**) - 4,500 5,399 Other loans - unlinked 24.4 41 106 ----- ----- 8,233 9,740 Less: current portion 574 1,000 ----- -----
7,659 8,740 ===== ===== - 28 -
NOTE 13 - LONG-TERM LIABILITIES (CONTINUED)
Yearly installments: Adjusted NIS. (thousands) -------------------------- December 31, December 31, ------------ ------------
1994 1993
First year - current portion 574 1,000 Second year 414 549 Third year 90 363 Fourth year 20 10 Fifth year - - No due date 7,135 7,818 ----- ----- 7,659 8,740 ----- -----
8,233 9,740 ===== =====
(*) Fixed rate of interest for the whole period of the loan
(**)Includes NIS. 4,500 (1993 - NIS. 5,150 thousand) from an affiliated company.
Accrued interest is included in "Accounts payable and credit balances" in Current liabilities.
B. Convertible debentures into shares of the Company
Adjusted NIS. (thousands) ------------------------- December 31, December 31, ------------ ------------ 1994 1993 ---- ----
Debentures (Series 1)(*) 72,233 81,964 Debentures (series 2)(**) 170,221 208,418 ------- -------
242,454 290,382 Less - current portion 9,029 - ------- -------
233,425 290,382 ======= ======= - 29 -
NOTE 13 - LONG-TERM LIABILITIES (CONTINUED)
Yearly installments: Adjusted NIS. (thousands) ----------------------------------------- December 31, 1994 December 31, 1993 ----------------- ------------------ Series 1 Series 2 Series 1 Series 2 -------- -------- -------- --------
First year - current portion 9,029 - - - ------ ------- ------ ------- Second year 9,029 24,317 10,246 29,774 Third year 9,029 24,317 10,246 29,774 Fourth year 9,029 24,317 10,246 29,774 Fifth year 9,029 24,317 10,246 29,774 Subsequent years 27,088 72,953 40,980 89,322 ------ ------- ------ -------
63,204 170,221 81,964 208,418 ------ ------- ------ -------
72,233 170,221 81,964 208,418 ====== ======= ====== =======
(*) Registered debentures (Series 1) NIS. 1.- par value each. Every NIS. 55.- par value of debentures are convertible into 10 ordinary shares NIS. 1.- par value each. The debentures bear interest at an annual rate of 0.1%. The principal, interest and the price for conversion into ordinary shares are linked to the representative rate of exchange of the U.S. dollar. The debentures are payable 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 were 54,999,912 outstanding debentures (Series 1).
(**) Registered debentures (Series 2) NIS. 1.- par value each. Every NIS. 5 par value of debentures (Series 2) are convertible into an 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 are payable in 7 equal yearly installments on November 30 in each of the years commencing in 1996 and ending in 2002. In 1994, 11,473,515 debentures (Series 2) were converted into shares. As of the balance sheet date, there were 141,174,433 outstanding debentures (Series 2).
See also Note 18.A.
Regarding collaterals see Note 24.
C. Convertible debentures into shares of a subsidiary --------------------------------------------------
Adjusted NIS. (thousands) -------------------------- December 31, December 31, ------------ ------------ 1994 1993 ---- ----
Debentures (Series 1) 6,837 8,213 Less - current portion 1,710 - ----- -----
5,127 8,213 ===== ===== - 30 -
NOTE 13 - LONG-TERM LIABILITIES (CONTINUED)
Yearly installments: Adjusted NIS. (thousands) December 31, December 31, 1994 1993
First year - current portion 1,710 - Second year 1,709 2,053 Third year 1,709 2,053 Fourth year 1,709 2,053 Fifth year - 2,054
5,127 8,213
6,837 8,213 ===== =====
Pursuant to a public offering prospectus in May 1990, the subsidiary company, Vulcan, issued 4,516,750 convertible debentures (Series 1) at par value. The debentures are linked to the Index for April 1990, and bear interest at an annual rate of 0.1%. From the date of issue until December 31, 1994 755,560 debentures have been converted into shares. As of the balance sheet date there were 3,761,190 outstanding debentures (Series 1).
The debentures are payable in four equal yearly installments commencing in December 1995 and ending in December 1998 and are convertible at any time up to December 26, 1998 into Vulcan's ordinary shares of NIS. 1.- par value at a conversion rate of 200% (1 share for every NIS. 2.- par value of debentures converted, subject to adjustments). The conversion of the debentures into shares may dilute Sonol's holding in Vulcan to 70.8% (instead of 79.6% as on the balance sheet date).
Regarding collaterals - see Note 24.
D. All the aforementioned debentures are listed for trading on the Tel-Aviv Stock Exchange.
E. The real financial income of all the above debentures is NIS.26,374 thousand, (1993 - real financial expenses NIS. 1,037 thousand).
NOTE 14 - CUSTOMERS' DEPOSITS
a. Customers' deposits as of December 31, 1994 are computed based on the deposit amount approved by the Government decree of December 4, 1994.
b. Customers' deposits held by Supergas include NIS. 37,395 thousand (1993 - NIS. 43,539 thousand) linkage increments accrued on those deposits (Note 2.L.).
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NOTE 15 - LIABILITIES FOR POST-RETIREMENT BENEFITS, NET
Adjusted NIS. (thousands) -------------------------- December 31, December 31, ------------ ------------ 1994 1993 ---- ----
Provision for severance pay, net 4,559 3,586 Less: deposits in approved funds (*) 1,199 1,276 ----- ----- 3,360 2,310 Provision for early retirement pension (**) 3,383 1,512 Provision for redemption of unutilized sick leave 1,419 1,689 ----- -----
8,162 5,511 ===== =====
(*) The deposits can be withdrawn subject to law. Accrued income on the deposits is included in the statements of income.
(**) Excluding NIS. 1,188 thousand (1993 - NIS. 697 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, 1993 (3,690) 16,260 12,570 Changes in 1993 (296) (691) (987) ------ ------ ------
Balance as of December 31, 1993 (3,986) 15,569 11,583 Changes in 1994 851 (5,508) (4,657) ------ ------ ------
Balance as of December 31, 1994 (3,135) 10,061 6,926 ====== ====== ======
b. Presented in the balance sheet: Adjusted NIS. (thousands) -------------------------- December 31, December 31, ------------ ------------ 1994 1993 ---- ----
Deferred Taxes in long-term liabilities 10,061 15,569
Future tax benefits in current assets (3,135) (3,986) ------ ------
6,926 11,583 ====== ====== - 32 -
NOTE 17 - LINKAGE OF MONETARY BALANCES
- 33 -
NOTE 18 - CAPITAL
a. Nominal values.
Consists of:
Authorized Issued and Paid(*) -------------------- ------------------- NIS. (thousands) NIS. (thousands) -------------------- ------------------- December 31, December 31, 1994 1993 1994 1993 ---- ---- ---- ---- 225,000,000 Ordinary shares of NIS. 1.- each 225,000 225,000 122,674 120,380 ======= ======= ======= =======
(*) 122,674,456 ordinary shares (1993 - 120,379,753 ordinary shares). The share capital has been increased by conversion of debentures into shares. See Note 13.B.
b. Stock options (Series 2)
In accordance with a public offering prospectus dated February 1992 and with a prior resolution of issuance to the Company's shareholders, the Company issued 39,984,124 stock options (Series 2). Each stock option entitles the holders to acquire an ordinary share of NIS. 1.- par value each in consideration for a payment of the exercise price of NIS. 4.80 (linked to the consumer price index of December 1991). The last day for exercising options (Series 2) is 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.
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NOTE 18 - CAPITAL (CONTINUED)
c. 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, ----------------------------- 1994 1993 1992 ---- ---- ---- The net income used in computing primary earnings per share 50,508 50,119 60,112 Add (Deduct) - theoretical income (loss) deriving from: Exercise of options (series 1) - - 2,034 Exercise of options (series 2) 1,169 1,840 9,180 Exercise of options (series A) - - 3,953 Exercise of debentures (series 1) (5,321) 1,919 - Exercise of debentures (series 2) (10,552) (840) - ------ ------ ------ Net income used in computing diluted earnings per share 35,804 53,038 75,279 ====== ====== ======
2. The par value of shares used in computing earning per NIS. 1.- par value share: Adjusted NIS. (thousands) ------------------------------ Year ended December 31, ------------------------------ 1994 1993 1992 ---- ---- ---- Share capital used in computing primary earnings per share 122,674 120,318 117,501 Add - theoretical share capital that may derive from: Exercise of options (series 1) - - 17,494 Exercise of options (series 2) 39,984 39,984 37,437 Exercise of options (series A) - - 13,105 Exercise of debentures (series 1) 10,000 10,000 - Exercise of debentures (series 2) 28,235 28,944 - The total share used in computing diluted earnings per share 200,893 199,246 185,537 ======= ======= =======
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 4% (12.93 - 3%, 12.92 - 2.5%) for securities linked to the index and 7% (12.93 - 3.5%, 12.92 - 4%) for securities linked to the exchange rate of the U.S. dollar.
- 35 -
NOTE 19 - CAPITAL RESERVES NIS. (thousands) ------------------------ Year ended December 31, ------------------------ Nominal values 1994 1993 ---- ----
Share premium 71,564 60,668 Share of the Company and a subsidiary in the revaluation reserve of an affiliate * 156 240 ------ ------
71,720 60,908 ====== ====== * See also Note 28.C.
NOTE 20 - COST OF SALES Adjusted NIS. (thousands) ------------------------------- Year ended December 31, ------------------------------- 1994 1993 1992 ---- ---- ---- Material used:
Crude oil and refined petroleum products 832,574 815,971 898,051 Raw materials and auxiliary materials 37,257 48,829 46,425 Finished luboil products purchased 2,589 2,385 3,063 ------- ------- -------
872,420 867,185 947,539 ------- ------- -------
Labor and sub-contract work
Labor (including related expenses) 9,817 10,030 11,054 Sub-contract work - (refining and terminal charges) 19,576 71,271 92,504 ------- ------- -------
29,393 81,301 103,558 ------- ------- -------
Production costs 40,035 47,742 56,660 ------- ------- -------
Depreciation 2,710 2,386 2,606 ------- ------- -------
Batteries 9,225 5,919 11,478 ------- ------- -------
Total cost of sales 953,783 1,004,533 1,121,841 ======= ========= ========= Increase (decrease) in inventories (38,508) (117,799) 34,412 ======= ========= =========
- 36 -
NOTE 21 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include a decrease in the provision for doubtful receivables and bad debts amounting to NIS. 1,462 thousand (1993 - increase in the provision NIS. 2,636 thousand; 1992 - increase in the provision NIS. 3,350 thousand).
NOTE 22 - FINANCING INCOME, NET
a. In the year 1993 includes income of NIS. 9,015 thousand resulting from the retroactive adjustment of a subsidiary company's liability prescribed by law in connection with customers' deposits. Furthermore, in 1993 an income of NIS. 4,949 thousand is included resulting from cancellation of provision for interest and linkage increments. The cancellation resulted from receipt of final tax assessments in respect of previous years.
b. In the year 1992, income of NIS. 5,832 thousand was included resulting from a reduction in the discount rate on capital notes of related parties from 20% to 11%. (see Notes 2.H.(3) and 6).
NOTES 23 - TAXES ON INCOME
a. The Company and its subsidiaries are taxed under the Income Tax Law (Inflationary Adjustments) - 1985, effective as of the tax year 1985, which introduced the measurement of results for income tax purposes in real terms. The various adjustments required by the above mentioned law are made in order to align taxation to a real income basis. Nevertheless, the adjustments of the nominal income according to the Income Tax Law are not always identical to the inflationary adjustments made in the financial statements in accordance with the opinion of the Institute of Certified Public Accountants in Israel. As a result, differences arise between the adjusted income in the statement of income and the adjusted income for income tax purposes.
Regarding deferred taxes for these differences, see Note 2.J.
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 (approximately 40%) and the remaining part will conclude in 1995. Up to the date of these financial statements, Vulcan complied with all the conditions required as a result of its approved enterprise status.
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NOTE 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, ------------------------- 1994 1993 1992 ---- ---- ---- Current taxes including inflationary erosion of advance tax payments 25,470 34,369 44,833 Deferred taxes, net (*) (4,657) (988) (5,455) ------- ------- ------ 21,083 33,381 39,378 Overprovisions pertaining to prior years, net - (4,744) - ------- ------- ------
21,083 28,637 39,378 ====== ====== ======
(*) Pursuant to the amendment of the Income Tax Law as of December 22, 1992 the rate of company tax decreased from 40%, by 1% per year commencing from 1993 and ending in 1996, to 36%.
The effect of the decreased rate of the tax on the net deferred taxes included in the 1992 financial statements was a decrease in the taxes on income in the statements of income and an increase in the adjusted net income of NIS. 1,592 thousand.
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, ------------------------------- 1994 1993 1992 ---- ---- ---- Taxes at statutory rate 38% 39% 40% ==== ==== ==== The theoretical tax at the applicable tax rate 27,059 30,524 38,907 Erosion of advanced tax payments 2,170 983 927 Differences in the definition of capital and assets for tax purposes and others, net (8,146) 1,874 1,136 Adjustment of deferred taxes due to changes in the tax rate - - (1,592) Taxes for prior years - (4,744) - ------ ------ ------
21,083 28,637 39,378 ====== ====== ======
- 38 -
NOTE 24 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES
a. Floating and fixed charges
Adjusted NIS. (thousands) ------------------ December 31, 1994 Collateralized by ------------------ ---------------------- Short-term bank Floating charges on credits 1,230 current assets of the main subsidiaries.
Short-term Loans from banks Floating charges on and others 158,723 current assets of Sonol.
Accounts payable and credit Floating charges on balances (including accrued current assets of Sonol interest on short-term bank loans) 157
Long-term bank loans 1,088 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 3,849 Floating charge on all the assets of Vulcan.
Convertible debentures of Senior floating charge a subsidiary 6,837 equal in standing to all other senior floating charges on all the assets of Vulcan.
Convertible debentures Floating charge (Including interest) 243,014 subordinated to other floating charges on all the assets of the Company.
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.
- 39 -
NOTE 24 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
2. Pending litigation
a. Claims (mainly legal claims) arising in the normal course of business have been lodged against subsidiaries and affiliated companies. Regarding part of the said claims appropriate provisions have been made. In the opinion of the companies' managements, 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. 4.6 million was lodged against Sonol. 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 Sonol's consent, the operation of the station. The district court rejected the claim and the plaintiffs appealed to the Supreme Court. A date for hearing has not yet been determined.
c. A claim 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. 4.6 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 former agencies (which is owned and managed by a formerly related party to the Company), the agency submitted a claim in the amount of approximately NIS. 41 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 District Court to cancel the arbitration agreement. In the opinion of Sonol's legal counsel, the plaintiff's prospects are negligible.
e. As a result of arbitration proceedings between the Fuel Authority, against the Agents' organization and station owners, in which Sonol was not a party, the arbitrator ruled that the Fuel Authority is to reimburse the station owners for the depreciation on their investments in stations. The arbitrator's ruling has been confirmed by the district court. The Fuel Authority has, in turn, demanded that the fuel marketing companies pay for the depreciation (where applicable) to the station owners since it claims that the depreciation component was in the past recognized by the Fuel Authority within the framework of the price structure.
In the opinion of Sonol's legal counsels, there is no basis for the Fuel Authority's demand.
- 40 -
NOTE 24 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
f. Two claims were lodged against an affiliated company and against its shareholders, which include Sonol. The total claims of approximately NIS. 41.5 million regard the sale of fuel products pursuant to restrictive trade practices (as the plaintiff claims) among the fuel companies. In the opinion of the legal counsels of Sonol and the affiliated company, the companies have a sound defense against the claim.
g. On August 29, 1994, Vulcan received a purchase tax assessment in the amount of NIS. 1,988 thousand representing tax differences, linkage increments, interest and fines for the period of January 1990 through May 1994. On September 1, 1994, Vulcan submitted a protest against the aforesaid assessment referring to counsel's opinion, whereby Vulcan rejected all the points included in the assessment. As of the balance sheet date, no answer has been received from the Purchase Tax Authorities on the aforesaid protest. No provision has been made in the financial statements regarding the abovementioned assessment.
h. On September 8, 1994, an agreement was signed Vulcan and its former distributor for submitting claims and arguments of Vulcan against the distributor in the amount of NIS. 18,906 thousand, and of the distributor against Vulcan in the amount of adjusted NIS. 5,182 thousand, to an agreed upon arbitrator, after payment of NIS. 2,582 thousand by the distributor to Vulcan settling part of the claims and mainly settling debts arising from battery supplies in the past. As of the balance sheet date, no arbitrator has been agreed upon. In the opinion of Vulcan's management, referring to counsel's opinion, the ruling of an arbitrator may oblige the distributor to make further payments to Vulcan. In the financial statements no provisions have been made regarding the claims of Vulcan against the distributor and of the distributor against Vulcan.
- 41 -
NOTE 24 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
C. The consolidated subsidiary companies are committed as follows: Adjusted NIS. (thousands) -------------------------
Future fixed assets expenditures 47,320
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(*) 20,534
Lease obligation for a computer and other equipment over periods of up to five years 758
(*) The rental liability for each of the years following 1994 is as follows: 1995 2,435 1996 2,130 1997 1,302 1998 1,172 1999 1,153 2000 and thereafter 12,342 ------
20,534 ======
D. The consolidated subsidiaries have contingent liabilities in respect of:
1. Acquisition of crude oil or refined products - open letter of credits 29,288
2. The subsidiary Supergas has given a guarantee in favor of a bank regarding a loan given by the bank to a partnership (in which Supergas is a partner) 1,244
3. Various guarantees 2,044
4. 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
- 42 -
NOTE 25 - RULING BY THE CONTROLLER OF RESTRICTIVE TRADE PRACTICES, LEGISLATION AND PROPOSED LAWS FOR THE FUEL SECTOR
A. An appeal filed by Sonol, together with the Paz and Delek fuel marketing companies, against the ruling by the Controller of Restrictive Trade Practices declaring that exclusive agreements entered into between the fuel marketing companies and filling station operators are restrictive trade agreements, is currently being heard by the District Court in Jerusalem.
B. A private legislative proposal dealing with the shortening of the terms of exclusive agreements entered into between the fuel marketing companies and filling station owners and operators has passed its first reading in the Knesset.
C. According to the best knowledge of the Company, a bill proposed by The Ministry of Energy dealing with the fuel market has been presented to the Ministerial Committee for Legislation dealing with new legislation.
D. At the end of July 1994, the Knesset passed the Law of The Fuel Market (Promotion of Competition), 1994 which establishes that any provision included in the National Delineation Plan (TMA) 18, requiring minimal distance between filling stations, is cancelled.
At this time, it is too early to estimate the effects of the said developments on the overall Israeli fuel market in general, and on the Company in particular.
NOTE 26 - 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, ------------------------------ 1994 1993 1992 ---- ---- ---- NIS. in Thousands ------------------------------ Adjusted Adjusted Nominal -------- -------- -------
Financing income 411 318 536
Financing expenses 549 16 1,233
- Transactions conducted in the normal course of the Company's consolidated business with banking groups and others having an indirect interest in the Company have not been separately disclosed.
- In 1992, the Company paid commissions in the amount of NIS. 3,499 thousands to indirect interested parties for public offerings of shares, options and debentures.
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NOTE 26 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES (CONTINUED)
2. Benefits to interested parties ------------------------------
Number Year ended December 31, -------------------------- of 1994 1993 1992 persons Adjusted NIS. in Thousands
(1) Interested party employed in the group 1 983 1,110 955
(2) Directors 2 72 144 141
3. Transactions and commitments with interested and related parties
a. Transactions: Year ended December 31, 1994 1993 1992 Adjusted NIS. in Thousands
Income: Sales (*) 58,205 45,963 20,720 Management fee 726 540 848 (Amortization) / addition to capital notes, net (1,09 (81) 8,524
Expenses: Management fee - - 1,791 Rent - 572 547 Participation in expenses 82 121 69
(*) All the sales to interested parties are made in the normal course of business and according to normal credit conditions.
b. Balances with interested and related parties
Balances with interested and related parties are detailed in the financial statements and the notes attached thereto.
c. Material volume of transactions
Sonol purchases most of the fuel products from Oil Refineries Ltd. which is obligated to supply its products to the fuel marketing companies at the refineries gate price, which is under Government control.
NOTE 27 - SUBSEQUENT EVENT
A resolution was passed by the Board of Directors of the Company on January 16, 1995 authorizing the payment of an interim dividend in the amount of NIS. 39,869 thousand. The dividend is payable on February 21, 1995. The amount of the dividend payable was included in the Current liabilities of the Company as of December 31, 1994.
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, 1994 1993
Current assets: Cash and cash equivalents 2,007 1,833 Investments in securities 1,595 3,590 Short-term deposit 9,983 - Compulsory Government loans 205 202 Accounts receivable and debit balances 129,509 107,485 Inventories 102,572 102,542 245,871 215,652
Investments: Unconsolidated subsidiaries and others 18,106 20,482 Long-term receivables 5,131 4,145 Compulsory Government loans 220 366 23,457 24,993
Property, plant and equipment 182,747 158,531 Less: Accumulated depreciation 77,132 67,783 105,615 90,748
Other assets and deferred charges, net 5,104 5,278
380,047 336,671 ======= =======
NOTE 28 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED BALANCE SHEETS (In thousands)
Translated to U.S. Dollars December 31, 1994 1993
Current liabilities: Short-term bank credits 53,189 28,823 Suppliers 42,602 24,080 Loans from others 4,783 3,417 Accounts payable and credit balances 20,698 22,629 121,272 78,949
Long-term liabilities: Long-term loans, less current portion 2,538 2,558 Debentures convertible into shares of the company, less current portion (I) 74,530 80,994 Debentures convertible into shares of a subsidiary, less current portion 1,699 2,403 Customers' deposits 17,698 17,587 Liabilities for post-retirement benefits, net 2,705 1,613 Deferred taxes, net (II) 1,545 2,864 Capital notes issued by an affiliated company 93 95 100,808 108,114 Minority shareholders' interest in consolidated subsidiaries 2,174 1,687
Shareholders' equity: Capital 55,735 54,965 Capital reserves (II) 36,006 32,371 Retained earnings 64,052 60,585 155,793 147,921 380,047 336,671 ======= =======
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, 1994 1993 1992
Revenues: Sales 615,220 578,338 643,475 Less: Government imposts 234,058 207,119 221,100
Net sales 381,162 371,219 422,375 Other income, net 3,572 872 762 384,734 372,091 423,137 Costs and expenses: Cost of sales 294,435 293,536 337,653 Selling, general and administrative expenses 49,101 46,034 47,758 Depreciation and amortization 10,470 9,078 8,180 Financing (income) expenses, net 328 (3,604) 1,611 354,334 345,044 395,202
Operating income before taxes on income 30,400 27,047 27,935 Taxes on income 6,558 8,591 10,626 Operating income after taxes on income 23,842 18,456 17,309 Company's share in income (loss) of affiliates, net (58) 355 510 Minority interest in income of consolidated subsidiaries (223) (198) (11)
23,561 18,613 17,808 Cumulative effect of the change in accounting for taxes on income (III) - 6,728 -
Net income 23,561 25,341 17,808 ======= ======= =======
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
Blance as at January 1, 1992: 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
Balance as at December 31, 1993 (V) 54,965 32,371 60,585 147,921
Changes in 1994:
Net income for the year - - 23,561 23,561
Proceeds from conversion of debentures into shares 770 3,635 - 4,405
Dividend (V) - - (20,094) (20,094)
Balance as at December 31, 1994 55,735 36,006 64,052 155,793 ====== ====== ====== =======
* After deduction of relative issuance expenses ** Includes proposed dividend in the amount of $ 6,512 thousand.
NOTE 28 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
LIST OF THE MAIN SUBSIDIARIES AND AFFILIATES
Holding and Control at balance sheet date %
Consolidated Subsidiaries
Sonol Israel Ltd. 100 Vulcan Batteries Ltd. 79.6 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 Sonol J-M Ltd. 70 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 Granite Hacarmel Development Holdings Ltd. 100 Granite Hacarmel Development Ltd. 100 Granite Hacarmel Industries Holdings Ltd. 100 Granite Hacarmel Industries Ltd. 100 Granite Hacarmel Y.A. Holdings Ltd. 100
Affiliated Companies Aviation Services Ltd. 22.5 Tanker Services Ltd. 25 United Petroleum Export Company Ltd. 25 Otzem Promotion and Investments Ltd. 50.01 Yarok Az Ltd. 22.9 Lev Magor Management and Services Ltd. 50
The above list does not include inactive and/or immaterial affiliated companies and other companies.
Igal Brightman & Co. [Logo] 3 Daniel Frisch Street Telephone: 972 (3) 692-4111 -------------- Tel Aviv 64731, ISRAEL Facsimile: 972 (3) 696-0130 P.O.B. 16593, Tel Aviv 61164
AUDITORS' REPORT TO THE SHAREHOLDERS OF AM-HAL LTD. --------------
We have examined the balance sheets of AM-HAL LTD. as of December 31, 1994 and 1993, the related statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. Our examinations 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 statutory financial statement of the Company were prepared in accordance with generally accepted accounting principles ("GAAP") in Israel, and as explained in Note 2B, were accordingly presented in terms of new Israeli shekels ("NIS") with a constant purchasing power. The attached financial statements have been prepared at the request of a shareholder on the basis of United States GAAP. See Note 2E(2) for a discussion of the differences between Israel and U.S. GAAP as applicable to the Company's financial statements.
In our opinion, the attached financial statements present fairly, in terms of constant NIS, the Company's financial position as of December 31, 1994, and 1993, and the results of its operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994, 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 financial 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 15, 1995.
----------------- Deloitte Touche Tohmatsu International -----------------
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, 1994 and 1993, the Statement of Profit and Loss and the Statement of Changes in Shareholders' Equity for the two years ended on that date. 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 5.
The data in the financial statements relating to the Company's share of the included Company's profits totaling N.I.S. 3,47? thousand, including N.I.S. 1,927 thousand for the financial year, are based on financial statements examined by other Certified Public Accountants.
In our opinion, based on our examination and on the opinion of other Certified Public Accountants, as aforesaid, the abovementioned financial statements, present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1994, the results of its operations and the changes in its shareholder's equity for the years ended on that date. Also, in our opinion, the financial statements based on nominal data (Note 5) present fairly, in nominal terms, the financial position of the Company as at December 31, 1994 and 1993, and the results of its operations and the changes in its shareholders' equity for the two years 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:
(a) The above-mentioned generally accepted accounting principles were applied on a consistent basis.
(b) 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 13, 1995
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 13, 1995 TEL 03-294946, FAX 03-201386
AUDITORS' REPORT TO THE SHAREHOLDERS OF AMPAL FINANCIAL SERVICES LTD. ---------------------------------------
We have examined the Balance Sheets of AMPAL FINANCIAL SERVICES LTD. as of December 31, 1994 and 1993 and the Statements of Income, Changes in Shareholders' Equity and the Statements of Cash Flows for the three years ended December 31, 1994, 1993 and 1992. We have also examined the data in nominal values in the Balance Sheets as of December 31, 1994 and 1993 and in the Statements of Income and the Statements of Cash Flows for the three years ended December 31, 1994, 1993 and 1992 (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, 1994 and 1993, and the results of its operations and its cash flows for the three years ended December 1994, 1993 and 1992. 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, 1994 and 1993, and the results of its operations and its cash flows for the three years ended December 31, 1994, 1993 and 1992, 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 applied 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.)
Member firm of Grant Thornton International
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, 1994 and 1993, and the related statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994, 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 Ampal Holdings (1991) Ltd., as of December 31, 1994 and 1993, 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, 1994, in conformity with generally accepted accounting principles.
/s/ Shlomo Ziv & Co. -------------------- Shlomo Ziv & Co. Certified Public Accountants (Isr.)
March 13, 1995
[LOGO] HAFT & HAFT & CO. ------------------ INCL. STRAUSS, LAZAR & CO.
Certified Public Accountants (Isr.)
AUDITORS' 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, 1994 and 1993, the Consolidated Statement of Profit and Loss, the Statement of Changes in Shareholders' Equity and the consolidated statement of Cash Flows for each of the three years ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
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 6% (1993: 5%) of the total assets included in the consolidated balance sheet, and whose income constitute 1% (1993: 4%) 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 aforesaid, 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, 1994 and 1992, the results of their operations, and the changes in shareholders' equity and their cash flows for each of the three years ended on that date. Also in our opinion, the unconsolidated financial statements based on nominal data (Note 24) present fairly, in nominal terms, the unconsolidated financial position of the Company as at December 31, 1994 and 1993, and the unconsolidated results of its operations, changes in the shareholders' equity, and cash flows, for each of the three years ended December 31, 1994, 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 above-mentioned generally accepted accounting principles were applied on a consistent basis. (b) The auditing standards and procedures mentioned above are Israel 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 22, 1995
----------------------------------------------------------------- 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
Number: 480 Tel-Aviv, March 13, 1995
AUDITORS' REPORT TO THE SHAREHOLDERS OF AMPAL INDUSTRIES (ISRAEL) LTD. ---------------------------------------
We have examined the Balance Sheets of AMPAL INDUSTRIES (ISRAEL) LTD. as of December 31, 1994 and 1993 and the Statements of Income, Changes in Shareholders' Equity and the Statements of Cash Flows for the three years ended December 31, 1994, 1993 and 1992. We have also examined the data in nominal values in the Balance Sheets as of December 31, 1994 and 1993 and in the Statements of Income and the Statements of Cash Flows for the three years ended December 31, 1994, 1993 and 1992 (Note 15). 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.
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.
In our opinion, 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, 1994 and 1993, 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 15) present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the three years ended December 31, 1994, 1993 and 1992, 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 applied 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.)
Member firm of Grant Thornton International
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.)
AUDITORS' 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, 1994 and 1993, the Statement of Profit and Loss, the Statement of Changes in Shareholders' Equity and the Statement of Cashflows for the two years ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
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 the Opinions 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. 393 thousand, are based on financial statements examined by other Certified Public Accountants.
In our opinion, based on our examination and on 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, 1994 and 1993, the results of its operations, the changes in its shareholder's equity and its cash flows for the two years ended December 31, 1994. 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, 1994 and 1993, and the results of its operations, the changes
in its shareholders' equity and its cash flows for the two years ended December 31, 1994, 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:
(a) The above-mentioned generally accepted accounting principles were applied on a consistent basis. (b) 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 22, 1995
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 balance sheets of Bank Hapoalim (Cayman) Ltd. (a subsidiary of Bank Hapoalim B.M.) as at December 31, 1994 and 1993, and the related statements of income, changes in shareholders' equity and cash flows, for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Banks' management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Hapoalim (Latin America) Casa Bancaria S.A., a 50% owned investee (1993: wholly owned subsidiary) whose net investment and net loss constitute $1,605,408 (1993: $3,142,765) and loss of $(90,338) (1993: $(320,922); 1992: $(111,070)) of the respective total assets and revenues. These statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for the investee, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 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, 1994 and 1993, and its results of operations, changes in shareholders equity and its cash flows for the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
/s/ Morris Brankin & Co. ------------------------ Morris Brankin & Co.
January 25, 1995 (Except for note 9b, for which the date is March 7, 1995)
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 consolidated balance sheets of Bay Heart Limited (hereafter: the Company) and its subsidiary, as of December 31, 1994 and 1993, and the related consolidated statements of income, statements of changes in shareholders' equity and of cash flows for the three years ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The consolidated financial statements 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 of the Company are presented in note 26.
In our opinion, the above financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, and the results of its operations and its cash flows for the three years ended December 31, 1994, 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, February 14, 1995
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 Consolidated Special-Purpose Financial Statements ----------------------------------------------------
We have audited the accompanying special-purpose balance sheet of Bay Heart Limited (hereafter: the Company) and its subsidiary as of December 31, 1994 and the related consolidated special-purpose statements of income, changes in shareholders' equity and cash flows 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 audits.
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 consolidated financial statements of the Company and its subsidiary 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, the accompanying consolidated special- purpose financial statements present fairly 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 February 14, 1994.
Also, in our opinion, the translated amounts in the accompanying financial statements translated into U.S. dollars, have been computed on the basis set forth in Note 2 to these financial statements.
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, February 15, 1995
KOST LEVARY & FORER A MEMBER OF ERNST & YOUNG INTERNATIONAL
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 (hereinafter - "the Company") and its consolidated subsidiaries as of December 31, 1993 and 1994, 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, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of consolidated subsidiaries, the assets of which at December 31, 1993 and 1994 constitute approximately 24% and 26%, respectively, of total assets included in the consolidated balance sheet and the revenues of which for the years ended December 31, 1992, 1993 and 1994 constitute approximately 29%, 30% and 30%, respectively, of total revenues included in the consolidated statement of income. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to data included for these subsidiaries, is based solely upon the reports of the other auditors.
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.
KOST LEVARY & FORER A MEMBER OF ERNST & YOUNG INTERNATIONAL
The aforementioned consolidated financial statements have been prepared on the basis of the historical costs adjusted for the changes in the general purchasing power of the Israeli currency as measured by the changes in the Israeli Consumer Price index, in accordance with statements No. 36 and 50 of the Institute of Certified Public Accountants in Israel.
In our opinion, based upon our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at December 31, 1993 and 1994 and the related consolidated results of operations and cash flows for each of the three years in the period ended December 31, 1994, 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 adjusted Israeli currency date, as described in the preceding paragraph, to be the historical costs, except for the classification of discount on debentures, see Note 23).
KOST, LEVARY and FORER Certified Public Accountants (Israel)
Tel-Aviv, Israel March 7, 1995
KOST LEVARY and FORER A Member of Ernst & Young International
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 for 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 years 1992, 1993 and 1994, which were audited by us, and on which we expressed our opinion on March 7, 1995, 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 balance sheets at December 31, 1993 and 1994, and the consolidated income statement figures for each of the three years in the period ended December 31, 1994.
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 1994, and the related consolidated results of operations and changes in shareholders' equity for each of the three years in the period ended December 31, 1994, 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 (Israel)
Tel-Aviv, Israel March 7, 1995
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,
KOST, LEVARY and FORER Certified Public Accountants (Israel) Tel-Aviv, Israel March 3, 1994
PORAT & CO. Certified Public Accountants (ISR.)
Report of Independent Public Accountants ---------------------------------------- of COUNTRY CLUB KFAR-SABA LIMITED ------------------------------
We have audited the balance sheet of Country Club Kfar-Saba Limited and the consolidated balance sheet of Country Club Kfar- Saba Limited and its Joint Venture Investee as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the 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 presentation. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 20 to the financial statements. These amounts have been translated into U.S. dollars using the method described in Note 2H.
28 Hayezira st. Ramat-Gan 52521 FAX: 03-7527673: Tel: 03- 7527657, 7527651, 7527646: 52521 28
PORAT & CO. Certified Public Accountants (ISR.)
Report of Independent Public Accountants ---------------------------------------- of COUNTRY CLUB KFAR-SABA LIMITED ------------------------------
In our opinion, based on our audit, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholders' equity and cash flows for each of the years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied. 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, 1994 and 1993, and the results of its operations, the changes in shareholders' equity, and its cash flows for each of the three years in the period ended December 31, 1994, on the basis of the historical cost convention.
Pursuant to section 211 of the companies ordinance (new version) 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the aforementioned financial statements is given to the best of our information and the explanations received by us and as shown by the books of the company.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net income (loss) and shareholders' equity to the extent summarized in Note 21 to the financial statements.
Porat and Co.
Certified Public Accountants (Isr.)
Ramat Gan, March 13, 1995
28 Hayezira st. Ramat-Gan 52521 FAX: 03-7527673: Tel: 03- 7527657, 7527651, 7527646: 52521 28
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, 1994 and 1993, the Statement of Profit and Loss, the Statement of Changes in Shareholders' Equity and the Statement of Cashflows for the two years ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance, 1973), and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
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 23.
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, 1994 and 1993, the results of its operations, the changes in its shareholder's equity and its cashflows for the two years ended December 31, 1994. Also, in our opinion, the financial statements based on nominal data (Note 23) present fairly, in nominal terms, the financial position of the Company as at December 31, 1994, and 1993 and the results of its operations, the changes in its shareholders' equity and its cashflows for the two years ended December 31, 1994, 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:
(a) The above mentioned generally accepted accounting principles were applied on a consistent basis. (b) 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. March 19, 1995 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, 1994, 1993 and 1992; the related statements of income, cash flows and changes in equity for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As mentioned in Note 1.5, the historical cost of land, buildings and equipment, expressed in Uruguayan peso, has been revalued as established by the Uruguayan Central Bank.
In our opinion, except for the situation discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Hapoalim (Latin America) Casa
Bancaria S.A. at December 31, 1994, 1993 and 1992, the results of operations, the cash flows and changes in equity for the years then ended in conformity with generally accepted accounting principles in the United States.
We have also reviewed the accompanying statements 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 25, 1995
Chaikin, Cohen, Rubin
40 Yitzhak Sadeh st., Tel-Aviv 67212 Tel: 03-5373980 Fax: 972-3-5373987
Certified Public Accountants (Isr.)
Report of Independent Public Accountants ----------------------------------------
To The shareholders of Imagenet LTD -----------------------------------
We have audited the balance sheet of Imagenet LTD as at December 31, 1994, the related statements of income and shareholders' equity and cash flows for the period from June 1, 1994 (beginning of operation) through December 31, 1994, expressed in New Israeli Shekels. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit 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 preform 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 statements 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 adjusted for the changes in the general purchasing power of the Israeli Currency in accordance with the opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of adjusted statements appear in Note 12 to the financial statements.
In our opinion, the above-mentioned financial statements present fairly the financial position of the Company as at December 31, 1994, the results of its operations, the changes in shareholders' equity and cash flows for the period from June 1, 1994 (beginning of operation) through December 31, 1994, in conformity with accounting principles generally accepted in the United States and in Israel (as applicable to these financial statements, such accounting principles practically identical).
Chaikin, Cohen, Rubin Certified Public Accountants (Isr.)
Tel Aviv, February 16, 1995
KOST LEVARY AND FORER A Member of Ernst & Young International
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 consolidated"), as detailed below: balance sheets, consolidated and of the Company, as at December 31, 1994 and 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 year ended December 31, 1994 and for the nine months ended December 31, 1993.
We conducted our audit 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. A summary of the financial statements in nominal Israeli shekels which served as a basis for the adjusted statements is presented in Note 26.
In our opinion, the aforementioned financial statements present fairly the financial position, consolidated and of the Company, as at December 31, 1994 and 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 26 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.
/s/ KOST, LEVARY and FORER ------------------------------------ Tel-Aviv, Israel KOST, LEVARY and FORER March 15, 1995 Certified Public Accountants (Israel)
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 as at December 31, 1994 and 1993 and the related consolidated statements of income and shareholders' equity and cash flows of each of the three years in the period ended December 31, 1994 expressed in New Israel Shekels. These financial statements, which differ from the statutory financial statements issued in Israel, as set forth in note 1 to the financial statements, are the responsibility of the 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 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, 1994 and 1993, the consolidated results of their operations, the changes in shareholders' equity and their cash flows for each of the three years in the period ended December 31, 1994, on the basis of the historical cost convention, in conformity with accounting principles generally accepted in Israel, consistently applied.
HAGGAI WALLENSTEIN & CO. Certified Public Accountants (Isr.)
Tel-Aviv, March 22, 1995
Kesselman & Kesselman certified public accountants (Isr.)
Coopers & Lybrand
AUDITORS' REPORT ---------------- To the Shareholders of OPHIR HOLDINGS LTD. -------------------
We have examined the financial statements of Ophir Holdings Ltd. (hereafter - the Company) and the consolidated financial statements of the Company and its subsidiaries: balance sheets at December 31, 1994 and 1993 and the related statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993 constitute approximately 45% and 56% respectively, of total consolidated assets, and whose revenues for each of the three years in the period ended December 31, 1994 constitute approximately 50%, 88% and 16%, respectively, of total consolidated revenues and gains, have been examined by other certified public accountants. The data regarding the Company's share in excess of profits over losses of certain associated companies, a net amount of adjusted NIS 2,706,000 in 1994, adjusted NIS 8,950,000 in 1993 and adjusted NIS 1,151,000 in 1992, are based on the financial statements of those companies which have been examined by other certified public accountants.
The aforementioned financial statements have been prepared on the basis of historical cost adjusted to reflect the changes in the general purchasing power of Israeli currency, in accordance with Opinions of the Institute of Certified Public Accountants in Israel. Condensed nominal Israeli currency data of the Company, on the basis of which its adjusted financial statements were prepared, are presented in note 13.
In our opinion, based upon our examinations and the reports of the other accountants referred to above, the aforementioned financial statements present fairly, in conformity with accounting principles generally accepted in Israel, the financial position - of the Company and consolidated - at December 31, 1994 and 1993 and the results of operations and the cash flows - of the Company and consolidated - for each of the three years in the period ended December 31, 1994. Also, in our opinion, the abovementioned financial statements have been prepared in accordance with the Securities (Preparation of Annual Financial Statements) Regulations, 1993.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net income and shareholders' equity to the extent summarized in note 14.
Tel-Aviv, Israel, March 15, 1995
[LOGO] BRAUDE & CO. Certified Public Accountants
REF 4021
AUDITORS' REPORT TO THE SHAREHOLDERS OF ORLITE ENGINEERING COMPANY LTD. -------------------------------
We have audited the balance sheets of Orlite Engineering Company Ltd. (hereinafter - the Company) at December 31, 1994 and 1993 and the related statements of income shareholders' equity and cash flows for each of the three years ended December 31, 1994, 1993 and 1992, expressed in New Israel Sheqels (hereinafter N.I.S.). 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 presentation. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical nominal values which formed the basis for the adjusted statements appear in Note 24 to the financial statements.
In our opinion, based on our audit, the above mentioned financial statements present fairly the financial position of the Company at December 31, 1994 and 1993 and the results of its operations, the changes in shareholders' equity and cash flows for each of the three years ended December 31, 1994, 1993 and 1992, in conformity with accounting principles generally accepted in Israel, consistently applied. Also, in our opinion, the financial statements based on nominal data Note 24 present fairly, in conformity with generally accounting principles the financial position of the company at December 31, 1994 and 1993, and the results of its operations, the changes in shareholders' equity and its cash flows for each of the three years ended December 31, 1994, 1993 and 1992, 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)
February 16, 1995
[Logo] BRAUDE & CO. Certified Public Accountants
To the Board of Directors of Orlite Engineering Company Ltd. ------------------------------------------------------------
At your request, we have audited the translation into U.S. dollars of the audited financial statements of Orlite Engineering Company Ltd. as of December 31, 1994, and as of December 31, 1993 which were prepared in adjusted N.I.S., and our audited report on them was made on February 16, 1995. 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 1 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 1.
BRAUDE & CO., C.P.A. (ISRAEL)
Tel-Aviv, March 15, 1995
JERUSALEM 91002,33 JAFFA ROAD P.O.B. 347 TEL. (02)222421'90 TEL-AVIV. 61024 29 HAMERED ST. P.O.B. 50180 TEL. (03)5140808'90 HAIFA 31338.65 ATZMAUT ROAD. P.O.B., 33958 TEL. (04)523224'90 TELEX: 33667 AUDITIL. FAX:972-3-294010 CABLES: BRAUDITORS
Report of Independent Public Accountants ----------------------------------------
To the Shareholders of Paradise Mattresses Industries (1992) Ltd.
We have audited the balance sheet of Paradise Mattresses Industries (1992) Ltd. as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the two years in the period then ended, expressed in New Israel Shekels. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 25 to the financial statements. These amounts have been translated into U.S. Dollars using the method described in Note 25.
In our opinion, based on our audit and the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied. Also, in our opinion, the financial statements based on nominal data (Note 25) present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1994 and 1993, and the results of its operations, the changes in shareholders' equity, and its cash flows for each of the two years in the period ended December 31, 1994, on the basis of the historical cost convention.
As applicable to these financial statements accounting principles generally accepted in Israel and in the United States are substantially identical in all material respect.
13 March 1995
Shlomo Ziv & Co. Certified Public Accountants (Isr.)
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, 1994 and 1993, and the statements of profit and loss, shareholders' equity and cash flows of the Company and consolidated for each of the three years in the period ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors' Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
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 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, 1994 and 1993, and the results of their operations, statements of shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994.
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, 14 March 1995
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, 1994 and 1993, and the related Statement of Income for each of the two years in the period ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance) 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
Information as to the effect of the changes in the general purchasing power of the Israeli currency on the financial statements in accordance with opinions of the Institute of Certified Public Accountants in Israel, has not been included in the above statements.
In our opinion, except for the omission of the information referred to in the preceding paragraph, the above Balance Sheet and Statement of Income present fairly, in conformity with generally accepted accounting principles, the financial position of the company as at December 31, 1994 and 1993 and the results of its operations for each of the two years in the period ended December 31, 1994, on the basis of the historical cost convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above Balance 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 13, 1995
/s/ Dov Kahana & Co. -------------------- Dov Kahana & Co. Certified Public Accountants (Isr.)
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 Benaltabel, C.P.A. (Isr.) Michael Levy, C.P.A. (Isr.)
AUDITORS' REPORT TO THE SHAREHOLDERS OF RED SEA UNDER WATER OBSERVATORY LTD. ------------------------------------
We have audited the consolidated Balance Sheet of Red Sea Under Water Observatory Ltd. ("The Company") and subsidiaries and the Balance Sheet of The Company as of December 31, 1994 and 1993, and the related consolidated Statements of Income and Cash Flows for the year ended December 31, 1994 and the statements of Income and Cash Flows of the Company for each of the two years in the period ended December 31, 1994 expressed in nominal New Israeli Shekels. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our 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 test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The Financial Statements of subsidiaries abroad, whose assets constitute approximately 46% of the total assets contained in the Consolidated Balance Sheet (31.12.1993 approximately 47%), and whose revenues constitute approximately 43% of the total revenues included in the consolidated Statement of Income for the year ended December 31, 1994 have been audited by other auditors. Our opinion, insofar as it relates to the amounts included for said subsidiaries is based solely on the report of the other auditors.
In our opinion based on our audit and the report of the other auditors as aforesaid the financial statements referred to above present fairly, in all material respects, on the basis of the historical cost convention, the financial position of The Company and its subsidiaries as of December 31, 1994 and 1993 and the consolidated results of their operations and cash flows for the year ended December 31, 1994 and the results of the operations and cash flows of The Company for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles (except for the omission of inflation accounting as required by Israeli GAAP).
Also, in our opinion, the translated amounts in the accompanying consolidated financial statements translated into U.S. Dollars have been computed on the basis set forth in note 2 to the consolidated financial statements.
Ramat Gan, Israel, March 13, 1995
----------------------------------- 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, 1994 and 1993 and the Statements of Profit and Loss, Partnerships' Equity and Cash Flows for each of the three years in the period ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors' Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
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, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994.
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.
/s/ REUVENI, HARTUV, TEPPER & CO. --------------------------------- REUVENI, HARTUV, TEPPER & CO. Certified Public Accountants (Isr.)
Tel Aviv, February 20, 1995.
[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, 1994 and 1993 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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 5% of the total consolidated assets at December 31, 1994, and whose sales revenues constitutes approximately 22% of consolidated sales revenue for the year ended December 31, 1994 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, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, 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, in all material respects, except as described in Note 16 to the consolidated financial statements.
Almagor & Co. Certified Public Accountants (Israel) /s/ Almagor & Co. ----------------- Ramat-Gan, Israel February 20, 1995
[Igal Brightman & Co.]
3 Daniel Frisch Street Tel Aviv 64731, Israel P.O.B. 16593, Tel Aviv 61164
Tel. 972(3) 692-4111 Fax. 972(3) 696-0130
AUDITORS' REPORT TO THE SHAREHOLDERS OF TRINET INVESTMENTS IN HIGH-TECH LTD. ------------------------------------
We have examined the balance sheet of TRINET INVESTMENTS IN HIGH- TECH LTD. (the "Company") as of December 31, 1994, and the related statements of operations, changes in shareholders' deficiency and cash flows for period from inception of activities to December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed by 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 aforementioned financial statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israeli currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel. Condensed nominal financial data, on the basis of which the adjusted financial statements have been prepared, is presented in Note 10 to the financial statements.
In our opinion, the aforementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as of December 31, 1994, and the results of its operations, changes in shareholders' deficiency and cash flows for the period then ended.
The financial information in U.S. dollars and in accordance with generally accepted accounting principles in the United States has been translated according to the principles set forth in Statement No. 52, "Foreign Currency Translation," of the Financial Accounting Standards Board of the United States. Such information is based on nominal historical amounts in Israeli currency and is included in Note 9 to the financial statements.
Igal Brightman & Co. Certified Public Accountants
Tel-Aviv, March 20, 1995
Deloitte Touche Tohmatsu International
I. Brightman, M. Bar-Levav, C. Schwartzbard, D. Valiano, A. Inbar, B(D) Ratowitz, Z. Feldman, S. Gotnall, R. Benvenisu, E. Hendler
Office in Jerusalem: New Clal Center, 42 Agrippas Street Jerusalem 94301, Israel Tel. 972(2) 235157 Fax. 972(2) 233628
[Igal Brightman & Co.]
3 Daniel Frisch Street Tel Aviv 64731, Israel P.O.B. 16593, Tel Aviv 61164
Tel. 972(3) 692-4111 Fax. 972(3) 696-0130
AUDITORS' REPORT TO THE SHAREHOLDERS OF TRINET VENTURE CAPITAL LTD. ---------------------------
We have examined the balance sheet of TRINET VENTURE CAPITAL LTD. (the Company) as of December 31, 1994, and the related statements of operations, changes in shareholders' deficiency and cash flows for period from inception of activities to December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed by 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 aforementioned financial statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israeli currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel. Condensed nominal financial data, on the basis of which the adjusted financial statements have been prepared, is presented in Note 8 to the financial statements.
In our opinion, the aforementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as of December 31, 1994, and the results of its operations, changes in shareholders' deficiency and cash flows for the period then ended.
The financial information in U.S. dollars and in accordance with generally accepted accounting principles in the United States has been translated according to the principles set forth in Statement No. 52, "Foreign Currency Translation," of the Financial Accounting Standards Board of the United States. Such information is based on nominal historical amounts in Israeli currency and is included in Note 9 to the financial statements.
Igal Brightman & Co. Certified Public Accountants
Tel-Aviv, March 20, 1995
Deloitte Touche Tohmatsu International
I. Brightman, M. Bar-Levav, C. Schwartzbard, D. Valiano, A. Inbar, B(D) Ratowitz, Z. Feldman, S. Gotnall, R. Benvenisu, E. Hendler
Office in Jerusalem: New Clal Center, 42 Agrippas Street Jerusalem 94301, Israel Tel. 972(2) 235157 Fax. 972(2) 233628
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 31st day of March, 1995.
AMPAL-AMERICAN ISRAEL CORPORATION
By /s/ Lawrence Lefkowitz ------------------------------ Lawrence Lefkowitz, President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons (who included a majority of the Board of Directors) on behalf of the registrant and in the capacities indicated on March 31, 1995.