SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 1995
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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. [ X ]
Exhibit Index is on Page 256
Page 1 of 265 pages.
<PAGE>
The aggregate market value of the outstanding Common Stock of the
registrant held by non-affiliates on March 25, 1996 was approximately
$115,516,000. 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 25, 1996, 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 1996 Annual Meeting of Shareholders are incorporated by
reference in Part III.
Page 2
<PAGE>
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, financing or increase in capital of over 150 Israeli enterprises
since its incorporation in 1926. The Company participates actively in
management through representation on boards of directors 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 digital visual information communication for the graphic design,
printing, publishing and video markets (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 metropolitan area
and two other areas in Israel (Tevel Israel International Communications Ltd.),
Israel's largest paint manufacturer (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.
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IDB Holding, through its majority owned subsidiary, IDB Development
Corporation Ltd. ("IDB Development"), owns 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
$2.2 billion at September 30, 1995. 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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<PAGE>
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, 1995
------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
<S> <C> <C> <C> <C>
High Technology and Communications
Scitex Corporation Ltd. Digital Visual Information 6.1% 6.0% 24.0%
Communication
Elron Electronic Diversified High 13.6 26.5 40.1
Industries Ltd. ` Technology Holdings
Cellcom Israel Ltd. Cellular Telephone System 11.5 11.5 23.0 (2)
Tevel Israel International Cable Television 23.7 24.8 48.5 (3)
Communications Ltd.
Tel-Ad Jerusalem Studios Television Station 11.5 11.5 23.0
Ltd.
Gilat Satellite Networks Satellite Communications 7.4 6.8 14.2
Ltd.
Gilat Communication Interactive Distance Learning 12.1 12.2 24.3
Engineering 1990 Ltd. Centers; Services for the
Communications Industry
Electronics Line (E.L.) Electronic Security 13.9 13.9 27.8
Ltd. Systems
RDC-Rafael Development Development Stage 16.7 16.7 50.1 (4)
Corporation Ltd. High Technology
Products
Lipman Electronic Electronic and Computerized 5.4 5.4 10.8
Engineering Ltd. Systems
Nice Systems Ltd. Voice Logging and 9.6 9.7 19.3 (5)
Communication Intelligence
Systems
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percentage
Equity Ownership as of
December 31, 1995
--------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
High Technology and Communications (continued)
<S> <C> <C> <C> <C>
VocalTec Ltd. Voice and Audio 4.6% 4.6% 9.2%(6)
Communications over
the Internet
Gemini Israel Fund L.P. Venture Capital Fund 11.2 11.2 29.9 (7)
(Primarily High Technology)
Advent Israel Limited Venture Capital Fund 5.4 5.4 10.8 (8)
Partnership (Primarily High Technology)
Liraz Systems Ltd. Customized Computer 8.8 8.9 17.7 (9)
Software Systems; Distri-
bution of Packaged Software;
and Provider of Outsourcing
Services
Logal Educational Software Educational Software 6.5 6.5 34.4 (10)
and Systems Ltd.
Adir International Communications International Tele- 25.0 25.0 50.0
Services Corporation Ltd. communication Services from
Israel
Tius Elcon Ltd. Electronic Products for 14.5 14.5 29.0
Home Health Care
Sign-On Computer Communications Private Network 25.5 25.5 51.0
Services Ltd. Communications
Incubator for Technological Support of Development 16.6 16.6 33.3
Entrepreneurship Kiryat Stage High Technology
Weizmann Ltd. Companies
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percentage
Equity Ownership as of
December 31, 1995
------------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
<S> <C> <C> <C> <C>
Industry
Tambour Ltd. Paint and Related Products 42.4% 21.0% 63.4%
Caniel-Israel Can Company Ltd. Cans and Metal Packaging 29.0 14.7 43.7 (11)
Mul-T-Lock Ltd. Locks and Security Doors 13.5 13.6 27.1
Klil Industries Ltd. Aluminum Extrusions and 15.2 33.8 49.0
Finished Products
Lego Irrigation Ltd. Irrigation Equipment 13.2 13.2 26.4
Maxima Air Separation Center Ltd. Industrial Gas Production 11.6 11.7 23.3
Tefron Ltd. Lingerie and Undergarments 13.0 13.0 26.0
Construction and Development
Property and Building Real Estate Construction 37.4 14.3 51.7
Corporation Ltd. and Development
Camdev Ltd. Real Estate Development 26.0 ----- 100.0
Shipping, Marketing and Other
El-Yam Ships Ltd. (12) Bulk Shipping 10.1 14.3 24.4
Super-Sol Ltd. Supermarkets 18.8 16.5 50.4
"Delek"-The Israel Fuel Distribution of Petroleum 2.1 28.4 30.5
Corporation Ltd. Products
Renaissance Fund LDC Acquisition of Equity Interests 3.7 ----- 3.7
for Capital Appreciation
General Engineers Limited Distribution of Power 100.0 ----- 100.0
Generation Equipment
Isrotel Ltd. Ownership, Management and 1.8 1.9 3.7 (13)
Operation of Hotels
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percentage
Equity Ownership as of
December 31, 1995
--------------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
Shipping, Marketing and Other (continued)
<S> <C> <C> <C> <C>
Sano Dispec Development Ltd. Joint Ventures in China for 25.0% 25.0% 50.0% (14)
Manufacture and Sale of
Detergents and Cosmetics
and for Advertising
Bulk Trading Corporation Ltd. Grain Import Services 50.0 50.0 100.0
</TABLE>
(1) Total holdings of members of the IDB Group.
(2) As a result of the purchase of ordinary shares of Cellcom Israel Ltd. made
after December 31, 1995, as of March 25, 1996, PEC owned 12.5%, Discount
Investment owned 12.5% and the IDB Group owned 25.0%, respectively, of the
ordinary shares of Cellcom Israel Ltd.
(3) Interests in Tevel Israel International Communications Ltd. are held
through a separate company, DIC and PEC Cable TV Ltd.
(4) Interests in RDC-Rafael Development Corporation Ltd. are held through a
separate company, DEP Technology Holdings Ltd.
(5) As a result of a public offering by Nice Systems Ltd. in the United States
after December 31, 1995 of American Depositary Shares representing ordinary
shares of Nice Systems Ltd., as of March 25, 1996, PEC owned 7.0%, Discount
Investment owned 7.0% and the IDB Group owned 14.0%, respectively, of the
ordinary shares of Nice Systems Ltd.
(6) As a result of an initial public offering of ordinary shares by VocalTec
Ltd. in the United States on February 6, 1996, the exercise by PEC and
Discount Investment of options for ordinary shares of VocalTec Ltd.
immediately prior to such public offering and the sale by PEC and Discount
Investment of ordinary shares of VocalTec Ltd. in the public offering, as
of March 25, 1996, PEC owned 4.0%, Discount Investment owned 4.1% and the
IDB Group owned 8.1%, respectively, of the ordinary shares of VocalTec Ltd.
(7) 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.
(8) 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.
(9) In addition, PEC and Discount Investment own options to acquire ordinary
shares of Liraz Systems Ltd. If all of the outstanding options of Liraz
Systems Ltd. are exercised, PEC would own 12.5%, Discount Investment would
own 12.6% and the IDB Group would own 25.1%, respectively, of the ordinary
shares of Liraz Systems Ltd.
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<PAGE>
(10) The ownership interest of the IDB Group includes the 19.1% and 2.2%
ownership interests of Gemini Israel Fund L.P. and Elron Electronic
Industries Ltd., respectively, in Logal Educational Software and Systems
Ltd. As the result of an initial public offering of ordinary shares by
Logal Educational Software and Systems Ltd. in the United States after
December 31, 1995, as of March 25, 1996, PEC owned 4.3%, Discount
Investment owned 4.4% and the IDB Group owned 22.9%, respectively, of the
ordinary shares of Logal Educational Software and Systems Ltd.
(11) 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.
(12) Includes the Company's interest in Financial Holdings El-Yam (Hamigdal)
Ltd.
(13) In addition, PEC and Discount Investment own publicly-traded warrants to
acquire ordinary shares of Isrotel Ltd. If all of the outstanding warrants
of Isrotel Ltd. are exercised, PEC would own 5.0%, Discount Investment
would own 5.0% and the IDB Group would own 10.0%, respectively, of the
ordinary shares of Isrotel Ltd.
(14) Sano Dispec Development Ltd. has a 55% interest in Shen Yang Daily Use
Articles Ltd. and, through an 80% interest in D.S.D.S. International
Advertising (China) Limited Partnership, has a 40% interest in Shen Yang
Sano International Advertising Co. Ltd.
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<PAGE>
High Technology and Communications
Scitex Corporation Ltd. ("Scitex"). Scitex is a world leader in the
design, development, manufacture, marketing and support of digital visual
information communication systems and devices. Scitex is organized into three
business units: graphic arts, digital printing and digital video.
The products of the Scitex Graphic Arts Group are used mostly for color
electronic prepress. They automatically generate and produce high-resolution,
color, printed media such as magazines, newspapers, catalogs, inserts, annual
reports and advertising. The prepress hardware and software products include
creative design application packages; digital cameras (that bypass the film and
scanning stage and capture images directly into a computer) and scanners; high-
performance, full-function, workstations for color correction, creative
retouching, and page assembly as well as client-server systems to improve the
productivity of Scitex customers; high quality, color digital inkjet
proofers/printers; and imagesetters and platesetters to produce color separation
films and plates directly from a computer.
These products are in over 7,500 installations worldwide. They allow users
to work in a digital workflow, significantly reducing production time, material
expense and labor costs while promoting design creativity and improving image
and color quality. They are supported by sophisticated networking and
telecommunications capability and have an open architecture for connectivity
with products from other vendors. Scitex graphic arts products address a broad
range of customers -- high-end digital service bureaus and large commercial
printers and publishers, as well as PostScript-compatible desktop publishing
system operators. Customers include Time, Fortune, Sports Illustrated, The New
York Times, National Geographic, USA Today, Wace Group, Rizolli, A. Mondadori,
Bauer Druck, Gutenberghus, Toppan Group, Dai Nippon Printing, Ashai Shimbun,
Sara Lee and Pepsico.
In April 1995, Scitex signed a strategic agreement with the Xerox
Corporation to develop jointly short-run, on-demand, color digital printing
systems. The first result of this alliance is the Spontane(TM) printing system
that will begin shipping in the middle of 1996. It prints digital files in
high-quality color at up to 40 pages per minute, for use in flyers, brochures,
pamphlets and other short-run applications. The Graphic Arts Group also markets
computer driven, on-demand, color inkjet printers for outdoor advertising
billboards.
Products of the Scitex Digital Printing division produce hardcopy output of
digital data from a computer. These inkjet
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<PAGE>
printing systems are used for variable-data, high speed printing. The
applications include names and addresses for personalized mass mailings,
billings, bar codes, serially-numbered lottery tickets, and many others. Some
of these printers are the world's fastest non-impact systems for full page,
variable-data printing.
Products of the Scitex Digital Video division include post-production
systems for non-linear desktop editing, digital visual effects (DVEs), character
generators, switchers and routers, and disk recorders. This division was formed
in October 1995 by the merger of Abekas Video Systems, Inc. acquired in 1995,
and ImMIX, Inc. acquired in 1994. Over 1,000 editing stations, manufactured by
ImMIX, are used worldwide in television broadcasting and professional video
applications. They combine the real-time functions of traditional video
equipment with the flexibility of computer hardware and software. The Abekas
DVEs create realistic special effects like warps and textures, and have been
chosen by NBC to enhance the visual effects in television transmission of the
1996 Summer Olympics. Abekas character generators apply special effects to text
such as shearing and shadows.
The largest business unit, the Graphic Arts Group, is headquartered in
Israel. Research, development, design and production are conducted at Scitex
Israel and by two subsidiaries in the United States, Iris Graphics, Inc. and
Leaf Systems, Inc. Regional subsidiaries in North America, Europe and the Far
East are responsible for marketing, sales and customer support of the graphic
arts products in their respective territories. The other two business units,
which are headquartered in the United States, develop and manufacture, as well
as perform all marketing, sales and customer support of their products.
Virtually all sales of Scitex products are outside of Israel.
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 no more than
13 members, consisting of four nominees designated by each of PEC and Discount
Investment as a group, International Paper Company and Clal, and, if the three
groups determine that there should be another director, a nominee agreed upon
by all three groups, (ii) provides that the Chairman of the Board of Scitex and
of its 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.
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<PAGE>
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 products in the fields of
medical diagnostic imaging, defense electronics, communication, semiconductors,
machine vision and, most recently, the emerging markets of networking and
Internet software services. 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 1995, Elron transferred to NetVision Ltd. the Internet connectivity
operations of elroNet, a wide-band electronic communication network established
by Elron in 1994. NetVision Ltd. is owned equally by Elron and NetManage Inc.,
a publicly traded affiliate of Elron described below. NetVision Ltd. is a
leading Israeli Internet service provider whose services include high speed,
modem dial-up, ISDN dedicated lines, local area network ("LAN") to LAN, virtual
private networks for multinational corporations as well as commercial WEB and
custom on line services.
Currently, Elron is developing and in the initial stages of marketing the
"i-Fax" system, a "client/server" line of products which use the Internet to
send international and long-distance faxes, achieving substantial savings on fax
costs. The "client" may be a standard fax machine or a personal computer with
Microsoft Windows software.
Elron's affiliates include publicly-traded and privately-held companies.
Its principal publicly-traded affiliates are Elbit Ltd. (40% owned - advanced
electronic systems and products for defense, medical, industrial and commercial
applications - NASDAQ/NMS symbol "ELBTF" and also traded on the Tel Aviv Stock
Exchange); 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% owned - automated optical inspection systems for
inspection and identification of defects in printed circuit boards and liquid
crystal flat panel displays - NASDAQ/NMS symbol "ORBKF"); PC Etcetera, Inc.
(20.5% owned - consulting and computer-based training products - over-the-
counter stock symbol "PCEZ"); Zoran Corporation (23.5% owned - digital signal
processing and VLSI (Very Large Scale Integration) for multimedia and consumer
electronics applications for digital video and audio compression - NASDAQ/NMS
symbol "ZRAN"); NetManage Inc. (2.4% owned - integrated set of TCP/IP
(Transmission Control Protocol/Internet
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<PAGE>
Protocol) internetworking applications and development tools for the MicroSoft
Windows operating environment - NASDAQ/NMS symbol "NETM"); and Logal Educational
Software and Systems Ltd. (1.5% owned (PEC and Discount Investment each also own
a 4.36% equity interest and Gemini Israel Fund L.P. owns a 12.7% equity
interest) - designs, creates, publishes and markets simulation-based,
educational software and laboratory probeware products for science and math
curriculums in high schools and colleges.)
Among Elron's privately-held affiliates are Chip Express Corp. (43.2% owned
- - a laser technology which enables the production of engineering prototypes of
Gate Arrays (integrated circuit devices composed of an array of logic gates
integrated to form specific logic applications) to customers within 24 hours,
the supply of early production quantities in a week and competitively-priced
volume production parts); ServiceSoft Corporation (25.6% owned - software
systems for automation of field service and maintenance of complex systems and
products); RDC-Rafael Development Corporation Ltd. (16.7% owned (PEC and
Discount Investment each also own a 16.7% equity interest) - commercialization
of technologies developed by RDC-Rafael Armament Development Authority, a
division of Israel's Ministry of Defense); Oren Semiconductor Ltd. (15% owned
indirectly - development of a ghost canceler integrated circuit which cancels
shadows for the consumer television market, which circuit is designed to fit
into conventional analogue television sets, VCRs, cable decoders and television
set top boxes); and Elementrix Technologies Ltd. (48% owned - leading edge
Internet information security products which secure all forms of data including
text, graphics, images, video and voice). Elron also has a 3.7% limited
partnership interest in Gemini Israel Fund L.P., a venture capital fund in which
PEC and Discount Investment are limited partners.
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 Safra and Moise Safra of Brazil, Discount Investment and
PEC. Cellcom began operations at the end of December 1994 and now serves all of
Israel. At the end of February 1996, over 240,000 customers were utilizing
Cellcom's cellular telephones, an
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<PAGE>
increase of approximately 210,000 customers in one year. Cellcom intends to
invest approximately $430 million through 1996 in the development and operation
of the new cellular telephone system.
Cellcom's license to operate the second cellular telephone system expires
in 2004. Cellcom has the right to request, and Israel's Ministry of
Communications can agree, to extend the license for one or more periods of six
years. A sufficient number of customers are now using the cellular telephone
systems of Cellcom and the other cellular telephone provider so that Cellcom's
license permits Israel's Ministry of Communications to grant a license for the
establishment and operation of a third cellular telephone system in Israel.
Cellcom uses TDMA (time division multiple access) digital technology, an
advanced technology for cellular communication. Cellcom's cellular telephone
system utilizes cell sites, switching machines and mobile telephone switching
offices to carry telephone calls. At the end of 1994, Cellcom had 31 operating
cell sites and one mobile telephone switching office. During 1995, as Cellcom
expanded its system throughout Israel, it increased its number of cell sites to
182 and its number of mobile telephone switching offices to three. It also
installed four switching machines in 1995 and installed a fifth switching
machine during the first half of January 1996. In order to improve the quality
of its existing service and to be able to offer a new service known as the
Advanced Intelligent Network service to its customers, Cellcom intends to
construct an additional 103 cell sites and four switching machines in 1996.
Cellcom's marketing strategy is based on the premise that cellular
telephones and service should be offered on a mass market basis. Cellcom's
license regulates the rates it may charge for cellular telephone services.
These rates are among the lowest in the world. During Cellcom's first year of
operation ended December 31, 1995, Cellcom charged users of its cellular
service 2.74 cents per minute. The rate rose to 5.16 cents per minute for
January 1996 and 5.65 cents per minute for the remainder of 1996. This rate
will rise to 11.3 cents per minute on January 1, 1997, not including any
adjustments for inflation. Cellcom may increase these charges whenever the
Israeli consumer price index increases by more than 8.5% in any year. In
addition, Cellcom charges an interconnect fee and, during the third
through fifth years of operation, Cellcom may charge customers a monthly
fee of $5.65, not including any adjustments for inflation. Cellcom's charges
are far lower than the charges of the operator of Israel's first cellular
network, which are 21.6 cents per minute during peak hours and 10.8 cents
per minute during off peak hours.
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<PAGE>
Cellcom markets cellular telephones and its cellular telephone system
through its own retail stores, a telemarketing group with service centers,
independent authorized distributors and independent importers of telephones. At
the end of 1995, Cellcom products and services were offered in over 50 cities
throughout Israel at 180 locations, of which seven were Cellcom retail stores.
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, Tele-Communications
Inc. ("TCI"), a leading owner and operator of cable television systems in the
United States, and United Phillips Co. ("UPC"), a major owner and operator of
cable television systems in Europe. TCI and UPC hold their interests in Tevel
through wholly owned subsidiaries.
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 in the north part of Israel. These franchises include
approximately 340,000 households - about 24% of the homes in Israel. Tevel has
completed the construction of approximately 95% of the cable network in its
franchise areas. At the end of 1995, Tevel had approximately 218,000
subscribers, constituting approximately 68% of the households in the area in
which network construction has been completed.
The exclusive franchises granted to Tevel have a twelve year term expiring
in 2002 with a four-year renewal right. Tevel pays the Israeli government
annual franchise royalties of 5% of its gross revenues. The government
regulates the basic service subscription rates which cannot be increased beyond
cost of living index increases. Currently, government regulations prevent cable
television operators from offering advertising.
Tevel offers customers a uniform, extended 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 began
offering its customers
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recent theatrical movies on a pay per view basis over four channels programmed
and packaged by Tevel under Tevel's brand name "Home Cinema." During 1995,
monthly sales of "Home Cinema" events increased steadily, reaching a sales rate
of 65,000 events per month during the last quarter of 1995, and total sales in
1995 amounted to 660,000 events.
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. The broadcast license expires in 2000
and Tel-Ad may request that the license be extended for one four year term.
Broadcasts on the second television station began in November 1993. Tel-Ad is
responsible for the entire programming for two days every week and, beginning in
1996, for every Saturday in one year of each three year period. From January
1995 through August 1995, Tel-Ad's programs were broadcast on Mondays and
Thursdays and from September 1995 through December 1995 were broadcast on
Tuesdays, Fridays and Saturdays. Tel-Ad's programs will continue to be
broadcast on Tuesdays and Fridays through August 1997.
The Second Channel is the most-watched station in Israel. The popularity
of the channel has provided the impetus for advertisers and advertising agencies
alike to take advantage of the opportunities that the new medium offers. In
1995, 30% of all Israeli advertising budgets were allocated for television.
Tel-Ad broadcasts a varied program schedule, with approximately 45% of the
programs produced in Israel and 55% of the programs acquired from outside of
Israel, including top-rated feature films and popular television series. The
programs span a wide range of genres and formats, including entertainment, humor
and satire, sporting events, 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 "The Price is Right" and "Lingo", talk show
"Rubi", and the investigative reporting magazine "Uvdah", hosted by Ilana Dayan.
During the past two years, in conjunction with starting to broadcast on the
Second Channel, Tel-Ad completed construction and upgrading of its technical
facilities, investing approximately $5 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
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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 earth stations and related equipment and software
for voice and data communications. Gilat Satellite's products are incorporated
into telecommunications networks which provide satellite-based communications
between a central location (a "hub") and a large number of geographically-
dispersed locations. Gilat Satellite markets principally three product lines:
o TwoWay VSAT - Gilat Satellite's principal product which enables
interactive transaction oriented data communications. The TwoWay VSAT may be
used for credit and debit card authorization, inventory control and automatic
teller machine (ATM) services for customers such as retail chains, gas stations
and supermarkets.
o FaraWay VSAT - a satellite based product which provides multi-channel,
toll quality telephone service to remote and undeveloped areas that lack
adequate telecommunications infrastructure.
o OneWay VSAT - a unidirectional data broadcast product used for the
distribution of real-time financial information, newswire broadcasts and paging
signals for customers such as stock exchanges, news agencies and paging
operators. Value added services available on OneWay VSAT include business news
television, background music and electronic advertising.
Gilat Satellite has established strategic relationships for product
development and marketing with GE Spacenet Corporation, COMSAT RSI Inc., AT&T
Tridom and GTECH Corporation in the United States and with ANT Bosch in Germany
and IBM Global Network in France. These service providers and equipment
suppliers offer certain of Gilat Satellite's products as integral parts of their
VSAT network offerings.
In October 1995, Gilat Satellite had an underwritten public offering of its
stock in the United States, approximately 30 months after the initial public
offering of Gilat Satellite's stock in the United States. Gilat Satellite's
stock is traded on the NASDAQ/NMS under the trading symbol "GILTF".
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Gilat Communication Engineering 1990 Ltd. ("Gilat Engineering"). Gilat
Engineering designs, develops and markets fully interactive distance learning
centers, offers satellite communication and broadcast services, provides
engineering and management services in the telecommunications industry, and
specializes in the design and erection of communications systems, including
satellite communications systems, broadband systems and fiber optic
communications and microwave systems.
A wholly-owned subdsidiary of Gilat Engineering provides satellite
communication within Israel using one-way and two-way networks by means of very
small aperture terminals (VSATs). 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 Engineering provides point to point international satellite communication
services to corporate clients in Israel and abroad.
Users of Gilat Engineering's satellite based fully interactive distance
learning system include Telkom SA in South Africa, which offers the system to
educational organizations in South Africa and plans to offer it to users in
other countries in Africa, The Open University of Israel, the Ministry of
Education in Israel, and corporations which use the system for corporate
training.
Gilat Engineering owns 25% of Spacecom Satellite Communications Services
Ltd., which holds exclusive marketing rights for the "AMOS 1" satellite for the
Middle East and Central Europe.
Electronics Line (E.L.) Ltd. ("Electronics Line"). Electronics 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, alarm control panels and radio or telephone
operated devices for long-range 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.
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.
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The two shareholders of RDC are DEP Technology Holdings Ltd., a company
owned equally by PEC, Discount Investment and Elron, who are all members of the
IDB 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 Geotek Communications, Inc., which is developing a wireless
telecommunications network that provides full duplex service, utilizing
frequency hopping-multiple access technology. RDC acquired most of its
interest in Geotek as a result of its transfers to Geotek of its equity and
debt interests in PowerSpectrum Technology Ltd. for shares of common stock
of Geotek. Geotek's stock is traded on the NASDAQ/NMS under the trading
symbol "GOTK".
o Carcom Carry Communications Ltd., which manufactures the CARYFONE,
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 VSOFT LTD., a software company that integrates solutions and develops
applications in the areas of document management, image processing, video on
demand and geographic information systems.
o Medi-Card Ltd., which is developing products based on pulsatile
technology of the heart-lung machine to assist in cardiac surgery and other
areas of cardiology.
RDC also manages the SYBOS Project, the development of an in-situ device
that monitors the presence of heavy metals in water and wastewater; an unnamed
research and development project that utilizes laser radar technology in a
camera to produce a three-dimensional picture; 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 microprocessor-based
electronic and computerized systems primarily for communication applications.
Lipman's products include telephone line and wireless point of sale/electronic
fund transfer retail business payment terminals and electronic cash registers.
These products include credit, debit and smart card technologies. Lipman also
manufactures a compact desk-top home services and betting terminal and coin-
operated or credit or smart card vending machine payment systems for use with
photocopying machines and for garages and gasoline stations. Lipman's stock
is traded on the TASE.
Nice Systems Ltd. ("Nice"). Nice develops, designs, manufactures, markets
and services digital recording and retrieval systems, which are known as voice
logging systems, that simultaneously record and monitor communications from
multiple channels and provide data archiving and retrieval features. Nice's
products are based on an open architecture and incorporate enhanced digital
networking and voiceprocessing technologies. Nice provides computer telephony
integration ("CTI") solutions based on digital signal processing (DSP) and mass
storage and data base management. The principal product of Nice is NiceLog, a
technologically leading CTI digital voice recording and retrieval system that
performs continuous, reliable recordings of up to thousands of channels.
Nice markets, distributes and services its voice logging products worldwide
primarily through independent distributors that predominantly specialize in the
voice logging market and also through its own sales force in the United States,
Germany and Israel. Nice's voice logging systems are used by a broad range of
users such as financial institutions, call centers, air traffic control sites
and public safety agencies. Users of NiceLog systems include Citibank, Bank of
America, Mitsubishi Bank, Credit Suisse, Deutsche Bank, ABN AMRO Bank and the
Sydney Futures Exchange. NiceLog was recently selected as the voice logging
system to be installed in up to 800 air traffic control centers in the United
States.
Nice also develops, designs, manufactures and markets communication
intelligence ("COMINT") systems that are used primarily by government agencies
to detect, identify, locate, monitor and record transmissions from a variety of
sources. Nice's principal COMINT system, NiceFix, is a spectral surveillance
and direction finding system that detects, identifies, locates, monitors and
records transmission sources. NiceFix employs proprietary processing elements
that utilize advanced digital signal and communication technologies. Nice
markets its COMINT systems primarily through electronic system integrators, such
as TRW Inc.
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In January 1996, Nice had a public offering in the United States of
American Depositary Shares representing ordinary shares of Nice. Nice's
American Depositary Shares are listed for quotation on the NASDAQ/NMS under
the trading symbol "NICEY". Nice's ordinary shares are traded on the TASE.
VocalTec Ltd. ("VocalTec"). VocalTec is a leading provider of software
that enables voice and audio communications over the Internet. Internet Phone,
VocalTec's core product, first released in February 1995, enables two users
connected to the Internet to conduct real-time, two-way, full-duplex voice
conversations using their personal computers. With Internet Phone, users can
conduct unlimited long distance and international conversations for the cost of
the local telephone Internet connection.
VocalTec's strategy is to achieve widespread adoption of its products by
employing multiple marketing channels, developing cross platform products and
providing application programmer interfaces to facilitate third-party
applications through which Internet Phone can be activated. To address the
diverse market of Internet users, Internet Phone is distributed through bundling
arrangements with vendors of complementary products and services, retail
channels and directly over the Internet.
In February 1996, VocalTec had an initial public offering of its stock in
the United States and the stock is traded on the NASDAQ/NMS under the trading
symbol "VOCLF".
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,
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of which Advent Israel and such limited partnership have agreed
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 25, 1996. 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 1995, Gemini had equity interests in the following fourteen
companies:
o Logal Educational Software and Systems Ltd., a corporation that
designs, creates, publishes and markets simulation-based, educational software
and laboratory probeware products for science and math curriculums in high
schools and colleges (more fully described below). 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., a corporation that develops
application performance tuning tools for mainframe and client/server software
systems.
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 for the
semiconductor industry.
o D-Pharm Ltd., a corporation that is developing new drug delivery
systems.
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o Nanonics Lithography Ltd., a designer and manufacturer of proprietary
equipment for semiconductor lithography.
o DSP Solutions Ltd., a designer and developer of audio and multimedia
products based on digital signal processing.
o Angiosonics Ltd., a developer and manufacturer of vascular ultrasound
systems for the removal of arterial obstructions.
o Tegrity Ltd., a corporation that designs personal computer add-on
tools that increase the productivity of business meetings.
o Client Server Technology Ltd., a corporation that develops and markets
software products for the conversion of Legacy applications to MS Windows and
other modern graphic user interfaces (GUIS).
o Combact Diagnostic Systems Ltd., a developer of a novel and
proprietary automated system for rapid bacterial analysis of urine.
In November 1995, Gemini and the other shareholders of OrNet Data
Communication Technologies Ltd. sold their interest in OrNet to Siemens for a
profit. This sale was Gemini's first sale of an equity interest.
PEC is also a limited partner in Advent Israel and has made a $500,000
capital commitment to Advent Israel of which approximately $325,000 had been
contributed as of March 25, 1996. 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.
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 system integration
services and the development of software solutions in the banking,
manufacturing, health care, retail and petroleum areas as well as the provision
of outsourcing services. Liraz's subsidiaries and affiliates include the
following companies:
o Across Data Systems, Inc., a 65% owned subsidiary which develops and
markets business software and provides consulting and ancillary services. The
products and services of Across include (a) transactional messaging middleware
and distributed object technology, which facilitate communication among
applications that reside on distributed and often incompatible
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hardware and software, (b) industry-specific software applications that Across
has developed for manufacturers and for the retail petroleum and convenience
store industry and (c) consulting services for enterprise messaging and for the
manufacturing and financial services industries. In 1995, Across had an initial
public offering in the United States and the stock is traded on the NASDAQ/NMS
under the trading symbol "ACRS".
o Yaana/Lehad-Binah Systems, Ltd., a 47% 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 24.9% 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 80% 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 Burford International Applications Ltd., a wholly owned subsidiary
based in England which provides complete global business solutions for financial
and commercial industries on personal computer and UNIX systems.
o ASE Advanced Systems Europe B.V., a wholly owned subsidiary based in
the Netherlands which provides software and system integration services for the
Benelux countries.
The stock of Liraz is traded on the TASE.
Logal Educational Software and Systems Ltd. ("Logal"). Logal designs,
creates, publishes and markets interactive, simulation-based educational
software and laboratory probeware products for science and math curriculums in
high schools and colleges. Logal markets 27 product titles which are based on
an "active" approach to learning and enable students and teachers to control,
manipulate, and visually experience real-time simulations in the areas of
biology, chemistry, physics and math. In addition, Logal offers 22 probeware
products that complement Logal's science product line and are used for computer-
based experiments. To date, over 3,500 schools in the United States have
purchased Logal's products. Logal sells its products through its own sales
force and through distributors. Logal
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also bundles its products for sale by Apple Computer, Inc. and has established
strategic alliances with major educational publishers such as Prentice-Hall Inc.
and Houghton Mifflin Company for the integration of textbook content with
interactive software titles to be sold with those companies' textbooks.
Logal's Science Explorer series enables users to investigate concepts and
----------------
manipulate scientific stimulations, and operates under a proprietary software
shell that provides a common user interface. For learning math, Logal offers
the Tangible MATH series, products which are designed to bridge the gap between
-------------
the abstract and tangible aspects of math through real-life animations and
simulations. The Science Explorer and Tangible MATH series employ technologies
---------------- -------------
which also serve as authoring environments for the development and
customization of new products by Logal.
In March 1996, Logal had an initial public offering of its stock in the
United States and the stock is traded on the NASDAQ/NMS under the trading symbol
"LOGLF".
Adir International Communications Services Corporation Ltd. ("Adir"). Adir
provides international telephone service from Israel, international calling
cards and worldwide facsimile communications from Israel, primarily serving
corporate clients. Adir is one of the leading providers of calling cards in
Israel and sells calling cards in many nations, including Russia, France, South
Africa, Chile and Peru, through local telephone carriers. Adir offers
international facsimile transmissions through the Internet, international voice
mail facilities and rental of cellular telephones with worldwide accessibility
for incoming and outgoing calls.
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 market. Its products include the Temp-A-Sure 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 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
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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 1996, PEC purchased interests in six 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, the development of a
transducer for high precision measurement of angular coordinates, the design
and development of a novel method for cutting and coating heavy gauge metals
and the development of a technique for increasing the digestibility of cellulose
rich wastes of feed-stuff (such as wheat or rice straw) used in the feeding of
farm animals.
RTS Telecommunications Services Ltd. ("RTS") and RPA Leasing Inc. ("RPA").
RTS provides major hotels in St. Petersburg, Russia and other subscribers with
direct dialing international telephone service by means of a microwave and
satellite based network which connects the subscribers with international
telephone networks. RPA leases telephone equipment and switchboards to a Russian
company for use in 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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Industry
Tambour Ltd. ("Tambour"). Tambour is Israel's largest paint manufacturer.
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 applications. Tambour currently
supplies approximately 60% of Israel's decorative paint requirements and exports
its products throughout the world.
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.
In February 1996, Tambour acquired a majority interest in Kedem Chemicals
Ltd., which manufactures and markets specialty chemicals and household cleaning
products, including "Fantastik", one of the leading household cleaning products
in Israel. Kedem also produces and sells water treatment and metal treatment
chemicals and industrial oils.
The stocks of Tambour, Serafon and Kedem are 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 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. 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
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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, including a newly constructed
200,000 square foot factory in Yavne, Israel which will increase manufacturing
productivity. It markets its products throughout Israel and exports them
worldwide through a network of distributors and sales personnel of its
subsidiaries. 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. Among
Klil's marketing methods are the distribution to architects and other
professionals of software discs that contain computerized drawings of Klil's
products. Klil operates a training center for customers to learn how to
assemble and install products manufactured by Klil. Klil began operations at
its new factory in Carmiel, Israel in March 1994. The factory has modern
production lines for extruding and for the painting of extrusions. 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 for agriculture, 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 entered into 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.
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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.
In February 1996, Maxima began building a second plant for the production
of gases which it expects will be completed by the end of the year. The new
plant will substantially expand Maxima's capacity to produce gases and is
expected to reduce Maxima's costs of production.
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.
In 1995, Praxair Inc., one of the largest American producers of industrial
and specialized gases, purchased a majority interest in Maxima and entered into
a shareholders agreement with PEC and Discount Investment. The shareholders
agreement, among other things, (i) provides that as long as PEC and Discount
Investment own at least 20% of the ordinary shares of Maxima (or if Maxima sells
additional ordinary shares, as long as PEC and Discount Investment own at least
15%), they shall be entitled to designate not less than 25% of the members of
Maxima's board of directors, (ii) provides that Maxima's board of directors
cannot approve of certain actions, primarily those not in the ordinary course of
business, without the support of the directors designated by PEC and Discount
Investment, and (iii) grants each party certain purchase options and put options
upon another party's transfer of ordinary shares of Maxima.
Maxima's stock is traded on the TASE.
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 has
formed a joint venture with an Egyptian partner to construct a plant in Egypt
for the manufacture of lingerie and undergarments. 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
I-27
<PAGE>
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 33% of Israel's total citrus exports
in 1995.
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. Subsidiaries of Property & Building are
currently constructing buildings that will have over 1,000 residential
apartments.
Property & Building owns approximately 375,000 square meters of commercial
floor space located mainly in prime areas which it rents to tenants. The
occupancy rate for Property & Building's rental properties is approximately 97%.
Property & Building and its partners have begun construction of a high rise
office building in Ramat Gan, Israel, with respect to which Property & Building
intends to retain 5,000 square meters for leasing. A subsidiary of Property &
Building is constructing the first of five buildings for commercial and
industrial use in Herzlyia, Israel. The building will have 11,000 square meters
of rental space and 15,000 square meters for car parking and basement areas. 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,
completed in 1995 the construction of the last 30 residential housing units of a
94 unit development in the Pisgat Zeev neighborhood of Jerusalem. Camdev
completed building the first 64 units of the development in 1994. The
development was part of a larger housing development Camdev previously built and
represented 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
I-28
<PAGE>
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
42 years.
El-Yam owns nonvoting preferred stock of FHEY representing substantially
all of the equity in FHEY. FHEY in turn owns approximately 37.1% 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 14.3% of such voting shares.
Super-Sol Ltd. ("Super-Sol"). Super-Sol operates one of Israel's largest
chains of supermarkets. Its 89 supermarkets sell food and consumer items such
as household goods and textiles. Its chain of supermarkets include 46
neighborhood Super-Sol stores, which cater primarily to high and middle income
families with emphasis on a wide variety of high quality food products and
services, 23 large regional Hypercol stores, located primarily in industrial
areas and serving predominately high and middle income families with both food
and other products, 15 Gal-Yarok stores, located primarily in lower income
areas, and three "food warehouses", which sell a smaller variety of goods than
other stores at substantially lower prices and appeal to price-conscious
customers.
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.
At the end of 1995, Super-Sol purchased a large discount supermarket store
called Birkat Rachel, which caters to religious shoppers in the Jerusalem area.
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 34.5% of sales of major chains in Israel.
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<PAGE>
Super-Sol holds a 40% interest in "Kne Uvne", a chain of eight "do-it-
yourself" stores in Israel selling building and home improvement products. In
1995, Kne Uvne opened one store and it purchased the "ACE Hardware" chain in
Israel which operates four stores.
Super-Sol also holds a 100% interest in Super Office Ltd., a company formed
in 1994, which sells office equipment and supplies. Super Office Ltd. opened
two stores in 1995, increasing the number of stores in the chain to four at the
end of 1995.
Through a subsidiary, Super-Sol has a 55% interest in a chain of 24
supermarkets in Budapest, Hungary and a large supermarket opened in December
1995 in Sent Andra, Hungary near Budapest.
Super-Sol's stock is traded on the TASE.
"Delek"-The Israel Fuel Corporation Ltd. ("Delek"). Delek is one of
Israel's leading importers and distributors of petroleum products, operating 170
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 1995 had a 15.04% 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 has instituted a program of modernizing its gasoline stations through
the introduction of computer controlled systems and has installed 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 fund established in
1994 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, Renaissance has
approximately a 14.3% equity interest in Paz. Paz is engaged in seven main
businesses:
I-30
<PAGE>
gasoline service stations, industrial lubricants and solvents, asphalt, liquid
propane gas, wholesale fuels, aviation fuel and real estate. In late 1995, Paz
signed a cooperation agreement with Amoco, one of the world's largest
multinational energy concerns, under which Paz and Amoco will invest in the
production of natural gas in Egypt or Qatar, the transportation of the gas to
Israel and its use in the production of electricity at power plants built
specifically for this purpose.
In March 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.
In March 1995, Renaissance acquired a 20.2% equity interest in Clalcom Ltd.
("Clalcom"), a subsidiary of Clal Industries Ltd. Clalcom provides outgoing
international facsimile services from Israel, interactive voice response
services and operates the "Sprintnet" data network in Israel. Clalcom has
joined with Sprint International Inc., Deutsche Telekom A.G., France Cables
et Radio and the Israeli cable television company, Matav-Cable Systems Media
Ltd., to form a consortium to bid on one of two additional licenses for
international telecommunications from Israel. The licenses are expected to be
awarded in the summer of 1996.
In the first quarter of 1996, Renaissance made a strategic investment in
Osem Investments Ltd. ("Osem"), one of Israel's two largest food companies,
acquiring a 3.4% equity interest. Osem manufactures more than 1,000 food
products, including pasta, baked goods, soup powders, sauces and dips.
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 -
a wide variety of electrical and mechanical systems, and industrial diamonds;
Factory Automation - programmable controls and data acquisition systems; and
Lighting - lamps and luminaires. 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 (USA)
equipment in Israel, and represents in Israel, among others, American Sterilizer
Co., Lapp Insulator Inc., Saftronics Ltd., Hitachi Instruments, GE-Fanuc, 3-L
Filters and Rigaku Co.
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<PAGE>
Isrotel Ltd. ("Isrotel"). Isrotel develops, owns, manages and operates
hotels in Eilat and Mitzpe Ramon, Israel. The seven hotels in the Isrotel chain
have 1,720 hotel rooms, of which Isrotel owns in whole or in part 1,292 rooms.
Isrotel's hotels are The King Solomon Hotel, Royal Beach Hotel, Sport Hotel,
Lagoona Hotel, Riviera Hotel, all of which are located on the North Beach in
Eilat, the Red Sea Sports Club Hotel, located on Coral Beach in Eilat, and the
Ramon Inn in Mitzpe Ramon, Israel.
The seven hotels in the Isrotel chain serve a range of clientele from
customers interested in luxury vacations to those interested in family or sports
oriented vacations. For the six months ended June 30, 1995, and the year ended
December 31, 1994, Isrotel's hotels in Eilat had occupancy rates of 85% and 83%,
respectively, compared to 80% and 79%, respectively for all hotels in Eilat.
Isrotel is currently planning the development of two new hotels on the
North Beach of Eilat with a total of 640 rooms, a new hotel on the Coral Beach
in Eilat with 170 rooms and another hotel in Mitzpe Ramon with 400 rooms.
Isrotel also owns a sailing, diving, recreation and sports club and a
travel agency.
Isrotel's stock is traded on the TASE.
Sano Dispec Development Ltd. ("Sano Dispec"). Sano Dispec is a joint
venture established in 1994 among PEC, Discount Investment, and Sano Bruno's
Enterprises Ltd., an Israeli manufacturer of detergents, disposable 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., 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 March 1995, 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.
In 1995, Sano Dispec and Drori Shlomi Advertising Ltd., an Israeli
advertising agency, formed a limited partnership named
I-32
<PAGE>
D.S.D.S. International Advertising (China) Limited Partnership ("DS-China") to
acquire an interest in an advertising agency in China. In turn, DS-China, in
which Sano Dispec has an 80% equity interest, formed with Chinese partners an
advertising company in China named Shen Yang Sano International Advertising Co.
Ltd. in which DS-China has a 50% equity interest.
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.
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 in 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
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
resolution. 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.
I-33
<PAGE>
A peace agreement between Israel and Egypt was signed in 1979 under which
full political relations were established; however, economic relations have
been very limited.
In September 1993, Israel entered into a Declaration of Principles with the
PLO, which outlined interim Palestinian self-government arrangements. Prior to
the signing of the declaration, PLO Chairman Arafat sent a letter to the Israeli
Prime Minister in which the PLO recognized Israel's right to exist in peace and
security, renounced terrorism and violence, and affirmed that the clauses of the
PLO covenant denying Israel's right to exist are no longer valid. In reply,
Israel recognized the PLO as the representative of the Palestinian people in the
peace negotiations.
In May 1994, Israel and the PLO signed an agreement in which the principles
of the September 1993 Declaration were implemented. In accordance with this
agreement, Israel has transferred the civil administration of the Gaza Strip and
Jericho to the Palestinian Self-Rule Authority and the Israeli army has
withdrawn from these areas. On September 28, 1995, Israel and the PLO signed an
additional agreement regarding the transfer in stages of civil administration in
major Palestinian cities and in certain other populated areas in the West Bank
to the Palestinian Authority, and the Israeli army has withdrawn from certain of
such areas as well. In addition, in January 1996, elections were held for the
election of representatives to the Palestinian Authority.
In July 1994, the Israeli Prime Minister and the King of Jordan met
publicly for the first time and signed a joint declaration as the first step
towards a peace treaty between Israel and Jordan. The declaration provides for
the cessation of belligerency between the states, the mutual opening of airspace
to civil aviation, the opening of border crossings (the first of which was
opened on August 8, 1994) and the commencement of joint projects with respect to
electricity and water resources. In October 1994, Israel and Jordan signed a
peace treaty, which provides, among other things, for the commencement of full
diplomatic relations between the two countries, including the exchange of
ambassadors and consuls. In addition, such treaty expresses the mutual desire
of the parties for economic cooperation and calls for both parties to lift
economic barriers and discrimination against the other and to act jointly
towards the removal of any economic boycotts by third parties.
Although Israel has held direct negotiations since October 1991 with Syria
and Lebanon, Israel's neighboring countries on its northern border, to end the
state of hostility between them and establish peace, to date such negotiations
have not resulted in any agreement. Furthermore, notwithstanding the agreements
and joint declarations described above, the relationships between Israel and
Egypt and the PLO are not yet fully normalized.
I-34
<PAGE>
All male adult permanent residents of Israel under the age of 54 are,
unless exempt, obligated to perform up to approximately 44 days of military
reserve duty annually. Additionally, all such residents are subject to being
called to active duty at any time under emergency circumstances. Many of
the Affiliates' officers and employees are currently obligated to perform annual
reserve duty. While the Affiliates have operated effectively under these and
similar requirements in the past, no assessment can be made of the full impact
of such requirements on the Affiliates' work forces or businesses in the future,
particularly if emergency circumstances occur.
The results of operations of certain of the Affiliates have been favorably
affected to some extent by their participation in Israel 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 1989, Israel has been experiencing a new wave of immigration
primarily from the former Soviet Union. Approximately 709,000 new immigrants
arrived through the end of 1995, of which approximately 74,500 arrived in 1995,
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.
Although the increased immigration from the former Soviet Union may benefit
Israel and its economy in the long-term by providing highly educated, cost
competitive labor and by stimulating the economy's growth, the immigration has
placed 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. No prediction can be made as
to the policies that will be adopted in the future or their effect on these or
other government spending programs.
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
I-35
<PAGE>
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, averaging approximately $3 billion annually
over the last several years. In addition, in 1992, the United States agreed to
provide Israel with supplemental assistance in the form of up to $10 billion of
loan guarantees during United States fiscal years 1993-1998 to help Israel
absorb a large influx of new immigrants, primarily from the republics of the
former Soviet Union. Under the loan guarantee program, Israel may issue up to
$2 billion in principal amount of guaranteed loans each year, subject to
reduction in certain circumstances. Israel has used the funds it has borrowed
in 1993-1995 to bolster its foreign exchange reserves and to fund increased
investments, mainly in infrastructure. There is no assurance that foreign aid
from the United States will continue at or near amounts received in the past.
If the grants for economic and military assistance or the United States loan
guarantees are eliminated or reduced significantly, the Israeli
economy could suffer material adverse consequences.
Economy
From 1992-1995, Israel's gross domestic product ("GDP") rose by a
cumulative rate of 26%, business sector GDP grew by 31% and exports increased by
53%. In 1995, GDP increased by 7.1% to $87 billion and business sector GDP rose
by 8.6% to $58 billion. This economic growth has been accompanied by a decline
in the unemployment rate, from a high of 11.2% in l992 to 6.3% at the end of
1995. As a result, Israel's economy has now reached a state of near full
employment. The number of jobs increased by 100,000 in 1995, or 5.4%, which
more than offset the growth in the labor force and the doubling of the number of
foreign workers employed in Israel. Business sector employment increased by 7%.
Although new immigrants constituted a disproportionately high percentage of
unemployed Israelis during the initial stages of the mass immigration to Israel
which began in 1989, the unemployment rate of new immigrants is approaching that
of the general population.
Having found jobs, the recent immigrants to Israel are gradually using
their educational and vocational skills more efficiently. Labor productivity,
which had decreased in recent
I-36
<PAGE>
years, increased slightly in 1995 due in part to the immigrants' better use of
their vocational skills in their jobs and to job retraining.
Structural and legislative reforms in Israel's economy and financial
markets since 1980's have helped fuel Israel's economic growth during the past
five years. These reforms have enhanced the economy's ability to interact with
worldwide trading partners and markets. In this respect, the increased exposure
of the economy to imports, the signing of trade agreements and joint research
and development programs and the liberalization of the capital and foreign
currency markets have led to Israel's penetration of new export markets and
to growth in foreign investment in Israel.
One consequence of Israel's greater integration into the world economy is
Israel's increased exposure to international trading conditions. For Israel,
these trading conditions deteriorated in 1995 because the increase in the dollar
prices of imports exceeded the increase in the dollar prices of exports by 4.5%.
This increase, together with Israel's high level of demand for imports,
contributed to the increase in the balance-of-payments current account deficit
from $2.5 billion for 1994 to $4.2 billion for 1995. The size of this deficit
is regarded as one of the most serious issues facing Israel's economy.
Israel's consumer price index ("CPI") rose by 8.1% in 1995, compared with
14.5% in 1994 and 11.2% in 1993, the lowest annual inflation rate in 26 years.
The reduced rate of inflation resulted from a more moderate rise of 13.7% in
housing prices compared with 23.6% in 1994, and a decrease of 24.6% in fruit and
vegetable prices compared with a 56.1% increase in 1994. However, the index of
core inflation, defined as the CPI without the items sensitive to short-term
developments - housing, fruit and vegetables, and clothing prices, was 10% in
1995, only slightly lower than in 1994.
Exports of goods and services rose by 10% in 1995 to $28 billion. This 10%
increase was less than the 10.8% increase recorded in 1994 and slightly less
than the growth in world trade. World trading conditions worked against Israel
in 1995. Prices of imported production inputs used by Israel's export
industries rose in 1995 at a faster rate than the prices of exported goods,
adversely affecting Israel's exports. In addition, during the past four years,
there has been cumulative appreciation of the shekel in real terms which has
decreased the profitability of exports and made it more worthwhile for some
producers to concentrate on sales in Israel.
I-37
<PAGE>
Imports of civilian goods and services rose by 9.1% to $40.3 billion. The
civilian import surplus (imports of goods and services less exports of goods and
services) expanded from $8.3 billion in 1994 to $10.5 billion in 1995. The
growth in the import surplus was fueled by a high level of domestic demand and
higher import prices as well as increased foreign investment, which is regarded
as a service import.
Average wages increased by 1.5% in real terms during l995. This increase
resulted primarily from a 6% rise in public sector wages. In contrast to public
sector wages, business sector wages dropped by a fractional amount in real
terms.
Private consumption rose by 7.1% to $54 billion in 1995, a much lower rate
of increase than in 1994. The private savings rate, which had fallen for
several years, increased from 10.1% in 1994 to 10.7% of disposable private
income in 1995, or $6.5 billion, because consumption increased less than
disposable income. This increase in the savings rate is largely attributable to
tax cuts and, to a lesser extent, to the increased standard of living of recent
immigrants, who had previously been unable to save any significant proportion of
their income.
High interest rates paid in Israel on holdings of shekels, compared to
interest rates offered outside of Israel, led to a massive inflow of foreign
capital into Israel, totaling $2 billion. Despite the growth of the balance-
of-payments current account deficit, the large influx of foreign currency slowed
the devaluation of the shekel and increased Israel's foreign exchange reserves.
Israel had approximately $8.8 billion of foreign exchange reserves at the end of
1995 compared to $6.8 billion at the end of 1994, $6.4 billion at the end of
1993, $5.1 billion at the end of 1992 and $6.3 billion at the end of 1991.
Israel's foreign exchange reserves also increased because of greater foreign
investment in Israel.
In 1995, the shekel was devalued by 3.9% against the dollar, from NIS 3.01
to NIS 3.135, and by 6.3% against the currency basket, from NIS 3.365 to NIS
3.578.
After a decline in stock market prices in 1994, the stock market
experienced additional decreases in prices during the first two months of 1995
because of large-scale withdrawals from the provident funds by investors
dissatisfied over the funds' negative yields in 1994. In March 1995, however,
prices began to recover following a cut in the lending rate, reports of
increased corporate profitability and an influx of foreign investment.
While the general share index rose by only 3% in 1995 amidst very low
annual volume of $27 billion, trading in the three market lists was highly
selective. The Mishtanim index of the
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<PAGE>
100 most heavily traded stocks increased by 20.19% and the Maof index of 25 blue
chips rose by 23%, while the Karam index of small-to-medium capitalization
companies increased by only 1.56%. Moreover, while the Mishtanim index (which
includes the Maof stocks) accounts for only 15% of stock exchange companies it
represents 75% of the total value of the stock market. It would appear that in
1995 investors, especially foreign investors, preferred investing in large
companies and generally did not purchase smaller companies included in the
Karam index.
The growing interest in the stock market by foreign investors was the most
favorable development of 1995. Initially prompted by Morgan Stanley's decision
in March 1995 to include Israel in its index of emerging markets, foreign
investors' growing interest in the stock market was spurred by the perception of
Israel's economic growth potential, particularly in view of the progress made
towards an overall settlement of the Middle East conflict. Towards the end of
1995, Israel's investment status was reinforced when both Moody's and Standard &
Poor's raised their country risk rating of Israel from BBB+ to A-.
At the end of 1995, the market value of the 1,020 publicly traded classes
of equity securities issued by the 654 companies listed on the Tel Aviv Stock
Exchange totaled $37.3 billion. The amount of capital raised on the Tel Aviv
Stock Exchange continued to fall in 1995, totaling $800 million in 1995 compared
with $1.8 billion in 1994 and $3 billion in 1993. Of the $800 million,
approximately $510 million was raised in 77 public and private offerings, of
which 18 were initial public offerings, approximately $265 million was raised
through the exercise of stock options and $23 million was raised through the
sale on the stock exchange of stock of government owned companies. The
government raised an additional $530 million by selling part of its holdings in
government owned corporations in private transactions.
The bond market experienced a good year in 1995. After falling in real
terms for two consecutive years, both the general and the CPI-linked bond
indexes rose by 1.2% in real terms (9.3% nominally), and market volume increased
from $6.6 billion in 1994 to $9 billion in 1995. Because of the shortfall in
revenues from privatization ($530 million compared with a planned level of
$1 billion), the government relied on the bond market to finance the budget
deficit. As a result, issuances of government bonds rose by 22% to $5 billion.
The best performing sector of the bond market was unlinked shekel bonds, which
rose by 17.3% in nominal terms, outstripping inflation by 9.2%. This increase
was due to the Bank of Israel's high lending rate and the slowing of inflation.
Issuances of unlinked bonds totaled $2.1 billion in 1995, and accounted for 43%
of total issuances of bonds compared
I-39
<PAGE>
with 17% in 1994. Apart from reflecting demand preferences, this increase was
part of the government's deliberate attempt to extricate the bond market, if not
the entire economy, from the CPI-linkage mechanism which developed during the
years of high inflation. Issuances of CPI-linked bonds totaled $2.4 billion,
while issues of dollar-linked government bonds amounted to only $470 million.
The year-end market value of outstanding bonds totaled $38 billion.
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<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) 53 President Jan. 1995
James I. Edelson(b) 39 Executive Feb. 1992
Vice President,
Secretary and
General Counsel
William Gold(c) 58 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-41
<PAGE>
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
- ------- ----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) The range of high and low sales prices of the Company's Common Stock
as reported on the New York Stock Exchange Composite Tape for each of the fiscal
quarters during the last two fiscal years are set forth below.
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
1995 High Low
---- ---- ---
First Quarter $28-1/4 $20-1/4
Second Quarter 27-5/8 23-3/8
Third Quarter 27-1/2 24-1/8
Fourth Quarter 25 21
On March 25, 1996, the closing price of the Company's Common Stock on the
New York Stock Exchange was $20.875 per share.
(b) As of March 25, 1996, there were 2,478 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, 1995, 1994 and 1993, and at December 31, 1995 and 1994, 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, 1992 and
1991, and at December 31, 1993, 1992 and 1991, 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>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(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 $ 23,720 $ 25,338 $ 33,542 $ 30,301 $ 25,899
Total Revenues 42,065 40,798 60,648 60,354 43,205
Net Income* 25,242 32,566 41,970 33,106 22,099
Net Income per Common Share* 1.35 1.73 2.24 1.89 1.40
Weighted Average Number of
Outstanding Common Shares 18,759 18,759 18,759 17,509 15,733
Total Assets 392,967 383,691 347,873 314,592 233,905
Total Liabilities 35,680 42,223 40,636 37,925 27,979
Shareholders' Equity 357,287 341,468 307,237 276,667 205,926
Common Shareholders' Equity
per Common Share 19.05 18.20 16.38 14.75 13.07
Number of Outstanding Common
Shares at the End of Each
Year 18,759 18,759 18,759 18,759 15,759
</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. Net
income for 1995, 1994 and 1993 is after the loss from discontinued operations of
General Engineers Limited, net of income taxes, of $380,000, $104,000 and
$67,000, respectively, or $ .02, $.01 and no cents per share of Common Stock,
respectively.
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, 1995
Compared to Year Ended December 31, 1994
Consolidated net income was $25.2 million in 1995
compared to $32.6 million in 1994. The reduction reflected a
decrease of $4.8 million in net gain on issuance of shares by
Affiliated Companies, an increase of $5.0 million in the provision
for income taxes, a decrease of $1.6 million in equity in net
income of Affiliated Companies and a decrease of $1.5 million in
interest and dividend income. The reduction also reflected 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 in 1994 by a cumulative effect
adjustment of $2.5 million, net of taxes. The reduction
attributable to these items was partially offset by an increase of
$3.2 million in the market value of marketable securities
(compared to a decrease of $2.6 million for 1994) and by a net gain on
sales of investments of $2.5 million (compared to a net loss of
$240,000 for 1994).
Equity in net income of Affiliated Companies was $23.7
million for 1995 compared to $25.3 million for 1994. The
reduction reflected losses in respect of certain of PEC's
Affiliated Companies, particularly Cellcom (of which PEC's share
was approximately $8.1 million of continued start up losses
compared to $1.6 million of start up losses in 1994), and Scitex
(of which PEC's share was approximately $2.3 million of losses
because of special charges compared to $3.7 million of income in
1994). These losses were partially offset by increased net income
in respect of certain Affiliated Companies, particularly DIC and
PEC Cable TV Ltd., Property & Building, Super-Sol and Tel-Ad
(which had a loss in 1994) as well as PEC's reduced loss in
respect of RTS and DEP Technology Holdings Ltd.
PEC realized a net gain on issuance of shares by
Affiliated Companies of approximately $2.3 million in 1995
compared to approximately $7.1 million in 1994. All of the net
gain on issuance of shares by Affiliated Companies in 1995
resulted from Gilat Satellite's sale in October 1995 of ordinary
shares in a public offering in the United States. Of the net gain
on issuance of shares realized in 1994, approximately $5.9 million
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 resulted from Lego's initial
public offering in Israel in January 1994.
II-3
<PAGE>
PEC's interest and dividend income decreased to $2.1
million for 1995 from $3.6 million for 1994, primarily because
PEC did not recognize any dividend income on its nonvoting
preferred shares of Israel Discount Bank of New York ("IDBNY") in
1995, which were sold to IDBNY at the end of July 1995. In 1994,
PEC recognized dividend income of approximately $1.4 million with
respect to its nonvoting preferred shares of IDBNY. Although PEC
received $27 million of proceeds from the sale of its shares of
IDBNY at the end of July 1995, PEC generally had more liquid
assets in 1994 than in 1995 which contributed to the greater
interest and dividend income in 1994 than in 1995. See "Liquidity
and Capital Resources". The reduction in liquid assets reflected
principally the purchase of equity securities of existing
Affiliated Companies and long term shareholder loans made to
Affiliated Companies, primarily Cellcom.
The net gain on sales of investments of $2.5 million for
1995 resulted from PEC's sale of a small portion of its shares of
Gilat Satellite in Gilat Satellite's public offering in October
1995 and from PEC's sale of U.S. Government bonds and marketable
securities of U.S. companies. PEC's net loss of approximately
$240,000 on sales of investments for 1994 resulted from losses on
PEC's sale of marketable securities of U.S. companies, U.S.
Government bonds and marketable bonds of a U.S. Government
sponsored corporation. The net loss attributable to these items
was partially offset by a gain from PEC's sale of a small portion
of the shares of Maxima in 1994.
As described in Note 2 of the Notes to the Consolidated
Financial Statements for the year ended December 31, 1995 (the
"1995 Notes"), PEC reports debt and equity securities, other than
equity securities accounted for under the equity method, 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. The market value of
"trading securities" increased by $3.2 million for 1995 compared
to a decrease of $2.6 million for 1994.
General Engineers had income before income taxes of
$190,000 for 1995 compared to $940,000 for 1994. Although the
revenues of General Engineers were almost the same in 1995 as in
1994, $7.2 million in 1995 compared to $7.3 million in 1994,
commission income earned by General Engineers decreased in 1995
and was the primary reason for reduction in 1995 in income before
income taxes of General Engineers.
The provision for income taxes for 1995 increased to
$6.3 million from $1.3 million for 1994. This increase was
primarily attributable to the provision of $3.0 million of
II-4
<PAGE>
additional income taxes arising from PEC's sale of its IDBNY
shares, which sale did not result in a gain for financial
statement purposes.
In addition, as described in Note 2 to the 1995 Notes,
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. Although income before income taxes,
loss from discontinued operations and cumulative effect of
accounting changes was almost the same for the last two years,
$31.9 million in 1995 compared to $31.5 million in 1994, the
provision for income taxes for 1995, excluding the additional $3.0
million of income taxes attributable to PEC's sale of its
nonvoting preferred shares of IDBNY, was $3.3 million compared to
$1.3 million for 1994. This increase is primarily attributable to
a decrease in the proportion of income from undistributed earnings
of Majority-Owned Affiliated Companies in 1995 compared to 1994.
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of" ("SFAS 121"), which the Company
will adopt for fiscal years beginning after December 31, 1995.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
If SFAS 121 had been in effect for 1995, it would have had no effect
on the financial statements of the Company as no such event or changes
in circumstances occurred. The impact of SFAS 121 on the Company's future
financial statements depends on whether such events or changes in
circumstances occur.
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
II-5
<PAGE>
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 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 the 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.
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.
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
II-6
<PAGE>
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 $240,000 resulted from losses on PEC's sale of
marketable securities of U.S. companies, U.S. Government bonds and
marketable bonds 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.
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 shareholder 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 $1.3
million from $7.6 million in 1993. PEC's provision for income
II-7
<PAGE>
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.
Shareholders' Equity
As a result of increases in the market value of
"available-for-sale securities" since January 1, 1995, the
unrealized gain, net of taxes, from those securities that was
included in shareholders' equity, as of December 31, 1995, was
approximately $3.2 million compared to $2.8 million, net of taxes,
as of December 31, 1994.
As discussed in Note 2 to the 1995 Notes, translation
differences are reflected in shareholders' equity as a "Cumulative
Translation Adjustment". The exchange rate of the New Israel
Shekel declined approximately 4% against the U.S. dollar at the
end of 1995 compared to the end of 1994. As of December 31, 1995,
the Cumulative Translation Adjustment reduced shareholders' equity
by $20.1 million compared to a reduction of $13.1 million at the
end of 1994.
In December 1995, PEC purchased from IDB Development
Corporation Ltd., its parent corporation ("IDB Development"), a
6.5% equity interest in Property & Building, based on the market
price of Property & Building's share price on the Tel Aviv Stock
Exchange on the purchase date. As described in Note 5 to the 1995
Notes, since such purchase transaction was between related
parties, PEC recorded on its financial statements the carrying
value of such equity interest on IDB Development's financial
statements and PEC reduced its retained earnings by approximately
$6.7 million, the difference between the amount PEC paid for such
equity interest ($15.5 million) and IDB Development's carrying
value of such equity interest ($8.8 million). Although PEC's
consolidated net income in 1995 was $25.2 million, PEC's retained
earnings increased by only $18.9 million primarily because of this
$6.7 million charge to retained earnings.
II-8
<PAGE>
Liquidity and Capital Resources
As of December 31, 1995, PEC's liquid assets (consisting of
cash, money market funds, short-term bank deposits, marketable
securities of U.S. companies and marketable bonds) totaled
approximately $38.3 million. As discussed in Note 6 to the 1995
Notes, as of the end of 1995 PEC had commitments to make capital
contributions or loans of up to approximately $11.2 million to
existing Affiliated Companies. For the year ended December 31,
1995, PEC received cash dividends and interest totaling $11.3
million (including $9.3 million of dividends received from
the Affiliated Companies), which substantially exceeded the
amount needed to pay PEC's general and administrative expenses.
During 1995, PEC generated a total of $71.6 million of liquid
funds, of which $27 million was realized from PEC's sale of the
nonvoting preferred shares of IDBNY, $37.2 million was realized
from the sale of marketable securities of U.S. companies and
U.S. Government bonds, $5 million was generated from the sale
of a limited partnership interest, $1.8 million was realized from
PEC's sale of shares of Gilat Satellite and $483,000 was generated
from the repayment of loans.
During 1995, PEC purchased equity and debt securities of new
and existing Affiliated Companies for approximately $39.1 million.
New equity holdings, and PEC's purchase price for these
securities, include Isrotel -- $2.7 million and VocalTec-$1.3
million. The existing Affiliated Companies in which PEC purchased
securities in 1995 and the purchase price for such securities
consist primarily of Property & Building -- $15.9 million, Cellcom
- -- $13.2 million (long term shareholders loans to Cellcom), DEP
Technology Holdings Ltd., the company that holds PEC's interest in
RDC -- $1.8 million (capital notes of DEP), Renaissance Fund -- $1.2
million, Elron -- $398,000, Tambour - $395,000 and Delek -- $253,000.
During 1995, PEC purchased marketable securities of U.S. companies
and U.S. Government bonds for approximately $39.9 million and paid
taxes of approximately $8.8 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>
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, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December
31, 1995. 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 $183.3 million and $20.5 million,
respectively, of the consolidated totals as of and for the year
ended December 31, 1995, of $224.8 million and $25.3 million,
respectively, of the consolidated totals as of and for the year
ended December 31, 1994, and equity in net income of $25.9
million of the consolidated total for the year ended December 31,
1993. 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.
<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,
1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1995, 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 29, 1996
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS - except number of shares)
DECEMBER 31,
------------
1995 1994
------ ------
ASSETS
------
CASH AND CASH EQUIVALENTS $ 14,703 $ 20,736
INVESTMENTS (Note 3) 369,096 349,624
ASSETS OF GENERAL ENGINEERS
LIMITED (Note 2) 5,229 9,018
OTHER ASSETS 3,939 4,313
------- -------
Total assets $392,967 $383,691
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Liabilities of General Engineers
Limited (Note 2) $ 1,922 $ 5,262
Deferred income taxes (Notes 2 and 4) 29,192 31,702
Other liabilities 4,566 5,259
------- -------
Total liabilities 35,680 42,223
------- -------
Commitments and Contingencies (Note 6)
Shareholders' Equity (Notes 2 and 5):
Common stock, $1.00 par value,
40,000,000 shares authorized in
1995 and in 1994, 31,952,180
shares issued in 1995 and
in 1994 and 18,758,588 shares
outstanding in 1995 and 1994 31,952 31,952
Class B preferred stock, no par
value, 544,514 shares authorized
in 1995 and 1994, none issued in
1995 and 1994 - -
Additional paid-in capital 103,228 99,613
Unrealized gain on marketable
securities, net 3,226 2,845
Cumulative translation adjustment (20,143) (13,114)
Retained earnings 252,218 233,366
------- -------
370,481 354,662
Treasury Stock, 13,193,592
shares (13,194) (13,194)
------- -------
Total Shareholders' Equity 357,287 341,468
------- -------
Total liabilities and
shareholders' equity $392,967 $383,691
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS - except per share amounts)
Years Ended December 31,
------------------------
1995 1994* 1993*
----- ----- -----
REVENUES:
Interest and dividends $ 2,057 $ 3,574 $ 3,369
Equity in net income of
Affiliated Companies
(Note 3) 23,720 25,338 33,542
Net gain on issuance of
shares by Affiliated
Companies 2,282 7,092 11,451
Revenues of General
Engineers Limited (Notes 2
and 3(k)) 7,197 7,266 7,423
Net gain (loss) on sales
of investments (Note 2) 2,466 (242) 4,081
Change in market value of
marketable securities
(Note 2) 3,217 (2,628) -
Other 1,126 398 782
--------- --------- ---------
42,065 40,798 60,648
--------- --------- ---------
EXPENSES:
General and administrative 3,154 2,952 3,262
Cost of sales and expenses
of General Engineers
Limited (Note 2) 7,007 6,325 6,524
--------- --------- ---------
10,161 9,277 9,786
--------- --------- ---------
Income before income
taxes, loss from
discontinued operations
and cumulative effect of
accounting changes 31,904 31,521 50,862
Income taxes (Note 4) 6,282 1,324 7,651
--------- --------- ---------
Income before loss from
discontinued operations
and cumulative effect of
accounting changes 25,622 30,197 43,211
Loss from discontinued
operations of General
Engineers Limited, net
of income taxes (380) (104) (67)
Cumulative effect of
change in accounting
for:
Marketable securities,
net of income taxes (Note 2) - 2,473 -
Income taxes (Note 2) - - (1,174)
--------- --------- ---------
Net income $ 25,242 $ 32,566 $ 41,970
========= ========= =========
*Restated
4
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS - except per share amounts)
(continued)
Years Ended December 31,
------------------------
1995 1994* 1993*
----- ----- -----
Earnings per common share
before loss from discontinued
operations and cumulative
effect of accounting changes $ 1.37 $ 1.61 $ 2.30
Loss from discontinued
operations of General
Engineers Limited, net of
income taxes (0.02) (0.01) -
Cumulative effect on
earnings per common share
of changes in accounting for:
Marketable securities, net
of income tax - 0.13 -
Income taxes - - (0.06)
-------- -------- --------
Earnings per common share $ 1.35 $ 1.73 $ 2.24
(Note 5) ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
*Restated
5
<PAGE>
<TABLE><CAPTION>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Note 5)
--------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
(In Thousands)
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, 1993 $ 18,758 $ 99,079 $ - $ - $158,830 $ - $276,667
Paid in capital of
Affiliated Companies - 178 - - - - 178
Cumulative translation
adjustment - - - (11,578) - - (11,578)
Net income - - - - 41,970 - 41,970
------- ------- -------- ------- ------- ------- -------
Balance, December 31, 1993 18,758 99,257 - (11,578) 200,800 - 307,237
Adoption of SFAS 115 for
available-for-sale equity
securities, net of tax (Note 2) - - 3,790 - - - 3,790
Paid in capital of
Affiliated Companies - 356 - - - - 356
Change in market value for
available-for-sale equity
securities, net of tax - - (945) - - - (945)
Issuance of 13,193,592
new common shares in
exchange for 13,193,592
common shares 13,194 - - - - (13,194) -
Cumulative translation
adjustment - - - (1,536) - - (1,536)
Net income - - - - 32,566 - 32,566
------- ------- -------- -------- ------- ------- -------
Balance, December 31, 1994 31,952 99,613 2,845 (13,114) 233,366 (13,194) 341,468
Paid in capital of
Affiliated Companies - 3,615 - - - - 3,615
Change in market value for
available-for-sale equity
securities, net of tax - - 381 - - - 381
Cumulative translation
adjustment - - - (7,029) - - (7,029)
Retained Earnings adjustments (Note 5) - - - - (6,390) - (6,390)
Net income - - - - 25,242 - 25,242
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1995 $ 31,952 $103,228 $ 3,226 $(20,143) $252,218 $(13,194) $357,287
======= ======= ======= ======= ======= ======= =======
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
-------------------------------------
(IN THOUSANDS)
Years Ended December 31,
------------------------
1995 1994* 1993*
------ ------ ------
Cash Flows From Operating
Activities:
Net income $25,242 $ 32,566 $ 41,970
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities -
Cumulative effect of
changes in accounting for:
Income taxes - - 1,174
Marketable securities - (2,473) -
Change in market value of
marketable securities (3,217) 2,628 -
Purchase of marketable
securities (14,566) (16,398) -
Purchase of U.S.
Government
obligations (25,310) - -
Proceeds from sale of
marketable securities 16,435 11,155 -
Proceeds from sale of U.S.
Government
obligations 25,807 - -
Equity in net income
of Affiliated
Companies (23,720) (25,338) (33,542)
(Gain) loss on sales of
investments (2,466) 242 (4,081)
(Gain) loss on invest-
ment in partnerships (31) 375 543
Income of consolidated
subsidiaries (665) (997) (1,323)
Loss of discontinued
operation, net 380 104 67
Amortization of
premiums on
receivables, net 83 130 208
Net gain on issuance
of shares by Affiliated
Companies (2,282) (7,092) (11,451)
Dividends from
Affiliated Companies 9,291 4,832 5,299
Decrease (increase) in
other assets 2,060 (120) (639)
Provision for deferred
income taxes (3,099) (500) 5,250
(Decrease) increase
in other liabilities (407) 70 630
Write-off of deferred
charges 246 - 110
------- ------- -------
Net cash provided by (used
in) operating activities $ 3,781 $ (816) $ 4,215
------- ------- -------
* Restated
7
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
(continued)
Years Ended December 31,
------------------------
1995 1994* 1993*
------ ------ ------
Cash Flows From Investing
Activities:
Purchase of U.S. Government
and state obligations $ - $ - $(16,660)
Collection of U.S.
Government and state
obligations - 10,495 2,617
Purchases of notes
receivable (16,295) (62) (1,371)
Collection of capital
notes and loans
receivable 483 97 4,173
Proceeds from sales of
equity interests 28,833 2,400 18,234
Purchase of equity
interests (22,835) (34,044) (34,582)
------- ------- -------
Net cash used in
investing
activities (9,814) (21,114) (27,589)
------ ------- -------
Net decrease in
cash and cash
equivalents (6,033) (21,930) (23,374)
Cash and Cash Equivalents,
beginning of year 20,736 42,666 66,040
------ ------- -------
Cash and Cash Equivalents,
end of year $14,703 $ 20,736 $ 42,666
====== ======= =======
* Restated
8
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
(continued)
Years Ended December 31,
------------------------
1995 1994 1993
----- ----- -----
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the
year for income taxes $8,830 $1,577 $2,041
Non-cash investing
activities-
Exchange of shares of
Tefron - - 859
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". As of
December 31, 1995, IDB Development owned approximately 70.3% of
the Company's outstanding common stock. For additional
discussion, see Note 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- 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.
10
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd
------------------------------------------
For all those investments that the Company owns less than 20%, and is
not accounted for on the equity method, the investment is accounted
for at cost.
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 approximately $2,473,000
in 1994, net of taxes (approximately $3,804,000 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 approximately $3,790,000 as of January 1, 1994. As a result
of decreases in the market value of "available-for-sale securities"
since January 1, 1995, the unrealized gain, net of taxes, from those
securities included in shareholders' equity as of December 31, 1995
was approximately $381,000. The 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 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 is in the local
currency, prepared in accordance with United States generally accepted
accounting principles.
11
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd
------------------------------------------
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 1995, 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.
For Affiliated Companies whose functional currency is the U.S. dollar,
assets and liabilities of foreign subsidiaries and Affiliated
Companies 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.
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. At December 31, 1995, PEC provided $29
million of deferred income taxes with respect to
12
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd
------------------------------------------
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
and changes in the market value of marketable securities. 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 $1,174,000 shown in 1993, or $.06 per share, and is reported
separately in the accompanying consolidated statements of income.
Deferred income taxes of approximately $48 million have not been
accrued on the Company's temporary differences, totaling approximately
$137 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.
Estimates
---------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management of the
Company and its Affiliated Companies to make estimates and assumptions
that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification
----------------
Certain reclassifications have been made to the 1994 and 1993
consolidated financial statements to conform with the 1995
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,
-----------------------------------------
1995 1994
------------------- ---------------------
Percentage Carrying Percentage Carrying
Owned Value Owned Value
---------- -------- ---------- --------
Affiliated Companies:
Tambour Ltd.(a)(i) 42% $58,665 42% $ 54,495
Property and Building
Corporation Ltd.
(d)(i) See Note 5 37% 49,811 31% 35,510
Scitex Corporation Ltd.
(b)(i) See Note 6(k) 6% 43,750 6% 47,113
Super-Sol Ltd.(c)(i) 19% 42,234 19% 38,243
Elron Electronic
Industries Ltd.
(f)(i) 14% 32,006 13% 29,638
El-Yam Ships Ltd. (f) 10% 25,452 10% 23,808
Caniel-Israel Can
Company Ltd.(f)(i) 29% 14,466 29% 13,683
Cellcom Israel Ltd.*
(e) See Note 6(a) 11% 12,535 10% 6,633
Klil Industries Ltd.
(f)(i) 15% 11,032 15% 10,668
Gilat Satellite Networks
Ltd. (f)(g)(i) 7% 6,392 10% 4,009
Mul-T-Lock Ltd.(f)(g)(i) 14% 6,178 14% 5,860
"Delek" The Israel Fuel
Corp. Ltd. (f)(i) 2% 5,628 2% 5,407
DIC and PEC Cable TV Ltd.(f)
See Note 6(b) 49% 4,435 49% 3,154
DEP Technology Holdings
Ltd.*(f) See Note 6(f) 33% 3,624 33% 1,953
Lego Irrigation Ltd.(f)(g)(i) 13% 2,887 13% 2,768
Liraz Systems Ltd. (f)(i) 9% 2,698 9% 2,376
Electronics Line (E.L.)
Ltd.(f)(i) 14% 2,686 14% 2,403
Nice Systems Ltd. (f)(g)(i) 10% 2,069 10% 2,385
14
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
December 31,
-----------------------------------------
1995 1994
------------------- ---------------------
Percentage Carrying Percentage Carrying
Owned Value Owned Value
---------- -------- ---------- --------
Maxima Air Separation
Center Ltd. (f)(i) 12% $ 2,038 12% $ 1,938
Gemini Israel Fund L.P.
(f) See Note 6(h) 11% 2,010 11% 1,765
Tel-Ad Jerusalem Studios
Ltd.* (f) See Note 6(c) 12% 1,022 12% 460
Gilat Communication
Engineering 1990
Ltd.* (f) 12% 828 13% 747
Tefron Ltd. (f)(g) 13% 808 13% 259
Adir International
Communications Services
Ltd.* (f) 25% 421 25% 221
Sano Dispec Development
Ltd. 25% 319 25% 226
Sign-On Computer
Communications Services
Ltd. (f) 25% 160 13% 79
Camdev Ltd.(f) 26% 154 26% 139
Logal Educational Software
and Systems, Ltd. (f) (g) 7% 92 6% 95
Bulk Trading Corporation
Ltd.** (f) 50% - 50% -
RPA Leasing Inc.** 25% - 25% -
RTS Telecommunications
Services Ltd.** 15% - 15% -
Tius Elcon Ltd. 15% - 13% -
-------- --------
$334,400 $296,035
-------- --------
15
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
December 31,
---------------------------------------
1995 1994
------------------- -------------------
Carrying Carrying
Value Value
-------- --------
Other:
Isrotel Ltd. $ 3,428 $ -
Renaissance Fund LDC
See Note 6(j) 3,292 2,164
Lipman Electronic
Engineering Ltd. 1,710 1,688
VocalTec Ltd. 1,278 -
Advent Israel Limited
Partnership see Note 6(i) 320 333
MacPell Industries, Ltd. 143 180
Israel Discount Bank
of New York (j) - 26,965
Other long-term investments 440 128
--------- ---------
10,611 31,458
--------- ---------
Investments in marketable
securities 20,449 13,457
U.S. municipal bonds 3,015 3,098
Government of Israel bonds 416 -
Notes receivable 205 369
Investment in limited
partnerships - 5,207
--------- ---------
24,085 22,131
--------- ---------
$369,096 $349,624
========= =========
*Included in the carrying values are the following loans to
Affiliated Companies (in thousands):
December 31,
----------------------------
1995 1994
--------- ---------
CellCom Israel Ltd. $ 11,931 $ 6,633
DEP Technology Holdings Ltd. 3,624 1,953
Tel-Ad Jerusalem Studios Ltd. 276 460
Adir 84 -
**Negative equity of $170,000 in Bulk Trading and $1.1 million in RPA
Leasing and RTS Telecommunications is included in other liabilities.
16
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
Information about certain Affiliated Companies follows:
(a) Tambour Ltd. ("Tambour") is Israel's largest paint
manufacturer. Summarized financial information for
Tambour follows (in thousands):
December 31,
--------------------------
1995 1994 1993
------- -------- --------
Current assets $ 121,217 $ 96,506 $ 81,059
Total assets 167,019 154,562 114,335
Current liabilities 21,916 18,877 17,424
Shareholders' equity 138,110 128,986 95,609
Revenue 160,317 123,060 127,046
Income before taxes on income 27,252 22,549 24,327
Net income 20,018 19,618 17,446
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 unexercised.
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 on issuance of
shares by Tambour of approximately $8.5 million in 1993.
17
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
(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,
----------------------------
1995 1994 1993
-------- -------- --------
Current assets $ 703,030 $759,259 $675,626
Total assets 920,831 942,023 885,917
Current liabilities 224,991 190,724 168,553
Shareholders' equity 700,981 749,735 716,259
Revenues 728,900 704,138 622,760
(Loss) income before taxes on
income (46,852) 79,320 106,221
Net (loss) income (34,511) 63,750 94,339
(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,
----------------------------
1995 1994 1993
-------- -------- --------
Current assets $ 205,971 $181,160 $144,121
Total assets 392,852 338,711 274,875
Current liabilities 159,910 125,638 92,818
Long-term debt 6,525 6,699 5,506
Shareholders' equity 224,023 201,458 175,301
Income 834,836 635,830 531,775
Earnings before taxes 53,602 43,340 38,137
Net earnings 36,216 30,970 25,560
18
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
(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 and Building follows (in thousands):
December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Current assets* $ 42,543 $ 55,050 $ 65,182
Total assets 303,980 230,689 204,885
Current liabilities 42,543 38,975 31,447
Long-term liabilities 69,253 22,917 23,097
Shareholders' equity 133,182 115,971 101,388
Income 99,283 95,925 78,365
Earnings before taxes on income 39,106 30,705 27,304
Net earnings 19,907 15,868 15,229
* Including building
projects and inventories
of apartments 6,542 9,754 9,458
(e) Cellcom Israel Ltd. ("Cellcom") operates Israel's
second cellular telephone system, which it established
in December 1994. Summarized financial information for
Cellcom follows (in thousands):
December 31,
----------------------
1995 1994
-------- --------
Current assets $ 44,993 $ 21,394
Total assets 240,783 97,153
Current liabilities 133,700 42,001
Long-term liabilities 188,339 69,222
Shareholders' deficit (81,256) (14,070)
Loss before taxes
on income (70,247) (14,070)
Net loss (70,247) (14,070)
19
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
(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,
-------------------------
1995 1994 1993
------- ------- -------
Current assets $ 56,200 $ 48,925 $ 33,516
Total assets 161,733 134,921 104,199
Long-term debt 12,937 9,652 7,758
Shareholders' equity 126,250 94,472 74,468
Revenue 93,939 59,116 45,659
Net income 11,865 6,804 6,292
(g) Significant capital transactions during the three years
ended December 31, 1995, and subsequent to December 31,
1995 through March 29, 1996, that are not otherwise
discussed in Note 3 are as follows:
In March 1996, Logal Educational Software and Systems
Ltd. ("Logal") sold ordinary shares in an initial public
offering in the United States. As a result of the sale,
the Company's interest in Logal decreased from 7% to 4%
and the Company will realize a gain during the first
quarter of 1996 of approximately $350,000 after taxes.
In January 1996, Nice Systems Ltd. sold American
Depository Shares representing ordinary shares of Nice
Systems Ltd. in an underwritten public offering in the
United States. As a result of the sale, the Company's
share of Nice Systems Ltd. decreased from 10% to 7% and
the Company will realize a gain on issuance during the
first quarter of 1996 of approximately $600,000 after
taxes.
In October 1995, Gilat Satellite Ltd. sold ordinary
shares in a secondary public offering in the United
States in which the Company also sold ordinary shares of
Gilat Satellite Ltd. As a result of the sale, the Company
realized a gain on issuance of shares by Gilat Satellite
Ltd. of approximately $2.3 million and a gain on sales of
investments of approximately $1.1 million. As a result of
these sales, the Company's share of Gilat Satellite Ltd.
was reduced from 10% to 7%.
20
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
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.
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 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 April 1993, Gilat Satellite Networks Ltd. ("Gilat
Satellite") 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 decreased from 13% to 9% and the Company
realized a gain of approximately $2.2 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.
(h) The Company's equity in the net income of Affiliated
Companies by major lines of business was as follows (in
thousands):
December 31,
-------------------------
1995 1994 1993
------ ------ ------
High technology and
communications $(4,254) $ 1,056 $ 5,124
Industry 12,284 12,180 13,855
Construction and development 6,246 4,701 4,730
Shipping, marketing and other 9,444 7,401 9,833
------- ------- -------
$23,720 $25,338 $33,542
======= ======= =======
21
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INVESTMENTS - cont'd
-----------
(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 $367 million and $302 million and
their carrying values were approximately $283 million and
$251 million at December 31, 1995 and 1994, respectively.
The market value at March 26, 1996 of shares owned by the
Company at December 31, 1995 was approximately $340
million.
(j) On July 25, 1995, the Company sold to Israel Discount Bank
of New York ("IDBNY") all of the Company's nonvoting
preferred shares of IDBNY for approximately $27 million, a
price that equalled PEC's carrying value of those shares.
While the sale did not result in a gain for financial
statement purposes, PEC did realize a gain for tax
purposes, for which PEC provided approximately $3 million
of additional income taxes during 1995.
(k) During the second quarter of 1995, General Engineers
Limited (i) entered into an agreement with a majority
owned subsidiary of Discount Investment for that company
to distribute household appliances made by manufacturers
represented by General Engineers Limited and (ii) sold its
service and repair business for household appliances to an
unrelated party. As a result of these transactions, the
Company has restated its results of operations for the two
years ended December 31, 1994 and 1993 to reflect these
discontinued operations of General Engineers Limited.
4. INCOME TAXES
------------
The U.S. and Foreign components of income before income taxes are
as follows (in thousands):
December 31,
-------------------------
1995 1994 1993
------ ------ ------
U.S. $ 5,364 $ 4,176 $12,971
Foreign 26,540 27,345 37,891
------- ------- -------
$31,904 $31,521 $50,862
======= ======= =======
22
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INCOME TAXES - cont'd
------------
Income tax expense is made up of the following components
(in thousands):
December 31,
------------------------
1995 1994 1993
------ ------ ------
Current:
U.S. $ 7,298 $ 210 $ 465
Foreign 2,083 1,614 1,936
Deferred (3,099) (500) 5,250
------- ------- -------
$ 6,282 $ 1,324 $ 7,651
======= ======= =======
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.
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,
------------------------
1995 1994 1993
------ ------ ------
U.S. income taxes at statutory
rate 35% $11,166 $11,032 $17,801
Excess of taxes at statutory
rate over taxes provided
on equity in net income
of, and net gain on
issuance of shares by,
Affiliated Companies (4,781) (9,299) (10,038)
Additional provision for
deferred taxes relating
to increase in statutory
rate to 35% - - 688
Other (103) (409) (800)
------- ------- --------
$ 6,282 $ 1,324 $ 7,651
======= ======= ========
23
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. SHAREHOLDERS' EQUITY
--------------------
In December 1995, the Company purchased from IDB Development a
6.5% equity interest in Property and Building, based on the
market price of Property and Building's shares on the Tel
Aviv Stock Exchange on the purchase date. Since this transaction
was between related parties, the Company recorded on its
financial statements the carrying value of such equity interest
on IDB Development's financial statements and the Company reduced
its retained earnings by approximately $6.7 million, the
difference between the amount the Company paid for such equity
interest ($15.5 million) and IDB Development's carrying value of
such equity interest ($8.8 million).
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 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.
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 1995, 1994 and 1993 was 18,758,588.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
(a) Cellcom was awarded the license to operate Israel's second
cellular telephone system in June 1994. At December 31,
1995, the Company and a subsidiary of Discount Investment
("DIC's Subsidiary") each owned 11.5% of Cellcom and each
of them acquired an additional 1% of Cellcom in February
1996. Cellcom intends to invest approximately $430
million through 1996 in the development and operation of
the new cellular
24
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
COMMITMENTS AND CONTINGENCIES - cont'd
-----------------------------
telephone system, of which approximately $340 million had
been invested by December 31, 1995. Through December 31, 1995,
Cellcom's shareholders had been requested to finance
approximately $185 million of such amount in proportion to
their interests in Cellcom and the Company had made shareholder
loans to Cellcom of $21.3 million, representing the full amount
of its 11.5% share of all such loans. The balance of the
amount to be invested by Cellcom in its cellular telephone
system is expected to be financed by banks and third-party
suppliers. On March 28, 1996, in connection with the
Company's acquisition of an additional 1% equity interest in
Cellcom in February 1996, the Company made an additional $2
million shareholder loan to Cellcom.
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 DIC's
Subsidiary. At December 31, 1995 and March 26, 1996 this
guarantee of DIC's Subsidiary secured approximately $2.5
million and $5.6 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
in porportion to their respective ownership interests in
Cellcom when such payment is made.
On April 30, 1995, motions were filed in the Tel Aviv
District Court for recognizing two lawsuits against
Cellcom as class actions on behalf of all the Cellcom
subscribers, in accordance with the Consumer Protection
Law - 1981. In these lawsuits, damages are being claimed
from Cellcom, in connection with difficulties in using the
network, amounting in one lawsuit to approximately $31.8
million and in the other to $25.5 million, in addition to
a refund not yet quantified of unjustified charges for
telephone calls made through Cellcom's network. In order
to determine which one of these lawsuits, if any, will be
recognized as a class action, the Court instructed the
parties to submit written arguments. Cellcom intends to
vigorously contest the lawsuits and their recognition as
class actions. At this stage Cellcom, and its legal
advisors, are unable to estimate the effects of the
foregoing on Cellcom's financial condition or results of
operations and no provisions have been made in its
financial statements with respect thereto.
25
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
COMMITMENTS AND CONTINGENCIES - cont'd
-----------------------------
(b) 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 franchises, 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.
(c) Tel-Ad Jerusalem Studios Ltd. ("Tel-Ad") is one of the
three companies awarded a franchise in 1993 by Israel's
Second Authority for Television and Radio 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.
(d) The Company has contracted with IDB Development for IDB
Development to give certain advisory services to 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 1995, 1994 and
1993, the Company incurred expenses of $130,000 for these
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 to DEP Technology
Holdings Ltd. ("DEP") of which the Company had contributed
$4.7 million as of December 31, 1995 through the purchase
of capital notes of DEP. In March 1996, the Company
contributed approximately $85,000 to DEP through the
purchase of a capital note 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 1995 the Company paid the wholly
owned subsidiary of Discount Investment $34,610 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, 1995, 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, 1995, the Company had contributed
approximately $325,000 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, 1995, the Company had
contributed approximately $3.3 million to Renaissance. In
March 1996, the Company contributed an additional $925,000
to the capital of Renaissance.
(k) Scitex and certain of its present and former officers and
directors are defendants in a class action lawsuit, filed
in December 1995 in the United States, alleging violations
of certain provisions of federal securities law with
respect to certain reports of Scitex's results of
operations during the period May 1994 to November 1995.
Scitex believes the claims have no merit and intends to
defend the lawsuit vigorously. Scitex does not believe
that the outcome of this lawsuit would have a material
effect on its financial position.
27
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
COMMITMENTS AND CONTINGENCIES - cont'd
-----------------------------
(l) The Company is a shareholder of a corporation which is
tendering for the granting of a license for international
telecommunication services in Israel. In connection with
the tender, a bank has issued a guarantee for the
corporation in favor of the Ministry of Communications of
the State of Israel. The shareholders of the corporation
have each issued a guarantee to the bank to pay any
amounts not paid by the corporation in proportion to each
shareholder's interest in the corporation. The Company's
guarantee to the bank is approximately $100,000.
(m) Certain directors of IDB Holding and/or its affiliates are
also directors of the Company.
(n) Lawsuits have been lodged against some of the Company's
affiliates in the ordinary course of their business.
Managements of these affiliates believe that the results
of these lawsuits would not have a material effect on such
affiliates' financial statements. Accordingly, management
of the Company believes that the results of these lawsuits
would not have a material effect on the Company's
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.
28
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS - cont'd
-----------------------------------
Cash and Cash Equivalents
- -------------------------
The carrying value approximates fair value because of the short maturity of
those instruments.
Investments
- -----------
The fair values of some investments are estimated based on quoted market prices
for those or similar investments.
For those investments for which there are no quoted market prices, management
estimates fair value to approximate the carrying value.
1995 1994
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- -------
(in thousands) (in thousands)
Cash and cash equivalents $ 14,703 $ 14,703 $ 20,736 $ 20,736
Investments-
Other 27,320 28,192 55,591 55,859
U.S. Government and State
obligations 3,015 3,015 3,098 3,098
Other assets-
U.S. Government Bonds and
Marketable Securities 748 818 1,111 1,092
Commitments
- -----------
The commitments described in Note 6 are generally for the near term, and,
accordingly, their contract value is considered their fair value.
29
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
8. QUARTERLY RESULTS OF OPERATIONS - (UNAUDITED)
---------------------------------------------
Quarter Ended
--------------------------------------------
1995 March 31* June 30 September 30 December 31
----- -------- ------- ------------ -----------
(in thousands, except per share data)
Revenues $ 8,391 $ 9,454 $11,990 $12,230
====== ====== ====== ======
Income before loss
from discontinued
operations and
cumulative effect of
accounting change $ 5,263 $ 3,449 $ 9,139 $ 7,771
(Loss) Income from
discontinued
operations of General
Engineers Limited,
net of income taxes $ (222) $ (179) $ (163) $ 184
----- ----- ---- -----
Net income $ 5,041 $ 3,270 $ 8,976 $ 7,955
====== ====== ====== ======
Earnings per
common share
before loss from
discontinued
operations $ 0.28 $ 0.18 $ 0.49 $ 0.42
Loss (income) per share
from discontinued
operations of General
Engineers Limited,
net of income taxes $ (0.01) $ (0.01) $ (0.01) $ 0.01
----- ----- ----- ----
Earnings per
common share $ 0.27 $ 0.17 $ 0.48 $ 0.43
======= ======= ======= =======
*Restated
30
<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 $12,595 $ 9,200 $12,553 $ 6,450
====== ====== ====== ======
Income before loss
from discontinued
operations and
cumulative effect of
accounting change $ 9,778 $ 6,280 $ 9,543 $ 4,596
Income (loss)
from discontinued
operations of General
Engineers Limited,
net of income taxes $ 13 $ (101) $ (38) $ 22
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 loss
from discontinued
operations and
cumulative effect
of accounting
change $ 0.52 $ 0.33 $ 0.51 $ 0.25
Loss per share
from discontinued
operations of General
Engineers Limited,
net of income taxes - - - $ (0.01)
Cumulative effect of
change in accounting
for marketable
securities on earnings
per common share $ 0.13 - - -
------ ------ ------ ------
Earnings per
common share $ 0.65 $ 0.33 $ 0.51 $ 0.24
====== ====== ====== ======
*Restated
31
<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 1996 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, 1995 and
1994.
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993.
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, 1995 and 1994.
Statements of Earnings for the years ended
December 31, 1995, 1994 and 1993.
Statement of Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993.
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
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,
1995 and 1994.
Consolidated Statements of Income for the years
ended December 31, 1995, 1994 and 1993.
Statement of Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993.
Consolidated Cash Flows Statements for the years
ended December 31, 1995, 1994 and 1993.
Balance Sheets as at December 31, 1995 and 1994.
Statements of Income for the years ended December
31, 1995, 1994 and 1993.
Cash Flows Statements for the years ended December
31, 1995, 1994 and 1993.
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
Corporation 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.
El-Yam Ships Ltd.
Gemini Capital Fund Management Ltd.
Gemini Israel Fund L.P.
Gilat Communication Engineering 1990 Ltd.
IV-2
<PAGE>
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.
Nice Systems Ltd.
PEC Israel Financial Corporation 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,
filed as Exhibit 3(ii) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
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). Addendum to Exhibit 10(i)(a) dated December 7,
1995.
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 July 1, 1995 between IDB Development
Corporation Ltd. and PEC Finance Company Ltd. (now named PEC Israel
Financial Corporation Ltd.).
10(i)(g). 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)(h). 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.
IV-4
<PAGE>
10(iii)(a). Supplemental Retirement Agreement dated as of
January 1, 1995 between the Company and Frank J.
Klein, filed as Exhibit 10(iii)(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference.*
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, 1995.
- -------------------------
*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 Subsidiaries
FINANCIAL STATEMENTS AS AT
DECEMBER 31, 1995 AND 1994
<PAGE>
Property and Building Corporation Limited and Subsidiaries
FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
CONTENTS
Page
Auditors' Report 2
Balance Sheets 3
Statements of Earnings 4
Statement of Changes in Shareholders' Equity 5
Statements of Cash Flows 6
Notes to the Financial Statements 9
Annex - Percentage of Holding in Related Companies 57
<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) 670338 Tel: (02) 253291
Telecopier: (972) 3517 4440 Telecopier (972) 4670319 Telecopier (972) 2253292
Somekh Chaikin
Tel-Aviv, March 18, 1996
AUDITORS' REPORT TO THE SHAREHOLDERS OF
PROPERTY AND BUILDING CORPORATION LIMITED
We have audited the financial statements of Property and Building Corporation
Limited (hereinafter "the Company") and its consolidated financial statements,
as follows:
- - Balance sheets as at December 31, 1995 and 1994.
- - Statements of earnings, statements of changes in shareholders' equity
and statements of cash flows for each of the three years ended December
31, 1995.
These financial statements are the responsibility of the Company's Board of
Directors and of its Management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We did not audit the financial statements of the subsidiaries, including those
consolidated by the proportionate consolidation method, whose assets constitute
79% and 76% of the total consolidated assets as at December 31, 1995 and 1994
respectively, and whose revenues constitute 86%, 92% and 89% of the consolidated
revenues for the years ended on December 31, 1995, 1994 and 1993 respectively.
The financial statements of those subsidiaries were audited by other certified
public accountants whose reports thereon were furnished to us. Our opinion,
insofar as it relates to amounts emanating from the financial statements of such
subsidiaries, is based solely on the said reports of the other accountants.
Furthermore, the data included in the financial statements which relates to the
net asset value of the affiliate and the Company's equity in its earnings is
based on financial statements which were audited by other accountants.
We conducted our audits in accordance with generally accepted auditing
standards, including standards prescribed by the Auditors Regulations (Manner of
Auditor's Performance) - 1973. Such standards require that we plan and perform
the audit to obtain reasonable assurance that the financial statements are free
of material misstatement whether due to error or intentional misrepresentation.
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 the Board of
Directors and by Management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a fair basis for our
opinion.
<PAGE>
The above mentioned financial statements were prepared on the basis of
historical cost, adjusted to the general purchasing power of the Israeli
currency in accordance with opinions of the Institute of Certified Public
Accountants in Israel. Condensed historical data, on the basis of which the
adjusted financial statements were prepared, is presented in Note 34.
In our opinion, based on our audit and on the reports of the abovementioned
other certified public accountants, the financial statements referred to above
present fairly, in conformity with accounting principles generally accepted in
Israel, consistently applied, in all material respects, the financial position
of the Company and the consolidated financial position of the Company and its
subsidiaries as at December 31, 1995 and 1994 and the results of their
operations, the changes in the shareholders' equity and their cash flows for
each of the three years in the period ended December 31, 1995. Furthermore,
these statements have, in our opinion, been prepared in accordance with the
Securities Regulations (Preparation of Annual Financial Statements) 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 affects the determination of historical net earnings
and shareholders' equity to the extent summarized in Note 35 C to the financial
statements.
/s/Somekh Chaikin
Certified Public Accountants (Isr.)
<PAGE>
BALANCE SHEET AS AT DECEMBER 31
- -------------------------------------------------------------------------------
ADJUSTED TO THE SHEKEL OF DECEMBER 1995
(IN NIS THOUSANDS)
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
---------------------- ---------------------
NOTE 1995 1994* 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash
equivalents 2 18,657 24,963 766 686
Short-term deposits
and loans 302 716
Marketable securities 3 29,862 84,836 601 631
Compulsory government
loans 4 37
Customers 5 22,912 18,698 111
Accounts receivable
and debit balances 6 33,989 17,746 2,975 1,464
Apartments and other
inventories 7 9,068 4,223
Building projects
under construction 8 34,710 36,543 886
--------- --------- ---------
149,500 187,762 5,228 2,892
--------- --------- --------- ---------
LAND 9 301,081 203,015 16,507 13,290
--------- --------- --------- ---------
LONG-TERM DEPOSITS 10 1,567 3,121
--------- ---------
INVESTMENTS
In investee companies 11 102,980 99,587 591,896 542,486
--------- --------- --------- ---------
FIXED ASSETS 12
Buildings, land,
plantations and other 871,695 710,260 42,842 40,623
Less/- Accumulated
depreciation 231,115 217,435 16,656 15,961
--------- --------- --------- ---------
640,580 492,825 26,186 24,662
--------- --------- --------- ---------
DEFERRED CHARGES
AND OTHER ASSETS 13 8,793 10,260 366 390
--------- --------- --------- ---------
1,204,501 996,570 640,183 583,720
========= ========= ========= =========
</TABLE>
* Reclassified
The notes and the annex to the financial statements form an integral part
thereof.
<PAGE>
Property and Building Corporation Limited and Subsidiaries
- -------------------------------------------------------------------------------
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
--------------------------- ------------------------
NOTE 1995 1994* 1995 1994
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Advances from
purchasers of
apartments and
others, net 14 2,121 3,775 860
Credit from banking
entities 15 24,268 7,615
Current maturities
of long-term
liabilities 19 13,098 19,672 17,161 252
Suppliers and
subcontractors 16 16,408 12,037
Creditors and
credit balances 17 81,385 69,395 13,627 17,654
Deferred taxes 18 4,850 4,940
Proposed dividend 12,506 9,800 8,500 6,517
----------- ----------- ------------ -----------
154,636 127,234 40,148 24,423
----------- ----------- ------------ -----------
LONG-TERM LIABILITIES
Debentures convertible into
shares 19 4,403 8,856
Debentures 19 40,907 47,851
Liabilities to banking
entities 19 101,540 880 627 880
Other long term
liabilities 19 53,005 12,221 7,216 16,966
Deferred taxes 18 16,900 19,043 22 11
Liability for employee
severance benefits 20 2,090 1,785
----------- -----------
218,845 90,636 7,865 17,857
----------- ----------- ------------ -----------
MINORITY INTEREST 238,850 237,260
----------- -----------
SHAREHOLDERS' EQUITY 592,170 541,440 592,170 541,440
----------- ----------- ------------ -----------
CONTINGENT LIABILITIES
AND COMMITMENTS 21
- ----------------------------------
Dov Tadmor - Chairman of the Board
- ----------------------------------
Abraham Attias - Managing Director
Date of signing of statement: March 18, 1996
----------- ----------- ------------ -----------
1,204,501 996,570 640,183 583,720
=========== =========== ============ ===========
</TABLE>
3
<PAGE>
Property and Building Corporation Limited and Subsidiaries
STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------
ADJUSTED TO THE SHEKEL OF DECEMBER 1995
(IN NIS THOUSANDS)
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
------------------------------ ---------------------------------------
NOTE 1995 1994* 1993* 1995 1994* 1993*
------- --------- --------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Rentals and warehousing 99,642 90,255 86,385 6,484 6,440 6,853
From construction and other sources 22 183,757 213,118 166,790
The Company's share in the
net earnings of investee companies 23 10,914 4,277 5,000 49,427 27,700 37,140
Income from investments and fixed assets 24 5,619 16,105 9,290 98 3,837 6,703
Income from securities, financing and others, 25 6,800 5,605 10,560 1,971 1,473 1,228
--------- --------- ----------- ------------- ------------- ----------
306,732 329,360 278,025 57,980 39,450 51,924
--------- --------- ----------- ------------- ------------- ----------
COSTS AND EXPENSES
Construction and other costs 26 136,779 163,928 133,020
Administrative and general 27 25,529 21,945 21,410 5,633 4,882 4,546
Selling and marketing 28 2,843 2,305 2,600
Property maintenance (excluding depreciation) 8,833 8,180 9,165 683 1,051 1,070
Depreciation and amortization 29 15,261 13,857 12,755 1,052 1,026 1,019
Property taxes on land 5,063 5,150 2,790 422 608 365
Financing 30 4,290 30,845 2,630 2,395 922 256
--------- --------- ----------- ------------- ------------- ----------
198,598 246,210 184,370 10,185 8,489 7,256
--------- --------- ----------- ------------- ------------- ----------
EARNINGS BEFORE TAXES ON INCOME 108,134 83,150 93,655 47,795 30,961 44,668
Taxes on income 31 37,874 37,325 34,045 (825) 281 1,268
--------- --------- ----------- ------------- ------------- ----------
Earnings after taxation 70,260 45,825 59,610 48,620 30,680 43,400
Less/- MINORITY INTEREST IN EARNINGS 21,640 15,145 16,210
--------- --------- -----------
Net earnings for the year 48,620 30,680 43,400 48,620 30,680 43,400
========= ========= =========== ============= ============= ==========
EARNINGS PER SHARE 1D(16)
Net earnings per share of NIS 1.00 par value (in NIS) 13.71 8.65 12.22 13.71 8.65 12.22
========= ========= =========== ============= ============= ===========
</TABLE>
* Reclassified
The notes and the annex to the financial statements form an integral part
thereof.
4
<PAGE>
Property and Building Corporation and Subsidiaries
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
ADJUSTED TO THE SHEKEL OF DECEMBER 1995
(IN NIS THOUSANDS)
SHARE CAPITAL RETAINED TOTAL
CAPITAL SURPLUS EARNINGS
------- ------- -------- -------
BALANCE AS AT JANUARY 1, 1993 150,280 122,755 207,610 480,645
Net earnings for the year 43,400 43,400
Capitalization of earnings related
to an issue of a subsidiary 9,825 (9,825)
Erosion of dividend declared in
the previous year 300 300
Proposed dividend, net - 170% (7,460) (7,460)
------- ------- -------- --------
BALANCE AS AT DECEMBER 31, 1993 150,280 132,580 234,025 516,885
Net earnings for the year 30,680 30,680
Erosion of dividend declared
in the previous year 390 390
Proposed dividend - 170% (6,515) (6,515)
------- ------- -------- --------
BALANCE AS AT DECEMBER 31, 1994 150,280 132,580 258,580 541,440
Net earnings for the year 48,620 48,620
Capital surplus from
private placement of
shares of a subsidiary 10,535 10,535
Erosion of dividend declared
in the previous year 75 75
Proposed dividend - 240% (8,500) (8,500)
------- ------- -------- --------
BALANCE AS AT DECEMBER 31, 1995 150,280 143,115 298,775 592,170
======= ======= ======== ========
5
<PAGE>
Property and Building Corporation Limited and Subsidiaries
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------
<TABLE><CAPTION>
ADJUSTED TO THE SHEKEL OF DECEMBER 1995
(IN NIS THOUSANDS)
CONSOLIDATED THE COMPANY
-------------------------- --------------------------
1995 1994* 1993* 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings 48,620 30,680 43,400 48,620 30,680 43,400
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Net reduction in building projects 7,503 40,889 44,989 2,604
Others (Annex) 15,463 34,650 7,498 (52,624) (18,588)(37,813)
-------- -------- -------- ------- -------- -------
Net cash provided by (used in) operating
activities 71,586 106,219 95,887 (1,400) 12,092 5,587
-------- -------- -------- ------- -------- -------
CASH FLOWS IN INVESTING ACTIVITIES
Proceeds from realization of investment
in investee companies 1,771 10,562
Investments in investee companies (3,530) (13,271) (4,023) (143) (11,496)
Dividend received from investee companies 7,892 1,554 4,383 9,442 6,207 4,092
Purchase of marketable securities (33,080) (49,226)(104,745) (157) (4)
Proceeds from sale of marketable securities 88,450 70,102 67,433 156 75
Acquisition and development of land (109,401) (35,257) (18,040) (5,850) (10,963) (57)
Purchase and construction of fixed assets (101,754) (65,223) (39,604) (2,555) (36) (4,991)
Collections of financing relating to
realization of land 578 546 1,663
Proceeds from sale of fixed assets and land 6,996 13,668 2,776 49
Proceeds from long-term deposits and loans 1,266 1,227 2,877
Granting of loans to subsidiaries (751) (1,313) (3,392)
Payments of loans to subsidiaries 756 1,543
-------- -------- -------- ------- -------- -------
Net cash provided by (used in)
investing activities (142,583) (74,109) (76,718) 947 (17,605) (2,730)
-------- -------- -------- ------- -------- -------
</TABLE>
* Reclassified
6
<PAGE>
Property and Building Corporation Limited and Subsidiaries
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31 (CONT'D)
- -------------------------------------------------------------------------------
ADJUSTED TO THE SHEKEL OF DECEMBER 1995
(IN NIS THOUSANDS)
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
------------------------- -----------------------
1995 1994* 1993* 1995 1994 1993
------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid
- - by the parent company (6,442) (7,066) (5,317) (6,442) (7,066) (5,317)
- - to outside shareholders of subsidiary companies (3,248) (2,696) (2,352)
Proceeds from realization of option warrants in subsidiary 15,489
Payments of debentures (10,845) (6,441) (1,971)
Payments of long term loans (13,175) (253) (252) (251) (253) (252)
Receipt of long-term loans 100,930
Receipt of long-term loan from subsidiary 7,226 12,613 2,922
Proceeds from credit from banking entities 16,653 6,939 164
Payments to outside shareholders of subsidiary (2,291) (4,774) (1,960)
Payments of credit in respect of real estate acquisition (16,891) (25,528) (426)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 64,691 (39,819) 3,375 533 5,294 (2,647)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents (6,306) (7,709) 22,544 80 (219) 210
Cash and cash equivalents at beginning of year 24,963 32,672 10,128 686 905 695
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of year 18,657 24,963 32,672 766 686 905
======== ======== ======== ======== ======== ========
</TABLE>
* Reclassified
7
<PAGE>
Property and Building Corporation Limited and Subsidiaries
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31 (CONT'D)
- -------------------------------------------------------------------------------
ADJUSTED TO THE SHEKEL OF DECEMBER 1995
(IN NIS THOUSANDS)
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------- --------------------------
1995 1994* 1993* 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ANNEX
Adjustments to reconcile net earnings to
net cash provided by operating activities:
The Company's share in the net earnings of
investee companies (10,914) (4,277) (5,000) (49,427) (27,700) (37,140)
Outside shareholders' interest in earnings 21,640 15,145 16,210
Depreciation and amortization 15,749 14,285 13,185 1,052 1,026 1,019
Changes in deferred taxes, net (3,559) 2,610 4,155 (1,179) (25) (34)
Increase (decrease) in liability for
employee severance benefits 305 (1,933) 280
Decrease (increase) in value of securities (359) 30,375 (6,132) 31 24 34
Income from realization of investments
in investee companies and issue of capital (52) (4,965) (6,704) (52) (3,837) (6,703)
Capital gains on sale of fixed assets and real estate (5,567) (11,140) (2,586) (46)
Inflationary erosion of long-term deposits and loans, net (20) (408) 548 (69) (51) (34)
Changes in current assets and liabilities:
Debtors, customers and debit balances (18,675) 5,076 (17,816) (209) 3,228 3,498
Creditors and credit balances 16,915 (10,118) 12,162 (2,725) 8,747 1,547
------- ------- ------- ------- ------- -------
Total adjustments 15,463 34,650 7,498 (52,624) (18,588) (37,813)
======= ======= ======= ======= ======= =======
SIGNIFICANT ACTIVITIES NOT INVOLVING CASH FLOWS:
Purchase of fixed assets on credit 58,592 10,284 42,919
======= ======= =======
Purchase of land on credit 2,506 23,215
======= =======
Proceeds from the sale of fixed assets on credit 332 1,761
======= =======
Deferred charges 4,280
=======
</TABLE>
* Reclassified
8
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES
A. REPORTING PRINCIPLES
1. Definitions
In these financial statements:
a. Subsidiaries - companies whose financial statements are
consolidated directly or indirectly with those of Property
and Building Corporation Limited (the "Company").
b. Proportionately consolidated subsidiaries - companies whose
financial statements are consolidated with those of the
Company by the proportionate consolidation method.
c. Affiliated companies - companies, except for subsidiaries
and proportionately consolidated subsidiaries, the
investment in which is included directly or indirectly on
the equity basis in the company's statements.
d. Investee companies - subsidiaries, proportionately
consolidated subsidiaries and affiliated companies.
e. Other companies - companies which are not investee
companies.
f. Initial difference - difference between acquisition cost and
adjusted equity value of investments in shares of investee
companies at the date of acquisition.
g. Related parties - as defined in Opinion No. 32 of the
Institute of Certified Public Accountants in Israel.
h. 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 34 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
1995.
9
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
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 investee 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 investee companies and the outside
shareholders' share in the results of operation of the
investee companies was based on the adjusted financial
statements of the investee 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
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
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).
The difference between the net asset value of companies
transferred from the Company to a consolidated subsidiary and the
consideration given in exchange thereof, by way of issue of
shares, has been carried to a capital reserve in accordance with
a guideline based on Section 36A of the Securities Law - 1968.
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.
11
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
D. ACCOUNTING POLICIES
1. Consolidated financial statements
a. The consolidated financial statements include the financial
statements of the Company and the Company's consolidated
subsidiaries in which it holds 50% or more (see Appendix to
the Financial Statements).
b. In addition to the above companies which were fully
consolidated, certain companies under joint ownership were
consolidated by the proportionate consolidation method in
accordance with Opinion No. 57 of the Institute of Certified
Public Accountants in Israel which was published in April
1994. The prior years' comparative figures were reclassified
accordingly.
(1) The effect on the balance sheet as at December 31, 1994 of the
said reclassification is as follows:
AS EFFECT AS REPORTED
ORIGINALLY OF THE IN THESE
REPORTED RECLASS- FINANCIAL
IFICATION STATEMENTS
Current assets 187,707 55 187,762
Real estate 203,015 - 203,015
Long-term deposits 3,121 - 3,121
Investments in investee
companies 120,973 (21,386) 99,587
Fixed assets 480,543 12,282 492,825
Deferred charges 9,993 267 10,260
------------ ------------ ------------
Total assets 1,005,352 (8,782) 996,570
------------ ------------ ------------
Current liabilities 126,490 744 127,234
Long-term liabilities 95,598 (4,962) 90,636
Minority interest 241,824 (4,564) 237,260
------------ ------------ ------------
Total liabilities and
minority interest 463,912 (8,782) 455,130
------------ ------------ ------------
Shareholders' equity 541,440 - 541,440
============ ============ ============
(2) The effect on the various items of the statement of earnings is
not material. The net earnings figure is not affected at all.
c. 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.
12
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
D. ACCOUNTING POLICIES (CONT'D)
d. Balances between subsidiaries and inter-company profits from
sales between the companies not yet realized outside of the
Group were cancelled.
e. 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. The Company and 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.
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.
13
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
D. ACCOUNTING POLICIES (CONT'D)
5. Land
a. Land is stated at cost which is not in excess of market
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 investee 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 its value.
b. The Company's equity in the profits and losses of the
investee companies is based on the latest audited financial
statements of these companies, after adjustments required
from the application of the uniform accounting principles of
the Group.
c. The initial difference regarding investee 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 Note 1.D.6.c.
14
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
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 taxes
The calculation of deferred taxes 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. Differences between the undepreciated cost of depreciable
assets for tax purposes and their undepreciated cost in the
financial statements.
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.
15
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
D. ACCOUNTING POLICIES (CONT'D)
11. Deferred taxes (cont'd)
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.
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
investee companies as the intention of the Management is to
hold these companies and not to realize them.
12. Income recognition
a. Income from rent - Rental income is recognized in the period
to which the rent related, amounts in arrears are recognized
only upon collection.
b. Income from construction work - Income from construction
transactions is recognized according to the "completed
contract" method, that is when the construction work has
been completed and the major part of the constructed units
has been sold. Where all the constructed units have been
sold before they have been completed, income is recognized
according to the "percentage of completion method".
A subsidiary whose operations is installing air conditioning
systems as an executing contractor, recognizes income from
long-term projects by the "percentage of completion method".
13. Provision for doubtful debts
The provision for doubtful debts is calculated on the basis of
specific identification of balances whose collection is in doubt.
16
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1 - REPORTING PRINCIPLES AND ACCOUNTING POLICIES (CONT'D)
D. ACCOUNTING POLICIES (CONT'D)
14. Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires Management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
15. 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><CAPTION>
% OF CHANGE
-------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1993 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consumer
price
index, in
points 313.28 289.79 253.2 8.1 14.5 11.2
Exchange
rate
of the
U.S.
dollar,
in NIS 3.135 3.018 2.986 3.9 1.1 8.0
</TABLE>
16. 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.
17
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- ----------------------------------------------------------------------------
NOTE 2 - CASH AND CASH EQUIVALENTS
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Short-term deposits with banks 18,346 24,045 759 686
Cash at bank 311 918 7
-------------- -------------- -------------- --------------
18,657 24,963 766 686
============== ============== ============== ==============
<CAPTION>
NOTE 3 - MARKETABLE SECURITIES
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Unit trust certificates 14,072 50,802
Government loans 13,752 27,104
Other debentures 1,170 2,010
Debentures issued by a
subsidiary* 601 631 601 631
Shares 811 3,005
Convertible securities 57 1,915
-------------- -------------- -------------- --------------
29,862 84,836 601 631
============== ============== ============== ==============
</TABLE>
* See Note 21 B.1.
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. In 1995, the loans were
redeemed early.
18
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- ----------------------------------------------------------------------------
NOTE 5 - CUSTOMERS
A. COMPOSED OF:
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------- -------------- -------------- --------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Purchasers of apartments
and stores 14,457 10,227
With respect to rentals
and warehousing* 4,977 4,567 111
With respect to air
conditioning and other* 2,197 2,389
Notes receivable 1,281 1,515
-------------- -------------- -------------- --------------
22,912 18,698 - 111
============== ============== ============== ==============
* After deduction of
allowance for doubtful
debts 660 648
============== ==============
</TABLE>
B. Purchasers of apartments are linked mainly to construction input
index.
19
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- ----------------------------------------------------------------------------
NOTE 6 - ACCOUNTS RECEIVABLE AND DEBIT BALANCES
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Current maturities of
long-term deposits 1,577 1,292
Accrued income 8,018 7,697 1 21
Purchasers of land (1) 1,484 1,761
Taxes claimable in the future 2,274 948 1,515 324
Deposits and prepaid expenses 1,330 625 16
Advances to Tax Authorities
less provisions 1,357 2,268 768
Employees 330 359 15 28
Other debtors 1,533 1,847 7 258
Israel Treasury - value added tax 16,086 1,437
Subsidiaries -
capital notes (2) 49
Affiliated company (3) 949
-------------- -------------- -------------- --------------
33,989 17,746 2,975 1,464
============== ============== ============== ==============
</TABLE>
(1) Balance linked mainly to U.S. dollar.
(2) Balance not linked and bears no interest.
(3) Balance linked to the consumer price index.
NOTE 7 - APARTMENTS AND OTHER INVENTORIES
<TABLE><CAPTION>
CONSOLIDATED
--------------------------------
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
<S> <C> <C>
Apartments in completed building 7,936 2,863
Air-conditioning equipment and other 1,132 1,360
-------------- --------------
9,068 4,223
============== ==============
</TABLE>
NOTE 8 - BUILDING PROJECTS UNDER CONSTRUCTION
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
------------------------------- --------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Land 36,869 23,715 1,315
Construction work 56,938 44,467 1,180
-------------- -------------- --------------
Land and construction works 93,807 68,182 2,495
Less - Advances from apartment
purchasers and project contractors 59,097 31,639 1,609
-------------- -------------- --------------
34,710 36,543 886
============== ============== ==============
</TABLE>
20
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- ----------------------------------------------------------------------------
NOTE 9 - LAND
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
A. Composed of:
Freehold land (1) 199,887 191,664 16,507 13,290
Leasehold land (2) 92,482 2,291
Parking lot and sports
center 2,569 2,641
Stores in completed
buildings and other
installations 4,475 5,856
Expenses relating to
future stages of
construction 1,668 563
-------------- -------------- -------------- --------------
301,081 203,015 16,507 13,290
============== ============== ============== ==============
</TABLE>
(1) Including NIS 1.7 million in rights to land which have not yet
been registered in the name of the subsidiary (the subsidiary did
register a caveat).
The land ownership rights in the area in which the land is
located are in the process of being formalized. Once the process
is completed the rights will be registered in the name of the
Company.
(2) Including land in an amount of NIS 90 million which was leased
from the Israel Lands Authority for the purpose of building 275
residential units in Ramat Rachel in Jerusalem. The subsidiary
has undertaken to develop the area and to lay the foundations of
the building within 90 months from the date of the approval by
the Urban Planning Commission.
B. In the opinion of Management the value of land exceeds the value
stated in the balance sheet.
C. Leasehold rights in land:
<TABLE><CAPTION>
THE LEASE COST
EXPIRES IN
------------ --------------
<S> <C> <C>
Capitalized leasehold 2044 91,745
Uncapitalized leasehold 2040 737*
--------------
92,482
</TABLE>
* The land has not as yet been registered in the name of the
Company at the Land Registry Office.
21
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 10 - LONG-TERM DEPOSITS AND LOANS
A. In the consolidated balance sheet, composed of:
<TABLE><CAPTION>
DECEMBER 31
DECEMBER 31, 1995 1994
------------------------------------------------- --------------
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 82 46 36 50
For deposit
with the
Israel Treasury 5.25 3,062 1,531 1,531 3,071
-------------- -------------- -------------- --------------
3,144 1,577 1,567 3,121
============== ============== ============== ==============
</TABLE>
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 82 thousand (December 31, 1994 - NIS 98
thousand), in connection with guarantees given to apartment
purchasers on behalf of subsidiaries.
D. Classification of long-term deposits and loans by years of
maturity:
<TABLE><CAPTION>
CONSOLIDATED
--------------------------------
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
<S> <C> <C>
Within 12 months - current maturities 1,577 1,292
============== ==============
During second year 1,567 1,586
During third year 1,535
-------------- --------------
1,567 3,121
============== ==============
</TABLE>
22
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 11 - INVESTMENTS IN INVESTEE COMPANIES
A. CONSOLIDATED BALANCE SHEET
1. COMPOSITION:
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
TOTAL TOTAL
-------------- --------------
AFFILIATED COMPANIES
Shares at cost, include -
Adjusted equity value at the
date of acquisition (a) 79,835 79,561
Initial difference, net 1,759 3,442
-------------- --------------
81,594 83,003
Add -
The Company's share in the net
post-acquisition profits 18,749 12,730
Total amounts of the initial
difference amortized 2,301 3,518
-------------- --------------
Book value of shares (b) 102,644 99,251
-------------- --------------
OTHER COMPANY 336 336
-------------- --------------
102,980 99,587
============== ==============
(a) The investment is presented net of dividends distributed by an
affiliated company out of pre-acquisition earnings, amounting to
NIS 4,090 thousand.
(b) Includes quoted shares whose adjusted equity value at balance
sheet date is NIS 71,403 thousand (December 31, 1994 - NIS 64,875
thousand). The market value of these shares at balance sheet date
is NIS 96,515 thousand (December 31, 1994 - NIS 94,157 thousand).
23
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 11 - INVESTMENTS IN INVESTEE COMPANIES
A. CONSOLIDATED BALANCE SHEET (CONT'D)
2. The following are details pertaining to proportionally
consolidated subsidiaries as were included in the consolidated
financial statements of the company as at December 31, 1995
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
(A) BALANCE SHEET DATA
ASSETS:
Current assets 751 450
Fixed assets 53,251 39,530
Deferred charges 267
-------------- --------------
54,002 40,247
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities 3,952 2,432
Long-term liabilities 37,687 25,618
Shareholders' equity 12,363 12,197
-------------- --------------
54,002 40,247
============== ==============
(B) STATEMENTS OF EARNINGS
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
Income 2,365 1,249
-------------- --------------
Costs and expenses:
Property maintenance 152 60
Administrative and general 275 104
Financing, net 562 48
Depreciation 1,053 315
-------------- --------------
2,042 527
-------------- --------------
Earnings before taxes 323 722
Taxes on income 157 127
-------------- --------------
Net earnings 166 595
============== ==============
24
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 11 - INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT'D)
B. COMPANY BALANCE SHEET
<TABLE><CAPTION>
SUBSIDIARIES PROPORTIONALLY AFFILIATED DECEMBER 31 DECEMBER 31
CONSOLIDATED COMPANIES* 1995 1994
SUBSIDIARIES* TOTAL TOTAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Shares at cost, include -
Adjusted equity value
at the date of
acquisition 166,669 3,711 10,878 181,258 180,964
Initial difference, net 8,286 3,669 11,955 14,682
-------------- -------------- -------------- -------------- --------------
174,955 3,711 14,547 193,213 195,646
Add -
The Company's share in
the net post-acquisition
profits 393,053 183 393,236 341,041
Total amounts of the
initial difference
amortized (4,653) (281) (4,934) (4,587)
-------------- -------------- -------------- -------------- --------------
Book value of shares (1) 563,355 3,894 14,266 581,515 532,100
Loans (2) 10,045 10,045 10,050
-------------- -------------- -------------- -------------- --------------
563,355 13,939 14,266 591,560 542,150
Other company 336 336 336
-------------- -------------- -------------- -------------- --------------
563,355 13,939 14,602 591,896 542,486
============== ============== ============== ============== ==============
</TABLE>
* Reclassified
(1) Includes quoted shares whose adjusted equity value at balance
sheet date is NIS 503,035 thousand (December 31, 1994 - NIS
324,301 thousand). The market value of these shares at balance
sheet date is NIS 717,930 thousand (December 31, 1994 - NIS
491,071 thousand).
(2) The loans to investee companies are linked to the consumer price
index, bear annual interest rates of 6% (December 31, 1994 - up
to 0.5% annually) and have no specific repayment date.
25
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 12 - FIXED ASSETS
A. CONSOLIDATED BALANCE SHEET:
<TABLE><CAPTION>
COMMERCIAL
BUILDINGS 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) (1) (1)(2) (3) 1995 1994
---------- ------------ ------------ ----------- --------- --------- --------- ----------- -----------
COST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning
of year 517,304 33,219 136,187 6,817 4,336 5,817 6,580 710,260 642,189
Additions 53,606 28,496 78,463 28 641 250 746 162,230 75,507
Disposals (692) (97) (6) (795) (7,436)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Balance at
end of year 570,910 61,715 214,650 6,845 4,285 5,970 7,320 871,695 710,260
--------- --------- --------- --------- --------- --------- --------- --------- ---------
ACCUMULATED
DEPRECIATION
Balance at
beginning
of year 200,370 5,770 1,895 4,845 4,555 217,435 207,519
Additions 13,125 10 598 260 390 14,383 13,132
Disposals (603) (95) (5) (703) (3,216)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Balance at
end of year 213,495 5,780 1,890 5,010 4,940 231,115 217,435
--------- --------- --------- --------- --------- --------- --------- --------- ---------
DEPRECIATED
COST AS AT
DECEMBER 31, 1995 357,415 61,715 214,650 1,065 2,395 960 2,380 640,580
========= ========= ========= ========= ========= ========= ========= =========
DEPRECIATED
COST AS AT
DECEMBER 31, 1994 316,934 58,982 110,424 1,047 2,441 972 2,025 492,825
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
26
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- ----------------------------------------------------------------------------
NOTE 12 - FIXED ASSETS (CONT'D)
A. CONSOLIDATED BALANCE SHEET: (CONT'D)
(1) Including rights in land aggregating NIS 270,654 thousand. The
land is, for the most part, registered in the names of the
Company and the subsidiaries. Part of the land, of an adjusted
cost of NIS 151,511 thousand, is freehold land of the Company and
the subsidiaries. Another part, of an adjusted cost of NIS
119,143 thousand, is leasehold land, leased by subsidiaries (of
which NIS 4,438 is a capitalized lease). The lease is for various
periods up to 2042, with the option for extension for another 49
years. Part of the land has not yet been registered in the names
of the companies, mainly because the land ownership rights have
not yet been formalized in certain areas where some of the
property is located.
(2) A development contract has been signed relating to land of a cost
of NIS 11,752 thousand between two subsidiaries and the Israel
Lands Authority for which the companies are committed to bear all
the costs of development and construction until January 1997,
after extension. After the fulfillment of this commitment a lease
will be signed between the parties for a period of 49 years.
(3) The plantations are on land area totalling 674 dunams (freehold
land - 437 dunams, leasehold land - 237 dunams, leased until the
year 2062 and thereafter).
27
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 12 - FIXED ASSETS (CONT'D)
B. THE COMPANY BALANCE SHEET:
<TABLE><CAPTION>
BUILDING LAND VEHICLES OTHER TOTAL TOTAL
LEASED INTENDED ASSETS
OUT AND FOR THE
OFFICE CONSTRUCTION
PREMISES OF BUILDINGS
* THEREON DECEMBER 31 DECEMBER 31
1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COST
Balance at beginning of year 29,391 9,672 879 681 40,623 40,868
Additions 2,254 219 82 2,555 618
Disposals (330) (6) (336) (863)
------------- ------------- ------------- ------------- ------------- -------------
Balance at end of year 29,391 11,926 768 757 42,842 40,623
------------- ------------- ------------- ------------- ------------- -------------
ACCUMULATED DEPRECIATION
Balance at beginning of year 15,290 581 90 15,961 15,240
Additions 859 111 58 1,028 1,002
Disposals (330) (3) (333) (281)
------------- ------------- ------------- ------------- ------------- -------------
Balance at end of year 16,149 362 145 16,656 15,961
------------- ------------- ------------- ------------- ------------- -------------
DEPRECIATED COST AS AT DECEMBER 31, 1995 13,242 11,926 406 612 26,186
============= ============= ============= ============= =============
DEPRECIATED COST AS AT DECEMBER 31, 1994 14,101 9,672 298 591 24,662
============= ============= ============= ============= =============
</TABLE>
* Includes rights in land amounting to NIS 19,018.
28
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 12 - FIXED ASSETS (CONT'D)
C. RATES OF DEPRECIATION
<TABLE><CAPTION>
%
--------------
<S> <C>
Buildings 2 - 4
Plantations and irrigation plants 15 - 20
Vehicles 15
Machinery and equipment 10 - 20
Other assets 6 - 20
</TABLE>
NOTE 13 - DEFERRED CHARGES AND OTHER ASSETS
<TABLE><CAPTION>
COST ACCUMULATED
AMORTIZATION AMORTIZED COST
-------------- -------------- --------------------------------
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
<S> <C> <C> <C> <C>
A. CONSOLIDATED
Capital raising expenses 9,318 5,929 3,389 4,168
Taxes in connection with
unrealized profits from
real estate transactions 2,953 746 2,207 2,632
Vacating payments 101 74 27 22
-------------- -------------- -------------- --------------
Deferred charges 12,372 6,749 5,623 6,822
-------------- -------------- -------------- --------------
Other assets - initial difference 3,280 110 3,170 3,438
-------------- -------------- -------------- --------------
15,652 6,859 8,793 10,260
============== ============== ============== ==============
B. THE COMPANY
Deferred charges -
Taxes in connection with
unrealized profits from
real estate transactions 588 222 366 390
============== ============== ============== ==============
</TABLE>
29
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 14 - ADVANCES FROM PURCHASERS OF APARTMENTS AND OTHERS, NET
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
------------------------------- --------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Advances from purchasers 12,408 32,294 4,967
-------------- -------------- --------------
Less - land 1,791 6,822 1,315
construction work 8,496 21,697 2,792
-------------- -------------- --------------
10,287 28,519 4,107
-------------- -------------- --------------
2,121 3,775 860
============== ============== ==============
<CAPTION>
NOTE 15 - CREDIT FROM BANKING ENTITIES
CONSOLIDATED
TERMS OF --------------------------------
LINKAGE DECEMBER 31 DECEMBER 31
AND INTEREST 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Overdraft Prime + 1% 324 235
Import financing German Marks 1,458 1,435
Short-term loans 14.2% - 14% 22,486 5,945
-------------- --------------
24,268 7,615
============== ==============
<CAPTION>
NOTE 16 - SUPPLIERS AND SUBCONTRACTORS
CONSOLIDATED
--------------------------------
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
<S> <C> <C>
Current accounts 14,963 10,886
Checks and notes payable 1,445 1,151
-------------- --------------
16,408 12,037
============== ==============
</TABLE>
30
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 17 - CREDITORS AND CREDIT BALANCES
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sellers of land 31,992 30,413
Provision for completion
of construction 9,720 3,702
Income received in advance 4,118 6,586 113 12
Employees and other liabilities
related to salaries 3,385 3,742 1,028 891
Deductions and taxes
remittable 14,647 12,181 403 279
Subsidiary current account* 11,142 14,418
Provision for losses
of subsidiaries 1,302
Liability relating to
appreciation tax and
consent fees 8,668 2,897
Expenses payable 4,671 5,354 719 658
Others 4,184 4,520 222 94
-------------- -------------- -------------- --------------
81,385 69,395 13,627 17,654
============== ============== ============== ==============
</TABLE>
* Bear annual interest at prime rate + 1.5% (1994 - bear annual interest at
prime rate + 1%).
NOTE 18 - DEFERRED TAXES
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.
31
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 18 - DEFERRED TAXES (CONT'D)
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 16,553
thousand as at the balance sheet date (December 31, 1994 - NIS 17,233
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 an adjusted
amount of NIS 17,327 thousand at balance sheet date. No deferred taxes
have been recorded for these losses. Deductions for inflation of
subsidiaries carried forward are in the amount of NIS 18,445 thousand
(December 31, 1994 - NIS 14,113 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.
C. DEFERRED TAXES
1. Composition:
<TABLE><CAPTION>
IN RESPECT OF IN RESPECT OF OTHER TOTAL TOTAL
DEPRECIABLE BUILDING TIMING
FIXED PROJECTS DIFFERENCES DECEMBER 31 DECEMBER 31
ASSETS LESS ADVANCES 1995 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
A. CONSOLIDATED
Balance as at
beginning
of year (5,615) (27,040) 9,620 (23,035) (20,425)
Changes (617) 9,346 (5,170) 3,559 (2,610)
-------------- -------------- -------------- -------------- --------------
Balance as at
end of year (6,232) (17,694) 4,450 (19,476) (23,035)
============== ============== ============== ============== ==============
B. THE COMPANY
Balance as at
beginning of year 11 324 313 288
Changes 11 1,191 1,180 25
-------------- -------------- -------------- -------------- --------------
Balance as at
end of year 22 1,515 1,493 313
============== ============== ============== ============== ==============
2. The deferred taxes are stated as follows:
<CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Under current assets 2,274 948 1,515 324
Under current liabilities (4,850) (4,940)
Under long-term liabilities (16,900) (19,043) (22) (11)
-------------- -------------- -------------- --------------
(19,476) (23,035) 1,493 313
============== ============== ============== ==============
</TABLE>
32
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 19 - LONG-TERM LIABILITIES
A. COMPOSITION:
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Debentures convertible
to shares (1) 4,403 8,856
Debentures (2) 40,907 47,851
Liabilities to banking
entities (3) 101,540 880 627 880
Other liabilities (4) 53,005 12,221 7,216 16,966
-------------- -------------- -------------- --------------
199,855 69,808 7,843 17,846
============== ============== ============== ==============
<CAPTION>
(1) DEBENTURES CONVERTIBLE INTO SHARES
(a) Composition:
CONSOLIDATED
--------------------------------
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
<S> <C> <C>
Total debentures convertible to shares 8,806 13,284
Current maturities (4,403) (4,428)
-------------- --------------
4,403 8,856
============== ==============
</TABLE>
(b) Debentures convertible into shares, the balance of which at the
balance sheet date was NIS 8,806 thousand, were issued by Bayside
Land Corporation Ltd. (subsidiary) per a prospectus published on
May 5, 1993. 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 1996 - 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.
(c) In 1995, debentures of a nominal value of NIS 32 thousand were
converted into 169 ordinary shares. Also, the Company paid for
redemption of NIS 2,597 thousand debentures the sum of NIS 4,458
thousand.
(d) 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.
33
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 19 - LONG-TERM LIABILITIES (CONT'D)
(2) DEBENTURES
Composition:
<TABLE><CAPTION>
CONSOLIDATED
--------------------------------
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
<S> <C> <C>
Total debentures 47,717 54,190
Current maturities (6,810) (6,339)
-------------- --------------
40,907 47,851
============== ==============
</TABLE>
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
4,922 thousand (December 31, 1994 - NIS 6,913 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 42,795 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 1996 - 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 21B.
(3) LIABILITIES TO BANKING ENTITIES
<TABLE><CAPTION>
DECEMBER 31 DECEMBER 31
INTEREST CURRENT 1995 1994
RATE TOTAL MATURITIES BALANCE BALANCE
-------------- -------------- -------------- -------------- --------------
%
--------------
<S> <C> <C> <C> <C> <C>
Consolidated
balance sheet 4.9 - 5.75 101,791 152 101,540 880
============== ============== ============== ==============
Company balance
sheet 5.75 878 251 627 880
============== ============== ============== ==============
</TABLE>
The above liabilities are linked to the consumer price index
34
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 19 - LONG-TERM LIABILITIES (CONT'D)
(4) OTHER LONG-TERM LIABILITIES
Composition:
<TABLE><CAPTION>
DECEMBER 31 DECEMBER 31
INTEREST CURRENT 1995 1994
RATE TOTAL MATURITIES BALANCE BALANCE
-------------- -------------- -------------- -------------- --------------
%
--------------
<S> <C> <C> <C> <C> <C>
Consolidated
balance sheet
Sellers of land (1) 8,687 1,634 7,053 8,007
Liabilities for
construction (2) 45,952 45,952 4,214
-------------- -------------- -------------- --------------
54,639 1,634 53,005 12,221
============== ============== ============== ==============
Company balance sheet
Subsidiary
company (3) 4.25 - 5.5 24,126 16,910 7,216 16,966
============== ============== ============== ==============
</TABLE>
(1) Liability to transfer apartments to the owners form whom the land
was purchased.
(2) The liability is non-interest bearing and is linked to the
construction input index (pertaining to an amount of NIS 44,139 -
see also Note 21 B.5.).
(3) The loan is linked to the consumer price index.
(5) CLASSIFICATION OF LONG-TERM LIABILITIES BY YEARS OF MATURITY
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Within 12 months -
current maturities 13,098 19,672 17,161 252
============== ============== ============== ==============
During second year 42,812 16,658 7,530 252
During third year 4,662 12,363 313 315
During fourth year 4,349 4,613 313
During fifth year 74,789 4,298
Beyond fifth year till 2005 21,050 25,792
Without redemption date * 52,193 6,084
A loan repayable not later
than December 31, 1996, with
an option of early redemption 16,966
-------------- -------------- -------------- --------------
199,855 69,808 7,843 17,846
============== ============== ============== ==============
</TABLE>
* Liabilities pertaining to construction and land sellers.
35
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 20 - LIABILITY IN RESPECT OF EMPLOYEE SEVERANCE PAY
A. The commitments in respect of employee severance pay of the
Company and of its subsidiaries 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 above-mentioned sums, the Group companies have
no rights of withdrawal.
B. Composition
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Liability in respect of
employee severance 6,933 7,439 305 266
Less - amounts funded* 4,843 5,654 305 266
-------------- -------------- -------------- --------------
2,090 1,785 - -
============== ============== ============== ==============
</TABLE>
* Not including the surrender values of insurance policies for
severance pay.
C. A wholly-owned subsidiary is committed to a retirement
arrangement with a widow of an ex-general manager of the
subsidiary. Based on an independent actuary's opinion, a
liability amounting to NIS 2.1 million (December 31, 1994 - NIS
1.9 millions) is included in the balance sheet.
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
A. GUARANTEES GRANTED
1. In respect of dwelling
purchase insurance* 215 410 379 410
2. On behalf of subsidiaries** 30 38 63,578 53,112
</TABLE>
* See also Note 10C.
** 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.
36
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS (CONT'D)
B. COMMITMENTS
1. In the terms of a prospectus for the issue of debentures (series
"B") by a subsidiary as stated in Note 19A.(2) 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, 1995, balances
held by the bank, per the above arrangement, amounted to NIS 365
thousand (nominal value) in debentures and NIS 676 thousand in
cash (including short-term deposits) (December 31, 1994 - NIS 377
thousand nominal value and NIS 591 thousand, in cash).
2. There are commitments of the Company and subsidiaries in respect
of construction works and land purchasing estimated at balance
sheet date to an approximate amount of NIS 191 million.
3. A subsidiary leased out part of a building to the Government of
Israel for a term of 15 years, from the year 1993, with a right,
of the lessee, to shorten the term to 12 years.
4. The Company has signed an agreement with a subsidiary according
to which the subsidiary will manage a construction project for
the Company, and will receive a management fee at a given rate of
the sales proceeds. During the reported year, approximately NIS
160 thousand were paid.
5. During the reported year a subsidiary company purchased 72% of
the rights in 72 dunams of land in exchange for approximately NIS
44.1 million that will be paid by way of construction services.
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 6 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 587 thousand, including linkage differences, interest and
penalties. In the opinion of the 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.
37
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 21 - CONTINGENT LIABILITIES AND COMMITMENTS (CONT'D)
E. Subsequent to balance sheet date a legal suit was filed against a
subsidiary and others in regards to the distribution of the
profit from a project which was executed in the years 1981 -
1985. The suit is in the amount of NIS 3,449 thousand plus legal
expenses. In the opinion of the management of the subsidiary,
based on a legal opinion received, the outcome of the suit is, at
this stage, difficult to evaluate. The subsidiary is preparing a
statement of defense against the suit. Accordingly, no provision
therefore has been recorded in the books.
NOTE 22 - INCOME FROM CONSTRUCTION AND OTHER SOURCES
<TABLE><CAPTION>
CONSOLIDATED
-------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Apartments, stores and land 151,463 189,520 147,733
Air-conditioning systems and others 30,959 22,778 18,167
Citrus crop 1,335 820 890
-------------- -------------- --------------
183,757 213,118 166,790
============== ============== ==============
</TABLE>
NOTE 23 - THE COMPANY'S SHARE IN THE NET EARNINGS OF INVESTEE COMPANIES
<TABLE><CAPTION>
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
The Company's
share, net, in
the earnings
of investee
companies 11,317* 4,076 5,005 49,080* 27,680 37,077
Add - Portion
of initial
difference
amortized (403) 201 (5) 347 20 63
------------- -------------- ------------- ------------- ------------- -------------
10,914 4,227 5,000 49,427 27,700 37,140
============= ============== ============= ============= ============= =============
Includes dividend
received 7,892 1,554 4,383 9,442 6,207 4,092
============= ============== ============= ============= ============= =============
</TABLE>
* In the past, the Company's equity in the earnings and in the net asset
value of two affiliates was based on financial statements of the
affiliates with a time lag of six months. Beginning with the Company's
financial statements of September 30, 1995 the net asset value data of
the affiliates is based on their up-to-date financial statements. As a
result of the elimination of the time lag, the Company's share in the
earnings of affiliates increased by NIS 1,858 thousand.
38
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 24 - INCOME FROM INVESTMENTS AND FIXED ASSETS
<TABLE><CAPTION>
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Profit from
issues of
capital by
investee companies 52 3,837 6,703 52 3,837 6,703
Gains on
realization of
investments in
investee companies 1,128
Gains on sale
of fixed
assets and land 5,567 11,140 2,587 46
------------- -------------- ------------- ------------- ------------- -------------
5,619 16,105 9,290 98 3,837 6,703
============= ============== ============= ============= ============= =============
</TABLE>
NOTE 25 - INCOME FROM SECURITIES, FINANCING AND OTHERS, NET
<TABLE><CAPTION>
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gains
relating to
marketable
securities
and compulsory
government
loans -
appreciation 359 6,131
Interest from
securities 1,225 1,466
------------- -------------
1,584 7,597
Interest -
From banks
and others 2,328 1,745 1,958 32 176
From investee
companies 56 55 570 111 55
Management fees 1,758 1,720 950 1,369 1,186 1,173
Decrease in the
liability
for pension 2,084
Other income 1,130
------------- -------------- ------------- ------------- ------------- -------------
6,800 5,605 10,560 1,971 1,473 1,228
============= ============== ============= ============= ============= =============
</TABLE>
39
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 26 - CONSTRUCTION COSTS AND OTHERS
<TABLE><CAPTION>
CONSOLIDATED
-------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Apartments, stores and land -
Construction expenses 101,168 122,731 98,995
Land 13,041 19,951 11,447
Change in inventories of apartments
and stores (5,220) 687 5,092
-------------- -------------- --------------
108,989 143,369 115,534
-------------- -------------- --------------
Air-conditioning systems and others -
Materials and installation 27,806 20,491 17,372
Change in inventories of air-conditioning
and other equipment (1,073) (890) (886)
--------------- -------------- --------------
26,733 19,601 16,486
-------------- -------------- --------------
Citrus crop -
Cultivating and picking expenses 1,057 958 1,000
-------------- -------------- --------------
136,779 163,928 133,020
============== ============== ==============
Includes depreciation 488 428 430
============== ============== ==============
</TABLE>
NOTE 27 - ADMINISTRATIVE AND GENERAL EXPENSES
<TABLE><CAPTION>
CONSOLIDATED THE COMPANY
-------------------------------------------- ---------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
-------------------------------------------- ---------------------------------------------
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and
related
expenses 17,280 15,413 15,016 4,258 3,736 3,577
Directors' fees 782 693 726 252 250 275
Professional
services 2,396 1,800 1,970 222 251 337
Office upkeep 2,835 2,537 2,231 862 666 296
Other 2,467 1,764 1,709 434 360 411
------------- -------------- ------------- ------------- ------------- -------------
25,760 22,207 21,652 6,028 5,263 4,896
Less -
Directors' fees
received from
affiliated
companies (231) (262) (242)
Participation
in expenses
by a subsidiary (395) (381) (350)
------------- -------------- ------------- ------------- ------------- -------------
25,529 21,945 21,410 5,633 4,882 4,546
============= ============== ============= ============= ============= =============
</TABLE>
40
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 28 - SELLING AND MARKETING EXPENSES
<TABLE><CAPTION>
CONSOLIDATED
-------------------------------------------------
YEAR ENDED DECEMBER 31
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Salaries and related expenses 1,113 880 661
Advertising 1,730 1,425 1,939
-------------- -------------- --------------
2,843 2,305 2,600
============== ============== ==============
</TABLE>
NOTE 29 - DEPRECIATION AND AMORTIZATION
<TABLE><CAPTION>
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Depreciation 13,895 12,705 11,154 1,028 1,002 995
Amortization 1,366 1,152 1,601 24 24 24
------------- -------------- ------------- ------------- ------------- -------------
15,261 13,857 12,755 1,052 1,026 1,019
============= ============== ============= ============= ============= =============
<CAPTION>
NOTE 30 - FINANCING EXPENSES
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Decrease in value
of securities 30,375 31 24 34
Interest on
securities (1,361) (13) (9) (14)
-------------- ------------- ------------- -------------
29,014 18 15 20
To investee companies 2,377 757 145
In respect
of debentures 1,065 1,245 1,725
To banks and others 3,225 484 902 150 87
To income tax 102 3 4
------------- -------------- ------------- ------------- ------------- -------------
4,290 30,845 2,630 2,395 922 256
============= ============== ============= ============= ============= =============
</TABLE>
41
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 31 - TAXES ON INCOME
A. Composition:
<TABLE><CAPTION>
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Provision for
current year 41,417 35,210 28,895 840 304 1,296
Adjustments
relating to
prior years 16 (495) 822 (485)
Deferred taxes,
net (3,559) 2,610 4,328 (1,180) (23) (28)
------------- -------------- ------------- ------------- ------------- -------------
37,874 37,325 34,045 (825) 281 1,268
============= ============== ============= ============= ============= =============
</TABLE>
B. Final tax assessments for the Company have been received through the
years 1993. Subsidiary companies have received final assessments for
tax years 1984-1993. One subsidiary has not received tax assessments
since inception (1986).
C. In accordance with Amendment 91 to the Income Tax Ordinance, 1993,
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%.
42
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 31 - 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:
<TABLE><CAPTION>
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Adjusted income
before taxes
per statement
of earnings 108,134 83,150 93,655 47,795 30,961 44,668
============= ============== ============= ============= ============= =============
Statutory
tax rate (%) 37 38 39 37 38 39
============= ============== ============= ============= ============= =============
Theoretical tax
on the
adjusted earnings 40,010 31,597 36,525 17,684 11,765 17,421
Addition (saving) of tax, from:
Company's share in
the net earnings of
investee companies (4,038) (1,625) (1,950) (18,288) (10,525) (14,484)
Realization of
investments in
and profit on
issue of capital
by investee companies (19) (1,830) (2,614) (19) (1,458) (2,614)
Expenses not recognized
for tax purposes:
Depreciation and
amortization 3,079 2,942 2,108 268 288 303
Others 326 675 404 100 148 195
Inflationary
erosion of advance
tax payments 888 1,120 822 25 54 39
Income subject to
reduced tax rates (267) (1,026) (649)
Losses carryforward
from prior years (680) (636) (669)
Losses for which
deferred taxes were
not provided (mainly
from securities) 30 8,444 13
Outside shareholder
in joint venture (260) (900) (287)
The effect of changes
in tax rates (1,211)
Others - net (941) (480) (110) 9 408
Adjustments in relating
to prior years 16 (495) 822 (485)
------------- -------------- ------------- ------------- ------------- -------------
37,874 37,325 34,045 (825) 281 1,268
============= ============== ============= ============= ============= =============
</TABLE>
43
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 32 - RELATED PARTIES AND INTERESTED PARTIES
CONSOLIDATED
<TABLE><CAPTION>
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
1995 1994 1993 1995 1994 1993
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
A. BALANCE SHEET DATA
Loans, deposits,
securities and
cash at banks 19,160 25,432 1,367 1,318
Loans from banks 10,660 5,498 1,878 1,132
Loans from
investee companies 16,966
Creditors - land
sellers and others 81
Proposed dividend 12,506 9,800 8,500 6,517
B. STATEMENT OF
EARNINGS DATA
FINANCING INCOME FROM
DEPOSITS AND LOANS
From investee companies 56 55 570 111 55
From banks and others 2,328 1,242 387 32 111 21
350
PARTICIPATION OF
RELATED PARTIES
IN GENERAL EXPENSES 395 381
OTHER INCOME FROM
RELATED PARTIES
Management fees 1,758 1,720 948 1,369 1,186 1,173
Rent 12,460 12,538 11,854 1,060 1,025 941
Profit from issues
of capital by
investee companies 2,797 2,797
FINANCING CHARGES TO
RELATED PARTIES
Banks and others 1,884 788 435 150 86
SALARY AND FRINGE
BENEFITS TO AN
INTERESTED PARTY
EMPLOYED BY
THE COMPANY 1,150 1,016 993 1,150 1,016 993
PAYMENTS TO MEMBERS OF
THE BOARD OF DIRECTORS
(for 8 directors) 252 250 252 252 250 252
</TABLE>
C. TRUST FUNDS ARE MANAGED BY A RELATED PARTIES.
44
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 33 - PRIVATE PLACEMENT AND ISSUE OF SUBSIDIARY
A. PRIVATE PLACEMENT
1. In March 1995, the Company transferred 100% of the shares of
Naveh Building and Development Ltd and 80% of the shares of Gad
Construction Co. Ltd (the remaining 20% were held by Naveh) which
were 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.
2. 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 (of September 1994) and
will be bear interest of 8% p.a.
B. POST BALANCE SHEET EVENT - SUBSIDIARY COMPANY ISSUE
In the month of March 1996, the subsidiary, Hadarim Properties Ltd.,
effected an issue to the public of registered bonds in the amount of NIS
49,250,000, (as well as to another subsidiary in the amount of NIS
738,750 to assure regular trading). The bonds bear interest of 3.5%
p.a., are linked to the consumer price index and are convertible until
February 8, 2001. 615,625 share purchase option warrants which are
exercisable until February 28, 2000 were also issued to the public. The
proceeds from the public issues amounted to NIS 53,260 thousand.
In addition, 2,072,600 ordinary shares of NIS 1 each were issued to the
shareholders of the subsidiary by way of rights. The proceeds of this
issue amounted to NIS 70,054 thousand.
45
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 34 - CONDENSED FINANCIAL STATEMENTS IN NOMINAL (HISTORICAL) VALUE
- THE COMPANY
A. BALANCE SHEET
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents 766 635
Marketable securities 601 584
Customers 103
Accounts receivable and
debit balances 2,975 1,354
Building projects under construction 668
--------------
5,010 2,676
-------------- --------------
LAND 13,535 10,199
-------------- --------------
INVESTMENTS
In investee and other companies 343,365 281,291
-------------- --------------
FIXED ASSETS
Buildings, land, plantations
and other 9,093 6,794
Less/- Accumulated depreciation 374 298
-------------- --------------
8,719 6,496
-------------- --------------
DEFERRED CHARGES
AND OTHER ASSETS 32 34
-------------- --------------
370,661 300,696
============== ==============
46
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 34 - CONDENSED FINANCIAL STATEMENTS IN NOMINAL (HISTORICAL) VALUE
- THE COMPANY
(CONT'D)
A. BALANCE SHEET (CONT'D)
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
CURRENT LIABILITIES
Advances from purchasers of
apartments and others, net 990
Current maturities of
long-term liabilities 17,161 233
Creditors and credit balances 13,627 17,935
Proposed dividend 8,500 6,028
-------------- --------------
40,278 24,196
-------------- --------------
LONG-TERM LIABILITIES
Liabilities to banking
entities 627 814
Other long-term liability 7,216 15,694
-------------- --------------
7,843 16,508
-------------- --------------
SHAREHOLDERS' EQUITY
Share capital (Note 34D1) 3,546 3,546
Capital surplus 17,409 11,019
Retained earnings 301,585 245,427
-------------- --------------
322,540 259,992
-------------- --------------
370,661 300,696
============== ==============
47
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 34 - CONDENSED FINANCIAL STATEMENTS IN NOMINAL (HISTORICAL) VALUE
- THE COMPANY
(CONT'D)
a
B. STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31
1995 1994 1993
------------- ------------- -------------
INCOME
Rentals and warehousing 6,156 5,536 5,253
The Company's share
in the net earnings
of investee companies 66,690 50,003 43,676
Gains and other credits
relating to investments
and fixed assets 103 5,734 10,660
Income from securities,
financing and
others, net 2,843 2,459 1,792
------------- ------------- -------------
75,792 63,732 61,381
------------- ------------- -------------
COSTS AND EXPENSES
Administrative, selling
and others 5,485 4,392 3,611
Property maintenance
(excluding depreciation) 652 909 833
Depreciation and amortization 150 83 65
Property taxes on land 398 506 271
Financing 5,313 2,079 567
------------- ------------- -------------
11,998 7,969 5,347
------------- ------------- -------------
Earnings before
taxes on income 63,794 55,763 56,034
TAXES ON INCOME (864) 145 950
------------- ------------- -------------
Net earnings for the year 64,658 55,618 55,084
============= ============= =============
48
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 34 - CONDENSED FINANCIAL STATEMENTS IN NOMINAL (HISTORICAL) VALUE
- THE COMPANY (CONT'D)
C. STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE><CAPTION>
SHARE CAPITAL RETAINED TOTAL
CAPITAL SURPLUS EARNINGS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE AS AT
JANUARY 1, 1993 3,546 3,979 153,821 161,346
Net earnings for the year
ended December 31, 1993 55,084 55,084
Capitalization of earnings related
to an issue of a subsidiary 7,040 (7,040)
Proposed dividend - 115% (6,028) (6,028)
-------------- -------------- -------------- --------------
BALANCE AS AT
DECEMBER 31, 1993 3,546 11,019 195,837 210,402
Net earnings for the year
ended December 31, 1994 55,618 55,618
Proposed dividend - 170% (6,028) (6,028)
-------------- -------------- -------------- --------------
BALANCE AS AT
DECEMBER 31, 1994 3,546 11,019 245,427 259,992
Net earnings for current year 64,658 64,658
Capital surplus from private
placement of shares of a
subsidiary 6,390 6,390
Proposed dividend - 240% (8,500) (8,500)
-------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 1995 3,546 17,409 301,585 322,540
============== ============== ============== ==============
</TABLE>
D. SHARE CAPITAL
1. Composition:
<TABLE><CAPTION>
DECEMBER 31 1994 AND 1995
--------------------------------
AUTHORIZED ISSUED AND
FULLY PAID
-------------- --------------
<S> <C> <C>
Ordinary shares of NIS 1 n.v.
each (registered) quoted 6,000,000 3,545,814
============== ==============
</TABLE>
49
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 34 - CONDENSED FINANCIAL STATEMENTS IN NOMINAL (HISTORICAL) VALUE
D. SHARE CAPITAL (CONT'D)
2. On May 19, 1993 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 was granted
this year. 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.
50
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 35 - STATEMENTS FOR INCORPORATION IN THE FINANCIAL STATEMENTS OF PEC
A. CHANGE IN REPORTING PRINCIPLES
The main consolidated financial statements of Property and Building
Corporation Limited and subsidiaries as at December 31, 1995 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.
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, 1993 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.
5. During 1995 the Company adopted Opinion No. 57 of the Institute
of Certified Public Accountants in Israel whereby entities under
joint control are consolidated on a proportional basis. For the
purposes of this Note the opinion has not been implemented. The
non-implementation has no effect on the profits reported under
this Note.
51
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 35 - STATEMENTS FOR INCORPORATION IN THE FINANCIAL STATEMENTS OF PEC
(CONT'D)
B. CONDENSED FINANCIAL STATEMENTS
1. BALANCE SHEET
CONSOLIDATED
--------------------------------
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents 19,001 23,219
Short-term deposits and loans 302 662
Marketable securities 29,862 78,475
Compulsory government loans - 34
Customers 22,936 17,296
Accounts receivable and debit
balances 33,694 17,016
Apartments and other inventories 7,069 3,320
Building projects and under
construction 20,509 26,119
-------------- --------------
133,373 166,141
-------------- --------------
LAND 241,907 134,808
-------------- --------------
LONG-TERM DEPOSITS 1,567 2,887
-------------- --------------
INVESTMENTS
In investee companies 99,966 82,956
-------------- --------------
FIXED ASSETS
Buildings, land and other 539,903 373,752
Less/- Accumulated depreciation 87,619 80,568
-------------- --------------
452,284 293,184
-------------- --------------
DEFERRED CHARGES AND OTHER ASSETS 23,879 16,243
-------------- --------------
952,976 696,219
============== ==============
52
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 35 - 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
1995 1994
-------------- --------------
CURRENT LIABILITIES
Advances from purchasers of apartments
and others, net 2,571 8,108
Credit from banking entities 24,268 7,039
Current maturities of long-term
liabilities 13,098 16,655
Suppliers and sub-contractors 16,408 11,135
Creditors and credit balances 81,358 64,622
Deferred taxes 2,735 1,434
Proposed dividend 12,506 8,635
-------------- --------------
152,944 117,628
-------------- --------------
LONG-TERM LIABILITIES
Long-term loans 217,108 69,164
Deferred taxes 2,215 2,945
Liability in respect of employee
severance pay 2,090 1,651
-------------- --------------
221,413 73,760
-------------- --------------
MINORITY INTEREST 169,594 160,079
-------------- --------------
SHAREHOLDERS' EQUITY
Share capital 80,729 80,729
Capital surplus 16,700 7,934
Retained earnings 311,596 256,089
-------------- --------------
409,025 344,752
-------------- --------------
952,976 696,219
============== ==============
53
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 35 - 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
--------------------------------
1995 1994
-------------- --------------
INCOME
Rentals and warehousing 93,306 77,081
From construction and other sources 172,010 177,866
The Company's share in the net
earnings of investee companies 13,474 7,055
Gains and other credits relating to
investments and fixed assets 6,447 15,213
Income from securities, financing
and others, net 13,092 11,272
-------------- --------------
298,329 288,487
-------------- --------------
COST AND EXPENSES
Cost of construction
and other sources 120,250 129,938
Administrative, selling and others 27,666 21,933
Property maintenance (excluding
depreciation) 8,418 7,161
Depreciation and amortization 8,738 7,053
Property taxes on land 4,805 4,290
Financing 10,945 25,769
-------------- --------------
180,822 196,144
-------------- --------------
EARNINGS BEFORE TAXES ON INCOME 117,507 92,343
Taxes on income 31,000 23,047
-------------- --------------
Earnings after taxation 86,507 69,296
Less/- MINORITY INTEREST IN EARNINGS 26,690 23,924
-------------- --------------
Net earnings before effect of an
accounting change 59,817 45,372
Accumulated effect as at January 1,
1994 of adjustment in accounting
treatment of income from marketable
securities 2,350
-------------- --------------
NET EARNINGS 59,817 47,722
============== ==============
EARNINGS PER SHARE
Primary earnings per share of NIS
1.00 par value (in NIS) 16.87 13.46
============== ==============
54
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 35 - STATEMENTS FOR INCORPORATION IN THE FINANCIAL STATEMENTS OF PEC
(CONT'D)
B. CONDENSED FINANCIAL STATEMENTS (CONT'D)
3. STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE><CAPTION>
SHARE CAPITAL RETAINED TOTAL
CAPITAL SURPLUS EARNINGS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE AS AT
JANUARY 1, 1994 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 - 311 - 311
Proposed dividend - 170% - - (6,028) (6,028)
-------------- -------------- -------------- --------------
BALANCE AS AT
DECEMBER 31, 1994 80,729 7,934 256,089 344,752
Net earnings for the year
ended December 31, 1995 - - 59,817 59,817
Elimination of time lag* - - 4,190 4,190
Capital surplus from private
placement of shares of a
subsidiary - 8,507 - 8,507
Paid-in capital stock options, net - 259 - 259
Proposed dividend, net - 240% - - (8,500) (8,500)
-------------- -------------- -------------- --------------
BALANCE AS AT
DECEMBER 31, 1995 80,729 16,700 311,596 409,025
============== ============== ============== ==============
</TABLE>
* In the past, the Company's equity in the earnings and in the net
asset value of two affiliates was based on financial statements
of the affiliates with a time lag of six months. Beginning with
the Company's financial statements of September 30, 1995 the net
asset value data of the affiliates is based on their up-to-date
financial statements. As a result of the elimination of the time
lag, the Company's share in the earnings of affiliates increased
by NIS 4,190 thousand.
55
<PAGE>
Property and Building Corporation Limited and Subsidiaries
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 1995 (IN NIS THOUSANDS)
- -------------------------------------------------------------------------------
NOTE 35 - 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:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1995 1994
-------------- --------------
<S> <C> <C>
Nominal net income as per the statement of earnings 64,658 55,618
Adjustment of differences relating to the following items:
Advances from apartment purchasers (21) 328
Construction work and land (3,255) (6,649)
The Company's share in the net earnings
of investee companies (4,111) (3,826)
Income from investments and fixed assets (363) (2,288)
Financing 43 (1,215)
Depreciation and amortization (3,225) (3,423)
Deferred taxes 5,315 6,183
Minority interest in earnings 1,620 916
Others (844) (272)
Accumulated effect as at January 1, 1995
of adjustment in accounting treatment of
income from marketable securities, net 2,350
Net income as for the "special purpose"
statement of earnings 59,817 47,722
============== ==============
56
<PAGE>
Property and Building Corporation Limited and Subsidiaries
ANNEX - PERCENTAGE OF HOLDING IN INVESTEE COMPANIES AS AT DECEMBER 31, 1995
</TABLE>
<TABLE><CAPTION>
1995 1994
-------------------------------- --------------------------------
PERCENT OF HOLDING(1) PERCENT OF HOLDING(1)
-------------------------------- --------------------------------
VOTING EQUITY VOTING EQUITY
-------------- --------------- -------------- ---------------
% % % %
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
SUBSIDIARY COMPANIES
Bayside Land Corporation Ltd.* 66.05 61.18 66.05 61.18
Hadarim Properties Ltd. 90.00 90.00 72.67 72.67
Naveh Building & Development Ltd. 90.00 90.00 100.00 100.00
"Gad" Building Company Ltd. 90.00 90.00 100.00 100.00
Shadar Building Company Ltd. 100.00 100.00 100.00 100.00
Merkaz Herzlia "A" Ltd. 100.00 100.00 100.00 100.00
Merkaz Herzlia "B" Ltd. (2) 100.00 74.16 100.00 74.16
"Hon" Investment and Trust
Company Ltd. 100.00 100.00 100.00 100.00
Property and Building
(Finance 1986) Ltd. 100.00 100.00 100.00 100.00
Aclim 2000 for Ecology Ltd. 100.00 100.00 100.00 100.00
"Gilat" Building and Housing
in Development Areas Ltd. 100.00 100.00 100.00 100.00
Nichsei Nachalat Beit Hashoeva B.M. 50.00 50.00 50.00 50.00
"Ispro" The Israeli Properties
Rental Corp. Ltd. 58.42 58.42 55.20 55.20
AFFILIATED COMPANIES
Science Based Campus Ltd. 50.00 50.00 50.00 50.00
Mehadrin Ltd. 31.35 31.35 31.21 31.21
Pri - Or Ltd. (3) 12.12 12.12 12.12 12.12
Bartan Holdings and Investment Ltd. 37.19 37.19 37.19 37.19
K.B.A Townbuilders Group Ltd. (4) 20.59 20.59 20.59 20.59
</TABLE>
(1) Including shareholding through subsidiaries.
(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.
* 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, 1995,
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.
57
<PAGE>
Tambour Limited and Subsidiaries
Financial Statements
December 31, 1995
<PAGE>
Tambour Limited and Subsidiaries
Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Contents
Page
Auditor's Report 1
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 57
<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) 670338 Tel: (02) 253291
Telecopier: (972) 3517 4440 Telecopier (972) 4670319 Telecopier (972) 2253292
Somekh Chaikin
Haifa, March 6, 1996
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, 1995
and 1994, 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.
<PAGE>
In our opinion, the above-mentioned financial statements present fairly the
financial position of the Company and of the Company and subsidiary companies as
at December 31, 1995 and 1994, 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, 1995, 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>
Consolidated Balance Sheets as at December 31
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
1995 1994
Adjusted NIS Adjusted NIS
Note thousands thousands
---- --------- ---------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 26,939 18,436
Marketable securities 3 52,711 49,833
Accounts receivable - trade 4A 118,390 86,228
Other receivables 4B 18,091 39,716
Bank deposits 5A 67,027 34,317
Inventories 6 98,065 88,012
----------- -----------
381,223 316,542
Investments and long-term assets
Affiliated companies and others 7 14,459 25,942
Bank deposits and other receivables 5B 3,880 65,882
Deferred taxes, net 16C 4,088 4,300
----------- -----------
22,427 96,124
Property, plant and equipment 8
Cost 457,373 394,638
Less: Accumulated depreciation 314,663 285,633
----------- -----------
142,710 109,005
Intangible assets, net 2L 400 319
----------- -----------
546,760 521,990
=========== ===========
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
2
<PAGE>
<TABLE>
Tambour Limited and Subsidiaries
- -------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994
Adjusted NIS Adjusted NIS
Note thousands thousands
---- --------- ---------
<S> <C> <C> <C>
Current liabilities
Bank credits and others 9 8,356 3,780
Accounts payable - trade 10A 34,299 36,588
Other accounts payable 10B 26,273 21,313
Dividend declared - 10,810
----------- -----------
68,928 72,491
Long-term liabilities
Long-term debt 11A 3,171 2,478
Liability regarding termination of employee-employer
relationship, net 12 1,483 1,050
Deferred taxes 16C 1,513 -
----------- -----------
6,167 3,528
----------- -----------
Deferred credits, net 2D 210 973
----------- -----------
Minority interest 19,090 4,226
----------- -----------
Liens, guarantees
contingencies and commitments 14
Shareholders' equity
Common stock 13 82,244 82,244
Paid-in capital 193,332 193,332
Retained earnings 176,789 165,196
----------- -----------
452,365 440,772
----------- -----------
546,760 521,990
=========== ===========
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
- ----------------------------------------
Jacob Eshel - Vice-Chairman
- ----------------------------------------
Reuben Shulstein - Director and General Manager
March 6, 1996
3
<PAGE>
<TABLE>
Tambour Limited and Subsidiaries
Consolidated Statements of Income for the Year Ended December 31
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
1995 1994 1993
Adjusted NIS Adjusted NIS Adjusted NIS
Note thousands thousands thousands
---- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue from sales 18A 502,742 426,255 460,010
Cost of sales 18B 335,784 277,372 290,811
----------- ---------- -----------
Gross profit 166,958 148,883 169,199
----------- ----------- -----------
Selling and marketing expenses 18C 80,388 73,721 70,302
General and administrative expenses 18D 31,166 27,464 26,754
----------- ----------- -----------
111,554 101,185 97,056
----------- ----------- -----------
Operating income 55,404 47,698 72,143
Finance income (expenses), net 18E (2,400) (19,163) 1,355
Other income, net 18F 3,407 5,693 6,574
----------- ----------- -----------
Income before income taxes 56,411 34,228 80,072
Income taxes 16E 23,540 18,295 30,823
----------- ----------- -----------
Net income after income taxes 32,871 15,933 49,249
Equity in losses of affiliated
companies and others, net (552) (571) (231)
Minority interest in subsidiaries'
income (704) (414) (721)
----------- ----------- -----------
Net income before extraordinary item 31,615 14,948 48,297
Extraordinary item - salary expense
relating to the portion of
securities issued which constitutes
an employee benefit, net 13 - 13,632 -
----------- ----------- -----------
Net income for the year 31,615 1,316 48,297
=========== =========== ===========
Earnings per NIS 1 par value of
shares in NIS 15
Primary earnings per share before
extraordinary item 0.52 0.25 0.84
=========== =========== ===========
Primary earnings per share after
extraordinary item 0.52 0.02 0.84
=========== =========== ===========
Fully diluted earnings per share before
extraordinary item 0.52 0.25 0.80
=========== =========== ===========
Fully diluted earnings per share after
extraordinary item 0.52 0.02 0.80
=========== =========== ===========
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
4
<PAGE>
<TABLE>
Tambour Limited and Subsidiaries
Statement of Shareholders' Equity
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
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, 1992 29,487 - - 188,568 218,055
Changes during 1993:
Issue of bonus shares 38,468 - - (38,468) -
Issue of share capital
and warrants, net 6,043 70,459* 19,292* - 95,794
Exercise of
warrants, net 1,608 17,503* (1,830)* - 17,281
Net income - - - 48,297 48,297
Dividend - - - (18,045) (18,045)
----------- ----------- ------------ ----------- ------------
Balance as at
December 31, 1993 75,606 87,962 17,462 180,352 361,382
Changes during 1994:
Salary expense
relating to the
portion of
securities issued
which constitutes
an employee benefit - 12,127 10,957 - 23,084
Exercise of
warrants, net 6,638 72,001* (7,177)* - 71,462
Net income - - - 1,316 1,316
Dividend** - - - (16,472) (16,472)
----------- ----------- ------------ ----------- ------------
Balance as at
December 31, 1994 82,244 172,090 21,242 165,196 440,772
Changes during 1995
Expiration of warrants - 21,242* (21,242)* - -
Net income - - - 31,615 31,615
Dividend - - - (20,022) (20,022)
----------- ----------- ------------ ----------- ------------
Balance as at
December 31, 1995 82,244 193,332 - 176,789 452,365
=========== =========== ============ =========== ============
<FN>
* Net of issue and registration expenses, after tax affect.
** Including dividend declared of NIS 10,810 thousands.
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
5
<PAGE>
<TABLE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
1995 1994 1993
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income for the year 31,615 1,316 48,297
Reconciliation of net income to net cash
provided by operating activities (a) 25,164 28,686 (23,515)
------------ ----------- ------------
Net cash provided by operating activities 56,779 30,002 24,782
------------ ----------- ------------
Cash flows from investing activities
Acquisition of shares in affiliated companies
that became subsidiaries (b) (914) 37 -
Purchases of property, plant and equipment (37,333) (32,261) (59,910)
Proceeds from sale of property and equipment 1,922 2,131 1,506
Sales (Purchases) of marketable securities, net (3,333) 16,468 (34,137)
Redemption of government loans - 1,032 1,505
Investments in affiliated companies and others (676) (3,095) (2,614)
Proceeds from sale of affiliate 135 - -
Loans to affiliated companies and others (4,636) (4,807) (3,469)
Redemption of loans to affiliated companies and others 676 1,425 212
Long-term bank deposit and other
long-term receivables - (64,357) (2,815)
Investment in capital notes of
affiliated companies - (184) (369)
Redemption of capital notes - 1,525 -
Decrease (Increase) in short-term
deposits and loans, net 31,775 (7,776) (22,446)
Increase in intangible assets (1,460) - -
Additional investment in subsidiary - - (190)
Dividend received from affiliated company - 53 -
------------ ----------- ------------
Net cash used in investment activities (13,844) (89,809) (122,727)
------------ ----------- ------------
Cash flows from financing activities
Dividend distributed (30,832) (5,661) (18,045)
Issue of minority capital in consolidated subsidiary - 5,858 -
Decrease in short-term bank credits, net (3,129) (10,718) (2,378)
Receipt of long-term loans 983 1,302 -
Repayment of long-term loans (1,454) (1,448) (822)
Issue of share capital and warrants, net - - 92,965
Proceeds from exercise of warrants, net - 71,208 17,281
------------ ----------- ------------
Net cash provided by (used in) financing activities (34,432) 60,541 89,001
------------ ----------- ------------
Increase (Decrease) in cash and cash equivalents 8,503 734 (8,944)
Balance of cash and cash equivalents
at beginning of year 18,436 17,702 26,646
------------ ----------- ------------
Balance of cash and cash equivalents
at end of year 26,939 18,436 17,702
============ =========== ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
6
<PAGE>
<TABLE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd)
- -------------------------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1995
1995 1994 1993
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 24,670 22,003 19,134
Deferred taxes, net 632 3,483 2,267
Salary expense relating to the employee benefit
portion of securities issued, net - 13,632 -
Increase (Decrease) in liability regarding termination
of employee - employer relationship, net 359 50 (358)
Minority interest in earnings of subsidiaries 704 414 721
Equity in losses of
affiliated companies and others, net 666 1,118 768
Gain from sale of affiliate - (3,809) (4,354)
Gain from share issue of subsidiary (135) - -
Capital gains, net (1,538) (778) (546)
(Increase) Decrease in value of government loans
and erosion of loans, net (242) 158 (151)
(Increase) Decrease in value of marketable securities 455 13,335 (6,447)
Increase in value of bank deposits (2,501) (2,669) -
Changes in assets and liabilities:
Increase in accounts receivable - trade (16,428) (4,060) (10,919)
(Increase) Decrease in other receivables 24,082 (15,587) (7,799)
(Increase) Decrease in inventories 156 (6,794) (4,857)
Increase (Decrease) in accounts payable - trade (8,943) 10,924 (3,816)
Increase (Decrease) in other accounts payable 3,227 (2,734) (7,158)
------------ ----------- ------------
25,164 28,686 (23,515)
============ =========== ============
(b) Acquisition of shares in an affiliated company
that became a consolidated company *
Assets and liabilities of the affiliated company
as at the date of acquisition
(other than cash):
Working capital (other than cash) 11,664 (677) -
Fixed assets, net 21,688 96 -
Intangible assets 588 - -
Long-term liabilities (1,514) (58) -
Goodwill, net 724 - -
Minority interest at
date of acquisition (16,099) (8) -
------------ ----------- ------------
17,051 (647) -
Investment on equity basis as at date of
becoming a consolidated company (16,137) 610 -
------------ ----------- ------------
914 (37) -
============ =========== ============
<FN>
* 1995 - Serafon Resinous Chemicals Ltd.
1994 - Solar Dynamics Ltd.
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
7
<PAGE>
<TABLE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd)
- -------------------------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1995
1995 1994 1993
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
(c) Material non-cash transactions
Sale of fixed assets by a subsidiary against
long-term loan 473 - -
============ =========== ============
Minority's portion of dividend
declared by a subsidiary 222 - -
============ =========== ============
Dividend declared - 10,810 -
============ =========== ============
The accompanying notes and appendix are an integral part of the financial
statements.
8
<PAGE>
</TABLE>
<TABLE>
Balance Sheets as at December 31
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
1995 1994
Adjusted NIS Adjusted NIS
Note thousands thousands
---- ----------- -----------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 24,918 13,880
Marketable securities 3 52,711 49,833
Accounts receivable - trade 4A 72,004 58,657
Other receivables 4B 32,219 54,321
Bank deposits 5A 67,027 34,317
Inventories 6 76,857 75,537
----------- -----------
325,736 286,545
----------- -----------
Investments and long-term assets
Investments in subsidiaries, affiliates and others 7 51,760 44,065
Bank deposits and other receivables 5B 3,254 65,086
Deferred taxes, net 16C 3,932 4,174
----------- -----------
58,946 113,325
----------- -----------
Property, plant and equipment 8
Cost 387,846 357,259
Less: Accumulated depreciation 279,524 261,725
----------- -----------
108,322 95,534
----------- -----------
493,004 495,404
=========== ===========
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
9
<PAGE>
<TABLE>
Tambour Limited
- -------------------------------------------------------------------------------------------------
1995 1994
Adjusted NIS Adjusted NIS
Note thousands thousands
---- ----------- -----------
<S> <C> <C> <C>
Current liabilities
Bank credits 9 120 12
Accounts payable - trade 10A 17,187 23,591
Other accounts payable 10B 20,103 16,972
Dividend declared 21A - 10,810
----------- -----------
37,410 51,385
----------- -----------
Long-term liabilities
Liability regarding termination of employee -
employer relationship, net 12 1,164 1,015
Capital notes issued to subsidiaries 11B 2,065 2,232
----------- -----------
3,229 3,247
----------- -----------
Liens, guarantees, contingencies and
commitments 14
Shareholders' equity 13
Share capital 82,244 82,244
Paid-in capital 193,332 193,332
Retained earnings 176,789 165,196
----------- -----------
452,365 440,772
----------- -----------
493,004 495,404
=========== ===========
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
- ------------------------------------------
Jacob Eshel - Vice-Chairman
- ------------------------------------------
Reuben Shulstein - Director and General Manager
March 6, 1996
10
<PAGE>
<TABLE>
Tambour Limited
Statement of Income for the Year Ended December 31
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
1995 1994 1993
Adjusted NIS Adjusted NIS Adjusted NIS
Note thousands thousands thousands
---- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue from sales 18A 394,629 361,385 388,168
Cost of sales 18B 253,802 232,907* 242,448
------------ ----------- ------------
Gross profit 140,827 128,478 145,720
------------ ----------- ------------
Selling and marketing expenses 18C 65,899 62,045 58,957
General and administrative expenses 18D 23,012 21,666 21,437
------------ ----------- ------------
88,911 83,711 80,394
------------ ----------- ------------
Operating income 51,916 44,767 65,326
Finance income (expenses), net 18E 180 (16,919) 2,643
Other income, net 18F 1,823 4,932 2,078
------------ ----------- ------------
Income before income taxes 53,919 32,780 70,047
Income taxes 16E 21,920 17,055 29,237
------------ ----------- ------------
Net income after income taxes 31,999 15,725 40,810
Equity in earnings (losses) of subsidiaries,
affiliates and others, net (384) (777)* 7,487
------------ ------------
Net income before extraordinary item 31,615 14,948 48,297
Extraordinary item - Salary expense
relating to the securities issued
which constitutes an employee
benefit, net - 13,632 -
------------ ----------- ------------
Net income for the year 31,615 1,316 48,297
============ =========== ============
Earnings per NIS 1 par value of
shares in NIS 15
Primary earnings per share before
extraordinary item 0.52 0.25 0.84
============ =========== ============
Primary earnings per share after
extraordinary item 0.52 0.02 0.84
============ =========== ============
Fully diluted earnings per share before
extraordinary item 0.52 0.25 0.80
============ =========== ============
Fully diluted earnings per share after
extraordinary item 0.52 0.02 0.80
============ =========== ============
<FN>
* Reclassified - See Note 7A
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
11
<PAGE>
<TABLE>
Tambour Limited
Cash Flows Statements for the Year Ended December 31
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
1995 1994 1993
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income for the year 31,615 1,316 48,297
Reconciliation of net income to net cash
provided by operating activities (a) 18,179 29,755 (32,207)
------------ ----------- ------------
Net cash provided by operating activities 49,794 31,071 16,090
------------ ----------- ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (32,249) (27,508) (56,249)
Proceeds from sale of property and equipment 923 1,484 1,227
Sales (Purchases) of marketable securities, net (2,701) 16,467 (34,138)
Redemption of government loans - 921 1,505
Investments in affiliates, subsidiaries and others (3,093) (3,122) (2,614)
Proceeds from sale of affiliate 135 - -
Loans to affiliates, subsidiaries and others (7,005) (6,492) (8,358)
Repayment of loans to affiliates
subsidiaries and others 4,279 4,011 212
Long-term bank deposit and other
long-term receivables - (64,212) (2,164)
Investment in capital notes of affiliates and
subsidiaries - - (1,388)
Redemption of capital notes of affiliates
and subsidiaries - 1,525 -
(Increase) Decrease in short-term
deposits and loans, net 31,679 (9,398) (26,431)
Dividend received from affiliated companies - 53 -
------------ ----------- ------------
Net cash used in investment activities (8,032) (86,271) (128,398)
------------ ----------- ------------
Cash flows from financing activities:
Dividend distributed (30,832) (5,662) (18,045)
Increase (Decrease) in short-term bank credits, net 108 (12,119) 11,555
Issue of share capital and warrants, net - - 92,967
Proceeds from exercise of warrants, net - 71,207 17,281
------------ ----------- ------------
Net cash provided by (used in) financing activities (30,724) 53,426 103,758
------------ ----------- ------------
Increase (Decrease) in cash and cash equivalents 11,038 (1,774) (8,550)
Balance of cash and cash equivalents
at beginning of year 13,880 15,654 24,204
------------ ----------- ------------
Balance of cash and cash equivalents
at end of year 24,918 13,880 15,654
============ =========== ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
12
<PAGE>
<TABLE>
Tambour Limited
Cash Flows Statements for the Year Ended December 31 (cont'd)
- -------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted to New Israel Shekels of December 1995
1995 1994 1993
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 19,281 18,749 16,188
Deferred taxes, net 187 3,239 2,269
Salary expense relating to the employee benefit
portion of securities issued, net - 13,632 -
Increase (Decrease) in liability regarding termination
of employee - employer relationship, net 149 77 (350)
Equity in (earnings) losses of subsidiaries, affiliates
and others, net 497 3,468* (6,850)
Gain from private offering of subsidiary - (3,810) -
Gain on sale of affiliate (135) - -
Capital gains, net (743) (753) (502)
Revaluation of government loans and
erosion of loans, net 345 410 420
Decrease (Increase) in value of marketable
securities (177) 13,335 (6,447)
Increase in value of bank deposits (2,501) (2,669) -
Changes in assets and liabilities:
Increase in accounts receivable - trade (13,347) (1,602) (3,230)
(Increase) Decrease in other receivables 19,216 (14,575) (10,826)
Increase in inventories (1,320) (6,234) (2,678)
Increase (Decrease) in accounts payable - trade (6,404) 8,561 (3,751)
Increase (Decrease) in other accounts payable 3,131 (2,073) (16,450)
------------ ----------- ------------
18,179 29,755 (32,207)
============ =========== ============
(b) Non cash transactions:
On December 31, 1994, dividend declared of NIS 10,810 thousands.
<FN>
(*) Reclassified, see Note 7A.
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
13
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
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 and 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 investment in shares 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
-----
Bureau.
B. Financial statements in adjusted values
1. The Company prepares 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 of the
Company 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, 1995
- --------------------------------------------------------------------------------
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) have been adjusted
for the changes in the consumer price index from the month of
execution of each transaction 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 have been 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.), have been 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), have been adjusted based upon the
indices of the month the transaction 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, have
been 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, 1995
- --------------------------------------------------------------------------------
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.
The erosion of a dividend declared during the prior year
pertains to the period from the beginning of the current year
through the date the dividend was actually paid, and is
presented as a reduction from the current year's dividend.
(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 of them, appears in the Appendix to the financial
statements.
2. The equity acquired in excess of the cost of the investment in
subsidiaries or the excess of cost over equity not ascribed to
specific assets are included in liabilities in "Deferred credits,
net" or are included in assets in "Intangible assets, net" and are
amortized by the straight line method over a period of ten years.
Such balances pertaining to acquisitions prior to 1995 are amortized
over 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
1. Investments in companies and partnerships are included on the equity
basis which, in management's estimation, does not exceed their fair
value.
2. Income from sales not yet realized outside the group have been
eliminated.
16
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
E. Investments in subsidiaries, affiliates and partnerships (cont'd)
3. Excess of cost over equity not ascribed to specific assets and
deferred credits are amortized by the straight line method over ten
years. Balances pertaining to acquisitions prior to 1995 are
amortized 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.
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 production, 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
The financial statements include allowances for doubtful accounts that
reflect fairly, based upon management's estimation, the losses included in
accounts receivable, the collection of which is doubtful.
The allowance for doubtful accounts is computed mainly at a rate of 8.5%
of the open balances of accounts receivable and, in small part
specifically for accounts which are, in management opinion, doubtful.
Accounts receivable that, based upon management's opinion, are
uncollectible, are written-off.
I. 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
included in the Statement of Income.
17
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
J. Property, plant and equipment (cont'd)
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.
Annual depreciation rates:
%
---
Buildings 5 - 10
Machinery and equipment 10 - 20
Motor vehicles 15 - 20
Computers 20 - 33
Furniture and office equipment 6 - 100
Leasehold improvements 6 - 20
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 included in 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 is computed according to the liabilities
approach at the tax rates that will be applicable upon utilization of the
deferred taxes or upon realization of the tax benefits, as known at the
time of approval of the financial statements by the Board of Directors.
Both the consolidated balance sheet and the balance sheet of the Company
include deferred tax assets, the realization of which is dependent upon
the existence of taxable income in future years. In management's
estimation, these deferred tax assets are realizable in the future.
18
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
K. Deferred taxes (cont'd)
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" and in "Long-term liabilities"
pertain to items that are not current (property, plant and equipment,
provision for severance pay, 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
pertaining to private motor vehicles, under the rules determined by
the Institute of Certified Public Accountants in Israel.
b. Investments in subsidiaries and affiliates, 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.
L. Intangible assets, net
Know-how and patent rights and foundation costs - are stated at amortized
cost and amortized on the straight-line basis over 3-8 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.
19
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
N. Foreign currency and linkage (cont'd)
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
------------------------------------- -------------------------------------
1995 1994 1993 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CPI in
points 129.4 119.7 104.6 8.10 14.45 11.25
=========== =========== =========== =========== =========== ===========
U.S. dollar
exchange
rate 3.135 3.018 2.986 3.87 1.07 8.03
=========== =========== =========== =========== =========== ===========
</TABLE>
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 rates 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 1995
1. In 1995, Serafon Resinous Chemicals Corp. Ltd. (hereafter "Serafon")
was consolidated for the first time following an increase in the
Company's holding during the year from 46.5% to 55.65%. The
investment in Serafon, prior to acquisition of control (March 1995),
was presented based on the equity method.
20
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
R. Subsidiaries consolidated for the first time in 1995 (cont'd)
2. Information regarding Serafon that has been included in the
consolidated financial statements:
<TABLE>
<CAPTION>
Balance sheet Upon obtaining On December 31
control* 1995 and for the
period from the
acquisition
through the
above date
-------------- --------------
<S> <C> <C>
Cash and cash equivalents 5 448
Working Capital (except cash and cash equivalents), net 11,664 13,492
Long-term assets - 472
Property plant and equipment, net 21,688 20,160
Intangible assets, net 588 324
Long-term liabilities (1,514) (1,788)
Deferred credits, net 724 397
Minority interest (16,099) (14,683)
----------- ------------
17,056 18,822
Statement of income
Revenue from sales 10,887 40,991
=========== ============
Net income 140 1,176
=========== ============
<FN>
* Statement of income information from January 1, 1995 through the
date control was obtained.
</TABLE>
3. The consolidated statements of income and cash flows for the years
ended December 31, 1994 and 1993 do not include the statements of
income and cash flows of Serafon.
S. Erosion of capital notes
The erosion of unlinked capital notes bearing no interest which were
issued by the Company to subsidiaries or vice versa, is recorded directly
to additional paid-in capital and not to the Statement of Income.
Note 3 - Marketable Securities
<TABLE>
<CAPTION>
Consist of: Consolidated and the Company
----------- ------------
December 31 December 31
1995 1994
----------- ------------
Adjusted NIS Adjusted NIS
thousands thousands
----------- ------------
<S> <C> <C>
Shares 4,449 5,573
Participation certificates in mutual funds 1,626 3,425
Debentures 46,636 40,745
Derivatives - 90
----------- ------------
52,711 49,833
</TABLE>
21
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 4 - Accounts Receivable - Trade and Others
<TABLE>
<CAPTION>
Consist of:
Consolidated The Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
----------- ------------ ------------ ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
A. Trade
Open accounts 87,856 61,361 58,125 43,929
Checks receivable 30,362 21,889 14,871 13,510
Related and interested parties 2,904 4,468 4,474 5,105
Income receivable 6,151 3,536 260 64
----------- ------------ ----------- ------------
127,273 91,254 77,730 62,608
Less: Allowance for
doubtful accounts 8,883 5,026 5,726 3,951
----------- ------------ ----------- ------------
118,390 86,228 72,004 58,657
=========== ============ =========== ============
B. Others
Advance payments of income
taxes less provision 6,238 26,783 4,334 25,208
Affiliates and subsidiaries 326 985 13,599 11,621
Government institutions 112 956 - 270
Deferred taxes, net1 4,875 3,945 3,877 3,822
Employees 263 381 216 333
Prepaid expenses 4,490 4,258 3,806 3,771
Short-term loans2 432 528 5,932 6,395
Current maturities of capital notes
and long-term notes
to affiliates and subsidiaries 60 543 60 2,717
Sundry 1,295 1,337 395 184
----------- ------------ ----------- ------------
18,091 39,716 32,219 54,321
=========== ============ =========== ============
<FN>
1 See Note 16C.
2 December 31, 1995 - 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, 1994 - NIS 5,946 thousand,
unlinked, at 18% interest p.a.)
</TABLE>
22
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 5 - Bank Deposits and Other Receivables
<TABLE>
<CAPTION>
Balances on linkage and interest rate basis:
Annual interest Consolidated The Company
rates as of -------------------------- --------------------------
December 31 December 31 December 31 December 31 December 31
1995 1995 1994 1995 1994
----------- ----------- ------------ ----------- ------------
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 3.25 - 1,968 - 1,968
Deposits in
a mortgage
bank linked
to the index 2.7 - 4.8 67,027 32,349 67,027 32,349
----------- ------------ ----------- ------------
67,027 34,317 67,027 34,317
=========== ============ =========== ============
B. Included in
investments
and long-term
assets
Deposits in a
mortgage bank
linked to
the index 2.7 - 3.1 2,798 64,522 2,798 64,523
Other
receivables 10.68 1,082 1,360 456 563
----------- ------------ ----------- ------------
3,880 65,882 3,254 65,086
=========== ============ =========== ============
Maturity Dates:
Second year 3,104 62,518 2,871 61,765
Third year 160 2,951 81 2,907
Fourth year 169 88 90 88
Fifth year 179 97 100 97
Thereafter 268 228 112 229
----------- ------------ ----------- ------------
3,880 65,882 3,254 65,086
=========== ============ =========== ============
</TABLE>
23
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 6 - Inventories
<TABLE>
<CAPTION>
Consist of:
Consolidated The Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
----------- ------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Finished products 37,047 31,593 27,674 25,506
Work-in-process 7,291 6,162 7,041 6,130
Raw materials and packing
materials 49,451 43,415 38,825 37,337
In transit 4,276 6,842 3,317 6,564
----------- ------------ ----------- ------------
98,065 88,012 76,857 75,537
=========== ============ =========== ============
</TABLE>
Note 7 - Investments in Subsidiaries, Affiliates and Others
<TABLE>
<CAPTION>
A. Consolidated subsidiaries
The Company
--------------------------
December 31 December 31
1995 1994
----------- ------------
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 14,243 14,243
Additions, at cost 9,606* 8,415
Share in accumulated income since January 1, 1992 5,491 5,529**
Balance of investments at end of year (I) (III) 3,597 -
----------- ------------
32,937 28,187
Capital notes (II) 2,221 2,401
Long-term loans and debit balances (see C below) 2,200 3,475**
----------- ------------
37,358 34,063
Less: current maturities of long-term loans - 2,174
----------- ------------
37,358 31,889
=========== ============
<FN>
* Net of NIS 278 thousand dividend from a subsidiary.
** Reclassified - the Company in its 1994 financial statements,
reclassified the treatment of its participation in the expenses of
one of its subsidiaries as a result of the subsidiary's restatement
of these expenses. The expenses in which the Company participated
which were included in last year's Statement of Income in "Equity in
earning of subsidiaries affiliates and others, net" have been
reclassified to production expenses, in the Company's statements
only.
</TABLE>
24
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 7 - Investments in Subsidiaries, Affiliates and Others (cont'd)
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------------------------------------------
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 2,198 210 2,903 1,056
=========== ============ =========== ============
<CAPTION>
(II) Unlinked, bearing no interest
December 31, 1995 December 31, 1994
-------------------------------------------------------
Market value Carrying value Market value Carrying value
----------- ------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
(III) Includes shares of affiliate
company traded on the
Tel-Aviv Stock Exchange 14,742 19,100 - -
=========== ============ =========== ============
<CAPTION>
B. Affiliates and others
Consolidated Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
----------- ------------ ----------- ------------
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 9,248 9,248 679 679
Additions at cost (I) 13,516 9,694 9,178 5,326
Share in accumulated
income (loss), net,
since 1.1.92 (I) (644) 21 (1,046) (587)
----------- ------------ ----------- -------------
Balance at end of year (II) (III) 22,120 18,963 8,811 5,418
Less: affiliate that became
a consolidated subsidiary (17,056) - (3,597) -
----------- ------------ ----------- ------------
Balance at end of year (II)(III) 5,064 18,963 5,214 5,418
Capital notes (IV) 150 162 - -
Long-term loans and
debit balances (see C below) 9,305 7,360 9,248 7,301
----------- ------------ ----------- ------------
14,519 26,485 14,462 12,719
Less: Current maturities
of capital notes and loans 60 543 60 543
----------- ------------ ----------- ------------
14,459 25,942 14,402 12,176
=========== ============ =========== ============
</TABLE>
25
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 7 - Investments in Subsidiaries, Affiliates and Others (cont'd)
B. Affiliates and others (cont'd)
(I) Including partnerships
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------------------------------------------
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 - - 496* 785*
=========== ============ =========== ============
Company - - 995 868
=========== ============ =========== ============
<CAPTION>
December 31, 1995 December 31, 1994
-------------------------------------------------------
Market value Carrying value Market value Carrying 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 - - 15,994 18,361
=========== ============ =========== ============
</TABLE>
(IV) Unlinked, bearing no interest
* Includes Deferred credit, the original amount of NIS 461 thousand
and the amortized balance in the amount of NIS 77 thousand.
26
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 7 - Investments in Subsidiaries, Affiliates and Others (cont'd)
C. In October 1995, the Kne Uvne Do-It-Yourself Partnership, of which the
Company is a 19.8% limited partner, acquired all of the share capital and
ownership rights of loans of Ace Israel (Do-It- Yourself Products) Ltd.
for approximately 21 million NIS in total for all partners.
D. Long-term loans and debit balances
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------ ----------------------
Linked to Linked to Linked to Linked to
index foreign Index foreign
currency currency
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Average interest rate 0% 2-6% 0% 2%
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Adjusted Adjusted Adjusted Adjusted
NIS thousands NIS thousands NIS thousands NIS thousands
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Consolidated
Long-term loans and
debit balances 8,873 432 5,941 1,418
=========== =========== =========== ===========
The Company
Long-term loans and
debit balances 11,016 432 11,502 1,418
=========== =========== =========== ===========
Consolidated
By due dates:
First year - 60 - 543
Second year - 235 - 488
Third year - 137 - 387
No due date 8,873 - 5,941 -
----------- ----------- ----------- -----------
8,873 432 5,941 1,418
=========== =========== =========== ===========
The Company
By due dates:
First year - 60 2,174 543
Second year - 235 - 488
Third year - 137 - 387
No due date 11,016 - 9,328 -
----------- ----------- ----------- -----------
11,016 432 11,502 1,418
=========== =========== =========== ===========
</TABLE>
27
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment
<TABLE>
A. Consist of:
<CAPTION>
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, 1995 131,156 222,461 10,854 14,767 15,400 394,638
Additions during
the year 12,185 a 13,717 4,807 1,244 a 5,380 37,333
Affiliate that became
a consolidated
subsidiary 2,858 22,956 1,186 - 2,714 29,714
Reductions during
the year - 1,732 20 - 2,560 4,312
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1995 146,199 d 257,402 16,827 16,011 20,934 457,373
=========== =========== =========== =========== =========== ===========
Accumulated
depreciation and
amortization:
Balance -
January 1, 1995 83,974 172,276 9,687 12,090 7,606 285,633
Additions during
the year 3,223 15,728 653 1,597 3,258 24,459
Affiliate that
became a consolidate
subsidiary 208 5,532 750 - 1,536 8,026
Reductions during
the year - 1,347 - - 2,108 3,455
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1995 87,405 192,189 11,090 13,687 10,292 314,663
=========== =========== =========== =========== =========== ===========
Depreciated
balance:
December 31,
1995 c 58,794 65,213 5,737 2,324 b 10,642 142,710
=========== =========== =========== =========== =========== ===========
Depreciated
balance:
December 31,
1994 c 47,182 50,185 1,167 2,677 b 7,794 109,005
=========== =========== =========== =========== =========== ===========
</TABLE>
(a) Includes advance payments in the amount of NIS 1,500 thousand (December
31, 1994 - NIS 2,108 thousand).
(b) Includes depreciated balance of motor vehicles acquired by capital lease
in the amount of NIS 289 thousand (December 31, 1994 - NIS 553 thousand).
(c) Includes depreciated balance of leasehold improvements in the amount of
NIS 3,113 thousand. (December 31, 1994 - NIS 1,543 thousand).
(d) Net of NIS 685 thousand investment grants received by a subsidiary. To
guarantee the terms related to receiving the grant, a lien in favor of the
State of Israel was secured on all the assets for which the grant was
received. If the abovementioned company does not meet the terms related
to the receipt of the grant, it will have to return the amount of the
grant in addition to interest from the date it was received.
28
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment (cont'd)
<TABLE>
The Company
<CAPTION>
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, 1995 121,457 203,915 9,232 13,477 9,178 357,259
Additions during
the year 11,786 11,311 4,520 1,049 3,583 32,249
Reductions during
the year - 144 - - 1,518 1,662
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1995 133,243 215,082 13,752 14,526 11,243 387,846
=========== =========== =========== =========== =========== ===========
Accumulated
depreciation and
amortization:
Balance -
January 1, 1995 76,721 159,629 9,108 11,251 5,016 261,725
Additions during
the year (I) 2,821 12,813 469 1,414 1,764 19,281
Reductions during
the year - 141 - - 1,341 1,482
----------- ----------- ----------- ----------- ----------- -----------
Balance -
December 31,
1995 79,542 172,301 9,577 12,665 5,439 279,524
=========== =========== =========== =========== =========== ===========
Depreciated
balance:
December 31,
1995 53,701 42,781 4,175 1,861 5,804 108,322
=========== =========== =========== =========== =========== ===========
Depreciated
balance:
December 31,
1994 44,736 44,286 124 2,226 4,162 95,534
=========== =========== =========== =========== =========== ===========
</TABLE>
(I) In both the Company and consolidated figures, includes amortization of
land lease rights in the amount of NIS 43 thousand. (1994 - NIS 43
thousand).
29
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment (cont'd)
B.1. Part of the land and buildings in the amount of NIS 269 thousand is
registered in the Land Registry Office in the name of a wholly-owned
subsidiary.
2. NIS 1,076 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 Others
Balances on linkage and interest rate basis:
<TABLE>
<CAPTION>
Annual interest Consolidated The Company
rates as of -------------------------- --------------------------
December 31 December 31 December 31 December 31 December 31
1995 1995 1994 1995 1994
----------- ----------- ----------- ----------- -----------
% Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
----------- Thousands Thousands Thousands Thousands
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Bank credit in
Israeli currency,
unlinked 15.3-17.7 4,768 2,909 120 12
Bank credit in
foreign currency 3.4 2,726 - - -
Current portion of
long-term loans 862 871 - -
----------- ------------ ----------- ------------
8,356 3,780 120 12
=========== ============ =========== ============
</TABLE>
30
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 10 - Accounts Payable - Trade and Others
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
----------- ------------ ----------- ------------
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 28,294 32,770 16,003 22,254
Related parties 1,233 1,713 1,151 1,337
Checks payable 4,772 2,105 33 -
----------- ------------ ----------- ------------
34,299 36,588 17,187 23,591
=========== ============ =========== ============
B. Others
Employees including
provisions for
fringe benefits 13,313 12,762 10,486 10,405
Government institutions 3,506 2,251 2,576 1,601
Affiliated and subsidiary
companies - - 1,559 1,669
Customer advances 1,639 276 - -
Other accruals 7,815 6,024 5,482 3,297
----------- ------------ ----------- ------------
26,273 21,313 20,103 16,972
=========== ============ =========== ============
</TABLE>
31
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 11 - Long-Term Liabilities
A. Long-term loans *
<TABLE>
<CAPTION>
1. Balances on linkage and interest rate basis
Consolidated
Annual interest --------------------------
rates as of Adjusted NIS thousands
------------ --------------------------
December 31 December 31 December 31
1995 1995 1994
------------ ----------- ------------
%
------------
<S> <C> <C> <C>
Unlinked Israeli currency debt1 0 - 18 560 530
Index-linked Israeli currency debt2 0 - 4 1,542 633
Debts in or linked to foreign currencies 8 - 10 1,759 1,759
Capital lease debt - index-linked 6.5 37 107
Capital lease debt - linked to
foreign currency 9 - 13 135 320
----------- ------------
4,033 3,349
Less - current maturities 862 871
----------- ------------
3,171 2,478
=========== ============
1 Includes capital notes unlinked bearing no
interest, to related parties
in the amount of 439 475
=========== ============
2 Includes loans from related parties
in the amount of
(linked to the index) 633 633
=========== ============
2. Balances by due dates
</TABLE>
<TABLE>
<CAPTION>
Consolidated
--------------------------
December 31 December 31
1995 1994
----------- ------------
Ajusted NIS Adjusted NIS
thousands thousands
----------- ------------
<S> <C> <C>
First year 862 871
Second year 716 481
Third year 403 155
Fourth year 354 737
Fifth year 629 -
No due date 1,069 1,105
----------- ------------
4,033 3,349
=========== ============
</TABLE>
* 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.
32
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 12 - Liability Regarding Termination of Employee - Employer Relationship,
Net
A. Consists of:
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
----------- ------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Provisions for severance pay 4,542 3,682 3,255 3,503
Less deposits 3,809 2,902 2,841 2,758
----------- ------------ ----------- ------------
733 780 414 745
Provision for unutilized
sick leave* 750 270 750 270
----------- ------------ ----------- ------------
1,483 1,050 1,164 1,015
=========== ============ =========== ============
</TABLE>
* 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).
33
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
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. The share capital consists of:
<TABLE>
<CAPTION>
Authorized Issued and paid for
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
------------ ------------ ------------ -------------
Number of shares (thousands) Number of shares (thousands)
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Ordinary shares
of NIS 1.0 each 100,000 100,000 60,582 60,582
=========== ============ =========== ============
</TABLE>
B. The balance of warrants issued in 1993 which were not exercised,
6,083,310 warrants (series 2), expired on February 10, 1995.
C. 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 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 1994 financial
statements as an extraordinary item in the amount of NIS 23,084
thousand, in the Statement of Income against the paid-in capital.
The expense was shown net of the tax effect which was NIS 9,452
thousand, which was also the net effect on shareholders' equity.
34
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 14 - Liens, Guarantees, Contingencies and Commitments
A. Liens
1. Subsidiary companies' loans from banks and debt to automobile
leasing companies in the amount of NIS 200 thousand are secured by
liens on motor vehicles.
2. Liabilities of several subsidiaries and affiliates to banks and
commitments regarding the fulfillment of the terms of projects
approved by the "Investment Center", are guaranteed by liens on the
assets and insurance rights of those subsidiaries and affiliates.
These companies liabilities to banks as of December 31, 1995 that
are guaranteed by liens amounted to approximately NIS 7,000
thousand.
B. Guarantees
1. Bank loans and other liabilities of subsidiaries and affiliates in
the maximum amount of approximately NIS 5,100 thousand are
guaranteed by the Company. The balance of these bank loans and other
liabilities as of December 31, 1995 amounted to approximately NIS
2,700 thousand. The Company also has an unlimited guarantee towards
banks for several subsidiaries and affiliates. As of December 31,
1995 this guarantee has not been utilized.
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 2,500 thousand. The Company also
guaranteed the payment of monthly rents of a subsidiary and an
affiliate in the approximate amount of NIS 240 thousand (total
future liability - approximately NIS 9,500 thousand).
3. The Company has provided a guarantee to a bank for employees' and
sub-contractors loans of approximately NIS 1,040 thousand.
C. Contingencies
1. Various claims are pending against the group, in the total amount of
approximately NIS 2,500 thousand, 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
requested by the Environmental Protection Agency (hereafter - EPA)
to make certain investments in industrial waste-water purification.
The EPA has set this as a condition for renewing Chemitas' business
license and poisons license. At this stage of the discussions
between Chemitas and the EPA, the amount of the final investment
that Chemitas will be asked to make cannot be estimated.
D. Commitments
1. The Company is committed, as of the balance sheet date, to purchase
fixed assets in the approximate amount of NIS 1,500 thousand.
2. Commitments for the purchase of raw materials are presented as
"Inventory-in-transit" - see Note 6.
35
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 14 - Liens, Guarantees, Contingencies and Commitments (cont'd)
D. Commitments (cont'd)
3. The Company and several of its subsidiaries and affiliates are
required, under various know-how agreements, to pay royalties to
those supplying the know-how.
Such royalties amounted to NIS 847 thousand for the group in 1995
(1994 - NIS 2,371 thousand, 1993 - NIS 2,606 thousand). The group is
not dependent upon any specific supplier of know-how and no material
damage will be caused in the event of the termination of any
know-how agreement.
Note 15 - Earnings per Share
A. Primary earnings
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ ------------------------ ------------------------
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 31,615 60,582 14,888 60,582 50,126 59,364
=========== =========== =========== =========== =========== ===========
Primary earnings
after
extraordinary
item 31,615 60,582 1,256 60,582 50,126 59,364
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
B. Fully diluted earnings
1995 1994 1993
------------------------ ------------------------ ------------------------
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 fully fully
diluted diluted 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 31,615 60,582 14,888 60,582 51,804 64,746
=========== =========== =========== =========== =========== ===========
Fully diluted
earnings after
extraordinary
item 31,615 60,582 1,256 60,582 51,804 64,746
=========== =========== =========== =========== =========== ===========
</TABLE>
* 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 4.5%. (1994 - 4%; 1993 - 3%).
36
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
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.
C. The composition of deferred taxes:
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
----------- ------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
For fixed assets (2,490) 3,717 2,767 3,604
For provisions for fringe
benefits, etc. 6,793 4,362 5,547 4,113
For tax losses and deductions
carried forward 3,817 - - -
For public offering issue
expenses * 66 881 66 881
----------- ------------ ----------- ------------
8,186 8,960 8,380 8,598
Less - for inventories 736 715 571 602
----------- ------------ ----------- ------------
7,450 8,245 7,809 7,996
=========== ============ =========== ============
Included:
In current assets 4,875 3,945 3,877 3,822
In investments and long-term assets 4,088 4,300 3,932 4,174
In long-term liabilities (1,513) - - -
----------- ------------ ----------- ------------
7,450 8,245 7,809 7,996
=========== ============ =========== ============
</TABLE>
* Total tax savings resulting from these expenses - NIS 2,616 thousand.
D. Changes in deferred taxes:
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
----------- ------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance beginning of year 8,245 11,475 7,996 10,982
Change in deferred taxes (150) - - -
presented in Statement of Income (645) (3,483) (187) (3,239)
Change in deferred taxes
presented in Shareholders
Equity - 253 - 253
----------- ------------ ----------- ------------
Balance at end of year 7,450 8,245 7,809 7,996
=========== ============ =========== ============
</TABLE>
37
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
E. Income taxes in statements of income
Income taxes in the adjusted statements of income consist of:
<TABLE>
<CAPTION>
Consolidated
-----------------------------------------
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Provision for current year 21,695 14,812 28,835
Change in deferred taxes, net * 645 3,483 2,267
Over (under)-provision for previous years 1,200 - (279)
------------ ----------- ------------
23,540 18,295 30,823
============ =========== ============
* Includes change resulting from
decrease in tax rate in the amount of 107 114 71
============ =========== ============
<CAPTION>
The Company
-----------------------------------------
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Provision for current year 20,518 13,816 27,199
Change in deferred taxes, net * 187 3,239 2,269
Over(under)-provision for previous years 1,215 - (231)
------------ ----------- ------------
21,920 17,055 29,237
============ =========== ============
* Includes change resulting from
decrease in tax rate in the amount of 103 101 63
============ =========== ============
</TABLE>
F. Final tax assessments have been received by the Company for tax
years up to and including 1994; consolidated subsidiaries have
received final tax assessments for various years between 1987-1994.
38
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
G. Effective tax reconciliation
<TABLE>
<CAPTION>
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Tax rates in effect * 37% 38% 39%
============ =========== ============
Consolidated:
Theoretical tax at rates in effect 20,880 13,007 31,229
Erosion of tax advances 696 902 757
Tax effect of permanent differences, net 1,877 (2,182) (1,148)
Losses and tax benefits not utilized 431 6,073 -
Differences between the definition of equity
and assets for tax purposes and book
purposes and others, net (1,544) 495 264
Taxes for previous years 1,200 - (279)
------------ ----------- ------------
23,540 18,295 30,823
============ =========== ============
The Company:
Theoretical tax at rates in effect 19,950 13,271 29,016
Erosion of tax advances 662 839 718
Tax effect of permanent differences, net 1,089 (2,277) (1,425)
Losses and tax benefits not utilized - 5,024 -
Differences between the definition of equity
and assets for tax purposes and book
purposes and others, net (996) 198 1,159
Taxes for previous years 1,215 - (231)
------------ ----------- ------------
21,920 17,055 29,237
============ =========== ============
</TABLE>
* As of 1996 and thereafter, the tax rate is 36%.
I. A consolidated company has an accumulated loss for tax purposes in
the approximate amount of NIS 13,000 thousand (See Note 2(k)) for
which no deferred taxes receivable have been recorded.
39
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 17 - Linked Balances
<TABLE>
<CAPTION>
Consolidated:
December 31, 1995 December 31, 1994
------------------------------------- --------------------------------------
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 4,453 - 22,486 5,856 - 12,580
Marketable
securities 4,158 34,703 13,850 4,558 26,392 18,883
Accounts
receivable - - 6,886 1,840 44 848 23,637
trade and
others* 11,174 3,540 103,676 9,153 6,774 77,285
Bank deposits - 67,027 - - 34,317 -
----------- ----------- ----------- ----------- ----------- -----------
19,785 112,156 141,852 19,611 68,331 132,385
Investments
Affiliated
companies
and others,
capital notes
and loans
including
current
maturities 432 8,873 150 1,418 5,942 162
Bank deposits
and other
receivables - 3,270 610 - 64,869 1,013
----------- ----------- ----------- ----------- ----------- -----------
Total assets 20,217 124,299 142,612 21,029 139,142 133,560
=========== =========== =========== =========== =========== ===========
Current liabilities
Short-term
bank credits 2,642 - 4,852 - - 2,909
Accounts payable -
trade and others:
Trade 12,988 21,311 13,749 - 22,839
Others 372 - 25,901 333 - 20,980
----------- ----------- ----------- ----------- ----------- -----------
16,002 52,064 14,082 - 46,728
Long-term liabilities
Liability regarding
termination of
employee-employer
relationship, net - 1,483 - - 1,050 -
Long-term loans,
including current
maturities 1,894 1,579 560 2,078 741 530
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 17,896 3,062 52,624 16,160 1,791 47,258
=========== =========== =========== =========== =========== ===========
</TABLE>
* Exclusive of deferred taxes and prepaid expenses.
40
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 17 - Linked Balances (cont'd)
<TABLE>
<CAPTION>
Company:
December 31, 1995 December 31, 1994
------------------------------------- --------------------------------------
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 4,047 - 20,871 2,897 - 10,983
Marketable
securities 4,158 34,703 13,850 4,558 26,392 18,883
Accounts
receivable - - 4,982 19,554 - 4,757 41,972
trade and others* 9,275 - 62,729 7,867 3,512 47,277
Bank deposits - 67,027 - - 34,317 -
----------- ----------- ----------- ----------- ----------- -----------
17,480 106,712 117,004 15,322 68,978 119,115
Investments
Consolidated subsidiaries -
loans and capital
notes, including
current maturities 432 11,016 2,221 - 5,561 -
Affiliated companies
and others -
capital notes
and loans,
including
current maturities - 2,798 456 1,418 5,942 -
Government loans
Bank deposits
and other
receivables - - - - 65,086 -
----------- ----------- ----------- ----------- ----------- -----------
Total assets 17,912 120,526 119,681 16,740 145,567 119,115
=========== =========== =========== =========== =========== ===========
Current liabilities
Short-term
bank credits - - 120 - - 12
Accounts payable -
trade and others:
Trade 5,172 - 12,015 7,352 - 16,239
Others - - 20,103 - - 16,972
----------- ----------- ----------- ----------- ----------- -----------
5,172 - 32,238 7,352 - 33,223
Long-term liabilities
Liability regarding
termination of
employee-employer
relationship, net - 1,164 - - 1,015 -
Long-term loans,
including current
maturities - - 2,065 - - 2,232
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 5,172 1,164 34,303 7,352 1,015 35,455
=========== =========== =========== =========== =========== ===========
</TABLE>
* Exclusive of deferred taxes and prepaid expenses.
41
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 18 - Supplementary Information to the Statements of Income
A. Sales (net of allowances)
<TABLE>
<CAPTION>
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Consolidated:
Local 468,442 399,565 430,572
Export 34,300 26,690 29,438
------------ ----------- ------------
502,742 426,255 460,010
============ =========== ============
Company:
Local 365,557 338,424 362,214
Export 29,072 22,961 25,954
------------ ----------- ------------
394,629 361,385 388,168
============ =========== ============
B. Cost of sales
Consolidated:
Materials 244,344 198,090 206,458
Labor 45,169 40,708 41,453
Other manufacturing expenses 30,035 24,691 28,293
Depreciation and amortization 18,342 16,558 15,484
------------ ----------- ------------
337,890 280,047 291,688
------------ ----------- ------------
(Increase) Decrease in inventories of:
Work in process 726 (1,386) 249
Finished products (2,832) (1,289) (1,126)
------------ ----------- ------------
(2,106) (2,675) (877)
------------ ----------- ------------
335,784 277,372 290,811
============ =========== ============
</TABLE>
42
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 18 - Supplementary Information to the Statements of Income (cont'd)
B. Cost of sales (cont'd)
<TABLE>
<CAPTION>
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Company:
Materials 180,229 161,698 166,508
Labor 37,460 35,564 37,025
Other manufacturing expenses 24,162 23,370* 25,114
Depreciation and amortization 15,030 14,605 13,252
------------ ----------- ------------
256,881 235,237 241,899
------------ ----------- ------------
Decrease (Increase) in inventories of:
Work in process (911) (1,362) 188
Finished products (2,168) (968) 361
------------ ----------- ------------
(3,079) (2,330) 549
------------ ----------- ------------
253,802 232,907 242,448
============ =========== ============
C. Selling and marketing expenses
Consolidated:
Labor 31,320 26,304 24,784
Depreciation and amortization 5,216 4,734 3,113
Advertising 13,851 13,507 13,810
Agents' commissions 1,290 2,154 2,771
Others 25,884 22,930 24,083
Doubtful accounts and bad debt expense 2,827 4,092 1,741
------------ ----------- ------------
80,388 73,721 70,302
============ =========== ============
Company:
Labor 25,636 22,088 19,501
Depreciation and amortization 3,290 3,384 2,288
Advertising 12,750 13,100 12,944
Others 22,013 19,750 22,769
Doubtful accounts and bad debt expense 2,210 3,723 1,455
------------ ----------- ------------
65,899 62,045 58,957
============ =========== ============
</TABLE>
* Reclassified - See Note 7A.
43
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 18 - Supplementary Information to the Statements of Income (cont'd)
D. General and administrative expenses:
<TABLE>
<CAPTION>
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Consolidated:
Labor 18,106 15,887 16,777
Depreciation and amortization 1,408 1,193 1,017
Others 11,652 10,384 8,960
------------ ----------- ------------
31,166 27,464 26,754
============ =========== ============
Company:
Labor 14,200 13,147 13,937
Depreciation and amortization 961 760 648
Others 7,851 7,759 6,852
------------ ----------- ------------
23,012 21,666 21,437
============ =========== ============
</TABLE>
E. Finance income (expense), net
<TABLE>
<CAPTION>
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Consolidated:
Interest (expense) income on bank credits (447) 414 411
Long-term loans finance (expense) income (149) 7 (35)
Interest on bank deposits 3,074 3,028 474
Gain (Loss) from marketable securities 1,292 (12,257) 6,718
Commissions and bank expenses (1,215) (2,164) (2,137)
Erosion of monetary items and others, net (4,955) (8,191) (4,076)
------------ ----------- ------------
(2,400) (19,163) 1,355
============ =========== ============
Company:
Interest income from bank credits 76 362 152
Interest on bank deposits 3,094 2,996 465
Gain (Loss) from marketable securities 1,292 (12,257) 6,718
Commissions and bank expenses (594) (1,705) (1,679)
Erosion of monetary items and others, net (3,688) (6,315) (3,013)
------------ ----------- ------------
180 (16,919) 2,643
============ =========== ============
</TABLE>
44
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 18 - Supplementary Information to the Statements of Income (cont'd)
E. Other income, net
<TABLE>
<CAPTION>
For the year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Consolidated:
Capital gains, net 1,538 778 546
Profit (Loss) on realization of investment 135 (843) -
in affiliated company 511 - -
Sundry income 149 650 115
Amortization of deferred credit 296 482 480
Income from capital issue of
affiliate and subsidiary - 3,809 4,354
Related parties:
Income from rentals 578 638 810
Management fees and participation
in expenses 200 179 194
Miscellaneous - - 75
------------ ----------- ------------
3,407 5,693 6,574
============ =========== ============
Company
Capital gains, net 743 753 502
Profit (Loss) on realization of investment
in affiliated company 135 (843) -
Sundry income 167 251 27
Income from private issue of subsidiary * - 3,809 -
Related parties:
Income from rentals 578 638 810
Management fees and participation
in expenses 200 324 664
Miscellaneous - - 75
------------ ----------- ------------
1,823 4,932 2,078
============ =========== ============
</TABLE>
* 1994 - Includes a gain resulting from a private issue of 20%
of the capital of Tzah - Israeli Printing Inks Limited
(hereinafter 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 the minimum amount of $1,750 thousand.
1993 - the consolidated figures include a gain from a public
offering of Serafon Resinous Chemicals Corp. Ltd. on the Tel
Aviv Stock Exchange.
45
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 19 - Related and Interested Parties
A. The Company, as well as its subsidiaries and affiliates, also carry
out transactions, within the ordinary course of business, with
entities that are interested parties.
The Securities Authority exempted the Company from describing
transactions with Clal Israel Ltd., Koor Industries Ltd., I.D.B.
Holdings Ltd., and Leumi Israel Bank Ltd. and the companies held by
them as disclosed in their financial statements as of December 31,
1995.
Details regarding balances and transactions with related parties and
other interested parties, mainly companies in the Tambour group, are
given in this note as well as in other notes (see also paragraph G.)
B. Balance sheet:
<TABLE>
<CAPTION>
Consolidated The Company
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1995 1994 1995 1994
------------ ------------ ------------ ------------
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 10,801 364 9,619 363
=========== ============ =========== ============
Marketable securities 688 1,268 688 1,268
=========== ============ =========== ============
Short-term bank deposits 38,963 11,605 38,963 10,883
=========== ============ =========== ============
(2) Included in liabilities
Bank credits 3,868 266 - -
=========== ============ =========== ============
Liability regarding
termination of employee-
employer relationship 1,315 1,297 1,315 1,297
=========== ============ =========== ============
</TABLE>
C. The highest balance in current assets
<TABLE>
<CAPTION>
Consolidated The Company
--------------------------- ---------------------------
Year ended December 31 Year ended December 31
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
In cash and cash equivalents 11,380 61,023 11,380 61,023
=========== ============ =========== ============
In accounts receivable -
trade and others 3,082 1,808 9,890 15,445
=========== ============ =========== ============
In bank deposits 46,605 10,513 46,605 10,513
=========== ============ =========== ============
</TABLE>
46
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 19 - Related Parties (cont'd)
D. Transactions (in the normal course of business):
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ----------- ------------
<S> <C> <C> <C>
Consolidated:
Sales 5,066 2,986 827
============ =========== ============
Purchases and other expenses 761 1,269 1,629
============ =========== ============
Finance income - 90 528
============ =========== ============
Finance expense - 196 877
============ =========== ============
Company:
Sales 8,695 5,494 3,594
============ =========== ============
Purchases and other expenses 2,525 1,274 1,885
============ =========== ============
Management fees paid 772 815 742
============ =========== ============
Finance income 330 90 544
============ =========== ============
Finance expense - 920 1,065
============ =========== ============
</TABLE>
E. Remuneration of interested parties
<TABLE>
<CAPTION>
Consolidated and Company
-----------------------------------------
Year ended December 31
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Number of Adjusted NIS Adjusted NIS Adjusted NIS
persons thousands thousands thousands
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interested parties employed by
the company or on its behalf 1 1,573 1,677 1,608*
============ =========== ============
Interested parties not employed
by the company or on its behalf 10 321 351 118
============ =========== ============
</TABLE>
* Not including warrants granted (see Note 13B), whose value for tax
purposes is NIS 1,988 thousand.
F. 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 3 million.
G. Also see Notes 4, 7, 10, 11, 14 and 18E.
47
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 20 - Condensed Nominal Financial Statements of the Company
A. Balance Sheet
<TABLE>
<CAPTION>
December 31 December 31
1995 1994
------------- -------------
NIS thousands NIS thousands
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents 24,918 12,842
Marketable securities 52,711 46,097
Accounts receivable - trade 72,004 54,259
Other receivables 32,710 50,500
Bank deposits 67,027 31,744
Inventories 75,272 68,368
----------- ------------
324,642 263,810
----------- ------------
Investments and long-term assets
Investments in subsidiaries, affiliates and others 45,770 36,055
Bank deposits and other receivables 3,254 60,206
Deferred taxes, net 607 525
----------- ------------
49,631 96,786
----------- ------------
Property, plant and equipment
Cost 166,947 137,191
Less: Accumulated depreciation 79,144 65,607
----------- ------------
87,803 71,584
----------- ------------
462,076 432,180
=========== ============
Current liabilities
Bank credits 120 11
Accounts payable - trade 17,187 21,822
Other accounts payable 20,103 15,700
Dividend declared - 10,000
----------- ------------
37,410 47,533
----------- ------------
Long-term liabilities
Liability regarding termination of employee-employer
relationship, net 1,164 939
Capital notes issued to subsidiaries 2,065 2,065
----------- ------------
3,229 3,004
----------- ------------
Shareholders' equity
Share capital 60,582 60,582
Paid-in capital 149,934 149,934
Retained earnings 210,921 171,127
----------- ------------
421,437 381,643
----------- ------------
462,076 432,180
=========== ============
</TABLE>
48
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 20 - Condensed Nominal Financial Statements of the Company (cont'd)
B. Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1995 1994 1993
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
<S> <C> <C> <C>
Revenue from sales 376,446 313,667 300,081
Cost of sales 232,959 192,306* 180,169
------------ ----------- ------------
Gross profit 143,487 121,361 119,912
------------ ----------- ------------
Selling and marketing expenses 62,613 53,687 45,303
General and administrative expenses 21,784 18,628 16,446
------------ ----------- ------------
84,397 72,315 61,749
------------ ----------- ------------
Operating income 59,090 49,046 58,163
Finance income, net 17,881 13,949 14,659
Other income, net 1,840 4,835 5,310
------------ ----------- ------------
Income before income taxes 78,811 67,830 78,132
Income taxes 20,021 13,125 21,066
------------ ----------- ------------
Net income after income taxes 58,790 54,705 57,066
Equity in earnings of subsidiaries, affiliates
and others, net 1,004 1,243* 3,004
------------ ----------- ------------
Net income before extraordinary item 59,794 55,948 60,070
Extraordinary item -
Salary expense relating to the portion of
securities issued which constitutes an
employee benefit, net - 9,465 -
------------ ----------- ------------
Net income for the year 59,794 46,483 60,070
============ =========== ============
</TABLE>
* Reclassified - See Note 7A.
49
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 20 - Condensed Nominal Financial Statements of the Company (cont'd)
C. Statement of shareholders' equity
<TABLE>
<CAPTION>
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, 1993 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
Changes in 1995:
Expiration of warrants - 15,837* (15,837)* - -
Net income - - - 59,794 59,794
Dividend - - - (20,000) (20,000)
----------- ----------- ------------ ----------- ------------
Balance as of
December 31, 1995 60,582 149,934 - 210,921 421,437
=========== =========== ============ =========== ============
</TABLE>
* Net of issue and registration expenses, after tax affect.
** Includes NIS 10,000 thousands dividend declared.
50
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 21 - Subsequent Events
Subsequent to the balance sheet date, the Company purchased, outside the
stock exchange, approximately 59% of the share capital of Kedem Chemicals
Ltd. (hereafter - "Kedem"), a company whose shares are traded in the Tel
Aviv Stock Exchange.
Kedem is active in special chemicals including cleaning materials for the
wholesale and institutional markets.
The Company paid approximately 44.8 million NIS for the purchase of Kedem,
which was approximately their value on the stock exchange at the date of
acquisition.
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
hyper-inflationary 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 hyper-inflationary
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.
51
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
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 to ten 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.
C. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management of the
Company and its affiliates to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those
estimates.
52
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (cont'd)
C. Balance Sheets
<TABLE>
<CAPTION>
December 31 December 31
1995 1994
------------ -------------
NIS thousands NIS thousands
------------ -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 26,939 17,054
Marketable securities 52,711 46,097
Accounts receivable - trade and others 137,398 116,746
Bank deposits 67,027 31,744
Inventories 95,941 79,614
----------- ------------
380,016 291,255
----------- ------------
Investments and long-term assets
Affiliated companies and others 13,033 21,910
Bank deposits and other receivables 3,880 60,943
Deferred taxes, net 10,033 8,794
----------- ------------
26,946 91,647
----------- ------------
Property, plant and equipment
Cost 278,006 224,581
Less - accumulated depreciation 162,250 141,267
----------- ------------
115,756 83,314
----------- ------------
Intangible assets, net 888 252
----------- ------------
523,606 466,468
=========== ============
</TABLE>
53
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (cont'd)
C. Balance Sheets (cont'd)
<TABLE>
<CAPTION>
December 31 December 31
1995 1994
------------- -------------
NIS thousands NIS thousands
------------- -------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Bank credits and others 8,356 3,524
Accounts payable - trade and others 60,350 53,447
----------- ------------
68,706 56,971
----------- ------------
Long-term liabilities
Long-term debt 3,171 2,260
Liability regarding termination of employee-
employer relationship, net 1,483 971
----------- ------------
4,654 3,231
----------- ------------
Minority interest 17,272 3,425
----------- ------------
Shareholders' equity
Share capital 80,561 80,561
Paid-in capital 144,721 144,721
Foreign currency translation adjustment 1,703 1,703
Retained earnings 205,989 175,856
----------- ------------
432,974 402,841
----------- ------------
523,606 466,468
=========== ============
</TABLE>
54
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (cont'd)
D. Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1995 1994 1993
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
<S> <C> <C> <C>
Revenue from sales 481,997 369,983 360,193
Cost of sales 312,207 230,953 225,853
------------ ----------- ------------
Gross profit 169,790 139,030 134,340
------------ ----------- ------------
Selling and marketing expenses 76,072 63,489 55,612
General and administrative expenses 30,006 23,690 22,307
Employee warrants[see B(1)] - - 7,293
------------ ----------- ------------
106,078 87,179 85,212
------------ ----------- ------------
Operating income 63,712 51,851 49,128
Financing income, net 14,810 11,073 14,321
------------ ----------- ------------
Operating income 78,522 62,924 63,449
Other income, net 3,412 4,871 5,523
------------ ----------- ------------
Income before income taxes 81,934 67,795 68,972
Income taxes 19,550 8,580 19,204
------------ ----------- ------------
Net income after income taxes 62,384 59,215 49,768
Equity in earnings (losses) of affiliated
companies and others, net (500) 305 238
Minority interest in consolidated
subsidiaries' income (1,751) (538) (544)
------------ ----------- ------------
Net income 60,133 58,982 49,462
============ =========== ============
</TABLE>
55
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1995
- --------------------------------------------------------------------------------
Note 22 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (cont'd)
E. Statement of changes in shareholders' equity
<TABLE>
<CAPTION>
Share Additional Proceeds Foreign Retained Total
capital paid-in from currency earnings
capital issue of translation
warrants adjustment
--------- --------- --------- ----------- --------- ---------
NIS NIS NIS NIS NIS NIS
thousands thousands thousands thousands thousands thousands
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1993 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
In the year 1995:
Expiration of warrants - 13,560* (13,560)* - - -
Net income - - - - 60,133 60,133
Cash dividend - - - - (30,000) (30,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of
December 31,
1995 80,561 144,721 - 1,703 205,989 432,974
=========== =========== =========== =========== =========== ===========
</TABLE>
* Net of issue and registration expenses, after tax effect.
56
<PAGE>
Tambour Limited and Subsidiaries
Appendix - Consolidated and Affiliated Companies as of December 31, 1995
- --------------------------------------------------------------------------------
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. 64
Tzevah Paint Industries Ltd. 100
Tzah - Israeli Printing Inks Ltd. 80
R.D. Glaso-Center Ltd. 100
Serafon Resinous Chemicals Corp. Ltd. 55.65
Tovalah Ltd. 100
T.P. Development Establishment 100
Cotachem Farben G.M.B.H. 100
Tambour Paints (Hellas) LLC 100
Kedem Chemicals Ltd. (See Note 21)
Affiliated companies
Vertigo Robotics Technology Ltd. 37.5
Alram Cooling Systems Ltd. 33.35
Chemitas 1988 Ltd. 50
Kne Uvne Marketing (1993) Ltd. 20
International Ilios Cotachem S.A. 40
Mader Baufarben A.G. 49
Partnerships
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
British Paints L.L.C. 40
Tamarin (Marine Paints) Ltd. 100
* 100% ownership and control, in effect
57
<PAGE>
Shlomo Ziv & Co. Member of
Certified Public Accountants (Isr.) Summit International
Tel-Aviv; Amot Bituah House Bldg.B. Associates, Inc.
46-48 Derech Petach-Tikva Rd. Tel-Aviv 66184
Tel. 03-6386868 Fax. 03-6394320
Haifa: 2 Hanamal St., P.O. B.1886, Haifa 31018
Tel: 04-8675025/6 Fax: 04-8679461
AUDITOR'S 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, 1995 and 1994 and the Statement of operations of the Company and
consolidated, the Changes in shareholders Equity and the Statement of Cash-flows
of the Company and consolidated for each of the three years in the period ended
December 31, 1995. 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 statements 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 accounting principles in Israel and generally
accepted accounting principles in the U.S.
In our opinion, the above financial statements present fairly, in conformity
with general accepted accounting principles, the financial position of the
company and consolidated as at December 31, 1995 and 1994 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 each of the three
years in the period ended December 31, 1995.
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 note
1(C) attached to the financial statements about the affect of the international
second operator tender on the company's future reports.
12 February, 1996 SHLOMO ZIV & CO.
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, February 29, 1996
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, 1995 and 1994, 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 14 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, 1995 and 1994, the results of it operations, the
changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995, 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
normal/historical net profit (loss) and shareholder's equity to the extent
summarized in note 15 to the financial statements.
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:(972)3 517 4440 TELECOPIER: (972)4 670 319 TELECOPIER: (972)2 253 292
- --------------------------------------------------------------------------------
SOMEKH CHAIKIN
Tel-Aviv, February 15, 1996
Auditor's Report to the Shareholders of Camdev Limited
We have audited the balance sheets of Camdev Limited as at December 31, 1995 and
1994, the related statements of income and shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995, 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 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 10 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, 1995 and 1994, the results of its operations, the
changes in shareholder's equity
A MEMBER OF THE PRICE WATERHOUSE WORLDWIDE ORGANIZATION
<PAGE>
and cash flows for each of the three years in the period ended December 31,
1995, 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 11C to the financial
statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
A MEMBER OF THE PRICE WATERHOUSE WORLDWIDE ORGANIZATION
<PAGE>
ROJANSKY, HALIFI, MEIRI & CO.
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 of December 31, 1995 and 1994, 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 applied
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 21 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 of December
31, 1995 and 1994, 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, 1995, 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 24 to the
financial statements.
/s/ ROJANSKY, HALIFI, MEIRI & CO.
Tel-Aviv, ROJANSKY, HALIFI, MEIRI & CO.
March 7, 1996 CERTIFIED PUBLIC ACCOUNTANTS.
<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 26, 1996
Report of Independent Public Accountants
Cellcom Israel Ltd.
We have audited the balance sheets of Cellcom Israel Ltd. as at December 31,
1995 and 1994, the related statements of income and shareholders' equity and
cash flows for each of the two periods (as per the financial statements) 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 financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditors 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 23 to the financial statements.
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
In our opinion, based on our audit, the above mentioned financial statement
present fairly the financial position of the Company as at December 31, 1995 and
1994, the results of its operations, the changes in shareholders' equity and
cash flows for each of the two periods (as per the financial statements) then
ended, 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 not materially affect the determination of
nominal/historical net loss and shareholders' equity.
As more fully discussed in Note 14(a) motions to be recognized as class action
lawsuits have been filed against the Company concerning difficulties previously
experienced in the operation of the Company's network. The ultimate outcome of
this potential litigation cannot be determined at this time, accordingly, no
provision for any liability that may result from the preceding litigation has
been made in the accompanying 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, February 29, 1996
Report of Independent Public Accountants of
DEP Technology Holdings Limited
We have audited the balance sheets of DEP Technology Holdings Limited as at
December 31, 1995 and 1994, the related statements of income and shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995, 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 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.
In our opinion, based on our audit, the above mentioned financial statements
present fairly the financial position of the Company as at December 31, 1995
and 1994, 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,
1995, 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 not materially affect the determination of
nominal/histrical net loss and shareholders' equity.
/s/ Somekh Chaikin
Certified Public Accountants (Isr.)
A MEMBER OF THE PRICE WATERHOUSE WORLDWIDE ORGANIZATION
<PAGE>
and cash flows for each of the three years in the period ended December 31,
1995, 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 11C to the financial
statements.
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, March 14, 1996
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 Ltd. as at December
31, 1995, 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>
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note 5 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, 1995,
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, 1995, 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 7, 1996
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, 1995 and 1994, 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 26 to the financial statements.
The financial statements of certain consolidated companies whose assets comprise
24% of the total assets included in the consolidated balance sheet (1994 - 15%)
and whose income represents approximately 53% of income inlcuded in the
consolidated statement of earnings (1994 - 48%, 1993 -49%) were audited by other
certified public accountants whose reports were received by us.
<PAGE>
In our opinion, based on our audit and the reports of other auditors as
mentioned above, the above mentioned financial statements present fairly the
financial position of the Company as at December 31, 1995 and 1994, 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, 1995, 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 27 to the financial statements.
Rasoly & Co. Somekh Chaikin
Certified Public Accountants (Isr.) Certified Public Accountants (Isr.)
Joint Auditors
<PAGE>
LEIGH CARR
CHARTERED ACCOUNTANTS Twenty Seven Blandford Street, London W1H 4EN
Tel 0171 925 7755 Fax 0171 935 5172
Electronics Line (EL) Limited
Group Audit Instructions
Period Ended 31 December 1995
Auditors Report
20 February 1996
Auditor's Report to the Shareholders of
Electronics Line (UK) Limited
We have examined the balance sheet of Electronics Line (UK) Limited and its
subsidiaries as at 31 December 1995 and the related statements of income and
changes in capital and statement of cash flows for the period then ended. Our
examination was made in accordance with generally accepted auditing standards
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 financial statements referred to above present fairly the
financial position of Electronics Line (UK) Limited and its subsidiary as at 31
December 1995 and the result of its operations and changes in cash flow for the
period 1 July 1995 to 31 December 1995 in conformity with generally accepted
accounting principles applied on a consistent basis; and, the supplemental
schedules, when considered in relation to the basic financial statements present
fairly in all material respects the information shown thereon.
Leigh Carr
Chartered Accountants
Registered Auditors
<PAGE>
February 27, 1996
Auditor's Report to the Shareholders of
Electronics Line U.S.A., Inc.
We have examined the balance sheets of Electronics Line U.S.A.,
Inc. as at December 31, 1995 and 1994, and the related statements
of income and changes in capital and statement of cash flows for
the years then ended. Our examination was made in accordance
with generally accepted auditing standards 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 financial statements referred to above
present fairly the financial position of Electronics Line U.S.A.,
Inc. as at December 31, 1995 and 1994, and the results of its
operations, and changes in cash flows for the years then ended,
in conformity with generally accepted accounting principles
applied on a consistent basis, and the supplemental schedules,
when considered in relation to the basic financial statements
present fairly in all material respects the information shown
thereon.
Ned Smolen
------------------------------
Certified Public Accountant
SMOLEN & SMOLEN
CERTIFIED PUBLIC ACCOUNTANTS
NEW YORK
<PAGE>
SORECOM Societe Societe de Societe d'Expertise Comptable
d'Organisation Commissaires inscrite ou Tableau
et de Revision aux Comples de l'Ordre des Experts
Comptable Compagnie de Paris Comptables de Paris
Paris, February 26, 1996
SECTEC S.A.R.L.
127, boulevard de Champigny
94210 LA VARENNE SAINT-HILAIRE
Auditors report to the Shareholders of
Electronics Line (EL) Limited
We have examined the Balance Sheets of SECTEC S.A.R.L. as at December 31, 1995
and 1994, and the related statements of income and changes in capital and
statement of cash flows for the years then ended. Our examination was made in
accordance with generally accepted auditing standards 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 financial statements referred to above present fairly the
financial position of SECTEC S.A.R.L. AS AT December 31, 1995 and 1994 and the
results of its operations, and changes in cash flows for the years then ended,
in conformity with generally accepted accounting principles generally applied on
a consistent basis; and, the supplemental schedules, when considered in relation
to the basic financial statements present fairly in all material respects the
information shown thereon.
Jean-Jacques ELKAIM
Expert-Comptable
107, bd Malesherbes - 75008 Paris - Tel: 53 77 28 10 + - Fax: 42 89 45 80
<PAGE>
HAFT & HAFT & CO.
INCL. STRAUSS, LAZER & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
NEXIA
INTERNATIONAL
AUDITORS' 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 to the financial statements of December
31, 1994, 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 the 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.
/s/ H.H.S.L. Haft & Haft & Co.
March 23, 1996 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. 972-3-696 7231, Fax 972-3-695 3517
Maya Build, 74 Derekh Petah Tikva, Code 67215,
Tel. 972-3-561-3545, Fax 972-3-561 3824
Haifa: 55 Pinhas Margolin St. P.O.B. 8081, Code 31080,
Tel. 972-4-852 5202, Fax 972-4-855 5813
Jerusalem: 16 Bilu St. P.O.B. 790, Code 91007,
Telephone 972-2-638 276, Fax 972-2-635 534
Member of Nexia 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 29, 1996
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, 1995 and December 31,
1994, statements of income, changes in shareholders' equity and
cash flows for each of the three years the last of which ended on
December 31, 1995, 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, 1995
and December 31, 1994, and the results of its operations, changes
in its shareholder's equity and cash flows for each of the three
years the last of which ended on December 31, 1995, 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 (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 29, 1996
Report of Independent Public Accountants
to the Partners of Gemini Israel Fund L.P.
We have audited the accompanying balance sheet of Gemini Israel Fund L.P. as of
December 31, 1995 and December 31, 1994, statements of income, changes in
partners capital and cash flows for each of the three years the last of which
ended on December 31, 1995, 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, 1995 and December 31, 1994, the results of its operations, changes
in its partners capital and cash flows for each of the three years the last of
which ended December 31, 1995 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 10,822 thousand (previous year - U.S. dollars 5,516 thousand) (56%
of partners capital at balance sheet date, previous year - 33%) 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 (ISR.)
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
Kesselman Coopers
& Kesselman & Lybrands
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, 1995 and 1994 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, 1995. 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. The financial
statements of a proportionately consolidated company, whose
assets included in consolidation at December 31, 1995 and 1994
constitute approximately 4.1% and 7.2%, respectively, of total
consolidated assets and whose turnover included in consolidation
for the years ended December 31, 1995, 1994 and 1993 constitutes
approximately 13.9%, 12.6% and 5.0%, respectively, of total
consolidated turnover, have been examined by other certified
public accountants. Data relating to the Company's share in
profits of an associated company 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 15.
<PAGE>
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, 1995
and 1994 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, 1995.
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 16.
Tel-Aviv, Israel Kesselman & Kesselman
March 3, 1996 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of Coopers & Lybrand
International, a limited liability association incorporated in
Switzerland.
<PAGE>
Kesselman Coopers
& Kesselman & Lybrands
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, 1995 and 1994 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, 1995. 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, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1995, 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 & Kesselman
February 27, 1996 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of Coopers & Lybrand
International, a limited liability association incorporated in
Switzerland.
<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 13, 1996
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,
1995 and 1994, 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 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.
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
statements 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.
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, 1995 and 1994, the results of its operations, the
changes in shareholder's equity and cash flows for each of the three years in
the period end December 31, 1995, 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.)
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
Kesselman Coopers
& Kesselman & Lybrands
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, 1995 and 1994, and the statements of income, changes
in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. 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, 1995 and 1994 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, 1995.
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
February 26, 1996 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of Coopers & Lybrand
International, a limited liability association incorporated in
Switzerland.
<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 audited the balance sheets of Lego Irrigation Ltd. (the Company) as
at December 31, 1995 and 1994, the related statements of profit and loss, the
statement of changes in shareholders' equity and the statement of cash flows for
each of the three years in the period ended December 31, 1995, expressed in New
Israeli Shekels. These financial statements are the responsibility of the
Company's directors and its 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. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether originating in an error in the
financial statements or misstatement contained herein. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes the accounting principles used
and significant estimates made by the Company's directors and its 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
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 23 to the financial
statements.
In Note 24 are given data of the Company's 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 (33.3% controlled), which
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 accounting principles generally accepted, in
all material respects, the financial position of the Company at December 31,
1995 and 1994, the results of its operations, the changes in shareholders'
equity and cash flows for each of the three years in the period December 31,
1995. Also in our opinion, they are prepared in accordance with the Securities
Regulations (preparation of annual Financial Statements), 1993.
March 21, 1996 Cohen, Eyal, Yehoshua & 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, 1995 and December 31, 1994, 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, 1995. 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 32.
The financial statements of consolidated subsidiaries, whose assets constitute
approximately 52.2% (1994 approx. 36.1%) of total assets contained in the
consolidated balance sheet, and whose revenues constitute approximately 50.6%
(1994 approx. 39.7%, 1993 approx. 12.49%) 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
<PAGE>
accepted accounting principles, the financial position of the Company and of the
Group as of December 31, 1995 and 1994, 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, 1995.
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, March 3, 1996
-2-
<PAGE>
LURIE, BESIKOF, LAPIDUS & CO., LLP
Certified Public Accountants
2501 Wayzata Boulevard
Minneapolis, Minnesota 55405-2197
Telephone 612-377-4404
Telecopier 612-377-1325
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Across Data Systems, Inc.
Salem, New Hampshire
We have audited the accompanying consolidated balance sheets of ACROSS DATA
SYSTEMS, INC. AND SUBSIDIARIES as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. 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. 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 consolidated financial position of ACROSS DATA
SYSTEMS, INC. AND SUBSIDIARIES as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
January 26, 1996
<PAGE>
BLOMER & CO.
Registeraccountants
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
We have audited the accompanying consolidated balance sheets of ASE Advanced
Systems Europe B.V. of December 31, 1995 and the related consolidated statement
of operations, changes in shareholders' equity, and cash flow for the year 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 audits.
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
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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ASE Advanced
Systems Europe B.V. as of December 31, 1995, and the result of their operation
and there cash flow for the year then ended, in conformity with generally
accepted accounting principles.
Nieuwegein, March 6, 1996
BLOMER & CO.
Registeraccountants,
E. Boersen
Post 58430 AA Nieuwegein, Krijtwai. 1-3 Nieuwegein
Telefoon 03402-5 08 11 Fax 03402-4 55 26
<PAGE>
KOST LEVARY & FORER
A MEMBER OF
ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
LOGAL EDUCATIONAL SOFTWARE AND SYSTEMS LTD. AND SUBSIDIARY
We have audited the consolidated balance sheets of Logal
Educational Software and Systems Ltd. (hereafter - the "Company")
and its subsidiary at December 31, 1994 and 1995, and the related
consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 the United States and in Israel,
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 statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the aforementioned consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiary
at December 31, 1994 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with
generally accepted accounting principles in the United States and
in Israel which as applicable to these financial statements, are
in all material respects identical.
Tel-Aviv, Israel KOST, LEVARY and FORER
March 14, 1996 Certified Public Accountants (Israel)
A member of Ernst & Young International
<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 61154
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.
("the Company") and the consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1995 and 1994 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,
1995, 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.
We did not audit the financial statements of a jointly controlled "consolidated
company", whose financial statements served as the basis for inclusion of assets
constituting approximately 6.7% and 8% of consolidated total assets as of
December 31, 1995 and 1994, respectively, and of revenues constituting
approximately 8.3% and 8% of consolidated total revenues for the years ended
December 31, 1995 and 1994, respectively.
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 29 to the financial statements.
In our opinion, based on our audits and the reports of other auditors, the
aforementioned financial statements present fairly, in conformity with generally
accepted accounting principles, the financial position of the Company and the
consolidated financial position of the Company and its subsidiaries as of
December 31, 1995 and 1994, 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, 1995.
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 30 to the financial
Statements.
/s/ Igal Brightman & Co.
Igal Brightman & Co.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel
March 8, 1996.
<PAGE>
Kesselman Coopers
& Kesselman & Lybrands
certified public
accountants (Isr.)
AUDITORS' REPORT
----------------
To the Shareholders of
MUL-T-LOCK LIMITED
------------------
We have examined the balance sheets at December 31, 1995 and 1994
of Mul-T-Lock Limited (hereafter - the company) and the
consolidated balance sheets of the company and its subsidiaries
at December 31, 1995 and 1994 and the statements of income,
changes in shareholders' equity and cash flows - of the company
and consolidated - for the three years ended December 31, 1995.
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, 1995 and 1994 constitute
approximately 1.3% and approximately 1.9%, respectively, of total
consolidated assets and whose turnover for the years 1995, 1994
and 1993 constitutes approximately 2.7%, 3%, and 2.7%,
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.
<PAGE>
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, 1995 and 1994 and the
results of operations and cash flows - of the company and
consolidated - for the three years ended December 31, 1995.
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 11, 1996 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of Coopers & Lybrands
International, a limited liability association incorporated in
Switzerland.
<PAGE>
KOST LEVARY & FORER
A MEMBER OF
ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
NICE SYSTEMS LTD.
We have audited the accompanying consolidated balance
sheets of Nice Systems Ltd. and Subsidiaries (hereafter - "the Company") as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. 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 principles in the United States and in Israel, 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 statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial
statements present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1995, and the related
consolidated results of operations and cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles in the United States, and in Israel, which
as applicable to these financial statements are in all material respects
identical.
Tel Aviv, Israel KOST, LEVARY and FORER
February 28, 1996 Certified Public Accountants (Israel)
A member of Ernst and Young International
<PAGE>
HAFT & HAFT & CO.
INCL. STRAUSS, LAZER & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
NEXIA
INTERNATIONAL
AUDITORS' REPORT TO THE SHAREHOLDERS OF
PEC ISRAEL FINANCE CORPORATION
---------------------------------------
FOR PARENT COMPANY PURPOSES
---------------------------
We have examined the balance sheet of PEC Israel Finance Corporation
at December 31, 1995 and December 31, 1994, 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,
1995 and December 31, 1994, 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, 1995.
/s/ H.H.S.L. Haft & Haft & Co.
March 14, 1996 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. 972-3-696 7231, Fax 972-3-695 3517
Maya Build, 74 Derekh Petah Tikva, Code 67215,
Tel. 972-3-561-3545, Fax 972-3-561 3824
Haifa: 55 Pinhas Margolin St. P.O.B. 8081, Code 31080,
Tel. 972-4-852 5202, Fax 972-4-855 5813
Jerusalem: 16 Bilu St. P.O.B. 790, Code 91007,
Telephone 972-2-638 276, Fax 972-2-635 534
Member of Nexia International
<PAGE>
Kesselman Coopers
& Kesselman & Lybrands
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, 1995 and 1994 and the related consolidated statements of
income (loss), changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995.
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, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with
accounting principles generally accepted ("GAAP") in the United
States (as applicable to these financial statements, such
accounting principles are substantially identical to Israeli
GAAP, except for the treatment of an investment in marketable
securities available for sale, as explained in note 4(c)(2), and
an investment in a joint venture company, as explained in note
4(a)(2)).
Tel-Aviv, Israel Kesselman & Kesselman
February 14, 1996 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of Coopers & Lybrands
International, a limited liability association incorporated in
Switzerland.
<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 11, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE
SHAREHOLDERS OF SIGN-ON TIKSHOUV SERVICES LIMITED
We have audited the balance sheets of Sign-On Tikshouv Services Ltd.
as at December 31, 1995 and 1994 and the related statements of income
and shareholders' equity and cash flows for the two years 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 this statement 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
this financial statement 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 16 to the financial statements.
In our opinion, based on our audit, the financial position of the Company
as at December 31, 1995 and 1994, the results of its operations, the changes
in shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1995 is fairly presented 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 17 to the financial statements.
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, March 11, 1996
Auditor's Report to the Shareholders of
Super-Sol Limited
We have audited the financial statements of Super-Sol Limited and the
consolidated financial statements of the Company and its subsidiaries detailed
below:
- - Balance sheets as at December 31, 1995 and December 31, 1994
- - Statements of income, changes in shareholders' equity and cash flows for
the years ended on December 31, 1995, 1994 and 1993.
These financial statements are the responsibility of the Company's Board of
Directors and of its management. Our responsibility is to express an opinion on
the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards,
including those prescribed under the Auditors Regulations (Auditor's Mode of
Performance) - 1973. 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
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 evaluation the overall financial statements presentation. We believe that
our audits provide a reasonable basis for our opinions.
The financial statements of certain consolidated companies whose assets
represent approximately 2.8% and 3.2% of the total assets included in the
consolidated balance sheets at December 31, 1995 and 1994 and whose income
represents approximately 5.8% and 3.9% of the income included in the
consolidated statements of income for the years ended December 31, 1995 and 1994
respectively, were audited by other auditors who provided us with their reports
and our opinion in as much as it relates to amounts included in respect of these
companies is based on the reports of the other auditors.
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
Similarly the data relating to the equity value of investments in the
consolidated financial statements 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.
The above mentioned financial statements have been prepared on the basis of
historical cost adjusted for the changes in the general purchasing power of the
Israel currency, in accordance with Opinions of the Institute of Certified
Public Accountants in Israel. Condensed financial statements in historical
terms, on the basis of which the adjusted statements were prepared, are
presented in Notes 30 and 31.
In our opinion, based on our audit and the reports of other certified public
accountants mentioned above, the above mentioned financial statements present
fairly in conformity with generally accepted accounting principles, in all
material respects, the financial position of the Company and of the Company and
its subsidiaries on a consolidated basis as at the above mentioned dates, the
changes in shareholders' equity and the results of their operations and cash
flows for each of the years then ended, 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
Messrs.: D.I.C. Ltd.
PEC Israel Economic Corporation
-------------------------------
Re: Financial statements of Tel-Ad Jerusalem Studios Ltd.
(hereafter - "the Company") remeasured into Nominal NIS
-------------------------------------------------------
We have audited the accompanying balance sheets of Tel-Ad Jerusalem Studios
Ltd. (an Israeli corporation) as of December 31, 1995 and 1994, and the related
statements of income and changes in shareholders' equity (deficiency) for each
of the three years in the period ended December 31, 1995.
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.
At your request, we have remeasured into Nominal NIS, according to the
principles determined in FASB 52, the figures of the balance sheets as of
December 31, 1995 and 1994, statements of operations and the statements of
changes in shareholders equity (deficiency) for the three years ended December
31, 1995.
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 provide a reasonable basis for our opinion.
In our opinion, the remeasured financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1995 and 1994, the results of its operations and changes in
its shareholders' equity (deficiency) for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles 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 FASB 52.
Tel-Aviv, Israel KOST, LEVARY and FORER
March 6, 1996 Certified Public Accountants (Israel)
A member of Ernst and Young International
<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 29, 1996 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 29, 1996
- ------------------------------
Raphael Recanati,
Chairman of the Board
of Directors
/s/FRANK J. KLEIN March 29, 1996
- ------------------------------
Frank J. Klein,
President and Principal
Executive Officer; Director
/s/WILLIAM GOLD March 29, 1996
- ------------------------------
William Gold,
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
<PAGE>
Name Date
---- ----
/s/ROBERT H. ARNOW March 29, 1996
- ------------------------------
Robert H. Arnow, Director
/s/JOSEPH CIECHANOVER March 29, 1996
- ------------------------------
Joseph Ciechanover, Director
/s/ELIAHU COHEN March 29, 1996
- ------------------------------
Eliahu Cohen, Director
March , 1996
- ------------------------------
Roger Cukierman, Director
/s/ALAN S. JAFFE March 29, 1996
- ------------------------------
Alan S. Jaffe, Director
/s/HERMANN MERKIN March 29, 1996
- ------------------------------
Hermann Merkin, Director
/S/HARVEY M. MEYERHOFF March 29, 1996
- ------------------------------
Harvey M. Meyerhoff, Director
/s/ALAN S. ROSENBERG March 29, 1996
- ------------------------------
Alan S. Rosenberg, Director
/s/RICHARD S. ZEISLER March 29, 1996
- ------------------------------
Richard S. Zeisler, Director
<PAGE>
EXHIBITS
TO
REPORT ON FORM 10-K
OF
PEC ISRAEL ECONOMIC CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<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, filed as
Exhibit 3(ii) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference
10(i)(a). Voting Agreement dated December 10, 1980 between the
Company and Discount Investment Corporation Ltd. (formerly
Discount Bank Investment Corporation Ltd.0, 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). Addendum to Exhibit 10(i)(a) dated December 7, 1995. 259
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 July 1, 1995 between IDB Development 261
Corporation Ltd. and PEC Finance Company Ltd. (now named PEC
Israel Financial Corporation Ltd.).
<PAGE>
10(i)(g). 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)(h). Exchange Agreement dated as of January 4, 1994 among
the Company, PEC Holdings Limited and IDB Development
Corporation Ltd., filed as Exhibit 10(i)(1) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 331, 1993 and incorporated herein by
reference.
10(iii)(a). Supplemental Retirement Agreement dated as of
January 1, 1995 between the Company and Frank J. Klein filed
as Exhibit 10(iii)(b) to the Company's Annual; Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
21. Subsidiaries of the Registrant. 264
27. Financial Data Schedule. 265
- ----------------------------------
*This is a management contract or a compensatory plan or arrangement required to
be filed as an exhibit.
EXHIBIT 10(i)(b)
<PAGE>
ADDENDUM TO VOTING AGREEMENT DATED DECEMBER 10, 1980
----------------------------------------------------
Made as of the 7th day of December 1995
BY AND BETWEEN
PEC ISRAEL ECONOMIC CORPORATION
of the first part
A N D
DISCOUNT INVESTMENT CORPORATION LTD.
of the second part
WHEREAS the parties hereto are parties to a Voting Agreement dated
December 10, 1980, as amended, relating to all companies in which
both of them own shares directly or through their respective wholly
owned subsidiaries (the "Agreement"); and
WHEREAS the parties wish to extend the term of the Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. The preamble to this Addendum constitutes an integral part thereof.
2. The term of the Agreement is hereby extended until December 31, 2000
(inclusive).
3. This Addendum amends the Agreement, and subject to the amendment hereunder
the Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have signed this Addendum.
PEC ISRAEL ECONOMIC DISCOUNT INVESTMENT
CORPORATION CORPORATION LTD.
By: /s/ FRANK J. KLEIN /s/ D. TADMOR /s/ S. COHEN
----------------------------- ------------------------------
Frank J. Klein
President
EXHIBIT 10(i)(f)
<PAGE>
AGREEMENT
Agreement dated as of July 1, 1995 between IDB Development Corporation
Ltd., having offices at "The Tower", 3 Daniel Frisch Street, Tel-Aviv
(hereinafter "IDB Development"), and PEC Finance Company Ltd., having offices
at "The Tower", 3 Daniel Frisch Street, Tel-Aviv (hereinafter the "Company").
WHEREAS, IDB Development engages, inter alia, in providing administrative
and other services to its subsidiary and affiliated companies (held directly or
indirectly) through its officers and team of employees;
WHEREAS, the Company is an indirect subsidiary of IDB Development; and
WHEREAS, IDB Development and the Company are parties to an Agreement dated
December 31, 1991 (the "Existing Agreement") pursuant to which IDB Development,
through the officers and team of employees of IDB Development, or through other
persons, provides the Company with administrative and other services, and the
parties hereto desire to amend and restate the Existing Agreement in its
entirety effective as of July 1, 1995;
NOW, THEREFORE, the parties agree as follows:
1. (a) The recitals to this Agreement form an integral part hereof.
(b) The Existing Agreement is hereby amended and restated in its
entirety by the terms of this Agreement effective as of July 1, 1995.
2. (a) IDB Development shall provide such administrative services to the
Company as the Company shall require from time to time, including, without
limitation, legal services to the Company (including with respect to compliance
with the Company's legal reporting requirements), advice with respect to the
affairs of the Company's secretariat, maintenance of the register of
shareholders, advice on taxation and accounting and financial and economic
advice, and for this purpose the Company shall be assisted by the officers
and employees of IDB Development and whomsoever IDB Development considers
appropriate.
(b) The administrative services set forth in Section 2(a) of this
Agreement shall be provided to the Company at such place and time as shall be
convenient to the Company, whether at the Company's offices or elsewhere, and
as shall be coordinated by the parties from time to time.
3. In consideration of the administrative services set forth in
Section 2(a) of this Agreement, the Company shall pay
<PAGE>
IDB Development an amount in New Israel Shekels equivalent to U.S. $130,000 per
calendar year, payable in two half yearly installments of $65,000 each in
January and July of each year. The amount of New Israel Shekels shall be
calculated at the representative rate of exchange on the date of payment,
the first payment to be made in January 1996 in respect of the calendar year
commencing January 1, 1996.
4. This Agreement shall take effect from July 1, 1995 for a term of
18 months and shall be renewed automatically thereafter for additional periods
of one year each, unless one party gives notice to the other not later than
60 days prior to the end of the then current term of its desire that the
Agreement not be renewed.
5. The Company shall pay any value added tax that is payable on any
installment paid by the Company to IDB Development pursuant to this Agreement.
6. Each party hereto shall pay one-half of any stamp duty on this
Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement in
Tel-Aviv as of the date first above written.
IDB Development Corporation Ltd. PEC Finance Company Ltd.
By:/s/ L. RECANATI By:/s/ R. COHEN
--------------------------- ----------------------
By:/s/ A. CAPLAN By:/s/ D. LEV
--------------------------- ----------------------
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries % Owned Incorporation
------------ ------- ------------------
General Engineers Limited 100% Israel
PEC Israel Finance Corporation
Ltd. 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 the
consolidated balance sheet as of December 31, 1995 and the consolidated
statement of income for the year ended December 31, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 14,703
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 392,967
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 31,952
<OTHER-SE> 325,335
<TOTAL-LIABILITY-AND-EQUITY> 392,967
<SALES> 0
<TOTAL-REVENUES> 42,065
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 31,904
<INCOME-TAX> 6,282
<INCOME-CONTINUING> 25,622
<DISCONTINUED> (380)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,242
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
