<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, 2000
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 19,116,822 (as of October 31, 2000).
<PAGE> 2
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part 1 Financial Information
Item 1. Financial Statements
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
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risks. 15
Part II Other Information.............................................. 16
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
----------------------------
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
---------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
REVENUES
Equity in earnings of affiliates ................. $ 18,595 $ 14,943
Interest:
Related parties ............................... 23 630
Others ........................................ 933 962
Real estate income ............................... 7,091 5,415
Realized and unrealized gains on investments ..... 9,482 23,176
Gain on sale of real estate rental property ...... -- 9,203
Other ............................................ 4,503 4,031
-------- --------
Total revenues .............................. 40,627 58,360
-------- --------
EXPENSES
Interest:
Related parties ............................... 254 2,225
Others ........................................ 10,093 5,016
Real estate expenses ............................. 6,239 2,652
Loss from impairment of investments .............. 3,500 2,959
Minority interests ............................... (1,334) (531)
Translation loss ................................. 1,313 362
Other ............................................ 5,604 5,445
-------- --------
Total expenses .............................. 25,669 18,128
-------- --------
Income from continuing operations before
income taxes .................................. 14,958 40,232
Provision for income taxes ....................... 6,202 13,906
-------- --------
Income from continuing operations ................ 8,756 26,326
-------- --------
Discontinued operations:
Loss from operations .......................... -- (1,083)
Loss on disposition of $3,593, net of
applicable tax benefit of $2,000 ............. -- (1,593)
-------- --------
Loss from discontinued operations ................ -- (2,676)
-------- --------
NET INCOME .................................. $ 8,756 $ 23,650
======== ========
Basic EPS
Earnings per Class A share:
Earnings from continuing operations .......... $ .46 $ 1.20
Loss from discontinued operations ............ -- (.12)
-------- --------
Earnings per Class A share .................... $ .46 $ 1.08
======== ========
Shares used in calculation (in thousands) ..... 18,853 21,772
Diluted EPS
Earnings per Class A share:
Earnings from continuing operations .......... $ .40 $ 1.04
Loss from discontinued operations ............ -- (.10)
-------- --------
Earnings per Class A share .................... $ .40 $ .94
======== ========
Shares used in calculation (in thousands) ..... 21,813 25,208
</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 SEPTEMBER 30, 2000 1999
--------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
REVENUES
Equity in earnings of affiliates ........... $ 2,539 $ 3,951
Interest:
Related parties ......................... 11 12
Others .................................. 217 459
Real estate income ......................... 2,670 1,564
Realized and unrealized gains (losses) on
investments ............................. 2,873 (3,390)
Gain on sale of real estate rental property -- 9,203
Other ...................................... 997 1,719
-------- --------
Total revenues ........................ 9,307 13,518
-------- --------
EXPENSES
Interest:
Related parties ......................... 210 39
Other ................................... 4,112 2,668
Real estate expenses ....................... 2,471 883
Loss from impairment of investment ......... -- 400
Minority interests ......................... (816) (298)
Translation loss ........................... 576 414
Other ...................................... 1,654 1,870
-------- --------
Total expenses ........................ 8,207 5,976
-------- --------
Income from continuing operations before
income taxes ............................ 1,100 7,542
Provision for income taxes ................. 741 2,230
-------- --------
Income from continuing operations .......... 359 5,312
-------- --------
Discontinued operations:
Loss from operations .................... -- (372)
Loss on disposition of $3,593, net of
applicable tax benefit of $2,000 ....... -- (1,593)
-------- --------
Loss from discontinued operations .......... -- (1,965)
-------- --------
NET INCOME ............................ $ 359 $ 3,347
======== ========
Basic EPS
Earnings per Class A share:
Earnings from continuing operations .... $ .02 $ .29
Loss from discontinued operations ...... -- (.11)
-------- --------
Earnings per Class A share .............. $ .02 $ .18
======== ========
Shares used in calculation (in thousands) 19,092 18,279
Diluted EPS
Earnings per Class A share:
Earnings from continuing operations .... $ .02 $ .25
Loss from discontinued operations ...... -- (.09)
-------- --------
Earnings per Class A share .............. $ .02 $ .16
======== ========
Shares used in calculation (in thousands) 21,878 21,446
</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>
September 30, December 31,
ASSETS AS AT 2000 1999
--------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited)
<S> <C> <C>
Cash and cash equivalents ............ $ 14,556 $ 7,409
Deposits, notes and loans receivable . 15,654 22,336
Investments .......................... 338,004 273,174
Real estate property, less accumulated
depreciation of $8,714 and $7,463 . 85,802 72,809
Other assets ......................... 18,301 21,052
-------- --------
TOTAL ASSETS ......................... $472,317 $396,780
======== ========
</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 September 30, December 31,
SHAREHOLDERS' EQUITY AS AT 2000 1999
--------- ---------
(Dollars in thousands) (Unaudited)
<S> <C> <C>
LIABILITIES
Notes and loans payable:
Related parties ............................... $ 15,281 $ 14,564
Others ........................................ 160,520 131,296
Debentures ....................................... 23,711 28,659
Accounts and income taxes payable, accrued
expenses and minority interests ............... 87,468 65,427
--------- ---------
Total liabilities ........................... 286,980 239,946
--------- ---------
SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock, $5
par value; authorized 189,287 shares; issued
158,675 and 165,823 shares; outstanding 155,325
and 162,473 shares ............................ 793 829
6-1/2% Cumulative Convertible Preferred Stock,
$5 par value; authorized 988,055 shares; issued
749,628 and 891,763 shares; outstanding 627,092
and 769,227 shares ............................ 3,748 4,459
Class A Stock, $1 par value; authorized
60,000,000 shares; issued 25,280,190 and
24,817,445 shares; outstanding 19,112,026
and 18,289,264 shares ......................... 25,280 24,817
Additional paid-in capital ....................... 56,672 57,896
Retained earnings ................................ 127,118 118,362
Treasury stock, at cost .......................... (33,275) (35,552)
Accumulated other comprehensive income (loss) .... 5,001 (13,977)
--------- ---------
Total shareholders' equity .................. 185,337 156,834
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....... $ 472,317 $ 396,780
========= =========
</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>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
--------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................... $ 8,756 $ 23,650
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of affiliates ............ (18,595) (14,943)
Loss from discontinued operations ........... -- 2,676
Realized and unrealized gains on investments (9,482) (23,176)
Gain on sale of real estate rental property . -- (9,203)
Depreciation expense ........................ 1,534 763
Amortization expense ........................ 677 1,010
Loss from impairment of investments ......... 1,000 2,959
Minority interests .......................... (1,334) (531)
Translation loss ............................ 1,313 362
Decrease in other assets ..................... 3,056 2,186
Increase in accounts and income taxes
payable, accrued expenses and minority
interests ................................... 9,826 3,879
Investments made in trading securities ....... (21,946) (18,104)
Proceeds from sale of trading securities ..... 31,440 18,634
Dividends received from affiliates ........... 3,629 10,120
-------- --------
Net cash provided by operating activities ... 9,874 282
-------- --------
Cash flows from investing activities:
Deposits, notes and loans receivable collected 8,893 9,429
Deposits, notes and loans receivable granted . (1,665) (4,502)
Investments made in:
Available-for-sale securities ............... (2,127) (24,147)
Affiliates and others ....................... (20,723) (7,178)
Proceeds from sale of investments:
Affiliate ................................... -- 29,622
Others ...................................... 2,149 1,072
Return of capital by partnership ............. 722 --
Proceeds from sale of real estate rental
property .................................... -- 14,703
Capital improvements ......................... (13,704) (1,572)
-------- --------
Net cash (used in) provided by investing
activities ................................. (26,455) 17,427
-------- --------
</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>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
<S> <C> <C>
Cash flows from financing activities:
Notes and loans payable received:
Related parties ............................ $ -- $ 8,139
Others ..................................... 49,803 13,347
Notes and loans payable repaid:
Related parties ............................ (49) --
Others ..................................... (21,066) (6,236)
Proceeds from exercise of stock options ..... 759 --
Issuance of shares .......................... 10 --
Debentures repaid ........................... (6,402) (5,785)
Purchase of treasury stock .................. -- (31,724)
-------- --------
Net cash provided by (used in) financing
activities ................................ 23,055 (22,259)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................ 673 (694)
-------- --------
Net increase (decrease) in cash and cash
equivalents ................................. 7,147 (5,244)
Cash and cash equivalents at beginning of
period ...................................... 7,409 12,047
-------- --------
Cash and cash equivalents at end of period ..... $ 14,556 $ 6,803
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties ............................ $ -- $ 613
Others ..................................... 4,685 1,716
-------- --------
Total interest paid ....................... $ 4,685 $ 2,329
======== ========
Income taxes paid .............................. $ 301 $ 10,964
======== ========
</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>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
---------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Unaudited)
<S> <C> <C>
4% PREFERRED STOCK
Balance, beginning of year ................. $ 829 $ 861
Conversion of 7,148 and 5,658 shares into
Class A Stock ........................... (36) (28)
--------- ---------
Balance, end of period ..................... $ 793 $ 833
========= =========
6-1/2% PREFERRED STOCK
Balance, beginning of year ................. $ 4,459 $ 4,626
Conversion of 142,135 and 26,535 shares into
Class A Stock ........................... (711) (132)
--------- ---------
Balance, end of period ..................... $ 3,748 $ 4,494
========= =========
CLASS A STOCK
Balance, beginning of year ................. $ 24,817 $ 24,685
Issuance of shares upon conversion of
Preferred Stock ......................... 463 107
--------- ---------
Balance, end of period ..................... $ 25,280 $ 24,792
========= =========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year ................. $ 57,896 $ 57,829
Conversion of Preferred Stock .............. 284 53
Issuance of shares ......................... 10 --
Issuance of shares upon exercise of
stock options ........................... (1,518) --
--------- ---------
Balance, end of period ..................... $ 56,672 $ 57,882
========= =========
RETAINED EARNINGS
Balance, beginning of year ................. $ 118,362 $ 90,615
Net income ................................. 8,756 23,650
--------- ---------
Balance, end of period ..................... $ 127,118 $ 114,265
========= =========
</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 CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
----------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
<S> <C> <C>
TREASURY STOCK
4% PREFERRED STOCK
Balance, end of period ............................ $ (84) $ (84)
-------- --------
6-1/2% PREFERRED STOCK
Balance, end of period ............................ (1,853) (1,853)
-------- --------
CLASS A STOCK
Balance, beginning of year - 6,528,181
and 605,400 shares, at cost .................... (33,615) (3,829)
Issuance of shares upon exercise of 360,017
stock options .................................. 2,277 --
Purchase of 5,922,781 shares, at cost ............. -- (29,786)
-------- --------
Balance, end of period - 6,168,164 and
6,528,181 shares, at cost ...................... (31,338) (33,615)
-------- --------
Balance, end of period ............................ $(33,275) $(35,552)
======== ========
ACCUMULATED OTHER COMPREHENSIVE LOSS
Cumulative translation adjustments:
Balance, beginning of year ..................... $(17,676) $(18,580)
Foreign currency translation adjustment ........ 572 356
-------- --------
Balance, end of period ......................... (17,104) (18,224)
-------- --------
Unrealized gain (loss) on marketable securities:
Balance, beginning of year ..................... 3,699 4,958
Unrealized gain (loss), net .................... 18,406 (2,247)
Sale of available-for-sale security ............ -- (3,247)
Transfer to trading securities ................. -- (1,711)
-------- --------
Balance, end of period ......................... 22,105 (2,247)
-------- --------
Balance, end of period ............................ $ 5,001 $(20,471)
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
8
<PAGE> 11
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
-------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Unaudited)
<S> <C> <C>
Net income ................................................. $ 8,756 $ 23,650
-------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ................ 572 356
Unrealized gain (loss) on securities .................... 18,406 (2,247)
-------- --------
Other comprehensive income (loss) ....................... 18,978 (1,891)
-------- --------
Comprehensive income .................................... $ 27,734 $ 21,759
======== ========
Related tax (expense) benefit of other comprehensive income:
Foreign currency translation adjustments ................ $ (80) $ 349
Unrealized gain (loss) on securities .................... $(12,268) $ 1,263
</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, 1999 consolidated balance sheet presented herein was
derived from the audited December 31, 1999 consolidated financial
statements of the Company.
Reference should be made to the Company's consolidated financial
statements for the year ended December 31, 1999 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, 1999 consolidated financial statements for additional details of
the Company's consolidated financial condition, results of operations
and cash flows. Certain amounts in the 1999 consolidated statements of
income and cash flows have been reclassified to conform with the
current period's presentation. The details in those notes have not
changed except as a result of normal transactions in the interim. 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, 2000 1999
--------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Revenues:
Finance ....................... $ 13,954 $ 27,882
Real estate ................... 7,091 14,619*
Leisure-time .................. 1,353 1,274
Intercompany adjustments ...... (366) (358)
--------- ---------
Total .................... $ 22,032 $ 43,417
========= =========
Pretax Operating (Loss) Income:
Finance ....................... $ (4,005) $ 13,693
Real estate ................... (1,084) 10,949*
Leisure-time .................. 118 116
--------- ---------
Total .................... $ (4,971) $ 24,758
========= =========
Total Assets:
Finance ....................... $ 375,912** $ 289,885**
Real estate ................... 93,507 30,901
Leisure-time .................. 13,724 13,165
Intercompany adjustments ...... (10,826) (10,333)
--------- ---------
Total .................... $ 472,317 $ 323,618
========= =========
</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.
10
<PAGE> 13
The real estate segment consists of rental property owned in Israel and
the United States leased to related and unrelated parties and of the
operations of Am-Hal Ltd. (in 2000 only), the Company's wholly-owned
subsidiary which owns and operates a chain of senior citizens
facilities located in Israel. The leisure-time segment consists
primarily of Moriah Hotels Ltd. (hotel chain in Israel, 1999 only),
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 a gain on sale of real estate rental property of $9 million.
**Includes an investment in MIRS Communications Ltd. of $111 million.
4. The following table summarizes securities that were outstanding as of
September 30, 2000 and 1999, but not included in the calculations of
diluted earnings per Class A share because such shares are
antidilutive.
<TABLE>
<CAPTION>
(Shares in thousands) September 30,
-------------------
2000 1999
<S> <C> <C>
Options and Rights 2,375 563
</TABLE>
11
<PAGE> 14
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Nine months ended September 30, 2000 compared to nine months ended September 30,
1999
Consolidated income from continuing operations decreased to $8.8 million for the
nine-month period ended September 30, 2000, from $26.3 million for the same
period in 1999. The decrease in income is primarily attributable to lower
realized and unrealized gains on investments, the gain on sale of real estate
rental property in 1999, which was absent in 2000, and higher interest expense
and translation loss in 2000. These decreases were partially offset by the
increase in the equity in earnings of affiliates and larger dividend income in
2000.
Ampal-American Israel Corporation ("Ampal") and its subsidiaries (the "Company")
recorded $2.8 million of unrealized losses on investments which are classified
as trading securities in the nine-month period ended September 30, 2000, as
compared to $6.9 million of gains in the same period in 1999. The unrealized
losses in 2000 are primarily attributable to the Company's investment in shares
of Arel Communications Ltd. ("Arel"), while in 1999, the unrealized gains were
attributable to the investments in the shares of Bank Leumi le'Israel B.M.
("Leumi") and Fundtech Ltd. ("Fundtech"). At September 30, 2000 and December 31,
1999, the aggregate fair value of trading securities amounted to approximately
$38 million and $40.4 million, respectively.
In the nine months ended September 30, 2000, the Company recorded $12.3 million
of gains on the sale of marketable securities, $9.5 million of which were
attributable to the Company's investment in BreezeCOM Ltd. ("BreezeCOM"). In the
nine months ended September 30, 1999, the Company recorded $16.3 million of
gains on the sale of investments, $13.5 million which were attributable to the
sale of its 46% equity interest in Moriah Hotels Ltd. ("Moriah") to Koor Tourism
Enterprises Ltd. and Sheraton International Ltd. on April 14, 1999.
On July 6, 1999, the Company sold real estate rental properties to a subsidiary
of Bank Hapoalim B.M., and recorded a gain on the sale of $9.2 million ($6
million net of taxes) in its September 30, 1999, consolidated financial
statements.
Equity in earnings of affiliates increased to $18.6 million for the nine months
ended September 30, 2000, from $14.9 million for the same period in 1999. The
increase is primarily attributable to the increased earnings of the Company's
50%-owned affiliate, Trinet Venture Capital Ltd. ("Trinet"), which recorded
unrealized gains on its investments in Smart Link Ltd., Netformx Ltd.
("Netformx") and Sim-Player.com Ltd. Granite Hacarmel Investments Ltd.,
("Granite"), the Company's 20.2%-owned affiliate, which is one of the largest
distributors of refined, petroleum products, recorded higher earnings in 2000
primarily as a result of a gain on sale of investees.
The increase in real estate income and expenses in the first nine months of 2000
as compared to the same period in 1999 is attributable to the operations of
Am-Hal Ltd. ("Am-Hal"), the Company's wholly-owned subsidiary, which owns and
operates a chain of senior citizens facilities in Israel. The Company acquired
an additional 50% interest in Am-Hal on December 31, 1999. As a result, Am-Hal's
statement of income was consolidated with the Company's consolidated statement
of income in 2000, while in 1999, Am-Hal's results were recorded in equity in
earnings of affiliates.
12
<PAGE> 15
The increase in other income in the nine months ended September 30, 2000, as
compared to the same period in 1999, is attributable to higher dividend income
on marketable securities and a larger dividend received from MIRS Communications
Ltd.
The Company recorded higher interest expense in the nine months ended September
30, 2000, as compared to the same period in 1999, as a result of increased
borrowings in connection with new investments made and the acquisition of the
Company's shares from Bank Hapoalim B.M. in July, 1999.
In the nine-month period ended September 30, 2000, the Company recorded an
additional loss from impairment of $3.5 million with respect to bank guarantees
in connection with its investment in M.D.F. Industries Ltd. ("M.D.F."). The
Company paid the banks $2.5 million in September, 2000 and another $2.5 million
in October, 2000 (total provision at September 30, 2000 was $5 million). In the
same period in 1999, the Company recorded $3 million of losses on impairment of
its investments in M.D.F. ($1.5 million), Unic View Ltd. ($1 million) and MuTek
Solutions Ltd. ($.4 million).
The Company recorded a translation loss of $1.3 million in the nine months ended
September 30, 2000, as compared to $.4 million in the same period in 1999. The
increase in the translation loss in 2000 is attributable to the foreign exchange
forward contracts executed by the Company, which were outstanding during 2000.
The increase in the effective income tax rate in 2000 as compared to 1999 is
mainly attributable to translation losses and to the losses of certain Israeli
subsidiaries for which no tax benefits were available.
Three months ended September 30, 2000 compared to three months ended September
30, 1999:
Consolidated net income from continuing operations decreased to $.4 million for
the three-month period ended September 30, 2000, from $5.3 million for the same
period in 1999. The decrease in net income is primarily attributable to the
absence of the gain on sale of real estate rental property, higher interest
expense, decrease in the equity in earnings of affiliates and lower dividend
income. These decreases were partially offset by the unrealized gains on
investments in 2000, as compared to losses in 1999.
The Company recorded $2.8 million of unrealized gains on investments in the
three-month period ended September 30, 2000, as compared to $3.4 million of
unrealized losses on investments in the same period in 1999. The unrealized
gains in the third quarter of 2000 are primarily attributable to the Company's
investment in the shares of BreezeCom and Leumi, while the unrealized losses in
1999 were attributable to the investments in shares of Leumi and Fundtech.
Equity in earnings of affiliates decreased to $2.5 million for the three months
ended September 30, 2000, from $4 million for the same period in 1999. The
decrease is attributable to the decreased earnings of those companies accounted
for by the equity method.
The decrease in other income in the third quarter of 2000, as compared to the
third quarter of the previous year, is attributable to the lower dividend income
on marketable securities.
Interest expense increased in the quarter ended September 30, 2000 as compared
to the same period in 1999 for the same reasons as discussed in "Results of
Operations --
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nine months ended September 30, 2000 compared to nine months ended
September 30, 1999."
The increase in the effective income tax rate in the three months ended
September 30, 2000, as compared to the same period in 1999 is primarily
attributable to the losses of certain Israeli subsidiaries for which no tax
benefits were available.
Liquidity and Capital Resources
At September 30, 2000, cash and cash equivalents were $14.6 million as compared
with $7.4 million at December 31, 1999. The increase in cash is primarily
attributable to proceeds received from the sale of the trading securities in the
first nine months of 2000. The decrease in deposits, notes and loans receivable
and debentures is primarily attributable to scheduled repayments. The increase
in accounts payable is primarily attributable to the increase in the deferred
tax provision with respect to the unrealized gains on the available-for-sale
securities and the increase in Am-Hal's deposits from tenants. The increase in
notes and loans payable is attributable to the increased borrowings with respect
to the construction of the new senior citizens facility by Am-Hal, and in
connection with the new investments made by the Company. The increase in
accumulated other comprehensive income is primarily attributable to the
Company's investments in BreezeCOM, Floware Wireless Systems Ltd. and Compugen
Ltd.
During the first nine months of 2000, the Company made the following
investments, aggregating $27.5 million, notably: (1) a $6.2 million investment
to acquire a 4.9% interest in Arel, a leading provider of interactive distance
learning systems; (2) an additional $3.3 million investment in Camelot
Information Technologies Ltd. (total equity interest is 19%, including net
indirect equity through OphirTech Ltd.), a developer of innovative software
solutions to secure organizational communication networks; (3) a $2.8 million
investment to acquire a 4% interest in BridgeWave Communications Inc., a
developer of wireless solutions for cable companies; (4) an additional $2.75
million investment in Netformx (net equity interest - 20.2%, including net
indirect equity through Trinet), a developer of network design tools; (5) a $2
million investment to acquire a 0.4% interest in Sonic Foundry Inc., a developer
of digital media and Internet software tools, services and systems; (6) an
additional $1.8 million investment in PowerDsine Ltd. (total equity interest --
10.8%), a leading developer of power supply devices for the telecommunications
industry; (7) a $1.25 million investment to acquire a 12.2% interest in RealM
Technologies Ltd. (total equity interest -- 17%, including net indirect equity
through Ophir), a developer of a network of servers, which will allow the
introduction of the next generation of applicable services, while maximizing
performance and optimizing bandwidth usage; (8) a $1.25 million investment in
Star Venture Capital Fund, which focuses on investments in communications,
Internet, software and medical devices; (9) an additional $1.1 million
investment in Compugen Ltd. (total equity interest - 1.6%), a pioneer in the
field of computational genomics and proteomics; (10) a $1 million investment to
acquire a 0.5% interest in SeraNova, Inc., a provider of E-business services;
(11) a $.75 million investment to acquire a 20% interest in Xpert Integrated
Systems Ltd., a software and systems integrator specializing in systems
security; (12) a $.75 million investment to acquire a 9.5% equity interest in
mPrest Technologies Ltd. (formerly WapDWap Ltd.), a developer of web-based
applications for cellular phones; (13) an additional $.6 million investment to
maintain its interest in Shiron Satellite Communications, Ltd. (1996) (equity
interest -- 9%), a developer and marketer of two-way multimedia satellite
communication products; (14) a $.5 million investment to acquire a 13% interest
in Enbaya Inc., a developer and marketer of a 3D browser that enables fast
viewing, compression and streaming of 3D models; (15) a $.5 million investment
to acquire a 10.8% interest in Oblicore Ltd., a provider of a unique solution
that enables businesses to track service performance
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<PAGE> 17
relative to service targets and allocate service resources to maximize their
success; (16) a $.5 million investment to acquire a 5.6% interest in Zactus
Inc., a developer of websites for musicians and (17) an additional $.4 million
investment in ShellCase Ltd., (total equity interest - 17.6%), a developer of
the smallest packages for semiconductor chips.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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, 2000, and
are sensitive to the above market risks.
Interest Rate Risks
At September 30, 2000, the Company had financial assets totalling $22.1 million
and financial liabilities totalling $199.5 million. 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 September 30, 2000, the Company had fixed rate financial assets of $16.5
million and variable rate financial assets of $5.6 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 $.1
million.
At September 30, 2000, the Company had fixed rate debt of $42 million and
variable rate debt of $157.5 million. A ten percent decease in interest rates
would increase the unrealized fair value of the fixed rate debt by approximately
$.4 million.
The net decrease in earnings for the next year resulting from a ten percent
interest rate increase would be approximately $1 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. To partially hedge this
exposure, the Company enters into various foreign exchange forward purchase
contracts. At September 30, 2000, the open foreign exchange forward purchase
contracts totalled $15 million. Holding other variables constant, if there were
a ten percent adverse change in foreign currency exchange rates, the Company's
cumulative translation loss (reflected in accumulated other comprehensive
income) would increase by $.5 million.
Equity Price Risk
The Company's investments at September 30, 2000 included marketable securities
(trading and available-for-sale) which are recorded at fair value of $91.3
million, including net unrealized gains of $29.1 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 $9.1 million.
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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 -- None.
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<PAGE> 19
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. None.
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<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: November 14, 2000
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock............................... Page *
27 Financial Data Schedule.
* These exhibits were included in the copy of this report
filed with the Securities and Exchange Commission and are
available upon request from Ampal.
</TABLE>
19
