<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 September 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)
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
------------------------------
- --------------------------------------------------------------------------------
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 18,268,317 (as of October 31, 1999).
<PAGE> 2
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
Index to Form 10-Q
Page
----
<S> <C>
Part I Financial Information
Consolidated Statements of Income
Nine Months Ended September 30 ............................ 1
Three Months Ended September 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.............. 9
Notes to the Consolidated Financial Statements............... 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 13
Part II Other Information............................................ 18
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
REVENUES
Equity in earnings of affiliates ...................... $ 14,943 $ 7,619
Interest:
Related parties....................................... 630 2,699
Others................................................ 962 859
Rental income.......................................... 5,415 5,465
Realized and unrealized gains (losses) on
investments........................................... 23,176 (1,569)
Gain on sale of real estate rental property
(Note 6).............................................. 9,203 -
Other.................................................. 4,031 1,815
-------- --------
Total revenues.................................... 58,360 16,888
-------- --------
EXPENSES
Interest:
Related parties....................................... 2,225 3,371
Others................................................ 5,016 4,340
Rental property operating expenses..................... 2,652 2,674
Loss from impairment of investments.................... 2,959 270
Minority interests..................................... (531) (693)
Other.................................................. 5,807 4,895
-------- --------
Total expenses.................................... 18,128 14,857
-------- --------
Income from continuing operations before income
taxes................................................. 40,232 2,031
Provision for income taxes............................. 13,906 1,534
-------- --------
Income from continuing operations...................... 26,326 497
-------- --------
Discontinued operations (Note 7):
Loss from operations.................................. (1,083) (1,312)
Loss on disposition of $3,593, net of applicable
tax benefit of $2,000................................ (1,593) -
-------- --------
Loss from discontinued operations...................... (2,676) (1,312)
-------- --------
NET INCOME (LOSS)................................. $ 23,650 $ (815)
======== ========
Basic EPS
Earnings (loss) per Class A share:
Earnings from continuing operations.................. $ 1.20 $ .02
(Loss) from discontinued operations.................. (.12) (.05)
-------- --------
Earnings (loss) per Class A share..................... $ 1.08 $ (.03)
======== ========
Shares used in calculation (in thousands)............. 21,772 23,885
Diluted EPS
Earnings (loss) per Class A share:
Earnings from continuing operations.................. $ 1.04 $ .01
(Loss) from discontinued operations.................. (.10) (.05)
-------- --------
Earnings (loss) per Class A share..................... $ .94 $ (.04)
======== ========
Shares used in calculation (in thousands)............. 25,208 27,616
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE> 4
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
REVENUES
Equity in earnings of affiliates ................. $ 3,951 $ 2,310
Interest:
Related parties.................................. 12 935
Others........................................... 459 181
Rental income..................................... 1,564 1,874
Realized and unrealized (losses) on investments... (3,390) (2,924)
Gain on sale of real estate rental property
(Note 6)......................................... 9,203 -
Other............................................. 1,719 787
-------- --------
Total revenues............................... 13,518 3,163
-------- --------
EXPENSES
Interest:
Related parties.................................. 39 1,199
Other............................................ 2,668 1,532
Rental property operating expenses................ 883 941
Loss from impairment of investment................ 400 -
Minority interests................................ (298) (319)
Other............................................. 2,284 1,515
-------- --------
Total expenses............................... 5,976 4,868
-------- --------
Income (loss) from continuing operations before
income taxes..................................... 7,542 (1,705)
Provision (benefit) for income taxes.............. 2,230 (200)
-------- --------
Income (loss) from continuing operations.......... 5,312 (1,505)
-------- --------
Discontinued operations (Note 7):
Loss from operations............................. (372) (397)
Loss on disposition of $3,593, net of applicable
tax benefit of $2,000........................... (1,593) -
-------- --------
Loss from discontinued operations................. (1,965) (397)
-------- --------
NET INCOME (LOSS)............................ $ 3,347 $ (1,902)
======== ========
Basic EPS
Earnings (loss) per Class A share:
Earnings (loss) from continuing operations...... $ .29 $ (.06)
(Loss) from discontinued operations............. (.11) (.02)
-------- --------
Earnings (loss) per Class A share................ $ .18 $ (.08)
======== ========
Shares used in calculation (in thousands)........ 18,279 23,939
Diluted EPS
Earnings (loss) per Class A share:
Earnings (loss) from continuing operations...... $ .25 $ (.06)
(Loss) from discontinued operations............. (.09) (.02)
-------- --------
Earnings (loss) per Class A share................ $ .16 $ (.08)
======== ========
Shares used in calculation (in thousands)........ 21,446 27,616
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 5
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS AS AT 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Note 2)
<S> <C> <C>
Cash and cash equivalents........................ $ 6,803 $ 12,047
Deposits, notes and loans receivable............. 21,422 27,572
Investments...................................... 256,029 214,421
Investment held for sale (Note 5)................ - 25,104
Real estate rental property, less accumulated
depreciation of $3,984 and $6,492............... 24,636 29,735
Property and equipment, less accumulated
depreciation of $2,343 and $2,267............... 2,621 2,258
Other assets..................................... 12,107 12,983
Net assets of discontinued operations (Note 7)... - 796
-------- --------
TOTAL ASSETS..................................... $323,618 $324,916
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND September 30, December 31,
SHAREHOLDERS' EQUITY AS AT 1999 1998
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Note 2)
<S> <C> <C>
LIABILITIES
Notes and loans payable:
Related parties.............................................................. $ 7,837 $ 56,534
Others....................................................................... 103,194 39,674
Debentures..................................................................... 27,733 32,817
Accounts and income taxes payable, accrued
expenses and minority interests............................................... 38,611 34,726
-------- --------
Total liabilities...................................................... 177,375 163,751
-------- --------
SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock, $5 par value; authorized 189,287
shares; issued 166,580 and 172,238 shares; outstanding 163,230
and 172,238 shares............................................................ 833 861
6-1/2% Cumulative Convertible Preferred Stock, $5 par value; authorized 988,055
shares; issued 898,744 and 925,279 shares; outstanding 776,208
and 925,279 shares............................................................ 4,494 4,626
Class A Stock, $1 par value; authorized 60,000,000 shares; issued 24,792,717 and
24,684,822 shares; outstanding 18,264,536
and 24,079,422 shares......................................................... 24,792 24,685
Additional paid-in capital..................................................... 57,882 57,829
Retained earnings.............................................................. 114,265 90,615
Treasury Stock, at cost (Note 6)............................................... (35,552) (3,829)
Accumulated other comprehensive loss........................................... (20,471) (13,622)
-------- --------
Total shareholders' equity............................................. 146,243 161,165
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................... $323,618 $324,916
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 7
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
- ------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 23,650 $ (815)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Equity in earnings of affiliates......................... (14,943) (7,619)
Loss from discontinued operations........................ 2,676 1,312
Realized and unrealized (gains) losses on
investments............................................. (23,176) 1,569
Gain on sale of real estate rental property.............. (9,203) -
Depreciation expense..................................... 763 849
Amortization expense..................................... 1,010 961
Loss from impairment of investments...................... 2,959 270
Minority interests....................................... (531) (693)
Translation loss (gain).................................. 362 (314)
Decrease in other assets.................................. 2,186 139
Increase (decrease) in accounts and income
taxes payable, accrued expenses and minority
interests................................................ 3,879 (1,942)
Investments made in trading securities.................... (18,104) (30,579)
Proceeds from sale of trading securities.................. 18,634 10,670
Dividends received from affiliates........................ 10,120 3,226
------- ---------
Net cash provided by (used in) operating
activities.............................................. 282 (22,966)
------- ---------
Cash flows from investing activities:
Deposits, notes and loans receivable collected............ 9,429 15,779
Deposits, notes and loans receivable granted.............. (4,502) (290)
Investments made in:
Available-for-sale security.............................. (24,147) -
Affiliates and others.................................... (7,178) (117,007)
Proceeds from sale of investments:
Affiliate................................................ 29,622 -
Available-for-sale....................................... - 353
Others................................................... 1,072 1,206
Proceeds from sale of real estate rental
property................................................. 14,703 -
Purchase of property and equipment........................ (547) (38)
Real estate rental property - capital
improvements............................................. (1,025) (960)
------- ---------
Net cash provided by (used in)
investing activities.................................... 17,427 (100,957)
------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 8
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 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.......................................... $ 8,139 $ 81,800
Others................................................... 13,347 68,400
Notes and loans payable repaid:
Related parties.......................................... - (35,042)
Others................................................... (6,236) (32,591)
Debentures repaid......................................... (5,785) (8,246)
Purchase of treasury stock................................ (31,724) -
Contribution to partnership by minority
interests................................................ - 9,765
-------- -------
Net cash (used in) provided by financing
activities.............................................. (22,259) 84,086
-------- --------
Effect of exchange rate changes on cash and
cash equivalents.......................................... (694) (1,522)
------- --------
Net (decrease) in cash and cash equivalents................ (5,244) (41,359)
Cash and cash equivalents at beginning of
period.................................................... 12,047 45,132
-------- --------
Cash and cash equivalents at end of period................. $ 6,803 $ 3,773
======= ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties.......................................... $ 613 $ 1,385
Others................................................... 1,716 2,503
-------- --------
Total interest paid.................................... $ 2,329 $ 3,888
======== ========
Income taxes paid......................................... $ 10,964 $ 1,713
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 9
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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 5,658 and 5,446 shares into
Class A Stock............................................ (28) (27)
-------- --------
Balance, end of period.................................... $ 833 $ 871
======== ========
6-1/2% PREFERRED STOCK
Balance, beginning of year................................ $ 4,626 $ 4,842
Conversion of 26,535 and 36,605 shares into
Class A Stock............................................ (132) (184)
-------- --------
Balance, end of period.................................... $ 4,494 $ 4,658
======== ========
CLASS A STOCK
Balance, beginning of year................................ $ 24,685 $ 24,418
Issuance of shares upon conversion of
Preferred Stock.......................................... 107 138
-------- --------
Balance, end of period.................................... $ 24,792 $ 24,556
======== ========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year................................ $ 57,829 $ 57,491
Conversion of Preferred Stock............................. 53 73
Issuance of additional shares............................. - 2
-------- --------
Balance, end of period.................................... $ 57,882 $ 57,566
======== ========
RETAINED EARNINGS
Balance, beginning of year................................ $ 90,615 $ 88,775
Net income (loss)......................................... 23,650 (815)
-------- --------
Balance, end of period.................................... $114,265 $ 87,960
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 10
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
<S> <C> <C>
TREASURY STOCK (Note 6)
4% PREFERRED STOCK
Balance, beginning of year........................ $ - $ -
Purchase of 3,350 shares, at cost................. (84) -
-------- --------
Balance, end of period............................ (84) -
-------- --------
6-1/2% PREFERRED STOCK
Balance, beginning of year........................ - -
Purchase of 122,536 shares, at cost............... (1,853) -
-------- --------
Balance, end of period............................ (1,853) -
-------- --------
CLASS A STOCK
Balance, beginning of year - 605,400 shares,
at cost.......................................... (3,829) (3,829)
Purchase of 5,922,781 shares, at cost............. (29,786) -
-------- --------
Balance, end of period - 6,528,181 shares,
at cost.......................................... (33,615) (3,829)
-------- --------
Balance, end of period............................... $(35,552) $ (3,829)
======== ========
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........... 356 (4,528)
-------- --------
Balance, end of period............................ (18,224) (14,613)
-------- --------
Unrealized (loss) gain on marketable securities:
Balance, beginning of year........................ 4,958 -
Unrealized (loss) gain, net....................... (2,247) 3,412
Sale of available-for-sale security............... (3,247) -
Transfer to trading securities.................... (1,711) -
-------- --------
Balance, end of period............................ (2,247) 3,412
-------- --------
Balance, end of period............................... $(20,471) $(11,201)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 11
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Unaudited)
<S> <C> <C>
Net income (loss).................................... $ 23,650 $ (815)
-------- --------
Other comprehensive (loss), net of tax:
Foreign currency translation adjustments............ 356 (4,528)
Unrealized (loss) gain on securities................ (2,247) 3,412
-------- --------
Other comprehensive (loss).......................... (1,891) (1,116)
-------- --------
Comprehensive income (loss)......................... $ 21,759 $ (1,931)
======== ========
Related tax (expense) benefit of other
comprehensive income:
Foreign currency translation adjustments............ $ 349 $ 651
Unrealized (loss) gain on securities................ $ 1,263 $ (1,837)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 12
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 other than those that are discussed in Note 7. Certain amounts
in the 1998 consolidated statements of 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>
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
--------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Revenues:
---------
Finance ............................. $ 27,882 $ 2,880
Real estate rental................... 14,619* 5,465
Leisure-time......................... 1,274 1,300
Intercompany adjustments............. (358) (376)
-------- ---------
Total........................... $ 43,417 $ 9,269
======== =========
Pretax Operating Income (Loss):
-------------------------------
Finance ............................. $ 13,693 $ (7,979)
Real estate rental................... 10,949* 1,761
Leisure-time......................... 116 (63)
-------- ---------
Total........................... $ 24,758 $ (6,281)
======== =========
Total Assets:
-------------
Finance ............................. $289,885** $ 274,048**
Real estate rental................... 30,901 35,629
Leisure-time......................... 13,165 37,945
Intercompany adjustments............. (10,333) (12,475)
-------- ---------
Total........................... $323,618 $ 335,147
======== =========
</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. Total assets exclude assets from discontinued
operations.
The real estate rental segment consists of rental property owned in Israel
and the United States leased to related (See Note 6 below) and unrelated
parties. The leisure-time segment consists primarily of Moriah Hotels Ltd.
(hotel chain in Israel, see Note 5 below), Coral World International
Limited (marine parks
10
<PAGE> 13
located around the world) and Country Club Kfar Saba (the Company's
51%-owned subsidiary located in Israel).
*Includes a gain on sale of real estate rental property of $9 million (See
Note 6 below).
**Includes an investment in MIRS of $111 million.
4. The following table summarizes securities that were outstanding as of
September 30, 1999 and 1998, but not included in the calculations of
diluted earnings per Class A share because such shares are antidilutive.
(Shares in thousands) September 30,
-------------------
1999 1998
------ ------
Options and Rights - 1,238(a)(b)
Warrants - 4,500(b)
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 September 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 September 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 $31.5 million.
(b) The Company sold to BHP's subsidiary seven real estate
properties totaling 53,000 sq. ft., which had previously
been 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, the Company recorded a gain of $9.2
million ($6 million net of taxes) on the sale of the aforementioned real
estate properties in the September 30, 1999 consolidated financial
statements. Commencing in the third quarter of 1999, the transactions with
BHP are no longer reflected as transactions with a related party in the
Company's consolidated financial statements.
7. Discontinued Operations - On November 2, 1999, the Company completed the
sale of its 85%-owned mattress manufacturing subsidiary, Paradise
Industries Ltd.,
11
<PAGE> 14
("Paradise") to Beit Hafuton, AA Ltd. ("Beit Hafuton"). Accordingly, the results
of Paradise, whose financial statements were previously consolidated with the
Company's financial statements through June 30, 1999, have been presented as
discontinued operations for all periods presented. In connection with the sale,
the Company agreed to the following: a) to forgive a capital note in the amount
of $.5 million from Goodnight Center Ltd. ("Goodnight Center"), a subsidiary of
Beit Hafuton, b) to forgive a loan to Paradise in the amount of approximately
$.5 million and c) to pay an additional $1.8 million with respect to bank
guarantees issued on behalf of Paradise and Goodnight Center. As a result of the
aforementioned sale, the Company recorded a loss on disposition of approximately
$3.6 million ($1.6 million net of taxes) in the consolidated financial
statements for the nine months ended September 30, 1999.
12
<PAGE> 15
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (See discussion on Discontinued Operations elsewhere in
Management's Discussion and Analysis)
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998:
Consolidated income from continuing operations increased to $26.3 million for
the nine-month period ended September 30, 1999, from $.5 million for the same
period in 1998. The increase in income is primarily attributable to the realized
and unrealized gains on investments, gain on sale of real estate rental
property, and the increase in equity in earnings of affiliates.
In the nine months ended September 30, 1999, Ampal-American Israel Corporation
("Ampal") and its subsidiaries (the "Company") recorded $16.3 million of gains
on sale of investments, which is 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 taxes). In
addition, the Company recorded a $1.2 million gain on sale of its investment in
Fundtech Ltd. ("Fundtech"). In the nine months ended September 30, 1998, the
Company recorded $.6 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 $6.9 million of unrealized gains on investments which are
classified as trading securities in the nine-month period ended September 30,
1999, as compared to $2.2 million of unrealized losses 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 $4.7 million) and Fundtech (pretax gain of $2.2 million). At
September 30, 1999 and December 31, 1998, the aggregate fair value of trading
securities amounted to approximately $35.9 million and $26.3 million,
respectively.
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 $31.5 million.
(b) The Company sold to BHP's subsidiary seven real estate
properties totaling 53,000 sq. ft., which had previously
been 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, the Company recorded a gain of $9.2
million ($6 million net of taxes) on the sale of the aforementioned real estate
properties in the September 30, 1999 consolidated financial statements.
Commencing in the third quarter of 1999, the transactions with BHP are no
longer reflected as transactions with a related party in the Company's
consolidated financial statements.
13
<PAGE> 16
Equity in earnings of affiliates increased to $14.9 million for the nine months
ended September 30, 1999, from $7.6 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 nine months ended September 30, 1999, as
compared to the same period in 1998 is primarily attributable to the dividends
received from MIRS Communication Company Ltd. ($1.2 million) and Leumi ($.7
million).
In the nine months ended September 30, 1999, the Company recorded $3 million of
losses from impairment of investments which are primarily attributable to its
investments in Unic View Ltd. ($1 million), M.D.F. Industries Ltd. ($1.5
million), which continues to experience operational problems and Mutek Solutions
Ltd. ($.4 million). In the same period in 1998 the Company recorded a $.3
million loss on impairment of its investment in Geotek Communications Ltd.
The Company recorded higher net interest expense in the nine months ended
September 30, 1999, as compared to the same period in 1998, as a result of
utilizing its funds for making investments in various companies and increasing
its borrowings for the acquisition of its shares from BHP.
The increase in other expenses is primarily attributable to the translation
losses recorded in the nine months ended September 30, 1999, as compared to
translation gains recorded in the same period in 1998.
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 because of the utilization of available tax benefits.
Three months ended September 30, 1999 compared to three months ended September
30, 1998:
Consolidated income from continuing operations increased to $5.3 million for the
three-month period ended September 30, 1999, from a loss of $1.5 million for the
same period in 1998. The increase in income is primarily attributable to the
gain on sale of real estate rental property to BHP. (See "Discussion on Results
of Operations - Nine months ended September 30, 1999 compared to nine months
ended September 30, 1998.")
The Company recorded $3.3 million of unrealized losses on investments in trading
securities in the three-month period ended September 30, 1999, which are
primarily attributable to its investments in Leumi and Fundtech. In the three
months ended September 30, 1998, the Company recorded $2.3 million of unrealized
losses on investments, primarily attributable to its investment in Leumi.
Equity in earnings of affiliates increased to $4 million for the three months
ended September 30, 1999, from $2.3 million for the same period in 1998. The
increase is primarily attributable to the increased earnings of Ophir and
Granite Hacarmel Investments Ltd. ("Granite"), the Company's 20.3%-owned
affiliate, which is one of the largest distributors of refined petroleum
products in Israel. Ophir recorded increased earnings in the three months ended
September 30, 1999 as compared to the same period in 1998 as a result of a gain
on sale of shares of Industrial Buildings Corporation Ltd. Granite reported
higher earnings as a result of the translation gains recorded in the quarter
ended September 30, 1999.
The increase in other income in the third quarter of 1999, as compared to the
same period in 1998, is primarily attributable to the dividend received from
Leumi in the amount of $.7 million.
14
<PAGE> 17
The Company recorded net interest expense in the amount of $2.2 million in the
three months ended September 30, 1999, as compared to $1.6 million in the same
period in 1998. (See "Discussion on Results of Operations - Nine months ended
September 30, 1999 compared to nine months ended September 30, 1998.")
Other expenses were higher in the three months ended September 30, 1999, as
compared to the same period in 1998, for the same reason as described in
"Discussion on Results of Operations - Nine months ended September 30, 1999 as
compared to nine months ended September 30, 1998."
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 because of the reduction of available tax benefits.
Liquidity and Capital Resources
At September 30, 1999, cash and cash equivalents were $6.8 million as compared
with $12 million at December 31, 1998. The decrease in cash and cash equivalents
and the increase in notes and loans payable are primarily attributable to the
Company's acquisition of its shares from BHP (see "Discussion on Results of
Operations - Nine months ended September 30, 1999 compared to nine months ended
September 30, 1998") and the new investments made during 1999. The decrease in
debentures and deposits, notes and loans receivable 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 $2.5 million to acquire a 2.45% interest in Floware Wireless Systems
Ltd., a developer of products that enable the transmission of broadband wireless
services; $1.25 million to acquire a 14% interest in Camelot Technologies Ltd.,
a developer of intelligent adaptive systems for the detection of illegal
activities on computer systems; $.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 $.6 million to maintain its equity interest in NetformX Ltd.
(total equity interest - 21%).
On October 12, 1999, the Company, as part of a third round financing, invested
$5 million in XACCT Technologies (1997) Ltd. ("XACCT"), a developer of billing,
auditing and accounting software for TCP/IP Networks, and increased its equity
interest in XACCT by 0.8% to 16.7%.
Discontinued Operations
On November 2, 1999, the Company completed the sale of its 85%-owned mattress
manufacturing subsidiary, Paradise Industries Ltd., ("Paradise") to Beit
Hafuton, AA Ltd. ("Beit Hafuton"). Accordingly, the results of Paradise, whose
financial statements were previously consolidated with the Company's financial
statements through June 30, 1999, have been presented as discontinued operations
for all periods presented. In connection with the sale, the Company agreed to
the following: a) to forgive a capital note in the amount of $.5 million from
Goodnight Center Ltd. ("Goodnight Center"), a subsidiary of Beit Hafuton, b) to
forgive a loan to Paradise in the amount of approximately $.5 million and c) to
pay an additional $1.8 million with respect to bank guarantees issued on behalf
of Paradise and Goodnight Center. As a result of the aforementioned sale, the
Company recorded a loss on disposition of approximately $3.6 million ($1.6
million net of taxes) in the consolidated financial statements for the nine
months ended September 30, 1999.
15
<PAGE> 18
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. The following analysis
presents the hypothetical loss in earnings, cash flows and fair values of the
financial instruments which were held by the Company at September 30, 1999, and
are sensitive to the above market risks.
Interest Rate Risks
At September 30, 1999, the Company had financial assets totalling $27.5 million
and financial liabilities totalling $138.8 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 are held
constant.
At September 30, 1999, the Company had fixed rate financial assets of $20.8
million and variable rate financial assets of $6.7 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 $.2
million.
At September 30, 1999, the Company had fixed rate debt of $48 million and
variable rate debt of $90.8 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 $.5 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. During 1999, the Company
entered into various foreign exchange forward purchase contracts, totalling $20
million, 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 $.9 million and its 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 September 30, 1999, included marketable securities
which are recorded at fair value of $35.9 million, including net unrealized
gains of $3.5 million. Those securities have exposure to price risk. The
estimated potential loss in fair value resulting from a hypothetical ten
percent decrease in prices quoted on stock exchanges is approximately $3.6
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 it 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.
16
<PAGE> 19
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.
17
<PAGE> 20
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 - None.
Item 5. Other Information - On November 2, 1999, the Company
completed the sale of its 85%-owned mattress manufacturing
subsidiary, Paradise Industries Ltd., to Beit Hafuton, AA Ltd.
As a result of the aforementioned sale, the Company recorded a
loss on disposition of approximately $3.6 million ($1.6
million net of taxes) in the consolidated financial statements
for the nine months ended September 30, 1999. (See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Discontinued Operations.")
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 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
certain of its subsidiaries and Bank Hapoalim B.M. and two of
its wholly-owned subsidiaries.
18
<PAGE> 21
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: November 15, 1999
19
<PAGE> 22
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
Exhibit Index
Exhibit No. Description
11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock........................ Page 21
27 Financial Data Schedule.
20
<PAGE> 1
Exhibit 11
<TABLE>
<CAPTION>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
SCHEDULE SETTING FORTH COMPUTATION OF EARNINGS PER SHARE OF CLASS A STOCK
-------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
- -----------------------------------------------------------------------------------------
(Amounts in thousands, except (Unaudited) (Unaudited)
per share data)
<S> <C> <C>
Weighted average number of shares
outstanding:
4% Preferred........................................ 168 178
6-1/2% Preferred.................................... 865 948
Class A............................................. 21,773 23,885
====== ========
BASIC EPS
Net income (loss)...................................... $23,650 $ (815)
======= ========
Earnings (loss) per Class A share:
Earnings from continuing operations................... $ 1.20 $ .02
(Loss) from discontinued operations................... (.12) (.05)
-------- --------
Earnings (loss) per Class A share...................... $ 1.08 $ (.03)
======== ========
Weighted average number of Class A
shares outstanding.................................... 21,772 23,885
DILUTED EPS
Net income (loss)...................................... $ 23,650 $(1,086)(1)
======== ========
Earnings (loss) per Class A share:
Earnings from continuing operations................... $ 1.04 $ .01
(Loss) from discontinued operations................... (.10) (.05)
-------- --------
Earnings (loss) per Class A share...................... $ .94 $ (.04)
======== ========
Weighted average number of Class A
shares outstanding assuming
conversion of preferred stock
into Class A shares................................... 25,208 27,616
</TABLE>
(1) Includes decrease in net income of $271 due to dilution in equity in
earnings of affiliate.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
consolidated financial statements for the nine months ended September 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,803
<SECURITIES> 256,029
<RECEIVABLES> 21,422
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,107
<PP&E> 33,584
<DEPRECIATION> 6,327
<TOTAL-ASSETS> 323,618
<CURRENT-LIABILITIES> 38,611
<BONDS> 138,764
0
5,327
<COMMON> 24,792
<OTHER-SE> 116,124
<TOTAL-LIABILITY-AND-EQUITY> 323,618
<SALES> 0
<TOTAL-REVENUES> 58,360
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,241
<INCOME-PRETAX> 40,232
<INCOME-TAX> 13,906
<INCOME-CONTINUING> 26,326
<DISCONTINUED> (2,676)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,650
<EPS-BASIC> 1.08
<EPS-DILUTED> .94
</TABLE>
