<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-538
AMPAL-AMERICAN ISRAEL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
New York 13-0435685
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1177 Avenue of the Americas, New York, New York 10036
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 782-2100
</TABLE>
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of the issuer's Class A Stock, its
only authorized common stock, is 18,278,812 (as of July 30, 1999).
<PAGE> 2
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Consolidated Statements of Income
Six Months Ended June 30.............................. 1
Three Months Ended June 30............................ 2
Consolidated Balance Sheets............................ 3
Consolidated Statements of Cash Flows.................. 5
Consolidated Statements of Changes in Shareholders'
Equity................................................ 7
Consolidated Statements of Comprehensive Income........ 8
Notes to the Consolidated Financial Statements......... 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 12
Part II Other Information...................................... 16
</TABLE>
<PAGE> 3
20
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
----------- -----------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
REVENUES
Equity in earnings of affiliates ........................................... $ 10,992 $ 5,309
Manufacturing .............................................................. 3,414 3,317
Interest:
Related parties ........................................................... 618 1,764
Others .................................................................... 503 678
Rental income .............................................................. 3,851 3,591
Realized and unrealized gains on investments ............................... 26,566 1,355
Other ...................................................................... 2,315 1,051
-------- --------
Total revenues ........................................................ 48,259 17,065
-------- --------
EXPENSES
Manufacturing .............................................................. 4,097 4,259
Interest:
Related parties ........................................................... 2,285 2,216
Others .................................................................... 2,405 2,920
Rental property operating expenses ......................................... 1,769 1,733
Loss from impairment of investments ........................................ 2,559 270
Minority interests ......................................................... (358) (534)
Other ...................................................................... 3,523 3,380
-------- --------
Total expenses ........................................................ 16,280 14,244
-------- --------
Income before income taxes ................................................. 31,979 2,821
Provision for income taxes ................................................. 11,676 1,734
-------- --------
NET INCOME ............................................................ $ 20,303 $ 1,087
======== ========
Basic EPS
Earnings per Class A share ................................................ $ .84 $ .05
======== ========
Shares used in calculation (in thousands) ................................. 24,105 23,859
Diluted EPS
Earnings per Class A share ................................................ $ .73 $ .03
======== ========
Shares used in calculation (in thousands) ................................. 27,716 27,616
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE> 4
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 1998
---------- -----------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
REVENUES
Equity in earnings of affiliates ..................... $ 10,181 $ 2,130
Manufacturing ........................................ 1,570 1,416
Interest:
Related parties ..................................... 514 1,146
Others .............................................. 282 432
Rental income ........................................ 1,973 1,834
Realized and unrealized gains (losses) on
investments ........................................ 17,478 (281)
Other ................................................ 560 555
-------- --------
Total revenues .................................. 32,558 7,232
-------- --------
EXPENSES
Manufacturing ........................................ 1,819 2,272
Interest:
Related parties ..................................... 1,243 1,279
Other ............................................... 1,395 1,747
Rental property operating expenses ................... 897 879
Loss from impairment of investments .................. 2,500 270
Minority interests ................................... (361) (511)
Other ................................................ 2,009 2,141
-------- --------
Total expenses .................................. 9,502 8,077
-------- --------
Income (loss) before income taxes .................... 23,056 (845)
Provision for income taxes ........................... 8,305 74
-------- --------
NET INCOME (LOSS) ............................... $ 14,751 $ (919)
======== ========
Basic EPS
Earnings (loss) per Class A share ................... $ .61 $ (.03)
======== ========
Shares used in calculation (in thousands) ........... 24,117 23,885
Diluted EPS
Earnings (loss) per Class A share ................... $ .53 $ (.04)
======== ========
Shares used in calculation (in thousands) ........... 27,716 27,616
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 5
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS AS AT 1999 1998
----------- ------------
(Dollars in thousands) (Unaudited)
<S> <C> <C>
Cash and cash equivalents ................... $ 21,032 $ 12,047
Deposits, notes and loans receivable ........ 23,466 27,816
Investments ................................. 261,289 214,421
Investment held for sale(Note 5) ............ -- 25,104
Real estate rental property, less accumulated
depreciation of $6,976 and $6,492 .......... 30,141 29,735
Property and equipment, less accumulated
depreciation of $2,832 and $2,608 .......... 3,147 3,227
Other assets ................................ 16,544 16,896
-------- --------
TOTAL ASSETS ................................ $355,619 $329,246
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND June 30, December 31,
SHAREHOLDERS' EQUITY AS AT 1999 1998
----------- ------------
(Dollars in thousands) (Unaudited)
<S> <C> <C>
LIABILITIES
Notes and loans payable:
Related parties .............................................................. $ 71,699 $ 57,557
Others ....................................................................... 40,634 40,636
Debentures ..................................................................... 27,988 32,817
Accounts and income taxes payable, accrued
expenses and minority interests ............................................... 38,040 37,071
--------- ---------
Total liabilities ...................................................... 178,361 168,081
--------- ---------
SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock, $5 par value; authorized
189,287 shares; issued and
outstanding 168,946 and 172,238 shares ........................................ 845 861
6-1/2% Cumulative Convertible Preferred Stock, $5 par value; authorized 988,055
shares; issued
and outstanding 914,814 and 925,279 shares .................................... 4,574 4,626
Class A Stock, $1 par value; authorized 60,000,000 shares; issued 24,732,677 and
24,684,822 shares; outstanding 24,127,277
and 24,079,422 shares ......................................................... 24,733 24,685
Additional paid-in capital ..................................................... 57,849 57,829
Retained earnings .............................................................. 110,918 90,615
Treasury Stock, 605,400 shares of Class A Stock,
at cost ....................................................................... (3,829) (3,829)
Accumulated other comprehensive loss ........................................... (17,832) (13,622)
--------- ---------
Total shareholders' equity ............................................. 177,258 161,165
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 355,619 $ 329,246
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 7
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
----------- ------------
(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................... $ 20,303 $ 1,087
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in earnings of affiliates .............. (10,992) (5,309)
Realized and unrealized gains on investments .. (26,566) (1,355)
Depreciation expense .......................... 639 670
Amortization expense .......................... 705 705
Loss from impairment of investments ........... 2,559 270
Translation (gain) ............................ (52) (8)
Minority interests ............................ (358) (534)
(Increase) decrease in other assets ............ (1,891) 3,599
Increase (decrease) in accounts and income taxes
payable, accrued expenses and minority
interests ..................................... 2,624 (4,291)
Investments made in trading securities ......... (14,247) (8,542)
Proceeds from sale of trading securities ....... 9,845 5,483
Dividends received from affiliates ............. 10,120 3,144
--------- ---------
Net cash (used in) operating activities ....... (7,311) (5,081)
--------- ---------
Cash flows from investing activities:
Deposits, notes and loans receivable collected . 9,077 15,616
Deposits, notes and loans receivable granted ... (4,104) (272)
Investments made in:
Available-for-sale security ................... (24,147) --
Affiliates and others ......................... (2,973) (113,119)
Proceeds from sale of investments:
Affiliate ..................................... 29,622 --
Available-for-sale ............................ -- 353
Others ........................................ 1,072 1,206
Purchase of property and equipment ............. (44) (99)
Real estate rental property - capital
improvements .................................. (754) (911)
--------- ---------
Net cash provided by (used in) investing
activities ................................... 7,749 (97,226)
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 8
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
--------- ----------
(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
Cash flows from financing activities:
Notes and loans payable received:
Related parties ..................................................... $ 15,433 $ 72,537
Others .............................................................. 106 68,763
Notes and loans payable repaid:
Related parties ..................................................... (1,316) (35,737)
Others .............................................................. (155) (32,834)
Debentures repaid .................................................... (5,783) (8,224)
Contribution to partnership by minority
interests ........................................................... -- 9,765
-------- --------
Net cash provided by financing
activities ......................................................... 8,285 74,270
-------- --------
Effect of exchange rate changes on cash and
cash equivalents ..................................................... 262 (847)
-------- --------
Net increase (decrease) in cash and cash
equivalents .......................................................... 8,985 (28,884)
Cash and cash equivalents at beginning of
period ............................................................... 12,047 45,457
-------- --------
Cash and cash equivalents at end of period ............................ $ 21,032 $ 16,573
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties ..................................................... $ 656 $ 1,127
Others .............................................................. 1,034 1,787
-------- --------
Total interest paid ............................................... $ 1,690 $ 2,914
======== ========
Income taxes paid .................................................... $ 10,037 $ 1,159
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 9
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
----------- -----------
(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
<S> <C> <C>
4% PREFERRED STOCK
Balance, beginning of year ........................ $ 861 $ 898
Conversion of 3,292 and 3,254 shares into
Class A Stock .................................... (16) (16)
--------- ---------
Balance, end of period ............................ $ 845 $ 882
========= =========
6-1/2% PREFERRED STOCK
Balance, beginning of year ........................ $ 4,626 $ 4,842
Conversion of 10,465 and 32,031 shares into
Class A Stock .................................... (52) (161)
--------- ---------
Balance, end of period ............................ $ 4,574 $ 4,681
========= =========
CLASS A STOCK
Balance, beginning of year ........................ $ 24,685 $ 24,418
Issuance of shares upon conversion of
Preferred Stock .................................. 48 113
--------- ---------
Balance, end of period ............................ $ 24,733 $ 24,531
========= =========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year ........................ $ 57,829 $ 57,491
Conversion of Preferred Stock ..................... 20 64
--------- ---------
Balance, end of period ............................ $ 57,849 $ 57,555
========= =========
RETAINED EARNINGS
Balance, beginning of year ........................ $ 90,615 $ 88,775
Net income ........................................ 20,303 1,087
--------- ---------
Balance, end of period ............................ $ 110,918 $ 89,862
========= =========
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of year: ....................... $ (13,622) $ (10,085)
Cumulative translation adjustments:
Balance, beginning of year ..................... (18,580) (10,085)
Foreign currency translation adjustment ........ 956 (2,038)
--------- ---------
Balance, end of period ......................... (17,624) (12,123)
--------- ---------
Unrealized (loss) gain on marketable securities:
Balance, beginning of year ..................... 4,958 --
Unrealized (loss) gain, net .................... (208) 5,688
Sale of available-for-sale security ............ (3,247) --
Transfer to trading securities ................. (1,711) --
--------- ---------
Balance, end of period ......................... (208) 5,688
--------- ---------
Balance, end of period ............................ $ (17,832) $ (6,435)
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 10
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
----------- ----------
(Dollars in thousands) (Unaudited) (Unaudited)
<S> <C> <C>
Net income ................................................. $ 20,303 $ 1,087
-------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments .................. 956 (2,038)
Unrealized (loss) gain on securities ...................... (208) 5,688
-------- --------
Other comprehensive income ................................ 748 3,650
-------- --------
Comprehensive income ...................................... $ 21,051 $ 4,737
======== ========
Related tax (expense) benefit of other comprehensive income:
Foreign currency translation adjustments .................. $ (153) $ 298
Unrealized (loss) gain on securities ...................... $ 112 $ (3,063)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 11
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. As used in these financial statements, the term the "Company" refers to
Ampal-American Israel Corporation ("Ampal") and its consolidated
subsidiaries.
2. The December 31, 1998 consolidated balance sheet presented herein was
derived from the audited December 31, 1998 consolidated financial
statements of the Company.
Reference should be made to the Company's consolidated financial
statements for the year ended December 31, 1998 for a description of
the accounting policies, which have been continued without change.
Also, reference should be made to the notes to the Company's December
31, 1998 consolidated financial statements for additional details of
the Company's consolidated financial condition, results of operations
and cash flows. The details in those notes have not changed except as a
result of normal transactions in the interim. Certain amounts in the
1998 consolidated statements of income and cash flows have been
reclassified to conform with the current period's presentation. All
adjustments (of a normal recurring nature) which are, in the opinion of
management, necessary to a fair presentation of the results of the
interim period have been included.
3. Segment information presented below results primarily from operations in
Israel.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, ..... 1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Revenues:
Finance ....................... $ 29,471 $ 4,305
Real estate rental ............ 3,851 3,591
Mattress manufacturing ........ 3,414 3,317
Leisure-time .................. 755 796
Intercompany adjustments ...... (224) (253)
--------- ---------
Total .................... $ 37,267 $ 11,756
========= =========
Pretax Operating Income (Loss):
Finance ....................... $ 19,963 $ (3,079)
Real estate rental ............ 1,410 1,199
Mattress manufacturing ........ (836) (1,076)
Leisure-time .................. 92 (66)
--------- ---------
Total .................... $ 20,629 $ (3,022)
========= =========
Total Assets:
Finance ....................... $ 315,362* $ 272,190*
Real estate rental ............ 36,321 34,857
Mattress manufacturing ........ 5,362 5,757
Leisure-time .................. 12,894 37,925
Intercompany adjustments ...... (14,320) (11,577)
--------- ---------
Total .................... $ 355,619 $ 339,152
========= =========
</TABLE>
Corporate office expense is principally applicable to the financing
operation and has been charged to that segment above. Revenues and
pretax operating income above exclude equity in earnings of affiliates
and minority interests.
The real estate rental segment consists of rental property owned in
Israel and the United States leased to related and unrelated parties.
The mattress manufacturing segment consists of Paradise Industries,
Ltd., which is a leading
9
<PAGE> 12
manufacturer and distributor of mattresses and fold-out beds in Israel
whose customer base consists of independent stores as well as hotel
chains. The leisure-time segment consists primarily of Moriah Hotels
Ltd. (hotel chain in Israel, see Note 5 below), Coral World
International Limited (marine parks located around the world) and
Country Club Kfar Saba (the company's 51%-owned subsidiary located in
Israel).
*Includes an investment in MIRS of $111 million.
4. The following table summarizes securities that were outstanding as of
June 30, 1999 and 1998, but not included in the calculations of diluted
earnings per Class A share because such shares are antidilutive.
<TABLE>
<CAPTION>
(Shares in thousands) June 30,
-----------------
1999 1998
----- -----
<S> <C> <C>
Options and Rights 1,100(a) 1,238(a)(b)
Warrants -- 4,500(b)
</TABLE>
a) On June 29, 1999, Dr. Gleitman, the Company's then Chief Executive
Officer announced his resignation, effective July 1, 1999. The Stock
Option and Stock Repurchase Plan Agreement that the Company entered
into with Dr. Gleitman in 1998 was terminated on the date of his
resignation. According to the Agreement, the Chief Executive Officer
was granted options to purchase up to one million shares of the
Company's Class A Stock. The Company also granted the rights to
purchase at discount up to 200,000 shares of the Company's Class A
Stock. Through June 30, 1999, none of the stock options and 100,000 of
the stock rights were exercised by Dr. Gleitman.
b) 38,000 options and all warrants expired on January 31, 1999.
5. On April 14, 1999, the Company sold its 46% equity interest in Moriah
Hotels Ltd. ("Moriah") to Koor Tourism Enterprises Ltd. and Sheraton
International Ltd. for $29.6 million. Prior to the sale, on April 12,
1999, the Company received a dividend from Moriah in the amount of $7.9
million. As a result of the aforementioned transaction, the Company
recorded a gain on sale in the amount of approximately $13.5 million
($8.8 million, net of income taxes) in the June 30, 1999 consolidated
financial statements.
6. On July 6, 1999, the Company completed a transaction with Bank Hapoalim
B.M. ("BHP") and two wholly-owned subsidiaries of BHP, which provided
for the following:
(a) The Company acquired from BHP all of its holdings in
Ampal - 5,874,281 shares of Class A Stock, 3,350
shares of 4% Preferred Stock and 122,536 shares of 6
1/2% Preferred Stock for $31.3 million.
(b) The Company sold to BHP's subsidiary seven real
estate properties totaling 53,000 sq. ft., currently
leased to and occupied by BHP, for $14.7 million.
(c) Ampal's subsidiary renewed the lease agreement with
BHP with respect to a 4,400 sq. ft. branch in Bnei
Brak, Israel for ten years at an annual rental income
of $346,000.
As a result of the above transaction, Ampal's outstanding shares
consist of 18,278,812 shares of Class A Stock, 164,130 shares of 4%
Preferred Stock and 786,116 shares of 6 1/2% Preferred Stock, based on
shares outstanding on July 30, 1999. Rebar Financial Corporation and
the public hold 11,083,712 and 7,195,100 shares of Class A Stock,
representing 60.6% and 39.4% of Ampal's outstanding Class A Stock,
respectively.
10
<PAGE> 13
Ampal will record a net gain of approximately $6 million on the sale of
the aforementioned real estate properties in its September 30, 1999
consolidated financial statements.
11
<PAGE> 14
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Six months ended June 30, 1999 compared to six months ended June 30, 1998:
Consolidated net income increased to $20.3 million for the six-month period
ended June 30, 1999, from $1.1 million for the same period in 1998. The increase
in net income is primarily attributable to greater realized and unrealized gains
on investments and the increase in equity in earnings of affiliates.
In the six months ended June 30, 1999, Ampal-American Israel Corporation
("Ampal") and its subsidiaries (the "Company") recorded $15.6 million of gains
on sale of investments, which are primarily attributable to the sale of its
investment in Moriah Hotels Ltd ("Moriah"). On April 14, 1999, the Company sold
its 46% equity interest in Moriah to Koor Tourism Enterprises Ltd. and Sheraton
International Ltd. for $29.6 million. Prior to the sale, on April 12, 1999, the
Company received a dividend from Moriah in the amount of $7.9 million. As a
result of the aforementioned transaction, the Company recorded a gain on sale in
the amount of approximately $13.5 million ($8.8 million, net of income taxes) in
the June 30, 1999 consolidated financial statements. In addition, the Company
recorded a $1.2 million gain on sale of its investment in Fundtech Ltd.
("Fundtech"). In the six months ended June 30, 1998, the Company recorded $1.3
million of gains on sale of investments, which are attributable to its
investments in Mercury Interactive Corporation, Shikun U'Fituach le-Israel Ltd.,
and Fundtech.
The Company recorded $11 million of unrealized gains on investments which are
classified as trading securities in the six-month period ended June 30, 1999, as
compared to $.1 million in the same period in 1998. The unrealized gains
recorded in 1999 are primarily attributable to the Company's investments in the
shares of Bank Leumi Le'Israel B.M. ("Leumi") (pretax gain of $6.4 million) and
Fundtech (pretax gain of $2.6 million). At June 30, 1999 and December 31, 1998,
the aggregate fair value of trading securities amounted to approximately $44.3
million and $26.3 million, respectively.
Equity in earnings of affiliates increased to $11 million for the six months
ended June 30, 1999, from $5.3 million for the same period in 1998. The increase
is primarily attributable to the increased earnings of Ophir Holdings Ltd.
("Ophir"), the Company's 42.5%-owned affiliate, which is a holding company with
interests in high technology and real estate companies. Ophir reported
significantly higher earnings in 1999 primarily due to the gain realized on the
sale of its holdings in Platinum Technology International Inc. in May 1999.
The increase in other income in the six months ended June 30, 1999, as compared
to the same period in 1998 is attributable to the dividend of $1.2 million ($.9
million, net of minority interest) declared by MIRS Communication Company Ltd.
The Company recorded lower interest income and higher net interest expense in
the six months ended June 30, 1999, as compared to the same period in 1998, as a
result of utilizing its funds for making investments in various companies.
Manufacturing revenues and expenses reflect the operations of Paradise
Industries Ltd. ("Paradise"), the Company's 85.1%-owned subsidiary, which is a
manufacturer and distributor of mattresses and fold-out beds in Israel. During
the first half of 1999, Paradise completed a restructuring of its operations,
which resulted in a reduction of its workforce and other employee-related
expenses.
12
<PAGE> 15
The decrease in the effective income tax rate in 1999 as compared to 1998 is
mainly attributable to the decreased deferred tax provisions of certain Israeli
subsidiaries due to the utilization of available tax benefits.
Three months ended June 30, 1999 compared to three months ended June 30, 1998:
- ------------------------------------------------------------------------------
Consolidated net income increased to $14.8 million for the three-month period
ended June 30, 1999, from a loss of $.9 million for the same period in 1998. The
increase in net income is primarily attributable to the greater realized and
unrealized gains on investments and the increase in equity in earnings of
affiliates.
In the quarter ended June 30, 1999, the Company recorded $14.7 million of gains
on sale of investments, $13.5 million of which is attributable to the sale of
its investment in Moriah. The Company did not record similar gains in the same
period in 1998.
The Company also recorded $2.8 million of unrealized gains on investments in the
three-month period ended June 30, 1999, $2.1 million of which is attributable to
its investment in Leumi, as compared to $.3 million of unrealized losses on
investments in the same period in 1998.
Equity in earnings of affiliates increased to $10.2 million for the three months
ended June 30, 1999, from $2.1 million for the same period in 1998. The increase
is primarily attributable to the gain on sale of investment recorded by Ophir in
the second quarter of 1999. (See "Discussion on Results of Operations - Six
months ended June 30, 1999 compared to six months ended June 30, 1998.")
The Company recorded net interest expense in the amount of $1.8 million in the
three months ended June 30, 1999, as compared to $1.4 million in the same period
in 1998. (See "Discussion on Results of Operations - Six months ended June 30,
1999 compared to six months ended June 30, 1998.")
In the quarter ended June 30, 1999, the Company recorded $2.5 million of losses
from impairment of its investments in Unic View Ltd. ($1 million) and M.D.F.
Industries Ltd. ($1.5 million), which continues to experience operational
problems. In the same period of 1998 the Company recorded a $.3 million loss on
impairment of its investment in Geotek Communications Ltd.
The change in the effective income tax rate in 1999 as compared to 1998 is
mainly attributable to the decreased deferred tax provisions of certain Israeli
subsidiaries due to the reduction of available tax benefits.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1999, cash and cash equivalents were $21 million as compared with
$12 million at December 31, 1998. The increase in cash and cash equivalents is
primarily attributable to the proceeds received from the sale of the Company's
investment in Moriah (See "Discussion on Results of Operations - Six months
ended June 30, 1999 compared to six months ended June 30, 1998"). The decrease
in debentures is primarily attributable to scheduled repayments.
On June 23, 1999 the Company acquired a 3.9% interest in Blue Square-Israel Ltd.
("Blue Square") for approximately $24 million. Blue Square owns approximately
160 supermarkets and specialty stores in Israel. In addition, the Company
invested $.5 million to acquire a 2% interest in Babylon Ltd., a developer and
marketer of single click translation software for non-English speaking Internet
users, $1.8 million to acquire an additional 1.2% interest (total equity
interest is 20.3%) in Granite Hacarmel Investments Ltd., and approximately $.5
million to maintain its equity interest in NetformX Ltd. (total equity interest
- - 21%).
13
<PAGE> 16
MARKET RISKS AND SENSITIVITY ANALYSIS
- -------------------------------------
The Company is exposed to various market risks, including changes in interest
rates, foreign currency rates and equity price changes. This analysis presents
the hypothetical loss in earnings, cash flows and fair values of the financial
instruments which are held by the Company at June 30, 1999, and are sensitive to
the above market risks.
Interest Rate Risks
- -------------------
At June 30, 1999, the Company had financial assets totalling $43.5 million and
financial liabilities totalling $140.3 million, respectively. For fixed rate
financial instruments, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely, for variable rate financial
instruments, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors held
constant.
At June 30, 1999, the Company had fixed rate financial assets of $23.3 million
and variable rate financial assets of $20.2 million. Holding other variables
constant, a ten percent increase in interest rates would decrease the unrealized
fair value of the fixed financial assets by approximately $.3 million.
At June 30, 1999, the Company had fixed rate debt of $42.1 million and variable
rate debt of $98.2 million. A ten percent decrease in interest rates would
increase the unrealized fair value of the fixed rate debt by approximately $.6
million.
The net decrease in earnings for the next year resulting from a ten percent
interest rate increase would be approximately $.4 million, holding other
variables constant.
Exchange Rate Sensitivity Analysis
- ----------------------------------
The Company's exchange rate exposure on its financial instruments results from
its investments and ongoing operations in Israel. In March 1999, and May 1999,
the Company entered into foreign exchange forward purchase contracts for $10
million and $5 million, respectively, to partially hedge this exposure. Holding
other variables constant, if there were a ten percent adverse change in foreign
currency exchange rates, the Company's earnings would decrease by $1.8 million
and cumulative translation loss (reflected in the Company's accumulated other
comprehensive loss) would increase by $.5 million.
Equity Price Risk
- -----------------
The Company's investments at June 30, 1999, included marketable securities which
are recorded at fair value of $44.3 million, including net unrealized gains of
$8.4 million. Those securities have exposure to price risk. The estimated
potential loss in fair value resulting from a hypothetical 10% decrease in
prices quoted by stock exchanges is approximately $4.4 million.
Year 2000 Compliance
- --------------------
The Company has completed the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue which is the result of computer programs having been written using two
digits instead of four to define a year. This issue affects computer systems
that have date sensitive programs that may recognize a date using "00" as 1900
rather than 2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail, resulting in business
interruption. The Company presently expects that with modifications to existing
systems and software and converting to new software, the year 2000 issue will
not pose an operational problem and does not believe the cost of converting all
internal systems to be year 2000 compliant will be material to its financial
condition or results of operations. Costs related to the year 2000 issue are
being expensed as incurred. The Company expects to complete all of its year 2000
modifications by the end of 1999.
14
<PAGE> 17
The year 2000 issue is expected to affect the systems of various entities with
which the Company interacts. However, there can be no assurance that the systems
of other companies on which the Company's systems rely will be timely converted,
or that a failure by another company's systems to be year 2000 compliant would
not have a material adverse effect on the Company.
Subsequent Events
On July 6, 1999, the Company completed a transaction with Bank Hapoalim B.M.
("BHP") and two wholly-owned subsidiaries of BHP (the "Hapoalim Transaction"),
which provided for the following:
(a) The Company acquired from BHP all of its holdings in Ampal -
5,874,281 shares of Class A Stock, 3,350 shares of 4%
Preferred Stock and 122,536 shares of 6 1/2% Preferred Stock
for $31.3 million.
(b) The Company sold to BHP's subsidiary seven real estate
properties totaling 53,000 sq. ft., currently leased to and
occupied by BHP, for $14.7 million.
(c) Ampal's subsidiary renewed the lease agreement with BHP with
respect to a 4,400 sq. ft. branch in Bnei Brak, Israel for ten
years at an annual rental income of $346,000.
As a result of the above transaction, Ampal's outstanding shares consist of
18,278,812 shares of Class A Stock, 164,130 shares of 4% Preferred Stock and
786,116 shares of 6 1/2% Preferred Stock, based on shares outstanding on July
30, 1999. Rebar Financial Corporation and the public held 11,083,712 and
7,195,100 shares of Class A Stock, representing 60.6% and 39.4% of Ampal's
outstanding Class A Stock, respectively.
Ampal will record a net gain of approximately $6 million on the sale of the
aforementioned real estate properties in the September 30, 1999 consolidated
financial statements.
15
<PAGE> 18
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities and Use of Proceeds - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - On June
29, 1999, Ampal's shareholders held their annual meeting (the
"Annual Meeting"). At such meeting, the shareholders elected the
following individuals as directors by the following vote:
<TABLE>
<CAPTION>
FOR AUTHORITY WITHHELD
<S> <C> <C>
Michael Arnon 18,453,048 30,060
Benzion Benbassat 18,452,948 30,160
Yaacov Elinav 18,453,048 30,060
Kenneth L. Henderson 18,452,648 30,400
Hillel Peled 18,453,048 30,460
Shimon Ravid 18,453,048 30,060
Daniel Steinmetz 18,453,048 30,060
Raz Steinmetz 18,453,048 30,060
Eliyahu Vagner 18,453,348 29,760
Avi A. Vigder 18,453,248 29,860
</TABLE>
Also at the Annual Meeting, the shareholders approved the Hapoalim
Transaction (See "Subsequent Events") (11,203,389 for; 22,602
against; 7,257,117 abstain).
Item 5. Other Information - After the conclusion of the Annual Meeting,
Ampal's Board of Directors elected the following individuals to
serve as officers for the upcoming year:
<TABLE>
<S> <C>
Chairman of the Board: Daniel Steinmetz
President and Chief
Executive Officer: Raz Steinmetz
Vice President -
Finance and Treasurer: Shlomo Meichor
Vice President -
Accounting and Controller: Alla Kanter
Vice President -
Legal and Secretary: Eli S. Goldberg
Vice President-Business
Development Shlomo Shalev
Assistant Secretary: Gennifer A. Starita
Assistant Controller: Harold Aronowitz
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Schedule Setting Forth Computation of Earnings Per
Share of Class A Stock.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. A Current Report on Form 8-K was filed by the
Registrant on July 6, 1999, which described an Item 2 Event, the
closing
16
<PAGE> 19
provided for in the agreement dated May 11, 1999 (filed as
Exhibit 10 to Form 10-Q for the quarter ended March 31, 1999),
among Ampal-American Israel Corporation and its subsidiaries and
Bank Hapoalim B.M. and its two wholly-owned subsidiaries.
17
<PAGE> 20
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
AMPAL-AMERICAN ISRAEL CORPORATION
By:/s/ Raz Steinmetz
----------------------------------
Raz Steinmetz
President and Chief
Executive Officer
(Principal Executive Officer)
By:/s/ Shlomo Meichor
----------------------------------
Shlomo Meichor
Vice President - Finance
and Treasurer
(Principal Financial Officer)
By:/s/ Alla Kanter
----------------------------------
Alla Kanter
Vice President - Accounting
and Controller
(Principal Accounting Officer)
Dated: August 12, 1999
18
<PAGE> 21
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock............................................ Page 20
27 Financial Data Schedule............................................... *
</TABLE>
* This exhibit was included in the copy of this report filed with the
Securities and Exchange Commission and is available upon request from
Ampal.
19
<PAGE> 1
Exhibit 11
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
SCHEDULE SETTING FORTH COMPUTATION OF EARNINGS PER SHARE OF CLASS A STOCK
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
----------- -----------
(Amounts in thousands, except (Unaudited) (Unaudited)
per share data)
<S> <C> <C>
Weighted average number of shares outstanding:
4% Preferred ............................. 171 178
6-1/2% Preferred ......................... 919 955
Class A .................................. 24,105 23,859
======= =======
BASIC EPS
Net Income .................................. $20,303 $ 1,087
======= =======
Earnings per Class A share .................. $ .84 $ .05
======= =======
Weighted average number of Class A
shares outstanding ......................... 24,105 23,859
DILUTED EPS
Net Income .................................. $20,303 $ 953(1)
======= =======
Earnings per Class A share .................. $ .73 $ .03
======= =======
Weighted average number of Class A
shares outstanding assuming
conversion of preferred stock
into Class A shares ........................ 27,716 27,616
</TABLE>
(1) Includes decrease in net income of $134 due to dilution in equity in
earnings of affiliate.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 21,032
<SECURITIES> 261,289
<RECEIVABLES> 23,466
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,544
<PP&E> 43,096
<DEPRECIATION> 9,808
<TOTAL-ASSETS> 355,619
<CURRENT-LIABILITIES> 38,040
<BONDS> 140,321
0
5,419
<COMMON> 24,733
<OTHER-SE> 147,106
<TOTAL-LIABILITY-AND-EQUITY> 355,619
<SALES> 3,414
<TOTAL-REVENUES> 48,259
<CGS> 0
<TOTAL-COSTS> 4,097
<OTHER-EXPENSES> 7,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,690
<INCOME-PRETAX> 31,979
<INCOME-TAX> 11,676
<INCOME-CONTINUING> 20,303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,303
<EPS-BASIC> .84
<EPS-DILUTED> .73
</TABLE>
