SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------------------------------------
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 2-1271
------
PEC Israel Economic Corporation
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(Exact name of registrant as specified in its charter)
Maine 13-114-3528
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
511 Fifth Avenue, New York, N.Y. 10017
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 687-2400
-----------------------
--------------------------------------------------------------------------
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 .
-----
As of August 11, 1994 there were outstanding 18,758,588 shares of
Common Stock with par value of $1.00 per share.
Page 1 of 15 pages
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<TABLE> <CAPTION>
PART 1 - FINANCIAL INFORMATION.
-------------------------------
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
---------------------------------------------
For the Six Months Ended: For the Three Months Ended:
------------------------- ---------------------------
6/30/94 6/30/93 6/30/94 6/30/93
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Interest and dividends $ 1,673,941 $ 1,724,664 $ 967,986 $ 910,282
Equity in net income of Affiliated
Companies 11,678,700 17,119,660 6,708,593 10,084,408
Net gain (loss) on issuance of shares
by Affiliated Companies 6,388,184 11,142,756 (26,994) 3,364,251
Revenues of General Engineers Limited 6,661,291 5,151,950 3,344,175 2,622,134
Net gain (loss) on sales of investments 307,591 1,225,888 (22,253) 772,504
Change in market value of
marketable securities (1,915,908) - (675,417) -
Other 360,984 (45,559) 673,520 80,756
----------- ----------- ----------- -----------
25,154,783 36,319,359 10,969,610 17,834,335
----------- ----------- ----------- -----------
Expenses:
General and administrative 1,545,029 1,808,828 710,417 793,837
Cost of sales and expenses of
General Engineers Limited 6,506,730 4,978,297 3,205,025 2,370,695
----------- ----------- ----------- -----------
8,051,759 6,787,125 3,915,442 3,164,532
----------- ----------- ----------- -----------
Income before income taxes and cumulative
effect of accounting changes 17,103,024 29,532,234 7,054,168 14,669,803
Income taxes 1,133,458 3,940,611 875,600 2,341,762
----------- ----------- ----------- -----------
Income before cumulative effect of
accounting changes 15,969,566 25,591,623 6,178,568 12,328,041
Cumulative effect of changes in
accounting for:
Marketable securities 2,472,879 - - -
Income taxes - (1,173,713) - -
----------- ----------- ----------- -----------
Net Income $18,442,445 $24,417,910 $ 6,178,568 $12,328,041
=========== =========== =========== ===========
Earnings per common share before
cumulative effect of changes in
accounting $0.85 $1.36 $0.33 $0.66
Cumulative effect on earnings per
share for changes in accounting for:
Marketable securities 0.13 - - -
Income taxes - (.06) - -
----------- ----------- ----------- -----------
Earnings per common share $ 0.98 $ 1.30 $ 0.33 $ 0.66
=========== =========== =========== ===========
Weighted average number of shares
outstanding 18,758,588 18,758,588 18,758,588 18,758,588
Dividend per share None None None None
See notes to consolidated financial statements.
Page 2 of 15 pages
</TABLE>
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PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
June 30, December 31,
1994 1993
------------ ------------
Assets
------
Cash and cash equivalents $ 33,177,792 $ 42,665,957
Investments 320,331,787 292,484,875
Assets of General Engineers Limited 8,741,265 8,722,142
Other assets 4,332,405 4,000,416
------------ ------------
Total assets $366,583,249 $347,873,390
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Liabilities of General
Engineers Limited $ 5,405,043 $ 5,484,976
Deferred income taxes 31,646,264 30,214,359
Other liabilities 5,042,697 4,937,184
------------- ------------
Total liabilities 42,094,004 40,636,519
------------- ------------
Shareholders' equity:
Common stock, $1.00 par value 31,952,180 18,758,588
Additional paid-in capital 99,265,679 99,257,071
Retained earnings 219,241,717 200,799,272
Unrealized gain on marketable securities 1,171,052 -
Cumulative translation adjustment (13,947,791) (11,578,060)
------------ -----------
337,682,837 307,236,871
Treasury stock (13,193,592) -
------------ ------------
Total shareholders' equity 324,489,245 307,236,871
--------------- ------------
Total liabilities and
shareholders' equity $366,583,249 $347,873,390
============ ============
See notes to consolidated financial statements.
Page 3 of 15 pages
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<TABLE><CAPTION>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994
Additional Unrealized Gain Cumulative
Common Paid-in Retained on Marketable Translation Treasury
Stock Capital Earnings Securities Adjustment Stock Total
----------- ----------- ------------ ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $18,758,588 $99,257,071 $200,799,272 $ --- $(11,578,060) $ --- $307,236,871
Adoption of SFAS 115
for available-for-
sale equity securities,
net of tax 3,790,603 3,790,603
Issuance of 13,193,592
new common shares
in exchange for
13,193,592 common
shares 13,193,592 (13,193,592) ---
Change in market value
for available-for-
sale equity securities,
net of tax (2,619,551) (2,619,551)
Paid-in capital of
Affiliated Companies 8,608 8,608
Change in cumulative
translation adjustment (2,369,731) (2,369,731)
Net income 18,442,445 18,442,445
----------- ----------- ------------ ---------- ------------- ------------ -------------
Balance, June 30, 1994 $31,952,180 $99,265,679 $219,241,717 $1,171,052 $(13,947,791) $(13,193,592) $324,489,245
=========== =========== ============ ========== ============= ============ =============
</TABLE>
See notes to consolidated financial statements.
Page 4 of 15 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
For the Six Months Ended:
6/30/94 6/30/93*
------- --------
Cash Flows from Operating Activities:
Net income $ 18,442,445 $ 24,417,910
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in net income of
Affiliated Companies (11,678,700) (17,119,660)
Cumulative effect of changes in
accounting for:
Marketable securities (2,472,879) -
Income taxes - 1,173,713
Purchase of marketable securities (11,695,528) (12,255,865)
Proceeds from sale of marketable
securities 628,190 3,715,803
Change in market value of marketable
securities 1,915,908 -
Net gain on sales of investments (307,591) (1,225,888)
Income of consolidated subsidiaries (368,477) (210,738)
Loss on investment in partnerships 39,580 154,941
Amortization of premiums
on receivables 137,207 44,794
Net gain on issuance of shares by
Affiliated Companies (6,388,184) (11,142,756)
Dividends from Affiliated Companies 2,161,247 1,649,964
Increase in other assets (440,414) (807,208)
Increase in deferred income taxes 267,192 3,090,840
Increase in other liabilities 266,636 552,868
Write-off of deferred charges - 110,457
------------ -----------
Net cash used in operating
activities (9,493,368) (7,850,825)
------------ -----------
Cash Flows from Investing Activities:
Collection of U.S. Government bonds 9,484,219 -
Collection of capital notes and loans receivable - 3,848,761
Purchase of notes and bonds receivable (1,976,642) (4,598,014)
Proceeds from sale of investments 2,324,300 446,954
Purchase of investments (9,826,674) (10,475,816)
------------ -----------
Net cash provided by (used in)
investing activities 5,203 (10,778,115)
------------ -----------
Net decrease in cash and cash equivalents (9,488,165) (18,628,940)
Cash and cash equivalents, beginning
of period 42,665,957 66,040,089
------------ -----------
Cash and cash equivalents, end of period $ 33,177,792 $ 47,411,149
============ ============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during period for income taxes $ 671,770 $ 637,755
See notes to consolidated financial statements.
*Reclassified. Page 5 of 15 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
Notes to Consolidated Financial Statements
(Unaudited)
1. The December 31, 1993 balance sheet presented herein was
derived from the audited December 31, 1993 consolidated
financial statements of the Company and Subsidiaries.
2. These financial statements have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-
Q and Rule 10-01 of Regulation S-X. The financial
statements should be read in conjunction with the audited
consolidated financial statements of the Company and
Subsidiaries for the year ended December 31, 1993 for a
description of the significant accounting policies, which
have continued without change, except as described in Note
3 below, and other footnote information.
3. Effective on January 1, 1994, the Company adopted Statement
of Financial Accounting Standard No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS
115"). Under SFAS 115, marketable debt and equity
securities, other than equity securities accounted for
under the equity method, are reported at fair value, with
unrealized gains and losses from those securities which are
classified as "trading securities" included in net income
and unrealized gains and losses from those securities which
are classified as "available-for-sale securities" reported
as a separate component of shareholders' equity. Debt
securities classified as "held to maturity" are reported at
amortized cost. The cumulative effect of adopting SFAS 115
as of January 1, 1994 for securities classified as "trading
securities" was an increase in net income of $2,472,879,
net of taxes, or $.13 per share, which increase is reported
separately in the accompanying statements of income. The
effect, net of taxes, of adopting SFAS 115 for securities
classified as "available-for-sale securities" was an
increase in shareholders' equity of $3,790,603 as of
January 1, 1994. As a result of decreases in the market
value of "available-for-sale securities" since January 1,
1994, the unrealized gain, net of taxes, from those
securities that was included in shareholders' equity as of
June 30, 1994 was $1,171,052.
Page 6 of 15 pages
<PAGE>
4. On March 24, 1994, pursuant to a plan of reorganization,
PEC Holdings Limited ("PECH"), a Maine corporation and a
wholly owned subsidiary of IDB Development Corporation Ltd.
("IDB Development"), which owned 13,193,592 shares of the
Company's common stock, transferred those shares of the
Company's common stock to the Company (which holds them as
treasury shares) in exchange for an identical number of
newly issued shares of common stock. Immediately after the
exchange, pursuant to such plan of reorganization, PECH was
dissolved and distributed to IDB Development the newly
issued shares of the Company's common stock received in the
exchange, resulting in the Company becoming a direct
subsidiary of IDB Development. As a result of the
foregoing exchange, the Company has 31,952,180 issued
shares of common stock, par value $1.00 per share, of which
18,758,588 shares are outstanding and 13,193,592 shares are
treasury shares. The issuance of the new shares was
accounted for at par value because the transaction was
among related parties and there was no change in relative
ownership interests among shareholders.
5. All adjustments (recurring in nature) which are, in the
opinion of management, necessary for a fair presentation of
the results of the interim periods have been included. The
results of the interim periods are not necessarily
indicative of the results for the full year.
Page 7 of 15 pages
<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operation
--------------------------------------------
Three Months Ended June 30, 1994 Compared to Three Months Ended June
- - --------------------------------------------------------------------
30, 1993
- - --------
Consolidated net income for the three months ended June
30, 1994 was $6.2 million compared to $12.3 million for the three
months ended June 30, 1993. The reduction in consolidated net income
resulted primarily from decreases in equity in net income of
Affiliated Companies and in net gain on issuance of shares by
Affiliated Companies.
Equity in net income of Affiliated Companies for the
second quarter of 1994 was $6.7 million compared to $10.1 million for
the corresponding 1993 period. The reduction in net income of
Affiliated Companies for the three months ended June 30, 1994 reflects
PEC's reduced net income in respect of some of PEC's Affiliated
Companies, principally Tefron (for which the Company eliminated
approximately $2.0 million of reserves in the second quarter of 1993,
resulting in an increase in net income of Affiliated Companies in that
period by that amount), El-Yam and Super-Sol. This reduction was
partially offset by PEC's increased net income in respect of certain
other Affiliated Companies, particularly Tambour.
PEC did not realize any net gain on issuance of shares
by Affiliated Companies in the second quarter of 1994 compared to a
net gain of approximately $3.4 million in the second quarter of 1993.
Substantially all of PEC's net gain on issuance of shares by
Affiliated Companies in the second quarter of 1993 resulted from Gilat
Satellite's sale of ordinary shares in an underwritten initial public
offering in the United States and from the issuance of shares by
Tambour pursuant to the exercise of options.
Although the amount of PEC's liquid assets decreased in the
second quarter of 1994 compared to the corresponding 1993 quarter
(approximately $71.8 million at the beginning of, and approximately
$62.1 million at the end of, the second quarter of 1994 compared to
approximately $78.9 million at the beginning of, and approximately
$75.7 million at the end of, the second quarter of 1993), PEC's
interest and dividend income increased by approximately $57,000 in the
second quarter of 1994 compared to the corresponding 1993 period
primarily because of higher interest rates. See Liquidity and Capital
Resources. The amount of liquid assets was reduced principally
because of the net purchase of securities of new and existing
Affiliated Companies and securities of other Israeli companies.
Page 8 of 15 pages
<PAGE>
PEC did not realize any net gain on sales of investments for
the three months ended June 30, 1994 compared to a net gain of nearly
$800,000 for the three months ended June 30, 1993. The net gain on
sales of investments for the second quarter of 1993 resulted from
PEC's sale of marketable securities of U.S. companies and a small
portion of shares of Maxima. The increase in other income in the
second quarter of 1994 compared to the second quarter of 1993 reflects
principally increased income on PEC's interest in a limited
partnership and increased fees for management services.
The reduced provision for income taxes in the second quarter
of 1994 compared to the corresponding 1993 quarter is primarily
attributable to a decrease in income before income taxes in the second
quarter of 1994 compared to the corresponding 1993 quarter.
As discussed in Note 3 to the financial statements for the
three months and six months ended June 30, 1994, effective on January
1, 1994, PEC adopted Statement of Financial Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"), which requires PEC to report debt and equity securities,
other than equity securities accounted for under the equity method, at
fair value with unrealized gains and losses from these securities
which are classified as "trading securities" included in net income
and unrealized gains and losses from those securities which are
classified as "available-for-sale securities" reported as a separate
component of shareholders' equity. In the second quarter of 1994, PEC
experienced a decrease of approximately $675,000 in the market value
of "trading securities".
Six Months Ended June 30, 1994 Compared to Six Months Ended
- - ------------------------------------------------------------
June 30, 1993
- - -------------
Consolidated net income for the six months ended June 30,
1994 was $18.4 million compared to $24.4 million for the six months
ended June 30, 1993. The reduction in consolidated net income
resulted primarily from decreases in equity in net income of
Affiliated Companies and in net gain on issuance of shares by
Affiliated Companies. The reduction attributable to these factors was
partially offset by the effect of PEC's adoption of
SFAS 115 effective January 1, 1994 (which increased consolidated
net income in the first half of 1994 by a cumulative effect adjustment
of approximately $2.5 million, net of taxes, offset in part by a
reduction in revenues in the first half of 1994 of approximately $1.9
million for changes in market value of marketable securities). The
reduction was also partially offset by the effect of PEC's adoption of
Statement of Financial
Page 9 of 15 pages
<PAGE>
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109") effective January 1, 1993 (which reduced consolidated net income
in the first half of 1993 by a cumulative effect adjustment of
approximately $1.2 million).
Equity in net income of Affiliated Companies for the six
months ended June 30, 1994 was $11.7 million compared to $17.1 million
for the six months ended June 30, 1993. The reduction in net income
of Affiliated Companies for the first half of 1994 reflects PEC's
reduced net income in respect of some of PEC's Affiliated Companies,
principally Tefron (for which the Company eliminated approximately
$2.0 million of reserves in the first half of 1993, resulting in an
increase in net income of Affiliated Companies in that period by that
amount), El-Yam, Scitex and Elron. This reduction was partially
offset by PEC's increased net income in respect of certain other
Affiliated Companies, particularly DIC and PEC Cable TV Ltd. (the
holding company for PEC's interest in Tevel) and Tambour.
PEC realized a net gain on issuance of shares by Affiliated
Companies of approximately $6.4 million for the first half of 1994
compared to approximately $11.1 million for the first half of 1993.
Approximately $5.9 million of PEC's net gain on issuance of shares by
Affiliated Companies for the first half of 1994 resulted from the
exercise in February 1994 of all the then outstanding one year options to
purchase ordinary shares of Tambour and approximately $528,000 of such
net gain resulted from Lego's initial public offering in Israel in
January 1994. The net gain on issuance of shares by Affiliated Companies
for the first half of 1993 resulted principally from Tambour's sale
in February 1993 of ordinary shares and one and two year options to
purchase ordinary shares in an initial public offering in Israel and
the subsequent exercise of some of those options and from Gilat Satellite's
sale in April 1993 of ordinary shares in an initial public
offering in the United States.
PEC's interest and dividend income decreased in the first
six months of 1994 by approximately $50,000 compared to the first six
months of 1993 primarily because of a reduced amount of liquid assets
(approximately $75 million at the beginning of, and approximately
$62.1 million at the end of, the first half of 1994 compared to
approximately $87 million at the beginning of, and approximately $75.7
million at the end of, the first half of 1993). See Liquidity and
Capital Resources. The amount of the decrease in interest and
dividend income in the first half of 1994 was partially offset by
higher interest rates in such period. The amount of liquid assets was
reduced principally because of the net purchase of securities of new
and existing Affiliated Companies and securities of other Israeli
companies.
Page 10 of 15 pages
<PAGE>
The net gain on sales of investments for the six months
ended June 30, 1994 of approximately $300,000 resulted from PEC's sale
of a small portion of the shares of Maxima and its sale of marketable
securities of U.S. companies, which was partially offset by losses on
the sale of marketable bonds of the U.S. Government and of a U.S.
Government sponsored corporation. PEC's net gain on sales of
investments for the six months ended June 30, 1993 of approximately
$1.2 million resulted from PEC's sale of a small portion of shares of
Maxima and its sale of marketable securities of U.S. companies. The
increase in other income for the first half of 1994 reflects
principally a reduced loss with respect to PEC's interest in a limited
partnership compared with the first half of 1993 and increased fees
for management services.
General and administrative expenses for the first half of
1994 decreased compared to the first half of 1993 due in part to the
write-off of deferred American Stock Exchange listing fees for PEC's
common stock during the first half of 1993 and to reduced provisions
for employee pension expenses.
PEC does not provide deferred income taxes with respect to
undistributed earnings of, and gains on issuances of shares by,
Majority-Owned Affiliated Companies. The reduced provision for income
taxes in the first half of 1994 compared to the corresponding 1993
period is attributable to both a decrease in income before income
taxes in the first half of 1994 compared to the corresponding 1993
period and to an increase in the proportion of income from
undistributed earnings of, and gains on issuances of sales by,
Majority-Owned Affiliated Companies.
SHAREHOLDERS' EQUITY
- - --------------------
As discussed above and in Note 3 to the financial statements
for the three months and six months ended June 30, 1994, PEC adopted
SFAS 115 effective on January 1, 1994. The effect of adopting SFAS
115 for securities classified as "available-for-sale securities" was
to increase shareholders' equity, net of taxes, by approximately $3.8
million as of January 1, 1994. As a result of decreases in the market
value of "available-for-sale securities" since January 1, 1994, the
unrealized gain, net of taxes, from those securities that was included
in shareholders' equity as of June 30, 1994 was approximately $1.2
million.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
As of June 30, 1994, PEC's liquid assets (consisting of
cash, short-term bank deposits, marketable securities of U.S.
Page 11 of 15 pages
<PAGE>
companies and marketable bonds) totaled approximately $62.1 million.
For the six months ended June 30, 1994, PEC received cash
dividends and interest totaling $3.8 million (including $2.2 million
of cash dividends received from Affiliated Companies) which
substantially exceeded PEC's general and administrative expenses.
During the first half of 1994, PEC received a total of $12.5 million
of additional funds of which $3.0 million was generated from the sale
of securities and $9.5 million was generated from the collection of
U.S. Government bonds. During the same period, PEC purchased equity
securities of several Affiliated Companies for approximately $9.8
million (of which $8.9 million was purchased in the second quarter of
1994), purchased marketable securities of U.S. companies for
approximately $11.7 million and purchased capital notes of Affiliated
Companies for approximately $2.0 million (of which approximately
$500,000 was purchased in the second quarter of 1994). Almost all of
the capital notes purchased during the second quarter were issued by
Tel-Ad.
During the second quarter of 1994, PEC purchased securities
of two new Affiliated Companies in market transactions on the Tel
Aviv Stock Exchange (the "TASE"). PEC purchased for approximately
$3.1 million a 1.3% interest in "Delek" - The Israel Fuel Corporation
Ltd. ("Delek"), a distributor of petroleum products, and in July 1994
purchased for approximately $1.8 million an additional 0.7% interest
in Delek. PEC's sister company, Discount Investment Corporation Ltd.
("DIC"), has a 25.2% interest in Delek.
PEC also purchased in the second quarter of 1994 for
approximately $200,000 a 0.8% interest in Liraz Systems Ltd.
("Liraz"), a developer and marketer of computer software, and in July
1994 purchased for approximately $73,000 an additional 0.3% interest
in Liraz. In July 1994, PEC agreed, subject to the fulfillment of
certain conditions, to purchase for approximately $1.8 million an
additional 6.3% interest in Liraz and to receive options to acquire an
additional 6.5% interest in Liraz before dilution. DIC also agreed to
purchase a similar interest in Liraz on the same terms.
In April 1994, PEC formed a joint venture, named Sano Dispec
Development Ltd. ("Sano Dispec"), with DIC and Sano Ltd., an Israeli
manufacturer of detergents, diapers and cosmetics. Upon its
formation, Sano Dispec acquired a 55% interest in Shenyang-Sano Home-
Care Enterprises Ltd., a joint venture for the production and
marketing of detergents and cosmetics in China. PEC has a 25%
interest in Sano Dispec and has agreed to
Page 12 of 15 pages
<PAGE>
contribute approximately $200,000 to Sano Dispec of which PEC has
contributed approximately $160,000 through July 1994.
Among the securities of existing Affiliated Companies PEC
purchased during the second quarter of 1994 were an additional 0.7%
interest in Elron that was purchased for approximately $1.8 million
(in July 1994, PEC purchased an additional 0.3% interest in Elron for
approximately $600,000, increasing PEC's interest in Elron to
approximately 12.27%), an additional 0.4% interest in Tambour that was
purchased for approximately $600,000 (increasing PEC's interest in
Tambour to approximately 41.7%) and an additional 0.6% interest in
Caniel that was purchased for approximately $300,000 (increasing PEC's
interest in Caniel to approximately 28.8%). All of these purchases
were made in market transactions on the TASE.
During the second quarter of 1994, in response to capital
calls, PEC made capital contributions of $1.05 million to Gemini
(reducing the amount that PEC is obligated to contribute to Gemini to
$1.05 million) and $175,000 to Advent Israel (reducing the amount that
PEC is obligated to contribute to Advent Israel to $175,000). In
addition, during that period PEC acquired a 3.5% interest in The
Renaissance Fund LDC ("Renaissance"), a newly established company
whose objective is to generate capital appreciation through
acquisitions of interests in Israeli and Israel-related privately held
and publicly traded companies and in companies in the West Bank and
Gaza and elsewhere in the Middle East. PEC agreed to contribute up to
$5.0 million in capital to Renaissance, of which PEC contributed $1.25
million in April 1994.
In June 1994, the Israeli government awarded a license to
establish and operate Israel's second cellular telephone system to
CellCom Israel Ltd. ("CellCom"), a new company formed by DIC, Bell
South Enterprises Inc. and companies controlled by Joseph Safra and
Moise Safra. DIC currently has a 25% interest in CellCom and a
corporation owned by the Israeli government has an option, which
expires in September 1994, to acquire 10% of CellCom. Under the
Business Opportunities Agreement dated as of November 30, 1993 between
PEC and a subsidiary of DIC, DIC is required to offer to PEC one-half
of DIC's interest in CellCom on the same terms as DIC acquired its
interest in CellCom. PEC's purchase of an interest in CellCom is
subject to the approval of Israel's communications authority and to
the satisfaction of a requirement that Israelis own at least 20% of
CellCom. CellCom currently intends to invest approximately $300
million within the next three years in the development and operation
of the new cellular telephone system.
Page 13 of 15 pages
<PAGE>
In August 1994, Elron announced that it intended to raise
approximately $30 million by way of a rights offering to its
shareholders. If the offering is made, PEC intends to exercise the
rights offered to it. PEC has a 12.27% interest in Elron.
During the four month period from April 1994 through July
1994, PEC sold its entire interest in Pharmos in market transactions
in the over-the-counter market for $193,230 which approximates PEC's
cost of its interest in Pharmos.
Page 14 of 15 pages
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Shareholders on June 7, 1994, the
shareholders elected eleven directors, each for a term of one year.
Proxies for the meeting were solicited pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended. A total of
17,593,685 shares were voted with respect to the election of
directors, and there were no broker non-votes. The tabulation of the
votes cast for each nominee for director was as follows:
NUMBER OF SHARES
- - ----------------------------------------------------------------
NAME OF NOMINEE WITHHELD AUTHORITY
FOR DIRECTOR VOTED FOR TO VOTE
- - ----------------------------------------------------------------
Raphael Recanati 17,530,016 63,669
Joseph Ciechanover 17,587,930 5,755
Robert H. Arnow 17,588,446 5,239
James S. Crown 17,588,498 5,187
Roger Cukierman 17,585,009 8,676
Hermann Merkin 17,587,586 6,099
Harvey M. Meyerhoff 17,588,552 5,133
Alan S. Rosenberg 17,588,498 5,187
Herbert M. Singer 17,587,486 6,199
Dov Tadmor 17,585,009 8,676
Richard S. Zeisler 17,588,586 5,099
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.
PEC ISRAEL ECONOMIC CORPORATION
-------------------------------
(Registrant)
/S/James I. Edelson
-------------------------------
James I. Edelson
Executive Vice President
/S/William Gold
-------------------------------
William Gold
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
Date: August 12, 1994
Page 15 of 15 pages
