SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 2-1271
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PEC Israel Economic Corporation
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(Exact name of registrant as specified in its charter)
Maine 13-1143528
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
511 Fifth Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 687-2400
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock (par value $1.00 per share) New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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
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NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Exhibit Index is on Page 235.
Page 1 of 261 pages.
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The aggregate market value of the outstanding Common Stock of the
registrant held by non-affiliates on March 24, 1995 was approximately
$134,786,000. Such aggregate market value was computed on the basis of the
closing price of the Common Stock of the registrant on the New York Stock
Exchange on that date. See Part II, Item 5, "Market for the Registrant's
Common Stock and Related Stockholder Matters."
As of March 24, 1995, 18,758,588 shares of Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed in
connection with its 1995 Annual Meeting of Shareholders are incorporated by
reference in Part III.
Page 2
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PART I
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Item 1. BUSINESS
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PEC Israel Economic Corporation ("PEC" or the "Company") organizes,
acquires interests in, finances and participates in the management of
companies which are located in the State of Israel or are Israel-related.
PEC is often involved in the early development of a company and has
participated in the organization of over 100 Israeli enterprises since its
incorporation in 1926. The Company participates actively in management and
is involved in a broad cross-section of Israeli companies engaged in
various fields of business, including high technology and communications,
manufacturing, building and construction, shipping and consumer products.
Among PEC's holdings are significant interests in a company that is a
world leader in color electronic prepress and digital video editing systems
(Scitex Corporation Ltd.), one of Israel's leading diversified high
technology holding companies (Elron Electronic Industries Ltd.), Israel's
newest cellular telephone company (CellCom Israel Ltd.), the cable
television company that serves the Tel-Aviv-Givataim metropolitan area and
two other areas in Israel (Tevel Israel International Communications Ltd.),
Israel's largest paint producer (Tambour Ltd.), Israel's largest
manufacturer of cans and metal packaging material (Caniel-Israel Can
Company Ltd.), one of Israel's most active real estate construction and
development companies (Property and Building Corporation Ltd.), one of
Israel's largest shipping companies (El-Yam Ships Ltd.) and one of the
largest supermarket chains in Israel (Super-Sol Ltd.). PEC is also
involved in several venture capital funds and early stage development
companies.
PEC acquires interests in companies which have attractive long-term
growth potential. PEC generally seeks to acquire and maintain a sufficient
equity interest in a company to permit PEC, in conjunction with other
companies controlled by IDB Holding Corporation Ltd. ("IDB Holding" and,
together with the companies controlled by it, the "IDB Group"), to have a
significant influence in the management and operation of that company. PEC
emphasizes the potential for long-term capital appreciation over the
ability or intention of an enterprise to provide a cash return in the near
future. Among the other factors PEC considers in determining whether to
acquire an interest in a specific enterprise are quality of management,
global or domestic market share, export sales potential and ability to take
advantage of the growth of the domestic Israeli economy.
IDB Holding, through its majority owned subsidiary, IDB Development
Corporation Ltd. ("IDB Development"), owns
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beneficially approximately 70% of the outstanding Common Stock of
PEC. IDB Holding is controlled by Mr. Raphael Recanati, Chairman of the
Board of PEC, and members of his family.
IDB Holding is one of the largest business enterprises operating in
the private sector of the Israeli economy, with
consolidated assets exceeding $2.0 billion at December 31, 1994. Discount
Investment Corporation Ltd. ("Discount Investment"), another indirect
subsidiary of IDB Holding, owns shares of many Israeli companies in which
PEC has holdings and, through a subsidiary, has an agreement with PEC that
each will offer the other equal participation in business opportunities
that become available to either of them in Israel for a fee of 2.5% of the
equity invested by the paying party in business opportunities initiated or
initially presented by the other. PEC participates directly and through a
contractual arrangement with Discount Investment in the management of the
companies in which PEC holds equity interests. PEC and Discount Investment
have agreed to cooperate on matters concerning the advancement and
development of companies located in Israel in which each of them owns
voting interests, including the use of their voting power as shareholders
on a mutually agreed basis. PEC also has entered into voting agreements
with other members of the IDB Group with respect to voting of the stock of
certain of such companies.
PEC believes that its agreements with Discount Investment and PEC's
relationship with the IDB Group afford PEC an important source of new
business opportunities in Israel, significant influence in the management
and operations of companies in which PEC holds shares and savings in PEC's
cost of conducting its business.
PEC has received an Order from the United States Securities and
Exchange Commission determining that it is not an investment company within
the meaning of the Investment Company Act of 1940. In light of the Order,
PEC has determined that its business holdings should continue to be
concentrated in Israel-related companies that it, IDB Holding and other
members of the IDB Group control or in which they exercise a significant
influence.
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The Affiliates
The following chart lists by industry group the companies in Israel or
related to Israel in which PEC holds voting equity interests (the
"Affiliates"), the principal business of each such company and, with
respect to each such company, the percentage of equity owned directly by
each of PEC, Discount Investment and the IDB Group in the aggregate. For
additional information with respect to the Affiliates, including
information with respect to carrying values, see Note 3 of Notes to
Consolidated Financial Statements of PEC and Subsidiaries.
<TABLE><CAPTION>
Percentage
Equity Ownership as of
December 31, 1994
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Discount IDB
Principal Business PEC Investment Group(1)
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<S> <C> <C> <C> <C>
High Technology and Communications
Scitex Corporation Ltd. Color Electronic Prepress 6.1% 6.0% 24.0%
and Digital Video Editing
Systems
Elron Electronic Diversified High 13.4 26.0 39.4(2)
Industries Ltd. Technology Holdings
CellCom Israel Ltd. Cellular Telephone System 9.5(3) 13.5(3) 23.0
Tevel Israel International Cable Television 23.7 24.7 48.4(4)
Communications Ltd.
Tel-Ad Jerusalem Studios Television Station 11.5 11.5 23.0
Ltd.
Gilat Satellite Networks Satellite Communi- 9.8 9.1 18.9
Ltd. cations
Gilat Communication Engineering Services for 12.5 12.6 25.1
Engineering 1990 Ltd. the Telecommunications
Industry
Electronics Line (E.L.) Electronic Security 13.9 13.9 27.8
Ltd. Systems
RDC-Rafael Development High Technology 16.7 16.7 50.1(5)
Corporation Ltd. Products
Lipman Electronic Electronic and Computerized 6.0 6.0 12.0
Engineering Ltd. Systems
Nice Systems Ltd. Electronic Communication 9.7 9.7 19.4
and Voice Logging Systems
Gemini Israel Fund L.P. Venture Capital Fund 11.2 11.2 29.9(6)
(Primarily High Technology)
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</TABLE>
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<TABLE><CAPTION>
Percentage
Equity Ownership as of
December 31, 1994
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Discount IDB
Principal Business PEC Investment Group(1)
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<S> <C> <C> <C> <C>
High Technology and
Communications (continued)
Advent Israel Limited Venture Capital Fund 5.4% 5.4% 10.8%(7)
Partnership (Primarily High Technology)
Liraz Systems Ltd. Customized Computer Software 8.7 8.7 17.4 (8)
Systems; Distribution of
Packaged Software; and
Provider of Outsourcing
Services
Logal Educational Software Educational Software 6.4 6.4 37.1 (9)
and Systems Ltd.
Adir International Outgoing International Tele- 25.0 25.0 50.0
Communications Services communication Services from
Ltd. Israel
Tius Elcon Ltd. Electronic Medical and 13.0 13.0 26.0 (10)
Cookware Products
Sign-On Computer Communi- Private Network Communi- 13.2 13.3 26.5 (11)
cations Services Ltd. cations
Incubator for Technological Support of Development Stage 16.6 16.7 33.3
Entrepreneurship Kiryat High Technology Companies
Weizmann Ltd.
RTS Telecommunications International Telecommuni- 15.0 15.0 30.0
Services Ltd. cation Services in St.
Petersburg, Russia
RPA Leasing Inc. Lessor of Telephone 25.0 25.0 50.0
Equipment
Industry
Tambour Ltd. Paint and Related Products 42.1 21.0 63.1
Caniel-Israel Can Cans and Metal Packaging 29.0 14.7 43.7 (12)
Company Ltd.
Mul-T-Lock Ltd. Locks and Security Doors 13.6 13.6 27.2
Klil Industries Ltd. Aluminum Extrusions and 15.3 33.9 49.2
Finished Products
</TABLE>
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<TABLE><CAPTION>
Percentage
Equity Ownership as of
December 31, 1994
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Discount IDB
Principal Business PEC Investment Group(1)
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<S> <C> <C> <C> <C>
Industry (continued)
Lego Irrigation Ltd. Irrigation Equipment 13.2% 13.5% 26.7%
Maxima Air Separation Industrial Gas Separation 11.6 11.7 23.3
Center Ltd.
Tefron Ltd. Lingerie and Undergarments 13.0 13.0 26.0
Construction and Development
Property and Building Real Estate Construction 30.6 14.0 51.2 (13)
Corporation Ltd. and Development
Camdev Ltd. Real Estate Development 26.0 ---- 100.0
Shipping, Marketing and Other
El-Yam Ships Ltd.(14) Bulk Shipping 10.1 14.3 24.4
Super-Sol Ltd. Supermarkets 18.9 16.6 50.5
"Delek"-The Israel Fuel Distribution of 2.0 26.0 28.0
Corporation Ltd. Petroleum Products
Renaissance Fund LDC Acquisition of Equity Inter- 3.7 ---- 3.7
ests for Capital Appreciation
General Engineers Limited Distribution of Power 100.0 ---- 100.0
Generation Equipment
Sano Dispec Development Manufacture and Sale of Deter- 25.0 25.0 50.0 (15)
Ltd. gents and Cosmetics in China
Bulk Trading Corporation Grain Import Services 50.0 50.0 100.0
Ltd.
</TABLE>
<TABLE>
<S> <C>
(1) Total holdings of members of the IDB Group.
(2) As the result of purchases of ordinary shares of Elron Electronic Industries Ltd.
made after December 31, 1994, as of March 24, 1995, PEC owned 13.6%, Discount Investment owned 26.4% and the IDB
Group owned 40.0%, respectively, of the ordinary shares of Elron Electronic Industries Ltd.
(3) PEC has contracted with Discount Investment to purchase from Discount Investment an
additional 2% interest in CellCom Israel Ltd. The purchase is subject to approval
of Israel's Minister of Communications.
(4) Interests in Tevel Israel International Communications Ltd. are held through a
separate company, DIC and PEC Cable TV Ltd.
</TABLE>
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<TABLE>
<S> <C>
(5) Interests in RDC-Rafael Development Corporation Ltd. are held through a separate
company, DEP Technology Holdings Ltd.
(6) PEC and Discount Investment each own 18.5% of Gemini Capital Fund Management Ltd.,
the general partner of Gemini Israel Fund L.P., which has a nominal equity interest
in Gemini Israel Fund L.P. The interests of PEC, Discount Investment and the IDB
Group in Gemini Israel Fund L.P. represent nonvoting limited partnership interests.
(7) Represents interests in Advent Israel Limited Partnership and a parallel limited
partnership (together, "Advent Israel"), on a combined basis, other than in the assets and results of operations
attributable to Advent Israel's interest in Gemini Israel Fund L.P.
(8) As the result of purchases of ordinary shares of Liraz Systems Ltd. made after
December 31, 1994, as of March 24, 1995, PEC owned 8.9%, Discount Investment owned 8.9% and the IDB Group owned
17.8%, respectively, of the ordinary shares of Liraz Systems Ltd.
(9) The ownership interest of the IDB Group includes the 22.3% ownership interest of
Gemini Israel Fund L.P. in Logal Educational Software and Systems Ltd.
(10) As the result of the exercise of options for ordinary shares of Tius Elcon Ltd. by
PEC and Discount Investment in January 1995, as of March 24, 1995, PEC owned 14.5%, Discount Investment owned 14.5%
and the IDB Group owned 29.0%, respectively, of the ordinary shares of Tius Elcon Ltd.
(11) As the result of the exercise on January 3, 1995 of options for ordinary shares of
Sign-On Computer Communications Services Ltd., as of March 24, 1995, PEC owned 25.5%, Discount Investment owned
25.5% and the IDB Group owned 51.0%, respectively, of the ordinary shares of Sign-On Computer Communications
Services Ltd.
(12) Includes the 27% equity interest in Caniel-Israel Can Company Ltd. of Ispah
Holdings Ltd., a company in which PEC and Discount Investment each hold a 50% equity interest.
(13) As the result of purchases of ordinary shares of Property and Building Corporation
Ltd. after December 31, 1994, as of March 24, 1995, PEC owned 30.6%, Discount Investment owned 15.1% and the IDB
Group owned 52.3%, respectively, of the ordinary shares of Property and Building Corporation Ltd.
(14) Includes the Company's interests in Financial Holdings El-Yam (Hamigdal) Ltd.
(15) Sano Dispec Development Ltd. has a 55% interest in Shen-Yang Daily Use Articles
Ltd.
</TABLE>
PEC also owns nonvoting preferred stock of Israel Discount Bank of
New York representing approximately 8.2% of Israel Discount Bank of
New York's total outstanding equity as of December 31, 1994.
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High Technology and Communications
Scitex Corporation Ltd. ("Scitex"). Scitex is a world leader in
digital visual information communication for the graphic design, printing,
publishing and video markets. Scitex and its subsidiaries develop,
manufacture and market a broad range of digital prepress, digital printing
and digital video products.
The products of Scitex are used to automate the prepress production of
high resolution color printed media such as magazines, trade journals,
newspapers, catalogs, annual reports and advertising. The color prepress
process includes the capture, manipulating, editing, assembly and
integration of color images (photographs and artwork) and text, and
production of color films and plates for high quality, high volume
printing. The products of Scitex allow users to work throughout the color
prepress process in a digital workflow, significantly reducing production
time, material waste and labor requirements, while improving image and
color quality and facilitating design creativity.
Scitex provides customers with a broad range of connectivity (the
ability to connect to many types of systems and protocols), including a
wide selection of integrated solutions in PostScript, a popular page
description language, for the desktop publishing, graphic arts and high-end
prepress markets. Its communications products streamline multinational
news publishing.
Scitex pioneered the development of color electronic prepress systems
with the introduction in 1979 of the first digital workstation for page
layout and the editing and assembly of color images. Since that time,
Scitex has introduced a full range of color electronic prepress products.
Scitex has designed its products to operate on a stand-alone basis or to be
combined in systems and networks that meet the unique application
requirements and production environments of its customers. Scitex is the
global market leader in its industry and has more than 7,000 installations
of its products worldwide. Customers include Time, Fortune, Sports
Illustrated, The New York Times, National Geographic, USA Today, Rizzoli,
A. Mondadori, Bauer Druck, Gutenberghus, Tappan Group, Dai Nippon Printing,
Asahi Shimbun, Sara Lee and Pepsico.
Scitex, through its wholly owned subsidiary Leaf Systems, Inc.
("Leaf"), designs, develops, manufactures and markets products for
scanning, transmitting and handling color and black-and-white photographic
images, particularly for newspaper, magazine, photojournalism and desktop
publishing applications. Leaf has developed innovative digital cameras and
camera backs
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for capturing color images directly into the computer, bypassing
the film and scanning stages.
Iris Graphics, Inc. ("Iris"), a subsidiary of Scitex, is one of the world's
leading developers and manufacturers of high quality color inkjet printers.
The printers produce high-resolution prints and proofs on various types of
paper and other material. Iris has adapted an automatic inkjet printer for
medical imaging, reducing the cost of duplicate films without compromising
the quality of the images. In addition to the Iris products, Scitex also
markets a very large format inkjet printer that prints color billboards.
Scitex markets and sells its products primarily through wholly owned
subsidiaries in North America, Europe, and Hong Kong, and through a joint
venture in Japan. In these markets, Scitex and its Japanese joint venture
sell primarily through their direct sales force personnel. Virtually all
of Scitex's sales are outside of Israel.
Scitex develops, manufactures and markets very high speed black and
white inkjet printers, used primarily for promotional and mail
applications, including personalization, and is a leader in the high-speed,
variable data, digital printing market.
In 1994, Scitex acquired ImMIX, Inc., a leading vendor of non-linear
video editing systems which has over 1,000 of its Video Cube systems in use
worldwide. This acquisition adds digital video to the activities of Scitex
and, together with the acquisition of Leaf, signals the company's expansion
into the wider area of visual information communication.
In addition, in 1994 Scitex acquired 25% of P.INK Ltd. of Germany,
obtaining exclusive rights (except for German speaking countries) to
worldwide distribution of software solutions developed by P.INK for
newspaper editorial and advertising departments.
The ordinary shares of Scitex are listed for quotation on the National
Association of Securities Dealers Automatic Quotation System/National
Market System ('NASDAQ/NMS') (symbol "SCIXF"). PEC, Discount Investment,
Clal Electronics Industries Limited ("Clal"), another member of the IDB
Group, and International Paper Company are parties to a shareholders'
agreement with respect to their ordinary shares of Scitex that, among other
things, (i) provides that Scitex shall have a board of directors of 13
members, consisting of the current chief executive officer of Scitex (for
as long as he holds that office) and four nominees designated by each of
PEC and Discount Investment as a group, International Paper Company and
Clal, (ii) provides that the Chairman of the Board of Scitex and of its
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executive committee be selected from the directors designated by PEC,
Discount Investment and Clal and (iii) restricts the
acquisition and disposition by such shareholders of ordinary shares of
Scitex.
Elron Electronic Industries Ltd. ("Elron"). Elron conducts its
business principally through high technology operating companies in which
it holds controlling or other significant equity interests. Elron's
various affiliates design, develop, manufacture, market and service state-
of-the-art electronic systems and products for medical diagnostic imaging,
defense electronics, information technologies, communications and
networking, automated optical inspection, manufacturing automation and
quality control applications. Its affiliates also produce software and
expert systems designed to enhance productivity and systems which provide
rapid prototyping and low-volume production of application specific
integrated circuits. Elron has organized, invested in and developed
companies with promising new technologies believed to have global marketing
potential that could benefit from ties with Israel.
Elron has developed and expanded by identifying focused entrepreneurial
teams and providing them with significant strategic, financial and
managerial assistance to refine and exploit their technologies.
In 1994, Elron established elroNet, which operates a wide-band
electronic communication network providing international value-added
networking services. The services offered by elroNet are designed to
enable companies located in Israel and outside of Israel to work together
electronically, and include internet connectivity, electronic mail,
database access, remote access to distant computers and data transfer
facilities.
Elron's affiliates include publicly-traded and privately-held
companies. Its principal publicly-traded affiliates are Elbit Ltd. (37.6%
owned - advanced electronic systems and products for defense, medical,
industrial and commercial applications - NASDAQ/NMS symbol "ELBTF");
Elscint Ltd., a 55% owned subsidiary of Elbit Ltd. (diagnostic medical
imaging systems and products - New York Stock Exchange, Inc. symbol "ELT");
Orbotech Ltd. (18.5% owned - systems for visual testing and computer-aided
design for the integrated circuit industry and optical inspection systems
used in the production processes of flat screens - NASDAQ/NMS symbol
"ORBKF"); PC Etcetera, Inc. (31% owned - desktop productivity solutions,
live classroom training, custom courseware development and computer-based
training products - over-the-counter stock symbol "PCEZ"); and NetManage
Inc. (3.6% owned - integrated set of connectivity applications and
development tools for the MicroSoft
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Windows operating environment - NASDAQ/NMS symbol "NETM"). Among Elron's
privately-held affiliates are Chip Express Corp. (48% owned - rapid
prototyping and low-volume cost effective production of application
specific integrated circuits); Zoran Corporation (28% owned - integrated
circuits for digital signal image processing compression and enhancement);
ServiceSoft Corporation (21% owned - software systems for automation of
field service and maintenance of complex systems and products); and RDC-
Rafael Development Corporation Ltd. (17% owned (PEC and Discount Investment
each also own a 17% equity interest) - commercialization of technologies
developed by RDC-Rafael Armament Development Authority, a division of
Israel's Ministry of Defense). Elbit Ltd., together with Elbit's 55%
subsidiary, Elscint Limited, is Elron's largest holding and accounts for
the major part of Elron's revenues and earnings.
Elron's ordinary shares are listed for quotation on the NASDAQ/NMS in
the United States (Symbol "ELRNF") and on the Tel Aviv Stock Exchange
("TASE").
CellCom Israel Ltd. ("CellCom"). In June 1994, the Israeli government
awarded a license to establish and operate Israel's second cellular
telephone system to CellCom, a new company owned by BellSouth Enterprises
Inc., companies controlled by Joseph and Moise Safra of Brazil, Discount
Investment and Israel Aircraft Industries Ltd. PEC purchased a 9.5% equity
interest in CellCom from Discount Investment and, subject to the approval of
Israel's Minister of Communications, will acquire an additional 2% equity
interest in CellCom.
CellCom began operations at the end of December 1994 serving the Tel
Aviv metropolitan area. In February 1995, the Jerusalem area was added to
the system, and in March 1995 the Haifa area was added. CellCom expects to
serve all of Israel by September 1995. By March 27, 1995 over 60,000
customers were utilizing CellCom's cellular telephones. CellCom intends to
invest approximately $300 million through 1997 in the development and
operation of the new cellular telephone system.
CellCom uses TDMA (time division multiple access) digital technology,
the most advanced technology for cellular communication. According to
CellCom's license, during CellCom's first year of operation, the most
CellCom may charge users of its cellular service is 2.8 cents per minute,
rising to 5.3 cents per minute during the second year and 10 cents per
minute during the third through fifth years. CellCom may increase these
charges whenever the Israeli consumer price index increases by more than
8.5%. In addition, CellCom charges an interconnect fee and during the
third through fifth years of operation CellCom may charge customers a
monthly fee of $5.34. CellCom's charges are far lower than the charges of
the operator of Israel's first cellular network, which are 22.3 cents per
minute during peak hours and 11.3 cents per minute during off peak hours.
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Tevel Israel International Communications Ltd. ("Tevel"). PEC owns,
through its interest in DIC and PEC Cable TV Ltd., 23.7% of Tevel, which
was established in 1988 to develop, construct and operate cable television
systems in Israel. PEC's partners in Tevel are Discount Investment and
United International Holding Inc., a publicly traded American corporation
that provides multi-channel television services outside the United States.
Tevel has exclusive franchises for the whole of the Tel Aviv-Givataim
metropolitan area, the southern region of Ashdod-Ashkelon and the Nazareth-
Jezreel Valley. These franchises include approximately 315,000
households - over 20% of the homes in Israel. Tevel has completed the
construction of approximately 95% of the cable network in its franchise
areas. As of February 1, 1995, Tevel had approximately 204,000
subscribers, constituting approximately 67% of the households in the area
in which network construction has been completed.
At present, Tevel offers customers a uniform, basic package of 40
channels for a fixed monthly fee. The basic package includes local,
national and regional broadcasting channels, satellite delivered channels
from Europe and Asia and five channels, subtitled in Hebrew - a movie
channel, a sports channel, a family entertainment channel, a science,
nature and cultural channel and a children's entertainment channel. Tevel
has installed advanced scrambling and addressable two-way equipment that
protects the service from theft, and enables Tevel to offer additional
programming for which it may charge separately. In May 1994, Tevel started
to offer customers four channels of movies on a pay per view basis.
Tel-Ad Jerusalem Studios Ltd. ("Tel-Ad"). Tel-Ad is a major producer
of television programs in Israel, producing prerecorded and live studio
productions as well as productions on location.
In July 1993, Tel-Ad was selected as one of three companies to operate
Israel's second television station (the "Second Channel"), the only
privately operated commercial television station. Broadcasts on the second
television station began in November 1993. Tel-Ad is responsible for the
entire programming for two days every week and for every Saturday in a four
month period every year. In 1994, Tel-Ad's programs were broadcast on
Mondays and Thursdays and on Saturdays between March and June.
In 1994, the Second Channel became the most-watched station in Israel.
The popularity of the channel provided the impetus for advertisers and
advertising agencies alike to take advantage of the opportunities that the
new medium offered. In the Second Channel's first year of operation, 20%
of all Israeli advertising budgets were allocated for television.
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Tel-Ad broadcasts a varied program schedule, with approximately 40% of
the programs produced in Israel and 60% of the programs acquired from
outside of Israel. The programs span a wide range of genres and formats,
including entertainment, humor and satire, game shows, talk shows and
current affairs. Tel-Ad programs that achieved particular success with the
viewing audience included "The Comedy Store," and "Laila Gov" hosted by
Gidi Gov in the light entertainment genre, game shows "Yoter Mazal
MiSechel", "Lingo" and "Mat'im Li", talk show "Rubi", and the investigative
reporting magazine "Uvdah", hosted by Ilana Dayan.
In conjunction with starting to broadcast on the Second Channel, Tel-
Ad completed construction and upgrading of its technical facilities,
investing approximately $4 million in several projects, including the
conversion of its existing studio to the first fully digital television
studio in Israel, the construction of a second television studio, the
installation of fully equipped computerized editing and animation suites,
the completion of a new floor of offices in the Jerusalem theater, as well
as opening a branch office in Tel-Aviv which serves as Tel-Ad's marketing
headquarters.
Gilat Satellite Networks Ltd. ("Gilat Satellite"). Gilat Satellite
designs, develops, manufactures, markets and supports very small aperture
terminal ("VSAT") satellite networks for voice and data communications.
VSAT networks provide satellite-based communication between a central
location (a "hub") and a large number of geographically-dispersed locations.
Gilat Satellite markets principally three product lines:
o TwoWay VSAT - an interactive network for transaction oriented
data communications. It may be used for credit card authorization,
inventory control, drug prescription verification, reservation processing,
on-line lotteries and automatic teller machine (ATM) transactions.
o OneWay VSAT - a data broadcast network used for the distribution
of real-time financial information, newswire broadcasts, paging signals to
remote transmitters, point-to-multipoint facsimile transmissions and compact
disc quality FM music. Value added services available on OneWay VSAT include
business news television, background music and electronic advertising.
o FaraWay VSAT - a rural telephony network that delivers telephone
services, facsimile transmissions and data communications to remote and
undeveloped areas that lack adequate telecommunications infrastructure.
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Gilat Satellite has established strategic relationships for product
development and marketing with GE Spacenet Corporation, Comsat Technology
Services and GTECH Corporation in the United States and with ANI Bosch in
Germany and Alcatel SESA in Spain.
Gilat Satellite's stock is traded on the NASDAQ/NMS under the trading
symbol "GILTF".
Gilat Communication Engineering 1990 Ltd. ("Gilat Communication").
Gilat Communication offers engineering services, specializing in the design
and erection of communications systems, including broadband cable systems,
fiber optic communications, microwave systems and satellite communications
systems.
Through ISRASAT International Communication Corp., a company in which
it has a 33.3% interest and whose other shareholders are Sign-On Computer
Communications Services Ltd. and Elbit Ltd., Gilat Communication provides
point to point international satellite data communication services to
corporate clients in Israel. A wholly-owned subsidiary of Gilat
Communication provides satellite data communication within Israel using
one-way and two-way data networks by means of very small aperture terminals
(VSATs).
Gilat Communication is also working with the Open University of Israel
to develop a fully-interactive long-distance education system. The system will
begin at 15 sites throughout the country. Gilat Communication has also formed
a joint venture with a software company to provide communication services to
the healthcare industry including the transmission of records, administration
and insurance documentation (including credit-card billing) and routing
instructions for doctors. The joint venture plans to offer satellite
communication for use in remote diagnosis of medical conditions. Gilat
Communication owns 25% of Spacecom Satellite Communications Services Ltd.,
which holds exclusive Middle Eastern market rights for the AMOS satellite.
Electronics Line (E.L.) Ltd. ("Electronics Line"). Elec-
tronics Line is engaged in the design, development, production,
international marketing and servicing of advanced electronic home and
business security systems, including passive infrared motion detectors,
alarms and radio or telephone operated devices for
communication with central monitoring stations. Electronics Line
has been innovative in the application of radio communication and infrared
and microwave technologies to several devices. Electronics Line generates
more than 90% of its revenues from sales outside of Israel. Electronics
Line's stock is traded on the TASE.
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RDC-Rafael Development Corporation Ltd.("RDC"). RDC was established
in July 1993 to conduct the commercialization of non-military applications
of technologies developed by Rafael Armament Development Authority, a
division of the Israel Ministry of Defense ("Rafael"). Rafael is one of
Israel's largest industrial enterprises and Israel's largest research and
development organization, employing over 3,000 individuals who hold a
doctorate degree or an advanced engineering degree.
The two shareholders of RDC are DEP Technology Holdings Ltd., a
company owned equally by PEC, Discount Investment and Elron, all members of
the IDB Holding Group, and Galram Technology Industries Ltd., the Israeli
governmental entity in charge of the commercialization in non-military
markets of Rafael's technologies.
RDC, through its interests in the following companies, is working on
several projects, including the development of the products and processes
set forth below:
o PowerSpectrum Technology Ltd., which is developing a wireless
telecommunications network that provides full duplex service, utilizing
frequency hopping-multiple access technology.
o Carcom Carry Communications Ltd., which manufactures
the BIPSAPHONE, a portable satellite communication terminal for global
voice and data communication, and the BIPSAT, a briefcase portable
satellite communication terminal for global communication.
o Oramir Semiconductor Equipment Company Ltd., which is developing
the L-Stripper, a new process that allows the removal of photoresist in the
manufacturing process of silicon wafers used in the semiconductor industry.
o Semiconductor Engineering Laboratories Ltd., which manufactures
the MC 100, a semiautomatic system for the preparation of cross-sectional
samples of semiconductor wafers for examination by a scanning electron
microscope.
o A newly formed software company, which plans to develop software,
image and signal processing and video on demand.
RDC also manages the SYBOS Project, a spent yeast biomass system for
the removal of heavy toxic materials from water and wastewater; the TPP
Project, a new technological approach to the blood-pump module of heart-
lung machines; and advanced communication and wireless communication
projects in research and development stages.
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Lipman Electronic Engineering Ltd. ("Lipman"). Lipman develops,
manufactures and markets a variety of sophisticated electronic and
computerized systems primarily for communication applications. Lipman's
products include test and enhancement systems for public telephone
exchanges, telephone lines and wireless terminals for electronic fund
transfers, systems that combine electronic cash registers with the
verification and implementation of credit card/debit transactions at points
of sale, motion monitors and home betting terminals that can also be used
for specific information services. Lipman's stock is traded on the TASE.
Nice Systems Ltd. ("Nice"). Nice is engaged in the development and
manufacture of high technology communications systems, including electronic
defense systems. Nice concentrates in the area of voice storage and retrieval
systems, including systems that integrate telephony with computers in
telecommunications systems for a variety of enterprises, such as financial
institutions, insurance companies and telemarketing companies. Nice also
supplies voice logging equipment to banks and other financial institutions,
aviation authorities and merchant navies.
In the defense area, Nice focuses primarily on communications
intelligence, such as direction finding and monitoring systems, and command
and control systems. Nice has a strategic alliance with TRW. Nice's stock
is traded on the TASE.
Gemini Israel Fund L.P. ("Gemini") and Advent Israel Limited
Partnership ("Advent Israel"). In 1993, PEC, Discount Investment, Advent
International Corporation, an American company that initiates and manages
venture capital funds, and Yozma Venture Capital Ltd., a corporation formed
by the Israeli government to encourage Israeli private industrial
enterprises ("Yozma"), established a $36 million investment program with
two components, Gemini and Advent Israel.
Gemini is a venture capital limited partnership that invests in high
technology companies located in Israel, especially those that are export
oriented and are in the early stages of their development. Advent Israel is
a venture capital limited partnership managed by Advent International that
acquires interests in high technology companies that are either located in
Israel or whose businesses are related to Israel. Advent Israel is a limited
partner in Gemini.
Advent Israel and a parallel limited partnership have received capital
commitments from their partners of $20 million, of which Advent Israel and
such limited partnership have agreed
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to invest $10.75 million in Gemini and to invest $9.25 million in portfolio
companies. Gemini has received capital commitments of approximately $26.75
million from its partners. Combined, Gemini and Advent Israel constitute a
substantial venture capital program whose purpose is to invest in companies
located in Israel or related to Israel.
PEC has made a $3 million capital commitment to Gemini of which
approximately $2 million had been contributed as of March 24, 1995. PEC's
partners in Gemini are Discount Investment, Scitex and Elron (two of PEC's
affiliated companies), Advent Israel and Yozma. Gemini may offer PEC and
the other partners the opportunity to purchase interests in entities in
which Gemini is acquiring an interest.
At the end of 1994, Gemini had invested an aggregate of approximately
$5.2 million in the following eight companies:
o LOGAL Educational Software and Systems Ltd., a corporation that
develops, designs and publishes educational software. PEC also has a
direct interest in LOGAL.
o Holo-Or Ltd., a designer and manufacturer of products based on
proprietary diffractive optics technology, including a line of "through-
the-lens" multifocal contact lenses and intraocular lenses.
o Precise Software Solutions Ltd. (formerly named GeneSoft Ltd.), a
corporation that develops application performance tuning tools for
mainframe and client/server software systems.
o ORNET Data Communication Technologies Ltd., a designer and
developer of subsystems and complete hardware/software systems for boosting
the performance of local area networks (LANs), with specialization in high-
speed internetwork switches.
o Aisys Ltd., a designer and developer of software for automatic
programming of silicon microcontrollers to operate peripherals.
o Orisol Original Solutions Ltd., a corporation that designs,
manufactures and sells vision-based computerized shoe sewing machines.
o Myriad Ultrasound Systems Ltd., a manufacturer of ultrasound
equipment for the diagnosis and monitoring of osteoporosis.
o Sizary Materials Purification Ltd., a developer of unique and
proprietary equipment for the purification of silicon wafers.
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PEC is also a limited partner in Advent Israel and has made a $500,000
capital commitment to Advent Israel of which approximately $333,000 had
been contributed as of March 24, 1995. As a limited partner in Advent
Israel, PEC has an indirect interest in all of Advent Israel's holdings
other than Advent Israel's interest in Gemini. One of Advent Israel's
first acquisitions was the purchase of an interest in P-Com Inc., a
California manufacturer of microwave radios for short (1 to 20 kilometers)
range telecommunications interconnections. Much of the technology P-Com
utilizes was developed in Israel. In March 1995, P-Com had an initial
public offering of its shares in the United States.
Liraz Systems Ltd. ("Liraz"). Liraz and its subsidiaries and
affiliates develop comprehensive computerized business system solutions for
private businesses and public organizations. Liraz specializes in
developing software solutions in the manufacturing, health care, defense
and bank areas as well as providing outsourcing services. Liraz's
subsidiaries and affiliates include the following companies:
o Lehad-Binah Systems, Ltd., a 61% owned subsidiary which develops
and markets leading application packages for IBM, Hewlett Packard, VAX,
Data General and UNIX environments.
o YAANA Data Processing, Ltd., a 26% owned affiliate which
specializes in outsourcing services, payroll, labor management and complete
application packages. YAANA's stock is traded on the TASE.
o Kalanet, Ltd., a 22% owned affiliate which is Israel's leading
distributor of software for personal computers, marketing and servicing
over 10,000 different products.
o Bintel Systems Ltd., a 54.0% owned subsidiary which develops and
markets new artificial intelligence applications, including marketing
business intelligence (MBI), which organizes information from raw data into
a concise decision-making tool for executive management.
o Kedem Systems Ltd., a 60.6% owned subsidiary which offers
professional courses in computer systems.
o Across Data Systems, Inc. (formerly named Advanced Systems USA Inc.),
a 97% owned subsidiary which provides state-of-the-art systems solutions to
North American small-to-medium industries, retail businesses, gas stations and
convenience stores. Its customers include Exxon, Chevron and Esso Canada.
o Burford International Applications Ltd., an 87.5% owned
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subsidiary which is based in England and provides complete global business
solutions for financial and commercial industries on personal computer and
UNIX systems.
The stock of Liraz is traded on the TASE.
LOGAL Educational Software and Systems Ltd. ("Logal"). Logal
develops, designs, and publishes educational software and multimedia
products based on the philosophy that learning is the active construction
of knowledge.
Logal's simulation-based programs integrate sophisticated authoring
systems, multimedia, animation, spreadsheets and numerous output options in
a format that complements varied learning situations. Logal's complete
line of products, which are targeted for students of high school and
college level science and mathematics, consist of Explorer, an award-
--------
winning series for physics, biology and chemistry, and Tangible MATH, a
-------------
complete curriculum mathematics program group. Logal produces multimedia
products in compact disc read only memory "CD-ROM" format and develops
curriculum materials utilizing this technology.
In late 1994, Simon and Schuster, the textbook publisher, began
publishing special versions of Explorer for use with Prentice Hall
--------
chemistry, physics, biology and math college textbooks. Logal sells its
products in Israel, the United States, Western Europe and Latin America.
Adir International Communications Services Ltd. ("Adir"). Adir
provides outgoing international telephone service, international calling
cards and facsimile communications from Israel, primarily serving corporate
clients. Adir was granted licenses by Israel's Ministry of Communications
to provide these services in direct competition with Bezeq, Israel's
government controlled telephone company. Adir employs the latest proven
technology to provide its services and is able to charge customers who use
its outgoing international communication services lower rates than Bezeq
because of the lower costs of Adir's telecommunications network.
Tius Elcon Ltd. ("Tius Elcon"). Tius Elcon designs, develops,
produces and sells electronic products for the home care market,
concentrating on the over-the-counter paramedical and healthful food
preparation markets. Its products include the Memotherm Baby Thermometer,
which permits accurate non-invasive measurement of a baby's temperature,
the Fertimeter, which is an ovulation predictor, and the Spiro, a
computerized asthma peak
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flow meter suitable for home use that measures airway obstruction and
automatically analyzes the results for the user. Substantially all of Tius
Elcon's products are exported.
Sign-On Computer Communications Services Ltd. ("Sign-On"). Sign-On
furnishes private network telecommunication services to corporate clients
in Israel. Through ISRASAT International Communication Corp., a company in
which it has a 33.3% interest and whose other shareholders are Gilat
Communication Engineering 1990 Ltd. and Elbit Ltd., Sign-On provides point
to point international satellite communication services to corporate
clients in Israel.
Incubator for Technological Entrepreneurship Kiryat Weizmann Ltd.
("Incubator Company"). Incubator Company, an affiliate of the Weizmann
Institute of Science, provides funding, managerial expertise,
administrative support and facilities to initial development stage
companies that Incubator Company believes can successfully develop products
for commercial use utilizing novel technologies. PEC has agreed to
purchase a 5% interest in up to 12 new companies that are admitted to the
Incubator Company program for a purchase price of $10,000 for each 5%
interest. Generally as part of its purchase, PEC will receive the right to
increase its interest in each new company by an additional 8% if an interest
in the new company is purchased by a third party. The purchase price of such
8% interest will be based on the purchase price paid by the third party.
Through February 1995, PEC purchased interests in four companies in
the Incubator program. The businesses of such companies include the
development of transparent, electrically conductive polymers for use in the
electronics industry, the design of equipment for improved processing and
production of tomato seeds, the development of technology for the production
of liquid absorbing polymers with variable absorbing capacity and the
development of a transducer for high precision measurement of angular
coordinates.
RTS Telecommunications Services Ltd. ("RTS") and RPA Leasing Inc.
("RPA"). RTS provides major hotels in St. Petersburg, Russia with direct
dialing international telephone service by means of a microwave and
satellite based network which connects the hotels with international
telephone networks, utilizing the services of Adir. RPA leases telephone
equipment and switchboards to a Russian company for use in major hotels in
St. Petersburg, Russia for a five year term ending in December 1998. In view
of the losses incurred by RTS and RPA and their negative equity, PEC has made
provisions with respect to its holdings in these companies.
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<PAGE>
Industry
Tambour Ltd. ("Tambour"). Tambour is Israel's largest paint producer.
Its products include a wide range of water-based and
synthetic paints, polyurethanes, epoxies, varnishes, texture coatings and
primers, as well as special purpose paints for aviation and marine
application. Tambour currently supplies approximately 70% of Israel's
decorative paint requirements and exports its products throughout the
world. Its products are sold all over Israel.
Through its affiliates, Tambour is involved in the production and
marketing of water treatment facilities and chemicals (Italchem-Ayalon
Ltd.), metal treatment chemicals (Chemitas 1988 Ltd.), glues and emulsions
(Serafon Resinous Chemicals Corp. Ltd.), industrial sewage treatment
systems (Aniam Ltd.), waste water purification using concentrated solar
radiation (Solar Dynamics Ltd.) and the manufacture of printing ink (Tzah-
Israeli Printing Inks Ltd.). Tambour also produces decorative wall-facing
bricks. Tambour's stock is traded on the TASE.
Caniel-Israel Can Company Ltd. ("Caniel"). Caniel is Israel's largest
manufacturer of cans and metal packaging material for processed and canned
foods, soft drinks and beer. Caniel utilizes the latest technology to
produce a full line of high quality products. It is Israel's only
manufacturer of beverage cans. Caniel is reorganizing its production lines and
restructuring its manufacturing systems.
Caniel also manufactures metal packaging for a variety of industrial
and household products such as paints, lubricants, detergents and aerosols.
Substantially all of Caniel's cans are sold to customers in Israel. Caniel
also produces biodegradable plastic bottles for soft drinks and mineral
water. Caniel's stock is traded on the TASE.
Mul-T-Lock Ltd. (Mul-T-Lock"). Mul-T-Lock designs, manufactures,
markets and distributes high security products for the protection of life
and property. Mul-T-Lock's products include decorative security doors,
blast and gas-resistant doors and windows, fire resistant doors, safes,
automobile transmission locks and a wide range of sophisticated cylinders
and padlocks. Some of these products incorporate high technology
electronic applications. Many of Mul-T-Lock's products are protected by
patents and proprietary designs.
Mul-T-Lock has four manufacturing plants. It markets its products
throughout Israel and exports them all over the world
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using a network of distributors and its own sales personnel. During 1994,
Mul-T-Lock introduced 50 new products. Mul-T-Lock's stock is traded on the
TASE.
Klil Industries Ltd. ("Klil"). Klil is engaged in aluminum extrusion,
including casting of billets, manufacturing of extrusion dies and painting
of extrusions. Klil is a leading supplier of aluminum extrusions in the
form of semi-finished painted and mill-finished products for industry, as
well as finished aluminum products to the building industry, such as
windows, doors, curtain walls and shutters. Most of Klil's products are
sold in Israel. Klil began operations at its new factory in Carmiel,
Israel in March 1994. The factory has a modern production line for
extrusions and is expected to begin a new production line for the painting
of extrusions in the summer of 1995. Klil's stock is traded on the TASE.
Lego Irrigation Ltd. ("Lego"). Lego develops, manufactures and
distributes irrigation equipment. Lego offers professional and amateur
gardeners a full range of irrigation products, which are distributed
throughout the world. Lego's products include labyrinth drippers, rotary,
ball drive and pop-up sprinklers, adjustable nozzles and new pulsating
technology products. Lego also owns a 50% equity interest in a company
that develops and produces a new rotary disc filter which has wide use in
agriculture, garden watering and drinking water. In 1994, Lego and two
other companies formed a joint venture with an Indian fertilizer company to
distribute in India irrigation systems manufactured by Lego and others.
Lego's stock is traded on the TASE.
Maxima Air Separation Center Ltd. ("Maxima"). Maxima is Israel's
second largest producer of industrial and specialized gases with a market
share in Israel of approximately 40%. Its primary products are nitrogen
and oxygen which it extracts from the air at its plant in the Negev desert
in southern Israel. Nitrogen is used in the chemical, petro-chemical and
food industries. Oxygen is used primarily in hospitals and for welding in
the metal industry. Maxima's customers are mainly larger industrial users
of gases.
Maxima also sells argon and acetylene and has facilities for mixing
industrial gases and for filling containers with helium and hydrogen.
Maxima imports specialized gases for laboratories and for use in the
electronics industry. Maxima's stock is traded on the TASE.
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Tefron Ltd. ("Tefron"). Tefron designs, manufactures and markets high
quality lingerie and undergarments for women, men and children for sale in
Israel and for export. It operates sewing, cutting and knitting plants and
a development center for the design and manufacture of its products.
Tefron's products are marketed in Israel under Tefron's brand names and in
Western Europe and the United States under the brand names of leading
department stores.
Construction and Development
Property and Building Corporation Ltd. ("Property & Building").
Property & Building is one of the largest real estate holding companies in
Israel and is engaged, directly and through its subsidiaries and
affiliates, in the development, construction and sale of residential and
commercial buildings, the construction and rental of industrial parks and
office and commercial buildings, the purchase and development of land, and
the furnishing of financial services, property management and property
maintenance. Property & Building is also a substantial shareholder in
companies engaged in the citrus industry in Israel. These companies
accounted for approximately 38% of Israel's total citrus exports in 1994.
In the development of residential housing, it is Property & Building's
policy to develop and construct large, high quality projects for sale
principally to upper income purchasers; such projects generally include
recreational and commercial facilities. Property & Building owns
approximately 350,000 square meters of commercial floor space located mainly
in prime areas which it rents to tenants. The occupancy rate for its rental
properties is approximately 99%. A subsidiary of Property & Building owns
interests in modern sports complexes in Israel. The stock of Property &
Building and the stock of five of its subsidiaries and affiliates are traded
on the TASE.
Camdev Ltd. ("Camdev"). Camdev, which is 74% owned by Property &
Building, is building the last 30 residential housing units of a 94 unit
development in the Pisgat Zeev neighborhood of Jerusalem. In 1994, Camdev
completed building the first 64 units of the development. The development is
part of a larger housing development Camdev previously built and represents
the balance of the property held by Camdev for development.
Shipping, Marketing and Other
El-Yam Ships Ltd. ("El-Yam") and Financial Holdings El-Yam (Hamigdal)
Ltd. ("FHEY"). El-Yam is engaged, through subsidiaries, in worldwide ocean
transportation of oil and dry bulk
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cargoes, such as grain, coal and iron ore. Its fleet, which
aggregates approximately 670,000 deadweight tons, is operated under
charters for varying durations. El-Yam has been engaged in the worldwide
shipping business for over 41 years.
El-Yam owns nonvoting preferred stock of FHEY representing
substantially all of the equity in FHEY. FHEY in turn owns approximately
36.3% of IDB Holding. IDB Holding owns through IDB Development
approximately 70.3% of PEC's common stock. PEC owns 10.1% of the voting
shares of FHEY and Discount Investment owns approximately 14% of such
voting shares.
Super-Sol Ltd. ("Super-Sol"). Super-Sol operates one of the largest
chains of supermarkets throughout Israel. Its supermarkets include 45
neighborhood Super-Sol stores, with emphasis on a wide variety of high
quality food products and services, 19 large regional Hypercol stores,
located primarily in industrial areas and serving predominately high and
middle income families with both food and other products, 14 Gal-Yarok
stores, located primarily in lower income areas, and four "food
warehouses", named "Machsaney Mazon", which sell a smaller variety of goods
than other stores at substantially lower prices and appeal to price-
conscious customers. Super-Sol also operates a central computerized
ordering center which caters to customers in major metropolitan areas
desiring to place orders by telephone.
The food industry in Israel is characterized by increasing
competition, as department stores have begun to provide food products, and
small discount food chains have emerged to meet the needs of large numbers
of immigrants who are not familiar with supermarket shopping and who have
limited financial resources. Increased capital available to competing
supermarket chains has also affected competition. Super-Sol has a significant
market share, representing approximately 34% of sales of major chains and 8%
of the entire retail food industry in Israel.
In 1994, a subsidiary of Super-Sol purchased a controlling 50%
interest in the "Budapest Kozert" company, a chain of 24 supermarkets in
Budapest, Hungary.
Super-Sol holds a 40% interest in a newly established chain of "do-it-
yourself" stores in Israel named "Kne Uvne". The chain's three stores sell
building and home improvement products. Super-Sol also has a 55% interest in
Super Office Ltd., a newly formed company which sells office equipment and
supplies. In 1994, that company opened its first two stores. In 1995,
Super-Sol opened in Haifa Bay Israel's first mega-store, named "Universe
Club", which is based on the warehouse shopping concept in the United States.
Super-Sol's stock is traded on the TASE.
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"Delek"-The Israel Fuel Corporation Ltd. ("Delek"). Delek is one of
Israel's leading importers and distributors of petroleum products,
operating 165 gas stations throughout the country. Through a wholly owned
subsidiary, Delek has a portfolio of equity holdings in the petrochemical,
chemical, shipping and storage industries and at the end of 1994 had a
15.1% equity interest in the Super-Sol supermarket chain. Delek also owns
Delek Automotive Systems, the holder of the Mazda motor vehicle franchise
for Israel, and has an interest in Shagrir, an emergency roadside and
towing service for vehicles. Delek's subsidiary, Delek Oil Exploration
Ltd., carries out oil and gas exploration off the Tel Aviv shoreline.
Delek has instituted a program of modernizing its gasoline stations
through the introduction of computer controlled systems and has completed
the installation of the "Dalkan 2000" system for the automatic debit of
customer accounts and report of vehicle fuel consumption. Delek's stock is
traded on the TASE.
Renaissance Fund LDC ("Renaissance"). Renaissance is a newly-
established fund with capital commitments of approximately $135 million
whose objective is to generate capital appreciation through acquisitions
of significant equity interests primarily in a portfolio of Israeli and
Israel-related privately held and publicly traded companies and investments
elsewhere in the Middle East.
In October 1994, Renaissance was part of a group that purchased a 33%
equity interest in Paz Oil Company Ltd. ("Paz"), Israel's largest oil
marketing and distribution company. As a result of the purchase, which was
Renaissance's first acquisition, Renaissance has approximately a 14.3%
equity interest in Paz. Paz is engaged in seven main businesses: gasoline
service stations, industrial lubricants and solvents, asphalt, liquid
propane gas, wholesale fuels, aviation fuel and real estate.
In February 1995, Renaissance was part of a group which purchased from
the Government of Israel 100% of the shares of Shikun ve'Pituach le-Israel
Ltd., one of Israel's largest housing and development companies ("SHOP").
Renaissance has approximately a 20.1% equity interest in SHOP.
General Engineers Limited ("General Engineers"). General Engineers
sells, installs and services equipment for the following markets in Israel:
Energy - power generation, power delivery and power control equipment;
Medical - diagnostic x-ray, ultra-sound and surgical equipment;
Scientific - diffraction and spectroscopy systems and electron microscopes;
General Industry -
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a wide variety of electrical and mechanical systems, and industrial
diamonds; Factory Automation - programmable controls and data acquisition
systems; Lighting - lamps and luminaries; and Household Appliances - major
appliances and housewares. This variety of equipment is manufactured by
various United States, European and Japanese manufacturers. General
Engineers is the only distributor and service agent for certain General
Electric Company equipment in Israel, and represents in Israel, among
others, American Sterilizer Co., Lapp Insulator Inc., Saftronics Ltd.,
Hitachi Instruments, GE-Fanuc, Liebherr, 3-L Filters and Rigaku Co.
Sano Dispec Development Ltd. ("Sano Dispec"). Sano Dispec is a newly
established joint venture among PEC, Discount Investment, and Sano Bruno's
Enterprises Ltd., an Israeli manufacturer of detergents, diapers and
cosmetics. The objective of Sano Dispec is to form joint ventures in China
using the know-how of the joint venturers and other Israeli parties.
Sano Dispec's first acquisition was the purchase of a 55%
equity interest in Shen-Yang Sano Daily Use Articles Ltd. (formerly
referred to as Shenyang-Sano Home-Care Enterprises Ltd.). Shen-Yang Sano
is a newly formed company which in 1994 established a factory in the
Chinese city of Shen-Yang for the manufacture of cleaning products and
cosmetics. The factory began to manufacture and sell liquid cleaning
products in December 1994, concentrating on sales in the Liao Ning province
of China and other areas of northeastern China. Shen-Yang Sano intends to
expand the sale of its products throughout eastern Asia.
Bulk Trading Corporation Ltd. ("Bulk Trading") Bulk Trading provides
a full range of import services to major grain companies in Israel,
including purchasing, locating suitable vessels for shipment, coordinating
shipments, arranging for letters of credit, and arranging for loading,
discharge and storage facilities.
Israel Discount Bank of New York ("IDBNY"). PEC owns 75,251 shares of
nonvoting preferred stock of IDBNY with a carrying value of approximately
$27 million. IDBNY is a New York State chartered, full-service commercial
bank, with its principal office and one additional branch in New York City, a
branch in the Cayman Islands, a banking subsidiary in Uruguay and
representative offices in London, Paris, Toronto and Montevideo. IDBNY also
maintains an international banking facility at its headquarters in New York
City. As of December 31, 1994, IDBNY had consolidated assets of $3.6 billion,
total deposits of $3.2
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billion and total capital funds (including subordinated capital notes and
the allowance for possible loan losses) of $364 million. Its net income was
$16 million in 1994, $11 million in 1993 and $14 million in 1992. IDBNY was
ranked by The American Banker as the 16th largest commercial bank in New York
-------------------
State and the 148th largest commercial bank in the United States in terms of
deposits as of June 30, 1994. IDBNY is a member of the Federal Deposit
Insurance Corporation. It is a subsidiary of Israel Discount Bank Ltd.
("IDBL"), the third largest bank in Israel.
The terms of the IDBNY preferred stock held by PEC provide for a yearly
dividend equal to the preferred stock's share of the net income of IDBNY for
the year, based generally on the preferred stock's proportionate share of
IDBNY's total shareholder equity at the beginning of that year. For this
purpose, the preferred stock constitutes 8.2% of the total shareholders'
equity for the year beginning January 1, 1995. IDBL has an option to acquire
the preferred stock from PEC at any time until September 1995 at a price equal
to approximately $27 million. If IDBL at any time disposes of IDBNY shares
representing more than 75% of the equity or voting power in IDBNY, PEC has
the right to require the purchase of the preferred stock at a price equal
to approximately $27 million.
Conditions in Israel
Substantially all of the Company's Affiliates conduct their principal
operations in Israel and are directly affected by economic, political and
military conditions in that country. The manufacturing operations of
certain of the Affiliates are heavily dependent upon components and raw
materials imported from the United States, several nations in Europe and
other countries, and a substantial majority of the sales of some Affiliates
are made outside Israel. Accordingly, the results of operations of the
Company and substantially all of the Affiliates could be adversely affected
if major hostilities involving Israel should occur or if trade between Israel
and its present trading partners should be interrupted for substantial
periods.
Since the establishment of the State of Israel in 1948, a state of
hostility has existed, varying as to degree and intensity, among Israel and
various Arab countries. In addition, Israel and companies doing business
with Israel have been the subject of an economic boycott by the Arab countries
since Israel's establishment. Furthermore, following the Six-Day War in 1967,
Israel commenced administering the territories of the West Bank and the Gaza
Strip and, since December 1987, increased civil unrest has existed in these
territories. Although, as described below, Israel has entered into various
agreements with
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Arab countries and the Palestine Liberation Organization ("PLO") and
various declarations have been signed in connection with efforts to resolve
some of the aforementioned problems, no prediction can be made as to
whether a full resolution of these problems will be achieved or as to the
nature of any such resolutions. To date, these problems have not had a
material adverse impact on the financial condition or operations of the
Affiliates although there can be no assurance that continuation of these
problems will not have such an impact in the future.
A peace agreement between Israel and Egypt was signed in 1979 and
limited economic and full political relations have been established between
the two countries.
Since October 1991, Israel and certain of its neighbors have held
direct negotiations to end the state of hostility between them and
establish peace. In September 1993, Israel entered into a Declaration of
Principles with the PLO, which sets forth a basic framework for continued
negotiations between Israel and the PLO with respect to ending the state
of hostility between such parties. In accordance with this agreement, in
1994 Israel transferred administration of the Gaza Strip and Jericho to the
Palestinian Self-Rule Authority and the Israeli army withdrew from these
areas. Although negotiations are continuing between Israel and the PLO to
implement fully the Declaration of Principles, to date such negotiations
have not resulted in any definitive agreement.
In October 1994, Israel and Jordan signed a peace treaty establishing
full political and economic relations between the two countries. Although
negotiations are continuing among Israel, Lebanon and Syria, to date such
negotiations have not resulted in any agreement.
All male adult citizens and permanent residents of Israel under the
age of 51 are, unless exempt, obligated to perform approximately 48 days
of military reserve duty annually. Some unmarried women up to age 24 may
also be required to perform up to 48 days of annual military reserve duty.
Additionally, all such residents are subject to being called to active duty
at any time under emergency circumstances. Many of the Affiliates' male
officers and employees are currently obligated to perform annual reserve
duty. While the Affiliates have operated effectively under these
requirements since their organization, no assessment can be made of the
full impact of such requirements on the Affiliates' work forces or
businesses if conditions should change, and no prediction can be made as to
the effect on the Affiliates of any expansion or reduction of such
obligations.
The results of operations of certain of the Affiliates have been
favorably affected by their participation in Israeli
I-27
<PAGE>
Government programs related to research and development, foreign currency
exchange rate insurance, taxation and capital investment incentives, some
of which have been reduced in recent years. Their results of operations
would be adversely affected if these programs were further reduced or
eliminated and not replaced with equivalent programs or if their ability to
participate in these programs were significantly reduced.
Demographics
Since the beginning of 1990, Israel has been experiencing a new wave
of immigration primarily from the former Soviet Union. Approximately
600,000 new immigrants arrived through the end of 1994, of which
approximately 80,000 arrived in 1994, and it is expected that additional
immigrants will arrive in Israel during the next few years. The future level
of immigration is largely dependent on the political stability of Russia and
the other countries of the former Soviet Union. If the number of additional
immigrants is substantial, the increased population will place an increased
strain on government services, short-term economic development and national
resources.
The Israeli Government has found it necessary to raise additional
revenue and to dedicate substantial funds to support programs, including
housing, education and job training, designed to assist in the absorption
of the new immigrants. Israeli Government policy in this area is in flux,
and no prediction can be made as to the policies that will be adopted in
the future or the effect thereof on other government spending programs,
including defense. However, the increased immigration may also benefit
Israel and its economy in the long-term by providing highly educated, cost
competitive labor and by stimulating its growth.
While a decrease in the rate of immigration would relieve strain on
government services, short-term economic development and national
resources, such a decrease could also have a negative effect on those
Affiliates whose revenues are derived mainly from the sale of products and
services in Israel. These Affiliates include housing developers, such as
Property & Building, manufacturers of supplies for the construction and
housing industry, such as Tambour and Klil, and purveyors of food and other
necessities, such as Super-Sol. No assessment can be made of the full
impact of a significant change in the flow of immigration on the results of
operations of these Affiliates or the other companies in which PEC has an
interest.
The State of Israel receives significant amounts of economic and
military assistance from the United States. In addition, in 1992 the
United States agreed to provide Israel with supplemental
I-28
<PAGE>
assistance in the form of up to $10 billion of loan guarantees
in order to help meet the strains imposed by increased immigration. Israel
borrowed $2 billion that was guaranteed by the United States in each of
1993 and 1994. The borrowed funds were used to bolster Israel's foreign
exchange reserves and to fund increased investments, mainly in
infrastructure. Israel plans to borrow $2 billion per year guaranteed by
the United States over the next three years. The Israeli economy would suffer
material adverse consequences were such economic, military and supplemental
assistance to be significantly reduced. There is no assurance that such
assistance will continue at or near amounts received in the past.
Economy
Israel's gross domestic product ("GDP") increased by 6.8% in 1994, the
highest GDP growth rate recorded in Israel since 1972, and almost twice the
1993 rate of 3.5%. Israel's per capita GDP increased by 4.3% in 1994, the
largest increase in per capita GDP in the developed world. This increase
was achieved even though Israel's population grew by 5.4% in 1994. This
growth in Israel's per capita GDP was accompanied by a decrease in Israel's
civilian unemployment rate from 10% in 1993 to 7.7% in 1994, which resulted
from sustained growth in Israel's economy. The decline in the unemployment
rate is even more significant in view of the expiration of government
subsidized employment programs during 1994 and the issuance of work permits
to thousands of foreign laborers to work in Israel.
Two of the principal negative developments in Israel's economy last
year were the increase in the inflation rate from 11.25% for 1993 to 14.5%
for 1994 and the decline in the personal savings rate. These developments
can, to some extent, be attributed to Israel's absorption of many new
immigrants into its economy. Many of the recent immigrants have now become
financially established, and are using their income to purchase goods and
services, thereby increasing private consumption and inflationary
pressures. As in 1993, increases in housing prices fueled Israel's
inflation rate. Housing prices rose in part because of greater demand from
recent immigrants who were now able to purchase rather than just rent
apartments.
Israel's GDP grew to New Israel Shekel ("NIS") 223 billion at current
prices in 1994, an increase of 6.8% compared to 1993. Business sector GDP
grew to NIS 149 billion in 1994, an increase of 7.9% over 1993. During the
five year period from 1990 through 1994, GDP increased by 33% and business
sector GDP rose by 40% while Israel's population grew by 19%, bolstered by
mass immigration from the former Soviet Union.
I-29
<PAGE>
Israel's exports of goods and services rose by 10.6% in 1994 to $24
billion, a rate of increase similar to that recorded in 1993. Exports of
goods increased by 13% to $16 billion and, excluding diamonds, increased by
12% to $11 billion. The fastest growing industrial export sectors in 1994
were metals, machinery and electronics (13% increase) and chemicals (11%
increase), which were also the fastest growing industrial export sectors in
1993, and rubber and plastics (17% increase). Metals, machinery and
electronics and chemicals accounted for 75% of the entire growth in
industrial exports in 1994. Exports of polished diamonds rose to over $3.5
billion, 18% greater than in 1993. Agricultural exports rose by 7% to $584
million. This increase was achieved despite extensive crop damage caused
by the unusually warm winter at the beginning of the year and cutbacks in
production. Exports of other services increased by 7% in 1994. Although
more tourists visited Israel in 1994 compared to 1993 (over 2 million
tourists visited in 1994), earnings from tourism increased by only 4% in
1994 compared to 11% in 1993.
Increased exports to the Far East, especially Japan, South Korea,
Singapore and Thailand, accounted for over a quarter of the growth in
merchandise exports during 1994. A slightly lower percentage of the growth
in exports was attributable to increased exports to the United States.
Following the end of the recession in Western Europe, approximately 20% of
the growth was attributable to exports to the members of European Community
("EC"), to whom exports had actually declined in 1993. The increase in
trade with EC members was bilateral, and EC members accounted for 60% of
the increase in merchandise imports in 1994. An exception to the overall
trend of export growth was Eastern Europe, where Israel's exports decreased
marginally because of this region's uncertain economic climate and the lack
of foreign exchange.
Israel's increase in exports in 1994 was achieved even though the
dollar weakened against the shekel in real terms during the year, resulting
in a decrease in the profitability of exporting companies.
Imports of civilian goods and services (which exclude defense
imports), rose by 12.7% to $32 billion in 1994. Imports of goods alone
increased by 16%. The excess of imports of civilian goods and services
over exports of these goods and services (an "import surplus") grew to $8.3
billion in 1994 compared to $5.9 billion in 1993. While the total dollar
prices of imports rose faster than those of exports, in real terms import
prices actually decreased. This decrease in real import prices encouraged
manufacturers to accumulate inventories of imported production inputs and
to purchase capital stock from outside of Israel.
I-30
<PAGE>
Israel's unemployment rate decreased last year to 7.7%, the lowest
rate recorded since 1990 when the mass immigration to Israel of residents
of the former Soviet Union began. The sharp decrease in the unemployment
rate compared to earlier years resulted from a 7% increase in the number of
jobs, which increase exceeded the 3.9% increase in the civilian labor
force. The increase in the number of jobs resulted from greater economic
activity and from large scale investment in previous years in capital stock
(the means for producing goods and services). During 1994, capital stock
grew by 6.3% in real terms. The number of jobs generated by the investment
in capital stock more than outweighed any adverse effect on the
unemployment rate from the expiration of government employment subsidization
programs. This growth in capital stock also contributed to a 0.2% increase
in labor productivity in the business sector following two years of
decreases. The rate of increase in capital stock is an important indicator
of the ability of the Israeli economy to maintain future growth. While
economic growth in previous years was fueled by a sharp rise in the population
and only a slight increase in capital stock, during 1994 this mix was reversed,
auguring well for the business sector's future growth and ability to
generate jobs.
Business sector hourly wages fell by 1.7% in 1994, while public sector
wages increased by 8.7%, resulting in an overall rise in wages of 1.1%. In
the past, such a large gap between business and public sector wages has
been short-lived. Pressure may build on the business sector for wage
increases to close this gap. Future wage increases may also result from
the economy reaching its natural level of unemployment.
Gross domestic investment rose in 1994 by 8.4% to NIS 52 billion, a
more rapid increase than in 1993. After a small increase of 0.2% in 1993,
investment in fixed assets grew by 12.9% to NIS 51 billion in 1994.
Approximately 75% of the increase in 1994 consisted of non-housing investment,
which surged by 17.3% to NIS 37 billion. Non-housing investment, which is the
basis for sustained economic growth, includes investment in machinery and
equipment (up by 16.7%), land transportation equipment (up 16.8%), and
structures and earthworks (up by 12.4%). The investment category that
experienced the largest increase was imported machinery and equipment, which
grew by 27.3% and added $1 billion to Israel's imports. Following a sharp
decrease in 1993, investment in housing construction expanded by only 1.4% in
1994 to NIS 13 billion. This increase was slowed by a labor shortage in the
construction industry resulting from the closure of the administered
territories.
After maintaining an expansionary monetary policy for several years in
order to encourage economic growth, the Bank of Israel began to restrict
the money supply during 1994 because of
I-31
<PAGE>
its concern over the rise in the inflation rate. The consumer price index
rose by 14.5% in 1994, far higher than the 8% level targeted at the
beginning of 1994 by Israel's Finance Ministry and the Bank of Israel.
Although sharp rises in the prices of housing due to increased demand and
fruit and vegetables due to crop shortages were partially responsible for
the increase in the index in 1994, the Bank of Israel's expansionary monetary
policy in previous years was also a major factor adding to the increase in
inflation during 1994.
Last year, the central bank imposed a tight monetary policy by
repeatedly raising the cost of its funds to the commercial banks, from 9.7%
in January 1994 to 17% in December 1994. Concurrently, the commercial
banks' average lending rate increased from 14.6% to 22.5%. Despite this
increase and an accompanying rise in borrowing rates, the banking system's
aggregate financial margin (the excess of the banking system's aggregate
lending rate over its average borrowing rate) remained largely unchanged
during 1994, following several years of decline.
As a result of the Bank of Israel's monetary policy, during 1994 the
amount of loans to the public grew at a slower pace than the growth in
deposits, i.e. credit expanded by 24% to NIS 55 billion and deposits went up
by 35% to NIS 47 billion. The growth in deposits was fueled by a large
decrease in investment in equity securities. This increase in deposits and
decrease in holdings of equity securities in 1994 reverses the trend that had
developed in the banking industry in the years 1991-1993 away from traditional
financing operations towards more off-balance-sheet activity with customers
in the capital market. Indeed, reduced confidence in the capital market, at
least by smaller savers, led to the foregoing major change in the composition
of the public's financial asset portfolio in the course of the year.
The foreign currency market was relatively stable in 1994, and the
Bank of Israel made no change in the 6% predetermined rate of annual
devaluation of the shekel against a basket of currencies. This 6% rate of
permitted devaluation is intended to reflect the differential between the
levels of annual inflation in Israel and the countries included in the
currency basket. The 6% rate was maintained despite calls for a major
devaluation from exporters, whose profits suffered by the lack of a larger
devaluation while Israel's inflation rate was increasing. In July 1994,
continual bilateral trading was introduced into the foreign currency market
for trading large sums of currency. Under this form of trading, trades may
be conducted at spot rates, without having to wait for the banks' single
daily exchange rate quotations.
I-32
<PAGE>
In 1994, the shekel was devalued by less than 1% against the dollar,
from NIS 2.99 to NIS 3.01, and by 5.34% against the currency basket, from
NIS 3.19 to NIS 3.35.
Israel had approximately $6.8 billion of foreign exchange reserves at
the end of 1994 compared to $6.4 billion at the end of 1993, $5.1 billion
at the end of 1992, $6.3 billion at the end of 1991 and $5.2 billion at the
end of 1990.
After four consecutive years of buoyant trading, the expansion of
stock market activity came to a halt in 1994. Share prices plummeted and
volume dropped in 1994. The general share index dropped by 54% in real
terms, and the volume of share trading totalled NIS 76 billion compared
with NIS 84 billion in 1993. While the two-sided index of the 100 most
traded companies listed on the Tel Aviv Stock Exchange fell by 44%, the
broader index of smaller companies on the parallel list plunged by 67%.
The market value of shares and convertible stocks at the end of 1994
amounted to NIS 100 billion, compared with NIS 152 billion at the end of
1993.
There are four main reasons for the market's decline in 1994. First,
prices were at an extremely high speculative level after a four year boom.
Second, profits of publicly traded companies decreased in 1994 compared to
1993. Third, the inflation rate increased, causing the Bank of Israel to
impose higher interest rates. Finally, Israel enacted a capital gains tax
in November 1994 on profits from the sale of shares of publicly traded
companies. Although the capital gains tax became effective on January 1,
1995, the Israeli government decided later that month to repeal the tax.
The amount of capital raised on the Tel Aviv Stock Exchange in 1994
reached NIS 5.4 billion, compared with a record NIS 9.8 billion raised in
1993. Over half of the total amount raised came from share offerings made
during the first four months of 1994, and represented the end of the wave
of stock offerings in 1993. Of the total amount raised, NIS 3.8 billion
came from share offerings and private placements by 177 companies, of which
82 were initial public offerings. An additional NIS 1.6 billion was raised
from the exercise of options for publicly traded securities.
Plans to continue the privatization of government companies in 1994
were stalled by the recession in the capital market. The government
realized only NIS 600 million in proceeds from privatization in 1994,
compared to approximately NIS 3.3 billion in 1993.
I-33
<PAGE>
Item 2. PROPERTIES
------- ----------
None.
Item 3. LEGAL PROCEEDINGS
------- -----------------
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
None.
Executive Officers of the Registrant
------------------------------------
Date First
Elected to
Name Age Position Office
---- --- -------- ----------
Frank J. Klein(a) 52 President Jan. 1995
James I. Edelson(b) 38 Executive Feb. 1992
Vice President,
Secretary and
General Counsel
William Gold(c) 57 Treasurer Feb. 1992
Officers are elected for a one-year term at the Annual Meeting of
Directors scheduled in May or June of each year.
(a) Mr. Klein served as Executive Vice President of the
Company from November 1977 to November 1991 and as Treasurer of
the Company from May 1980 to November 1991. For more than 20
years prior to 1995, Mr. Klein was an officer of Israel Discount
Bank of New York ("IDBNY"), serving as Executive Vice President
of IDBNY from December 1985 to December 1994.
(b) Mr. Edelson is also U.S. Resident Secretary of IDB
Holding. Prior to joining the Company, from August 1988 to
January 1992, Mr. Edelson was associated with the law firm of
Proskauer Rose Goetz & Mendelsohn, New York, New York.
(c) Mr. Gold was Secretary and Assistant Treasurer of the
Company from August 1970 to February 1992.
I-34
<PAGE>
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
------- ----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) From January 1, 1993 until January 19, 1993, shares of the
Company's Common Stock traded on the American Stock Exchange Composite Tape
under the trading symbol ("IEC"). On January 19, 1993, shares of the
Company's Common Stock began trading on the New York Stock Exchange under
the same trading symbol. At the same time, trading of the Company's Common
Stock on the American Stock Exchange was discontinued. The range of high
and low sales prices of the Company's Common Stock for each of the fiscal
quarters during the last two fiscal years as reported on the American Stock
Exchange Composite Tape until January 19, 1993 and as reported on the New
York Stock Exchange Composite Tape from January 19, 1993 are set forth
below.
1993 High Low
---- ---- ---
First Quarter $30-7/8 $24-1/4
Second Quarter 27-1/4 22-3/8
Third Quarter 34-1/4 22-3/4
Fourth Quarter 34 28-1/4
1994 High Low
---- ---- ---
First Quarter $34-3/4 $27-1/4
Second Quarter 30-5/8 23-3/8
Third Quarter 30-1/2 23-1/8
Fourth Quarter 29-3/8 24-1/2
On March 24, 1995 the closing price of the Company's Common Stock on
the New York Stock Exchange was $24.375 per share.
(b) As of March 24, 1995 there were 2,566 shareholders of record of
the Company's Common Stock.
(c) The Company has not paid cash dividends since 1979. The decision
not to pay cash dividends reflects the policy of the Company to apply
retained earnings, including funds realized from the disposition of
holdings, to finance its business activities. The payment of cash
dividends in the future will depend upon the Company's operating results,
cash flow, working capital requirements and other factors deemed pertinent
by the Board of Directors.
II-1
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
------- ------------------------------------
The following selected consolidated financial data for the years ended
December 31, 1994, 1993 and 1992, and at December 31, 1994 and 1993, are
derived from the audited consolidated financial statements of the Company
set forth elsewhere in this Annual Report which have been prepared in
accordance with accounting principles generally accepted in the United
States and have been audited by Arthur Andersen LLP and Haft & Gluckman
LLP, each independent public accountants, as indicated in their report
included elsewhere herein. The selected consolidated financial data for
the years ended December 31, 1991 and 1990, and at December 31, 1992, 1991
and 1990, are derived from other audited consolidated financial statements
of the Company not appearing in this Annual Report which have also been
prepared in accordance with accounting principles generally accepted in the
United States and have been audited by Arthur Andersen LLP and Haft &
Gluckman LLP.
<TABLE><CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands of dollars except for per share
amounts which are in dollars adjusted for a
two-for-one stock split in the form of a stock
dividend effected on February 25, 1992 and except
for the number of shares which are in thousands
of shares adjusted for such stock split.)
<S> <C> <C> <C> <C> <C>
Income from:
Equity in net income of
Affiliated Companies $25,338 $ 33,542 $ 30,301 $ 25,899 $ 21,954
Total Revenues 47,745 65,181 60,354 43,205 34,538
Net Income* 32,566 41,970 33,106 22,099 18,592
Net Income per Common Share* 1.73 2.24 1.89 1.40 1.22
Weighted Average Number of
Outstanding Common Shares 18,759 18,759 17,509 15,733 15,164
Total Assets 383,691 347,873 314,592 233,905 210,629
Total Liabilities 42,223 40,636 37,925 27,979 27,968
Shareholders' Equity 341,468 307,237 276,667 205,926 182,661
Common Shareholders' Equity
per Common Share 18.20 16.38 14.75 13.07 11.64
Number of Outstanding Common
Shares at the End of Each Year 18,759 18,759 18,759 15,759 15,691
</TABLE>
* Net income for 1993 is after the cumulative effect of a change in
accounting for income taxes of $(1,173,713) or $(.06) per share of Common
Stock. Net income for 1994 is after the cumulative effect of a change in
accounting for marketable securities of $2,472,879 or $.13 per share of
Common Stock.
No dividends were paid during the last five years.
II-2
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
----------------------
Year Ended December 31, 1994
Compared to Year Ended December 31, 1993
Consolidated net income was $32.6 million in 1994 compared to
$42.0 million in 1993. The reduction in consolidated net income resulted
primarily from decreases in equity in net income of Affiliated Companies,
in net gain on issuance of shares by Affiliated Companies and in net gain
on sales of investments. The reduction attributable to these factors was
partially offset by a reduced provision for income taxes and by the effect
of PEC's adoption of Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") effective January 1, 1994 (which increased consolidated net income
for 1994 by a cumulative effect adjustment of approximately $2.5 million,
net of taxes ($3.8 million before taxes), offset in part by a reduction in
revenues in 1994 of approximately $2.6 million for changes in market value
of marketable securities). PEC's adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" effective
January 1, 1993 reduced consolidated net income in 1993 by a cumulative
effect adjustment of approximately $1.2 million.
Equity in net income of Affiliated Companies for 1994 was $25.3
million compared to $33.5 million for 1993. This decrease reflected PEC's
reduced equity in net income in 1994 in respect of some of PEC's Affiliated
Companies, principally El-Yam, Scitex and Tefron, and the absence of net
income in respect of C.I.D.L. Inc. ("CIDL"), an Affiliated Company until PEC
sold its equity interest in CIDL in November 1993. The reduction in equity
in net income in respect of Tefron and CIDL primarily reflected the effects
of events that occurred in 1993--PEC's elimination of reserves in 1993 for
Tefron, which increased equity in net income of Affiliated Companies in
1993 by the amount of the reserves, and the gain realized by CIDL in 1993
upon the sale of its sole asset. See Results of Operation - Year Ended
December 31, 1993 Compared to Year Ended December 31, 1992. The reduction
in PEC's equity in net income of Affiliated Companies also reflected losses
in respect of other Affiliated Companies, particularly CellCom (start up
losses), RDC (losses from holdings in early stage companies), and RTS and
RPA (losses and additional provisions for these holdings). The reduction
attributable to these factors was partially offset by PEC's increased
equity in net income in respect of certain other Affiliated Companies,
particularly Super-Sol, Bulk Trading (which had a loss in 1993) and Caniel
and by PEC's reduced loss in respect of Adir.
II-3
<PAGE>
PEC's equity in net income of Affiliated Companies decreased in
1994 by approximately $2.7 million because the substantial decline
in 1994 in prices of publicly traded securities in Israel reduced the net
income of certain of PEC's Affiliated Companies, principally Property &
Building and Tambour, which had invested a portion of their liquid funds on
a short term basis in publicly traded Israeli mutual funds and equity
securities pending permanent utilization in their businesses.
PEC realized a net gain on issuance of shares by
Affiliated Companies of approximately $7.1 million for 1994 compared to
approximately $11.5 million for 1993. Approximately $5.9 million of PEC's
net gain on issuance of shares by Affiliated Companies for 1994 resulted
from the exercise in February 1994 of all the then outstanding one year
options to purchase ordinary shares of Tambour and approximately $500,000
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 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, from Gilat Satellite's sale in April 1993 of ordinary shares
in an initial public offering in the United States and from Mul-T-Lock's sale
in January 1993 of ordinary shares in a private placement.
The net loss on sales of investments for 1994 of approximately
$200,000 resulted from losses on PEC's sale of marketable securities of
U.S. companies and marketable bonds of the U.S. Government and of a U.S.
Government sponsored corporation. The net loss attributable to these
factors was partially offset by a gain from PEC's sale of a small portion
of the shares of Maxima. PEC's net gain on sales of investments for 1993
of approximately $4.1 million resulted from PEC's sale of 30% of the shares
of Tefron, PEC's sale of marketable securities of U.S. companies and PEC's
sale of a small portion of the shares of Maxima.
PEC's interest and dividend income increased in 1994 by
approximately $200,000 compared to 1993 because of an increase of
approximately $400,000 in dividend income from PEC's nonvoting preferred
stock of IDBNY in 1994 compared with 1993. Although the amount of liquid
assets decreased in 1994 compared to 1993 (approximately $75 million at the
beginning of, and approximately $42.7 million at the end of, 1994 compared
to approximately $87 million at the beginning of, and approximately $75
million at the end of, 1993), such decrease did not significantly affect
PEC's interest and dividend income for 1994, excluding PEC's dividend
income from its nonvoting preferred stock of IDBNY, compared to such income
for 1993 primarily because of higher interest rates.
II-4
<PAGE>
See "Liquidity and Capital Resources". The amount of liquid assets was reduced
principally because of the purchase of equity securities of new and
existing Affiliated Companies and other Israeli companies
and long term loans made to Affiliated Companies, principally CellCom.
The decrease in other income for 1994 reflected principally
reduced fees for management services compared with 1993.
General and administrative expenses for 1994 decreased compared
to 1993 due in part to the write-off of deferred American
Stock Exchange listing fees for PEC's common stock during 1993
and to reduced provisions for employee pension expenses.
The provision for income taxes in 1994 decreased to $1.2 million
from $7.6 million in 1993. As described in Note 2 to the Notes to
Consolidated Financial Statements, PEC provides deferred income taxes on
undistributed earnings of, and gains on issuances of shares by, Affiliated
Companies that are not more than 50% owned by the IDB Group and in which
the IDB Group does not otherwise have effective control. The Company does
not provide deferred income taxes with respect to undistributed earnings
of, and gains on issuances of shares by, Affiliated Companies that are more
than 50% owned by the IDB Group or in which the IDB Group otherwise has
effective control (the "Majority-Owned Affiliated Companies"). Such
amounts are currently expected to be permanently reinvested in the
Majority-Owned Affiliated Companies. PEC's provision for income taxes
decreased for 1994 compared with 1993 primarily because of the decrease in
income before income taxes for 1994 compared with 1993. The provision for
income taxes as a percentage of income before income taxes decreased in
1994 compared with 1993 principally because of an increase in 1994 in the
proportion of income from undistributed earnings of, and gains on issuances
of shares by, Majority-Owned Affiliated Companies to net income and because
of an increase of approximately $800,000 in the provision for income taxes
in 1993 as a result of the increase in August 1993 in the U.S. federal
corporate income tax rate from 34% to 35% for taxable income greater than
$10 million. The provision for income taxes in 1993 reflected a capital
loss for tax purposes that PEC realized upon its sale of 30% of the shares
of Tefron in September 1993, which reduced PEC's provision for income taxes
in 1993 by approximately $1.9 million.
Year Ended December 31, 1993
Compared to Year Ended December 31, 1992
Consolidated net income increased to $42.0 million in 1993 from
$33.1 million in 1992. The increase in consolidated net income in 1993 as
compared to 1992 resulted primarily from increases in PEC's equity in net
income of Affiliated Companies
II-5
<PAGE>
and in net gain on sales of investments and a decrease in the provision for
income taxes. The increase attributable to these factors was partially
offset by a decrease in other income and by the effect of PEC's adoption of
SFAS 109.
PEC's equity in net income of Affiliated Companies in 1993
increased to $33.5 million from $30.3 million in 1992. The increase in
equity in net income of Affiliated Companies for 1993 reflects PEC's
elimination of approximately $2.2 million of reserves for Tefron that PEC
determined were no longer required, PEC's recognition of approximately $1.7
million of equity in net income of CIDL resulting from CIDL's sale of all
of its shares of F.I.B.I. Holding Company Limited, its sole asset, and
improved results of some of PEC's Affiliated Companies, principally El-Yam,
Property & Building, Super-Sol and Gilat Satellite. These increases were
partially offset by reduced earnings of certain other Affiliated Companies,
principally Scitex, DIC and PEC Cable TV Ltd. (the holding company for PEC's
interest in Tevel), Tambour and Elron and by losses in respect of Adir, RTS
and Bulk Trading.
PEC realized a net gain on issuance of shares by Affiliated
Companies of approximately $11.5 million in 1993 compared to approximately
$11.3 million in 1992. Approximately $8.5 million of the net gain on
issuance of shares by Affiliated Companies in 1993 resulted from Tambour's
sale in February 1993 of ordinary shares and one and two year options to
purchase ordinary shares in an underwritten initial public offering in
Israel and the subsequent exercise of some of those options. Approximately
$2.2 million of net gain on the issuance of shares by Affiliated Companies
in 1993 resulted from Gilat Satellite's sale in April 1993 of ordinary
shares in an underwritten initial public offering in the United States. A
private placement of ordinary shares by Mul-T-Lock in January 1993 resulted
in PEC realizing approximately $647,000 of net gain on the issuance of
shares by Affiliated Companies. The net gain on issuance of shares by
Affiliated Companies in 1992 resulted almost entirely from Scitex's sale in
May 1992 of newly issued ordinary shares of Scitex to International Paper
Company and from Elron's sale in March 1992 of newly issued ordinary shares
of Elron to a group of investors in a private placement.
The net gain on sale of investments in 1993 of approximately $4.1
million resulted from the sale of marketable securities of U.S. companies,
the sale of 30% of the shares of Tefron and the sale of a small portion of
shares of Maxima, while the net gain on sale of investments in 1992 of
approximately $2.0 million resulted from the sale of a small portion of the
shares of Mul-T-Lock, the sale of all of PEC's shares in Tedea
Technological Development and Automation Ltd. and the sale of marketable
securities of U.S. companies.
II-6
<PAGE>
The decrease in other income in 1993 reflects principally a loss
with respect to PEC's interest in a limited partnership, which limited
partnership generated income in 1992. The amount of the decrease was
partially offset by increased fees in 1993 for management services.
General and administrative expenses in 1993 increased compared to
1992 due in part to the write-off of deferred American Stock Exchange
listing fees for PEC's common stock and higher costs for financial and
other services provided to the Company.
The provision for income taxes in 1993 decreased to $7.6 million
from $13.2 million in 1992. The reduced provision for income taxes in 1993
is primarily attributable to an increase in the proportion of income from
undistributed earnings of, and gains on issuances of shares by, Majority-
Owned Affiliated Companies to net income in 1993 compared to 1992,
including the $8.5 million gain on issuance of shares by Tambour.
In addition, PEC's provision for income taxes decreased in 1993
as compared to 1992 as a result of PEC's sale of 30% of the shares of
Tefron in 1993. Although PEC had no carrying value for its interest in
Tefron prior to the sale because the carrying value of its interest in
Tefron had previously been reduced as a result of PEC's recognition of
Tefron's losses, the basis of PEC's interest in Tefron for tax purposes prior
to the sale was the cost of such interest. Upon PEC's sale of 30% of the
shares of Tefron, PEC recognized all of the proceeds of such sale as net gain,
but for tax purposes PEC realized a capital loss which reduced PEC's provision
for income taxes by approximately $1.9 million. As discussed in Note 4 to the
Notes to the Consolidated Financial Statements, the foregoing reductions in
the provision for income taxes were partially offset by an increased provision
for income taxes of approximately $800,000 as a result of the increase in 1993
in the United States federal corporate income tax rate from 34% to 35% for
taxable income greater than $10 million. Approximately $688,000 of this
increased provision relates to an additional deferred tax provision as of
January 1, 1993.
Effective on January 1, 1993, PEC adopted SFAS 109, which
increased PEC's deferred tax liability by approximately
$1.2 million. As discussed in Note 2 to the Notes to the Consolidated
Financial Statements, this increased liability has been recorded through
PEC's income statement and reported as a cumulative effect of a change in
accounting principle.
Shareholders' Equity
--------------------
As discussed above and in Note 2 to the Notes to the Consolidated
Financial Statements, PEC adopted SFAS 115 effective on January 1, 1994.
The effect of adopting SFAS 115 for
II-7
<PAGE>
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 December 31, 1994 was approximately $2.8 million.
As discussed in Note 2 to the Notes to the Consolidated Financial
Statements, commencing in 1993, translation differences are reflected in
shareholders' equity as a "Cumulative Translation Adjustment". During
1994, although the consumer price index in Israel rose by 14.5%, the New
Israel Shekel (the "NIS") was devalued by less than 1% against the dollar.
As of December 31, 1994, the Cumulative Translation Adjustment reduced
shareholders' equity by $13.1 million compared to $11.6 million at the end
of 1993. During 1993, the NIS was devalued 8% against the dollar, of which
approximately 60% of devaluation for the entire year occurred in the fourth
quarter of 1993. As of December 31, 1993, the effect on shareholders'
equity was a decrease of approximately $11.6 million.
Liquidity and Capital Resources
-------------------------------
As of December 31, 1994, PEC's liquid assets (consisting of cash,
money market funds, short-term bank deposits, marketable bonds and a
limited partnership interest which PEC sold on January 31, 1995) totaled
approximately $42.7 million. As discussed in Note 6 to the Notes to the
Consolidated Financial Statements, as of the end of 1994 PEC had
commitments to make capital contributions or loans of up to approximately
$20.7 million to existing Affiliated Companies. For the year ended
December 31, 1994, PEC received cash dividends and interest totaling $8.4
million (including $4.8 million of dividends received from the Affiliated
Companies), which substantially exceeded the amount needed to pay PEC's
general and administrative expenses.
During 1994, PEC generated a total of $24.2 million of liquid
funds, of which $11.2 million was realized from the sale of marketable
securities of U.S. companies, $10.6 million was generated from the
collection of notes, loans and U.S. Government and State obligations, $2
million was generated from the sale of a partnership interest and $400,000
was generated from the sale of securities of Affiliated Companies.
During 1994, PEC purchased equity and debt securities of new and
existing Affiliated Companies for approximately $34.0 million. The new
Affiliated Companies, and PEC's purchase price for their securities,
include CellCom - $8.3 million (represented by notes of CellCom), Delek -
$4.9 million, Liraz - $2.4 million, The Renaissance Fund LDC - $2.2 million
and Sano Dispec -
II-8
<PAGE>
$200,000. The existing Affiliated Companies in which PEC purchased
securities in 1994 and the purchase price for such securities consist
primarily of Elron - $7.4 million, DEP Technology Holdings Ltd., the
holding company for PEC's interest in RDC - $1.5 million (represented
by notes of DEP), Nice - $1.3 million, Tambour - $1.2 million, Gemini -
$1 million, Scitex - $800,000 and Tel-Ad - $460,000 (represented by notes
of Tel-Ad). During 1994, PEC purchased marketable securities of U.S.
companies for approximately $11.2 million and paid taxes of approximately
$1.6 million.
II-9
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------
This item commences on the following page.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
------- ----------------------------------------------------
None.
II-10
<PAGE>
HAFT & GLUCKMAN ARTHUR ANDERSEN LLP
CERTIFIED PUBLIC ACCOUNTANTS LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors
of PEC Israel Economic Corporation:
We have audited the accompanying consolidated balance sheets of PEC Israel
Economic Corporation (a Maine corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
certain Affiliated Companies of the Company, which statements reflect assets and
equity in net income of $224.8 million and $25.3 million, respectively, of the
consolidated totals as of and for the year ended December 31, 1994, of $154.9
million and $25.9 million, respectively, of the consolidated totals as of and
for the year ended December 31, 1993, and equity in net income of $21.8 million
of the consolidated total for the year ended December 31, 1992. Those
statements were audited by other auditors whose reports have been furnished to
us and our opinion, insofar as it relates to the amounts included for those
entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
1
<PAGE>
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of PEC Israel Economic Corporation and subsidiaries as of
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes, effective January 1, 1993,
and the Company changed its method of accounting for marketable securities
effective January 1, 1994.
HAFT & GLUCKMAN LLP ARTHUR ANDERSEN LLP
New York, New York
March 30, 1995
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31,
------------
1994 1993
----- -----
ASSETS
------
CASH AND CASH EQUIVALENTS $ 20,736,416 $ 42,665,957
INVESTMENTS (Note 3) 349,623,830 292,484,875
ASSETS OF GENERAL ENGINEERS
LIMITED (Note 2) 9,018,224 8,722,142
OTHER ASSETS 4,312,494 4,000,416
----------- -----------
Total assets $383,690,964 $347,873,390
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Liabilities of General Engineers
Limited (Note 2) $ 5,262,094 $ 5,484,976
Deferred income taxes (Notes 2 and 4) 31,702,309 30,214,359
Other liabilities 5,258,196 4,937,184
----------- ----------
Total liabilities 42,222,599 40,636,519
----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
--------------------------------------
SHAREHOLDERS' EQUITY (Notes 2 and 5):
Common stock, $1.00 par value,
40,000,000 shares authorized in
1994 and 30,000,000 shares
authorized in 1993, 31,952,180
shares issued in 1994 and
18,758,588 shares issued in 1993
and 18,758,588 shares outstanding
in 1994 and 1993 31,952,180 18,758,588
Class B preferred stock, no par
value, 544,514 shares authorized
in 1994 and 1993, none issued in
1994 and 1993 - -
Additional paid-in capital 99,612,887 99,257,071
Unrealized gain on marketable
securities, net 2,845,350 -
Cumulative translation adjustment (13,114,003) (11,578,060)
Retained earnings 233,365,543 200,799,272
----------- -----------
354,661,957 307,236,871
Treasury Stock, 13,193,592
shares (13,193,592) -
----------- -----------
Total Shareholders' Equity 341,468,365 307,236,871
----------- -----------
Total liabilities and
shareholders' equity $383,690,964 $347,873,390
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Years Ended December 31,
------------------------
1994 1993 1992
----- ----- -----
REVENUES:
Interest and dividends $ 3,574,485 $ 3,369,109 $ 3,556,626
Equity in net income of
Affiliated Companies
(Note 3) 25,337,908 33,541,985 30,301,198
Net gain on issuance of
shares by Affiliated
Companies 7,091,593 11,451,371 11,291,327
Revenues of General
Engineers Limited (Note 2) 14,213,000 11,955,987 11,826,517
Net (loss) gain on sales
of investments (Note 2) (241,623) 4,081,204 1,986,788
Change in market value of
marketable securities (2,627,640) - -
Other 397,640 781,430 1,391,165
---------- ---------- ----------
47,745,363 65,181,086 60,353,621
---------- ---------- ----------
EXPENSES:
General and administrative 2,952,382 3,262,279 2,833,881
Cost of sales and expenses
of General Engineers
Limited (Note 2) 13,530,333 11,224,283 11,238,017
---------- ---------- ----------
16,482,715 14,486,562 14,071,898
---------- ---------- ----------
Income before income
taxes and cumulative
effect of accounting
changes 31,262,648 50,694,524 46,281,723
Income Taxes (Note 4) 1,169,256 7,550,950 13,175,631
---------- ---------- ----------
Income before cumulative
effect of accounting
changes 30,093,392 43,143,574 33,106,092
Cumulative effect of
changes in accounting for:
Marketable securities
(Note 2) 2,472,879 - -
Income taxes (Note 2) - (1,173,713) -
---------- ---------- ----------
Net income $32,566,271 $41,969,861 $33,106,092
========== ========== ==========
4
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(continued)
Years Ended December 31,
------------------------
1994 1993 1992
----- ----- -----
Earnings per common share
before cumulative effect
of accounting changes $ 1.60 $ 2.30 $ 1.89
Cumulative effect on
earnings per common share
of changes in accounting for:
Marketable securities 0.13 - -
Income taxes - (0.06) -
Earnings per common -------- -------- --------
share (Note 5) $ 1.73 $ 2.24 $ 1.89
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE><CAPTION>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Note 5)
--------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
Unrealized Gain Cumulative
Common Paid-in On Marketable Translation Retained Treasury
Stock Capital Securities Adjustment Earnings Stock Total
----- ------- ---------- ---------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $15,758,588 $64,443,910 $ - $ - $125,723,319 $ - $205,925,817
Common stock issued 3,000,000 34,641,340 - - - - 37,641,340
Paid-in capital of
Affiliated Companies - (6,298) - - - - (6,298)
Net income - - - - 33,106,092 - 33,106,092
---------- ---------- --------- ---------- ----------- ----------- -----------
Balance, December 31, 1992 18,758,588 99,078,952 - - 158,829,411 - 276,666,951
Paid in capital of
Affiliated Companies - 178,119 - - - - 178,119
Cumulative translation
adjustment - - - (11,578,060) - - (11,578,060)
Net income - - - - 41,969,861 - 41,969,861
---------- ---------- --------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 18,758,588 99,257,071 - (11,578,060) 200,799,272 - 307,236,871
Cumulative effect of change in
accounting for available-for-sale
equity securities, net of tax
(Note 2) - - 3,790,603 - - - 3,790,603
Paid in capital of
Affiliated Companies - 355,816 - - - - 355,816
Change in market value for
available-for-sale equity
securities, net of tax - - (945,253) - - - (945,253)
Issuance of 13,193,592
new common shares in
exchange for 13,193,592
common shares 13,193,592 - - - - (13,193,592) -
Cumulative translation
adjustment - - - (1,535,943) - - (1,535,943)
Net income - - - - 32,566,271 - 32,566,271
---------- ---------- --------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 $31,952,180 $99,612,887 $2,845,350 $(13,114,003) $233,365,543 $(13,193,592) $341,468,365
========== ========== ========= =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
</TABLE>
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended December 31,
------------------------
1994 1993 1992
------ ------ ------
Cash Flows From Operating
Activities:
Net income $ 32,566,271 $ 41,969,861 $ 33,106,092
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities -
Cumulative effect of
changes in accounting for:
Income taxes - 1,173,713 -
Marketable securities (2,472,879) - -
Change in market value of
marketable securities 2,627,640 - -
Purchase of marketable
securities (16,398,296) - -
Proceeds from sale of
marketable securities 11,155,477 - -
Equity in net income
of Affiliated
Companies (25,337,908) (33,541,985) (30,301,198)
Loss (gain) on sales of
investments 241,623 (4,081,204) (1,986,788)
Loss (gain) on invest-
ment in partnerships 374,762 542,844 (1,130,454)
(Income) loss of
consolidated subsidiaries (892,667) (1,255,724) 42,548
Amortization of premiums
(discounts) on
receivables, net 130,168 208,272 (15,730)
Net gain on issuance
of shares by Affiliated
Companies (7,091,593) (11,451,371) (11,291,327)
Dividends from
Affiliated Companies 4,831,736 5,298,806 7,722,927
Increase in other
assets (119,927) (639,145) (682,545)
Provision for deferred
income taxes (500,267) 5,250,466 8,750,402
Increase (decrease)
in other liabilities 70,042 630,238 (3,616,870)
Write-off of deferred
charges - 110,457 -
---------- ----------- ----------
Net cash (used in)
provided by operating
activities $ (815,818) $ 4,215,228 $ 597,057
----------- ----------- ----------
7
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(continued)
Years Ended December 31,
------------------------
1994 1993 1992
------ ------ ------
Cash Flows From Investing
Activities:
Purchase of U.S. Government
and state obligations $ - $(16,660,422) $ -
Collection of U.S.
Government and state
obligations 10,495,505 2,616,845 -
Purchases of notes
receivable (62,011) (1,370,518) (212,642)
Collection of capital
notes and loans
receivable 97,522 4,172,522 95,233
Proceeds from sales of
equity interests 2,399,735 18,233,803 13,704,030
Purchase of equity
interests (34,044,474) (34,581,590) (20,799,406)
----------- ----------- ----------
Net cash used in
investing
activities (21,113,723) (27,589,360) (7,212,785)
----------- ----------- ----------
Cash Flows From Financing
Activities:
Proceeds from issuance
of common stock - - 37,641,340
----------- ----------- ----------
Net cash provided
by financing
activities - - 37,641,340
----------- ----------- ----------
Net (decrease)
increase in
cash and cash
equivalents (21,929,541) (23,374,132) 31,025,612
Cash and Cash Equivalents,
beginning of year 42,665,957 66,040,089 35,014,477
----------- ----------- ----------
Cash and Cash Equivalents,
end of year $ 20,736,416 $ 42,665,957 $ 66,040,089
=========== ========== ==========
8
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(continued)
Years Ended December 31,
------------------------
1994 1993 1992
------ ------ ------
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the
year for income taxes $1,576,871 $2,041,263 $7,953,546
Non-cash investing
activities-
Purchase of invest-
ments on account - - 4,316,000
Balance of funds
pending receipt on
sale of investments - - 156,000
Exchange of shares of
Tefron - 859,323 -
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. THE COMPANY
-----------
PEC Israel Economic Corporation and subsidiaries (the "Company") organizes,
acquires interests in, finances and participates in the management of companies
which are located in the State of Israel or are Israel-related. The Company is
a subsidiary of IDB Development Corporation Ltd. ("IDB Development"). Discount
Investment Corporation Ltd. ("Discount Investment") is also a subsidiary of IDB
Development. IDB Development is a subsidiary of IDB Holding Corporation Ltd.
("IDB Holding"). All of these companies are hereinafter referred to as the "IDB
Group Companies". As of December 31, 1994, IDB Development owned approximately
70.3% of the Company's outstanding common stock. For additional discussion, see
Notes 3(e) and 5.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Investments
-----------
The Company accounts for substantially all of its investments on the equity
method. Under the equity method, the Company records its proportionate share of
profits and losses and capital transactions based on its percentage of direct
and indirect interests in earnings of companies 20% to 50% owned and in
companies less than 20% owned in which the Company, together with the IDB
Group Companies, has the ability to exercise significant influence. These
investees are collectively referred to as "Affiliated Companies".
The excess of cost over net assets acquired and the excess of net assets
acquired over cost, to the extent not otherwise applied, is amortized primarily
over a ten-year period. Gains and losses on issuances of shares by Affiliated
Companies are recognized in the accompanying consolidated statements of income.
Equity in net income of Affiliated Companies is reflected in the Company's
financial statements based upon their fiscal years, all of which are December
31.
The Company consolidates its wholly owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
General Engineers Limited, a wholly
10
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd
------------------------------------------
owned Israeli subsidiary of the Company, sells various types of equipment in
Israel, especially power generation equipment. Its assets, liabilities, and
operations are grouped and presented separately in the accompanying consolidated
financial statements.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards 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 ($3,804,429 before taxes), or
$0.13 per share, which increase is reported separately in the accompanying
consolidated 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 loss, net of taxes, from those securities
included in shareholders' equity as of December 31, 1994 was $945,253. The
consolidated balance sheet as of December 31, 1993, included in investments
marketable securities (classified as either "trading securities" or "available
for sale securities") with a market value before taxes of $32 million and a cost
of $24.1 million. For 1993 and 1992, these investments are carried at the lower
of aggregate cost or market. Costs of marketable equity securities, excluding
Affiliated Companies, are determined on a specific identification basis in
calculating gains or losses.
Foreign Currency Translations
-----------------------------
Two foreign subsidiaries and several Affiliated Companies prepare their primary
financial statements in their local currency, the New Israel Shekel ("NIS"), in
accordance with generally accepted accounting principles in Israel, which
require financial statements
11
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd
------------------------------------------
Foreign Currency Translations
-----------------------------
to be adjusted for the effects of inflation in Israel. For purposes of the
Company's financial statements, these subsidiaries and Affiliated Companies
provide financial information, which for 1994 and 1993 is in the local currency
and for 1992 is in U.S. dollars, prepared in accordance with United States
generally accepted accounting principles.
During 1993, it was determined that the economy of the State of Israel should no
longer be considered "highly inflationary" under the guidelines of Statement of
Financial Accounting Standards No. 52. Accordingly, NIS financial information
is prepared by subsidiaries and Affiliated Companies whose "functional currency"
is the local currency based on their dollar balances as of December 31, 1992 and
reflecting their activity during 1994 and 1993 in NIS, which is then translated
based on exchange rates at year-end for assets and liabilities and at average
exchange rates for revenues and expenses. Translation differences are reflected
as a component of shareholders' equity under the caption "Cumulative Translation
Adjustment". Upon disposition of an investment, the related cumulative
translation adjustment balance will be recognized in determining income or loss.
If the NIS is devalued against the dollar, such cumulative translation
adjustments are likely to result in reductions of shareholders' equity. This
change in the accounting of the functional currency does not affect Affiliated
Companies whose "functional currency" is the dollar, as their accounting
continues as described in the following paragraph.
Prior to 1993, and for Affiliated Companies whose functional currency is the
U.S. dollar, assets and liabilities of foreign subsidiaries and Affiliated
Companies were and are translated using year-end exchange rates, except for
property and equipment, inventory and certain investment and equity accounts
which are translated at exchange rates prevailing on the dates of acquisition.
Revenues and expenses are translated primarily at the exchange rates in effect
at the time of the relevant transactions and partially at average rates of
exchange during the year. Revenue and expense items relating to assets
translated at historical rates are translated on the same basis as the related
asset. Translation differences are included in the determination of income for
the year.
12
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd
------------------------------------------
Provision for Income Taxes
--------------------------
The provision for income taxes is based on revenues and expenses reported for
financial statement purposes. Deferred taxes arise from the different treatment
of certain items for tax and financial statement reporting purposes, which
result primarily from equity in the net income of, and net gain on issuance of
shares by, Affiliated Companies and the change in market value of marketable
securities in accordance with SFAS 115. The balance of deferred income taxes at
December 31, 1994 was approximately $32 million. The Company's foreign
subsidiaries and the Affiliated Companies file separate tax returns and provide
for taxes accordingly.
Effective on January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, the deferred income tax provision is determined under the liability
method. Under this method, deferred tax assets and liabilities are recognized
based on differences between financial statement and income tax bases of assets
and liabilities using presently enacted tax rates. Deferred income tax expense
principally represents such temporary differences related to investments in
Affiliated Companies. The cumulative effect on prior years of this change in
accounting principle was a reduction of net income of $1,173,713, or $.06 per
share, and is reported separately in the accompanying consolidated statements of
income. Prior years' consolidated financial statements have not been restated
to apply the provisions of SFAS 109.
Deferred income taxes of approximately $51 million have not been accrued on the
Company's temporary differences, totaling approximately $145 million, related to
its investments in Affiliated Companies which are more than 50% owned by the IDB
Group Companies and two other companies in which the IDB Group Companies have
effective control. Such amounts are currently expected to be permanently
reinvested in these companies.
Cash Equivalents
----------------
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Reclassification
----------------
Certain reclassifications have been made to the 1993 and 1992 consolidated
financial statements to conform with the 1994 presentation.
13
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. INVESTMENTS
-----------
Certain information about the Company's investments follows
(in thousands):
December 31,
---------------------------------------
1994 1993
------------------- -------------------
Percentage Carrying Percentage Carrying
Owned Value Owned Value
---------- -------- ---------- --------
Affiliated Companies:
Tambour Ltd.(a)(i) 42% $ 54,495 45% $ 39,874
Scitex Corporation Ltd.
(b)(i) 6% 47,113 6% 43,974
Super-Sol Ltd.(c)(i) 19% 38,243 19% 33,362
Property and Building
Corporation Ltd.
(d)(i) 31% 35,510 31% 31,614
Elron Electronic
Industries Ltd.
(f)(g)(i) 13% 29,638 11% 18,372
El-Yam Ships Ltd.
(e)(f) 10% 23,808 10% 21,587
Caniel-Israel Can
Company Ltd.(f)(i) 29% 13,683 28% 11,600
Klil Industries Ltd.
(f)(i) 15% 10,668 15% 9,642
Mul-T-Lock Ltd.(f)(g)(i) 14% 5,860 14% 5,001
CellCom Israel Ltd.* (f)
See Note 6(c) 10% 6,633 - -
Gilat Satellite Networks
Ltd. (f)(g)(i) 10% 4,009 10% 3,455
DIC and PEC Cable TV Ltd.(f)
See Note 6(a) 49% 3,154 49% 2,573
Lego Irrigation Ltd.(f)(g)(i) 13% 2,768 16% 2,335
Electronics Line (E.L.)
Ltd.(f)(i) 14% 2,403 14% 2,494
Nice Systems Ltd. (i) 10% 2,385 6% 1,712
Liraz Systems Ltd. (f)(i) 9% 2,376 - -
DEP Technology Holdings
Ltd.*(f) See Note 6(f) 33% 1,953 33% 1,171
14
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
December 31,
---------------------------------------
1994 1993
------------------- -------------------
Percentage Carrying Percentage Carrying
Owned Value Owned Value
---------- -------- ---------- --------
Maxima Air Separation
Center Ltd. (f)(i) 12% $ 1,938 12% $ 1,770
Gemini Israel Fund L.P.
See Note 6(h) 11% 1,765 11% 780
Gilat Communication
Engineering 1990
Ltd. (f) 13% 747 11% 264
Tel-Ad Jerusalem Studios
Ltd.* (f) See Note 6(b) 12% 460 - 240
Tefron Ltd. (g) 13% 259 13% 312
Sano Dispec Development
Ltd. 25% 226 - -
Adir International
Communications Services
Ltd.(f) 25% 221 25% 62
Camdev Ltd.(f) 26% 139 26% 175
Logal Educational Software
and Systems, Ltd. (f) 6% 95 8% 113
Sign-On Computer
Communications Services
Ltd. (f) 13% 79 13% 83
Bulk Trading Corporation
Ltd.** (f) 50% - 50% -
RPA Leasing Inc.** 25% - 25% -
RTS Telecommunications
Services Ltd.** 15% - 15% -
Tius Elcon Ltd. 13% - 13% 300
--------- ---------
$ 290,628 $ 232,865
--------- ---------
15
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
December 31,
---------------------------------------
1994 1993
------------------- -------------------
Percentage Carrying Percentage Carrying
Owned Value Owned Value
---------- -------- ---------- --------
Other:
Israel Discount Bank
of New York (j) $ 26,965 $ 26,965
"Delek"-The Israel Fuel
Corp. Ltd. (k) 5,407 -
Renaissance Fund LDC See Note 6(j) 2,164 -
Lipman Electronic
Engineering Ltd. 1,688 1,688
Advent Israel Limited
Partnership See Note 6(i) 333 154
MacPell Industries, Ltd. 180 502
Other long-term investments 128 307
---------- ---------
$ 36,865 $ 29,616
========== =========
Investment in limited
partnerships 5,207 7,598
Notes receivable 369 2,398
U.S. Government and State
obligations 3,098 11,833
Investments in marketable
securities 13,457 8,175
---------- ---------
$349,624 $292,485
========== =========
*Included in the carrying values are the following loans to
Affiliated Companies (in thousands):
December 31,
-----------------------
1994 1993
--------- --------
CellCom Israel Ltd. $6,633 $ -
DEP Technology Holdings Ltd. 1,953 1,171
Tel-Ad Jerusalem Studios Ltd. 460 -
**Negative equity of $228,000 in Bulk Trading and $1,150,000 in RPA
Leasing and RTS Telecommunications is included in other liabilities.
16
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Information about certain Affiliated Companies follows:
(a) Tambour Ltd. ("Tambour") is Israel's largest paint producer. Summarized
financial information for Tambour follows (in thousands):
December 31,
--------------------------
1994 1993 1992
------- -------- --------
Current assets $ 96,506 $ 81,059 $ 58,288
Total assets 154,562 114,335 78,630
Current liabilities 18,877 17,424 20,462
Shareholders' equity 128,986 95,609 56,713
Revenue 123,060 127,046 124,435
Income before taxes on
income 22,549 24,327 27,129
Net income 19,618 17,446 15,908
In February 1993, Tambour completed a public offering of ordinary
shares and one and two year options to purchase ordinary shares in
Israel. Such shares are traded on the Tel Aviv Stock Exchange. The
sale of shares and options raised approximately $27 million of
capital for Tambour. As a result of the offering and subsequent
exercises of certain of the options, the Company's proportionate
share in Tambour decreased from 50% to 44.9%, and the Company
realized a gain of approximately $8.5 million in 1993.
In February 1994, all of the then outstanding one year options were
exercised and Tambour's capital rose by $20 million. As a result,
the Company's proportionate share in Tambour decreased to 41%, and
the Company realized a gain on issuance of shares by Tambour of
approximately $5.9 million in 1994. In February 1995, all of the
unexercised two-year options expired.
17
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(b) Scitex Corporation Ltd. ("Scitex") is a world leader in digital visual
information communication for the graphic design, printing, publishing
and video markets. Scitex develops, manufactures and markets a broad
range of digital prepress, digital printing and digital video products.
Summarized financial information for Scitex follows (in thousands):
December 31,
----------------------------
1994 1993 1992
-------- -------- --------
Current assets $759,259 $675,626 $620,214
Total assets 942,023 885,917 776,244
Current liabilities 190,724 168,553 134,263
Shareholders' equity 749,735 716,259 641,290
Revenues 704,138 622,760 549,697
Income before taxes on income 79,320 106,221 146,021
Net income 63,750 94,339 122,375
In May 1992, Scitex sold newly issued shares to International Paper Co.
representing approximately 11% of the share capital of Scitex for
approximately $209 million. This sale resulted in a net gain after taxes
to the Company of approximately $6 million in 1992.
(c) Super-Sol Ltd. operates one of the largest chains of supermarkets
throughout Israel. Summarized financial information for Super-Sol Ltd.
follows (in thousands):
December 31,
----------------------------
1994 1993 1992
-------- -------- --------
Current assets $181,160 $144,121 $126,949
Total assets 338,711 274,875 264,124
Current liabilities 125,638 92,818 93,226
Long-term debt 6,699 5,506 4,160
Shareholders' equity 201,458 175,301 164,568
Income 635,830 531,775 518,058
Earnings before taxes 43,340 38,137 33,607
Net earnings 30,970 25,560 19,391
18
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(d) Property and Building Corporation Ltd. ("Property and Building") is one
of the largest real estate holding and development companies in Israel.
Summarized financial information for Property & Building follows (in
thousands):
December 31,
----------------------------
1994 1993 1992
------- -------- --------
Current assets* $ 55,050 $ 65,182 $ 55,821
Total assets 230,689 204,885 178,968
Current liabilities 38,975 31,447 13,987
Long-term liabilities 22,917 23,097 26,119
Shareholders' equity 115,971 101,388 95,922
Income 95,925 78,365 37,343
Earnings before taxes
on income 30,705 27,304 25,032
Net earnings 15,868 15,229 10,121
* Including building
projects and inventories 9,754 9,458 21,457
(e) El-Yam Ships Ltd. ("El-Yam") is engaged, through subsidiaries, in
worldwide ocean transportation of oil and dry bulk cargoes, such as
grains, coal and iron ore, under charters for varying durations. El-Yam
owns nonvoting preferred stock of Financial Holdings El-Yam (Hamigdal)
Ltd. ("FHEY") representing substantially all of the equity in FHEY. As
of December 31, 1994, FHEY owned 36.3% of the outstanding shares of IDB
Holding. The Company owns approximately 10.1% of the voting common
stock of FHEY.
19
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
IDB Holding, through IDB Development, has an equity interest in Clal
(Israel) Ltd. ("Clal"), a publicly traded Israeli company. El-Yam's
proportionate interest in Clal is approximately 8% and the Company's
proportionate share is, therefore, approximately 0.8%. Prior to 1993,
the Company's investment in Clal was carried at cost because of the
inability to obtain the financial information in U.S. dollars in
accordance with U.S. generally accepted accounting principles that was
necessary in order to record the Company's share in the results of Clal
on the equity basis. For 1993 and 1994, the results of Clal are included
on the equity basis. El-Yam's auditors, in their report on the financial
statements prepared for the Company's purposes, indicate that the
investment prior to 1993 was carried at cost. In view of the Company's
insignificant effective net ownership interest and based on information
provided by Clal, management believes the effect on the Company's
financial statements for 1992 is not material.
(f) The following summarized financial information represents an aggregation
of the Company's percentage interests in the Affiliated Companies for
which summarized financial information is not provided in the previous
notes (in thousands):
December 31,
-------------------------
1994 1993 1992
------- ------- -------
Current assets $ 51,385 $ 33,516 $ 28,722
Total assets 146,094 104,199 86,928
Long-term debt 17,613 7,758 9,558
Shareholders' equity 92,854 74,468 53,701
Revenue 58,877 45,659 42,334
Net income 5,186 6,292 7,544
(g) Significant capital transactions during the three years
ended December 31, 1994 that are not otherwise discussed
in Note 3 are as follows:
On March 16, 1992, Elron Electronic Industries Ltd. issued shares and
options to purchase shares in Elron and in its affiliate Elbit Ltd. for
approximately $23 million. This transaction resulted in the Company's
share in Elron being reduced by 0.9% to 11.3% and in a net gain after
taxes of approximately $1 million.
In January 1993, Mul-T-Lock Ltd. issued shares for approximately $7
million in a private placement. As a result, the Company's share in
Mul-T-Lock Ltd. decreased by approximately 1% to 13.6% and the Company
realized a gain of approximately $0.7 million.
20
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
In April 1993, Gilat Satellite Networks Ltd. sold ordinary shares in an
underwritten initial public offering in the United States. As a result
of the sale, the Company's share in Gilat Satellite Networks Ltd.
decreased from 13% to 9% and the Company realized a gain of
approximately $2.2 million.
In September 1993, the Company sold 30% of the shares of Tefron Ltd.
resulting in the Company realizing a gain from the sale of approximately
$0.7 million. As a result of this sale, the Company eliminated a
reserve of $2.2 million for Tefron Ltd. which was no longer required.
In September 1993, the Company recognized a gain of approximately $1.7
million resulting from the sale by C.I.D.L., Inc. ("CIDL") of all of
its shares of F.I.B.I. Holding Company Ltd. In October 1993, the
Company sold all of its holdings in CIDL to the other shareholder of
CIDL at its carrying value of such holdings.
In January 1994, Lego Irrigation Ltd. sold ordinary shares in an
underwritten initial public offering in Israel. As a result of the
sale, the Company's share in Lego Irrigation Ltd. decreased from 16% to
13% and the Company realized a gain of approximately $500,000.
(h) The Company's equity in the net income of Affiliated Companies by major
lines of business was as follows (in thousands):
December 31,
-------------------------
1994 1993 1992
------ ------ ------
High technology and
communications $ 1,056 $ 5,124 $10,430
Industry 12,180 13,855 11,095
Construction and development 4,701 4,730 3,112
Shipping, marketing and other 7,401 9,833 5,664
------- ------- -------
$25,338 $33,542 $30,301
======= ======= =======
21
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(i) Certain of the Affiliated Companies are publicly traded and their shares
are quoted on the Tel Aviv Stock Exchange and/or U.S. exchanges. The
market values of the shares owned by the Company, based on the closing
sale price on the principal market on which such shares are traded,
were approximately $302 million and $499 million and their carrying
values were approximately $251 million and $201 million at December 31,
1994 and 1993, respectively. The market value at March 26, 1995 of
shares owned by the Company at December 31, 1994 was approximately $297
million.
(j) Pursuant to an exchange agreement entered into between the Company and
Israel Discount Bank of New York ("IDBNY") in March 1992, the Company
exchanged its common equity interest in IDBNY for nonvoting preferred
shares of IDBNY. Israel Discount Bank Ltd. ("IDBL"), which owns all the
shares of IDBNY other than those owned by the Company, has an option to
acquire the nonvoting preferred shares from the Company at any time up to
September 1995 for approximately $27 million. If IDBL at any time
disposes of IDBNY common shares representing more than 75% of the equity
or voting power in IDBNY, the Company has the right to require the
purchase of the IDBNY nonvoting preferred stock held by the Company at a
price equal to approximately $27 million.
From January 1, 1992, the Company has accounted for its investment in
IDBNY on the cost method. The preferred stock of IDBNY pays an annual
preferred dividend equal to the preferred stock's share of IDBNY's net
income for the year, based generally on the preferred stock's
proportionate share of IDBNY's total shareholders' equity at the
beginning of that year. For this purpose, the preferred stock
constituted approximately 9.0%, 8.9% and 8.6% of the total
shareholders' equity of IDBNY for the years that began on January 1,
1992, 1993 and 1994, respectively. Such preferred stock constitutes
approximately 8.2% of such shareholders' equity for the year beginning on
January 1, 1995. The Company recognizes such dividend income on a
quarterly basis based upon IDBNY's net income for such quarter.
22
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(k) As of December 31, 1994, the Company owned a 2% equity interest in
"Delek" - The Israel Fuel Corporation Ltd. ("Delek") which it acquired
in the summer of 1994 through market purchases on the Tel Aviv Stock
Exchange, and Discount Investment owned a 26% equity interest in Delek.
The Company classifies its equity interest in Delek as "available-for-
sale securities". Delek is not being accounted for under the equity
method because Delek has been unable to provide the Company with its
financial statements for the year ended December 31, 1994 prepared in
accordance with United States generally accepted accounting principles.
At March 26, 1995 and December 31, 1994 the market value of the Company's
equity interest in Delek based on the closing price of Delek's shares on
the Tel Aviv stock exchange was $5,463,622 and $5,407,345, respectively,
and the cost of such equity interest was $4,907,956.
4. INCOME TAXES
------------
The U.S. and Foreign components of income before income taxes are as follows (in
thousands):
December 31,
-------------------------
1994 1993 1992
------ ------ ------
U.S. $ 4,176 $12,971 $13,400
Foreign 27,087 37,724 32,882
------- ------- -------
$31,263 $50,695 $46,282
======= ======= =======
Income tax expense is made up of the following components
(in thousands):
December 31,
--------------------------
1994 1993 1992
---- ---- ----
Current:
U.S. $ 210 $ 465 $ 1,663
Foreign 1,459 1,836 2,764
Deferred (500) 5,250 8,749
------ ------- ------
$ 1,169 $ 7,551 $13,176
======= ======= ======
Deferred income tax expense principally represents temporary differences related
to equity in net income of, and gain on issuances of shares by, Affiliated
Companies and to changes in the market value of marketable securities.
23
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INCOME TAXES - cont'd
------------
A reconciliation of income tax expense as reflected in the accompanying
statements with the statutory U.S. Federal income tax rate is as follows (in
thousands):
December 31,
------------------------
1994 1993 1992
------ ------ ------
U.S. income taxes at statutory
rates (35% for 1994,
and 1993 and 34% for 1992) $10,942 $17,743 $15,736
Excess of taxes at statutory
rates over taxes provided
on equity in net income
of, and net gain on
issuance of shares by,
Affiliated Companies (9,364) (10,080) (4,227)
Additional provision for
deferred taxes relating
to increase in statutory
rate to 35% - 688 -
Other (409) (800) 1,667
------- ------- -------
$ 1,169 $ 7,551 $13,176
======= ======= =======
5. SHAREHOLDERS' EQUITY
--------------------
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
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.
On June 1, 1992, the Company sold 3,000,000 newly issued shares of common stock
in an underwritten public offering, generating net proceeds of $37.6 million
after underwriting discounts, commissions and other expenses.
24
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SHAREHOLDERS' EQUITY - cont'd
--------------------
Earnings Per Common Share
-------------------------
The computations of earnings per common share are calculated using the weighted
average number of common shares outstanding during the year. The weighted
average number of outstanding shares in 1994 and 1993 was 18,758,588 and the
weighted average number of outstanding shares in 1992 was 17,508,588.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
(a) Tevel Israel International Communications Ltd. ("Tevel"), which is held
48.4% by DIC and PEC Cable TV Ltd., was awarded in 1988 cable television
franchises in Israel. Under the terms of the franchise, the Company and
Discount Investment are jointly committed to arrange for 51% of the
financing required by Tevel to perform its franchise obligations. The
Company has not arranged any financing for Tevel since October 1992 and
does not presently anticipate being required to arrange any such
financing in the near future.
(b) Tel-Ad Jerusalem Studios Ltd. ("Tel-Ad") is one of the three companies
Israel's Second Authority for Television and Radio awarded a franchise in
1993 to operate Israel's second television station. The Company is
obligated to provide up to $4 million of the financing required by Tel-Ad
to fulfill its obligations under the franchise.
(c) CellCom Israel Ltd. ("CellCom") was awarded the license to operate
Israel's second cellular telephone system in June 1994. CellCom intends
to invest approximately $300 million through 1997 in the development and
operation of the new cellular telephone system, of which approximately
$130 million will be financed by CellCom's shareholders in proportion to
their percentage interests in CellCom. At December 31, 1994, the
Company had made shareholder loans to CellCom of $8.25 million. In
March 1995, in response to a capital call by CellCom, the Company
provided an additional $2.3 million of financing to CellCom.
25
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
COMMITMENTS AND CONTINGENCIES - cont'd
-----------------------------
In addition, 20.7% of the amounts payable by CellCom to a bank in
connection with certain letters of credit made available by the bank to
CellCom are guaranteed by a subsidiary of Discount Investment ("DIC's
Subsidiary"). At December 31, 1994 and March 29, 1995 this guarantee of
DIC's Subsidiary secured approximately $3.6 million and $3.8 million,
respectively, of such amounts. The Company and DIC's Subsidiary have
agreed that any payment pursuant to such guarantee will be shared by them
according to the ratio between their respective ownership interests in
CellCom when such payment is made. At December 31, 1994, the ownership
interests of the Company and of DIC's Subsidiary in CellCom were 9.5% and
13.5%, respectively. In accordance with the agreement referred to in
Note 6(g) and subject to the approval of Israel's Minister of
Communication, an additional 2% ownership interest in CellCom will be
transferred to the Company from DIC's Subsidiary.
(d) The Company has contracted with IDB Development for IDB to perform
management and advisory services for the Company in Israel, including
advice as to financial, economic, accountancy, legal and tax matters, for
an annual fee of $130,000. During each of 1994, 1993 and 1992, the
Company incurred expenses of $130,000 for these and other services.
(e) General Engineers Limited has a $2 million credit agreement with a bank.
The Company has agreed with the bank that General Engineers Limited will
remain a subsidiary of the Company as long as the credit agreement is in
effect.
(f) The Company has agreed to contribute up to $9.0 million over a 10 year
period ending in 2003 in DEP Technology Holdings Ltd. ("DEP") of which
the Company had contributed $3.0 million as of December 31, 1994
through the purchase of capital notes of DEP.
26
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
COMMITMENTS AND CONTINGENCIES - cont'd
-----------------------------
(g) The Company and a wholly owned subsidiary of Discount Investment are
parties to an agreement under which, among other things, each party
provides services to the other party and offers the other party equal
participation in new business opportunities. In consideration for such
services and offers, each party pays the other a fee of 2 1/2% of the
equity invested by such paying party in business opportunities initiated
or initially presented by the other party. In 1994 the Company paid the
wholly owned subsidiary of Discount Investment $101,500 under this
agreement.
(h) In connection with the Company's investment in Gemini Israel Fund L.P.
("Gemini"), a venture capital limited partnership, the Company has agreed
to make capital contributions of up to $3.0 million to Gemini. At
December 31, 1994, the Company had contributed approximately $2.0 million
to Gemini's capital.
(i) In connection with the Company's investment in Advent Israel Limited
Partnership ("Advent Israel"), a venture capital limited partnership, the
Company has agreed to make capital contributions of up to $500,000 to
Advent Israel. At December 31, 1994, the Company had contributed
approximately $333,000 to the capital of Advent Israel.
(j) In connection with the Company's investment in Renaissance Fund LDC
("Renaissance"), the Company has agreed to make capital contributions of
up to $5.0 million to Renaissance. At December 31, 1994, the Company had
contributed approximately $2.2 million to Renaissance. In March 1995,
the Company contributed an additional $1.1 million to Renaissance.
(k) Certain directors of IDB Holding and/or its affiliates are
also directors of the Company.
27
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 107 ("SFAS No. 107") entitled "Disclosures about Fair
Value of Financial Instruments" which requires entities to disclose information
about the estimated fair values of their financial instruments. SFAS No. 107
does not apply to investments accounted for under the equity method (See Note
3).
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and Cash Equivalents
-------------------------
The carrying value approximates fair value because of the short maturity of
those instruments.
Investments
-----------
The fair value of some investments are estimated based on quoted market prices
for those or similar investments or based on contractual amounts.
For those investments for which there are no quoted market prices, management
estimates fair value to approximate the carrying value.
1994 1993
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- -------
(in thousands) (in thousands)
Cash and cash equivalents $ 20,736 $ 20,736 $42,666 $42,666
Investments-
Other 55,591 55,859 50,516 58,524
U.S. Government and State
obligations 3,098 3,098 11,833 11,939
Other assets-
U.S. Government and State
obligations 1,111 1,092 1,045 1,108
28
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
8. QUARTERLY RESULTS OF OPERATIONS - (UNAUDITED)
---------------------------------------------
Quarter Ended
--------------------------------------------
1994 March 31 June 30 September 30 December 31
----- -------- ------- ------------ -----------
(in thousands, except per share data)
Revenues $14,185 $10,970 $14,854 $ 7,736
====== ====== ====== ======
Income before
cumulative effect of
accounting change $ 9,791 $ 6,179 $ 9,505 $ 4,618
Cumulative effect of
change in accounting
for marketable
securities 2,473 - - -
------ ------ ------ ------
Net income $12,264 $ 6,179 $ 9,505 $ 4,618
====== ====== ====== ======
Earnings per
common share
before cumulative
effect of account-
ing change $ .52 $ .33 $ .51 $ .24
Cumulative effect
of change in
accounting for
marketable
securities
on earnings
per common share .13 - - -
------ ------ ------ ------
Earnings per
common share $ .65 $ .33 $ .51 $ .24
====== ======= ====== ======
29
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
QUARTERLY RESULTS OF OPERATIONS - (UNAUDITED) - cont'd
---------------------------------------------
Quarter Ended
--------------------------------------------
1993 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
(in thousands, except per share data)
Revenues $18,485 $17,834 $16,049 $12,813
====== ====== ====== ======
Income before
cumulative effect of
accounting change $13,264 $12,328 $10,349 $ 7,203
Cumulative effect of
change in accounting
for income taxes (1,174) - - -
------ ------ ------ ------
Net income $12,090 $12,328 $10,349 $ 7,203
====== ====== ====== ======
Earnings per
common share
before cumulative
effect of account-
ing change $ .70 $ .66 $ .55 $ .39
Cumulative effect
of change in
accounting for
income taxes
on earnings
per common share (.06) - - -
------ ----- ------ ------
Earnings per
common share $ .64 $ .66 $ .55 $ .39
====== ===== ====== ======
30
<PAGE>
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------- --------------------------------------------------
See Item 13 Below. Information with respect to
executive officers of the Company is included at the end of part
I above.
Item 11. EXECUTIVE COMPENSATION
-------- ----------------------
See Item 13 Below.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------- ---------------------------------------------------
MANAGEMENT
----------
See Item 13 Below.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------- ----------------------------------------------
The information called for under Items 10, 11, 12 and
13 is incorporated by reference from the definitive proxy
statement to be filed by the Company in connection with its 1995
Annual Meeting of Shareholders.
III-1
<PAGE>
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
-------- ------------------------------------------------------
FORM 8-K
--------
(a)(1) The following financial statements of PEC Israel
Economic Corporation are filed in response to Item 8:
Report of Independent Public Accountants.
Consolidated Balance Sheets at December 31, 1994 and
1993.
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
(a)(2)(a) Financial statement schedules filed in response to Item
14(d) pursuant to Rule 3-09 of Regulation S-X:
Property and Building Corporation Ltd. and Subsidiary
Companies:
Auditors' Report.
Balance Sheets as at December 31, 1994 and 1993.
Statements of Earnings for the years ended
December 31, 1994, 1993 and 1992.
Statement of Shareholders' Equity for the years
ended December 31, 1994, 1993 and 1992.
Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.
Notes to the Financial Statements.
(a)(2)(b) Financial statement schedules filed in response to Item
14(d) pursuant to Rule 3-09 of Regulation S-X:
Tambour Ltd. and Subsidiaries:
Report of Independent Auditors.
IV-1
<PAGE>
Consolidated Balance Sheets as at December 31,
1994 and 1993.
Consolidated Statements of Income for the years
ended December 31, 1994, 1993 and 1992.
Statement of Shareholders' Equity for the years
ended December 31, 1994, 1993 and 1992.
Consolidated Cash Flows Statements for the years
ended December 31, 1994, 1993 and 1992.
Balance Sheets as at December 31, 1994 and 1993.
Statements of Income for the years ended December
31, 1994, 1993 and 1992.
Cash Flows Statements for the years ended December
31, 1994, 1993 and 1992.
Notes to the Consolidated Financial Statements.
(a)(2)(c) Reports of certified public accountants with respect to
the financial statements of the following entities filed pursuant
to Rule 2-05 of Regulation S-X:
Adir International Communications Services Ltd.
Bulk Trading Corporation Ltd.
Camdev Ltd.
Caniel-Israel Can Company Ltd.
CellCom Israel Ltd.
DEP Technology Holdings Ltd.
DIC and PEC Cable TV Ltd.
Electronics Line (E.L.) Ltd.
Elron Electronic Industries Ltd.
El-Yam Ships Ltd.
Gemini Capital Fund Management Ltd.
Gemini Israel Fund L.P.
IV-2
<PAGE>
Gilat Communication Engineering 1990 Ltd.
Gilat Satellite Networks Ltd.
Ispah Holdings Limited
Klil Industries Ltd.
Lego Irrigation Ltd.
Liraz Systems Ltd.
Logal Educational Software and Systems Ltd.
Maxima Air Separation Center Ltd.
Mul-T-Lock Ltd.
PEC Finance Company Ltd.
RTS Telecommunications Services Ltd.
Scitex Corporation Ltd.
Sign-On Computer Communications Services Ltd.
Super-Sol Ltd.
Tel-Ad Jerusalem Studios Ltd.
(a)(2)(d) Schedules of PEC Israel Economic Corporation have been
omitted since they are not applicable or the required
information is shown in the financial statements or
notes thereto.
(a)(3) The following exhibits are included in response to
Item 14(c):
(3)(i). Composite Articles of Incorporation of the
Company, as amended, filed as Exhibit 3(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
(3)(ii). Composite By-Laws of the Company, as amended.
IV-3
<PAGE>
10(i)(a). Voting Agreement dated December 10, 1980 between
the Company and Discount Investment Corporation Ltd. (formerly
Discount Bank Investment Corporation Ltd.), as amended by a
Letter Agreement dated May 4, 1983 and by an Addendum dated
December 30, 1983, filed as Exhibit 10(i)(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
10(i)(b). Amendment to Exhibit 10(i)(a) dated December 10,
1990 filed as Exhibit 10(i)(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990 and
incorporated herein by reference.
10(i)(c). Amendment to Exhibit 10(i)(a) dated as of February
1, 1993 filed as Exhibit 10(i)(c) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 30, 1992 and
incorporated herein by reference.
10(i)(d). Shareholders' Agreement dated May 20, 1992 among
Clal Electronics Industries Ltd., the Company, Discount
Investment Corporation Ltd. and International Paper Company,
filed as Exhibit A to Amendment No. 13 to the Company's Statement
on Schedule 13D in respect of ordinary shares of Scitex
Corporation Ltd. held as of June 12, 1992 and incorporated herein
by reference.
10(i)(e). Business Opportunities Agreement dated as of
November 30, 1993 among the Company, DIC Finance and Management
Ltd., and, for the purpose of section 5 thereof only, PEC Finance
Company Ltd. and Discount Investment Corporation Ltd., filed as
Exhibit 10(i)(f) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein
by reference.
10(i)(f). Agreement dated December 24, 1991 between Israel
Discount Bank Ltd. and PEC Financial Corporation, as amended,
filed as Exhibit 10(i)(f) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10(i)(g). Exchange Agreement dated December 24, 1991
between Israel Discount Bank Ltd. and PEC Financial
Corporation, filed as Exhibit 10(i)(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991
and incorporated herein by reference.
IV-4
<PAGE>
10(i)(h). Agreement dated February 19, 1992 between Israel
Discount Bank of New York and PEC Financial Corporation, filed
as Exhibit 10(i)(h) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10(i)(i). Agreement dated December 31, 1991 between PEC
Loan Corporation Ltd. and IDB Development Corporation Ltd., filed
as Exhibit 10(i)(i) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10(i)(j). Agreement dated January 31, 1993 among the
Company, DIC Energy Holdings Ltd. and N.E.K. Properties Ltd. in
respect of ordinary shares of Tambour Ltd., filed as Exhibit
10(i)(k) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference.
10(i)(k). Exchange Agreement dated as of January 4, 1994
among the Company, PEC Holdings Limited and IDB Development
Corporation Ltd., filed as Exhibit 10(i)(l) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
10(iii)(a). Trust Agreement dated December 19, 1991 among the
Company, Alan S. Rosenberg, as Trustee, and Joseph Ciechanover,
filed as Exhibit 10(iii)(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.*
10(iii)(b). Supplemental Retirement Agreement dated as of
January 1, 1995 between the Company and Frank J.
Klein.*
21. Subsidiaries of the Registrant.
27. Financial Data Schedule.
Reports on Form 8-K:
(b) No reports on Form 8-K were filed during the fiscal
quarter ended December 31, 1994.
-------------------------
*This is a management contract or a compensatory plan or arrangement
required to be filed as an exhibit.
IV-5
<PAGE>
Property and Building Corporation Limited
and Subsidiary Companies
Financial Statements as at
December 31, 1994 and 1993
Adjusted to the Shekel of
December 1994
in NIS Thousands
<PAGE>
Property and Building Corporation Limited and Subsidiary Companies
Financial Statements as at December 31, 1994 and 1993
--------------------------------------------------------------------------------
Contents
Page
Auditors' Report 2
Balance Sheets 3
Statements of Earnings 4
Statement of Shareholders' Equity 5
Statements of Cash Flows 6
Notes to the Financial Statements 9
Annex - Percentage of Holding in Related Companies 53
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 9, 1995
The Board of Directors
Property and Building Corporation Limited
We have audited the balance sheets of Property and Building Corporation
Limited ("the Company") as at December 31, 1994 and December 31, 1993, the
related statements of earnings and shareholders' equity and cash flows for
each of the three years in the period then ended, expressed in New Israel
Shekels. These financial statements are the responsibility of the
Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance) - 1973, and, accordingly we
have performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 30 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the
above mentioned financial statements present fairly the financial position
of the Company as at December 31, 1994 and 1993, the results of its
operations, the changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter affects the determination of nominal
net profit and shareholders' equity to the extent summarized in Note 31 C.
to the financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
<TABLE><CAPTION>
Balance Sheet as at December 31
----------------------------------------------------------------------------------------------------------
Adjusted to the Shekel of December 1994
(in NIS thousands)
Consolidated The Company
---------------------------- ---------------------------
Note 1994 1993 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash
equivalents 2 23,219 30,225 635 837
Short-term deposits
and loans 662 1,391
Current maturities
of long-term deposits
and loans 1,195 1,163
Marketable securities 3 78,475 125,679 584 602
Compulsory government
loans 4 34 238
Customers 5 17,296 26,667 103 1
Accounts receivable
and debit balances 6 15,043 8,463 1,354 4,422
Building projects
and other inventories 7 37,709 38,952*
---------- ---------- ---------- ----------
173,633 232,778 2,676 5,862
---------- ---------- ---------- ----------
Land 8 187,792 170,725* 12,291 2,150*
---------- ---------- ---------- ----------
Long-term Deposits
and Loans 9 2,887 4,054
---------- ----------
Investments
In related and
other companies 10 111,902 101,876 501,810 467,297
---------- ---------- ---------- ----------
Fixed Assets 11
Buildings, land, plantations
and other 645,471 581,057* 37,577 37,804*
Less/- Accumulated
depreciation 200,961 191,931* 14,764 14,097
---------- ---------- ---------- ----------
444,510 389,126 22,813 23,707
Deferred Charges
and other assets 12 9,244 7,604* 360 382*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
929,968 906,163 539,950 499,398
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The notes to the financial statements form an integral part thereof.
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
-----------------------------------------------------------------------------------------------------------------
Adjusted to the Shekel of December 1994
(in NIS thousands)
Consolidated The Company
--------------------------- -------------------------
Note 1994 1993 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current Liabilities
Advances from
purchasers of
apartments and others 13 3,492 3,933
Credit from banking
entities 14 7,039 625
Current maturities
of long-term
liabilities 17 16,655 10,209 233 232
Creditors and
credit balances 15 76,616 84,848* 16,330 9,053
Deferred taxes 16 4,568 3,641
Proposed dividend 8,635 9,509 6,028 6,899
---------- ---------- ---------- ----------
117,005 112,765 22,591 16,184
---------- ---------- ---------- ----------
Long-term Liabilities
Long term loans 17 69,164 83,127* 16.508 5,075
Deferred taxes 16 17,615 15,898 10 13
Liability in respect of
employee severance pay 18 1,651 3,439
---------- ---------- ---------- ----------
88,430 102,464 16,518 5,088
---------- ---------- ---------- ----------
Interest of Outside
Shareholders 223,692 212,808
---------- ----------
Shareholders' Equity
Share capital 139,012 139,012 139,012 139,012
Capital reserves 122,638 122,638 122,638 122,638
Retained earnings 239,191 216,476 239,191 216,476
---------- ---------- ---------- ----------
500,841 478,126 500,841 478,126
---------- ---------- ---------- ----------
Contingent Liabilities
and Commitments 19
* Reclassified
----------------------------------
D. Tadmor - Chairman of the Board
----------------------------------
A. Attias - Managing Director
March 9, 1995
---------- ---------- ---------- ----------
929,968 906,163 539,950 499,398
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
3
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Statements of Earnings for the Year Ended December 31
----------------------------------------------------------------------------------------------------------------------
Adjusted to the Shekel of December 1994
(in NIS thousands)
Consolidated The Company
------------------------------- -------------------------------
Note 1994 1993 1992 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Rentals and warehousing 83,267 79,907 76,664 5,958 6,339 6,273
From construction and other sources 20 197,138 154,284 55,919
The Company's share in the
net earnings of related companies 21 4,425 4,625 3,936 25,622 34,355 23,224*
Income from investments and fixed assets 22 14,961 8,592* 11,068* 3,549 6,200 7,556
Income from securities, financing and others, 23 5,186 9,769 10,550 1,363 1,136 1,906*
-------- -------- -------- -------- -------- --------
304,977 257,177 158,137 36,492 48,030 38,959
-------- -------- -------- -------- -------- --------
Expenses
Construction and other costs 24 151,240 122,647 47,747
Administrative, selling and general 22,429 22,210 21,509 4,516 4,205 3,740
Property maintenance (excluding depreciation) 7,639 8,480 8,036 972 990 822
Depreciation and amortization 25 13,071 12,197* 11,411* 949 943 949
Property taxes on land 4,765 2,582 2,320 562 338 280
Financing 26 28,813 2,431 1,721 853 237 223
-------- -------- -------- -------- -------- --------
227,957 170,547 92,744 7,852 6,713 6,014
-------- -------- -------- -------- -------- --------
Earnings before taxes on income 77,020 86,630 65,393 28,640 41,317 32,945
Taxes on income 27 34,580 31,493 22,687 260 1,172 1,719
-------- -------- -------- -------- -------- --------
Earnings after taxation 42,440 55,137 42,706 28,380 40,145 31,226
Less/- Outside shareholders' interest in earnings 14,060 14,992 11,480
-------- -------- -------- -------- -------- --------
Net earnings for the year 28,380 40,145 31,226 28,380 40,145 31,226
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Earnings per Share 1D(14)
Net earnings per share of NIS 1.00 par value 8.0 11.3 8.8 8.0 11.3 8.8
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
* Reclassified
The notes to the financial statements form an integral part thereof.
4
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation and Subsidiary Companies
Statement of Shareholders' Equity
----------------------------------------------------------------------------------------------------------
Adjusted to the Shekel of December 1994
(in NIS thousands)
Share Capital Retained Total
capital surplus earnings
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance as at January 1, 1992 139,012 112,091 167,310 418,413
Net earnings for the year 31,226 31,226
Capitalization of earnings related
to an issue of a subsidiary 1,459 (1,459)
Erosion of dividend declared in
the previous year 159 159
Proposed dividend, net - 115% (5,193) (5,193)
---------- ---------- ---------- ----------
Balance as at December 31, 1992 139,012 113,550 192,043 444,605
Net earnings for the year 40,145 40,145
Capitalization of earnings related
to an issue of a subsidiary 9,088 (9,088)
Erosion of dividend declared
in the previous year 275 275
Proposed dividend - 170% (6,899) (6,899)
---------- ---------- ---------- ----------
Balance as at December 31, 1993 139,012 122,638 216,476 478,126
Net earnings for the year 28,380 28,380
Erosion of dividend declared
in the previous year 363 363
Proposed dividend - 170% (6,028) (6,028)
---------- ---------- ---------- ----------
Balance as at December 31, 1994 139,012 122,638 239,191 500,841
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The notes to the financial statements form an integral part thereof.
5
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Statements of Cash Flows for the Year Ended December 31
----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the Shekel of December 1994
(in NIS thousands)
Consolidated The Company
--------------------------------- ---------------------------------
1994 1993 1992 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings 28,380 40,145 31,226 28,380 40,145 31,226
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Building projects, net 37,823 41,616 (24,690)
Others (Annex A) 30,200 8,189 4,824 (17,194) (34,976) (34,515)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 96,403 89,950 11,360 11,186 5,169 (3,289)
-------- -------- -------- -------- -------- --------
Cash flows from investing activities
Proceeds from realization of investment
in related companies 1,638 9,770 29,602 11,713
Investments in related companies (16,050) (3,721) (10,634)
Dividend received from related companies 1,437 4,054 1,532 5,742 3,785 3,349
Purchase of marketable securities (45,535) (96,891) (51,178) (4)
Proceeds from sale of marketable securities 64,846 62,377 23,119 69
Acquisition and development of land (32,613) (16,687) (4,541) (10,141) (53) (166)
Purchase and construction of fixed assets (61,779) (39,272) (10,120) (33) (4,617) (205)
Refunds from deferred charges, net 149
Collections of financing relating to realization of land 505 1,538 3,210
Proceeds from sale of fixed assets and land 12,643 2,568 3,997 48
Proceeds from long-term deposits and loans 1,135 2,661 7,933
Granting of long-term deposits and loans
Proceeds from (payments relating to)
short-term deposits and loans 729 (744) (44)
Granting of loan to related companies (3,305) (4,914) (689) (1,215) (3,138) (689)
Payments of loans (granting of loans) to related companies 1,427 (3,484)
-------- -------- -------- -------- -------- --------
Net cash provided from (used in)
investing activities (76,200) (79,261) 2,821 (16,285) (2,527) 10,566
-------- -------- -------- -------- -------- --------
6
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Statements of Cash Flows for the Year Ended December 31 (Cont'd)
----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the Shekel of December 1994
(in NIS thousands)
Consolidated The Company
-------------------------------- ---------------------------------
1994 1993 1992 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities
Dividend paid
- by the parent company (6,536) (4,918) (4,039) (6,536) (4,918) (4,039)
- to outside shareholders of subsidiary companies (2,494) (2,176) (1,480)
Proceeds from realization of option warrants in subsidiary 14,328
Payments of debentures (5,958) (1,823) (4,841)
Payments of long term liabilities (234) (233) (238) (234) (233) (3,252)
Receipt of loan from outside shareholders of subsidiary 5,416 3,269
Proceeds from (payments of) credit from banking entities 6,414 153 (1,590)
Receipt of long-term loan from subsidiary 11,667 2,703
Receipts from outside shareholders of subsidiary 3,775
Payments to outside shareholders of subsidiary (4,416) (1,813) (630)
Payments of credit in respect of real estate acquisition (19,401) (395) (2,413)
-------- -------- -------- -------- -------- --------
Net cash provided from (used in) financing activities (27,209) 10,167 (15,231) 4,897 (2,448) (7,291)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents (7,006) 20,856 (1,050) (202) 194 (14)
Cash and cash equivalents at beginning of year 30,225 9,369 10,419 837 643 657
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of year 23,219 30,225 9,369 635 837 643
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
7
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Statements of Cash Flows for the Year Ended December 31 (Cont'd)
----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the Shekel of December 1994
(in NIS thousands)
Consolidated The Company
--------------------------------- ---------------------------------
1994 1993 1992 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Annex A
Adjustments to reconcile net earnings to
net cash provided by operating activities:
The Company's share in the net earnings of related companies (4,425) (4,625) (3,936) (25,622) (34,355) (23,224)
Outside shareholders' interest in earnings 14,060 14,992 11,480
Depreciation and amortization 13,071 12,197 11,411 949 943 949
Changes in deferred taxes, net 2,468 3,844 (609) (23) (31) 2
Increase (decrease) of the provision for
severance pay net of the amount funded (1,788) 259 (665)
Increase (decrease) of securities 28,097 (5,672) (6,478) 22 31 (71)
Income from realization of investments
in related companies and issue of capital (4,593) (6,200) (7,576) (3,549) (6,200) (7,576)
Capital gains (loss) on sale of fixed assets and land (10,368) (2,392) (3,492) 20
Inflationary erosion of long-term deposits and loans, net (377) 449 (412) (48) (31) (179)
Changes in current assets and liabilities:
Debtors, customers and debit balances 4,099 (15,876) 633 2,986 3,236 (2,815)
Creditors and credit balances (10,044) 11,213 4,468 8,091 1,431 (1,621)
-------- -------- -------- -------- -------- --------
Total adjustments 30,200 8,189 4,824 (17,194) (34,976) (34,515)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Significant activities not involving cash flows:
Purchase of land on credit 21,474 2,747
-------- --------
-------- --------
Purchase of fixed assets on credit 9,513 39,701
-------- --------
-------- --------
Proceeds from the sale of fixed assets on credit 1,629 1,502
-------- --------
-------- --------
Deferred charges 3,959 1,076
-------- --------
-------- --------
8
<PAGE>
</TABLE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies
<S> <C>
A. Reporting Principles
1. Definitions
In these financial statements:
a. Subsidiary companies - companies in which Property and Building Corporation Limited
(the "Company") holds directly or indirectly, fifty percent or more in voting rights or
issued share capital.
b. Affiliated companies - companies, except for subsidiary companies, the investment in
which is included directly or indirectly on the equity basis in the company's statements.
c. Related companies - subsidiary companies and affiliated companies.
d. Other companies - companies which are not related companies.
e. Initial difference - difference between acquisition cost and adjusted equity value of
investments in shares of related companies at the date of acquisition.
f. Related parties - as defined in Opinion No. 29 of the Institute of Certified Public
Accountants in Israel.
g. Interested parties - as defined in the Securities Law of Israel.
2. The financial statements have been prepared in a format suited, in the opinion of the
management, to the Company's line of business.
B. Financial statements in adjusted values
1. The Company prepares the adjusted financial statements on the basis of cost adjusted for the
changes in the general purchasing power of the shekel (see Note 30 for condensed financial
statements in nominal values).
2. The adjusted value of non-monetary assets do not purport to reflect their real economic or
market value but rather historical cost adjusted for the changes in the purchasing power of
the shekel.
3. In the adjusted financial statements, the term, "cost" means "adjusted cost".
4. Comparative figures have been adjusted to the shekel of December 1994.
9
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (Cont'd)
<S> <C>
C. Principles of adjustment
1. Balance sheet
Non-monetary items (construction work and advances, land, investment in companies, fixed
assets, deferred charges, share capital), have been adjusted on the basis of changes in the
consumer price index from the index published in respect of the month of the transaction to
the index published in respect of the month of the balance sheet date. Monetary items are
stated in the adjusted balance sheet at their nominal values.
The equity value of investments in related companies is determined on the basis of the
adjusted financial statements of these companies.
2. Statement of earnings
a. The various items of the statement of earnings have been adjusted according to the
changes in the consumer price index as follows:
1) Income and expenses deriving from non-monetary items (such as depreciation
and amortization, building projects, changes in inventory, prepayments and
deferred income, etc.) or from provisions included in the balance sheet (e.g.,
provisions for severance pay, holiday pay, etc.) have been adjusted on the basis
of specific indices parallel to the adjustment of the related balance sheet item.
2) The remaining items in the statement of earnings (e.g., rental income, selling,
general and administrative expenses) except for components of the financing
item, have been adjusted on the basis of the index in respect of the month in
which the transaction was effected.
3) The calculation of the Company's share in the results of operation of the related
companies and the outside shareholders' share in the results of operation of the
related companies was based on the adjusted financial statements of the related
companies.
4) Financing, net, which cannot be independently calculated is derived from the
other items of the statement of earnings. This includes, inter alia, amounts
required to adjust various items in the statement of earnings in respect of the
inflationary component of the financing therein.
10
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (Cont'd)
<S> <C>
C. Principles of adjustment (Cont'd)
b. Taxes on income
Current taxes comprises of payments on account made during the year and, in
addition, amounts to be paid at the balance sheet date (or less amount of repayments
claimed at the balance sheet date). The payments on account have been adjusted on
the basis of the consumer price index on the date the payments were made. Those
amounts payable (or being claimed for repayment) have been included unadjusted.
Current taxes include, therefore, the expense derived from inflationary erosion of the
value of payments made on account from the time of payment up to the year end.
Deferred taxes - see Note 1D.11. below.
3. Statement of changes in shareholders' equity
The dividend that was declared and actually paid in the year has been adjusted on the basis
of the consumer price index at the date of payment. The dividend proposed/declared during
the year but unpaid at the balance sheet date is included with no adjustment. The amount
stated as "erosion in value of dividend" reflects the erosion of the real value of the dividend
proposed/declared in the previous year and actually paid during the current year (this erosion
relates to the period from the beginning of the current year up to the date of payment).
4. Statement of cash flows
The statement has been prepared in accordance with Opinion No. 51 of the Institute of
Certified Public Accountants in Israel. The statement provides information on cash receipts
and payments during the year from current activities, investment and finance, while being
expressed in shekels of the end of the reported year.
D. Accounting policies
1. Consolidated financial statements
a. The consolidated financial statements include the financial statements of the Company
and the Company's subsidiaries in which it hold more than 50% (see Appendix to the
Financial Statements).
b. For the purposes of consolidation, the amounts in the financial statements of the
subsidiary companies being consolidated were included after adjustments required from
application of the uniform accounting principles of the Group.
c. Balances between consolidated companies and inter-company profits from sales
between the companies not yet realized outside of the group were cancelled.
11
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (Cont'd)
D. Accounting policies (Cont'd)
<S> <C>
d. Real estate of the Company and its subsidiaries that are recorded in the name of other
subsidiaries that are property companies (which were established for the sole purpose
of holding real estate or for their rental) are included in the balance sheets according
to the cost of these assets to those subsidiaries.
In the statement of earnings, the income and expenses relating to the above assets
were included according to the Company's holding in the stated subsidiary companies.
2. Marketable securities
a. Marketable government bonds and other marketable securities are stated at their
market value at the balance sheet date.
b. Unit trust certificates in trust funds are stated at redemption value at the balance sheet
date.
c. Changes in values of securities have been charged entirely to the statement of
earnings.
3. Building projects
a. Subsidiary construction companies are accustomed to recording construction work on
the basis of approved invoices and amounts paid on account to the contractors,
planners and others.
b. The completed units and units under construction are stated in the financial statements
at cost but not exceeding their market value.
c. Income from building projects is recorded on the "completed contracts" method when
a building unit has been virtually completed and sold. One subsidiary company acting
mainly as an executing contractor for the installation of air-conditioning uses the
"percentage of completion" method of recording income from long-term contracts.
4. Inventory of air-conditioning and other equipment
Inventory is valued at the lower of cost or market value, cost being determined on the "FIFO"
basis.
12
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (Cont'd)
<S> <C>
D. Accounting policies (Cont'd)
5. Land
a. Land is stated at cost which is not in excess of market value, except for land leased
for long-terms, which is included at a token value.
b. The portion of the land which is in the stage of construction is included in building
projects and stated under current assets or as a deduction from advances from
purchasers of apartments under current liabilities.
c. Stores in completed buildings are stated at cost not less than market value.
6. Investments in related and other companies
a. Investments in related companies are stated on the equity basis. The investments in
shares of other companies, which are not quoted securities, are stated at cost which,
in management's opinion, is not less than market value.
b. The Company's equity in the profits and losses of the related companies is based on
the latest audited financial statements of these companies, some of which were
prepared as at dates prior to the balance sheet date of the Company.
c. The initial difference regarding related companies, is allocated to assets of those same
companies (building projects, land and fixed assets) and their amortization as an
expense or as an income is made in accordance with the life of those assets or upon
their realization; amounts which cannot be allocated to such assets are amortized at
20% per year.
7. Fixed assets
Fixed assets are stated at cost. Depreciation is computed using straight line method over the
estimated useful life of the assets.
8. Other assets - Initial difference which cannot be allocated to assets - see not 1(6)C).
13
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (Cont'd)
<S> <C>
D. Accounting policies (Cont'd)
9. Deferred charges
a. Expenses relating to the issue of the debentures are written off against income over
the life of the debentures in proportion to their outstanding balance.
b. Taxes in connection with unrealized profits from real estate transactions - taxes relating
to real estate transaction are amortized over the life of the asset or parallel to the
period of transaction.
10. Debentures convertible into shares
a. Debentures, the conversion of which is not, as at balance sheet date, expected
according to guidelines set by the Institute, are stated under the framework of long-
term loans. The debentures include the liabilities at the balance sheet date in
accordance with the conditions of the issue, less the discount which has not been
amortized at the balance sheet date.
b. The above discount (resulting from the difference between amount of the linked liability
at the date of the issue and the nominal value of the debentures) is amortized using the
straight line method over the period of the debentures in proportion to their outstanding
balance.
11. Deferred tax
The calculation of deferred tax in the adjusted financial statements account mainly for the
following areas of timing differences of items between their being charged in the financial
statements and their inclusion in chargeable income for tax purposes, or because their
treatment for tax purposes is different:
a. Non-allowance for tax purposes of depreciation arising from the adjustment of fixed
assets.
b. Differences in recognition of income from marketable securities held from the beginning
of the year.
c. Differences relating to adjustment of cost of inventory, advances from customers,
adjustment of land and development.
d. Expenses allowable in the future for tax purposes - sales expenses, administrative
expenses, and finance expenses that for tax purposes were allocated to buildings under
construction, provisions for holiday pay and severance pay.
e. The deduction for inflation which is carried forward to future years.
14
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (Cont'd)
<S> <C>
D. Accounting policies (Cont'd)
f. Advance rental payments which are liable to tax upon receipt and other timing
differences.
Deferred taxes are computed using the tax rate expected to be in effect at the time of
reversal as known at the time of the preparation of the financial statements.
No deferred tax was computed in respect of investments in related companies as the
intention of the management is to hold these companies and not to realize them.
12. Provision for doubtful debts
The provision for doubtful debts is calculated on the basis of specific identification of
balances whose collection is in doubt.
13. Foreign currency and linkage
Assets and liabilities that are linked or denominated in foreign currency are included as
follows:
a. Balances linked to the consumer price index are stated in the balance sheet according
to the index in respect of the last month of the reported year except for balances
which are linked to the known index which are adjusted according to the last index
published as at the date of the financial statements.
b. Foreign currency balances or those linked to foreign currency are adjusted using the
representative rate published by the Bank of Israel as at balance sheet date.
Data concerning consumer price index and foreign currency rates:
</TABLE>
<TABLE><CAPTION>
% of change
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consumer
price
index in
points 289.79 253.2 227.6 14.5 11.2 9.4
Exchange
rate
of the
U.S.
dollar 3.018 2.986 2.764 1.1 8.0 4.0
15
</TABLE>
<PAGE>
<TABLE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (Cont'd)
<S> <C>
D. Accounting policies (Cont'd)
14. Earnings per share
Earnings per share were calculated in accordance with Opinion No. 55 of the Institute of
Certified Public Accountants in Israel, based on the nominal value of the issued and paid up
share capital outstanding during the year, which was NIS 3,545,814.
</TABLE>
Note 2 - Cash and Cash Equivalents
<TABLE><CAPTION>
Consolidated The Company
---------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Short-time deposits with banks 22,242 28,791 635 670
Cash at bank 977 1,434 167
----------- ----------- ----------- -----------
23,219 30,225 635 837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Note 3 - Marketable Securities
<TABLE><CAPTION>
Consolidated The Company
---------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Unit trust certificates 46,993 85,332
Government loans 25,072 29,872
Other debentures 1,859 1,423
Debentures issued by a subsidiary* 584 602
Shares 2,780 4,474
Convertible securities 1,771 4,578
----------- ----------- ----------- -----------
78,475 125,679 584 602
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
* See Note 19 B.1.
</TABLE>
<TABLE>
<S> <C>
Subsequent to balance sheet date, the market value of the marketable securities decreased by
about 3%, proximate to the finalizing of the financial statements.
Note 4 - Compulsory Government Loans
Peace for Galilee loans - The principal of the loan is optionally linked to the consumer price index
to the extent of 80% plus 1% interest, or to the rate of exchange of the U.S. dollar. The loans
were mainly prepaid in 1994.
16
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 5 - Customers
Consolidated The Company
---------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A. Composed of:
Purchasers of apartments
and stores 9,460 19,397
With respect to rentals
and warehousing* 4,225 3,969 103 1
Notes receivable 1,401 1,521
With respect to air
conditioning and other* 2,210 1,780
----------- ----------- ----------- -----------
17,296 26,667 103 1
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
* After deduction of
allowance for doubtful
debts 599 499
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<S> <C>
B. Purchasers of apartments are linked mainly to construction input index.
</TABLE>
<TABLE><CAPTION>
Note 6 - Accounts Receivable and Debit Balances
Consolidated The Company
---------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A. Composed of:
Accrued income 7,120 2,367 19 8
Purchasers of land (1) 1,629 513
Taxes claimable in the future 868 718 300 280
Deposits and prepaid expenses 578 850 15 16
Advances to Tax Authorities
less provisions 2,098 695 710 57
Employees 332 109 26 4
Other debtors 1,540 3,211 239
Consolidated companies -
capital notes (2) 45 4,057
Affiliated company (3) 878
----------- ----------- ----------- -----------
15,043 8,463 1,354 4,422
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
B. Linkage terms:
(1) Linked mainly to U.S. dollar.
(2) Not linked and bear no interest.
(3) Linked to the consumer price index.
17
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 7 - Building Projects and Other Inventories
Consolidated
---------------------------
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Land and construction works (A) 63,070 89,216
Less - Advances from apartment
purchasers and project contractors 29,267 59,256
----------- -----------
33,803 29,960
Apartments in completed building 2,648 8,491
Air-conditioning equipment and other inventories 1,258 501
----------- -----------
37,709 38,952
----------- -----------
----------- -----------
(a) In connection of investment at a sum of NIS 13,100 thousands of a subsidiary company with
a third party, a development contract has been signed with the Israel Land Authority for
which the companies are obliged to start building not later than December 1994. The
company received building permits for most of the apartments.
</TABLE>
<TABLE><CAPTION>
Note 8 - Land
Consolidated The Company
---------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A. Composed of:
Freehold land 179,735 141,957 12,291 2,150
Leasehold land 2,119 23,072
Stores in completed buildings
and other installations 5,417 5,417
Expenses relating to future
stages of construction 521 279
----------- ----------- ----------- -----------
187,792 170,725 12,291 2,150
----------- ----------- ----------- -----------
---------- ---------- ---------- ----------
B. In the opinion of management the value of land exceeds the value stated in the balance
sheet.
C. Mortgages have been registered on land held by a subsidiary company, in connection with
guarantees given by a bank to apartment purchasers.
18
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 8 - Land (Cont'd)
D. Leasehold rights of land:
Last year of the Cost
leasehold period
---------------- ----------
<C> <C> <C>
Capitalized leasehold 2040 2,916
Uncapitalized leasehold 2040 682
----------
3,598
----------
----------
E. Uncapitalized leasehold rights in land amounting to NIS 682 thousands have not as yet been
registered in the name of the Company at the Land Registry Office.
</TABLE>
<TABLE><CAPTION>
Note 9 - Long-term Deposits and Loans
A. Composed of:
Consolidated
------------------------------------------------------------
December 31
December 31, 1994 1993
--------------------------------------------- ----------
Interest Total Current Balance Balance
rate maturities
----------- ----------- ----------- ----------- -----------
%
-----------
<S> <C> <C> <C> <C> <C>
Deposits with banks -
For the
granting
of loans to
apartment
purchasers 4-6 105 59 46 73
For deposit
with the
Israel Treasury 5.25 3,977 1,136 2,841 3,981
----------- ----------- ----------- -----------
4,082 1,195 2,887 4,054
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
B. The deposits are linked to the consumer price index.
C. A bank has a right of set-off against long-term deposits amounting to NIS 105 thousand
(December 31, 1993 - NIS 98 thousand), in connection with guarantees given to apartment
purchasers on behalf of subsidiaries.
19
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 9 - Long-term Deposits and Loans (Cont'd)
D. Classification of long-term deposits and loans by years of maturity:
Consolidated
---------------------------
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Within 12 months - current maturities 1,195 1,163
----------- -----------
----------- -----------
During second year 1,467 1,210
During third year 1,420 1,422
During fourth year 1,422
----------- -----------
2,887 4,054
----------- -----------
----------- -----------
20
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 10 - Investments in Related and Other Companies
A. Consolidated balance sheet
1994 1993
Total Total
----------- -----------
<S> <C> <C>
Affiliated companies
Shares at cost, include -
Adjusted equity value at the
date of acquisition (1) 80,788 67,080
Initial difference, net 3,184 (2,996)
----------- -----------
83,972 64,084
Add -
The Company's share in the net
post-acquisition profits 11,897 8,916
Total amounts of the initial
difference amortized 3,254 3,615
----------- -----------
Book value of shares (2) 99,123 76,615
Loans (3) 12,467 9,110
----------- -----------
Total affiliated companies 111,590 85,725
----------- -----------
Other companies 312 16,151
----------- -----------
111,902 101,876
----------- -----------
----------- -----------
</TABLE>
<TABLE><CAPTION>
Supplementary data concerning initial differences which have not been amortized:
December 31, 1994 December 31, 1993
--------------------------- --------------------------
Initial Balance Initial Balance
amount amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Excesses of cost over equity 7,352 6,438 692 619
---------- ---------- ---------- ----------
7,352 6,436 692 73
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(1) The investment is presented net of dividends distributed by a subsidiary out of pre-acquisition
earnings, amounting to NIS 3,783 thousand.
(2) Includes quoted shares whose adjusted equity value at balance sheet date is NIS 60,011
thousand (December 31, 1993 - NIS 57,171 thousand). The market value of these shares
at balance sheet date is NIS 87,097 thousand (December 31, 1993 - NIS 159,976
thousand).
(3) The loans to affiliated companies are linked to the consumer price index, bear annual interest
rates of 0.5% (December 31, 1993 - 0.8%) and have no specific repayment date.
21
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 10 - Investments in Related and Other Companies (Cont'd)
B. Company balance sheet
Consolidated Affiliated 1994 1993
companies companies* Total Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares at cost, include -
Adjusted equity value at
the date of acquisition 153,902 13,802 167,704 166,044
Initial difference, net 7,803 5,778 13,581 4,631
---------- ---------- ---------- ----------
161,705 19,580 181,285 170,675
Add -
The Company's share in the net
post-acquisition profits 315,095 377 315,472 292,850
Total amounts of the initial
difference amortized (4,202) (41) (4,243) (4,260)
---------- ---------- ---------- ----------
Book value of shares (1) 472,598 19,916 492,514 459,265
Loans (2) 9,296 9,296 8,032
---------- ---------- ----------
481,894 19,916 501,810 467,297
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* Include investment of NIS 312 thousands at other company.
</TABLE>
<TABLE><CAPTION>
Supplementary data concerning initial differences which have not been fully amortized:
December 31, 1994 December 31, 1993
--------------------------- --------------------------
Initial Balance Initial Balance
amount amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Excesses of equity over cost 13,393 9,338 10,220 430
Excesses of cost over equity - - (292) (59)
---------- ---------- ---------- ----------
13,393 9,338 9,928 371
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(1) Includes quoted shares whose adjusted equity value at balance sheet date is
NIS 299,985 thousand (December 31, 1993 - NIS 276,791 thousand). The market value of
these shares at balance sheet date is NIS 454,250 thousand (December 31, 1993 -
NIS 823,084 thousand).
(2) The loans to related companies are linked to the consumer price index, bear annual interest
rates of 0.5% and have no specific repayment date.
22
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 11 - Fixed Assets
A. Consolidated balance sheet:
Building Buildings Land Plantations Vehicles Machinery Other Total Total
leased under intended and and assets
out and construction for the irrigation equipment
office construction network
premises of buildings
thereon December 31 December 31
(1) (2) (3,4) (5) 1994 1993
----------- ----------- ----------- ----------- ---------- -------- -------- ---------- ------------
<S> <C> <C> <C. <C> <C> <C> <C> <C> <C>
Cost
Balance at beginning
of year * 436,747 45,191 77,774 6,250 3,827 5,469 5,799 581,057 505,451
Additions and transfers 37,667 10,941 20,339 57 971 533 784 71,292 76,780
Disposals (3.503) (1,749) (787) (643) (196) (6,878) (1,174)1
------- ------- ------- ------- ------- ------- ------- ------- -------
Balance at end of year 470,911 56,132 96,364 6,307 4,011 5,359 6,387 645,471 581,057
------- ------- ------- ------- ------- ------- ------- ------- -------
Accumulated depreciation
Balance at beginning of year* 175,344 5,323 1,899 4,904 4,461 191,931 181,326
Additions 11,018 14 515 172 286 12,005 11,602
Disposals (1,485) (655) (599) (236) (2,975) (997)
------- ------- ------- ------- ------- ------- -------
Balance at end of year 184,877 5,337 1,759 4,477 4,511 200,961 191,931
------- ------- ------- ------- ------- ------- -------
Depreciated cost
as at December 31, 1994 286,034 56,132 96,364 970 2,252 882 1,876 444,510
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Depreciated cost
as at December 31, 1993 261,403 45,191 77,774 927 1,928 565 1,338 389,126
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
* Reclassified
23
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 11 - Fixed Assets (Cont'd)
<S> <C>
A. Consolidated balance sheet: (Cont'd)
(1) The buildings are partly on freehold land and partly on leasehold land (including
NIS 24,000 thousand in capitalized leasehold and NIS 3,424 thousand in uncapitalized
leasehold). The periods of lease are until the year 2049.
(2) Including capitalized leasehold land in the amount of NIS 4,994 thousand for periods ending
until the year 2091. For part of the land there is a right to lengthen the lease for periods of
49 to 99 years.
(3) A development contract has been signed relating to land of the cost of NIS 11,800 thousand
between two subsidiary companies and the Israel Land Authority for which the companies
are committed to carry all the development and construction expenses until December 1997,
after postpone. After the implementation of the commitments a lease contract will be signed
between the parties for a period of 49 years.
(4) The land are partly on freehold and partly on leasehold (including NIS 64,334 thousand in
capitalized leasehold and NIS 681 thousand in uncapitalized leasehold).
24
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 11 - Fixed Assets (Cont'd)
B. The Company balance sheet:
Building Land Vehicles Other Total Total
leased intended assets
out and for the
office construction
premises of buildings
thereon December 31 December 31
1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost
Balance at
beginning
of year 27,187 9,263 * 813 541 37,804 35,379*
Additions and
transfers 220 352 572 2,425
Disposals (536) (263) (799)
----------- ----------- ----------- ----------- ----------- -----------
Balance at
end of year 27,187 8,947 813 630 37,577 37,804
----------- ----------- ----------- ----------- ----------- -----------
Accumulated
depreciation
Balance at
beginning of year 13,332 447 318 14,097 13,176
Additions 811 90 26 927 921
Disposals (260) (260)
----------- ----------- ----------- ----------- ----------- -----------
Balance at
end of year 14,143 8,947 537 84 14,764 14,097
----------- ----------- ----------- ----------- ----------- -----------
Depreciated cost
as at
December 31,
1994 13,044 8,947 276 546 22,813
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Depreciated cost
as at
December 31,
1993 13,855 9,263 366 223 23,707
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
* Reclassified
25
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 11 - Fixed Assets (Cont'd)
C. Rates of depreciation %
---------
<S> <C>
Buildings 2 - 4
Plantations and irrigation plants 15 - 20
Vehicles 15
Machinery and equipment 10 - 20
Other assets 6 - 20
The difference between the depreciated balance of depreciable fixed assets in the adjusted
statements and between the amounts that will be allowable for deduction for tax purposes in the
future in relation to those assets, are treated in part as timing differences (differences for which
deferred taxes were created) and in part as permanent differences. The amounts treated as
permanent differences are as follows:
</TABLE>
<TABLE><CAPTION>
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Balance at beginning of year 69,679 74,791
Reductions of assets, net (2,701) (469)
Decrease in differences resulting from
depreciation in the year (5,422) (4,643)
----------- -----------
Balance at end of year 61,556 69,679
----------- -----------
----------- -----------
</TABLE>
<TABLE><CAPTION>
Note 12 - Deferred Charges and other assets Amortized cost
Cost Accumulated --------------------------
amortization 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
A. Consolidated
Vacating payments 41 21 20
Capital raising expenses 8,619 4,763 3,856 5,068
Taxes in connection with
unrealized profits from
real estate transactions 2,724 536 2,188 2,536
---------- ---------- ---------- ----------
11,384 5,320 6,064 7,604
Other assets - initial difference 3,180 3,180
---------- ---------- ---------- ----------
Deferred charges 14,564 5,320 9,244 7,604
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
B. The Company
Taxes in connection with
unrealized profits from
real estate transactions 544 184 360 382
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
26
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 13 - Advances from Purchasers of Apartments and Others, Net
Consolidated
---------------------------
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Advances from purchasers 29,863 16,904
Less - land and work under construction 26,371 12,971
----------- -----------
3,492 3,933
----------- -----------
----------- -----------
</TABLE>
<TABLE><CAPTION>
Note 14 - Credit from Banking Entities
Consolidated
Terms of December 31 December 31
linkage 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Overdraft Not linked 213 152
Import financing German Marks 1,326 473
Short-term loans 17.5% - 17.7% 5,500
----------- -----------
7,039 625
----------- -----------
----------- -----------
</TABLE>
<TABLE><CAPTION>
Note 15 - Creditors and Credit Balances
Consolidated The Company
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Suppliers and subcontractors 11,135 13,385
Sellers of land 32,542 41,656
Income received in advance 6,094 7,929 11 53
Employees and other liabilities
related to salaries 3,461 2,579 824 688
Deductions and taxes remittable 11,268 12,031 258 2,963
Subsidiaries:
Current accounts* 13,337 2,075
Capital notes - non-interest bearing 572
Provision for losses of subsidiaries 1,204 2,018
Expenses payable 8,375 4,380 1,609 610
Others 3,741 2,888 87 74
---------- ---------- ---------- ----------
76,616 84,848 16,330 9,053
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* Accounts at the sum of NIS 7,537 thousands are linked to the consumer price index and bear
annual interest rate of 4.25%.
Accounts at the sum of NIS 5,800 thousands are not linked and bear annual interest at the
rate of prime + 1%.
27
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income
<S> <C>
A. Tax under inflationary conditions
The Income Tax Law (Adjustments for Inflation) - 1985, effective beginning with the 1985 tax year,
put into practice measurements of the results for tax purposes, on a real basis. The various
adjustments required by the above Law are intended to result in the taxation based on the real
income.
This notwithstanding, the adjustment of the nominal profit according to the tax laws does not
always equal the adjustment for inflation according to the opinions of the Institute of Certified
Public Accountants in Israel. As a result there are differences between the adjusted profit per the
financial statements and the adjusted profit for tax purposes. In respect of deferred tax relating to
these differences, see Note 1D. 11. and Note 16C. In respect of reconciliation with the theoretical
tax rate, see Note 27D.
B. Carryforward to coming years of losses and deductions for tax purposes
Carryforward losses to coming years for tax purposes in subsidiary companies, adjusted for inflation
are in the amount of NIS 15,941 thousand as at the balance sheet date (December 31, 1993 -
NIS 14,153 thousand). In respect of these losses no deferred taxes have been recorded.
Losses from securities that are deductible in the future years against a real income from marketable
securities amount to at balance sheet date to an adjusted amount of NIS 20,455 thousand. No
deferred taxes have been provided for these losses.
Deductions for inflation of subsidiaries carried forward are in the amount of NIS 10,866 thousand
(December 31, 1993 - NIS 8,346 thousand). The balances of carryforward losses and the
deduction for inflation are carried forward linked to the changes in the consumer price index as per
the Law mentioned in A above.
28
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income (Cont'd)
C. Deferred taxes
1. Composition:
In respect of In respect of In respect of Other Total Total
depreciable building marketable timing
fixed projects securities differences December 31 December 31
assets less advances 1994 1993
------------- ------------- ------------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
a. Consolidated
Balance as at
beginning
of year (4,499) (20,913) (1,956) 8,555 (18,813) (14,965)
Changes (703) (4,100) 1,956 345 (2,502) (3,848)
-------- -------- -------- -------- -------- --------
Balance as at
at end
of year (5,202) (25,013) 8,900 (21,315) (18,813)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
b. The Company
Balance as at
January 1,
1994 (13) 280 267 237
Changes (3) 20 23 30
-------- -------- -------- --------
Balance as at
December 31,
1994 (10) 300 290 267
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE><CAPTION>
2. The deferred taxes are stated as follows:
Consolidated The Company
--------------------------- --------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Under current assets 868 726 300 280
Under current liabilities (4,568) (3,641)
Under long-term liabilities (17,615) (15,898) (10) (13)
---------- ---------- ---------- ----------
(21,315) (18,813) 290 267
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
29
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 17 - Long-term Liabilities
A. Composition:
Consolidated The Company
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debentures (1) 44,263 50,173
Debentures convertible to shares (2) 8,192 24,445
Loans (3) 16,709 8,509 16,508 5,075
---------- ---------- ---------- ----------
69,164 83,127 16,508 5,075
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(1.) Debentures
Series - 6 and 7
Debentures from these series were issued in the past by the Property and Building Corporation
Limited, and transferred to Property and Building (Finance 1986) Limited (subsidiary) under the
framework of a reorganization between the companies which was approved by the court, effective
from July 1, 1987, together with the long-term deposits whose source was the proceeds from the
issue of the debentures. These debentures, the balance of which at balance sheet date amount to
NIS 6,395 thousand (December 31, 1993 - NIS 8,229 thousand) bear interest at the rate of 5%
per annum and are linked (principle and interest) to the consumer price index. The redemption dates
of the balance of debentures are in the years up to 1997.
Series B
Debentures from this series, the balance of which as at the balance sheet date was
NIS 43,732 thousand were issued by the Property and Building (Finance 1986) Limited (subsidiary)
per the prospectus published on July 29, 1990. The debentures bear interest at the rate of 1.85%
per annum and are linked (principle and interest) to the consumer price index. The redemption dates
are in the years 1995 - 2005. The debentures were issued to the public at a price of NIS 90 for
every NIS 100 nominal value of debenture.
Guarantees
In respect of debentures of Series 6 and 7 a lien has been recorded on all the assets of the
Company and of the subsidiary company. Debentures from Series B are secured by way of an equal
first floating charge on all assets of the subsidiary company. The Company has guaranteed the full
redemption of all the debentures issued and has committed not to create in the future any lien on
its assets so long as the series B debentures are not fully redeemed.
Assurance of regular trading of debentures - See Note 19B.
30
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 17 - Long-term Liabilities (cont'd)
<S> <C>
(2.) Debentures convertible into shares
A. Debentures convertible into shares, the balance of which at the balance sheet date was
NIS 12,288 thousand, were issued by Bayside Land Corporation Ltd. (subsidiary) per a
prospectus published on May 5, 1992. The debentures bear interest at the rate of 0.1% per
annum and are linked (principle and interest) to the consumer price index. The redemption
dates are in the years 1995-1997. Alternatively, conversion is permitted on every business
day until June 9, 1997 into regular shares of NIS 1 nominal value of Bayside Land
Corporation Ltd. at the conversion rate of NIS 192 nominal value of debentures for one share
of NIS 1 nominal value (19,220%), subject to adjustments.
B. In 1994, debentures of a nominal value of NIS 10,351 thousand were converted into 53,912
ordinary shares. Also, the Company paid for redemption of NIS 2,631 thousand debentures
the sum of NIS 4,135 thousand.
C. The debentures are secured by a first fixed charge on a token deposit which was deposited
with the trustee of the debentures. The subsidiary committed not to create any lien on
existing assets to secure any debt or liability without creating a similar lien of like kind and
same degree in favor of the trustee until redemption and/or conversion of all the debentures
from this issue.
</TABLE>
<TABLE><CAPTION>
(3). Loans
Composition and terms of loans:
Consolidated balance sheet
--------------------------
Interest Current 1994 1993
rate Total maturities Balance Balance
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Outside shareholders
of a subsidiary - 8,685 8,685 3,269
Israel Discount
Bank Ltd. 5.75 1,047 233 814 1,048
Sellers of land 4 9,774 6,462 3,312
Liabilities for
construction 3,898 3,898 4,192
---------- ---------- ---------- ----------
23,404 6,695 16,709 8,509
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
31
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 17 - Long-term Liabilities (Cont'd)
The Company
-----------
Interest Current 1994 1993
rate Total maturities Balance Balance
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Consolidated
company 4.25 15,694 15,694 4,027
Israel Discount
Bank Ltd. 5.75 1,047 233 814 1,048
---------- ---------- ---------- ----------
16,741 233 16,508 5,075
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The above loans are linked at the Consumer Price Index.
</TABLE>
<TABLE><CAPTION>
B. Classification of long-term liabilities by years of maturity
Consolidated The Company
--------------------------- --------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Within 12 months -
current maturities 16,655 10,205 233 232
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
During second year 13,867 14,170 233 232
During third year 10,613 14,623 291 232
During fourth year 4,266 14,684 290 292
During fifth year 3,976 6,535 292
Beyond fifth year till 2005 23,859 28,929
Without redemption date * 12,583 4,192
A loan repayable not later
than December 31, 1996, with
an option of early redemption 15,694 4,027
---------- ---------- ---------- ----------
69,164 83,127 16,508 5,075
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* The loan of outside shareholders of a subsidiary of the sum of NIS 8,685 payable not earlier
of January 1, 1997 and not late of December 31, 2001.
32
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 18 - Liability in respect of employee severance pay
<S> <C>
A. The commitments in respect of employee severance pay of the Company and its subsidiary
companies are fully covered by deposits with severance pay funds, profits and linkage
increments accrued thereon, insurance policies and provisions. With respect to the major part
of the abovementioned sums, the group companies have no rights of withdrawal.
</TABLE>
<TABLE><CAPTION>
B. Composition
Consolidated The Company
--------------------------- --------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Liability in respect of
employee severance 6,881 9,014 246 224
Less - amounts funded* 5,230 5,575 246 224
---------- ---------- ---------- ----------
1,651 3,439 - -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* Not including the surrender values of insurance policies for severance pay.
C. In 1989, A wholly-owned subsidiary committed itself to a retirement arrangement with a
member of its board of directors of the subsidiary (who served as general manager of the
subsidiary until December 31, 1988) and to decreased retirement arrangement with his
widow after his death. Upon the death of the ex general manager the liability decreased by
the sum of NIS 1.9 million. Based on an independent actuary's opinion, a liability amounting
to NIS 1.7 million (December 31, 1993 - NIS 4 millions) is included in the balance sheet.
</TABLE>
<TABLE><CAPTION>
Note 19 - Contingent Liabilities and Commitments
Consolidated The Company
--------------------------- --------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
A. Guarantees Granted
1. In respect of dwelling
purchase insurance* 379 457 379 457
2. On behalf of subsidiary
companies** 35 86 70,331 53,193
* See also Note 9C.
** Relating to implementation guarantees. The Company balance sheet includes also
guarantees relating to debentures issued.
The guarantees are linked mainly to the consumer price index and partly to the construction input
index and to the rate of the U.S. dollar.
33
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 19 - Contingent Liabilities and Commitments (Cont'd)
<S> <C>
B. Commitments
1. In the terms of a prospectus for the issue of debentures (series "B") by a subsidiary as stated
in Note 17A., the Company supplied a bank with debentures out of the aforementioned issue,
in an amount of NIS 375,000 N.V. and cash of NIS 337,500 linked with terms identical to
those of the debentures. The debentures and cash held by the bank will be used to ensure
regular trading at the stock exchange and will be reduced proportionately to the repayment
of the debentures. As at December 31, 1994, balances held by the bank, per the above
arrangement, amounted to NIS 377 thousand (nominal value) in debentures and NIS 547
thousand in cash (including short-term deposits) (December 31, 1993 - NIS 375 thousand
nominal value and NIS 578 thousand, in cash).
2. There are commitments of the Company and consolidated companies in respect of
construction works and land purchasing estimated at balance sheet date to an approximate
amount of NIS 104 million.
3. In respect of land that was purchased by consolidated companies, there is a commitment
under certain terms, to add to the value the equivalent sum of U.S. $625,000. After the
balance sheet date the commitment was paid.
4. A subsidiary leased out part of a building to the Government of Israel for a term of 15 years,
from the year 1992, with a right, of the lessee, to shorten the term to 12 years.
C. In May 1986, a claim was lodged against the Company and a subsidiary, in respect of
brokerage fees for a real estate transaction. As at balance sheet date the claim was set at
approximately NIS 5 million (including linkage increments). According to legal counsel of the
Company, under the circumstances of the case as described by the companies and based on
data supplied by them and the criteria set forth by court decisions in similar cases, the
claimant is not entitled to brokerage fees, neither from the Company nor from its subsidiary;
accordingly no provision therefor has been made in the accounts with relation to the
aforementioned claim.
D. The Value Added Tax authorities have issued assessments to a consolidated subsidiary, for
the period January 1, 1990 through September 30, 1994, wherein they disallowed the
offsetting of tax input items relating to development activities, in an amount of NIS 3.2
million including linkage differences, interest, and penalties. In the opinion of its legal counsel
representing the Company in this case, there are good reasons that the assessed amounts
will be cancelled and, accordingly, no provision therefore has been recorded in the books.
34
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 20 - Income from Construction and Other Sources
Consolidated
--------------------------------------------
Year ended Year ended Year ended
December 31 December 31 December 31
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Apartments, stores and land 175,310 136,656 40,209
Air-conditioning systems and others 21,070 16,805 14,794
Citrus crop 758 823 916
---------- ---------- ----------
197,138 154,284 55,919
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE><CAPTION>
Note 21 - The Company's Share in the Net Earnings of Related Companies
Consolidated The Company
----------------------------------------- -----------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
The Company's share,
net, in the
earnings of
related companies* 4,611 4,630 3,780 25,604 34,297 23,177
Add - Portion
of initial
difference
amortized (186) (5) 156 18 58 47
---------- ---------- ---------- ---------- ---------- ----------
4,425 4,625 3,936 25,622 34,355 23,224
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
* Includes dividend
received 1,437 4,054 1,532 5,742 3,785 3,349
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE><CAPTION>
Note 22 - Income from Investments and Fixed Assets
Consolidated The Company
----------------------------------------- -----------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Profit from issues
of capital by
related companies 3,549 6,200 3,482 3,549 6,200 3,482
Gains on realization of
investments in
related companies 1,044 4,094 4,094
Gains on sale of fixed
assets and land 10,368 2,392 3,492 (20)
---------- ---------- ---------- ---------- ---------- ----------
14,961 8,592 11,068 3,549 6,200 7,556
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
35
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 23 - Income from Securities, Financing and Others, Net
Consolidated The Company
----------------------------------------- -----------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gains
relating to
marketable
securities
and compulsory
government loans 5,672 6,478 71
Interest from
securities 1,356 1,046 13
---------- ---------- ----------
7,028 7,524 84
Interest -
From banks
and others 1,615 1,812 1,679 163 38
From related
companies 52 52 18 103 51 705
Management fees 1,591 877 734 1,097 1,085 1,079
Decrease in the
liability for pension 1,928
Other income 595
---------- ---------- ---------- ---------- ---------- ----------
5,186 9,769 10,550 1,363 1,136 1,906
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE><CAPTION>
Note 24 - Construction Costs and Others
Consolidated
-------------------------------------------
Year ended Year ended Year ended
December 31 December 31 December 31
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Apartments, stores and land -
Construction expenses 113,528 91,572 33,476
Land 18,455 10,589 6,699
Change in inventories of apartments and stores 635 4,709 (6,125)
---------- ---------- ----------
132,618 106,870 34,050
Air-conditioning systems and others -
Materials and installation 18,559 15,672 13,005
Change in inventories of air-conditioning
and other equipment (823) (820) (190)
---------- ---------- ----------
17,736 14,852 12,815
---------- ---------- ----------
Citrus crop -
Cultivating and picking expenses 886 925 882
---------- ---------- ----------
Total costs 151,240 122,647 47,747
---------- ---------- ----------
---------- ---------- ----------
36
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 25 - Depreciation and Amortization
Consolidated The Company
----------------------------------------- ------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Depreciation 12,005 10,716 10,145 927 921 927
Amortization 1,066 1,481 1,266 22 22 22
----------- ----------- ----------- ----------- ----------- -----------
13,071 12,197 11,411 949 943 949
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE><CAPTION>
Note 26 - Financing Charges
Consolidated The Company
----------------------------------------- ------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Decrease of
securities 28,097 22 31
Interest on
securities (1,259) (8) (13)
----------- ----------- -----------
26,838 14 18
To related companies 700 135 74
In respect
of debentures 1,152 1,596 1,049 - -
To banks and others 729 832 672 139 80 149
To income tax 94 3 4 -
----------- ----------- ----------- ----------- ----------- -----------
28,813 2,431 1,721 853 237 223
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE><CAPTION>
Note 27 - Taxes on Income
A. Composition:
Consolidated The Company
----------------------------------------- ------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Provision for
current year 32,615 26,729 22,947 281 1,199 1,716
Adjustments relating
to prior years (459) 760 70
Deferred taxes, net 2,424 4,004 969 (21) (27) (21)
Effect of change
in tax rates (1,299) 24
----------- ----------- ----------- ----------- ----------- -----------
34,580 31,493 22,687 260 1,172 1,719
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
37
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 27 - Taxes on Income (Cont'd)
<S> <C>
B. Final tax assessments for the Company have been received through the years 1989.
Subsidiary companies have received final assessments for tax years 1984 - 1992. One
subsidiary has not received tax assessments since inception (1986).
C. In accordance with Amendment 91 to the Income Tax Ordinance, 1994, enacted on
December 31, 1992, the Company tax rate is being reduced from the rate of 40% in force
in 1992. The aforesaid reduction is being affected in stages over four years until the year
1996 when the rate will be 36%. Thus the tax rate in 1994 stood at 38%.
Accordingly, the deferred taxes have been adjusted at the end of 1992 based on the tax
rates which are expected to be in effect at the dates when the deferred taxes will be realized
and carried to the statement of earnings.
38
</TABLE>
<PAGE>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 27 - Taxes on Income (Cont'd)
D. The main differences between the theoretical tax on the reported income and the amount of the
provision for taxes actually charged for the current year:
Consolidated The Company
----------------------------------------- ------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Adjusted income
before taxes
per statement
of earnings 77,020 86,631 65,392 28,640 41,317 32,945
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Statutory
tax rate (%) 38 39 40 38 39 40
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Theoretical tax
on the
adjusted earnings 29,268 33,786 26,157 10,883 16,115 13,178
Addition (saving) of tax, from:
Company's share in
the net earnings of
related companies (1,681) (1,804) (1,574) (9,736) (13,398) (9,267)
Realization of
investments in
and profit on
issue of capital
by related companies (1,693) (2,418) (3,031) (1,349) (2,418) (3,031)
Expenses not recognized
for tax purposes:
Depreciation and
amortization 2,721 1,950 2,033 266 280 291
Others 624 374 177 138 180 64
Inflationary
erosion of advance
tax payments 1,036 760 666 50 36 24
Income subject to
reduced tax rates (949) (600) (269) (22)
Losses carryforward
from prior years (588) (619) (415)
Losses for which
deferred taxes were
not provided (mainly
from securities) 7,811 12 309
Outside shareholder
in joint venture (832) (267) (320)
The effect of changes
in tax rates (1,299) 24
Others - net (678) (441) 183 8 377 458
Adjustments in relating
to prior years (459) 760 70
----------- ----------- ----------- ----------- ----------- -----------
34,580 31,493 22,687 260 1,172 1,719
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
39
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 28 - Related Parties and Interested Parties
Consolidated
Year ended Year ended Year ended
December 31 December 31 December 31
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
A. Balance sheet data
Loans, deposits, securities and cash at banks 23,525 33,449 17,404
Loans from banks 5,086 1,906 475
Creditors - land sellers and others 264 391
Proposed dividend 8,635 9,509 7,243
B. Statement of earnings data
Financing income from deposits and loans
From related parties 52 51 18
From banks and others 1,149 358 454
Other income from related parties
Management fees 1,591 877 734
Rent 11,598 10,965 12,853
Profit from issues of capital
by related companies 2,587 73
Financing charges to related parties 135 74
Banks and others 729 402 401
Salary and fringe benefits to an interested
party employed by the Company 940 919 858
Payments to members of the Board of Directors
(for 8 directors) 231 233 219
C. Trust funds are managed by a related parties.
40
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 29 - Post Balance Sheet Date Events
<S> <C>
A. On December 14, 1994 the Board of Directors of the Company resolved to transfer 100% of the
shares of Naveh Building and Development Ltd and 80% of the shares of Gad Construction Co. Ltd
(the remaining 20% are held by Naveh) which are held by Property and Building Co. Ltd to Hadarim
Properties Ltd. (hereinafter Hadarim), in consideration for the private placement of 3,281,500
shares of Hadarim of a par value of NIS 1 each at a price of NIS 74.63 per share to Property and
Building Co. Ltd. The private placement is subject to the approval of the General Shareholders'
meeting of Hadarim which will take place on March 27, 1995.
B. In connection with the above private placement Property and Building Co has undertaken to
indemnify Hadarim for the value of plots of land of a subsidiary, in respect of which there is a
contract with the Israel Lands Authority, in the event that the contract will not be extended and the
plots will revert to the authority. In the event that a payment will have to be made to the authority.
Property and Building Co will pay to Hadarim an amount which will not exceed NIS 11.1 million.
Such amount will be linked to the cost of living index and will be bear interest of 8% p.a. The letter
of indemnity will come into force after the approval of the private placement by the General
Shareholders' meeting of Hadarim.
41
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 30 - Condensed Financial Statements in Nominal (Historical) Value
A. Balance Sheet
Consolidated The Company
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents 23,219 26,409 635 731
Short-term deposits and loans 662 1,215
Current maturities of long-term
deposits and loans 1,195 1,016
Marketable securities 78,475 109,810 584 526
Compulsory government loans 34 208
Customers 17,296 23,300 103 1
Accounts receivable and
debit balances 17,566 11,512 1,354 3,864
Building projects and
other inventories 23,287 19,240
---------- ---------- ---------- ----------
161,734 192,710 2,676 5,122
---------- ---------- ---------- ----------
Land 108,990 77,296 * 10,199 262
---------- ---------- ---------- ----------
Long-term Deposits and Loans 2,887 3,542
---------- ----------
Investments
In related and other companies 66,387 49,576 275,527 218,287
---------- ---------- ---------- ----------
Fixed Assets
Buildings, land, plantations and other 219,479 148,724* 6,794 6,796*
Less/- Accumulated depreciation 12,355 7,119 298 236
---------- ---------- ---------- ----------
207,124 141,605 6,496 6,560
---------- ---------- ---------- ----------
Deferred Charges
and other assets 20,825 16,492* 5,798 36*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
567,947 481,221 300,696 230,267
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* Reclassified
42
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 30 - Condensed Financial Statements in Nominal (Historical) Value (Cont'd)
A. Balance Sheet (Cont'd)
Consolidated The Company
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current Liabilities
Advances from purchasers of
apartments and others, net 9,670 5,325
Credit from banking entities 7,039 749 233 203
Current maturities of
long-term liabilities 16,655 8,717 9,200
Creditors and credit balances 75,703 76,040 17,935
Deferred taxes 292 220
Proposed dividend 8,635 8,308 6,028 6,028
---------- ---------- ---------- ----------
117,994 99,359 24,196 15,431
---------- ---------- ---------- ----------
Long-term Liabilities
Long term loans 69,164 70,482 16,508 4,434
Liability in respect of
employee severance pay 1,651 3,005
---------- ---------- ---------- ----------
70,815 73,487 16,508 4,434
---------- ---------- ---------- ----------
Interest of Outside Shareholders 119,146 97,973
---------- ----------
Shareholders' Equity
Share capital (Note 30D.) 3,546 3,546 3,546 3,546
Capital surplus 11,019 11,019 11,019 11,019
Retained earnings 245,427 195,837 245,427 195,837
---------- ---------- ---------- ----------
259,992 210,402 259,992 210,402
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
567,947 481,221 300,696 230,267
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* Reclassified
43
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 30 - Condensed Financial Statements in Nominal (Historical) Value (Cont'd)
B. Statements of Earnings for the Year Ended December 31
Consolidated The Company
----------------------------------------- ------------------------------------------
December 31 December 31 December 31 December 31 December 31 December 31
1994 1993 1992 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income
Rentals and
warehousing 77,081 66,074 57,287 5,536 5,253 4,686
From construction
and other sources 177,538 124,282 40,571
The Company's share
in the net earnings
of related companies 10,881 5,848 6,678 50,003 43,676 26,021*
Gains and other credits
relating to investments
and fixed assets 17,501 12,676 13,951 5,734 10,660 8,744
Income from securities,
financing and
others, net 11,204 20,529 13,639 2,459 1,792 1,996*
----------- ----------- ----------- ----------- ----------- -----------
294,205 229,409 132,126 63,732 61,381 41,447
----------- ----------- ----------- ----------- ----------- -----------
Cost and expenses
Cost of construction and
other sources 123,289 90,938 30,766
Administrative, selling
and others 21,612 19,200 16,789 4.392 3,611 2,884
Property maintenance
(excluding depreciation) 7,142 7,124 6,026 909 833 623
Depreciation and amortization3,630 2,967 3,060 83 65 59
Property taxes on land 4,290 2,120 1,703 506 271 210
Financing 24,554 10,614 7,974 2,079 567 471
----------- ----------- ----------- ----------- ----------- -----------
184,517 132,963 66,318 7,969 5,347 4,247
----------- ----------- ----------- ----------- ----------- -----------
Earnings before
taxes on income 109,688 96,446 65,808 55,763 56,034 37,200
Taxes on income 29,230 20,634 17,363 145 950 1,300
----------- ----------- ----------- ----------- ----------- -----------
Earnings after taxation 80,458 75,812 48,445 55,618 55,084 35,900
Less/- Outside shareholders'
interest in earnings 24,840 20,728 12,545
----------- ----------- ----------- ----------- ----------- -----------
Net earnings for
the year 55,618 55,084 35,900 55,618 55,084 35,900
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
* Reclassified
44
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 30 - Condensed Financial Statements in Nominal (Historical) Value (Cont'd)
C. Statement of Shareholders' Equity
Share Capital Retained Total
capital reserves earnings
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance as at
January 1, 1992 3,546 111 125,867 129,524
Net earnings for the year
ended December 31, 1992 35,900 35,900
Capitalization of earnings related
to an issue of a subsidiary 3,868 (3,868)
Proposed dividend - 115% (4,078) (4,078)
---------- ---------- ---------- ----------
Balance as at
December 31, 1992 3,546 3,979 153,821 161,346
Net earnings for the year
ended December 31, 1993 55,084 55,084
Capitalization of earnings
of subsidiaries 7,040 (7,040)
Proposed dividend - 170% (6,028) (6,028)
---------- ---------- ---------- ----------
Balance as at
December 31, 1993 3,546 11,019 195,837 210,402
Net earnings for current year 55,618 55,618
Proposed dividend - 170% (6,028) (6,028)
---------- ---------- ---------- ----------
3,546 11,019 245,427 259,992
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
D. Share capital
1. Composition:
Consolidated and the Company
-------------------------------------------------------------
Authorized Issued and fully paid
---------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
NIS NIS NIS NIS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Ordinary shares of NIS 1 N.V.
each (registered) quoted 6,000,000 6,000,000 3,545,814 3,545,814
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
45
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 30 - Condensed Financial Statements in Nominal (Historical) Value (Cont'd)
<S> <C>
D. Share capital
2. On May 19, 1992 the Company published a profile regarding the private placement of options
exercisable for ordinary registered shares of NIS 1 nominal value each, of the Company,
including up to NIS 24,996 to senior employees of the Company and its subsidiaries
(including NIS 7,099 to a related party). Half of the options were granted within the date of
the profile and the second half was granted within a year from that date. The options will
be exercisable during a three year period beginning from two years after their having been
granted.
On December 2, 1994, the Company published an additional profile with respect to a private
placement of options, exercisable for registered ordinary shares of NIS 1 par value of the
Company having an aggregate par value of NIS 14,860, to senior employees of the Company
and its subsidiaries (including NIS 4,250 par value to a related party). Half of the options
were granted soon after the date of the profile, while the other half will be granted one year
from such date. The options will be exercisable during a two year period beginning from the
date they were granted.
Assuming exercise of all of the options, the total shares distributed will represent
approximately 1.12% of the Company's equity and the voting power therein.
</TABLE>
<TABLE><CAPTION>
Note 31 - Statements for Incorporation in the Financial Statements of PEC
<S> <C>
A. Change in Reporting Principles
The main consolidated financial statements of Property and Building Corporation Limited and
Subsidiary Companies as at December 31, 1994 and for the year ended at that date are prepared
in NIS adjusted for the changes in the consumer price index, according to the rules set forth in the
opinions of the Institute of Certified Public Accountants in Israel.
For the purpose of their inclusion in the financial statements of the ultimate American shareholder
of the Company, PEC Israel Economic Corporation ("PEC"), the Company prepared these special
condensed financial statements ("special statements") which are presented in accordance with the
instructions of PEC (see below).
Up to and including December 31, 1992, for the purpose of inclusion in the financial statements
of PEC, the Company prepared financial statements in U.S. dollars ("dollars"). These dollar financial
statements were translated into dollar terms in accordance with the remeasurement principles set
forth in Opinion No. 52 of the Financial Accounting Standards Board of the United States for
entities operating in highly inflationary economies.
The rate of inflation declined significantly in recent years. For this reason, in 1993 PEC decided
that the translation to dollars will be done in accordance with the principles applied regarding
economies which are no longer considered highly inflationary.
46
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 31 - Statements for Incorporation in the Financial Statements of PEC (cont'd)
<S> <C>
A. Change in Reporting Principles (cont'd)
These statements were prepared for the purpose of their translation into dollars and inclusion in the
consolidated financial statements of PEC, according to the instructions of PEC, as follows:
1. The special statements are prepared in nominal NIS.
2. The balances in NIS as at January 1, 1993, were calculated by the translation to NIS of the
non-monetary assets and capital reserves and surplus as presented in the dollar statements
as at December 31, 1992 according to the exchange rate in effect at that date ($1 =
NIS 2.764).
3. Transactions executed after January 1, 1993 are stated in the special statements at their
original value in nominal NIS.
4. In addition to their being presented according to the instructions of PEC, the special
statements were adjusted to the generally accepted accounting principles in the United
States.
47
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 31 - Statements for Incorporation in the Financial Statements of PEC (Cont'd)
B. Condensed Financial Statements
1. Balance Sheet
Consolidated
---------------------------
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents 23,219 26,409
Short-term deposits and loans 662 1,215
Current maturities of long-term deposits and loans 1,195 1,016
Marketable securities 78,475 104,853
Compulsory government loans 34 208
Customers 17,296 23,300
Accounts receivable and debit balances 15,821 9,390
Building projects and other inventories 29,439 29,756
----------- -----------
166,141 196,147
----------- -----------
Land 134,808 107,635*
----------- -----------
Long-term Deposits and Loans 2,887 3,542
----------- -----------
Investments
In related and other companies 82,956 69,340
----------- -----------
Fixed Assets
Buildings, land and other 373,752 309,905*
Less/- Accumulated depreciation 80,568 75,575*
----------- -----------
293,184 234,330
----------- -----------
Deferred Charges and Other Assets 16,243 6,449*
----------- -----------
----------- -----------
696,219 615,929
----------- -----------
----------- -----------
* Reclassified.
48
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 31 - Statements for Incorporation in the Financial Statements of PEC (Cont'd)
B. Condensed Financial Statements (Cont'd)
1. Balance Sheet (Cont'd)
Consolidated
---------------------------
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Current Liabilities
Advances from purchasers of apartments and others, net 8,108 4,081
Credit from banking entities 7,039 749
Current maturities of long-term liabilities 16,655 8,717
Creditors and credit balances 75,757 73,528*
Deferred taxes 1,434 5
Proposed dividend 8,635 8,308
----------- -----------
117,628 95,388
----------- -----------
Long-term Liabilities
Long-term loans 69,164 72,994*
Deferred taxes 2,945 3,743
Liability in respect of employee severance pay 1,651 3,005
----------- -----------
73,760 79,742
----------- -----------
Interest of Outside Shareholders 160,079 138,052
----------- -----------
Shareholders' Equity
Share capital 80,729 80,729
Capital surplus 7,934 7,623
Retained earnings 256,089 214,395
----------- -----------
344,752 302,747
----------- -----------
----------- -----------
696,219 615,929
----------- -----------
----------- -----------
49
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 31 - Statements for Incorporation in the Financial Statements of PEC (Cont'd)
B. Condensed Financial Statements (Cont'd)
2. Statement of Earnings for the Year Ended December 31
Consolidated
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Income
Rentals and warehousing 77,081 66,130
From construction and other sources 177,866 128,896
The Company's share in the net
earnings of related companies 7,055 1,798
Gains and other credits relating to
investments and fixed assets 15,213 10,022
Income from securities, financing
and others, net 11,272 16,024
----------- -----------
288,487 222,870
----------- -----------
Cost and expenses
Cost of construction and other sources 129,938 99,386
Administrative, selling and others 21,933 19,534
Property maintenance (excluding depreciation) 7,161 7,153
Depreciation and amortization 7,053 6,547
Property taxes on land 4,290 2,120
Financing 25,769 10,475
----------- -----------
196,144 145,215
----------- -----------
Earnings before taxes on income 92,343 77,655
Taxes on income 23,047 18,186
----------- -----------
Earnings after taxation 69,296 59,469
Less/- Outside shareholders' interest in earnings 23,924 16,157
----------- -----------
Net earnings before effect of an accounting change 45,372 43,312
Accumulated effect as at January 1, 1994 of
adjustment in accounting treatment of
income from marketable securities 2,350 -
----------- -----------
Net earnings 47,722 43,312
----------- -----------
----------- -----------
Earnings per Share
Primary earnings per share of NIS 1.00 par value 13.46 12.21
----------- -----------
----------- -----------
50
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 31 - Statements for Incorporation in the Financial Statements of PEC (Cont'd)
B. Condensed Financial Statements (Cont'd)
3. Statement of Shareholders' Equity
Share Capital Retained Total
capital surplus earnings
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance as at
January 1, 1993 80,729 134 184,266 265,129
Net earnings for the year
ended December 31, 1993 43,312 43,312
Capitalization of earnings
of subsidiaries 7,155 (7,155)
Paid in capital stock options 334 334
Proposed dividend - 170% (6,028) (6,028)
---------- ---------- ---------- ----------
Balance as at
December 31, 1993 80,729 7,623 214,395 302,747
Net earnings for the year
ended December 31, 1994 47,722 47,722
Paid in capital stock options, net 311 311
Proposed dividend, net - 170% (6,028) (6,028)
---------- ---------- ---------- ----------
Balance as at
December 31, 1994 80,729 7,934 256,089 344,752
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
51
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands)
----------------------------------------------------------------------------------------------------------------------------------
Note 31 - Statements for Incorporation in the Financial Statements of PEC (Cont'd)
C. Adjustment of the nominal income
to the income for the purpose of PEC:
Year ended Year ended
December 31 December 31
1994 1993
----------- -----------
<S> <C> <C>
Nominal net income as per the statement of earnings 55,618 55,084
Adjustment of differences relating to the following items:
Advances from apartment purchasers 328 4,614
Construction work and land (6,649) (8,449)
The Company's share in the net earnings
of related companies (3,826) (4,050)
Income from investments and fixed assets (2,288) (2,654)
Financing (1,215) (4,505)
Depreciation and amortization (3,423) (3,580)
Deferred taxes 6,183 2,449
Outside shareholders' interest in earnings 916 4,571
Others (272) (168)
Accumulated effect as at January 1, 1994
of adjustment in accounting treatment of
income from marketable securities, net 2,350
----------- -----------
Net income as for the "special purpose"
statement of earnings 47,722 43,312
----------- -----------
----------- -----------
52
</TABLE>
<PAGE>
<TABLE><CAPTION>
Property and Building Corporation Limited and Subsidiary Companies
Annex - Percentage of Holding in Related Companies as at December 31, 1994
Percent of holding(1)
---------------------------
Voting Equity
----------- -----------
% %
----------- -----------
<S> <C> <C>
Subsidiary companies
Property and Building (Finance 1986) Ltd. 100.00 100.00
Bayside Land Corporation Ltd.* 66.05 61.18
Naveh Building & Development Ltd. 100.00 100.00
Hadarim Properties Ltd. 72.67 72.67
Merkaz Herzlia "A" Ltd. 100.00 100.00
Merkaz Herzlia "B" Ltd. (2) 100.00 74.16
"Hon" Investment and Trust Company Ltd. 100.00 100.00
Shadar Building Company Ltd. 100.00 100.00
Aclim 2000 for Ecology Ltd. 100.00 50.00
"Gad" Building Company Ltd. 100.00 100.00
"Gilat" Building and Housing in Development Areas Ltd. 100.00 100,00
"Ispro" The Israeli Properties Rental Corp. Ltd. 55.20 55.20
Science Based Campus Ltd. 50.00 50.00
Nichsei Nachalat Beit Hashoeva B.M. 50.00 50.00
Affiliated companies
Mehadrin Ltd. 31.20 31.20
Pri - Or Ltd. (3) 12.12 12.12
Bartan Holdings and Investment Ltd. 37.19 37.19
K.B.A Townbuilders Group LTD (4) 20.59 20.59
(1) Including shareholding through subsidiary companies.
(2) This shareholding entitles the Company to 97.35% of the profits distributed by way of cash
dividend.
(3) An additional shareholding is held in "Pri-Or" through "Mehadrin".
(4) Directly and through A.A. Holdings Ltd. As from October 1994 the Company's share in the
net earnings of K.B.A. has been included in these financial statements.
* In accordance with the plan for the distribution of options to senior employees exercisable
for ordinary shares of NIS 1 par value of the Bayside Land Company, Ltd. from November 13,
1994, options are to be distributed, at no consideration, having an aggregate par value of
NIS 6,970. The options are granted in two annual equal portions and will first become
exercisable at the end of the two year period beginning on the date of their grant, at the
exercise prices approved in the exercise plan. The exercise of all of the options will result
in a 0.52% decrease in voting power in the Company and 0.36% decrease in the equity.
53
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Financial Statements
December 31, 1994
<PAGE>
Tambour Limited and Subsidiaries
Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Contents
Page
Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Statement of Shareholders' Equity 5
Consolidated Cash Flow Statements 6
Balance Sheets 9
Statements of Income 11
Cash Flow Statements 12
Notes to the Financial Statements 14
Appendix 56
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Haifa, March 6, 1995
Independent Auditor's Report to the Shareholders of
Tambour Limited
We have audited the balance sheets of Tambour Limited ("the Company") and
the balance sheets of the Company and subsidiary companies as at December
31, 1994 and 1993, the related statements of income and shareholders'
equity and cash flows for each of the three years in the period then ended,
expressed in New Israel Shekels. These financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have
performed such auditing procedures as we considered necessary in the
circumstances. For the purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements of the Company in historical values which formed the
basis of the adjusted statements appear in Note 20 to the financial
statements.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
The financial statements of a consolidated company whose revenues in 1992
comprised approximately 3.3% of the total revenues in the consolidated
statement of income, were audited in 1992 by another auditor.
In our opinion, based on our audit and the reports of another auditor, as
mentioned above, the above-mentioned financial statements present fairly
the financial position of the Company and of the Company and subsidiary
companies as at December 31, 1994 and 1993, the results of operations, the
changes in shareholder's equity and cash flows for each of the three years
in the period ended December 31, 1994, in conformity with accounting
principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of nominal net income and shareholders' equity to the extent
summarized in Note 22 to the financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL)
<PAGE>
<TABLE><CAPTION>
Consolidated Balance Sheets as at December 31
------------------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1994
1994 1993
Adjusted NIS Adjusted NIS
Note thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 17,054 16,375
Marketable securities 3 46,097 73,665
Accounts receivable - trade 4A 79,763 76,007
Other receivables 4B 36,738 15,988
Bank deposits 5A 31,744 21,195
Inventories 6 81,413 75,128
----------- -----------
292,809 278,358
----------- -----------
Investments and long-term assets
Affiliated companies and others 7B 23,997 19,450
Bank deposits and other receivables 5B 60,943 2,604
Deferred taxes, net 16C 3,978 6,717
----------- -----------
88,918 28,771
----------- -----------
Property, plant and equipment 8
Cost 365,051 344,285
Less: Accumulated depreciation 264,218 252,067
----------- -----------
100,833 92,218
----------- -----------
Intangible assets, net 295 583
----------- -----------
482,855 399,930
----------- -----------
----------- -----------
The accompanying notes and appendix are an integral part of the financial statements.
2
</TABLE>
<PAGE>
<TABLE><CAPTION>
Tambour Limited and Subsidiaries
----------------------------------------------------------------------------------------------------------------------------------
1994 1993
Adjusted NIS Adjusted NIS
Note thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Current liabilities
Bank credits and current maturities of long-term debt 9 3,497 13,785
Accounts payable - trade 10A 33,845 23,740
Other accounts payable 10B 19,715 22,022
Dividend declared 21A 10,000 -
----------- -----------
67,057 59,547
----------- -----------
Long-term liabilities
Long-term debt 11A 2,292 2,200
Liability regarding termination of employee-employer
relationship, net 12 971 925
----------- -----------
3,263 3,125
----------- -----------
Deferred credits, net 900 1,558
----------- -----------
Minority interest 3,909 1,411
----------- -----------
Liens, guarantees
contingencies and commitments 14
Shareholders' equity
Common stock 13 76,078 69,938
Paid-in capital 178,837 97,520
Retained earnings 152,811 166,831
----------- -----------
407,726 334,289
----------- -----------
482,855 399,930
----------- -----------
----------- -----------
The accompanying notes and appendix are an integral part of the financial statements.
---------------------------------------------
Jacob Eshel - Vice-Chairman
---------------------------------------------
Reuben Shulstein - Director, General Manager
March 6, 1995
3
</TABLE>
<PAGE>
<TABLE><CAPTION>
Tambour Limited and Subsidiaries
Consolidated Statements of Income for the Year Ended December 31
----------------------------------------------------------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1994
1994 1993 1992
Adjusted NIS Adjusted NIS Adjusted NIS
Note thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from sales 18A 394,297 425,522 * 396,495 *
Cost of sales 18B 256,577 269,008 * 241,982
---------- ---------- ----------
Gross profit 137,720 156,514 154,513
---------- ---------- ----------
Selling and marketing expenses 18C 68,194 65,031 * 48,494 *
General and administrative expenses 25,405 24,748 * 22,577
---------- ---------- ----------
93,599 89,779 71,071
---------- ---------- ----------
Operating income 44,121 66,735 83,442
Finance income (expenses), net 18D (17,726) 1,253 7,711
Other income, net 18E 5,266 6,081 2,246
---------- ---------- ----------
Income before income taxes 31,661 74,069 93,399
Income taxes 16F 16,923 28,512 38,094
---------- ---------- ----------
Net income after income taxes 14,738 45,557 55,305
Equity in earnings (losses) of affiliated
companies and others, net (528) (214) 1,761
Minority interest in subsidiaries'
income (383) (667) (31)
---------- ---------- ----------
Net income before extraordinary item 13,827 44,676 57,035
Extraordinary item - salary expense
relating to the portion of
securities issued which constitutes
an employee benefit, net 13B(5) 12,610 - -
---------- ---------- ----------
Net income for the year 1,217 44,676 57,035
---------- ---------- ----------
---------- ---------- ----------
Earnings per NIS 1 par value of
shares in NIS 15
Primary earnings per share before
extraordinary item 0.23 0.78 1.14
---------- ---------- ----------
---------- ---------- ----------
Primary earnings per share after
extraordinary item 0.02 0.78 1.14
---------- ---------- ----------
---------- ---------- ----------
Fully diluted earnings per share before
extraordinary item 0.23 0.74 1.14
---------- ---------- ----------
---------- ---------- ----------
Fully diluted earnings per share after
extraordinary item 0.02 0.74 1.14
---------- ---------- ----------
---------- ---------- ----------
*Reclassified
The accompanying notes and appendix are an integral part of the financial statements.
4
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Statement of Shareholders' Equity
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
Share Premium Proceeds from Retained Total
capital issue earnings
of warrants
----------- ----------- ----------- ----------- -----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands thousands
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance as at
December 31, 1991 27,277 - - 149,696 176,973
Changes during 1992:
Net income - - - 57,035 57,035
Dividend - - - (32,300) (32,300)
----------- ----------- ----------- ----------- -----------
Balance as at
December 31, 1992 27,277 - - 174,431 201,708
Changes during 1993:
Issue of bonus shares 35,584 - - (35,584) -
Issue of share capital
and warrants, net 5,590 65,176* 17,846* - 88,612
Exercise of
warrants, net 1,487 16,191* (1,693) * - 15,985
Net income - - - 44,676 44,676
Dividend - - - (16,692) (16,692)
----------- ----------- ----------- ----------- -----------
Balance as at
December 31, 1993 69,938 81,367 16,153 166,831 334,289
Changes during 1994:
Salary expense relating to
the portion of securities
issued which constitutes
an employee benefit - 11,218 10,135 - 21,353
Exercise of
warrants, net 6,140 66,603* (6,639)* - 66,104
Net income - - - 1,217 1,217
Dividend** - - - (15,237) (15,237)
----------- ----------- ----------- ----------- -----------
Balance as at
December 31, 1994 76,078 159,188 19,649 152,811 407,726
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
* Net of issue and registration expenses, after tax affect.
** Including dividend declared of NIS 10,000 thousands (See Note 21A).
The accompanying notes and appendix are an integral part of the financial statements.
5
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
1994 1993 1992
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income for the year 1,217 44,676 57,035
Reconciliation of net income to net cash
provided by operating activities (a) 26,535 (21,752) (3,554)
---------- ---------- ----------
Net cash provided by operating activities 27,752 22,924 53,481
---------- ---------- ----------
Cash flows to investing activities
Acquisition of shares in affiliated companies
that became subsidiaries (b) (c) 34 - 175
Acquisition of shares in a subsidiary
consolidated for the first time (d) - - 154
Purchases of property, plant and equipment (29,842) (55,418) (30,878)
Proceeds from sale of property and equipment 1,971 1,393 976
Sales (Purchases) of marketable securities, net 15,233 (31,578) 17,086
Redemption of government loans 955 1,392 -
Investments in affiliated companies and others (2,863) (2,418) -
Loans to affiliated companies and others (4,447) (3,209) (1,117)
Redemption of loans to affiliated companies and others 1,318 196 516
Long-term bank deposit and other
long-term receivables (59,532) (2,604) -
Investment in capital notes of
affiliated companies (170) (341) -
Redemption of capital notes 1,411 - -
Decrease (Increase) in short-term
deposits and loans, net (7,193) (20,763) 3,699
Increase in intangible assets - (176) -
Dividend received from affiliated company 49 - -
---------- ---------- ----------
Net cash used in investment activities (83,076) (113,526) (9,389)
---------- ---------- ----------
Cash flows from financing activities
Dividend distributed (5,237) (16,692) (32,300)
Issue of minority capital in consolidated subsidiary 5,419 - -
Increase (decrease) in short-term bank credits, net (9,914) (2,200) 11,271
Receipt of long-term loans 1,204 - 624
Repayment of long-term loans (1,339) (760) (8,675)
Issue of share capital and warrants, net - 85,996 -
Proceeds from exercise of warrants, net 65,870 15,985 -
---------- ---------- ----------
Net cash provided by (used in) financing activities 56,003 82,329 (29,080)
---------- ---------- ----------
Increase (Decrease) in cash and cash equivalents 679 (8,273) 15,012
Balance of cash and cash equivalents
at beginning of year 16,375 24,648 9,636
---------- ---------- ----------
Balance of cash and cash equivalents
at end of year 17,054 16,375 24,648
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes and appendix are an integral part of the financial statements.
6
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd)
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
1994 1993 1992
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
(a)Reconciliation of net income to net cash
provided by operating activities
Income and expenses not involving cash flows:
Depreciation and amortization 20,354 17,700 17,013
Deferred taxes, net 3,222 2,097 2,933
Salary expense relating to the employee benefit
portion of securities issued, net 12,610 - -
Increase (Decrease) in liability regarding termination
of employee - employer relationship, net 46 (331) (132)
Minority interest in earnings of subsidiaries 383 667 31
Equity in (earnings) losses of
affiliated companies and others, net 1,034 710 (1,761)
Gain from share issue of subsidiary (1993 - affiliate)(3,523) (4,028) -
Capital gains, net (720) (505) (445)
(Increase) Decrease in value of government loans
and erosion of loans, net 146 (140) (183)
(Increase) Decrease in value of marketable securities 12,335 (5,964) (8,316)
Increase in value of bank deposits (2,469) - -
Changes in assets and liabilities:
Increase in accounts receivable - trade (3,756) (10,100) (4,943)
Increase in other receivables (14,418) (7,214) (870)
Increase in inventories (6,285) (4,493) (14,285)
Increase (Decrease) in accounts payable - trade 10,105 (3,530) 8,833
Decrease in other accounts payable (2,529) (6,621) (1,429)
---------- ---------- ----------
26,535 (21,752) (3,554)
---------- ---------- ----------
---------- ---------- ----------
(b)Acquisition of shares in an affiliated company
that became a consolidated company
Assets and liabilities of Solar Dynamics Ltd.
as at the date of acquisition
(other than cash):
Working capital (Other than cash) (626) - -
Fixed Assets, net 89 - -
Long-term liabilities (54) - -
Minority interest at
date of acquisition (7) - -
---------- ---------- ----------
(598) - -
Investment on equity basis as at date of
becoming a consolidated company 564 - -
---------- ---------- ----------
(34) - -
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes and appendix are an integral part of the financial statements.
7
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd)
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
1994 1993 1992
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
(c)Acquisition of shares in an affiliated company
that became a consolidated company
Assets and liabilities of Italchem Ayalon Ltd.
as at the date of acquisition (other than cash):
Accounts receivable - - 3,840
Inventories - - 2,864
Deferred taxes - - 160
Bank credits - - (1,436)
Accounts payable - trade, and accrued expenses - - (3,852)
Fixed assets, net - - 4,213
Long-term liability - - (4,554)
Minority interest - - (539)
Negative goodwill arising upon acquisition - - (461)
---------- ---------- ----------
- - 235
Investment on equity basis as at
the date of becoming a subsidiary - - (410)
---------- ---------- ----------
- - (175)
---------- ---------- ----------
---------- ---------- ----------
(d)Acquisition of shares in a company
consolidated for the first time
Assets and liabilities of Tzah Israeli Printing Inks Ltd.
as at the date of acquisition (other than cash):
Accounts receivable - - 5,883
Inventories - - 3,546
Current maturities of long-term loans - - (354)
Accounts payable - trade, and accrued expenses - - (6,575)
Fixed assets, net - - 6,679
Deferred expenses - - 808
Long-term liabilities - - (8,378)
Negative goodwill arising upon acquisition - - (1,763)
---------- ---------- ----------
- - (154)
---------- ---------- ----------
---------- ---------- ----------
(e)Non cash transactions:
(1)On December 31, 1994, dividend declared of NIS 10,000 thousand.
(2)1992: In December 1992 capital notes in a subsidiary were converted to shares and long-
term loans to capital notes. The amounts as reflected in the consolidated financial
statements are NIS 82 thousand and NIS 455 thousand, respectively (also see Note
11).
8
</TABLE>
<PAGE>
Balance Sheets as at December 31
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
1994 1993
Adjusted NIS Adjusted NIS
Note thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 12,842 14,480
Marketable securities 3 46,097 73,665
Accounts receivable - trade 4A 54,259 52,777
Other receivables 4B 50,248 28,001
Bank deposits 5A 31,744 21,195
Inventories 6 69,874 64,107
---------- ----------
265,064 254,225
---------- ----------
Investments and long-term assets
Investments in subsidiaries, affiliates and others 7 40,761 36,917
Bank deposits and other receivables 5B 60,206 2,002
Deferred taxes, net 16C 3,861 6,621
---------- ----------
104,828 45,540
---------- ----------
Property, plant and equipment 8
Cost 330,474 312,973
Less: Accumulated depreciation 242,103 232,476
---------- ----------
88,371 80,497
---------- ----------
458,263 380,262
---------- ----------
---------- ----------
The accompanying notes and appendix are an integral part of the financial statements.
9
</TABLE>
<PAGE>
Tambour Limited
--------------------------------------------------------------------------------
<TABLE><CAPTION>
1994 1993
Adjusted NIS Adjusted NIS
Note thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Current liabilities
Bank credits 9 11 11,221
Accounts payable - trade 10A 21,822 13,903
Other accounts payable 10B 15,700 17,618
Dividend declared 21A 10,000 -
---------- ----------
47,533 42,742
---------- ----------
Long-term liabilities
Liability regarding termination of employee -
employer relationship, net 12 939 868
Capital notes issued to subsidiaries 11B 2,065 2,363
---------- ----------
3,004 3,231
---------- ----------
Liens, guarantees, contingencies and
commitments 14
Shareholders' equity 13
Share capital 76,078 69,938
Paid-in capital 178,837 97,520
Retained earnings 152,811 166,831
---------- ----------
407,726 334,289
---------- ----------
458,263 380,262
---------- ----------
---------- ----------
The accompanying notes and appendix are an integral part of the financial statements.
---------------------------------------------
Jacob Eshel - Vice-Chairman
---------------------------------------------
Reuben Shulstein - Director, General Manager
March 6, 1995
10
</TABLE>
<PAGE>
Statement of Income for the Year Ended December 31
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
1994 1993 1992
Adjusted NIS Adjusted NIS Adjusted NIS
Note thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from sales 18A 334,291 359,063 * 359,235 *
Cost of sales 18B 213,462 224,269 * 216,086
---------- ---------- ----------
Gross profit 120,829 134,794 143,149
---------- ---------- ----------
Selling and marketing expenses 18C 57,393 54,536 * 43,341 *
General and administrative expenses 20,042 19,830 * 20,059
---------- ---------- ----------
77,435 74,366 63,400
---------- ---------- ----------
Operating income 43,394 60,428 79,749
Finance income (expenses), net 18D (15,651) 2,445 8,408
Other income, net 18E 4,562 1,922 * 2,526
---------- ---------- ----------
Income before income taxes 32,305 64,795 90,683
Income taxes 16F 15,776 27,045 37,365
---------- ---------- ----------
Net income after income taxes 16,529 37,750 53,318
Equity in earnings (losses) of subsidiaries,
affiliates and others, net (2,702) 6,926 * 3,717
---------- ---------- ----------
Net income before extraordinary item 13,827 44,676 57,035
Extraordinary item - Salary expense
relating to the securities issued
which constitutes an employee
benefit, net 13B(5) 12,610 - -
---------- ---------- ----------
Net income for the year 1,217 44,676 57,035
---------- ---------- ----------
---------- ---------- ----------
Earnings per NIS 1 par value of
shares in NIS 15
Primary earnings per share before
extraordinary item 0.23 0.78 1.14
---------- ---------- ----------
---------- ---------- ----------
Primary earnings per share after
extraordinary item 0.02 0.78 1.14
---------- ---------- ----------
---------- ---------- ----------
Fully diluted earnings per share before
extraordinary item 0.23 0.74 1.14
---------- ---------- ----------
---------- ---------- ----------
Fully diluted earnings per share after
extraordinary item 0.02 0.74 1.14
---------- ---------- ----------
---------- ---------- ----------
*Reclassified
The accompanying notes and appendix are an integral part of the financial statements.
11
</TABLE>
<PAGE>
Tambour Limited
Cash Flows Statements for the Year Ended December 31
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
1994 1993 1992
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows to operating activities:
Net income for the year 1,217 44,676 57,035
Reconciliation of net income to net cash
provided by operating activities (a) 27,524 (29,792) (251)
---------- ---------- ----------
Net cash provided by operating activities 28,741 14,884 56,784
---------- ---------- ----------
Cash flows to investing activities:
Purchases of property, plant and equipment (25,446) (52,032) (29,001)
Proceeds from sale of property and equipment 1,373 1,135 761
Sales (Purchases) of marketable securities, net 15,233 (31,578) 17,086
Redemption of government loans 852 1,392 -
Investments in affiliates, subsidiaries
and others (2,888) (2,418) (94)
Loans to affiliates, subsidiaries and others (6,005) (7,731) (1,117)
Repayment of loans to affiliates
subsidiaries and others 3,710 196 666
Long-term bank deposit and other
long-term receivables (59,398) (2,002) -
Investment in capital notes of affiliates and
subsidiaries - (1,284) (573)
Redemption of capital notes of affiliates
and subsidiaries 1,411 - -
(Increase) Decrease in short-term
deposits and loans, net (8,693) (24,449) 2,807
Dividend received from affiliated companies 49 - -
---------- ---------- ----------
Net cash used in investment activities (79,802) (118,771) (9,465)
---------- ---------- ----------
Cash flows from financing activities:
Dividend distributed (5,237) (16,692) (32,300)
Increase (Decrease) in short-term bank credits, net (11,210) 10,689 (1,394)
Repayment of long-term loans - - (777)
Issue of share capital and warrants, net - 85,996 -
Proceeds from exercise of warrants, net 65,870 15,985 -
---------- ---------- ----------
Net cash provided by (use in) financing activities 49,423 95,978 (34,471)
---------- ---------- ----------
Increase (Decrease) in cash and cash equivalents (1,638) (7,909) 12,848
Balance of cash and cash equivalents
at beginning of year 14,480 22,389 9,541
---------- ---------- ----------
Balance of cash and cash equivalents
at end of year 12,842 14,480 22,389
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes and appendix are an integral part of the financial statements.
12
</TABLE>
<PAGE>
Tambour Limited
Cash Flows Statements for the Year Ended December 31 (Cont'd)
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Adjusted to New Israel Shekels of December 1994
1994 1993 1992
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
(a)Reconciliation of net income to net cash
provided by operating activities
Income and expenses not involving cash flows -
Depreciation and amortization 17,343 14,974 14,369
Deferred taxes, net 2,996 2,099 3,055
Salary expense relating to the employee benefit
portion of securities issued, net 12,610 - -
Increase (Decrease) in liability regarding termination
of employee - employer relationship, net 71 (324) (195)
Equity in (earnings) losses of subsidiaries, affiliates
and others, net 3,208 (6,336)(*) (3,487)
Gain from private offering of subsidiary (3,523) - (*) -
Capital gains, net (697) (464) (382)
Revaluation of government loans and
erosion of loans, net 380 389 (637)
Decrease (Increase) in value of marketable
securities 12,335 (5,964) (8,316)
Increase in value at bank deposits (2,469) - -
Changes in assets and liabilities -
Increase in accounts receivable - trade (1,482) (2,988) (25)
Increase in other receivables (13,482) (10,014) (4,112)
Increase in inventories (5,767) (2,477) (11,895)
Increase (Decrease) in accounts payable - trade 7,919 (3,470) 6,100
Increase (Decrease) in other accounts payable (1,918) (15,217) 5,274
---------- ---------- ----------
27,524 (29,792) (251)
---------- ---------- ----------
---------- ---------- ----------
(b)Non cash transactions:
1994 - Dividend declared of NIS 10,000 thousand.
(*)Reclassified
The accompanying notes and appendix are an integral part of the financial statements.
13
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 1 - General
Tambour Limited (hereafter "the Company") manufactures and markets a wide
range of paints and coating materials, and is also involved, through its
affiliated and subsidiary companies (hereafter the consolidation or the
group), in the treatment of water and waste, the treatments of metals and
the production of emulsions, glues and printing inks.
Note 2 - Reporting and Accounting Policies
A. Definitions
In these financial statements -
1. Subsidiary - A company in which the Company holds directly or indirectly
more than 50% of the voting rights or the right to appoint more than 50%
of the members of the Board of Directors whose financial statements are
consolidated with those of the Company.
2. Affiliate - A company other than a consolidated company in which the
Company holds, directly or indirectly more than 25% of the voting
rights or the right to appoint more than 25% of the members of the
Board of Directors, and which is included in the Company's financial
statements on the equity basis.
3. Goodwill - The excess of the cost of an acquisition over the adjusted
balance sheet value at the date of acquisition.
4. Related parties - As defined in Opinion No. 29 of the Institute of
Certified Public Accountants in Israel.
5. Interested parties - As defined in the Securities Law.
6. Index - The consumer price index published by the Central Statistics
Institute.
B. Financial statements in adjusted values
1. The Company prepared its financial statements on a historical cost basis
adjusted for changes in the general purchasing power of the Shekel (Note
20 presents condensed financial statement data in nominal values).
2. The adjusted values of non-monetary assets do not necessarily represent
the value of those assets in the market or to the business, but rather
their cost adjusted for the changes in the general purchasing power of
the Shekel.
3. In the adjusted financial statements, the words "cost" and "equity"
shall mean adjusted cost and adjusted equity.
4. All comparative figures (including monetary items) are adjusted to the
index of the end of the current year.
14
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
C. Principles of adjustment
1. The Balance Sheet
Non-monetary items (mainly property, plant and equipment, inventories,
share capital and paid-in capital) were adjusted for the changes in the
consumer price index from the month of execution of each transaction up
to the index published for the balance sheet month.
Monetary items are presented in the adjusted balance sheet at nominal
value.
The value on equity basis of affiliated and subsidiary companies is
determined according to the adjusted financial statements of those
companies.
Deferred taxes, net, are computed based on the adjusted data.
2. Statements of Income
The items of the statements of income were adjusted according to the
changes in the Consumer Price Index as follows:
a. Income and expenses deriving from non-monetary items (such as
depreciation and amortization, changes in inventory, prepaid
expenses and income, etc.) or from provisions included in the
balance sheet (such as severance pay and vacation provision,
etc.), were adjusted according to specific indices together with
adjustment of the balance sheet item.
b. The remaining items of the statement of income (such as sales,
purchases and production costs, etc.), other than the elements of
finance income (expense), were adjusted according to indices of
the month the transaction was took place.
c. The equity in the operating results of affiliated and subsidiary
companies not consolidated, and the minority interest of
consolidated subsidiaries' operating results, were determined
based on the adjusted financial statements of the respective
companies.
d. Finance income (expense), net, which cannot be calculated
separately, is derived from the other elements of the financial
statements. The item contains, inter alia, amounts required to
correct various items in the statement of income for the
inflationary component of the finance expenses incorporated
therein.
e. Income taxes - Current taxes consist of advance payments made
during the year and amounts due at the balance sheet date (or net
of amounts to be refunded as of the balance sheet date). The
advance payments are adjusted on the basis of the index at
the time of each payment, while the amounts due (or refund due)
are not adjusted. Therefore, the current taxes include the expense
resulting from the erosion of the value of the advance tax payments
from the date of payment to the balance sheet date.
Deferred taxes - see Notes 2K and 16C.
15
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
C. Principles of adjustment (Cont'd)
3. Statement of Changes in shareholders' equity
(a) Dividends declared and paid during the year are adjusted based on
the index of the month of payment. Dividends declared during the
year but not yet paid as of the balance sheet date are not
adjusted.
(b) Share capital arising from retained earnings are capitalization
of real profits.
D. Consolidation of the financial statements
1. The consolidated financial statements include the financial statements
of the Company and its subsidiaries.
A list of the companies whose financial reports are included in the
consolidated financial statements and the extent of ownership and
control in them, appears in the Appendix to the financial statements.
2. The equity acquired in excess of the cost of investments in
subsidiaries - not ascribed to specific assets, is included in
liabilities as deferred credits, net, and is amortized by the
straight line method over a period of five years.
3. All intercompany balances, transactions and income from intercompany
sales not yet realized outside the group - have been eliminated.
E. Investments in subsidiaries, affiliates and partnerships
Investments in companies and partnerships are included on the equity basis.
Income from sales not yet realized outside the group have been eliminated.
Excess of cost over equity not ascribed to specific assets and deferred
credits are amortized by the straight line method over five years.
F. Cash and cash equivalents
Cash and cash equivalents include short-term deposits in banks for an original
period of up to three months.
16
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
G. Inventories
Inventories are carried at the lower of cost or market value. The cost is
determined mainly as follows:
Raw materials and packaging materials - moving average method.
Finished products - based on computed costs of product, including raw
materials, packaging materials, labor and fringe benefits and other production
costs.
Work in progress - based on raw materials plus actual production costs.
H. Allowance for doubtful accounts
Allowance for doubtful accounts is computed mainly at a rate of 8.5% of the
open balances of accounts receivable at year end.
I. Government loans and other securities
1. Government loans
Loans that can be redeemed early by transfer to the Bank of Israel, are
presented at their redemption value, as per the Opinions of the
Institute of Certified Public Accountants in Israel.
The changes in loan value are included in the statements of income.
2. Marketable securities
Short-term marketable securities are presented on the basis of their
market value on the balance sheet date.
The changes in their value are ascribed to the statement of income.
J. Property, plant and equipment
1. Property, plant and equipment are presented at cost.
2. The cost of assets for which an investment grant was received is
reflected net of the amount of the grant.
3. Improvements are added to the cost of assets, while maintenance and
repair expenses are expenses as incurred.
4. Depreciation is computed on the straight-line method, based on the
estimated useful lives of the assets.
17
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
J. Property, plant and equipment (cont'd)
Annual depreciation rates:
%
--------
Buildings (*) 5 - 10
Machinery and equipment 10 - 20
Motor vehicles 15 - 20
Computers 20 - 33
Furniture and office equipment 6 - 100
* Buildings built or acquired up to 1993 - 10%.
5. Assets leased by capital lease are presented as Company assets at their
normal purchase price (without the financing element), and depreciated
at the accepted rates for such assets. Lease amounts payable in coming
years, after deduction of the inherent finance element, are included in
liabilities. The interest on these amounts is accrued currently and
ascribed to the statement of income.
K. Deferred taxes
Companies in the group regulate the tax burden for timing differences of
expense and income items between accounting and income tax purposes,
additions from inventory adjustment and the adjustment element of depreciable
assets not recognized for tax purposes.
The amount deferred each year are computed according to the liabilities
approach at the tax rates that will be applicable on utilization of the
deferred taxes or on realization of the tax benefits, as known at the time
of authorization of the financial statements by the Board of Directors.
Deferred taxes included in current assets pertain to current items (inventory,
provisions for vacation, etc). Deferred taxes included in "Investments and
long-term debit balances" pertain to items that are not current (property,
plant and equipment, etc.)
The main factors in respect of which deferred taxes are not computed are as
follows:
a. Adjustment amounts for changes in the purchasing power of the Shekel
with reference to private motor vehicles, under the rules determined by
the Institute of Certified Public Accountants in Israel.
b. Investments in held companies, since the Company intends to hold such
investments and not sell them.
c. Timing differences, net, for which a tax asset should be created but the
possibility of realization of the benefit is in doubt.
d. Accumulated losses for tax purposes of a subsidiary acquired in 1992.
18
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
L. Intangible assets, net
Know-how and patent rights - are stated at cost and amortized on the
straight-line basis over 8 years, starting from the time of their first use,
over their anticipated period of benefit.
M. Earnings per share
Earnings per share are computed in accordance with Opinion No. 55 of the
Institute of Certified Public Accountants in Israel.
The computation of primary earnings per share takes into account warrants
issued by the Company if their exercise is reasonable according to the tests
provided in the above Opinion.
Computation of the diluted earnings per share takes into account warrants
issued by the Company that were not included in the computation of the
primary earnings per share, if their exercise does not lead to an increase
in earnings per share (anti-dilutive effect).
N. Foreign currency and linkage
1. Assets (other than securities) and liabilities denominated in or linked
to a foreign currency are stated at the representative exchange rates
published by the Bank of Israel on the balance sheet date.
Assets (other than securities) and liabilities linked to the Consumer
Price Index are stated at the linkage terms determined for each balance.
Data on Consumer Price Indices and exchange rates:
<TABLE><CAPTION>
December 31 Percentage of change
---------------------------------- ----------------------------------
1994 1993 1992 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CPI in
points 289.8 253.2 227.6 14.45 11.25 9.37
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
U.S. dollar
exchange
rate 3.018 2.986 2.764 1.07 8.03 21.1
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
19
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
2. Income and expenses in foreign currency are included in the nominal
statements of income in the relevant line items at the exchange rates
in effect at the time of their occurrence.
3. Exchange rate and linkage differences occurring as a result of the
adjustment of foreign currency or CPI-linked assets and liabilities,
appear in the nominal statements of income in the relevant line items
upon their occurrence.
O. Hedging
On occasion, the Company executes non-specific hedging on liabilities for
purchases abroad, carried out against anticipated future purchases, so as to
minimize risks deriving from fluctuations in foreign currency exchange rates.
Such hedging is executed in various foreign currencies. Profits or losses
derived from such transactions are charged to the statement of income as they
occur.
P. Liability regarding termination of employee-employer relationship
The liability of the Company and its affiliates and subsidiaries regarding the
termination of employee-employer relationship is covered by provisions for
severance indemnities, deposits in approved pension and severance funds and
managers' insurance policies.
Q. Research and development expenses
Research and development costs are expensed as incurred.
R. Subsidiaries consolidated for the first time in 1994
1. In 1994, Solar Dynamics Inc. (hereafter "Solar") was consolidated for
the first time following an increase in the Company's holding during
the year from 50% to 60%.
2. The consolidated statements of income and cash flows for the year ended
December 31, 1993 do not include the statements of income and cash flows
of Solar.
3. See Section 'b' of the Statement of Cash Flows for Solar's balance sheet
data on the date of attaining control.
Note 3 - Marketable Securities
<TABLE><CAPTION>
Consist of:
Consolidated and Company
-------------------------
December 31 December 31
1994 1993
---------- ----------
Adjusted NIS Adjusted NIS
thousands thousands
---------- ----------
<S> <C> <C>
Shares 5,156 12,508
Participation certificates in mutual funds 3,168 22,055
Debentures 37,690 39,102
Derivatives 83 -
---------- ----------
46,097 73,665
---------- ----------
20
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 4 - Accounts Receivable - Trade and Others
<TABLE><CAPTION>
Consist of:
Consolidated The Company
-------------------------------------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
A. Trade
Open accounts 56,760 60,348* 40,636 43,729
Checks receivable 20,248 15,520 12,497 10,793
Related and interested parties 4,133 1,241 4,722 1,241
Income receivable 3,271 3,296* 59 516
---------- ---------- ---------- ----------
84,412 80,405 57,914 56,279
Less: Allowance for
doubtful accounts 4,649 4,398 3,655 3,502
---------- ---------- ---------- ----------
79,763 76,007 54,259 52,777
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
B. Others
Advance payments of income
taxes less provision 24,776 6,524 23,318 6,351
Affiliates and subsidiaries 911 690 10,750 8,191
Government loans - 934 - 852
Government institutions 884 - 250 -
Deferred taxes, net1 3,649 3,898 3,535 3,537
Employees 352 128 308 32
Prepaid expenses 3,939 1,681 3,488 1,258
Short-term loans2 488 93 5,916 4,671
Current maturities of capital notes
and long-term notes
to affiliates and subsidiaries 502 1,652 2,513 3,041
Sundry 1,237 388 170 68
---------- ---------- ---------- ----------
36,738 15,988 50,248 28,001
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
1 See Note 16C.
2 December 31, 1994 - in the Company, including a loan to a consolidated company in the
amount of NIS 5,500 thousand, unlinked, at 18% interest p.a. (December 31, 1993 -
NIS 4,578 thousand, unlinked at 12% interest p.a.).
* Reclassified
21
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 5 - Bank Deposits and Other Receivables
Balances on linkage and interest rate basis:
Consolidated The Company
----------------------------------------------------------------------
Interest December 31 December 31 December 31 December 31
rate 1994 1993 1994 1993
----------- ----------- ----------- ----------- -----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
% thousands thousands thousands thousands
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
A. Included
in current
assets
Deposit in a
commercial
bank
linked to
the index 2.25 - 3.25 1,820 11,463 1,820 11,463
Deposit in
a mortgage
bank linked
to the index 2.7 - 3.9 29,924 9,732 29,924 9,732
----------- ----------- ----------- -----------
31,744 21,195 31,744 21,195
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
B. Included in
investments
and long-term
assets
Deposit in a
commercial bank
linked to the index 3.25 - 1,739 - 1,739
Deposit in a
mortgage bank
linked to
the index 2.7 - 3.9 59,685 - 59,685 -
Other receivables 10.0 - 10.68 1,258 865 521 263
----------- ----------- ----------- -----------
60,943 2,604 60,206 2,002
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Maturity Dates:
Second year 57,830 2,604 57,134 2,002
Third year 2,730 - 2,689 -
Fourth year 81 - 81 -
Fifth year 90 - 90 -
Thereafter 212 - 212 -
----------- ----------- ----------- -----------
60,943 2,604 60,206 2,002
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
22
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 6 - Inventories
Consist of:
Consolidated The Company
-------------------------------------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Finished products 29,224 28,032 23,594 22,699
Work-in-process 5,700 4,418 5,670 4,410
Raw materials and
packing materials 40,160 37,591 34,538 32,296
In transit 6,329 5,087 6,072 4,702
---------- ---------- ---------- ----------
81,413 75,128 69,874 64,107
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Note 7 - Investments in Subsidiaries, Affiliates and Others
A. Consolidated subsidiaries
<TABLE><CAPTION>
The Company
-------------------------
December 31 December 31
1994 1993*
---------- ----------
Adjusted NIS Adjusted NIS
thousands thousands
---------- ----------
<S> <C> <C>
Investment on equity basis, loans and capital notes
Balance of investments as at December 31, 1991 13,174 13,174
Additions, at cost 7,784 4,788
Share in accumulated income net since January 1, 1992 3,131 5,316
---------- ----------
Balance of investments at end of year (I) 24,089 23,278
Capital notes (II) 2,221 3,686
Long-term loans and debit balances (see C below) 5,198 5,565
---------- ----------
31,508 32,529
Less: current maturities of long-term loans 2,011 2,534
---------- ----------
29,497 29,995
---------- ----------
---------- ----------
<CAPTION>
December 31, 1994 December 31, 1993*
------------------------ -------------------------
Original amount Balance Original amount Balance
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(I) Including deferred credit
not yet fully amortized 2,685 977 2,685 1,713
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(II) Unlinked, bearing no interest
* Reclassified.
23
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 7 - Investments in Subsidiaries, Affiliates and Others (Cont'd)
B. Affiliates and others
Consolidated Company
------------------------ -------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993*
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment on equity basis,
loans and capital notes
Balance of investments
as at December 31, 1991 8,555 8,555 628 628
Additions at cost (I) 8,967 6,036 4,927 2,008
Share in accumulated
income (loss), net,
since 1.1.92 (I) 19 1,053 (543) 480
---------- ---------- ---------- ----------
Balance at end of year (II) (III) 17,541 15,644 5,012 3,116
Capital notes (IV) 150 1,458 - 313
Long-term loans and
debit balances (see C below) 6,808 4,000 6,754 4,000
---------- ---------- ---------- ----------
24,499 21,102 11,766 7,429
Less: Current maturities
of capital notes and loans 502 1,652 502 507
---------- ---------- ---------- ----------
23,997 19,450 11,264 6,922
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
(I) Including partnerships
December 31, 1994 December 31, 1993*
------------------------ -------------------------
Original amount Balance Original amount Balance
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(II) Includes Goodwill
(Deferred credit) not yet
fully amortized
Consolidated 459** 726** (461) (155)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Company 920 803 - -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
December 31, 1994 December 31, 1993
------------------------ -------------------------
Market Carrying Market Carrying
value value value value
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(III) Includes shares of
affiliated company
traded on the Tel-Aviv
Stock Exchange 14,795 16,984 25,293 12,551
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(IV) Unlinked, bearing no interest
* Reclassification
** Includes Deferred credit, the original amount of NIS 461 thousand and the amortized balance
in the amount of NIS 77 thousand.
24
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 7 - Investments in Subsidiaries, Affiliates and Others (Cont'd)
C.Long-term loans and debit balances
December 31, 1994 December 31, 1993
------------------------------------- ------------------------
Linked to Linked to Linked to Linked to Unlinked
index foreign Index foreign
currency currency
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Average interest
rate 0% 2 - 6% 0% 2% 0%
----------- ----------- ----------- ----------- -----------
Adjusted Adjusted Adjusted NIS Adjusted NIS Adjusted NIS
NIS thousandsNIS thousands thousands thousands thousands
----------- ----------- ----------- ----------- -----------
Consolidated
Long-term
loans and
debit balances 5,496 1,312 2,756 1,244 -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
The Company
Long-term loans and
debit balances 10,640 1,312 7,684 1,244 637
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Consolidated
By due dates:
First year - 728 - 507 -
Second year - 226 - 245 -
Third year - 358 - 492 -
No due date 5,496 - 2,756 - -
----------- ----------- ----------- ----------- -----------
5,496 1,312 2,756 1,244 -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
The Company
By due dates:
First year 2,011 728 1,389 507 -
Second year - 226 - 245 -
Third year - 358 - 492 -
No due date 8,629 - 6,295 - 637
----------- ----------- ----------- ----------- -----------
10,640 1,312 7,684 1,244 637
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
25
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 8 - Property, Plant and Equipment
A.Consist of:
Consolidated:
Land and Machinery Furniture Computers Motor Total
buildings and and office and vehicles
equipment equipment peripherals
----------- ----------- ----------- ----------- ----------- -----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands thousands thousands
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost:
Balance -
January 1,1994 108,083 199,664 9,718 12,677 14,143 344,285
Additions during
the year 13,241 13,321 455 993 1,921 29,931
Reductions during
the year - 7,203 133 10 1,819 9,165
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1994 121,324 205,782(I) 10,040 13,660 14,245(I) 365,051
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Accumulated
depreciation and
amortization:
Balance -
January 1, 1994 75,013 153,095 8,770 9,610 5,579 252,067
Additions during
the year 2,664 13,440 260 1,576 2,572 20,512
Reductions during
the year - 7,175 69 2 1,115 8,361
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1994 77,677 159,360 8,961 11,184 7,036 264,218
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Depreciated
balance:
December 31,
1994 43,647(III) 46,422 1,079 2,476 7,209(II) 100,833
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Depreciated
balance:
December 31,
1993 33,070(III) 46,569 948 3,067 8,564(II) 92,218
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
(I)Includes advance payments in the amount of NIS 1,950 thousand (December 31, 1993
- NIS 1,030 thousand).
(II)Includes depreciated balance of motor vehicles acquired by capital lease in the amount of NIS 512
thousand (December 31, 1993 - NIS 822 thousand).
(III)Includes depreciated balance of leasehold improvements in the amount of NIS 1,427 thousand.
(December 31, 1993 - NIS 1,371 thousand).
</TABLE>
26
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 8 - Property, Plant and Equipment (Cont'd)
The Company
Land and Machinery Furniture Computers Motor Total
buildings and and office and vehicles
equipment equipment peripherals
----------- ----------- ----------- ----------- ----------- -----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands thousands thousands
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost:
Balance -
January 1, 1994 99,315 184,603 8,472 11,740 8,843 312,973
Additions during
the year 13,035 11,107 134 727 443 25,446
Reductions during
the year - 7,083 66 - 796 7,945
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1994 112,350 188,627 8,540 12,467 8,490 330,474
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Accumulated
depreciation and
amortization:
Balance -
January 1, 1994 68,521 143,027 8,343 8,972 3,613 232,476
Additions during
the year 2,449 11,718 146 1,436 1,594 17,343
Reductions during
the year - 7,082 67 - 567 7,716
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1994 70,970(I) 147,663 8,422 10,408 4,640 242,103
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Depreciated
balance:
December 31,
1994 41,380 40,964 118 2,059 3,850 88,371
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Depreciated
balance:
December 31,
1993 30,794 41,576 129 2,768 5,230 80,497
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
(I)In both the Company and consolidated figures, includes amortization of land lease rights
in the amount of NIS 40 thousand. (1993 - NIS 20 thousand).
27
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment (Cont'd)
B.1. Part of the land and buildings in the amount of NIS 249 thousand is
registered in the Land Registry Office in the name of a wholly-owned
subsidiary.
2. NIS 995 thousand represents approximately 50,000 sq.m. of land,
registered in the Land Registry in the name of a wholly-owned
subsidiary, leased for a period of 49 years which expires in the year
2039. Beginning in 1993, these land lease rights are being amortized
over the remaining lease period.
C. For information relating to liens and commitments on property, plant
and equipment, see Note 14.
Note 9 - Bank Credits and Current Maturities of Long-Term Debt
Balances on linkage and interest rate basis:
<TABLE><CAPTION>
Consolidated The Company
----------- ------------------------- --------------------------
Interest December 31 December 31 December 31 December 31
rate 1994 1993 1994 1993
----------- ----------- ----------- ----------- -----------
% Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
----------- Thousands Thousands Thousands Thousands
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Bank credit in
Israeli currency,
unlinked 10 - 22% 2,691 12,599 11 11,221
Current portion of
long-term loans 806 1,186 - -
---------- ---------- ---------- ----------
3,497 13,785 11 11,221
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
28
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 10 - Accounts Payable - Trade and Others
Consolidated The Company
------------------------ -------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
A. Accounts payable -
Trade and services
Open accounts 30,313 20,723 20,585 12,477
Related parties 1,585 1,671 1,237 1,426
Checks payable 1,947 1,346 - -
---------- ---------- ---------- ----------
33,845 23,740 21,822 13,903
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
B. Others
Employees including
provisions for
fringe benefits 11,805 13,083 9,625 10,994
Government institutions 2,082 2,920 1,481 2,647
Affiliated and subsidiary
companies - - 1,544 -
Other accruals 5,828 6,019 3,050 3,977
---------- ---------- ---------- ----------
19,715 22,022 15,700 17,618
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
29
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 11 - Long-Term Liabilities
A. Long-term loans *
1. Balances on linkage and interest rate basis
Consolidated
Adjusted NIS thousands
-------------------------
Interest December 31 December 31
rate 1994 1993
-------- ---------- ----------
%
--------
<S> <C> <C> <C>
Unlinked Israeli currency debt1 0 - 20 490 850
Index-linked Israeli currency debt2 0 - 4 586 1,589
Debts in or linked to foreign
currencies 8 - 10 1,627 148
Capital lease debt - index-linked 6.5 99 164
Capital lease debt - linked to
foreign currency 9 - 13 296 635
---------- ----------
3,098 3,386
Less - current maturities 806 1,186
---------- ----------
2,292 2,200
---------- ----------
---------- ----------
1 Includes capital notes unlinked bearing no
interest, to related parties
in the amount of 439 502
---------- ----------
---------- ----------
2 Includes loans from related parties
in the amount of
(linked to the index) 583 583
---------- ----------
---------- ----------
<CAPTION>
2. Balances by due dates
Consolidated
-------------------------
December 31 December 31
1994 1993
---------- ----------
Adjusted NIS Adjusted NIS
thousands thousands
---------- ----------
<S> <C> <C>
First year 806 1,186
Second year 445 835
Third year 143 258
Fourth year 682 22
Fifth year - -
No due date 1,022 1,085
---------- ----------
3,098 3,386
---------- ----------
---------- ----------
*All loans, except capital lease debt and notes and loans from related parties, are bank loans.
B. Capital notes issued to consolidated companies
are unlinked with no interest.
30
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 12 - Liability Regarding Termination of Employee - Employer Relationship, Net
A. Consists of:
Consolidated The Company
------------------------ -------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Provisions for severance pay 3,405 3,471 3,240 3,414
Less deposits 2,684 2,912 2,551 2,912
---------- ---------- ---------- ----------
721 559 689 502
Provision for unutilized
sick leave* 250 366 250 366
---------- ---------- ---------- ----------
971 925 939 868
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* See C. below
B. 1. The employees of the group, except for a few of the executive staff, are insured by a
comprehensive pension plan. The Company deposits amounts in a pension fund to
secure pension rights to the employees on retirement.
2. Pursuant to the agreement between the group and employees, the group covered its
liabilities for severance pay due to each of its employees for the period from the start
of their employment in the Company up to joining the pension plan by depositing the
appropriate amounts due to each of them, in the severance pay fund accounts in the
employee's name.
3. The group's liabilities for employee severance pay not covered by the said
comprehensive pension plans except for those mentioned in 1. above, are covered by
payments of premiums for management insurance policies.
4. In addition to the aforementioned in 1. above, the group deposits 2.33% of the salaries
and wages of employees in severance pay funds in the employees' names.
5. The deposits and payments mentioned above are not reflected in the group's financial
statements, as they are neither under its control nor its management.
6. Other liabilities for severance pay are fully covered by provisions that are partially
covered by deposits in a general fund (see A. above).
31
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 12 - Liability Regarding Termination of Employee - Employer Relationship,
Net
C. Unutilized sick leave
The financial statements include a provision for unutilized sick leave pay for
those employees who reach the age of 55. The compensation to the employee or
his heirs is a number of days, for each 30 unutilized sick days, determined
according to a percentage of utilized sick days during the period of
employment.
Note 13 - Share Capital and Reserves
A. Changes in share capital
1. On January 14, 1993, a decision was made to consolidate the Company's
Ordinary "A" and Ordinary "B" shares of NIS 0.1 each, and to
redistribute them so that 10 Ordinary Shares of NIS 0.1 would become
one Ordinary share of NIS 1 par value.
2. On January 14, 1993, a decision was made to increase the Company's
authorized share capital by NIS 99,950,000 by creating 99,950,000
Ordinary shares of NIS 1 par value each, with equal voting rights to
those of existing Ordinary shares.
3. On January 26, 1993, a decision was made to distribute 49,950,000
Ordinary shares of NIS 1 par value each as bonus shares. The bonus
shares were allotted from the Company's capital reserves and from
retained earnings.
B. Issue on the Stock Exchange
1. In February 1993, the Company offered shares and warrants on the
Tel-Aviv Stock Exchange. The Company offered the public and Company
employees 4,500,000 Ordinary shares of NIS 1 par value each, together
with 6,083,335 warrants (Series 1) and 6,083,335 warrants (Series 2).
The shares and warrants are registered in the name of the holder.
Each warrant conferred the right to purchase an Ordinary share of NIS 1
par value for a CPI-linked cash payment of an exercise price of NIS
10.80 per warrant (Series 1) and NIS 12.35 per warrant (Series 2). The
last dates of exercise of the warrants were February 10, 1994 and
February 10, 1995, respectively.
The above shares and warrants were offered to the public and to
employees as follows:
180,000 units to the public and senior employees, where each unit
comprised 25 Ordinary shares, 25 warrants (Series 1) and 25 warrants
(Series 2) and the tender fixed a maximum price of NIS 415 per unit.
In addition, 1,583,335 warrants (Series 1) and 1,583,335 warrants
(Series 2) were offered to tenured employees free of charge. (See 5
below).
32
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 13 - Share Capital and Reserves (Cont'd)
B. Issue on the Stock Exchange (Cont'd)
2. The gross proceeds of the above issue net of expenses amounted to NIS
85,996 thousand for the units offered to the public and senior
employees.
3. During 1993, 1,185,742 warrants (series 1) and 25 warrants (Series 2)
were exercised adding NIS 15,985 thousand net to the Company's
shareholders' equity. In 1994, 4,896,494 warrants (Series 1) were
exercised, contributing NIS 65,870 to shareholders' equity.
4. The balance of warrants not yet exercised as at December 31, 1994,
6,083,310 warrants (series 2) expired on February 10, 1995.
5. As mentioned in the notes to the December 31, 1993 audited financial
statements, the warrants issued to employees free of charge, as part of
the public offering in 1993, were presented in those financial statements
as such.
The Company turned to the Income Tax Authority with the request that the
amount which was taxable to the employees in 1993 be deductible for
income tax purposes. Their response was positive on the condition that
the expense be entered in the Company's books. Therefore, the Company
decided to include this expense in the current financial statements
as an extraordinary item in the amount of NIS 21,353 thousand, in the
Statement of Income against the paid-in capital. The expense is shown
net of the tax effect in the amount of NIS 8,743 thousands, which is
also the net effect on shareholders' equity.
C. The share capital consists of:
Authorized Issued and paid for
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
------------- ----------- ------------ -----------
Number of shares (thousands) Number of shares (thousands)
--------------------------- ---------------------------
Ordinary shares
of NIS 1.0 each 100,000 100,000 60,582 55,686
------------- ----------- ------------ -----------
------------- ----------- ------------ -----------
33
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 14 - Liens, Guarantees, Contingencies and Commitments
A. Liens
Subsidiary companies' loans from banks and debt to automobile leasing
companies in the amount of NIS 433 thousand are secured by liens on motor
vehicles.
B. Guarantees
1. Bank loans and other liabilities of subsidiaries and affiliates in the
maximum amount of approximately NIS 4,800 thousand are guaranteed by
the Company. The balance of these bank loans and other liabilities as
of December 31, 1994 amounted to approximately NIS 3,600 thousand.
The Company also has an unlimited guarantee towards banks for several
subsidiaries and affiliates. The balance of the secured amounts as at
December 31, 1994 is approximately NIS 600 thousand.
2. The Company has provided guarantees in the ordinary course of business
and for the benefit of subsidiaries and affiliates in the approximate
amount of NIS 340 thousand. The Company also guaranteed the payment of
monthly rents of a subsidiary and an affiliate in the approximate amount
of NIS 120 thousand (total future liability - approximately NIS 2,000
thousand).
3. The Company has provided a guarantee to a bank for employees' and
sub-contractors loans of approximately NIS 970 thousand.
C. Contingencies
1. Various claims are pending against the group which have been partly
provided for according to management's estimation based on legal
counsel. In management's opinion, no further provisions are necessary.
2. Directors' and key employees' indemnity and insurance - the Company
articles allow for indemnification and insurance of directors and key
employees in accordance with the law. The liability is covered in a
group insurance policy of the I.D.B. Group (an interested party).
3. An affiliate, Chemitas (1988) Limited (hereinafter - Chemitas) was asked
by the Environmental Protection Agency to make certain investments in
industrial waste-water purification. The discussions between Chemitas
and the Environmental Protection Agency are in their initial stages
and, therefore, the amount of the final investment that Chemitas will
be asked to make cannot be estimated.
D. Commitments
The Company is committed, as of the balance sheet date, to purchase fixed
assets in the approximate amount of NIS 4,000 thousand.
34
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 15 - Earnings per Share
A.Primary earnings
<TABLE><CAPTION>
1994 1993 1992
------------------------------ ------------------------------ ----------------------------
Primary Weighted Primary Weighted Primary Weighted
earnings average earnings average earnings average
number of number of number of
shares in shares in shares in
primary primary primary
earnings earnings earnings
---------------- ----------- ---------------- ----------- ---------------- ----------
Adjusted NIS'000 NIS'000* Adjusted NIS'000 NIS'000* Adjusted NIS'000 NIS'000*
---------------- ----------- ---------------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Primary earnings
before extraordinary
item 13,772 60,582 46,368 59,364 57,033 50,000
-------- -------- -------- --------- --------- ---------
-------- -------- -------- --------- --------- ---------
Primary earnings
after extraordinary
item 1,162 60,582 46,368 59,364 57,033 50,000
-------- -------- -------- --------- --------- ---------
-------- -------- -------- --------- --------- ---------
<CAPTION>
B. Fully diluted earnings
1994 1993 1992
------------------------------ ------------------------------ ----------------------------
Fully Weighted Fully Weighted Fully Weighted
diluted average diluted average diluted average
earnings number of earnings number of earnings number of
shares in shares in shares in
fully diluted fully diluted fully diluted
earnings earnings earnings
---------------- ----------- ---------------- ----------- ---------------- ----------
Adjusted NIS'000 NIS'000* Adjusted NIS'000 NIS'000* Adjusted NIS'000 NIS'000*
---------------- ----------- ---------------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fully diluted
earnings before
extraordinary
item 13,772 60,582 47,920 64,746 57,033 50,000
-------- -------- -------- --------- --------- ---------
-------- -------- -------- --------- --------- ---------
Fully diluted
earnings after
extraordinary
item 1,162 60,582 47,920 64,746 57,033 50,000
-------- -------- -------- --------- --------- ---------
-------- -------- -------- --------- --------- ---------
*Number of shares in nominal NIS thousands.
In order to check the probability of the exercise of the options and for the calculation of earnings per
share, the present value is calculated assuming the exercise of the options on the last possible date, at
Shekel interest rates, after taxes, of 4%. (1993 - 3%).
35
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 16 - Taxes on Income
A. "Industrial company" - the Company and its main subsidiaries are
industrial companies under the Encouragement of Industry (Taxes) Law,
1969, and are entitled to the benefit of accelerated depreciation rates.
B. The provisions for taxes were computed according to the Income Tax
Ordinance (New Version), 1961, and the Income Tax Law (Inflationary
Adjustments), 1985.
<TABLE><CAPTION>
C. The composition of deferred taxes:
Consolidated The Company
------------------------ -------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For fixed assets 3,438 5,412 3,333 5,294
For provisions for
fringe benefits, etc. 4,035 4,124 3,805 3,733
For public offering issue
expenses* 815 1,609 815 1,609
---------- ---------- ---------- ----------
8,288 11,145 7,953 10,636
Less - for inventories 661 530 557 478
---------- ---------- ---------- ----------
7,627 10,615 7,396 10,158
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Included:
In current assets 3,649 3,898 3,535 3,537
Long-term deferred taxes 3,978 6,717 3,861 6,621
---------- ---------- ---------- ----------
7,627 10,615 7,396 10,158
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* Total tax savings resulting from these expenses - NIS 2,616 thousand.
</TABLE>
<TABLE><CAPTION>
D. Changes in deferred taxes:
Consolidated The Company
------------------------ -------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance beginning of year 10,615 10,096 10,158 9,641
Change in deferred taxes
presented in Statement of
Income (3,222) (2,097) (2,996) (2,099)
Change in deferred taxes
presented in Shareholders
Equity 234 2,616 234 2,616
---------- ---------- ---------- ----------
Balance at end of year 7,627 10,615 7,396 10,158
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
36
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 16 - Taxes on Income (Cont'd)
E. The adjusted amount of fixed and other assets for which depreciation and amortization will
not in future be allowed for tax purposes and for which no provision for deferred taxes is
required:
Consolidated The Company
---------- ----------
Adjusted NIS Adjusted NIS
thousands thousands
---------- ----------
<S> <C> <C>
Balance at January 1, 1993 4,102 3,688
Changes in 1993, net 1,592 1,190
---------- ----------
Balance at December 31, 1993 5,694 4,878
Changes in 1994, net (1,280) (1,794)
---------- ----------
Balance at December 31, 1994 4,414 3,084
---------- ----------
---------- ----------
</TABLE>
<TABLE><CAPTION>
F. Income taxes in statements of income
Income taxes in the adjusted statements of income consist of:
Consolidated
----------------------------------------
For the year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Provision for current year 13,701 26,673 35,161
Change in deferred taxes, net 3,222 2,097 2,933*
Over-provision for previous years - (258) -
---------- ---------- ----------
16,923 28,512 38,094
---------- ---------- ----------
---------- ---------- ----------
* Including the change resulting from the reduction in tax rates - NIS 628 thousands.
</TABLE>
<TABLE><CAPTION>
The Company
----------------------------------------
For the year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Provision for current year 12,780 25,160 34,310
Change in deferred taxes, net 2,996 2,099 3,055*
Over-provision for previous years - (214) -
---------- ---------- ----------
15,776 27,045 37,365
---------- ---------- ----------
---------- ---------- ----------
* Including the change resulting from the reduction in tax rates - NIS 623 thousands.
</TABLE>
G. Final tax assessments have been received by the Company for tax years up
to and including 1990; consolidated subsidiaries have received final tax
assessments for various years between 1986 - 1992.
37
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 16 - Taxes on Income (Cont'd)
H. Effective tax reconciliation
<TABLE><CAPTION>
For the year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Tax rates in effect 38% 39% 40%
---------- ---------- ----------
---------- ---------- ----------
Consolidated:
Theoretical tax at rates in effect 12,031 28,888 37,359
Erosion of tax advances 834 700 977
Tax effect of permanent differences, net (2,018) (1,062) 315
Losses and tax benefits not utilized 5,618 - -
Differences between the definition of equity
and assets for tax purposes and book
purposes and others, net 458 244 (557)
Taxes for previous years - (258) -
---------- ---------- ----------
16,923 28,512 38,094
---------- ---------- ----------
---------- ---------- ----------
The Company:
Theoretical tax at rates in effect 12,276 26,841 36,271
Erosion of tax advances 776 664 963
Tax effect of permanent differences, net (2,106) (1,318) 250
Losses and tax benefits not utilized 4,647 - -
Differences between the definition of equity
and assets for tax purposes and book
purposes and others, net 183 1,072 (119)
Taxes for previous years - (214) -
---------- ---------- ----------
15,776 27,045 37,365
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
I. A consolidated company has an accumulated loss for tax purposes in the
approximate amount of NIS 12,000 thousand (See Note 2(k)) for which no
deferred taxes receivable have been recorded.
38
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 17 - Linked Balances
Consolidated:
December 31, 1994 December 31, 1993
-------------------------------------- --------------------------------------
In or linked Index Unlinked In or linked Index Unlinked
to foreign linked to foreign linked
currency currency
----------- ----------- ----------- ----------- ----------- -----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands thousands thousands
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash 5,417 - 11,637 3,079 - 13,296
Marketable
securities 4,216 24,413 17,468 10,225 30,474 32,966
Accounts
receivable -
trade and
others* 8,507 7,051 93,355 8,547 7,214 70,655
Bank deposits - 31,744 - - 21,195 -
----------- ----------- ----------- ----------- ----------- -----------
18,140 63,208 122,460 21,851 58,883 116,917
Investments
Affiliated
companies
and others,
capital notes
and loans
including
current
maturities 1,312 5,496 150 1,244 2,756 1,458
Bank deposits
and other
receivables - 60,006 937 114 2,341 149
----------- ----------- ----------- ----------- ----------- -----------
Total assets 19,452 128,710 123,547 23,209 63,980 118,524
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Current liabilities
Short-term
bank credits - - 2,691 - - 12,599
Accounts payable -
trade and others:
Trade 12,718 - 21,127 10,848 - 12,892
Others 308 - 19,407 380 - 21,642
----------- ----------- ----------- ----------- ----------- -----------
13,026 - 43,225 11,228 - 47,133
Long-term liabilities
Liability regarding
termination of
employee-employer
relationship, net - 971 - - 925 -
Long-term loans,
including current
maturities 1,923 685 490 784 1,752 850
----------- ----------- ----------- ----------- ----------- -----------
Total
liabilities 14,949 1,656 43,715 12,012 2,677 47,983
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
*Exclusive of deferred taxes and prepaid expenses.
39
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 17 - Linked Balances (Cont'd)
Company:
December 31, 1994 December 31, 1993
-------------------------------------- --------------------------------------
In or linked Index Unlinked In or linked Index Unlinked
to foreign linked to foreign linked
currency currency
----------- ----------- ----------- ----------- ----------- -----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands thousands thousands
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash 2,680 - 10,162 3,015 - 11,465
Marketable
securities 4,216 24,413 17,468 10,225 30,474 32,966
Accounts
receivable -
trade and
others* 7,277 7,649 82,558 7,545 15,931 52,507
Bank deposits - 31,744 - - 21,195 -
----------- ----------- ----------- ----------- ----------- -----------
14,173 63,806 110,188 20,785 67,600 96,938
Investments
Consolidated subsidiaries -
loans and capital
notes, including
current maturities - 5,144 - - 4,928 4,323
Affiliated companies
and others -
capital notes
and loans,
including current
maturities 1,312 5,496 - 1,244 2,756 313
Government loans
Bank deposits
and other
receivables - 60,206 - 114 1,739 149
----------- ----------- ----------- ----------- ----------- -----------
Total assets 15,485 134,652 110,188 22,143 77,023 101,723
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Current liabilities
Short-term
bank credits - - 11 - - 11,221
Accounts payable -
trade and others:
Trade 6,801 - 15,021 5,734 - 8,169
Others - - 15,700 - - 17,618
----------- ----------- ----------- ----------- ----------- -----------
6,801 - 30,732 5,734 - 37,008
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Long-term liabilities
Liability regarding
termination of
employee-employer
relationship, net - 939 - - 868 -
Long-term loans,
including
current
maturities - - 2,065 - - 2,363
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 6,801 939 32,797 5,734 868 39,371
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
*Exclusive of deferred taxes and prepaid expenses.
</TABLE>
40
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 18 - Supplementary Information to the Statements of Income
A. Sales (net of allowances)
For the year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Consolidated:
Local 369,608 398,291 * 374,094 *
Export 24,689 27,231 22,401
---------- ---------- ----------
394,297 425,522 396,495
---------- ---------- ----------
---------- ---------- ----------
Company:
Local 313,051 335,055 * 337,548 *
Export 21,240 24,008 21,687
---------- ---------- ----------
334,291 359,063 359,235
---------- ---------- ----------
---------- ---------- ----------
B. Cost of sales
Consolidated:
Materials 183,239 190,980 176,100
Labor 37,656 38,345 37,201
Other manufacturing expenses 22,840 26,172 * 18,889
Depreciation and amortization 15,316 14,323 * 14,808
---------- ---------- ----------
259,051 269,820 246,998
---------- ---------- ----------
(Increase) Decrease in inventories of:
Work in process (1,282) 230 165
Finished products (1,192) (1,042) (5,181)
---------- ---------- ----------
(2,474) (812) (5,016)
---------- ---------- ----------
256,577 269,008 241,982
---------- ---------- ----------
---------- ---------- ----------
*Reclassified
</TABLE>
41
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 18 - Supplementary Information to the Statements of Income (Cont'd)
B. Cost of sales (Cont'd)
For the year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Company:
Materials 149,575 154,023 153,245
Labor 32,898 34,249 33,736
Other manufacturing expenses 19,634 23,231 * 17,552
Depreciation and amortization 13,510 12,258 * 12,704
---------- ---------- ----------
215,617 223,761 217,237
---------- ---------- ----------
Decrease (Increase) in inventories of:
Work in process (1,260) 174 74
Finished products (895) 334 (1,225)
---------- ---------- ----------
(2,155) 508 (1,151)
---------- ---------- ----------
213,462 224,269 216,086
---------- ---------- ----------
---------- ---------- ----------
C. Selling and marketing expenses
Consolidated:
Includes doubtful accounts
and bad debt expense 3,756 1,867 932
---------- ---------- ----------
---------- ---------- ----------
Company:
Includes doubtful accounts
and bad debt expense 3,443 1,346 680
---------- ---------- ----------
---------- ---------- ----------
D. Finance income (expense), net
Consolidated and Company:
Includes income (expense)
from the increase (decrease)
in value of marketable securities (11,338) 6,214 8,716
---------- ---------- ----------
---------- ---------- ----------
Also see Note 21C
* Reclassified
</TABLE>
42
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 18 - Supplementary Information to the Statements of Income (Cont'd)
E. Other income, net
For the year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Consolidated:
Capital gains, net 720 505 445
Loss on realization of investment
in affiliated company (780) - -
Sundry income 601 106 -
Amortization of deferred credit 446 444 222
Income from capital issue of
affiliate and subsidiary (**) 3,523 4,028 -
Related parties:
Income from rentals 590 749 652
Management fees and participation
in expenses 166 179 597
Miscellaneous - 70 330
---------- ---------- ----------
5,266 6,081 2,246
---------- ---------- ----------
---------- ---------- ----------
Company:
Capital gains, net 697 464 381
Loss on realization of investment
in affiliated company (780) - -
Sundry income 232 26 -
Income from private issue of subsidiary (**) 3,523 - (*) -
Related parties:
Income from rentals 590 749 654
Management fees and participation
in expenses 300 613 1,328
Miscellaneous - 70 163
---------- ---------- ----------
4,562 1,922 2,526
---------- ---------- ----------
---------- ---------- ----------
(*)Reclassified
(**)1994 - Includes a gain resulting from a private issue of 20% of the capital of Tzah - Israeli Printing
Inks Limited (hereafter Tzah), a subsidiary, which was fully owned by the Company until that time.
The Company granted the purchasers an option to purchase an additional 20% of Tzah, no later
than July 1, 1996 at $1,750 thousands, at the minimum.
1993 - Includes a gain from a public offering of an affiliate (Serafon Resinous Chemicals Corp. Ltd.)
on the Tel-Aviv Stock Exchange.
</TABLE>
43
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 19 - Related and Interested Parties
A. Balance sheet:
Consolidated The Company
------------------------ -------------------------
December 31 December 31 December 31 December 31
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(1) Included in assets
Cash and cash equivalents 337 538 336 538
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Marketable securities 1,173 3,502 1,173 3,502
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Short-term bank deposits 10,735 9,733 10,067 9,733
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(2) Included in liabilities
Bank credits 246 241 - 63
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Liability regarding
termination of employee-
employer relationship 1,200 1,119 1,200 1,119
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
B. The highest balance in current assets
Consolidated The Company
------------------------ -------------------------
Year ended December 31 Year ended December 31
------------------------ -------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
In cash and cash equivalents 56,448** 79,811* 56,448** 79,811*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
In accounts receivable -
trade and others 1,672 227 14,287 227
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
In bank deposits 9,725 9,733 9,725 9,733
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
* Net proceeds of issue of share capital and warrants.
** Net proceeds of exercise of warrants.
</TABLE>
44
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 19 - Related Parties (Cont'd)
C. Transactions (during the normal course of business):
Year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
---------- ---------- ----------
<S> <C> <C> <C>
Consolidated:
Sales 12,832 5,463 6,861
---------- ---------- ----------
---------- ---------- ----------
Purchases and other expenses 28,581 24,388 31,661
---------- ---------- ----------
---------- ---------- ----------
Management fees paid - - 381
---------- ---------- ----------
---------- ---------- ----------
Finance income 1,989 1,817 2,067
---------- ---------- ----------
---------- ---------- ----------
Finance expense 1,225 1,445 605
---------- ---------- ----------
---------- ---------- ----------
Company:
Sales 15,152 8,023 8,246
---------- ---------- ----------
---------- ---------- ----------
Purchases and other expenses 28,585 24,624 31,726
---------- ---------- ----------
---------- ---------- ----------
Management fees paid - 686 737
---------- ---------- ----------
---------- ---------- ----------
Finance income 1,989 1,832 2,071
---------- ---------- ----------
---------- ---------- ----------
Finance expense 1,895 1,619 688
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
D. Remuneration of interested parties
Consolidated and Company
----------------------------------------
Year ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
Number of Adjusted NIS Adjusted NIS Adjusted NIS
persons thousands thousands thousands
---------- ---------- ---------- ----------
Interested parties employed by
the company or on its behalf 1 1,551 1,487* 1,534
---------- ---------- ----------
---------- ---------- ----------
Interested parties not employed
by the company or on its behalf 10 325 109 -
---------- ---------- ----------
---------- ---------- ----------
* Not including warrants granted (see Note 13B), whose value for tax purposes is NIS 1,988
thousand.
E. In 1993, the company paid commissions on the public offering of share capital and warrants
(see Note 13B), to an indirect interested party in the approximate amount of NIS 2,976
thousand.
</TABLE>
45
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 19 - Related Parties (Cont'd)
F. Transactions with banking groups
Certain banking groups, including via provident funds or mutual funds under
their management, purchase and sell the company's shares as part of their day
to day business. Occasionally, these banking groups' holdings of the
outstanding share capital of the Company exceed 5% (which classifies them
as "interested parties" as defined under the securities law) and occasionally
fall below 5%.
During the ordinary course of business, the Company carries out transactions
with entities that may be defined as interested parties by being related to
these banking groups.
In light of the type of investment of the banking groups in the company, it
is not practical to keep record of entities that constitute interested
parties in the company because of the banking groups holdings and, regarding
transactions that the company carries out with them, accordingly, no
information regarding transactions with these institutes is included in
these financial statements. In addition, according to the Company's
management, transactions with these entities were carried out in the ordinary
course of business with terms and prices that are usual in the company.
G. Also see Notes 4, 7, 10, 11, 14 and 18E.
46
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 20 - Condensed Nominal Financial Statements of the Company
A. Balance Sheet
December 31 December 31
1994 1993
---------- ----------
NIS thousands NIS thousands
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents 12,842 12,652
Marketable securities 46,097 64,364
Accounts receivable - trade 54,259 46,115
Other accounts receivable 50,500 24,801
Bank deposits 31,744 18,519
Inventories 68,368 54,912
---------- ----------
263,810 221,363
---------- ----------
Investments and long-term assets
Investments in subsidiaries, affiliates and others 36,055 28,677
Bank deposits and other receivables 60,206 1,749
Deferred taxes, net 525 2,023
---------- ----------
96,786 32,449
---------- ----------
Property, plant and equipment
Cost 137,191 114,490
Less: Accumulated depreciation 65,607 53,654
---------- ----------
71,584 60,836
---------- ----------
432,180 314,648
---------- ----------
---------- ----------
Current liabilities
Bank credits 11 9,806
Accounts payable - trade 21,822 12,147
Other accounts payable 15,700 15,394
Dividend declared 10,000 -
---------- ----------
47,533 37,347
---------- ----------
Long-term liabilities
Liability regarding termination of employee-employer
relationship, net 939 758
Capital notes issued to subsidiaries 2,065 2,065
---------- ----------
3,004 2,823
---------- ----------
Shareholders' equity
Share capital 60,582 55,686
Paid-in capital 149,934 79,148
Retained earnings 171,127 139,644
---------- ----------
381,643 274,478
---------- ----------
432,180 314,648
---------- ----------
---------- ----------
</TABLE>
47
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 20 - Condensed Nominal Financial Statements of the Company (Cont'd)
B. Statements of Income
Year ended December 31
----------------------------------------
1994 1993 1992
NIS thousands NIS thousands NIS thousands
---------- ---------- ----------
<S> <C> <C> <C>
Revenue from sales 313,667 300,081* 270,676*
Cost of sales 190,323 180,169* 157,160
---------- ---------- ----------
Gross profit 123,344 119,912 113,516
---------- ---------- ----------
Selling and marketing expenses 53,687 45,303* 33,248*
General and administrative expenses 18,628 16,446* 15,209
---------- ---------- ----------
72,315 61,749 48,457
---------- ---------- ----------
Operating income 51,029 58,163 65,059
Finance income, net 13,949 14,659 12,693
Other income, net 4,835 5,310 2,056
---------- ---------- ----------
Income before income taxes 69,813 78,132 79,808
Income taxes 13,125 21,066 27,072
---------- ---------- ----------
Net income after income taxes 56,688 57,066 52,736
Equity in earnings (loss) of subsidiaries, affiliates
and others, net (740) 3,004 3,350
---------- ---------- ----------
Net income before extraordinary item 55,948 60,070 56,086
Extraordinary item -
Salary expense relating to the portion of
securities issued which constitutes an
employee benefit, net 9,465 - -
---------- ---------- ----------
Net income for the year 46,483 60,070 56,086
---------- ---------- ----------
---------- ---------- ----------
* Reclassified
</TABLE>
48
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 20 - Condensed Nominal Financial Statements of the Company (Cont'd)
C.Statement of shareholders' equity
Share Premium Proceeds Retained Total
capital and capital from issue earnings
reserve of warrants
----------- ----------- ----------- ----------- -----------
NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of
January 1, 1992 50 5,177 - 107,280 112,507
Changes in 1992:
Net income - - - 56,086 56,086
Dividend - - - (24,500) (24,500)
Transfer from reserves to
retained earnings - 513 - (513) -
----------- ----------- ----------- ----------- -----------
Balance as of
December 31, 1992 50 5,690 - 138,353 144,093
Changes in 1993:
Issue of bonus shares 49,950 (5,536) - (44,414) -
Issue of share capital
and warrants, net 4,500 52,460* 14,365* - 71,325
Exercise of warrants, net 1,186 13,535* (1,366)* - 13,355
Net income - - - 60,070 60,070
Dividend - - - (14,365) (14,365)
Balance as of
----------- ----------- ----------- ----------- -----------
December 31, 1993 55,686 66,149 12,999 139,644 274,478
Changes in 1994:
Salary expense relating to the
portion of securities issued
which constitutes an
employee benefit, net - 9,031 8,160 - 17,191
Exercise of warrants, net 4,896 58,917* (5,322) * - 58,491
Net income - - - 46,483 46,483
Dividend** - - - (15,000) (15,000)
Balance as of
----------- ----------- ----------- ----------- -----------
December 31, 1994 60,582 134,097 15,837 171,127 381,643
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
*Net of issue and registration expenses, after tax affect.
**Includes NIS 10,000 thousands dividend declared (See Note 21A).
</TABLE>
49
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 21 - Subsequent Events
A. On March 6, 1995, the Board of Directors of the Company decided upon
an interim cash dividend distribution in the amount of NIS 10,000
thousands which constitutes NIS 0.165 per NIS 1 par value of shares
outstanding on the date of declaration. This dividend is included
in the financial statements as a dividend declared.
B. Expiration of warrants - see Note 13B (4).
C. Due to the continued fall of prices of securities traded on the stock
exchange after the balance sheet date, the Company accumulated
additional losses in the amount of NIS 1,000 thousand from the decrease
in value of marketable securities.
Note 22 - Consolidated Financial Data Presented according to U.S. GAAP
A. Change in Method of Reporting
In December 1981, the Financial Accounting Standards Board in the U.S.A.
established a new standard for reporting the financial position and results
of operations of foreign subsidiaries in United States (U.S.) consolidated
financial statements (SFAS No. 52). The Israeli subsidiaries and investees
of PEC Israel Economic Corporation (PEC) had been preparing U.S. dollar
financial statements under SFAS No. 52 utilizing the hyperinflationary
economy approach which essentially retains historical dollar values for
non-monetary assets including long-term investments, property and equipment
and equity accounts.
The inflation rate in Israel has steadily declined to the point that the use
of historical dollar accounting as prescribed in SFAS No. 52 may no longer be
appropriate for the translation of financial statements of subsidiaries and
investees based in Israel. Under hyperinflationary accounting (SFAS No. 52),
the functional currency of the Israeli entities was defined as the reporting
currency of the U.S. investor. For the purpose of PEC's investee companies
the transition date for the reporting currency basis was determined to be
December 31, 1992. Consequently, as from January 1, 1993, for U.S. GAAP
purposes, this conversion has been implemented as follows:
1. Dollar values which had been maintained on an historical accounting
basis (such as land, buildings, machinery and equipment, investments,
etc.) have been translated into NIS at the exchange rate ruling at
December 31, 1992.
2. Shareholders' equity has been translated on an historical basis.
The treatment of transactions carried out during the year was as follows:
1. Depreciation of assets converted according to 1. above was computed on
the new NIS value over the remaining useful lives of the assets.
2. All other transactions have been presented on the same basis as the
nominal consolidated financial statements. Section B of this note
explains the differences between the nominal NIS financial statements
prepared according to Israeli GAAP and the financial statement data
presented in NIS according to U.S. GAAP for the purposes of PEC.
50
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
Note 22 - Consolidated Financial Data Presented according to U.S. GAAP (cont'd)
A. Change in Method of Reporting (cont'd)
3. Deferred taxes associated with the temporary difference that arise from a
change in functional currency when an economy ceases to be considered
highly inflationary, are reflected (as per FASB's EITF 92-8) as an
adjustment to the cumulative translation adjustments component of
shareholders's equity.
B. The main differences between the financial statements contained in
Sections C, D and E of this note prepared according to U.S. GAAP and
the financial statements prepared according to Israeli GAAP are as
follows:
(1) Warrants issued to employees
Warrants issued to employees free of charge were recorded as an expense
in 1993 in these financial statements in accordance with U.S. GAAP. The
warrants issued to employees were recorded as an expense in the nominal
shekels financial statements in 1994 at the amount which was taxable to
the employees - see Note 13B (5).
The tax effect of this expense is included in the nominal NIS financial
statements in the Statement of Income. For the purposes of the financial
statements contained in this Note, prepared according to U.S. GAAP, the
tax effect is included partially in the Statements of Income and the
remainder is added to paid-in capital.
(2) Reserves in Shareholders' equity
Land, buildings, machinery and equipment were revalued in 1982 and a
capital reserve was created in the nominal financial statements as
permitted by Israeli GAAP. These assets are stated at historical cost
and no capital reserves exist in the financial statements that follow
in accordance with U.S. GAAP.
(3) Deferred credit (negative goodwill)
The consolidated nominal NIS financial statements include a deferred
credit amortized over five years, as permitted by Israeli GAAP. For
the purposes of the financial statements contained in this note,
prepared according to U.S. GAAP, property, plant and equipment have
been reduced by the excess cost over the assigned value of net assets
acquired.
(4) Dividends declared
According to Israeli GAAP, dividends from the earnings of a year are
accrued at the end of that year even though they are approved after
that year's end. For the purposes of the financial statements
contained in this note, these dividends have not been accrued since,
according to U.S. GAAP, dividends are reflected as a liability when
declared.
51
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (Cont'd)
C. Balance Sheets
December 31 December 31
1994 1993
---------- ----------
NIS thousands NIS thousands
---------- ----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 17,054 14,307
Marketable securities 46,097 64,364
Accounts receivable - trade and others 116,746 80,560
Bank deposits 31,744 18,519
Inventories 79,614 64,291
---------- ----------
291,255 242,041
---------- ----------
Investments and long-term assets
Affiliated companies and others 21,910 16,270
Bank deposits and other receivables 60,943 2,275
Deferred taxes, net 8,794 7,682
---------- ----------
91,647 26,227
---------- ----------
Property, plant and equipment
Cost 224,581 201,242
Less - accumulated depreciation 141,267 128,469
---------- ----------
83,314 72,773
---------- ----------
Intangible assets, net 252 364
---------- ----------
466,468 341,405
---------- ----------
---------- ----------
52
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (Cont'd)
C. Balance Sheets (Cont'd)
December 31 December 31
1994 1993
---------- ----------
NIS thousands NIS thousands
---------- ----------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Bank credits and current maturities of long-term debt 3,524 12,044
Accounts payable - trade and others 53,447 39,984
---------- ----------
56,971 52,028
---------- ----------
Long-term liabilities
Long-term debt 2,260 1,922
Liability regarding termination of employee-
employer relationship, net 971 808
---------- ----------
3,231 2,730
---------- ----------
Minority interest 3,425 1,160
---------- ----------
Shareholders' equity
Share capital 80,561 75,664
Paid-in capital 144,721 86,246
Foreign currency translation adjustment 1,703 1,703
Retained earnings 175,856 121,874
---------- ----------
402,841 285,487
---------- ----------
466,468 341,405
---------- ----------
---------- ----------
53
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (Cont'd)
D. Statements of Income
Year ended December 31
----------------------------------------
1994 1993 1992
NIS thousands NIS thousands NIS thousands
---------- ---------- ----------
<S> <C> <C> <C>
Revenue from sales 369,983 360,193 342,274
Cost of sales 230,953 225,853 203,544
---------- ---------- ----------
Gross profit 139,030 134,340 138,730
---------- ---------- ----------
Selling and marketing expenses 63,489 55,612 46,897
General and administrative expenses 23,690 22,307 19,038
Employee warrants[see B(1)] - 7,293 -
---------- ---------- ----------
87,179 85,212 65,935
---------- ---------- ----------
Operating income 51,851 49,128 72,795
Financing income, net 11,073 14,321 525
---------- ---------- ----------
Operating income 62,924 63,449 73,320
Other income, net 4,871 5,523 1,664
---------- ---------- ----------
Income before income taxes 67,795 68,972 74,984
Income taxes 8,580 19,204 32,308
---------- ---------- ----------
Net income after income taxes 59,215 49,768 42,676
Equity in earnings of affiliated
companies and others, net 305 238 1,484
Minority interest in consolidated
subsidiaries' income (538) (544) (191)
---------- ---------- ----------
Net income 58,982 49,462 43,969
---------- ---------- ----------
---------- ---------- ----------
54
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994
--------------------------------------------------------------------------------
<TABLE><CAPTION>
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (Cont'd)
E.Statement of changes in shareholders' equity
Share Additional Proceeds Foreign Retained Total
capital paid-in from currency earnings
capital issue of translation
warrants adjustment
----------- ----------- ------------ ------------- ------------ --------------
NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands
----------- ----------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1992 20,028 - - - 120,467 140,495
In the year 1992:
Net income - - - - 43,969 43,969
Cash dividend - - - - (27,709) (27,709)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of
December 31,
1992 20,028 - - - 136,727 156,755
In the year 1993:
Cumulative
effect of
deferred taxes - - - 1,703 - 1,703
Issuance of
bonus shares 49,950 - - - (49,950) -
Issuance of
shares and
warrants, net 4,500 52,460* 14,365* - - 71,325
Employee
warrants - - 7,252 - - 7,252
Exercise of
warrants, net 1,186 13,535* (1,366)* - - 13,355
Net income - - - - 49,462 49,462
Cash dividend - - - - (14,365) (14,365)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of
December 31,
1993 75,664 65,995 20,251 1,703 121,874 285,487
In the year 1994:
Exercise of
warrants, net 4,897 62,603 * (9,010) * - - 58,490
Tax benefit of
employee warrants - 2,563 2,319 - - 4,882
Net income - - - - 58,982 58,982
Cash dividend - - - - (5,000) (5,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of
December 31,
1994 80,561 131,161 13,560 1,703 175,856 402,841
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
* Net of issue and registration expenses, after tax effect.
55
</TABLE>
<PAGE>
Tambour Limited and Subsidiaries
Appendix - Consolidated and Affiliated Companies as of December 31, 1994
--------------------------------------------------------------------------------
Control and
ownership
-----------
%
-----------
Consolidated companies
Italchem Ayalon Ltd. 64
Aniam Purification Systems Ltd. 66.7
R.R.E. Rotem Engineering Ltd. 56.7
Gil - the Israeli Marketing Paint Company 24*
Tambour Holdings 1993 Ltd. 100
Solar Dynamics Ltd. 60
Tzah - Israeli Printing Inks Ltd. 80
R.D. Glaso-Center Ltd. 100
Tovalah Ltd. 100
T.P. Development Establishment 100
Cotachem Farben G.M.B.H. 100
Tambour Paints (Hellas) LLC 100
Affiliated companies
Ecosoft Ltd. 50
Vertigo Robotics Technology Ltd. 50
Alram Cooling Systems Ltd. 33.35
Chemitas 1988 Ltd. 50
Kne Uvne Marketing (1992) Ltd. 20
Serafon Resinous Chemicals Corp. Ltd. 46.5
International Ilios Cotachem S.A. 37
Mader Baufarben A.G. 34
Partnerships
Ecosoft C.T. 1993 Limited Partnership 50
Kne Uvne Limited Partnership 20
Inactive Companies
Ayalon Water Purification Ltd. 100
Engel-Aniam Ltd. 33.35
Askar Ltd. 100
Hamerakeh - Hydrohamer Ltd. 100
Tambourechev Ltd. 100
Chemetal Ltd. 100
Memberfil Ltd. 50
Nad (Investments) Ltd. 100
C.T.I. Inks (1983) Ltd. 80
Tzevah Paint Industries Ltd. 100
British Paints L.L.C. 37
Tamarin (Marine Paints) Ltd. 100
* 100% ownership and control, in effect
<PAGE>
Shlomo Ziv & Co. |
Certified Public Accountants (Isr.) |
6 Kaufman St. P.O.B. 50322 | Summit
Tel-Aviv 61500, Gibor House | International
Tel. 03-5179611 Fax. 03-5179418 | Associates, Inc.
|
Haifa 31018, 2 Hanamal St., P.O.B. 1886 |
Tel. 04-675025/6 Fax. 04-679461 |
AUDITORS' REPORT TO THE SHAREHOLDERS OF
ADIR INTERNATIONAL COMMUNICATIONS SERVICES CORPORATION LTD.
-----------------------------------------------------------
We have examined the Balance Sheet of Adir International Communications
Services Corporation Ltd. and the Consolidated Balance Sheet of Adir
International Communications Services Corporation Ltd. and its subsidiary
companies as at December 31, 1994 and 1993, the Statement of Profit and
Loss of the Company and consolidated, the Changes in Equity Capital and the
Statement of Cash-flows of the Company and consolidated for the two years
period ended December 31, 1994. Our examination was made in accordance
with generally accepted auditing standards, including those prescribed
under the Auditors Regulations (Auditor's Mode of Performance), 1973, and
accordingly we have applied such auditing procedures as we considered
necessary in the circumstances.
The above statement have been prepared on the basis of the historical cost
convention, adjusted to the general purchasing power of the Israel Shekel,
in conformity with Opinions 36 and 50 of the Institute of Certified Public
Accountants in Israel. Condensed data in nominal Shekels of the above
statements, on the basis of which the adjusted statements have been
prepared, is given in Note 17.
For the purpose of these financial statements there is no material
difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S.
In our opinion, the above financial statements present fairly, in
conformity with generally accepted accounting principles, the financial
position of the company and consolidated as at December 31, 1994 and 1993,
the results of operations of the company and consolidated, the changes in
its shareholders equity and the cash-flows in the company and consolidated,
for the two years period ended December 31, 1994.
Pursuant to section 211 of the Companies Ordinance (New Version) 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above financial statements is given
according to the best of our information and the explanations received by
us as shown by the Company's books.
Without qualifying our opinion we direct your attention to the content of
1(C) attached to the financial statements about the affect of the
international second operator an the company future reports.
SHLOMO ZIV & CO.
23 February, 1995
Certified Public Accountants (Isr.)
- 1 -
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 8, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE
SHAREHOLDERS OF BULK TRADING CORPORATION LIMITED
We have audited the balance sheets of Bulk Trading Corporation Limited as
at December 31, 1994 and 1993, the related statements of income and
shareholders' equity and cash flows for each of the three years in the
period then ended, expressed in New Israel Shekels. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have
performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 15 to the financial statements.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
In our opinion, based on our audit and the reports of other auditors, the
above mentioned financial statements present fairly the financial position
of the Company as at December 31, 1994 and 1993, the results of its
operations, the changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of nominal/historical net profit (loss) and shareholders'
equity to the extent summarized in Note 16 to the financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, January 26, 1995
Auditor's Report to the Shareholders of
Camdev Limited
We have audited the balance sheets of Camdev Limited as at December 31,
1994 and 1993, the related statements of income and shareholders' equity
and cash flows for each of the three years in the period then ended,
expressed in New Israel Shekels. These financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance) - 1973, and, accordingly we
have performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost of
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 11 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the
above mentioned financial statements present fairly the financial position
of the Company as at December 31, 1994 and 1993, the results of its
operations, the changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter affects the determination of nominal
net profit and shareholders' equity to the extent summarized in Note 12C to
the financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
1928 ROJANSKY, HALIFI, MEIRI & Co.
R H M Certified Public Accountants
-----------------------------------------------------------------------
Ezra Abdat C.P.A.(Isr.)
Nadav Hacohen C.P.A.(Isr.)
Shaul Netzer-El C.P.A.(Isr.)
Edmond Raviv C.P.A.(Isr.)
Itzhak Gross C.P.A.(Isr.)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
TO THE SHAREHOLDERS OF
----------------------
CANIEL - ISRAEL CAN COMPANY LIMITED
-----------------------------------
We have audited the consolidated balance sheet of Caniel-Israel
Can Company Limited as at December 31, 1994 and 1993, the related
consolidated Statements of income and Shareholders' Equity and cash flows
for each of the three years in the period then ended, expressed in New
Israel Shekels. These financial statements are the responsibility of the
Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance
with generally accepted auditing standards, including those prescribed
under the Auditors Regulations (Auditor's Mode of Performance), 1973 and,
accordingly we have performed such auditing procedures as we considered
necessary in the circumstances. For purposes of these financial
statements there is no material difference between generally accepted
Israeli auditing standards and auditing standards generally accepted in
the U.S. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating
the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
The above Statements have been prepared on the basis of
historical cost as adjusted for the changes in the general purchasing
power of the Israel currency in accordance with opinions issued by the
Institute of Certified Public Accountants in Israel.
Condensed statements in nominal values which formed the basis
of the adjusted statements appear in (Note 22) to the financial
statements.
In our opinion, based on our audit, the above mentioned
financial statements present fairly the financial position of the Company
as at December 31, 1994 and 1993, the results of its operations, the
changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in
certain respects from accounting principles generally accepted in the
United States. The application of the latter would have affected the
determination of nominal net income and shareholders' equity to the
extent summarized in Note 25 to the financial statements.
Tel-Aviv, ROJANSKY, HALIFI, MEIRI & CO.
March 6, 1995 CERTIFIED PUBLIC ACCOUNTANTS.
-------------------------------------------------------------------------
26, Rotschild Blv., Tel Aviv (Code 66882) Tel. 5607801
P.O.B. 367, Tel Aviv (Code 61003) Fax. 972-3-5600065
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 2, 1995
AUDITORS' REPORT TO THE SHAREHOLDERS OF CELLCOM ISRAEL LTD.
We have examined the balance sheet of CELLCOM ISRAEL LTD. (hereinafter the
"Company") as at December 31, 1994 and the related income statement,
statement of changes in shareholders' equity and statement of cash flows
for the period of June 27, 1994 through December 31, 1994. Our examination
was made in accordance with generally accepted auditing standards,
including those prescribed by the Auditors Regulations (Auditors' Mode of
Performance) - 1973, and accordingly we have applied such auditing
procedures as we considered necessary in the circumstances.
The aforementioned financial statements were prepared on the historical
cost basis adjusted for changes in the general purchasing power of the New
Israeli Shekel in accordance with Opinions of the Institute of Certified
Public Accountants in Israel. Condensed financial statements in terms of
historical values, which served as the basis for the preparation of the
adjusted financial statements appear in Note 20.
In our opinion, the aforementioned financial statements present fairly, in
conformity with generally accepted accounting principles, the financial
position of the Company as at December 31, 1994, the results of its
operations, the changes in shareholders' equity and its cash flows for the
aforementioned period.
In our opinion, the aforementioned statements have been prepared in
conformity with the Securities Regulations (Preparation of Annual Financial
Statements) - 1993.
In our opinion, it would not be necessary to make any material adjustments
in the historical financial statements, which appear in Note 20, in order
to comply with generally accepted accounting principles in the United
States.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, February 28, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF DEP Technology Holdings Limited
We have audited the balance sheets of DEP Technology Holdings Limited as at
December 31, 1994 and 1993, the related statements of income and
shareholders' equity and cash flows for each of the two years in the period
then ended, expressed in New Israel Shekels. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have
performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 8 to the financial statements.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
In our opinion, the above mentioned financial statements present fairly the
financial position of the Company as at December 31, 1994 and 1993, the
results of its operations, the changes in shareholder's equity and cash
flows for each of the two years in the period ended December 31, 1994, in
conformity with accounting principles generally accepted in the United
States and Israel, consistently applied.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 5, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF DIC AND PEC CABLE TV LTD.
We have audited the balance sheets of DIC and PEC Cable TV as at December
31, 1994 and 1993, the related statements of income and shareholders'
equity and cash flows for each of the three years in the period then ended,
expressed in New Israel Shekels. These financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have
performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 5 to the financial statements.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
In our opinion, based on our audit, the above mentioned financial
statements present fairly the financial position of the Company as at
December 31, 1994 and 1993, the results of its operations, the changes in
shareholder's equity and cash flows for each of the three years in the
period ended December 31, 1994, in conformity with accounting principles
generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of nominal/historical net profit (loss) and shareholders'
equity to the extent summarized in Note 6 to the financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
<PAGE>
Tel-Aviv, March 10, 1995
RASOLY & CO SOMEKH CHAIKIN
Certified Public Accountants (Isr.) Certified Public Accountants (Isr.)
Tel-Aviv Tel-Aviv
Report of Independent Public Auditors
Electronics Line (E.L.) Limited
We have audited the consolidated balance sheets of Electronics Line (EL)
Limited as at December 31, 1994 and 1993, the related statements of income
and shareholders' equity and cash flows for each of the three years in the
period then ended, expressed in New Israeli Shekels. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
generally accepted auditing standards, including those prescribed under the
Auditors Regulations (Auditor's Mode of Performance), 1973 and accordingly
we have performed such auditing procedures as we considered necessary in
the circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli Auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 24 to the financial statements.
<PAGE>
In our opinion, based on our audit and the reports of other auditors, the
above mentioned financial statements present fairly the financial position
of the Company as at December 31, 1994 and 1993, the results of its
operations, the changes in shareholder's equity and cash flows of each of
the three years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of nominal/historical net profit and shareholders' equity to
the extent summarized in Note 25 to the financial statements.
RASOLY & CO SOMEKH CHAIKIN
Certified Public Accountants (Isr.) Certified Public Accountants (Isr.)
Joint Auditors
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Elron Electronic Industries Ltd.
(extended form to comply with U.S. standards)
We have audited the balance sheets of Elron Electronic Industries Ltd.,
(the "Company") as of December 31, 1994 and 1993 and the statements of
income, shareholders' equity and cash flows for the years ended December
31, 1994, 1993 and 1992. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Israel and the United States, including those prescribed by
the Auditors' (Mode of Performance) Regulations (Israel), 1973. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements' presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1994 and 1993 and the results of its operations and cash flows for the
years ended December 31, 1994, 1993 and 1992, in conformity with accounting
principles generally accepted in Israel (as to reconciliation to accounting
principles generally accepted in the United States - see Note 2K).
As more fully disclosed in Note 2J to the financial statements, the Company
changed in 1993 its method of accounting for income taxes.
Luboshitz, Kasierer & Co. Ratzkovsky Fried & Co.
Certified Public Accountants CertifiedPublic Accountants
(Israel) (Israel)
Haifa, Israel
March 8, 1995
<PAGE>
HH HAFT & HAFT & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
------------------------
SL INCL. STRAUSS, LAZER & CO.
AUDITOR'S REPORT
TO THE SHAREHOLDERS OF EL-YAM SHIPS LTD.
----------------------------------------
We have examined the special purpose Consolidated Balance Sheet of El-Yam Ships
Ltd. as at December 31, 1994 and 1993 and the related Consolidated Statements of
Income, Retained Earnings and Cash Flows for each of the three years ended
December 31, 1994. Our examination was made in accordance with generally
accepted auditing standards, including the rules prescribed under the Israel
Auditor's Regulations (Auditor's Mode of Performance), 1973, and accordingly we
have applied such auditing procedures as we considered necessary in these
circumstances.
As stated at the end of Note 2d, prior to 1993, an investment by the affiliated
company in an affiliate was carried at cost, due to the fact that the necessary
data in U.S. dollars for inclusion at equity could not be furnished.
In our opinion, except as noted in the previous paragraph as to 1992, the above
Consolidated Financial Statements, derived from the primary financial statements
expressed in Israel currency, present fairly in conformity with generally
accepted accounting principles the financial position of the Company and its
subsidiaries as at December 31, 1994 and 1993 and the results of the operations
and cash flows for each of three years ended December 31, 1994.
Pursuant to the United States Securities and Exchange Commission requirements we
state:
(1) The auditing standards and procedures mentioned above are Israeli auditing
standards and procedures and were augmented by any additional procedures
that were considered necessary, in order to comply with generally accepted
auditing standards in the United States.
(2) These financial statements differ from those issued in Israel (in
conformity with generally accepted accounting principles in Israel) as
explained in Note 1 to the financial statements.
March 30, 1995 H.H.S.L. Haft & Haft & Co.
Tel Aviv, Israel Certified Public Accountants (Isr.)
--------------------------------------------------------------------------------
TEL AVIV :HAFT BUILD. 51 WEIZMAN ST. P.O.B. 18115, CODE 61180.
TEL. 972-3-6967231, FAX. 972-3-6953517
MAYA BUILD. 74 DEREKH PETAH TIKVA, CODE 67215,
TEL. 972-3-5613545 FAX. 972-3-5613824
HAIFA :55 PINHAS MARGOLIN ST. P.O.B. 8081, CODE 31080,
TEL. 972-4-525202, FAX. 972-4-555813
JERUSALEM :16 BILU ST. P.O.B. 790, CODE 91007.
TELEPHONE 972-2-636276, FAX. 972-2-635534
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 1, 1995
Report of Independent Public Accountants
to the Board of Directors of
Gemini Capital Fund Management Ltd.
We have audited the accompanying balance sheet of Gemini Capital Fund
Management Ltd. as at December 31, 1994 and December 31, 1993, statements
of income, changes in shareholders' equity and cash flows for each of the
two years then ended, translated into U.S. dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards including those prescribed by the Israel Auditors' Regulations
(Auditors' Mode of Performance) - 1973.. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gemini Capital Fund
Management Ltd. as at December 31, 1994 and December 31, 1993, and the
results of its operations, changes in its shareholder's equity and cash
flows for each of the two years then ended, in conformity with accounting
principles generally accepted in the United States and Israel on the basis
outlined in Note 2A to the financial statements.
Somekh Chaikin
Certified Public Accountants
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 1, 1995
Report of Independent Public Accountants
to the Board of Directors of
Gemini Israel Fund L.P.
We have audited the accompanying balance sheet of Gemini Israel Fund L.P.
as of December 31, 1994 and December 31, 1993, statements of income,
changes in shareholders' equity and cash flows for the year ended December
31, 1994 and for the eleven month period ended December 31, 1993,
translated into U.S. dollars. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israel Auditors' Regulations
(Auditors' Mode of Performance). These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gemini Israel Fund as
of December 31, 1994 and December 31, 1993, the results of its operations,
changes in its shareholders' equity and cash flows for the year ended
December 31, 1994 and for the eleven month period ended December 31, 1993,
in conformity with accounting principles generally accepted in the United
States and in Israel on the basis detailed in Note 2A to the financial
statements.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
As explained in Note 2, the financial statements include investments valued
at U.S. dollars 5,516 thousand (previous year - U.S. dollars 3,805
thousand) (33% of partners capital at balance sheet date, previous year -
53%) whose values have been estimated by the Limited Partnership's general
partner in the absence of readily ascertainable market values. We have
reviewed the procedures used by the general partner in arriving at its
estimate of value of such investments and have inspected underlying
documentation and in the circumstances we believe the procedures are
reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation these estimated values may differ
significantly from the values that would have been used, had a ready market
for the investments existed and the differences could be material.
Somekh Chaikin
Certified Public Accountants
<PAGE>
Kesselman Coopers
& Kesselman & Lybrand
certified public
accountants (Isr.)
AUDITORS' REPORT
----------------
To the Shareholders of
GILAT COMMUNICATION ENGINEERING 1990 LTD.
-----------------------------------------
We have examined the financial statements of Gilat Communication
Engineering 1990 Ltd. (hereafter - the Company) and the consolidated
financial statements of the Company and its subsidiaries: balance sheets at
December 31, 1994 and 1993 and the related statements of income, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1994. Our examinations were made in accordance
with generally accepted auditing standards, including those prescribed by
the Israeli Auditors (Mode of Performance) Regulations, 1973, and
accordingly we have applied such auditing procedures as we considered
necessary in the circumstances. Data relating to the Company's share in
profits of an associated company - adjusted NIS 150,486 for 1994 (1993 -
share in losses - adjusted NIS 346,851) are based on that associated
company's financial statements which have been examined by other certified
public accountants.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general purchasing
power of Israeli currency, in accordance with Opinions of the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency
data of the Company, on the basis of which its adjusted financial
statements were prepared, are presented in note 14.
In our opinion, based upon our examinations and the reports of the other
accountants referred to above, the aforementioned financial statements
present fairly, in conformity with accounting principles generally accepted
in Israel, the financial position - of the Company and consolidated - at
December 31, 1994 and 1993 and the results of operations and the cash flows
- of the Company and consolidated - for each of the three years in the
period ended December 31, 1994.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of nominal/historical net income and shareholders' equity to
the extent summarized in note 15.
Tel-Aviv Kesselman & Kesselman
March 9, 1995 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of Coopers & Lybrand (International)
<PAGE>
Kesselman & Kesselman Coopers & Lybrand
Certified Public Accountants (Isr.)
REPORT OF INDEPENDENT AUDITORS
-------------------------------
To the Shareholders of
GILAT SATELLITE NETWORKS LTD.
------------------------------
We have examined the consolidated balance sheets of Gilat Satellite
Networks Ltd.(the "Company") and its subsidiaries at December 31, 1994 and
1993 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1994. Our examinations were made in accordance
with generally accepted auditing standards, including those prescribed by
the Israeli Auditors (Mode of Performance) Regulations, 1973, and
accordingly included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the
consolidated financial position of the Company and its subsidiaries at
December 31, 1994 and 1993 and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1994, in conformity with accounting principles generally accepted in Israel
and in the United States (as applicable to these financial statements, such
accounting principles are practically identical).
Tel-Aviv, Israel Kesselman & Kessleman
February 21, 1995 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 2, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF ISPAH HOLDINGS LIMITED
We have audited the balance sheets of Ispah Holdings Ltd. as at
December 31, 1994 and 1993, the related statements of income and
shareholders' equity and cash flows for each of the three years in the
period then ended, expressed in New Israel Shekels. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have
performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
The data relating to the equity value of investments is an affiliated
company and to the Company's share in the results of this company are based
on financial statement which were examined by other auditors.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 4 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the
above mentioned financial statements present fairly the financial position
of the Company as at December 31, 1994 and 1993, the results of its
operations, the changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of nominal/historical net profit (loss) and shareholders'
equity to the extent summarized in Note 5 to the financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
<PAGE>
Kesselman & Kesselman Coopers & Lybrand
Certified Public Accountants (Isr.)
AUDITORS' REPORT
----------------
To the Shareholders of
KLIL INDUSTRIES LIMITED
-----------------------
We have examined the financial statements of Klil Industries Limited (the
company) and the consolidated financial statements of the company and its
wholly-owned subsidiary: balance sheet at December 31, 1994 and 1993, and
the statements of income, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. Our
examination was made in accordance with generally accepted auditing
standards, including those prescribed by the Auditors (Mode of Performance)
Regulations, 1973, and accordingly we have applied such auditing procedures
as we considered necessary in the circumstances.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general purchasing
power of Israeli currency, in accordance with Opinions of the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency
data of the company, on the basis of which its adjusted financial
statements were prepared, are presented in note 11.
In our opinion, the aforementioned financial statements present fairly, in
conformity with generally accepted accounting principles, the financial
position - of the company and consolidated - at December 31, 1994 and 1993
and the results of operations and cash flows - of the company and
consolidated - for each of the three years in the period ended December 31,
1994. Also, in our opinion, the abovementioned financial statements have
been prepared in accordance with the Securities (Preparation of Annual
Financial Statements) Regulations, 1993.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination
of nominal/historical net income and shareholders' equity to the extent
summarized in note 12.
Haifa, Kesselman & Kesselman
March 1, 1995
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
<PAGE>
COHEN, EYAL, YEHOSHUA & CO.
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
51 WEIZMANN ST., P.O. BOX 21592 COHEN ELIAHU C.P.A. (ISR.)
TEL AVIV 61214, ISRAEL EYAL ITAMAR C.P.A. (ISR.)
TEL. 03-6952210, FAX. 03-6950148 YEHOSHUA NISSIM C.P.A. (ISR.)
AUDITORS REPORT TO THE SHAREHOLDERS OF
--------------------------------------
LEGO IRRIGATION LTD.
--------------------
We have examined the balance sheet of Lego Irrigation Ltd. (the
Company) as at December 31, 1994, and 1993, the statements of profit and
loss, changes in shareholders' equity and cash flows for each of the three
years ended December 31, 1994. Our examination was made in accordance with
generally accepted auditing standards, including those prescribed by the
Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly
we have applied such auditing procedures as we considered necessary in the
circumstances.
The financial statements are prepared on the basis of historical cost
as adjusted for the effects of inflation according to the opinions of the
Institute of Certified Public Accountants in Israel. Note 23 gives a
summary of the above mentioned financial statements based on the nominal
historical data which served as the bases for the preparation of the
adjusted statements.
In Note 24 are given data of the Company's nominal net profit and
shareholders' equity on the basis of accounting policies determined by PEC
Israel Economic Corporation (interested party) and for its purposes.
The financial statements of an included company, the operating results
of which for the years up to and including the year 1993 were included in
the Company's financial statements on equity basis, were audited by other
Certified Public Accountants.
In our opinion, based on our examination, and on the opinion of other
certified public accountants, as aforesaid, the above financial statements,
present fairly, in conformity with generally accepted accounting
principles, the financial position of the Company as at December 31, 1994,
and 1993, the results of its operations, changes in shareholders' equity
and cash flows for each of the three years ended December 31, 1994 and in
our opinion they are prepared in accordance with the Securities Regulations
(Preparation of Annual Financial Statements), 1993.
March 6, 1995 Cohen, Eyal, Yehoshua and Co.
Certified Public Accountants (Isr.)
<PAGE>
JUNGERMAN, GILBOA, SILBER
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
MOSHE JUNGERMAN C.P.A. (ISR).
DAVID GILBOA C.P.A. (ISR.)
KOBI SILBER C.P.A. (ISR.)
Auditors' Report to the Shareholders
------------------------------------
of
--
Liraz Systems Limited
---------------------
We have examined the Balance Sheet of Liraz Systems Ltd. (hereinafter - the
Company), and the Consolidated Balance Sheet of the Company and its subsidiaries
(hereinafter - the Group) as of December 31, 1994 and 1993, and the Statements
of Operations, the Statements of Changes in Shareholders' Equity and the
Statements of Cash Flows of the Company, and of the Group, for each of the three
years in the period ended December 31, 1994. Our examination was conducted in
accordance with generally accepted auditing standards, including those
prescribed in the Auditors' Regulations (Auditor's Mode of Performance), 1973,
and accordingly, we have applied such auditing procedures as we considered
necessary under the circumstances.
The abovementioned financial statements have been prepared on the basis of the
historical cost, adjusted for the changes in the general purchasing power of the
Israeli currency in accordance with the principles prescribed in the Opinions of
the Institute of Certified Public Accountants in Israel. Condensed nominal
data, which served as the basis for the preparation of the adjusted financial
statements, are presented in Note 31.
The financial statements of consolidated subsidiaries, whose assets constitute
approximately 36.1% (1993 approx. 22.4%) of total assets contained in the
consolidated balance sheet, and whose revenues constitute approximately 39.7%
(1993 approx. 12.4%, 1992 approx. 15.3%) of total revenues included in the
consolidated statement of operations, were examined by other auditors.
In our opinion, based on our examination and on the reports of the other
auditors, as aforesaid, the financial statements referred to above, present
fairly in conformity with generally accepted accounting principles, the
financial position of the Company and of the Group as of December 31, 1994 and
1993, the results of the operations, the changes in shareholders' equity, and
the cash flows of the Company and the Group, for each of the three years in the
period ended December 31, 1994.
In our opinion, the abovementioned financial statements have been prepared in
conformity with the Securities Regulations (Preparation of Annual Financial
Statements), 1993.
Jungerman, Gilboa, Silber
Certified Public Accountants (Israel)
Tel Aviv, February 28, 1995
28 AMINADAV ST. TEL AVIV 67898 TEL. 03-5622332 FAX. 03-5627190
<PAGE>
KOST LEVARY & FORER
A MEMBER OF
ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
LOGAL EDUCATIONAL SOFTWARE AND SYSTEMS LTD.
We have audited the balance sheets of Logal Educational
Software and Systems Limited (the "Company") and the consolidated
balance sheet of the Company and its subsidiary at December 31,
1994 and 1993 and the related Company and consolidated statements
of operations, changes in shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1994. Our
audit was made in accordance with generally accepted auditing
standards, including those prescribed by the Auditors (Mode of
Performance) Regulations (Israel), 1973, and accordingly,
included such tests of the accounting records and such other
auditing procedures as we considered necessary in the
circumstances.
The accompanying financial statements are remeasured into
U.S. dollars in accordance with the principles described in Note
2a.
In our opinion, based on our audit, the aforementioned
financial statements present fairly, in accordance with generally
accepted accounting principles in Israel and the United States,
which as applicable to these financial statements, are in all
material respects identical, the financial position of the
Company and the consolidated financial position of the Company
and its subsidiary as at December 31, 1994 and 1993, and the
results of the Company and consolidated operations, changes in
shareholders' equity and cash flows for each of the two years in
the period ended December 31, 1994.
Pursuant to Section 211 of the Companies Ordinance (New
Version), 1983, we state that we have obtained all the
information and explanations we have required and that our
opinion on the above statements is given according to the best
of our information and the explanations received by us and as
shown by the books of the Company.
Tel-Aviv, Israel KOST, LEVARY and FORER
February 22, 1995 Certified Public Accountants (Israel)
<PAGE>
Igal Brightman
& Co.
-------------- -------------------------------------------------------
3 Daniel Frisch Street Telephone: 972(3) 692-4111
Tel Aviv 64731, Israel Facsimile: 972(3) 696-0130
P.O.B. 16593, Tel Aviv 61164
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
"MAXIMA" - AIR SEPARATION CENTER LTD.
-------------------------------------
We have examined the balance sheets of "Maxima" - Air Separation Center Ltd. -
consolidated and for the Company - as of December 31, 1994 and 1993 and the
related statements of operations, changes in shareholders' equity and cash
flows - consolidated and for the Company - for each of the three years in the
period ended December 31, 1994, expressed in Israeli currency. Our examinations
were made in accordance with generally accepted auditing standards in Israel,
including those prescribed by the Auditors' Regulations (Mode of Performance),
1973, and, accordingly, we have applied such auditing procedures as we
considered necessary in the circumstances. Such auditing standards are
substantially identical to generally accepted auditing standards in the
United States.
The aforementioned financial statements have been prepared on the basis of
historical cost as adjusted for the changes in the general purchasing power of
the Israeli currency, in accordance with opinions issued by the Institute of
Certified Public Accountants in Israel. Condensed nominal financial data, on
the basis of which the adjusted financial statements have been prepared, is
presented in Note 30 to the financial statements.
In our opinion, based on our examinations, the aforementioned financial
statements present fairly, in conformity with generally accepted accounting
principles, the financial position - consolidated and for the Company - as of
December 31, 1994 and 1993, and the results of operations, changes in
shareholders' equity and cash flows - consolidated and for the Company - for
each of the three years in the period ended December 31, 1994.
The financial information presented in accordance with generally accepted
accounting principles in the United States is based on nominal historical
amounts in Israeli currency and is included in Note 31 to the financial
statements.
Tel-Aviv, Israel Igal Brightman & Co.
March 6, 1995. Certified Public Accountants
--------------- --------------------------------------------------------------
Deloitte Touche I. Brightman M. Bar-Levav C. Schwartzbard D. Valiano A. Inbar
Tohmatsu B(D) Ratowitz Z. Feldman S. Gothalf R. Benvenisti E. Hendler
International Office in Jerusalem: New Clal Center, 42 Agrippas Street
--------------- Jersusalem 94301, ISRAEL Tel: 972 (2)235157 Fax: 972 (2)233628
<PAGE>
Kesselman & Kesselman Coopers & Lybrand
Certified Public Accountants (Isr.)
AUDITORS' REPORT
----------------
To the Shareholders of
MUL-T-LOCK LIMITED
------------------
We have examined the balance sheets at December 31, 1994 and 1993 of Mul-T-Lock
Limited (hereafter - the company) and the consolidated balance sheets of the
company and its subsidiaries at December 31, 1994 and 1993 and the statements of
income, changes in shareholders' equity and cash flows - of the company and
consolidated - for the three years ended December 31, 1994. Our examinations
were made in accordance with generally accepted auditing standards, including
those prescribed by the Auditors (Mode of Performance) Regulations, 1973, and
accordingly we have applied such auditing procedures as we considered
necessary in the circumstances. The financial statements of a consolidated
subsidiary, whose assets at December 31, 1994 and 1993 constitute
approximately 1.9% of total consolidated assets and whose turnover for the
years 1994, 1993 and 1992 constitutes approximately 3%, 3.7%, and 2.6%,
respectively, of total consolidated turnover, have been examined by other
certified public accountants.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general purchasing power
of Israeli currency, in accordance with Opinions of the Institute of Certified
Public Accountants in Israel. Condensed nominal Israeli currency data of the
company, on the basis of which its adjusted financial statements were prepared,
are presented in note 16.
In our opinion, based upon our examinations and the reports of the other
accountants referred to above, the aforementioned financial statements present
fairly, in conformity with generally accepted accounting principles, the
financial position - of the company and consolidated - at December 31, 1994 and
1993 and the results of operations and cash flows - of the company and
consolidated - for the three years ended December 31, 1994. Also, in our
opinion, the abovementioned financial statements have been prepared in
accordance with the Securities (Preparation of Annual Financial Statements)
Regulations, 1993.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
nominal/historical net income and shareholders' equity to the extent summarized
in note 17.
Tel-Aviv, Kesselman & Kesselman
March 9, 1995
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
<PAGE>
HH HAFT & HAFT & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
------------------------
SL INCL. STRAUSS, LAZER & CO.
AUDITOR'S REPORT TO THE SHAREHOLDERS OF
PEC FINANCE COMPANY LTD.
---------------------------------------
FOR PARENT COMPANY PURPOSES
---------------------------
We have examined the balance sheet of PEC Finance Company Ltd. at
December 31, 1994 and December 31, 1993, and the statements of profit and
loss, of changes in shareholders' equity and of cash flows for each of the
three years then ended. Our examination was made in accordance with
generally accepted auditing standards, including those prescribed by the
Auditors' Regulations (Mode of Performance), 1973, and we accordingly
applied such auditing procedures as we considered necessary under the
circumstances.
The above financial statements were prepared on the historical cost
basis, adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with Statements of Opinion issued by the
Institute of Certified Public Accountants in Israel. A summary of the
Company's financial statements in nominal (historical) New Israel Shekels,
on the basis of which the adjusted financial statements were prepared, is
included in Note 10.
Financial statements as of dates and for periods prior to January 1,
1993 were examined by other auditors.
In our opinion, based on our examination, the financial statements
referred to above present fairly, in conformity with generally accepted
accounting principles, the financial position of the Company as at December
31, 1994 and December 31, 1993, and the results of its operations, changes
in shareholders' equity and cash flows for each of the three years then
ended.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would not have affected the
determination of nominal/historical net profit nor shareholders' equity for
the year ended December 31, 1994.
March 14, 1995 H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (Isr.)
- 1 -
--------------------------------------------------------------------------------
TEL AVIV :HAFT BUILD. 51 WEIZMAN ST. P.O.B. 18115, CODE 61180.
TEL. 972-3-6967231, FAX. 972-3-6953517
MAYA BUILD. 74 DEREKH PETAH TIKVA, CODE 67215,
TEL. 972-3-5613545 FAX. 972-3-5613824
HAIFA :55 PINHAS MARGOLIN ST. P.O.B. 8081, CODE 31080,
TEL. 972-4-525202, FAX. 972-4-555813
JERUSALEM :16 BILU ST. P.O.B. 790, CODE 91007.
TELEPHONE 972-2-636276, FAX. 972-2-635534
<PAGE>
CHRYSANTHOU 2
& CHRISTOFOROU
CERTIFIED PUBLIC ACCOUNTANTS (CYPRUS)
------------------------------------
Representing
ARTHUR ANDERSEN & CO, SC
--------------------------------------
Corner Th. Dervis - Florinis Street
P.O. Box 1675, CY-1512 Nicosia, Cyprus
357-2-475181 Telephone
357-2-473909 Facsimile
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
RTS TELECOMMUNICATIONS SERVICES LIMITED
We have audited the accompanying balance sheet of RTS Telecommunications
Services Limited as of December 31, 1994 and 1993, and the related
statements of operations, shareholders' equity and cash flows for the two
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RTS Telecommunications
Services Limited as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the two years then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered
recurring losses from operations and has a net capital deficiency that
raises substantial doubt about its ability to continue as a going concern.
For a clarification on this issue refer to Note 6. The financial
statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be
unable to continue as a going concern.
CHRYSANTHOU & CHRISTOFOROU
Certified Public Accountants (Cyprus)
Nicosia, January 24, 1995.
Partners:
M. Christoforou FCCA
C.M. Christoforou BA (Econ), ACA, MBIM
V. Hadjivassiliou FCA
E.N. Philippou FCA
N.D. Papakyriacou BSc (Econ), ACA
A. Chrysanthou BA (Econ), ACCA
Consultant:
Chr. Chrysanthou
<PAGE>
Kesselman & Kesselman Coopers & Lybrand
Certified Public Accountants (Isr.)
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Shareholders of
SCITEX CORPORATION LTD.
-----------------------
We have examined the consolidated balance sheets of Scitex Corporation Ltd.
(the "Company") and its subsidiaries at December 31, 1994 and 1993 and the
related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. Our examinations were made in accordance with generally accepted
auditing standards, including those prescribed by the Israeli Auditors
(Mode of Performance) Regulations, 1973, and, accordingly, included
such tests of the accounting records and such other auditing procedures as
we considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the
consolidated financial position of the Company and its subsidiaries at
December 31, 1994 and 1993 and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1994, in conformity with accounting principles generally accepted (GAAP) in
the United States (as applicable to these financial statements, such
accounting principles are practically identical to Israeli GAAP, except for
the treatment of investment in non-current quoted shares, as explained in
note 4(c)(2)).
As discussed in note 1m, in 1993 the Company adopted Statement No. 109 of
the Financial Accounting Standards Board of the United States ("Accounting
for Income Taxes").
Tel Aviv, Israel Kesselman & Kesselman
February 15, 1995 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, February 28, 1995
Report of Independent Public Accountants of
Sign-on Tikshouv Services Ltd.
We have audited the balance sheet of Sign-on Tikshouv Services Ltd. as at
December 31, 1994 and 1993, the related statement of income and
shareholders' equity and cash flows for the two year in the period then
ended, expressed in New Israel Shekels. These financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have
performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 17 to the financial statements.
Comparative data for the years ended December 31, 1992 included in the
financial statements have been audited and reported upon by other auditors.
In our opinion, based on our audit and the reports of other auditors, the
above mentioned financial statements present fairly the financial position
of the Company as at December 31, 1994 and 1993, the results of its
operations, the changes in shareholder's equity and cash flows for each of
the two years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of nominal/historical net profit (loss) and shareholders'
equity to the extent summarized in Note 18 to the financial statements.
Somekh Chaikin
Certified Public Accountants (Isr.)
<PAGE>
Certified Public Accountants (Isr)
Tel Aviv 61006 Haifa 31001 Jerusalem 91001
33 Yavetz Street 5 Palyam Street 33 Jaffa Road
P.O.Box 609 P.O.Box 210 P.O.Box 212
Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291
Telecopier: Telecopier: Telecopier:
(972) 3 517 4440 (972) 4 670 319 (972) 2 253 292
--------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, March 12, 1995
Report of Independent Public Accountants
to the Shareholders of Super-Sol Limited
We have audited the consolidated balance sheets of Super-Sol and its
subsidiaries and the financial statements of the Company as at December 31,
1994 and 1993, the related statements of income and shareholders' equity
and cash flows for each of the three years in the period then ended,
expressed in New Israel Shekels. These financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with generally
accepted auditing standards, including those prescribed under the Auditors
Regulations (Auditor's Mode of Performance), 1973, and accordingly we have
performed such auditing procedures as we considered necessary in the
circumstances. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for
our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel
currency in accordance with opinions issued by the Institute of Certified
Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the
adjusted statements appear in Note 30 and 31 to the financial statements.
The financial statements of certain consoldiated companies whose assets
represent approximately 3.3% of the total assets included in the
consolidated balance sheet and whose income represents approximately 3.9%
of the income included in the consolidated statments of income were
examined by other auditors who provided us with their reports. Similarly
the data relating to the equity value of investments in the consolidated
financial statments of investments in affiliated companies and to the
group's share in the results of these companies presented on an equity
basis are based on financial statements some of which were audited by other
auditors.
--------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
In our opinion, based on our audit and the reports of other auditors, the
above mentioned financial statements present fairly the financial position
of the Company as at December 31, 1994 and 1993, the results of its
operations, the changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the
determination of historical net profit and shareholders' equity to the
extent summarized in Note 32 to the financial statements.
Somekh Chaikin
Certified Public Accountants (Isr.)
<PAGE>
KOST LEVARY & FORER
A MEMBER OF
ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
TEL-AD JERUSALEM STUDIOS LIMITED
We have audited the balance sheet of Tel-Ad Jerusalem
Studios Limited (hereafter - "the Company") at December 31, 1994,
and the related statements of operations, changes in
shareholders' equity and cash flows for the year then ended. Our
audit was made in accordance with generally accepted auditing
standards, including those prescribed by the Auditors (Mode of
Performance) Regulations (Israel), 1973, and, accordingly,
included such tests of the accounting records and such other
auditing procedures as we considered necessary in the
circumstances.
The financial statements of the affiliated company have
been examined by other auditors.
The aforementioned financial statements have been
prepared on the basis of the historical costs adjusted for the
changes in the general purchasing power of the Israeli currency
as measured by the changes in the Israeli Consumer Price Index,
as required by Statements of the Institute of Certified Public
Accountants in Israel.
A summary of the financial statements in nominal
(historical) new Israeli Shekels which served as a basis for the
adjusted statements, is presented in Note 21.
In our opinion, based upon our examinations and the
reports of the other auditors referred to above, the
aforementioned financial statements present fairly the financial
position of the Company at December 31, 1994, and the results of
its operations, the changes in its shareholders' equity and its
cash flows for the year then ended, in conformity with accounting
principles generally accepted in Israel.
Pursuant to Section 211 of the Companies Ordinance (New
Version), 1983, we state that we have obtained all the
information and explanations we have required and that our
opinion on the above statements is given according to the best of
our information and the explanations received by us and as shown
by the books of the Company.
At the request of part of the shareholders we have
remeasured into Nominal NIS, according to the principles
determined in SFAS 52, the figures of the balance sheets as of
December 31, 1994 and the statements of operations for the year
ended December 31, 1994, as presented in the appendix to the
financial statements.
The remeasured financial statements do not include part
of the disclosures required by U.S. GAAP.
In our opinion, the remeasured financial statements,
except for the absence of part of the disclosures required, are
in conformity with accounting principles generally accepted in
the United States and in Israel (as applicable to these financial
statements, such accounting principles are in all material
respects substantially identical).
Also, in our opinion, the translation of the
aforementioned nominal figures into Nominal NIS is proper, and
was made in accordance with the principles set forth in SFAS 52.
Tel-Aviv, Israel KOST, LEVARY and FORER
February 22, 1995 Certified Public Accountants (Israel)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PEC ISRAEL ECONOMIC CORPORATION
Date: March 31, 1995 By:/s/JAMES I. EDELSON
---------------------------
James I. Edelson,
Executive Vice President
and Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Name Date
---- ----
/s/RAPHAEL RECANATI March 31, 1995
------------------------------
Raphael Recanati,
Chairman of the Board
of Directors
/s/FRANK J. KLEIN March 31, 1995
------------------------------
Frank J. Klein,
President and Principal
Executive Officer; Director
/s/WILLIAM GOLD March 31, 1995
------------------------------
William Gold,
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
<PAGE>
Name Date
---- ----
March , 1995
-----------------------------
Robert H. Arnow, Director
March , 1995
-----------------------------
Joseph Ciechanover, Director
March , 1995
-----------------------------
James S. Crown, Director
March , 1995
-----------------------------
Roger Cukierman, Director
/s/HERMANN MERKIN March 31, 1995
-----------------------------
Hermann Merkin, Director
/s/HARVEY M. MEYERHOFF March 31, 1995
-----------------------------
Harvey M. Meyerhoff, Director
/s/ALAN S. ROSENBERG March 31, 1995
-----------------------------
Alan S. Rosenberg, Director
/s/HERBERT M. SINGER March 31, 1995
-----------------------------
Herbert M. Singer, Director
/s/DOV TADMOR March 31, 1995
-----------------------------
Dov Tadmor, Director
/s/RICHARD S. ZEISLER March 31, 1995
-----------------------------
Richard S. Zeisler, Director
<PAGE>
EXHIBITS
TO
REPORT ON FORM 10-K
OF
PEC ISRAEL ECONOMIC CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1994
<PAGE>
EXHIBIT INDEX
Page No.
--------
(3)(i). Composite Articles of Incorporation of the
Company, as amended, filed as Exhibit 3(i) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein
by reference.
(3)(ii). Composite By-Laws of the Company, as amended. 237
10(i)(a). Voting Agreement dated December 10, 1980 between
the Company and Discount Investment Corporation Ltd.
(formerly Discount Bank Investment Corporation Ltd.),
as amended by a Letter Agreement dated May 4, 1983 and
by an Addendum dated December 30, 1983, filed as Exhibit
10(i)(a) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and incorporated
herein by reference.
10(i)(b). Amendment to Exhibit 10(i)(a) dated December 10,
1990 filed as Exhibit 10(i)(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1990 and incorporated herein by reference.
10(i)(c). Amendment to Exhibit 10(i)(a) dated as of February
1, 1993 filed as Exhibit 10(i)(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 30, 1992 and incorporated herein by reference.
10(i)(d). Shareholders' Agreement dated May 20, 1992 among
Clal Electronics Industries Ltd., the Company, Discount
Investment Corporation Ltd. and International Paper
Company, filed as Exhibit A to Amendment No. 13 to the
Company's Statement on Schedule 13D in respect of
ordinary shares of Scitex Corporation Ltd. held as of
June 12, 1992 and incorporated herein by reference.
10(i)(e). Business Opportunities Agreement dated as of
November 30, 1993 among the Company, DIC Finance and
Management Ltd., and, for the purpose of section 5
thereof only, PEC Finance Company Ltd. and Discount
Investment Corporation Ltd., filed as Exhibit 10(i)(f)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference.
10(i)(f). Agreement dated December 24, 1991 between Israel
Discount Bank Ltd. and PEC Financial Corporation, as
amended, filed as Exhibit 10(i)(f) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference.
<PAGE>
Page No.
--------
10(i)(g). Exchange Agreement dated December 24, 1991
between Israel Discount Bank Ltd. and PEC Financial
Corporation, filed as Exhibit 10(i)(g) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein
by reference.
10(i)(h). Agreement dated February 19, 1992 between
Israel Discount Bank of New York and PEC Financial
Corporation, filed as Exhibit 10(i)(h) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein
by reference.
10(i)(i). Agreement dated December 31, 1991 between PEC
Loan Corporation Ltd. and IDB Development Corporation
Ltd., filed as Exhibit 10(i)(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1991 and incorporated herein by reference.
10(i)(j). Agreement dated January 31, 1993 among the
Company, DIC Energy Holdings Ltd. and N.E.K. Properties
Ltd. in respect of ordinary shares of Tambour Ltd., filed
as Exhibit 10(i)(k) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference.
10(i)(k). Exchange Agreement dated as of January 4, 1994
among the Company, PEC Holdings Limited and IDB
Development Corporation Ltd., filed as Exhibit 10(i)(l)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference.
10(iii)(a). Trust Agreement dated December 19, 1991 among the
Company, Alan S. Rosenberg, as Trustee, and Joseph
Ciechanover, filed as Exhibit 10(iii)(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference.*
10(iii)(b). Supplemental Retirement Agreement dated as of
January 1, 1995 between the Company and Frank J. Klein.* 250
21. Subsidiaries of the Registrant. 259
27. Financial Data Schedule. 261
-------------------------
*This is a management contract or a compensatory plan or arrangement
required to be filed as an exhibit.
Exhibit 3(ii)
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION
-------------------------------
COMPOSITE
BYLAWS
------
* * * * * *
ARTICLE 1. OFFICES
---------- -------
The principal office in Maine shall be registered with the Corporation
Trust Company, Portland, Cumberland County, Maine. The Company may also
have offices at such other places as the Board of Directors may designate.
ARTICLE II. MEETINGS OF STOCKHOLDERS
----------- ------------------------
Section 1. Annual Meetings. The annual meeting of stockholders for the
---------- ----------------
election of directors and for such other business as may properly come
before the meeting shall be held on the last Tuesday in May in each year
(or if said day be a legal holiday, then on the first day thereafter not a
legal holiday), or on such other day as shall be fixed by the Board of
Directors. Notice of the time, place and object of each meeting shall be
mailed at least ten days before the meeting to each stockholder at his
address as it appears on the books of the Company or at such address for
such notice as he may have filed with the Secretary in writing.
Section 2. Special Meetings. Special meetings of stockholders shall be
---------- -----------------
held whenever called in writing by the President or the Board of Directors.
Special meetings shall be called whenever the owners of record of twenty
percent of the outstanding capital stock of the Company entitled to vote at
such meeting shall make application to that effect to the directors in
writing, stating the objects of the proposed meeting. All business
transacted at such special meetings shall be confined to the objects stated
in the notice and matters germane thereto. Unless otherwise expressly
provided by statute, notice of each special meeting stating the time, place
and object thereof, shall be mailed at least ten days before the meeting to
each stockholder at his address as it appears on the books of the Company
or otherwise as provided in Section 1 hereof.
Section 2(A). Meetings of stockholders may be held at such places as may
-------------
be designated by the Board of Directors within or outside of the State of
Maine as stated in the notice of meeting.
Section 3. Quorum. At all meetings of stockholders, the presence of
---------- -------
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<PAGE>
stockholders, in person or by proxy, owning of record at least a majority
of the outstanding capital stock of the Company entitled to vote thereat
shall constitute a quorum. In the absence of such quorum, a majority of
the stockholders present in person or by proxy may adjourn from time to
time without notice other than by announcement at the meeting until a
quorum in person or by proxy is present. At any such adjourned meeting at
which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally called.
Section 4. Organization. At every stockholders' meeting the President or
---------- -------------
in his absence, a Vice President, or in the absence of both, the Chairman
elected by the stockholders present shall preside. The Clerk shall keep
the minutes of every meeting of the stockholders and in his absence, a
Clerk pro tem may be elected to act as Clerk of such meeting.
Section 5(a). Voting. Stockholders shall be entitled to vote in person or
------------- -------
by proxy and each stockholder shall have one vote for each share of stock
registered in his name on the books of the Company. All elections and all
questions shall be decided by a plurality vote and upon demand any vote
shall be by ballot.
(b). List of Stockholders. A full, true and complete list in
---------------------
alphabetical order of all the stockholders entitled to vote at an ensuing
election and indicating the number of shares held by each, certified by the
Secretary, shall be filed in the office where the election is to be held at
least ten days before every election and shall, at all times during the
usual hours of business and during the whole time of the election, be open
to the examination of any stockholder. Only the persons in whose name
shares of stock stand on the books of the Company at the time of the
closing of the transfer books for such meeting, as evidenced by the list of
stockholders so furnished, shall be entitled to vote.
(c). Proxies. Prior to any meeting but subsequent to the time of
--------
closing the transfer books for such meeting, if such books have been
closed, any proxy may submit his powers of attorney to the Secretary,
Treasurer or Transfer Agent of the Company for examination. The
certificate of the Secretary or of the Treasurer or Transfer Agent as to
the regularity of such powers of attorney, and as to the number of shares
held by the persons who severally and respectively executed such powers,
shall be received as prima facie evidence of the number of shares
represented by the holder of such powers of attorney, for the purpose of
establishing the presence of a quorum at such meeting and of organizing the
same and for all other purposes.
Section 6. Order of Business. The order of business at stockholders'
---------- ------------------
meetings shall be as follows:
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<PAGE>
1. Proof of notice of meeting.
2. Reports.
3. Election of Directors.
4. Other business.
ARTICLE III. BOARD OF DIRECTORS
------------ ------------------
Section 1(a). Power. Subject to the provisions of the statute, the
------------- ------
certificate of incorporation, the bylaws, and regulations which may be made
by the stockholders, the Board shall have (in addition to such powers as
are herein expressly conferred upon it, or such powers as may be exercised
by the Company) the following powers: -
To purchase or otherwise acquire property, rights or
privileges for the Company, which the Company has power to
take, at such prices and on such terms as the Board may deem
proper; and to pay for such property, rights or privileges
in whole or in part, with money, stock, bonds, debentures or
other securities of the Company, or by delivery of other
property of the Company.
To create, make and issue mortgages, bonds, deeds of trust,
trust agreements and negotiable or transferable instruments
and securities secured by mortgages or otherwise and to do
every other act and thing necessary to effectuate the same.
To appoint agents, clerks, assistants, factors, servants and
trustees, and to dismiss them at its discretion; to fix
their duties and emoluments and to change them from time to
time and to require security as it may deem proper; to
confer on any Officer of the Company the power of selecting,
discharging or suspending such employees; to delegate any of
its powers to any committee, agency, officer, or agent, and
to grant the power to sub-delegate.
To determine by whom and in what manner contracts, or other
documents shall be signed in the name and on behalf of the
Company.
(b). The Board may also from time to time appoint an agent or
agents of the Company to represent and act in any foreign country or
countries, and all such appointments shall be either for a fixed term or
without any limitation as to the period for which the person or persons so
appointed is or are to hold such office, and the Board may from time to
time remove or dismiss him or them from office and appoint another or
others in his or in their place or places.
-3-
<PAGE>
Section 2. Place of Meetings. The Board may hold its meetings and keep
---------- ------------------
the books of the Company, except the original and duplicate stock ledger,
outside of the State of Maine at such places as it may from time to time
determine.
Section 3(a). Meetings. After each annual meeting of stockholders, the
------------- ---------
Board shall meet for the purpose of organization, the election of Officers
and the transaction of other business.
(b). Meetings may be held within or without the State of Maine at
such places as may be indicated in the notice or waiver of notice thereof.
The notices convening meetings shall briefly state the objects and purposes
thereof. Meetings may be called by the Chairman or Vice Chairman of the
Board or President on three days' notice in writing or on two days' notice
by telephone or telegram to each director and shall be called by such
officer in like manner on the written request of seven directors.
(c). Except as provided in the next sentence, a majority of the
total number of directors then in office shall constitute a quorum for the
transaction of business of the Board. If at any time there are fewer
directors in office than one-half of the number of directors fixed by the
bylaws or, in the absence of a bylaw fixing the number of directors, of the
number stated in the articles of incorporation, the directors then in
office may transact no other business than the filling of vacancies on the
Board, in the manner and to the extent provided by these bylaws and law,
until sufficient vacancies have been filled so that there are in office at
lease one-half of the number of directors fixed by bylaws or the articles
of incorporation. In the absence of a quorum, a majority of the directors
present may adjourn from time to time without notice other than by
announcement at the meeting until a quorum is present. At any such
adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
called.
Section 4. Number and Terms. The number of directors shall be not less
---------- -----------------
than three nor more than 60, their number to be fixed by resolution of the
Board of Directors from time to time.
Section 5. Vacancies. Vacancies in the Board for any cause may be filled
---------- ----------
at any annual or special meeting of the stockholders. Such vacancies may
be filled by the Board between annual meetings of stockholders and
directors so elected shall hold office until the next annual meeting of
stockholders.
Section 6. Order of Business. At meetings of the Board, business may be
---------- ------------------
transacted in such order as the Board may determine. At all meetings of
the Board, the Chairman of the Board, or in his absence a
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<PAGE>
Vice-Chairman of the Board, or in his absence the President, or in the
absence of the latter, a Vice-President shall preside.
Section 7. Compensation. Directors, as such, shall not receive any stated
---------- -------------
salary for their services, but by resolution of the Board a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any director from serving the
Company in any other capacity and receiving compensation therefor.
ARTICLE IV. COMMITTEES
----------- ----------
Section 1. Executive Committee. There may be an Executive Committee. The
---------- --------------------
members of the Committee shall be appointed by the Board of Directors who
shall also designate the Chairman of the Committee. The Executive
Committee shall exercise such powers as may be delegated to it by the Board
of Directors. The Executive Committee shall fix its own rules of procedure
and keep regular minutes of its proceedings and report same to the Board.
Section 2. Other Committees. The Board may authorize any other committees
---------- -----------------
of the Board which shall be appointed and shall exercise such powers as the
Board may prescribe. The Board may also authorize one or more committees
from its own membership or outside its membership, or both, as an advisory
committee or committees which shall exercise such powers as the Board may
prescribe.
ARTICLE V. OFFICERS
---------- --------
Section 1(a). The Officers. The Officers of the Company shall consist of
------------- -------------
a Chairman of the Board of Directors, one or more Vice-Chairmen, a
President, one or more Vice-Presidents, a Secretary, a Treasurer and a
Clerk. As determined by the Board of Directors from time to time, the
Officers may also include Honorary Chairmen, Presidents Emeriti, and any
other desirable Officers. The Chairman and Vice-Chairmen of the Board of
Directors, and the President, shall be directors, but other Officers need
not be directors.
(b). The Chairman of the Board of Directors, the President, one
or more Vice-Presidents, the Secretary, the Treasurer and, commencing in
1988, the Clerk shall be elected each year by a majority vote of quorum of
the Board at the first meeting held after the annual meeting of
stockholders. Vacancies in such offices may be filled by a majority vote
of a quorum of the Board at subsequent meetings prior to
-5-
<PAGE>
the following annual meeting of stockholders. All such Officers shall hold
office at the pleasure of the Board until the first meeting of the Board
held after the succeeding meeting of the stockholders and until their
respective successors are elected and qualify.
(c). Honorary Chairmen, Presidents Emeriti, Vice-Chairmen of the
Board, and other desirable Officers as the Board may from time to time
determine shall be elected by a majority vote of a quorum of the Board at
any meeting of the Board and shall hold office at the pleasure of the Board
until the first meeting of the Board held after the succeeding meeting of
the stockholders.
(d). In addition to the powers conferred upon them by the bylaws,
all Officers elected by the Board shall have such authority and shall
perform such duties as from time to time may be prescribed by the Board.
All Officers of the Company shall be subject to removal at any time with or
without cause by a majority vote of a quorum of the Board.
(e). Salaries and other compensation payable to Officers shall be
fixed by the Board. Such salary or other compensation shall be paid not by
virtue of any office but solely for services to the Company, and such
services and the payment therefor shall be terminable at the pleasure of
the Board not inconsistent with any contract.
Section 2. Chairman of the Board. The Chairman of the Board shall have
---------- ----------------------
general supervisory powers over the business of the Company and its
Officers and be an ex officio member of all committees.
Section 3. Vice-Chairman of the Board. In the absence of the Chairman of
---------- ---------------------------
the Board, a Vice-Chairman of the Board shall be an ex officio member of
all committees and shall assist the Chairman in his general duties.
Section 4. President. The President shall be the chief administrative
---------- ----------
officer of the Company. He shall manage the business; execute all
contracts and agreements authorized by the Board; see that all orders and
resolutions of the Board are carried into effect; perform such other duties
as may be prescribed by the Board; and shall be an ex officio member of all
committees.
Section 5. Vice-President. Vice-Presidents shall have such powers and
---------- ---------------
perform such duties as may be prescribed by the Board.
Section 6. Treasurer. The Treasurer shall have custody of all funds and
---------- ----------
securities of the Company which may come into his hands. He may
-6-
<PAGE>
endorse on behalf of the Company all checks, notes or other obligations,
and shall deposit the same to the credit of the Company in such banks or
depositories as the Board may designate. Whenever required by the Board,
he shall render a statement of his accounts. He shall enter or cause to be
entered regularly in the books of the Company for that purpose full and
accurate account of all moneys received and paid on account of the Company.
He shall at all reasonable times exhibit his books and accounts to any
Officer or Director upon application at the office of the Company during
business hours. He shall perform all acts incident to the office of
Treasurer, subject to the control of the Board. He shall give such
security for the faithful performance of his duties as the Board shall
direct.
Section 7. Secretary. The Secretary shall keep the minutes of all
---------- ----------
meetings of the Board and of all committee meetings, in books provided for
that purpose. He shall attend to the giving and serving of all notices of
the Company. He shall affix the seal of the Company to all instruments
requiring the same. He shall have charge of the corporate seal,
certificate books, transfer books, stock ledgers and such other books and
papers as the Board may direct, all of which shall, at all reasonable
times, be open to the examination of any director, upon application at the
office of the Company during business hours. He shall, in general, perform
all the duties incident to the office of Secretary, subject to the control
of the Board.
Section 8. Clerk. The Clerk, who shall be a resident of the State of
---------- ------
Maine, shall be elected by the Board of Directors and shall be sworn to the
faithful performance of his duties. He shall act as the agent of this
Corporation in the State of Maine, on whom process against this Corporation
may be served. He shall record all votes of the stockholders and minutes
of such meetings in a book kept for that purpose. He shall maintain an
office in the State of Maine where he shall keep the records of all
stockholders' meetings. In the absence of the Clerk at any stockholders'
meeting, a Clerk of the Meeting, who need not be a resident of the State of
Maine, shall be elected or appointed by the meeting. He shall be sworn to
the faithful performance of his duties, and he shall keep the minutes of
the votes and business transacted and promptly deliver such minutes to the
Clerk for him to record in the record books of the Company.
Section 9. Voting Power of President. Unless otherwise ordered by the
---------- --------------------------
Board, the President, or in case of his absence or failure to act, a Vice-
President, shall have full power and authority in behalf of the Company to
attend and to act and to vote at any meetings of any corporation in which
the Company may hold securities, and at any such meeting shall possess and
may exercise any and all rights incidental to such ownership as fully as
the Company could do if present. The Board may delegate like powers to any
other person or persons.
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<PAGE>
ARTICLE VI. CHECKS, NOTES, ETC.
----------- -------------------
All checks and other orders for the payment of money out of the funds of
the Company and all promissory notes, acceptances and other evidences of
indebtedness of the Company for the account of the Company shall be signed
on behalf of the Company by such Officer or Officers as shall from time to
time be determined by the Board.
ARTICLE VII. CAPITAL STOCK
------------ -------------
Section 1(a). Certificates. The certificate for shares of the capital
------------- -------------
stock of the Company with the seal affixed shall be in such form as shall
be approved by the Board. The certificates shall be signed by the Chairman
or a Vice-Chairman of the Board, the President or a Vice-President and
countersigned by the Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary. If a transfer agent or registrar are appointed, certificates
shall be countersigned by the transfer agent or registered by the registrar
and the signatures of the Officers and the seal of the Company on such
certificates may be facsimiles, engraved or printed.
(b). All certificates shall be consecutively numbered. The name
of the person owning the shares represented thereby, with the number of
such shares and the date of issue, shall be entered on the Company's books.
(c) All certificates surrendered to the Company shall be
cancelled, and no new certificates shall be issued until the former
certificate or certificates for the same number of shares of the same class
shall have been surrendered and cancelled.
(d) No certificates for fractional shares of capital stock shall
be issued, but in lieu thereof, the Company will issue non-dividend, non-
voting and non-interest-bearing scrip certificates which shall entitle the
holders to receive a full share of capital stock upon surrender of two or
more scrip certificates aggregating a full share of capital stock of the
same class, and which shall contain such other terms and provisions as
shall be fixed by the Board. Such certificates may become void and of no
effect after a reasonable period from date of issue to be determined by the
Board and stated in the certificate. This sub-division (d) shall not be
deemed to apply to any fractional share of stock issued and created prior
to January 1, 1939.
Section 2. Transfers. Shares of the capital stock of the Company shall be
---------- ----------
transferred only on the books of the Company by the holder thereof, in
person or by his attorney, upon surrender and cancellation of the
certificate for a like number of shares of the same class, properly
endorsed.
-8-
<PAGE>
Section 3. Fixing of Record Date. For purposes of determining
---------- ----------------------
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of
a dividend or other distribution, or in order to make a determination of
stockholders for any other proper purpose, the Board of Directors may fix
in advance a record date for any such determination of stockholders. Such
date shall not in any case be more than 60 days and, in the case of a
meeting of stockholders, less than 10 full days prior to the date on which
the particular action, requiring such determination of stockholders, is to
be taken.
Section 4(a). Regulations. The Board shall have the power and authority
------------- ------------
to make all such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of the
capital stock of the Company.
(b). The Board may appoint a transfer agent and registrar, and
may require all stock certificates to bear the signature of such transfer
agent and of such stock registrar, or either of them.
(c). The Board may make provision for the issue of new
certificates in place of lost or destroyed certificates.
(d). Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit or affirmation of that fact and shall, if
the Board so requires, give the Company a bond of indemnity, in form and
with one or more sureties satisfactory to the Board, in at least double the
value of the stock represented by said certificate, whereupon a new
certificate may be issued of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed.
Section 5. Liability for Amount Unpaid on Shares Not Fully Paid. Until
---------- -----------------------------------------------------
the shares of stock for which certificates shall be issued shall have been
fully paid, the subscribers for the several shares of stock shall continue
to be severally liable for the sums remaining unpaid on the shares for
which they have respectively subscribed, and, in addition to such
liability, any transferee of such shares, by accepting a transfer thereof,
shall be deemed to have assumed a personal liability of the Company for the
payment of the amount so remaining unpaid to the same extent as though he
had originally been the subscriber for such shares.
Section 6. Calls and Assessments. In the event of the failure of any
---------- ----------------------
subscriber, stockholder or transferee to pay any call or assessments made
upon him by the Board within the time required for the payment thereof, in
addition to the remedy provided for in the foregoing Section, the Company,
by decision of the Board, may proceed to forfeit
-9-
<PAGE>
the stock of such subscriber, stockholder or transferee, in conformity with
and to resort to the proceedings provided for in Section 46 of the Business
Corporations Law of the State of Maine, and the several acts mandatory
thereof and supplemental thereto.
ARTICLE VIII. DIVIDENDS
------------- ---------
Dividends upon the capital stock of the Company, when earned, may be
declared by the Board of Directors at any regular or special meeting called
for that purpose, and the Board shall fix the date on which stockholders
shall be entitled to receive dividends.
Before payment of any dividend or making any distribution of profits, there
may be set aside out of the surplus or net profits of the Company such sum
or sums as the Board may, from time to time, in its absolute discretion,
think proper as a reserve fund to meet contingencies or for equalizing
dividends or for repairing or maintaining any property of the Company or
for such other purpose as the Board shall think conducive to the interest
of the Company.
ARTICLE IX. SEAL
----------- ----
The Board shall provide a suitable corporate seal containing the name of
the Company, which seal shall be in charge of the Secretary and affixed on
behalf of the Company to instruments requiring sealing.
ARTICLE X. FISCAL YEAR
---------- -----------
The fiscal year of the Company shall be coincident with the calendar year.
ARTICLE XI. REGISTERED STOCKHOLDERS
----------- -----------------------
The Company shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and accordingly shall not be
bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the laws of Maine.
-10-
<PAGE>
ARTICLE XII. INSPECTION OF BOOKS
------------ -------------------
The Board shall determine from time to time whether, and if allowed, when
and under what conditions and regulations, the accounts and books of the
Company (except such as may by statute by specifically open to inspection)
or any of them shall be open to the inspection of the stockholders, and the
stockholders' rights in this respect are and shall be restricted and
limited accordingly.
ARTICLE XIII. NOTICES
------------- -------
Whenever under the provisions of these bylaws notice is required to be
given to any stockholder, director or officer, it shall not be construed to
mean personal notice, but such notice may be given in writing by mail by
depositing the same in the post office or letter box in a postpaid sealed
wrapper addressed to such addressee at such address as appears on the books
of the Company or in default of other address to such addresses at the
General Post Office in the City of Portland, Maine, and such notice shall
be deemed to be given at the time when the same shall be thus mailed. Any
stockholder, director or officer may waive notice required to be given
under these bylaws.
ARTICLE XIV. AMENDMENTS
------------ ----------
The bylaws may be amended, altered, or repealed by the stockholders at a
meeting called for that purpose. Between meetings of the stockholders, the
bylaws may be amended, altered, or repealed by the Board at a meeting
called for that purpose.
ARTICLE XV. INDEMNIFICATION
------------ ---------------
Section 1. Extent. The Corporation shall indemnify any past, present or
---------- -------
future officer or director of the Corporation (and his heirs and personal
representatives) who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of, or in any capacity with, another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses, including attorney's fees, judgments,
fines (including excise taxes assessed in connection with service to an
employee benefit plan), amounts paid in settlement and reasonable expenses
actually incurred by
-11-
<PAGE>
him in connection with such action, suit or proceeding or any appeal
therein, provided that no indemnification shall be provided for any person
with respect to any matter as to which he shall have been finally
adjudicated in any action, suit or proceeding not to have acted in good
faith in the reasonable belief that his action was in the best interest of
the Corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
For purposes of the foregoing, the Corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance
by such person of his duties to the Corporation also imposes duties on, or
otherwise involves services by such person to, the plan or participants or
beneficiaries of the plan. The termination of any action, suit or
proceeding by judgment, order or conviction adverse to such person or by
settlement or plea of nolo contendere or its equivalent shall not of itself
---- ----------
create a presumption that such person did not act in good faith in the
reasonable belief that his action was in the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Advancement of Expenses. The Corporation shall pay the
---------- ------------------------
expenses incurred by any person to whom Section 1 applies in defending any
action, suit or proceeding in advance of final disposition upon receipt of
an undertaking by or on behalf of such person to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by
the Corporation pursuant to Section 1 or otherwise.
Section 3. Nonexclusive Right; Subsequent Modification. The rights
---------- --------------------------------------------
conferred by this Article shall not be deemed exclusive of any and all
other rights to which any such person may be entitled, whether by law,
agreement or otherwise. This Bylaw shall be deemed a contract between the
Corporation and its officers and directors. Any officer or director of the
Corporation who becomes such while this Article is in effect shall be
entitled to act in reliance thereon, and no amendment, modification or
repeal of this Article which has the effect of reducing or terminating the
benefit or protection hereof shall be effective with respect to any officer
or director who became such prior to such amendment, modification or
repeal.
-12-
Exhibit 10(iii)(b)
<PAGE>
SUPPLEMENTAL RETIREMENT AGREEMENT
AGREEMENT, made as of January 1, 1995 by and between PEC Israel
Economic Corporation, a Maine corporation having its principal place of
business at 511 Fifth Avenue, New York, N.Y. 10017 (the "Corporation"), and
Frank J. Klein, residing at 33 Country Ridge Circle, Rye Brook, New York
10573 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive commenced employment with the Corporation
as President effective January 1, 1995; and
WHEREAS, the Corporation desires to provide the Executive with
additional retirement benefits intended to supplement the benefits payable
under certain tax-qualified and non-qualified retirement plans and to
assure the Corporation of the Executive's continued services.
NOW, THEREFORE, in consideration of the promises and covenants
between the Corporation and the Executive, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
meaning set forth below:
(a) "Actuarial Equivalent" shall mean, with regard to the Bank
Pension Plan, "Actuarial Equivalent" as defined in Section 1.20 of the Bank
Pension Plan, and with regard to the Corporation Pension Plan and to
calculations under Section 2(a)(i) of this Agreement, "Actuarial
Equivalent" as defined in Section 2.3(j) of the Corporation Pension Plan.
(b) "Affiliate" shall mean the Corporation and any entity
affiliated with the Corporation within the meaning of Code Sections 414(b)
with respect to controlled group of corporations, 414(c) with respect to
trades or businesses under common control with the Corporation, 414(m) with
respect to affiliated service groups, and any other entity required to be
aggregated with the Corporation under Section 414(o) of the Code. No
entity shall be treated as an Affiliate for any period during which it is
not part of the controlled group, under common control or otherwise
required to be aggregated under Code Section 414.
(c) "Bank Pension Plan" shall mean the Israel Discount Bank of
New York Pension Plan for Employees, as in effect November 1994 and as
thereafter amended from time to time, and any other qualified defined
benefit pension plan sponsored by the Israel Discount Bank of New York
under which the Executive is entitled to receive benefits in any form.
-1-
<PAGE>
(d) "Bank SERP" shall mean the Israel Discount Bank of New York
Supplemental Executive Retirement Plan, originally effective January 1,
1991 and amended and restated as of January 1, 1995.
(e) "Beneficiary" shall mean the Executive's legal spouse and,
if the Executive is unmarried, the person or person (if any) designated by
the Executive in a written election filed with the Committee, or, in the
event no such designation is made, the Executive's estate.
(f) "Board" shall mean the board of directors of the
Corporation.
(g) "Cause" shall mean the Executive's personal dishonesty or
defalcation of money or property causing a loss to, or having a negative
effect on, the Corporation.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(i) "Compensation" shall mean the Executive's base salary paid
by the Corporation to the Executive plus an amount equal to any bonus
earned by the Executive. For purposes of this Agreement, a bonus shall be
earned on the date when it is declared by the Board or any duly authorized
committee thereof.
(j) "Committee" shall mean the Committee, if any, appointed by
the Board to administer the terms of this Agreement on behalf of the
Corporation. If no Committee is appointed, the Board shall be deemed the
Committee. Notwithstanding the foregoing, in no event shall the Executive
serve on the Committee with respect to this Agreement.
(k) "Corporation Pension Plan" shall mean the Employees'
Retirement Plan of PEC Israel Economic Corporation, as in effect on January
1, 1995, and as thereafter amended from time to time, and any other
qualified defined benefit pension plan sponsored by the Corporation under
which the Executive is entitled to receive benefits in any form.
(l) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(m) "Normal Retirement Date" shall mean, with regard to the Bank
Pension Plan, the "Normal Retirement Date" specified under Section 1.25 of
the Bank Pension Plan and with regard to the Corporation Pension Plan, the
"Normal Retirement Date" specified under Section 2.3(c) of the Corporation
Pension Plan.
(n) "Supplemental Benefits" shall mean the benefits payable
under Section 2 herein, if any.
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<PAGE>
(o) "Termination Date" shall mean the Executive's actual date
of termination of employment with the Corporation and its Affiliates for
any reason including, without limitation, retirement, death, disability,
resignation or any termination of employment without Cause.
(p) "Years of Service" shall mean all years of service
recognized for benefit accrual purposes under either the Bank Pension Plan
or the Corporation Pension Plan; provided, that, for purposes of this
Agreement, if the Executive is credited with a year of service under one
such pension plan he shall not be entitled to receive credit for an
additional year of service under the other pension plan with respect to the
same year of service.
2. SUPPLEMENTAL BENEFITS AND PAYMENT.
(a) Subject to Sections 2(e) and 2(f) below, the amount of the
Supplemental Benefit under this Agreement, payable at the date specified in
Section 2(b) below, shall be equal to:
(i) the Actuarial Equivalent lump sum value, as of
the date specified in Section 2(b) below, of an annual pension of 1.5%
of the average of the Executive's five (5) highest years of annual
Compensation multiplied by the Executive's Years of Service,
commencing at Normal Retirement Date (as defined in the Corporate
Pension Plan) in the form of a single life annuity, less
(ii) the sum of:
(x) the Actuarial Equivalent lump sum value
as of the date specified in Section 2(b) below
of the benefit the Executive would receive
under the Bank Pension Plan at Normal
Retirement Date or, if the Executive receives
a lump sum distribution from the Bank Pension
Plan prior to distribution of Supplemental
Benefits hereunder, the value of the benefit
the Executive actually received under the Bank
Pension Plan, increased with interest at 7.0%
per annum, compounded annually from the date
paid to the date of commencement under Section
2(b) below, plus
(y) the Actuarial Equivalent lump sum value
as of the date specified in Section 2(b) below of
the benefit the Executive would receive under the
Corporate Pension Plan at Normal Retirement Date,
plus
(z) $144,070, which was the benefit the
Executive actually received under the Bank SERP,
excluding amounts paid to the Executive
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<PAGE>
as a gross-up for any income taxes due on the
benefit paid to him under the Bank SERP, increased
with interest at 3.5% per annum, compounded
annually from the date paid to the date of
commencement under Section 2(b) below.
For purposes of calculating the amount under Section
2(a)(i), if the Executive is employed for less than five (5) years,
Compensation shall be averaged over the number of years during which the
Executive performed services for the Corporation.
(b) Subject to Section 17 below, the Supplemental Benefit
described above shall be paid in a lump sum, which shall commence following
the Executive's Termination Date, but in no event earlier than thirty (30)
days or later than twelve (12) months following the Executive's Termination
Date, as determined by the Committee in its sole discretion.
(c) The Supplemental Benefit payable hereunder shall be subject
to the same vesting rules as apply under the Corporation Pension Plan.
(d) In the event that Supplemental Benefits hereunder commence
being paid as of a date other than the Participant's Normal Retirement Date
(as defined in the Corporation Pension Plan), the amount determined under
Section 2(a) shall be subject to adjustment to reflect such early or
delayed commencement, if and to the extent that the Corporation Pension
Plan provides for such adjustment with respect to amounts payable under
such plan.
(e) Notwithstanding the provisions contained in Sections 2(a)
through 2(d) above, if the Executive is discharged for Cause, as determined
by the Board in its sole discretion, the Executive (and his Beneficiary)
shall forfeit all unpaid Supplemental Benefits under this Agreement.
(f) In the event of the death of the Executive with a vested
Supplemental Benefit hereunder, such Supplemental Benefit shall be paid to
the Executive's Beneficiary in a lump sum as soon as administratively
practical following such Executive's death, except that no Supplemental
Benefit shall be paid to the Executive's Beneficiary if he is unmarried at
the time of his death and he dies prior to his Normal Retirement Date (as
defined in the Corporation Pension Plan). Notwithstanding the foregoing, if
the Executive reaches his Termination Date for any reason other than death,
and the Executive dies unmarried after his Termination Date but prior to
the date of payment of his Supplemental Benefit, the vested Supplemental
Benefit shall be paid to his designated Beneficiary in a lump sum as soon
as administratively practical following his death.
-4-
<PAGE>
3. PAYMENT FROM GENERAL ASSETS.
This Agreement is "unfunded" and Supplemental Benefits payable
hereunder shall be paid by the Corporation out of its general assets.
Neither the Executive nor his Beneficiary shall have any interest in any
specific asset of the Corporation as a result of this Agreement.
4. NON-ALIENATION OF BENEFITS.
To the maximum extent permitted by law, Supplemental Benefits
payable under this Agreement shall not be subject to assignment, transfer,
sale, pledge, encumbrance, alienation or charge by the Executive (or a
Beneficiary).
5. ADMINISTRATION OF AGREEMENT.
(a) The Committee shall have the authority and responsibility
for the administration and interpretation of this Agreement and may appoint
an officer of the Corporation to act as the administrator and to attend to
the regular administrative details of this Agreement.
(b) All expenses incurred in administering this Agreement shall
be paid by the Corporation and none shall be paid by the Executive.
6. WITHHOLDING.
All payments under this Agreement shall be subject to the
withholding of such amounts relating to Federal, state or local taxes as
the Corporation may reasonably determine it should withhold based on
applicable law or regulations.
7. AMENDMENT OR TERMINATION OF AGREEMENT.
This Agreement may be amended, suspended or terminated at any
time pursuant to a written resolution adopted by a majority of the members
of the Board in their sole discretion. However, no amendment, suspension
or termination of this Agreement may have a material adverse effect upon
the Executive's accrued rights under this Agreement based on the
Executive's Years of Service and Compensation up to the date of such
amendment, suspension or termination, unless the Executive consents to such
amendment, suspension or termination in writing. In the event of such
termination, the Corporation may distribute to the Executive his accrued
benefit hereunder and shall have no further obligation hereunder.
8. NON-EXCLUSIVITY.
The execution of this Agreement shall not affect the
-5-
<PAGE>
Executive's right to participate in any other employee benefit plan or
program sponsored by the Corporation, if the Executive is otherwise
eligible to participate.
9. LIMITATION OF RIGHTS.
Nothing contained herein shall confer upon the Executive the
right to be retained in the service of the Corporation, nor shall it
interfere with the right of the Corporation to discharge the Executive at
any time for any reason whatsoever.
10. GOVERNING LAW.
To the extent not governed by the Code and ERISA, this Agreement
is governed by and shall be construed in accordance with the laws of the
State of New York, applied without regard to conflict of law principles.
11. CLAIMS PROCEDURE.
(a) The Committee shall be responsible for determining all
claims for benefits under this Agreement by the Executive or his
Beneficiaries. Within ninety (90) days after receiving a claim (or within
up to one hundred eighty (180) days, if the claimant is so notified,
including notification of the reason for the delay), the Committee shall
notify the Executive or Beneficiary of its decision in writing, giving the
reasons for its decision if adverse to the claim. If the decision is
adverse to the claimant, the Committee shall advise the claimant of the
provisions of this Agreement that are involved, of any additional
information which the claimant must provide to perfect his claim and why,
and of his right to request a review of the decision.
(b) A claimant may request a review of an adverse decision by
written request to the Committee made within sixty (60) days after receipt
of the decision. The claimant, or his duly authorized representative, may
review pertinent documents and submit written issues and comments.
(c) Within sixty (60) days after receiving a request for
review, the Committee shall notify the claimant in writing of (i) its
decision, (ii) the reasons therefore, and (iii) the provisions of this
Agreement upon which it is based.
(d) The Committee may at any time alter the claims procedure
set forth above, so long as the revised claims procedure complies with
ERISA and the regulations issued thereunder.
(e) The Committee shall have the full power and authority to
interpret, construe and administer this Agreement in its sole discretion
based on the provisions of this Agreement and to decide any
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<PAGE>
questions and settle all controversies that may arise in connection with
this Agreement. Both the Committee's and the Board's interpretations and
construction thereof, and actions thereunder, including the amount of the
payment to be made hereunder, shall be final, binding and conclusive on all
persons for all persons. No member of the Committee shall be liable to any
person for any action taken or omitted in connection with the
interpretation and administration of this Agreement.
12. CONSTRUCTION OF AGREEMENT.
Nothing contained in this Agreement and no action taken pursuant
to the provisions of this Agreement shall create a fiduciary relationship
between the Corporation and the Executive, his designated Beneficiaries or
any other person. Any funds which may be invested under the provisions of
this Agreement shall continue for all purposes to be part of the general
funds of the Corporation and no person other than the Corporation shall by
virtue of the provisions of this Agreement have any interest in such funds.
To the extent that any person acquires a right to receive payments from the
Corporation under this Agreement, such right shall be no greater than the
right of any unsecured general creditor of the Corporation.
13. MINORS AND INCOMPETENTS.
If the Committee shall find that any person to whom amounts are
payable under this Agreement is unable to care for his or her affairs
because of illness or accident, or is a minor, any payment due (unless a
prior claim therefore shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a
child, parent, or brother or sister, or to any person deemed by the
Committee to have incurred expense for such person otherwise entitled to
payment, in such manner and proportions as the Committee may determine in
its sole discretion. Any such payment shall be a complete discharge of the
liabilities of the Corporation, the Committee and the Board under this
Agreement.
14. PAYMENT NOT SALARY.
Any benefit payable under this Agreement shall not be deemed
salary or other compensation to the Executive for the purposes of computing
benefits to which he may be entitled under any pension plan or other
arrangement of the Corporation, an Affiliate or Israel Discount Bank of New
York for the benefit of their respective employees, except as may be
specifically set forth in such plan or arrangement.
15. SEVERABILITY.
In case any provision of this Agreement shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
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<PAGE>
the remaining parts hereof, but this Agreement shall be construed and
enforced as if such illegal and invalid provision never existed.
16. SALE OF ASSETS.
In the event that the Corporation sells all or substantially all
of the assets of its business and the acquiror of such assets assumes the
obligations hereunder, the Corporation shall be released from any liability
imposed herein and shall have no obligation to provide any benefits payable
hereunder.
17. SECTION 162(m) DEDUCTION LIMITATION.
Notwithstanding anything else herein, the Committee at any time
may, in its sole discretion, and, after taking into account all amounts
payable by the Corporation to the Executive (whether or not payable under
this Agreement), limit the amount of Supplemental Benefits payable
hereunder during any taxable year of the Corporation solely to the extent
necessary to prevent the application of Section 162(m) of the Code (or any
similar or successor provision) and to preserve the deductibility of the
Supplemental Benefits payable hereunder by the Corporation. To the extent
that any amount of the Supplemental Benefits is not paid to the Executive
as a result of this Section, such additional amount shall be paid to the
Executive in the Corporation's subsequent taxable year.
18. HEADINGS.
The headings in this Agreement are inserted for convenience of
reference only and shall have no effect upon the meaning of the provisions
hereof.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to
be duly executed and the Executive has hereunto set his hand as of the 1st
day of January, 1995.
PEC ISRAEL ECONOMIC CORPORATION
By: /s/RAPHAEL RECANATI
--------------------------
Title: Chairman
/s/FRANK J. KLEIN
--------------------------
Frank J. Klein
-8-
Exhibit 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries % Owned Incorporation
------------ ------- ------------------
PEC Financial Corporation 100% Maine
General Engineers Limited 100% Israel
The Company accounts on the equity method for its interests in the
Affiliated Companies listed in Note 3 of the Notes to the Consolidated
Financial Statements of PEC Israel Economic Corporation and Subsidiaries,
which consolidated financial statements are included in response to item 8
herein.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated balance sheet as of December 31, 1994 and the consolidated
statement of income for the year ended December 31, 1994 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 20,736,416
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 383,690,964
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 31,952,180
0
0
<OTHER-SE> 309,516,185
<TOTAL-LIABILITY-AND-EQUITY> 383,690,964
<SALES> 0
<TOTAL-REVENUES> 47,745,363
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,482,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 31,262,648
<INCOME-TAX> 1,169,256
<INCOME-CONTINUING> 30,093,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,472,879
<NET-INCOME> 32,566,271
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
