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, 1996
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 __________________________
Commission file number 2-1271
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
------------------------------
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 NO
--- ---
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. [ ]
Index is on Page 244.
Page 1 of 251 pages.
<PAGE>
The aggregate market value of the outstanding Common Stock of the
registrant held by non-affiliates on March 24, 1997 was approximately
$100,288,000. Such aggregate market value was computed on the basis of the
closing price of the Common Stock of the registrant on the New York Stock
Exchange on that date. See Part II, Item 5, "Market for the Registrant's Common
Stock and Related Stockholder Matters."
As of March 24, 1997, 18,508,388 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 1997 Annual Meeting of Shareholders are incorporated by
reference in Part III.
Page 2
<PAGE>
PART I
Item 1. BUSINESS
PEC Israel Economic Corporation ("PEC" or the "Company") organizes,
acquires interests in, finances and participates in the management of companies,
predominantly 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 telecommunications and technology,
manufacturing, real estate, retailing, shipping and consumer products.
Among PEC's holdings are significant interests in one of Israel's two
cellular telephone companies (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.), 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 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 71% 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 $2.5
billion at December 31, 1996. 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 or long-term debt invested by the paying party in
business opportunities initiated or initially presented by the other party. 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 in which each of them
owns voting interests, including the use of their voting power as shareholders
on a mutually agreed basis. PEC also has entered into voting agreements with
other members of the IDB Group with respect to voting of the stock of certain of
such companies.
PEC believes that its agreements with Discount Investment and PEC's
relationship with the IDB Group afford PEC an important source of new business
opportunities in Israel, significant influence in the management and operations
of companies in which PEC holds shares and savings in PEC's cost of conducting
its business.
PEC has received an Order from the United States Securities and Exchange
Commission determining that it is not an investment company within the meaning
of the Investment Company Act of 1940. In light of the Order, PEC has determined
that its business holdings should continue to be concentrated in Israel-related
companies that it, IDB Holding and other members of the IDB Group control or in
which they exercise a significant influence.
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The Affiliates
The following chart lists by industry group the companies in Israel or
related to Israel in which PEC holds voting equity interests (the "Affiliates"),
the principal business of each such company and, with respect to each such
company, the percentage of equity owned directly by each of PEC, Discount
Investment and the IDB Group in the aggregate. For additional information with
respect to the Affiliates, including information with respect to carrying
values, see Note 3 of Notes to Consolidated Financial Statements of PEC and
Subsidiaries.
<TABLE>
<CAPTION>
Percentage
Equity Ownership as of
December 31, 1996
-------------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
<S> <C> <C> <C> <C>
Telecommunications and Technology
Cellcom Israel Ltd. Cellular Telephone System 12.5% 12.5% 25.0%
Tevel Israel International Cable Television 23.7 24.8 48.5 (2)
Communications Ltd. Broadcast Franchise
Scitex Corporation Ltd. Digital Visual Information 6.6 6.6 26.3 (3)
Communication
Elron Electronic Diversified High 13.6 26.5 40.1
Industries Ltd. Technology Holdings
Gilat Satellite Networks Satellite Communications 6.9 6.3 13.2
Ltd. Systems
Gilat Communication Interactive Distance Learning 12.4 12.5 24.9
Engineering 1990 Ltd. Centers; Services for the
Communications Industry
Tel-Ad Jerusalem Studios Television Station Operator 11.5 11.5 23.0
Ltd. and Producer of Television
Programs
Nice Systems Ltd. Voice Logging and 5.0 5.1 10.1 (4)
Communication Intelligence
Systems
Liraz Systems Ltd. Customized Computer 16.1 16.2 32.3 (5)
Software Systems: Distri-
bution of Packaged Software;
and Provider of Outsourcing
Services
RDC-Rafael Development Development Stage 16.7 16.7 50.1 (6)
Corporation Ltd. High Technology
Products
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percentage
Equity Ownership as of
December 31, 1996
--------------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
Telecommunications and Technology (continued)
<S> <C> <C> <C> <C>
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)
VocalTec Ltd. Voice and Audio 4.0 4.0 8.0
Communications over
the Internet
Electronics Line (E.L.) Electronic Security 13.9 13.9 27.8
Ltd. Systems
Lipman Electronic Electronic and Computerized 5.4 5.4 10.8 (9)
Engineering Ltd. Systems
Soundesigns Multimedia Integration of Computers and 13.2 13.2 26.4 (10)
Communication Systems Ltd. Conventional Communications
Logal Educational Software Educational Software 4.3 4.4 22.9 (11)
and Systems Ltd.
Sign-On Computer Communications Private Network 25.5 25.5 51.0
Services Ltd. Communications
PAMOT Fund Acquisition of Development - 3.3 3.3 6.6 (12)
Stage Companies
Incubator for Technological Support of Development - 16.6 16.6 33.3
Entrepreneurship Kiryat Stage High Technology
Weizmann Ltd. Companies
Tius Elcon Ltd. Electronic Products for 14.5 14.5 29.0
Home Health Care
RTS Telecommunications International Telecommuni- 15.0 15.0 30.0
Services Ltd. cation Services in St.
Petersburg, Russia
</TABLE>
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<TABLE>
<CAPTION>
Percentage
Equity Ownership as of
December 31, 1996
--------------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
Telecommunications and Technology (continued)
<S> <C> <C> <C> <C>
RPA Leasing Inc Lessor of Telephone 25.0% 25.0% 50.0%
Equipment
Adir International Communications International Tele- 25.0 25.0 50.0 (13)
Services Corporation Ltd. communication Services from
Israel
Industry
Tambour Ltd. Paint and Related Products 42.8 21.3 64.3 (14)
Caniel-Israel Can Company Ltd. Cans and Metal Packaging 29.0 14.7 43.7 (15)
Klil Industries Ltd. Aluminum Extrusions and 16.4 36.0 54.5 (16)
Finished Products
Mul-T-Lock Ltd. Locks and Security Doors 15.0 15.0 33.0 (17)
Tefron Ltd. Lingerie and Undergarments 13.0 13.0 26.0
Maxima Air Separation Center Ltd. Industrial Gas Production 12.0 11.7 23.7
Lego Irrigation Ltd. Irrigation Equipment 13.2 13.2 26.4
Real Estate
Property and Building Real Estate Construction 38.0 15.0 53.0
Corporation Ltd. and Development
Retail, Shipping and Other
Super-Sol Ltd. Supermarkets, Do-It- 17.6 15.4 47.8 (18)
Yourself and Office Supply
Stores
El-Yam Ships Ltd. (19) Bulk Shipping 10.1 14.3 24.4
"Delek"-The Israel Fuel Distribution of Petroleum 2.6 33.1 35.7
Corporation Ltd. Products
Renaissance Fund LDC Acquisition of Equity Interests 3.7 ----- 3.7
for Capital Appreciation
</TABLE>
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<TABLE>
<CAPTION>
Percentage
Equity Ownership as of
December 31, 1996
--------------------------------------------
Discount IDB
Principal Business PEC Investment Group (1)
------------------ --- ---------- ---------
Retail, Shipping and Other (continued)
<S> <C> <C> <C> <C>
General Engineers Limited Distribution of Power 100.0% ----- 100.0%
Generation Equipment
Isrotel Ltd. Ownership, Management and 2.3 2.3 4.6 (20)
Operation of Hotels
Sano Dispec Development Ltd. Joint Ventures in China for 25.0 25.0 50.0 (21)
Manufacture and Sale of
Detergents and Cosmetics
and for Advertising
</TABLE>
(1) Total holdings of members of the IDB Group.
(2) Interests in Tevel Israel International Communications Ltd. are held
through a separate company, DIC and PEC Cable TV Ltd.
(3) The ownership interest of the IDB Group includes the 13.1% ownership
interest of Clal Electronics Industries Ltd. and its subsidiary Clal
Electronics Ventures Ltd., both affiliates of IDB Holding, in Scitex
Corporation Ltd.
(4) As a result of sales of American Depositary Shares representing ordinary
shares of Nice Systems Ltd. after December 31, 1996, as of March 24, 1997,
PEC owned 3.5%, Discount Investment owned 3.5% and the IDB Group owned
7.0%, respectively, of the ordinary shares of Nice Systems Ltd.
(5) 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 17.9%, Discount Investment would
own 18.0% and the IDB Group would own 35.9%, respectively, of the ordinary
shares of Liraz Systems Ltd.
(6) Interests in RDC-Rafael Development Corporation Ltd. are held through a
separate company, DEP Technology Holdings Ltd. The ownership interest of
the IDB Group includes the 16.7% ownership interest of Elron Electronic
Industries Ltd. in RDC-Rafael Development Corporation 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 ownership interest
of the IDB Group includes the 3.7% and 3.8% ownership interests of Elron
Electronic Industries Ltd. and Scitex Corporation Ltd., respectively, 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.
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<PAGE>
(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) As a result of sales of ordinary shares of Lipman Electronic Engineering
Ltd. after December 3l, 1996, as of March 24, 1997, PEC owned 3.3%,
Discount Investment owned 3.4% and the IDB Group owned 6.7%, respectively,
of Lipman Electronic Engineering Ltd.
(10) In addition, PEC and Discount Investment own options to acquire ordinary
shares of Soundesigns Multimedia Communications Systems Ltd. If such
options are exercised, PEC would own 17.2%, Discount Investment would own
17.2% and the IDB Group would own 34.4%, respectively, of the ordinary
shares of Soundesigns Multimedia Communications Systems Ltd.
(11) The ownership interest of the IDB Group includes the 12.7% and 1.5%
ownership interests of Gemini Israel Fund L.P. and Elron Electronic
Industries Ltd., respectively, in Logal Educational Software and Systems
Ltd.
(12) PAMOT Fund refers to five parallel limited partnerships and the percentages
represent ownership interests in the five partnerships on a combined basis.
(13) In March 1997, Adir International Communications Services Corporation Ltd.
agreed to sell substantially all of its assets.
(14) Includes the proportionate interest of the IDB Group in the 0.4% ownership
interest in Tambour Ltd. held by Tovalah Ltd., a wholly-owned subsidiary of
Tambour Ltd.
(15) 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.
(16) Includes the proportionate interest of the IDB Group in the 4.1% ownership
interest in Klil Industries Ltd. held by Klil Aluminums Products Ltd., a
wholly-owned subsidiary of Klil Industries Ltd.
(17) Includes the proportionate interest of the IDB Group in the 9.9% ownership
interest in Mul-T-Lock Ltd. held by Mul- T-Lock Technologies Ltd., a
wholly-owned subsidiary of Mul-T-Lock Ltd.
(18) The ownership interest of the IDB Group includes the 14.8% ownership
interest of "Delek" - The Israel Fuel Corporation Ltd. in Super-Sol Ltd. As
a result of sales of ordinary shares of Super-Sol Ltd. after December 31,
1996, as of March 24, 1997, PEC owned 16.1%, Discount Investment owned
14.2% and the IDB Group owned 45.1%, respectively, of Super-Sol Ltd.
(19) Includes the Company's interest in Financial Holdings El-Yam (Hamigdal)
Ltd.
(20) In addition, PEC and Discount Investment own publicly-traded warrants to
acquire ordinary shares of Isrotel Ltd. If all of the outstanding warrants
and options of Isrotel Ltd. are exercised, PEC would own 5.3%, Discount
Investment would own 5.4% and the IDB Group would own 10.7%, respectively,
of the ordinary shares of Isrotel Ltd.
(21) 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>
Telecommunications and Technology
Cellcom Israel Ltd. ("Cellcom"). Cellcom, a corporation owned by PEC,
Discount Investment, BellSouth Enterprises Inc. and companies controlled by
Joseph Safra and Moise Safra of Brazil, operates Israel's second cellular
telephone system. Cellcom began operations at the end of December 1994 and
serves all of Israel. By the middle of March 1997, over 600,000 customers were
utilizing Cellcom's cellular telephones, an increase of approximately 360,000
customers in one year. Cellcom has invested approximately $600 million in the
development and operation of the 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 Israel's
Ministry of Communications may 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. At the end of 1996, two
years later, Cellcom had 370 operating cell sites, six mobile telephone
switching offices and eight switching machines. In order to improve the quality
of its existing service, Cellcom intends to construct an additional 232 cell
sites, one mobile telephone switching office and three switching machines in
1997.
In March 1997, Cellcom entered into an agreement with IBM and Bellcore
under which Cellcom will offer wireless intelligent network services in Israel
using hardware and software developed by those companies.
Cellcom's marketing strategy is based on the premise that cellular
telephones and service should be offered on a mass market basis. Cellcom's
rates, which are regulated by its license, 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. On January 1, 1997, this rate rose to 12.58 cents per minute
during peak hours and 10 cents per minute during off peak hours. Cellcom may
increase these charges
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<PAGE>
whenever the Israeli consumer price index increases by more than 8.5% in any
year. In addition, Cellcom charges an interconnect fee and, during 1997 through
1999, Cellcom may charge customers a monthly fee of $5.65, not including any
adjustments for inflation. Cellcom's charges are 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.
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 1996, Cellcom products and services were offered in over 80 cities
throughout Israel at 300 locations, of which 10 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 northern 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 1996, Tevel had approximately 238,000
subscribers, constituting approximately 69.3% 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 41 channels for
a fixed monthly fee. The basic package includes
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<PAGE>
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 recent theatrical movies on a pay per view basis over
four channels programmed and packaged by Tevel under Tevel's brand name "Home
Cinema." In November 1996, a fifth pay-per-view channel was added. During 1996,
monthly sales of "Home Cinema" events increased steadily, reaching a sales rate
of 88,574 events per month during the last quarter of 1996, and total sales in
1996 amounted to 930,651 events.
Scitex Corporation Ltd. ("Scitex"). Scitex is a world leader in visual
information communication. Scitex designs, develops, manufactures, markets and
supports products, systems and devices primarily for the graphic arts, digital
printing and digital video markets and has organized its business into three
units to serve these markets.
The Graphic Arts Group, the largest business unit of Scitex, engages in
color electronic prepress and short-run digital printing solutions. Its products
automate the generation and production of 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, scanners and a digital camera for image capture, client
servers and archivers, and advanced systems running on standard computers and
dedicated work stations for image manipulation and editing (assembly,
retouching, airbrushing and special effects). The products also include a large
variety of output systems, such as digital front ends, color inkjet printing and
proofing systems, and imagesetters and platesetters for outputting color
separation films or plates. In addition, the Graphic Arts Group offers direct
digital printing systems, based on a strategic alliance with Xerox Corporation,
for short-run, print on demand applications.
The Graphic Arts Group markets its products to graphic art studios,
tradeshops, digital service bureaus, commercial printers, and publishers.
Customers include Fortune, The New York Times, National Geographic, Sports
Illustrated, The Wace Group, R.R. Donnelley Corporation, Le Figaro, The Daily
Telegraph, Bauer Druck, Rotolitho Lombardo, De Schutter, Toppan Group, Ginza
Process, Toyo Denshi Seihan, Dai Nippon Printing and
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Ashai Shimbun.
The Scitex Digital Printing division, another Scitex business unit,
manufactures computer-driven, inkjet printers for very high speed, high volume
and long run (in thousands and millions of copies) printing. Used worldwide,
products of the division include the Dijit printing system, wide and narrow
format printing systems, special high-speed printers, controllers and the Begin
application software. Scitex is developing a digital offset press which is
designed to print high quality, short runs at a competitive cost and to digitize
traditional print processes to increase productivity and predictability, and
thus reduce costs. The Scitex Digital Printing division sells its products
mainly to commercial printers, periodical printers and form printers. Its
products are used primarily for variable-data printing of personalized mass
mailings, billings, bar codes, business forms and lottery tickets. Its customers
include R.R. Donnelley Corporation, Unisys, Standard Register, Banta, Bittler
Brothers, AB Tumba Bruk, Mohndruck, Dai Nippon Printing, Iseto and Toppan Group.
Scitex Digital Video, the third Scitex business unit, was formed in October
1995 by the merger of Abekas Video Systems Inc., acquired in 1995, and ImMIX,
Inc., acquired in 1994. Its products include digital video non-linear,
post-production, video editing systems and video manipulation systems, such as
digital video effects (DVE) generators and character generators, which can be
on-line or off-line, live or post production, as well as other devices such as
disks and switches. The division markets its products to television broadcasters
and professional video stores. Its customers include NBC, Bloomberg Business
News, Universal Studios, Walt Disney Imagineering, CBS News, Federal Express,
the New York Stock Exchange and Video Post (Hong Kong).
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 consisting of up to 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
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ordinary shares of Scitex.
Elron Electronic Industries Ltd. ("Elron"). Elron conducts its business
principally through high technology operating companies in which it holds
controlling or other significant equity interests. Elron's various affiliates
design, develop, manufacture, market and service products in the fields of
healthcare, defense electronics, semiconductors, machine vision, software and
information technology. 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 recent years, Elron has allocated substantial resources to
companies developing technologies and products for the Internet and intranets.
Elron's affiliates include publicly-traded and privately-held companies. As
of March 19, 1997, its principal publicly-traded affiliates were Elbit Medical
Imaging Ltd. (40.1% owned - medical products and services in the fields of
diagnostic imaging and diagnostic ultrasound and establishment of diagnostic and
therapeutic imaging centers around the world, mainly in developing countries -
NASDAQ/NMS symbol "EMITF" and also traded on the Tel Aviv Stock Exchange);
Elscint Ltd., a 55% owned subsidiary of Elbit Medical Imaging Ltd. (imaging
technologies for medical diagnostics, including computed tomography, magnetic
resonance imaging, nuclear medicine and mammography - New York Stock Exchange,
Inc. symbol "ELT"); Elbit Systems Ltd. (40.1% owned- prime contractor and
multi-disciplinary integrator of large-scale defense electronics upgrade
projects as well as a developer of unmanned airborne vehicles (UAVs) through a
50% subsidiary - NASDAQ/NMS symbol "ESLTF" and also traded on the Tel Aviv Stock
Exchange); Elbit Ltd. (40.1% owned - connectivity and communications access
systems for public and private networks and manufacturer of high-end televisions
- - NASDAQ-NMS symbol "ELBTF" and also traded on the Tel Aviv Stock Exchange);
Elbit Vision Systems Ltd. (50% owned by Elbit Ltd. - proprietary automated
vision systems based on computer vision and image interpretation technologies
for the textile industry - NASDAQ/NMS symbol "EVSNF"); Orbotech Ltd. (10.5%
owned - application of machine vision and related computer-based technologies to
improve the production processes of printed circuit boards and liquid crystal
displays - NASDAQ/NMS symbol "ORBKF"); Zoran Corporation (16.5% owned -
integrated circuits and software for digital video and audio compression
applications - NASDAQ/NMS symbol "ZRAN"); PC Etcetera, Inc. (7% owned -
technology-based training products - over-the-counter stock symbol "PCEZ");
NetManage Inc. (2.2% owned - provider of standards-based software for the
Internet and
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corporate intranets - 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 - NASDAQ/NMS symbol "LOGLF").
Among Elron's privately-held affiliates as of March 19, 1997 were
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); Chip Express Corp. (40.1% 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); Oren Corporation Ltd. (15% owned indirectly - design, manufacture and
marketing of integrated circuits based on a patented digital filter, adaptive
equalization and digital signal processing technologies for cancelling "ghost"
images and for the consumer television market, which circuits are designed to
fit into conventional analogue television sets, VCRs, cable decoders and
television set top boxes). 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.
Elronet, a business unit within Elron, focuses on advanced technologies,
products and services within the information technology field, including
Internet/intranet, networking and application development for client/server and
web environments. Elronet is currently comprised of the following six companies:
NetVision Ltd. (50% owned - Israel's largest Internet service provider);
MediaGate N.V. (27.8% owned - provides single point access to the Internet with
any real time communication device); Ornetix Technologies Ltd. (25.5% owned -
proprietary network technology for CD-ROM drives, "CD jukebox" servers and
management software for computer networks); ArelNet Ltd. (20% owned - message
switching technologies and solutions including i-FAX, which enables faxes to be
sent at competitive prices over the Internet); Elementrix Technologies Ltd.
(48.1% owned - intranet/Internet security company that develops advanced
security products and technologies); and ServiceSoft Corporation (25.3% owned -
software products that provide self-service support information directly to end
users over the Internet and intranets).
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Elron's three major affiliates, Elbit Medical Imaging Ltd., Elbit Systems
Ltd. and Elbit Ltd., constituted approximately 78% of Elron's total assets as of
December 31, 1996.
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").
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. At the end of 1996, Gilat Satellite acquired Skydata Inc., a Florida
based manufacturer of VSATs.
Gilat Satellite markets principally three VSAT product lines:
o Satellite data delivery.
Skystar Advantage, Gilat Satellite's principal product, facilitates
batch and interactive data communications for credit and debit card
authorization, inventory control, lottery systems, remote training and automatic
teller machine (ATM) services for customers such as retail chains, gas stations
and supermarkets. Gilat Satellite's OneWay VSAT provides unidirectional data
broadcast for the distribution of real-time financial information, newswire
broadcasts and paging signals for customers such as stock exchanges, news
agencies and paging operators.
o Satellite telephony.
DialAway VSAT is a telephony product which provides single and dual
channel voice services such as satellite pay phones in remote areas. The FaraWay
VSAT provides multi-channel, on-demand voice, telecopy and data services to
remote and undeveloped areas that lack adequate telecommunications
infrastructure. The ISAT is a frame-relay based product for comprehensive data,
voice and video applications for small corporate networks.
o Satellite-based Internet access.
Internet Access by Skystar Advantage provides a high speed platform
for interactive access to the Internet or corporate Intranet, independent of
infrastructure. Skysurfer 1 provides high speed Intranet access and high-quality
business
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television for an unlimited number of users using a plug-and-play personal
computer card.
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 Telecom 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. Gilat Satellite, which is based in Israel, has offices
in the United States, France, China and Thailand.
Gilat Satellite's stock is traded on the NASDAQ/NMS under the trading
symbol "GILTF".
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 subsidiary of Gilat Engineering provides satellite
communication within Israel using one-way and two-way networks by means of very
small aperture terminals (VSATs), broadband Internet access and digital
compressed video and audio broadcast. Through ISRASAT International
Communication Corp., a company in which it has a 50% interest and whose other
shareholder is Sign-On Computer Communications Services Ltd., Gilat Engineering
provides point to point international satellite communication services to
corporate clients in Israel and abroad.
Gilat Engineering owns 25% of Spacecom Satellite Communications Services
Ltd., which holds exclusive marketing rights for the "AMOS 1" satellite for the
Middle East.
Tel-Ad Jerusalem Studios Ltd. ("Tel-Ad"). Tel-Ad is a major broadcaster and
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 on October
31, 1999 and Tel-Ad may request that the license be extended for one four year
term. Broadcasts on the second television station began in
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November 1993. Each of the three licensees is responsible for the entire
programming for two days every week, which two days may be Sunday and Wednesday,
Monday and Thursday, or Tuesday and Friday, and for every Saturday in one year
of each three year period. The two day pairings are rotated among the three
licensees every two years. From September 1995 through August 1996, Tel-Ad's
programs were broadcast on Tuesdays, Fridays and Saturdays. Since September
1996, Tel-Ad's programs have been broadcast on Tuesdays and Fridays, which will
continue through August 1997.
The Second Channel is the most-watched television 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
medium offers. In 1996, 30% of all Israeli advertising budgets were allocated
for television. Substantially all of Tel-Ad's revenues are derived from the sale
of advertising air time. Tel-Ad's broadcast license permits Tel-Ad to allocate
to commercials up to 10% of its daily 18-hour broadcast time.
Tel-Ad broadcasts a varied program schedule, with approximately half of the
programs produced in Israel and half 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,
drama, 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 investigative reporting magazine "Fact", the humor and
satire program "Harzufim", the entertainment/variety shows "Laila Gov" and
"Tonight with Eli Yatzpan", and the dramatic series "Ramat Aviv Gimmel".
Tel-Ad's offices in the Jerusalem Theatre Building include state-of-the-art
technical facilities, including the first fully digital television studio in
Israel, two multi-purpose television studios, and fully equipped computerized
editing and animation suites. Tel-Ad's offices in Tel Aviv house its sales and
marketing divisions.
Nice Systems Ltd. ("Nice"). Nice is a global provider of computer telephony
integrated (CTI) logging, monitoring and management solutions for voice,
telecopy and data communications. 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 voice processing technologies. The principal product of Nice is
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NiceLog, a technologically leading CTI digital voice recording and retrieval
system that performs continuous, reliable recordings of up to thousands of
channels. Each NiceLog supports up to 120 channels per logger and over 1,500
hours of hard disk storage for immediate access to recordings for playback.
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, securities traders, air
traffic control sites, public safety and transportation agencies and utilities.
Users of NiceLog systems include ABN AMRO Bank, Bank of America, Chase Manhattan
Bank, Citibank, Credit Suisse, Deutsche Bank, the Federal Aviation
Administration, the Sydney Futures Exchange and aviation agencies in several
countries throughout the world.
In 1996, Nice introduced two new products, NiceCall and NiceFax. NiceCall
is a compact voice logging system for smaller applications such as a small
number of bank branches, call centers or financial trading sites. NiceFax is a
complete fax archiving and management system for an entire organization. NiceFax
archives all incoming and outgoing fax traffic and provides a central database
for logging and querying and easy retrieval of all of an organization's faxes.
Nice also develops and markets communication intelligence ("COMINT")
systems that are primarily used for spectrum monitoring, signal tracing and
direction finding applications in mobile and fixed ground installations as well
as on ships and aircraft. Nice's principal COMINT system, NiceFix, is a
communications intelligence and direction finding system that detects,
identifies, locates, monitors and records transmission sources.
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.
Liraz Systems Ltd. ("Liraz"). Liraz and its subsidiaries and
affiliates develop and sell comprehensive computerized business system solutions
in Israel and abroad. In Israel, 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
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include the following companies:
o Level 8 Systems, Inc., formerly named Across Data Systems, Inc., a 52.5%
owned subsidiary which develops and markets business software and provides
consulting and ancillary services. Level 8's principal business is the
development and sale of middleware software products and services which utilize
messaging and object technology to solve enterprise-wide integration problems
associated with linking centralized computer systems, desktop computers and the
Internet. Middleware products facilitate communication among applications that
reside on distributed and often incompatible hardware and software. Level 8 also
offers a manufacturing resource planning software package for use in managing
manufacturing operations and reporting financial results, as well as related
installation, training and support services. In addition, Level 8 provides
consulting services for enterprise messaging and for the manufacturing and
financial services industries. In December 1996, Level 8 had an underwritten
public offering of its stock in the United States, approximately 17 months after
the initial public offering of Level 8's stock in the United States. Level 8's
stock is traded on the NASDAQ/NMS under the trading symbol "LVEL".
o Yaana Ltd., a 50% owned affiliate which specializes in outsourcing
services, payroll, labor management and complete application packages. Yaana's
stock is traded on the TASE.
o Bintel Systems Ltd., a 92% 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 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.
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.
The stock of Liraz 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
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of Defense ("Rafael"). Rafael is one of Israel's largest industrial enterprises
and Israel's largest research and development organization.
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 Oramir Semiconductor Equipment Company Ltd., which is developing the
L-Stripper, an innovative process that allows the removal by laser of
photoresist in the manufacturing process of silicon wafers used in the
semiconductor industry.
o Semiconductor Engineering Laboratories (SELA) Ltd., which manufactures
and markets a line of semiautomatic micro-cleaving systems which produce a cross
section of semiconductor wafers for later examination by a scanning electron
microscope for the purposes of failure analysis and process monitoring.
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 Medicard Ltd., which is developing, producing and selling products based
on pulsatile technology of the heart-lung machine to assist in cardiac surgery
and other areas of cardiology.
o 3DV Systems Ltd., which is developing a camera that utilizes laser
technology to produce a three-dimensional picture.
o Galil Medical Ltd., which develops, manufactures and markets medical
systems for cryosurgery, a minimally invasive method for removal of tumors using
extreme low temperature
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technology.
o VerdEco Technologies Ltd., which develops, manufactures and markets an
in-situ analysis device that monitors the presence of heavy metals in water and
wastewater.
o Witcom Ltd., which develops millimeter wave radio based digital
networking solutions that provide higher transmitted output power and superior
receiver sensitivity for a wide range of applications such as cellular telephone
systems, local loops, local exchange bypass and local area networks.
RDC also manages a research and development fund which is currently
supporting one project for the development of advanced adaptive beamforming and
nulling antennas that are intended to substantially increase the capacity of
cellular telephone calls and another project for the development of satellite
communication equipment utilizing millimeter waves for commercial application
such as transmission of television, high data rates and Internet services.
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 $20 million
of capital from their partners, of which Advent Israel and such limited
partnership have invested $10.75 million in Gemini and have invested or plan to
invest $9.25 million in portfolio companies. Gemini has received approximately
$26.75 million of capital 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 contributed $3 million
of capital to Gemini. PEC's partners in Gemini are
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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 1996, Gemini had invested approximately $19 million in 23
companies, including $5.7 million invested in eight new projects in 1996. Gemini
expects to be fully invested by the end of June 1997. Among the corporations in
which Gemini has an equity interest are the following:
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 Angiosonics Ltd., a developer and manufacturer of vascular ultrasound
systems for the removal of arterial obstructions.
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 Aisys Ltd., a designer and developer of software for automatic
programming of silicon microcontrollers to operate peripherals.
o Precise Software Solutions Ltd., a corporation that develops application
performance tuning tools for mainframe and client/server software systems.
o Orisol Original Solutions Ltd., a corporation that designs, manufactures
and sells vision-based computerized shoe sewing machines.
o Super Dimension Ltd., a corporation that develops and sells interactive
computer products for children, including game and entertainment platforms which
can be hooked up to a multimedia computer system, a video game machine or a
cable access television set-top box. The platforms permit objects held above
them to be used as free operating joy sticks or other activation devices.
o Arad Systems Ltd., a software developer of sales force automation
configuration tools which enable the user to prepare quotes for complex products
and systems containing accurate and
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complete information, including prices, parts lists and specifications on a
timely basis.
o Combact Diagnostic Systems Ltd., a developer of a novel and proprietary
automated system for rapid bacterial analysis of urine.
o Commtouch Ltd., a corporation engaged in the development of electronic
messaging solutions, including an e-mail product for the home consumer market
and a method to use e-mail as a multimedia promotional and delivery vehicle for
Internet advertising - so called "netvertising".
In November 1995, Gemini and the other shareholders of OrNet Data
Communication Technologies Ltd. sold their equity interests in OrNet to Siemens
for a profit, the only sale to date by Gemini of an equity interest.
PEC is also a limited partner in Advent Israel and has contributed $500,000
of capital to Advent Israel. 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. At the end of 1996, Advent Israel had directly invested
approximately $6.1 million in 20 companies other than Gemini. Among the
corporations in which Advent has an equity interest and Gemini does not are a
developer of airless fluid spraying devices and a corporation which uses voice
compression technology for high-quality Internet voice transmissions.
VocalTec Ltd. ("VocalTec"). VocalTec develops and markets software that
enables voice and multimedia communications over packetized networks, the
Internet and corporate intranets. VocalTec also develops open systems to bridge
the Internet to the public switched telephone network.
VocalTec pioneered the market for Internet telephony with the introduction
of Internet Phone, VocalTec's core product, in 1995. Internet Phone enables two
users to simultaneously talk and see each other in real-time using their
personal computers for the cost of the local telephone Internet connection.
VocalTec offers numerous video, audio, data, text and collaborative computing
features for the Internet Phone designed for business communication. In
addition, VocalTec offers business customers the Internet Telephone Gateway
server, Desktop-Dialer, Surf & Call plug-in and client server. In March 1997,
VocalTec and Motorola entered a strategic alliance for the sale of VocalTec's
products to corporations.
VocalTec's Internet telephony gateway software is marketed primarily to
telecommunication companies, Internet service
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providers and other business customers and is designed to improve the
flexibility and performance of business communication systems while reducing
long-distance phone charges. The software may support fax communications and has
multimedia and call management applications. The gateway software, when used
with open system hardware, enables computer-to-computer, computer-to-telephone,
telephone-to-telephone and telephone-to computer-calls.
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".
Electronics Line (E.L.) Ltd. ("Electronics Line"). Electronics Line is
engaged in the design, development, production and international marketing of
advanced electronic home and business alarm and security systems. Its products
include passive infrared, dual technology and glass break detectors, alarm
control panels, wireless encoders, transmitters and repeaters, closed camera
television observation systems 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.
Lipman Electronic Engineering Ltd. ("Lipman"). Lipman develops,
manufactures and markets a variety of sophisticated microprocessor-based
electronic and computerized systems primarily for communication applications,
incorporating imaging and scanning technologies. Lipman's products include
telephone line and wireless point of sale/electronic fund transfer retail
business payment terminals, electronic cash registers and thermal and impact
printers. 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, debit or smart card vending machine payment systems
for use with commercial washers and dryers, photocopiers and other vending
machines and for garages and gasoline stations. Lipman has recently completed
developing a unique hand-held pen-sized multi-lingual scan translator. Lipman's
stock is traded on the TASE.
Soundesigns Multimedia Communication Systems Ltd. ("Soundesigns").
Formed in 1993, Soundesigns develops hardware and software for computer
telephony integration products, personal computer multimedia enhancement
software and application development tools. Soundesigns' products are currently
in the final stage of development.
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Personal computers connect with external systems, such as the Internet,
through an entrance, such as a modem or network card, which, when in use,
prevents the computer from connecting to another communication channel such as
the telephone. Soundesigns' principal product is a computer telephony upgrade
kit called "SoundWare" for use with any multimedia personal computer. It
provides a separate telephone channel through the audio system, permitting
telephone applications for the computer such as sending or receiving telecopies
while at the same time using the entrance to the computer for other purposes,
such as browsing the Internet. In addition, the telephone channel may be used
for communicating over the Internet, local networks and high speed ISDN lines.
Soundesigns believes that SoundWare is the most cost-effective product for
providing an additional telephone channel to personal computers.
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 30 product titles which are based on an
"active" approach to learning in the areas of biology, chemistry, physics,
economics and math. All of Logal's products are available on both Macintosh and
Windows operating platforms as well as over the Internet.
Logal has developed a comprehensive line of science and math products that
incorporate dynamic solutions which actively engage students in the learning
process and are easy to use and can be customized to meet the individual needs
of students and teachers. Logal's science and economic products are based on a
proprietary simulation engine, the Explorer system, and are designed around a
common platform that reduces the development time and cost of new product
titles, and facilitates product updates. 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 has established strategic alliances with major educational
publishers such as Prentice-Hall Inc., Simon and Schuster and Houghton Mifflin
Company for the integration of textbook content with interactive software titles
to be sold with those companies' textbooks.
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".
Sign-On Computer Communications Services Ltd. ("Sign-On"). Sign-On
furnishes private network telecommunication services to corporate clients in
Israel. Through ISRASAT International
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Communication Corp., a company in which it has a 50% interest and whose other
shareholder is Gilat Communication Engineering 1990 Ltd., Sign-On provides point
to point international satellite communication services to corporate clients in
Israel.
PAMOT Jersey US L.P. ("PAMOT US"). PAMOT US is one of five parallel limited
partnerships (the "PAMOT Fund") formed in October 1996 for the purpose of
acquiring equity interests primarily in companies established to develop
early-stage projects based on technologies developed at the Weizmann Institute
of Science (the "Weizmann Institute"). The PAMOT Fund has received capital
commitments of $16.5 million. PEC and Discount Investment have each committed to
contribute $500,000 to the capital of the PAMOT Fund, of which $150,000 has been
paid by each of them as of March 24, 1997.
The PAMOT Fund has an agreement with Yeda Research and Development Company
Ltd., the entity that holds all property rights to inventions developed at the
Weizmann Institute, under which the PAMOT Fund has a first opportunity right to
evaluate all technology and projects with commercial potential developed within
the Weizmann Institute that are available for investment. If the PAMOT Fund
desires to develop a project, it and Yeda must agree upon a budget for the
company formed to develop the project and the project company will enter a
research and license agreement with Yeda. The PAMOT Fund will acquire an 80%
equity interest in the project company, and Yeda and the supervising inventor
scientists as a group will each acquire a 10% equity interest. In addition, Yeda
will receive 15% of the distributable gains to the PAMOT Fund. The PAMOT Fund
may not contribute more than $3.3 million to the capital of a project company.
To date, the PAMOT Fund has not invested in a project company.
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.
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Through February 1997, PEC purchased interests in eight 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; the
development of high quality personal care and dermatological products derived
from whey, a completely natural source, containing vitamins, lactic acid,
protein and many minerals; the commercial development of ultrastable enzymes for
either improved performance in commercial applications where enzymes are
presently used or new applications for which enzymes are not presently used
because of insufficient durability; 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.
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. In view of losses incurred by Tius
Elcon, PEC has made provisions with respect to its interest in Tius Elcon.
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. RTS expanded its activities in 1996 but continued to incur
losses as a result of strong competition. 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.
Adir International Communications Services Corporation Ltd. ("Adir"). In
March 1997, Adir agreed to sell substantially all of its assets to Golden Lines
International Communication Services Ltd. for $2.25 million. Under the
agreement, Adir
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agreed to operate through the end of 1997 its business of international
telephone service from Israel, worldwide facsimile communications from Israel,
sale of calling cards in Israel and rental of cellular telephones in Israel with
worldwide accessibility for incoming and outgoing calls. In exchange, Golden
Lines agreed to pay certain expenses of the business and to pay Adir 70% of the
operating profit generated by the business through the end of 1997. Adir
continues to operate its business of selling calling cards and other telephone
services in nations other than Israel, including Russia, France, South Africa,
Chile and Peru, through local telephone carriers.
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, principally to countries of the former Soviet
Union.
At the beginning of 1997, Tambour began a reorganization of several
operations into the following four major companies or divisions:
o Tambour Decoration, the division responsible for the manufacture and sale
of decorative paints. This division also manages the decorative wall-facing
brick operation of Tambour's affiliate, Gidgee Ltd., and the products of Serafon
for the construction industry.
o Tambour Industry, the division that produces and markets industrial paint
products, emulsions and resins. This division also manages the printing ink
operations of Tambour's affiliate, Tzah-Israeli Printing Inks Ltd., and the
industrial glue and emulsion business of its affiliate, Serafon Resinous
Chemicals Corp. Ltd.
o Tambour Ecology Ltd., a company in which Tambour will have a 66%
ownership interest that will be the successor by merger to three of Tambour's
affiliates: Italchem-Ayalon Ltd., Chemitas 1988 Ltd. and Aniam Ltd. Tambour
Ecology will conduct the businesses of the three affiliates, namely the
production and marketing of water treatment facilities, chemicals, metal
treatment chemicals and industrial sewage treatment systems. The chief executive
officer of Tambour Ecology will also manage Tambour's affiliate, Solar Dynamics
Ltd., which conducts waste water purification using concentrated solar
radiation.
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o Logistics Division, the service division which coordinates the purchase
of raw materials, shipment of products, storage of materials at warehouses and
other logistical activities.
Tambour also holds a 20% interest in "Kne Uvne Ace", a chain of nine
"do-it-yourself" stores in Israel selling building and home improvement
products. Super-Sol Ltd. holds a 40% interest in "Kne Uvne Ace".
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.
During 1996, Caniel formed a joint venture with a Jordanian corporation for
the operation of a can manufacturing plant in Jordan.
Caniel'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.
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Klil's state-of-the-art factory in Carmiel, Israel has modern production lines
for extruding and painting extrusions. Klil'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, including a wide range of sophisticated
cylinders and padlocks, automobile transmission locks, decorative security
doors, blast and gas-resistant doors and windows, fire resistant doors and
safes. 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 modern 200,000 square
foot factory in Yavne, Israel. 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.
Tefron Ltd. ("Tefron"). Tefron designs, manufactures and markets high
quality, fashionable lingerie, undergarments and nightwear for women and men. In
1996, Tefron exported all of its products. Tefron's largest market is the United
States where its customers include Banana Republic, Victoria's Secret, Calvin
Klein and the GAP.
Tefron operates a sewing, cutting and knitting plant and a development
center in Israel for the design and manufacture of its products. Tefron utilizes
computerized robots and other technologically advanced machinery in its
manufacturing operations, which has enabled it to produce consistently high
quality products at competitive prices.
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.
Nitrogen is used in the chemical, petro-chemical and food industries. Oxygen is
used primarily in hospitals and for welding in the metal industry. Maxima's
customers are mainly larger industrial users of gases.
Maxima extracts nitrogen and oxygen from the air at its two plants in the
Negev desert in southern Israel. One of the plants was constructed in 1996 and
substantially expanded Maxima's capacity to produce gases and reduced Maxima's
production costs.
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
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and for use in the electronics industry.
Praxair Inc., one of the largest American producers of industrial and
specialized gases, owns a majority interest in Maxima and is party to 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.
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. Lego and two other companies are parties to a joint venture with
an Indian fertilizer company that distributes in India irrigation systems
manufactured by Lego and others. Lego's stock is traded on the TASE.
Real Estate
Property and Building Corporation Ltd. ("Property & Building"). Property &
Building is one of the largest real estate holding companies in Israel. It is
engaged, directly and through its subsidiaries and affiliates, in the
development, construction and sale of residential and commercial buildings, the
construction and rental of industrial parks and office and commercial buildings,
the purchase and development of land, and the furnishing of financial services,
property management and property maintenance. Property & Building is also a
substantial shareholder in companies engaged in the citrus industry in Israel.
These companies accounted for approximately 34% of Israel's total citrus exports
in 1996.
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In the development of residential housing, it is Property & Building's
policy to develop and construct large, high quality apartment building projects
and sell the apartments principally to upper income purchasers; such projects
generally include recreational and commercial facilities. Property & Building
owns land in Tel Aviv, Jerusalem, Ramat Gan, Haifa and Herzliya on which it can
build approximately 3,300 apartments, of which 2,418 apartments are currently in
various stages of development and construction. Subsidiaries of Property &
Building are currently constructing buildings that will have approximately 900
residential apartments, of which 454 apartments have been sold.
Property & Building owns and rents to tenants approximately 420,000 square
meters of commercial floor space located mainly in prime areas. The occupancy
rate for Property & Building's rental properties is approximately 97%.
Subsidiaries of Property & Building constructed industrial and office buildings
in 1996 having 45,000 square meters of rental space and are currently
constructing commercial, office and industrial buildings having 52,000 square
meters of rental space in Tel Aviv, Ramat Gan, Jerusalem and Herzliya. The
building in Herzliya is the first of five buildings for commercial and
industrial use. 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 and another subsidiary engages in the installation of
central heating and air conditioning systems.
The stock of Property & Building and the stock of five of its subsidiaries
and affiliates are traded on the TASE. In June 1996, Property & Building raised
approximately $23 million of equity pursuant to a rights offering on the Tel
Aviv Stock Exchange.
Retail, Shipping and Other
Super-Sol Ltd. ("Super-Sol"). Super-Sol operates one of Israel's largest
chains of supermarkets. Its 120 stores sell food and consumer items such as
household goods and textiles. Its chain includes 44 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; 31 large regional
Hypercol stores, located primarily in industrial areas and serving predominately
high and middle income families with both food and other products; 10 Gal-Yarok
stores, located primarily in lower income areas; 27 Hypernetto stores which sell
a smaller variety of goods than other stores at substantially lower prices and
appeal to price-conscious customers; and five Birkat Rachel stores which cater
to religious shoppers.
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In 1995, Super-Sol opened in Haifa Bay Israel's first megastore, named
"Universe Club", which is based on the warehouse shopping concept in the United
States. In 1996, Super-Sol opened its third "Universe Club".
In February 1997, Super-Sol acquired 25 retail food stores from the Shekem
department store chain. These stores have been integrated into the foregoing six
categories of food stores and are now part of Super-Sol's 120 store chain.
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 very competitive, with department stores
offering food products, and small discount food chains emerging 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 increased competition. Super-Sol
believes that it has a significant market share of sales of major chains in
Israel.
Through a subsidiary, Super-Sol has an 81% interest in Super Kozert, a
chain of 27 supermarkets in metropolitan Budapest, Hungary.
Super-Sol also holds a 40% interest in "Kne Uvne Ace", a chain of nine
"do-it-yourself" stores in Israel selling building and home improvement
products. Tambour Ltd. also owns a 20% interest in "Kne Uvne Ace".
In addition, Super-Sol, through its wholly-owned subsidiary, Super Office
Ltd., formed in 1994, operates a chain of three stores which sell office
equipment and supplies.
Super-Sol also holds equity interests in three shopping malls and two
commercial centres and in two commercial centres currently under construction.
Super-Sol's stock is traded on the TASE.
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 cargoes, such as grain, coal and iron ore.
Its fleet, which aggregates approximately 830,000 deadweight tons, is operated
under charters for varying durations. El-Yam has been engaged in the worldwide
shipping business for over 43 years.
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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 71.3% 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.
"Delek"-The Israel Fuel Corporation Ltd. ("Delek"). Delek is one of
Israel's leading distributors of petroleum products, operating 171 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 1996, had a 14.8% equity interest in the Super-Sol
supermarket chain. Through different subsidiaries, Delek produces motor and
industrial lubricants. 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 which raised approximately $135 million of capital. Its 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.
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 acquired a
14.3% equity interest in Paz for approximately $46.9 million. On January 3,
1997, Renaissance sold a 1.4% equity interest in Paz as a result of which
Renaissance realized a gain of $1.2 million. Paz is engaged in seven main
businesses: gasoline service stations, industrial lubricants and solvents,
asphalt, liquid propane gas, wholesale fuels, aviation fuel and real estate.
In 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
acquired a 20.1% equity interest in SHOP for approximately $23.7 million.
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Renaissance holds a 19.6% equity interest in Clalcom Ltd. ("Clalcom"), a
subsidiary of Clal Industries Ltd., which it purchased for approximately $7.2
million. Clalcom provides outgoing international facsimile services from Israel,
interactive voice response services and operates the "Sprintnet" data network in
Israel. Clalcom has a 44% interest in the joint venture Barak I.T.C. (1995) -
The International Telecommunications Services Corporation, which was one of the
winners of a tender for two additional licenses for international
telecommunications from Israel. Barak is expected to begin operations by the end
of June 1997. Renaissance holds an indirect 8.6% equity interest in Barak.
During 1996, Renaissance purchased for approximately $15 million a
seven-year 4.5% convertible note of ECI Telecom Ltd., a provider of digital
telecommunications and data transmission services; acquired for approximately
$15 million equity securities of Indigo, N.V., a corporation that produces,
sells and services proprietary "Digital Offset Color" printing systems; and
purchased for approximately $10 million equity securities of Geotek
Communications Inc., a company that develops telecommunications products and
wireless communications systems based on frequency hopping multiple access
digital technology. The ordinary shares or common stock of ECI, Indigo and
Geotek are publicly traded on the NASDAQ/NMS under the trading symbols "ECILF,"
"INDGF" and "GOTK," respectively.
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, Steris Inc., Lapp Insulator
Inc., Saftronics Ltd., Hitachi Instruments, GE-Fanuc, 3-L Filters and Rigaku Co.
Isrotel Ltd. ("Isrotel"). Isrotel develops, owns, manages and operates
hotels in Eilat, Mitzpe Ramon and Zichron Ya'acov in the Carmel mountain range,
Israel. The eight hotels in the Isrotel chain have 2,106 hotel rooms, of which
Isrotel owns in whole or in part 1,588 rooms. Isrotel's hotels are The King
Solomon Hotel, Royal Beach Hotel, Sport Hotel, Lagoona Hotel,
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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, the Ramon Inn in Mitzpe
Ramon, Israel and the latest addition to the Isrotel chain, the Carmel Forest
Spa Resort located near Zichron Ya'acov, which Isrotel acquired in 1996.
The eight 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.
Isrotel is currently constructing a new hotel named "Royal Garden Suites"
on the North Beach of Eilat with a total of 330 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., which established a factory in 1994
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
1996.
In 1995, Sano Dispec and Drori Shlomi Advertising Ltd., an Israeli
advertising agency, formed a limited partnership named 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. This advertising company has introduced to Shen Yang
the concept of bus station advertising and advertisements have been installed in
75 bus stations.
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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.
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.
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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 transferred the civil administration of the Gaza Strip and
Jericho to the Palestinian Self-Rule Authority and the Israeli army withdrew
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 withdrew from certain of such areas
as well.
On January 15, 1997, Israel and the Palestinian Authority signed a Protocol
Concerning the Redeployment in Hebron, with respect to the completion of the
first stage of Israeli redeployment in the West Bank. In addition, a Note for
the Record was agreed upon, reaffirming Israeli and Palestinian commitments to
the peace process and detailing certain measures for the continued
implementation of the September 1995 agreement.
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. On December 4, 1996, Israel and Jordan
signed a trade agreement designed to liberalize trade between the two countries.
Although Israel has held direct negotiations at different times 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.
All male adult permanent residents of Israel under the age of 51 are,
unless exempt, obligated to perform up to approximately 39 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.
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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 780,000 new immigrants
arrived through the end of 1996, of which approximately 70,600 arrived in 1996,
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 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.
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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 1993-1996 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
Overview
Israel's economy continued to grow in 1996, although at a slower rate than
in previous years. Gross domestic product (GDP) rose by 4.4% last year to NIS
305 billion ($94 billion) compared with a 7.1% increase in 1995 and an average
annual rate of 6% from 1990 through 1995. Business sector GDP increased by 5% in
1996 to NIS 203 billion ($62.5 billion), compared with an average annual rate of
7.2% from 1990 through 1995.
The lower economic growth rate last year resulted primarily from a reduced
export growth rate and from a slower growth rate in investment in construction.
The economic slowdown was exacerbated by the decrease in the number of tourists
visiting Israel following the terrorist attacks that occurred in the beginning
of 1996. In addition, the closure of the territories in response to those events
caused labor shortages in the agriculture and construction sectors.
Notwithstanding these factors, the overall condition of the Israeli economy
was favorable in 1996. The factors responsible for the economy's high growth
rates during recent years - the after-effects of the 1985 stabilization program,
mass immigration from the former Soviet Union, the peace process and the
technological revolution - are still present.
Israel's consumer price index (CPI) rose by 10.6% in 1996, slightly
exceeding the higher level of the government-targeted annual inflation range of
8% to 10%. The annual inflation rate reflected two distinct trends, a higher
annualized inflation rate of 14.5% during the first half of 1996 and a lower
annualized inflation rate of 6.8% during the second half of 1996. In response to
the higher inflation rate, the Bank of Israel
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gradually raised the cost of funds to commercial banks from an average of 14.6%
at the beginning of 1996 to 18.4% in July 1996. As the inflation rate slowed,
the central bank gradually cut its average interest rate to 15.6% at the end of
1996.
In 1996, the New Israel Shekel was devalued by 3.7% against the dollar,
from NIS 3.135 to NIS 3.251, and by 1.6% against the currency basket, from NIS
3.578 to NIS 3.635.
Private consumption expanded by 6% in 1996, a lower rate than the 7.3%
increase in 1995. The growth in private consumption resulted from three main
factors: withdrawals from provident funds (caused by the public's disappointment
with poor yields); the decline in private saving; and the rise in disposable
private income. In addition, private consumption was bolstered by the real
appreciation of the shekel in 1996 which made imported consumer goods less
expensive, and the expansion of large retail chains, which spurred sales of
consumer goods. Public consumption, the main component of public sector demand,
increased by 3% in 1996 compared with 2% in 1995. The resulting growth in
overall domestic demand contributed to the rise in GDP during 1996.
Investment in machinery and equipment, the major capital investment item,
grew by 9.6% in 1996 compared with 3.5% in 1995. However, building investment
overall rose by only 5.6% in 1996 compared with 16.7% in 1995, while investment
in housing construction increased by 10.6% in 1996 compared with 20% in 1995.
Foreign trade continued to expand, but at a slower pace than prior years.
Exports rose by 6.3%, compared with 9.3% in 1995. Imports increased by 6.2% in
1996, the lowest rate of increase since 1990. The civilian import surplus
(imports of goods and services less exports of goods and services) increased
from $9.8 billion in 1995 to $10.7 billion in 1996.
The continued growth of the Israeli economy in 1996 was also reflected by
Israel's employment data. The number of employed persons rose by 60,000 to 2.0
million, an increase of 3.3% compared with 1995. At the same time, the
unemployment rate showed a small decrease from an average of 6.7% in 1995 to an
average of 6.4% in 1996. Israel's unemployment rate in 1996 was among the lowest
of any industrialized country other than the United States and compares
favorably with the 11.4% average unemployment rate in the European Union and the
7.7% average rate in the member states of the Organization of Economic
Cooperation and Development. The decrease in the unemployment rate is all the
more significant in view of the arrival of 70,600 immigrants to Israel in 1996.
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<PAGE>
Israel's labor force increased at a faster rate than the growth in Israel's
population due to the employment of new immigrants and foreign workers. For the
fourth consecutive year, the proportion of Israelis and foreign workers within
the total labor force increased while the proportion of workers from the
territories declined. While the employment of foreign workers helped solve a
short-term labor shortage in certain sectors, it may lead to social problems in
the long term. At the end of 1996, there were approximately 106,000 foreign
workers legally employed in Israel, although estimates of the total number of
legally and illegally employed foreign workers are much higher.
Inflation
Although Israel's CPI rose by 10.6% in 1996 compared to 8.1% in 1995 (which
was the lowest annual inflation rate since 1969), the inflation rate in 1996 was
less than the 14.5% rate in 1994 and the 11.2% rate in 1993. The inflation rate
slowed during the second half of 1996 as a result of smaller increases in
housing prices and in response to the Bank of Israel's tight monetary policy.
This policy also favored a slower pace of devaluation of the shekel against the
dollar, which helped limit increases in dollar denominated housing prices, but
hurt export-oriented businesses.
The Budget
The government's domestic budget deficit in 1996 amounted to $4.6 billion,
or nearly 5% of GDP, compared with an originally projected deficit of 2.5% of
GDP. The larger budget deficit in 1996 resulted primarily from lower than
forecasted government revenues. The revenue shortfall, in turn, resulted from
lower than forecast economic growth, decreased activity in highly taxed sectors
such as real estate, and large transfer payments to the Palestinian Authority.
The budget deficit was financed by government borrowings of $2.4 billion in
the Israeli bond market and $2.1 billion in foreign bond markets. Revenues from
the sale of government-owned businesses totaled only $92 million. The
government's plan to raise more privatization revenue in order to finance the
budget deficit was unsuccessful, due in large part to the weakened state of the
capital markets.
Foreign Trade
Exports of goods and services grew by 5.5% in 1996 to $30.4 billion.
Exports of goods excluding ships, planes and diamonds totaled $14.1 billion in
1996, an increase of 6.5% compared with an increase of 9.3% in 1995. Exports by
older, established industries, such as textiles, cardboard containers and other
wood
I-41
<PAGE>
and paper products, fell due to lower-cost products of foreign competitors.
However, large increases in exports were achieved by high technology industries
as a result of their technological edge on world markets.
Revenues from tourism, Israel's main service export, increased by only 1.8%
in 1996 compared with a 13.4% increase in 1995. This small increase resulted
primarily from a decrease in tourists visiting Israel during 1996 as the number
declined 5.5% from the 1995 level to 2.1 million tourists.
Export industries generally reported a decrease in profits, which many
exporters attributed to the real appreciation of the New Israel Shekel against
foreign currencies. The appreciation of the shekel created controversy, with
exporters demanding a devaluation of the shekel in order to increase the
profitability and competitiveness of their businesses on world markets and the
Bank of Israel responding that the shekel exchange rate should generally remain
unchanged in order to control inflation. While both sides held strongly to their
views, the stronger shekel did in fact reduce the cost of imported raw
materials, which in turn accounted for a relatively high proportion of the input
cost for many exported goods. Moreover, high technology industries, whose
exports are usually dollar-denominated, benefited from the strengthening of the
dollar against European currencies.
Imports of goods and services grew by 6.2% to $41.1 billion. Imports of
goods and services excluding ships, planes and diamonds totaled $24.5 billion in
1996, an increase of 5.2% from 1995, the lowest rate of increase since 1990. The
reduced import growth rate resulted from lower growth rates of capital
investment and private consumption in 1996, arising from the slowdown in
economic growth. The decrease was particularly apparent in imports of raw
materials and consumer durables.
The civilian import surplus rose from $9.8 billion in 1995 to $10.7 billion
in 1996. The balance-of-payments current account deficit reached $4.6 billion in
1996 compared with $3.9 billion in 1995. However, the continued inflow of long
and short-term foreign capital was more than enough to cover the 1996 deficit.
Short-term inflows of foreign capital resulted from attractive interest rates
offered on shekel investments in money market funds. Long-term foreign capital
inflows derived from long-term government loans and the sale of long-term
government bonds. These inflows grew in 1996 as a result of the improvement in
Israel's credit rating and economic standing among foreign investors.
I-42
<PAGE>
The Capital and Money Markets
Monetary Policy
The Bank of Israel adopted a policy of monetary restraint during 1996 in
order to adhere to the targeted annual inflation range of 8% to 10%. As a result
of this policy, the inflation rate in 1996 was 10.6%, which was low in view of
the government's expansionist fiscal policy and resulting high budget deficit.
The Israeli government has adopted a targeted inflation range in 1997 of 8% to
10%, which it plans to achieve through a $2.2 billion cut in government
spending, that if implemented would allow the central bank to loosen its policy
of monetary restraint.
The Bank of Israel implemented its monetary policy by controlling the rate
of interest it charges on loans to commercial banks, and by maintaining its
diagonal band exchange rate regime for a basket of currencies in relation to the
shekel. Over the past three years, control of interest rates has been the
central bank's principal monetary policy instrument.
At the beginning of 1996, the real interest rate (the nominal interest rate
deflated by the CPI) was quite low for borrowers. However, as the rate of
inflation climbed during the first half of 1996, the Bank of Israel raised the
cost of funds to commercial banks. As the inflation rate slowed during the
second half of 1996, the central bank in turn gradually cut its interest rate.
The interest rate policy adopted by the Bank of Israel enabled it to control the
money supply in the economy, which had a direct effect on the level of
inflation. This policy also reduced the level of demand in the economy,
particularly for new investments.
The Capital Market
The capital markets last year responded to the marked change in the
public's investment preferences. Investors shifted from long-term CPI-linked
investments to short and medium-term holdings, particularly unlinked shekel
investments.
The stock market was weak in 1996, and share prices fell in real terms,
while the market for public offerings was practically dormant. As a result, the
public spent more of its disposable income and withdrew funds from the capital
market, principally from the provident fund sector, and deposited the funds in
short-term saving plans and bank deposits. Beginning in July 1996, the
withdrawal of funds from provident funds intensified to such an extent that the
Bank of Israel decided to purchase bonds in order to help the provident funds
finance their members' large-scale withdrawals.
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<PAGE>
The bond market had a highly successful year at the expense of the stock
market. Prices rose moderately in real terms, while trading in government bonds
increased by 50%. Trading in zero-coupon bonds (referred to in Israel as
"treasury bills") rose by 36%. During 1996, unlinked bonds accounted for 52% of
total bond issuances, compared with 41% in 1995. CPI-linked bonds accounted for
36% of total bond issuances in 1996 compared with 49% in 1995. At the end of
1996, following two years during which the total market values of the bond
market and stock market were approximately equal, the bond market's value of $40
billion was 16% higher than the stock market's value of $34.5 billion.
The public's lack of interest in the stock market, as evidenced by the low
trading volume on the Tel Aviv Stock Exchange, a daily average volume of $24
million compared with $28 million in 1995, depressed the amount of public stock
offerings. Israeli companies raised a total of $770 million of equity in public
offerings in 1996, of which half was raised in Israel and half in the United
States. While Israeli companies raised $800 million of equity in 1995, only 25%
of this amount was raised outside Israel, of which the public offering by Koor
Industries Ltd. in the United States and Europe was the largest. Although the
stock market was weak, Israeli companies were generally successful in selling
equity abroad, primarily in the United States. Moreover, foreign investors
continued to be interested in Israeli companies through acquisitions and direct
investments.
The public's portfolio of financial assets grew by 5% in 1996 to $183
billion. The proportion of unlinked shekel assets rose to 22% in 1996 compared
with only 10% five years ago. However, the proportion of equity securities fell
to 14% at the end of 1996 from 30% at year end 1993. The proportion of assets
held with banks rose to 49% at the end of 1996 compared with 45% at year end
1995, mainly due to the transfer of money from the provident funds to shekel
deposits and saving plans.
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<PAGE>
Item 2. PROPERTIES
None.
Item 3. LEGAL PROCEEDINGS
On May 3, 1996, Harold Sachs ("Sachs") instituted a shareholder
derivative action in the Supreme Court of New York State, County of New York, on
behalf of PEC, against the directors of PEC, PEC's Israeli parent companies and
certain shareholders thereof. PEC is named as a nominal defendant. In his
complaint, Sachs alleges that PEC's refusal to negotiate with David Gilo
("Gilo") concerning Gilo's conditional proposals to take Scitex private by
purchasing the outstanding ordinary shares of Scitex (including PEC's ordinary
shares of Scitex), first at $20 per share and then at $25 per share, and PEC's
purchase of 181,667 additional ordinary shares of Scitex after Gilo's
announcement of his initial proposal at prices between $18.375 per share and
$19.25 per share, constituted a breach by the defendants of their fiduciary
duties to PEC and its shareholders and a waste of PEC's assets. Sachs also
alleges that the defendants have exposed PEC to liability for damages to Scitex
by reason of the actions taken by PEC and other major shareholders of Scitex in
respect of Gilo's proposals. The complaint requests that the Court (i) enjoin
PEC from taking any action to prevent a takeover of Scitex, (ii) require the
defendants to pay PEC the amounts by which PEC and its shareholders have been
allegedly damaged by reason of the conduct complained of, and (iii) require the
defendants to pay interest and Sachs' costs and disbursements related to the
action, including attorneys' fees, accountants' and experts' fees, costs and
expenses.
In March 1997, the parties entered into an agreement in principle for
the settlement of the claims asserted. The agreement provides that (i) all of
Sachs' claims will be dismissed with prejudice, (ii) for a period of five years
after the settlement becomes effective, if any offer is made to shareholders of
Scitex to purchase a majority of the outstanding ordinary shares of Scitex or to
the Board of Directors of, or any executive officer or director of, Scitex to
purchase substantially all of the assets of Scitex or for Scitex to otherwise be
acquired in a business combination, and any officer or director of PEC learns of
such an offer, the Board of Directors of PEC will form a committee of directors
that will evaluate and recommend to the Board whether PEC will sell any ordinary
shares of Scitex owned by PEC in accordance with the offer or otherwise increase
or decrease its equity interest in Scitex, or how PEC will vote its equity
securities of Scitex on any vote of shareholders relating to such
I-45
<PAGE>
offer and (iii) PEC will pay Sachs' counsel his fees, expenses and costs up to a
maximum amount of $150,000. An offer for these purposes must include the
identity of persons making the offer, the consideration proposed to be paid for
the shares or assets of Scitex and evidence that the offeror has or can obtain
the resources needed to consummate such an offer (a "Bona Fide Offer"). The
committee must have at least two members who are neither officers or employees
of PEC nor directors, officers or employees of Scitex or PEC's Israeli parent
companies.
Implementation of the settlement is subject to completion by Sachs'
counsel of confirmatory discovery to confirm the reasonableness of the
settlement and court approval of the settlement. It is expected that PEC's
director and officer liability insurance policy will cover substantially all of
PEC's costs and expenses relating to the action, including its settlement, that
exceed the policy deductible of $75,000.
On May 8, 1996, Freyda Tavin ("Tavin") instituted a class action in
the Supreme Court of New York State, County of New York, on behalf of the
shareholders of Scitex (other than the defendant shareholders) (the "Tavin New
York action") against Scitex, the directors of Scitex, certain officers of
Scitex, the four largest shareholders of Scitex, including PEC, PEC's Israeli
parent companies and certain shareholders thereof. In her complaint, Tavin
alleges that PEC and the three other largest shareholders of Scitex caused
Scitex to (i) refuse to negotiate with Gilo concerning Gilo's conditional
proposals to take Scitex private and (ii) fail to explore any other bona fide
offers by potential acquirors for the purchase of Scitex. Tavin claims that such
alleged action, and the purchase of 1,090,000 ordinary shares of Scitex by PEC
and the three other largest shareholders of Scitex after Gilo's announcement of
his initial proposal, constituted a breach by PEC and the other defendants of
their fiduciary duty to Scitex and its shareholders. The complaint requests that
the Court (i) declare the action to be a proper class action, (ii) enjoin the
defendants from taking any action to prevent a takeover of Scitex, (iii) order
Scitex to take certain measures with respect to possible future transactions,
and (iv) require the defendants to pay Tavin and the other members of the class
damages and other monetary relief, including attorney's and experts' fees, costs
and expenses.
On May 15, 1996, Tavin filed in Superior Court of the Commonwealth of
Massachusetts, County of Middlesex, a substantially identical complaint against
the same defendants as
I-46
<PAGE>
in the Tavin New York action, requesting the same relief from the Court.
In March 1997, the parties entered into an agreement in principle for
the settlement of the claims asserted in both Tavin actions. The agreement
provides that (i) all of Tavin's claims will be dismissed with prejudice, (ii)
for five years after the settlement becomes effective, the Scitex Board of
Directors will include at least two independent directors and if any Bona Fide
Offer is made to shareholders of Scitex to purchase a majority of the
outstanding ordinary shares of Scitex or to the Board of Directors of, or any
executive officer or director of, Scitex to purchase substantially all of the
assets of Scitex or for Scitex to otherwise be acquired in a business
combination, the directors of Scitex will form a committee of directors that
will evaluate all such offers to determine the fairness of each offer and
appropriate response to each offer and (iii) Scitex will pay Tavin's counsel his
fees, expenses and costs up to a maximum amount of $350,000.
Implementation of the settlement is subject to completion by Tavin's
counsel of confirmatory discovery to confirm the reasonableness of the
settlement and court approval of the settlement. It is expected that the
settlement will not result in any cost or expense to PEC.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I-47
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
Date First
Elected to
Name Age Position Office
- ---- --- -------- ------
Frank J. Klein(a) 54 President Jan. 1995
James I. Edelson(b) 40 Executive Feb. 1992
Vice President,
Secretary and
General Counsel
William Gold(c) 59 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.
(c) Mr. Gold was Secretary and Assistant Treasurer of the Company from
August 1970 to February 1992.
I-48
<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.
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
1996 High Low
---- ---- ---
First Quarter $24-3/4 $19-1/2
Second Quarter 22-7/8 17-1/2
Third Quarter 19 15-1/2
Fourth Quarter 18-1/8 14
On March 24, 1997, the closing price of the Company's Common Stock on the
New York Stock Exchange was $19.00 per share.
(b) As of March 24, 1997, there were 2,410 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.
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<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
December 31, 1996, 1995 and 1994, and at December 31, 1996 and 1995, 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, 1993 and
1992, and at December 31, 1994, 1993 and 1992, 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>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(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 $ 23,438 $ 23,720 $ 25,338 $ 33,542 $ 30,301
Total Revenues 44,535 42,065 40,798 60,648 60,354
Net Income* 28,213 25,242 32,566 41,970 33,106
Net Income per Common Share* 1.51 1.35 1.73 2.24 1.89
Weighted Average Number of
Outstanding Common Shares 18,714 18,759 18,759 18,759 17,509
Total Assets 407,703 392,967 383,691 347,873 314,592
Total Liabilities 33,827 35,680 42,223 40,636 37,925
Shareholders' Equity 373,876 357,287 341,468 307,237 276,667
Common Shareholders' Equity
per Common Share 20.20 19.05 18.20 16.38 14.75
Number of Outstanding Common
Shares at the End of Each Year 18,508 18,759 18,759 18,759 18,759
</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.
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 1996
Compared to Year Ended December 31, 1995
Consolidated net income rose to $28.2 million for 1996, up from $25.2
million for 1995. The rise in net income primarily reflected increases of $1.3
million in net gain on sales of investments in Affiliated Companies and $1.8
million in other income as well as a decrease of $1.5 million in the provision
for income taxes. Partially offsetting the rise attributable to these items were
decreases of $1.4 million in net gain on issuance of shares by Affiliated
Companies and $1.1 million in interest and dividend income.
Equity in net income of Affiliated Companies of $23.4 million,
compared with $23.7 million for 1995, was adversely affected by the net loss of
$178.3 million incurred by Scitex, of which $110 million was attributable to
restructuring and other charges, compared with a net loss of $34.5 million in
1995, all of which was attributable to special charges. PEC's share of the
Scitex loss was $11.7 in 1996, compared with $2.3 million in 1995. The reduction
in PEC's equity in net income of Affiliated Companies also reflected write-offs
of goodwill in respect of Liraz and Lego. Partially offsetting these losses was
increased net income in respect of certain other Affiliated Companies,
particularly Property & Building, DIC and PEC Cable TV Ltd. (the corporation
through which PEC holds its interest in Tevel), Tambour and Tefron, and reduced
losses in respect of Cellcom (of which PEC's share was $3.5 million in 1996
compared to $6.9 million in 1995).
PEC realized a net gain on sales of investments of Affiliated
Companies of $2.5 million for 1996 compared with $1.2 million for 1995. During
1996, PEC realized net gains of $1.7 million, $1.8 million and $210,000 on the
sale of a 1.2% ownership interest in Super-Sol, a 1.6% ownership interest in
Nice and a 1.4% ownership interest in VocalTec, respectively. Partially
offsetting these net gains was a net loss of $1.2 million on PEC's sale of its
entire ownership interest in Bulk Trading Corporation Ltd. at the end of 1996.
All of PEC's $1.2 million net gain on sales of investments for 1995 resulted
from PEC's sale of a small portion of its shares of Gilat Satellite.
PEC realized a net gain on issuance of shares by Affiliated Companies
of $849,000 for 1996 compared with $2.3 million for 1995. PEC realized net gains
on issuance of shares of $745,000 on
II-3
<PAGE>
the sale by Nice in January 1996 of American Depository Shares representing
ordinary shares of Nice in a public offering in the United States and $470,000
on the sale by Logal in March 1996 of ordinary shares in an initial public
offering in the United States. These net gains on issuance of shares by
Affiliated Companies were partially offset by a net loss of $405,000 on the
issuance of shares by Gilat Satellite in connection with Gilat Satellite's
acquisition of Skydata, Inc. in December 1996 through an exchange of all the
outstanding equity of Skydata for ordinary shares of Gilat Satellite. 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.
PEC's net gain on sales, and change in market value, of trading securities
for 1996 was $5.2 million, up from $4.5 million for 1995. PEC's other income
rose to $3.0 million for 1996 from $1.1 million for 1995. This increase
reflected increased management fees and income from limited partnerships,
principally Gemini.
PEC's interest and dividend income decreased to $964,000 for 1996 compared
with $2.1 million for 1995 primarily because PEC's liquid assets decreased.
Liquid assets were reduced principally because of the net purchases of
securities of new and existing Affiliated Companies and securities of other
Israeli companies. See "Liquidity and Capital Resources".
The provision for income taxes for 1996 decreased to $4.8 million, down
from $6.3 million for 1995. This decrease was attributable to the provision of
$3.0 million of additional income taxes in 1995 arising from PEC's sale of
nonvoting preferred shares of Israel Discount Bank of New York ("IDBNY") in
1995, which sale did not result in a gain for financial statement purposes.
As described in Note 2 of the Notes to the Consolidated Financial
Statements for the year ended December 31, 1996 (the "1996 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 change was almost the same for
1996 and 1995, $33.0 million in 1996 compared with $31.9 million in 1995, the
provision for income taxes for 1996 was $4.8 million, compared to $3.3 million
for 1995 after excluding the additional $3.0 million of income taxes
attributable to PEC's sale of nonvoting preferred shares of IDBNY. This increase
is primarily attributable to a decrease in the proportion of income from
undistributed earnings of Majority-Owned Affiliated Companies in 1996 compared
to 1995, in part because Super-Sol ceased to be a Majority-Owned Affiliated
Company in 1996 and PEC, therefore, provided deferred income taxes on its share
of undistributed earnings of Super-Sol in 1996.
II-4
<PAGE>
Year Ended December 31, 1995
Compared to Year Ended December 31, 1994
Consolidated net income was $25.2 million for 1995 compared to $32.6
million for 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 a net gain on sales, and change in market value,
of trading securities of $4.5 million (compared to a net loss of $3.0 million
for 1994) and by an increase of $1.0 million in net gain on sales of investments
in Affiliated Companies.
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 $6.9 million of continued start up losses compared to
$1.5 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 other 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 share of reduced losses 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.
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 IDBNY in 1995, which shares were
sold to IDBNY at the end of July 1995. In
II-5
<PAGE>
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. 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 in Affiliated Companies of $1.2
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. PEC's net
gain of approximately $179,000 on sales of investments in Affiliated Companies
for 1994 resulted primarily from PEC's sale of a small portion of its shares of
Maxima.
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 the reduction in 1995 in income before income
taxes of General Engineers.
The provision for income taxes for 1995 increased to $6.3 million, up
from $1.3 million for 1994. This increase was primarily attributable to the
provision of $3.0 million of additional income taxes arising from PEC's sale of
its IDBNY shares, which sale did not result in a gain for financial statement
purposes. Although income before income taxes, loss from discontinued operations
and cumulative effect of accounting changes was almost the same for 1995 and
1994, $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 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 PEC has adopted 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
II-6
<PAGE>
SFAS 121 had been in effect for 1995, it would have had no effect on the
financial statements of PEC as no such event or changes in circumstances
occurred.
Shareholders' Equity
As a result of decreases in the market value of "available-for-sale
securities" since January 1, 1996, the unrealized gain, net of taxes, from those
securities that was included in shareholders' equity, as of December 31, 1996,
decreased to approximately $1.9 million from $3.2 million, net of taxes, as of
December 31, 1995.
As discussed in Note 2 to the 1996 Notes, translation differences are
reflected in shareholders' equity as a "Cumulative Translation Adjustment". The
exchange rate of the New Israel Shekel declined approximately 3.7% against the
U.S. dollar at the end of 1996 compared to the end of 1995. As of December 31,
1996, the Cumulative Translation Adjustment reduced shareholders' equity by
$26.3 million compared to a reduction of $20.1 million at the end of 1995.
During 1996, PEC purchased 250,200 shares of its common stock for $4.2
million, which increased treasury stock accordingly and reduced the number of
outstanding shares of PEC's common stock to 18,508,388.
Liquidity and Capital Resources
As of December 31, 1996, PEC's liquid assets (consisting of cash,
money market funds, marketable securities of U.S. companies and marketable
bonds) totaled approximately $27.0 million. As discussed in Note 6 to the 1996
Notes, as of the end of 1996 PEC had commitments extending over the next several
years to make capital contributions or loans of up to approximately $8.2 million
to existing Affiliated Companies. For the year ended December 31, 1996, PEC
received cash dividends and interest totaling $13.5 million (including $12.5
million of dividends received from Affiliated Companies, which do not affect
PEC's net income for financial statement purposes), which substantially exceeded
the amount needed to pay PEC's general and administrative expenses.
During 1996, PEC generated a total $30.7 million of liquid funds, of
which $20.6 million was realized from the sale of marketable securities of U.S.
companies and repayment of state obligations at maturity, $8.7 million was
realized from the sale of shares of Affiliated Companies (Super-Sol - $4.8
million, Nice - $2.8 million and VocalTec - $1.1 million) and $1.4 million was
generated from the repayment of loans.
II-7
<PAGE>
During 1996, PEC purchased equity and debt securities of new and existing
Affiliated Companies for approximately $28.4 million. The existing Affiliated
Companies in which PEC purchased securities in 1996 consisted primarily of
Property & Building - $9.7 million, Scitex - $4.7 million, Cellcom - $3.5
million (shareholder loans), Renaissance - $1.5 million, Liraz - $1.3 million,
VocalTec - $1.3 million, Delek - $1.1 million, Gemini and Advent Israel - $1
million and $175,000, respectively (completing PEC's capital commitment to these
limited partnerships), and Mul-T-Lock - $756,000. During 1996, PEC purchased
marketable securities of U.S. companies for approximately $13.1 million.
During 1996, PEC purchased 250,200 shares of its common stock for
approximately $4.2 million.
During January and February 1997, PEC received revenue of $9.6 million on
the sale of 1.4% of Super-Sol and 1.5% of Nice. These sales reduced PEC's
ownership interest in Super-Sol to 16.2% and in Nice to 3.5%.
II-8
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item commences on the following page.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
II-9
<PAGE>
HAFT & GLUCKMAN ARTHUR ANDERSEN LLP
Certified Public Accountants LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of PEC Israel Economic Corporation:
We have audited the accompanying consolidated balance sheets of PEC Israel
Economic Corporation (a Maine corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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 $196.2 million and $19.1 million, respectively, of the
consolidated totals as of and for the year ended December 31, 1996, of $183.3
million and $20.5 million, respectively, of the consolidated totals as of and
for the year ended December 31, 1995, and equity in net income of $25.3 million
of the consolidated total for the year ended December 31, 1994. 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, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 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 marketable securities effective January 1,
1994.
HAFT & GLUCKMAN LLP ARTHUR ANDERSEN LLP
New York, New York
March 31, 1997
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS - except number of shares)
DECEMBER 31,
------------
1996 1995
--------- ---------
ASSETS
Cash and Cash Equivalents $ 7,044 $ 14,703
Investments (Note 3) 391,802 369,096
Assets of General Engineers
Limited (Note 2) 4,763 5,229
Other assets 4,094 3,939
-------- ---------
Total assets $407,703 $ 392,967
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Liabilities of General Engineers
Limited (Note 2) $ 1,384 $ 1,922
Deferred income taxes (Notes 2 and 4) 26,428 29,192
Other liabilities 6,015 4,566
-------- --------
Total liabilities 33,827 35,680
-------- --------
Commitments and Contingencies (Note 6)
Shareholders' Equity (Notes 2 and 5):
Common stock, $1.00 par value,
40,000,000 shares authorized in
1996 and in 1995, 31,952,180
shares issued in 1996 and
in 1995 and 18,508,388 and
18,758,588 shares outstanding at
1996 and 1995, respectively 31,952 31,952
Class B preferred stock, no par
value, 544,514 shares authorized
in 1996 and 1995, none issued
in 1996 and 1995 -- --
Additional paid-in capital 103,282 103,228
Unrealized gain on marketable
securities, net 1,938 3,226
Cumulative translation adjustment (26,317) (20,143)
Retained earnings 280,431 252,218
-------- --------
391,286 370,481
Treasury Stock, 13,443,792 and
13,193,592 shares at
1996 and 1995, respectively (17,410) (13,194)
-------- --------
Total shareholders' equity 373,876 357,287
-------- --------
Total liabilities and
shareholders' equity $407,703 $392,967
======== ========
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,
------------------------
1996 1995 1994
-------- -------- --------
REVENUES:
Interest and dividends $ 964 $ 2,057 $ 3,574
Equity in net income of
Affiliated Companies
(Notes 2 and 3) 23,438 23,720 25,338
Net gain on issuance of
shares by Affiliated
Companies 849 2,282 7,092
Revenues of General
Engineers Limited (Notes 2
and 3(k)) 8,635 7,197 7,266
Net gain on sales of
investments in Affiliated
Companies (Note 2) 2,512 1,181 179
Net gain (loss) on sales,
and change in market value,
of trading securities (Note 2) 5,167 4,502 (3,049)
Other 2,970 1,126 398
-------- -------- --------
44,535 42,065 40,798
-------- -------- --------
EXPENSES:
General and administrative 3,037 3,154 2,952
Cost of sales and expenses
of General Engineers
Limited (Note 2) 8,496 7,007 6,325
-------- -------- --------
11,533 10,161 9,277
-------- -------- --------
Income before income
taxes, loss from
discontinued operations
and cumulative effect of
accounting change 33,002 31,904 31,521
Income taxes (Note 4) 4,789 6,282 1,324
-------- -------- --------
Income before loss from
discontinued operations
and cumulative effect of
accounting change 28,213 25,622 30,197
Loss from discontinued
operations of General
Engineers Limited, net
of income taxes -- (380) (104)
Cumulative effect of
change in accounting for
trading securities, net
of income taxes (Note 2) -- -- 2,473
-------- -------- --------
Net income $ 28,213 $ 25,242 $ 32,566
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS - except per share amounts)
(continued)
Years Ended December 31,
------------------------
1996 1995 1994
------ ------ ------
Earnings per common share
before loss from discontinued
operations and cumulative
effect of accounting change $ 1.51 $ 1.37 $ 1.61
Loss from discontinued
operations of General
Engineers Limited, net
of income taxes -- (0.02) (0.01)
Cumulative effect on
earnings per common share
of change in accounting for
trading securities, net
of income taxes -- -- 0.13
------ ------ ------
Earnings per common share
(Note 5) $ 1.51 $ 1.35 $ 1.73
------ ------ ------
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Note 5)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In Thousands)
<TABLE>
<CAPTION>
Additional Unrealized Cumulative
Common Paid-in Gain On Translation Retained Treasury
Stock Capital Securities Adjustment Earnings Stock Total
------ ------- ---------- ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $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 of
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 of
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
Paid in capital of
Affiliated Companies -- 54 -- -- -- -- 54
Change in market value of
available-for-sale equity
securities, net of tax -- -- (1,288) -- -- -- (1,288)
Cumulative translation
adjustment -- -- -- (6,174) -- -- (6,174)
Purchase of treasury
stock (Note 5) -- -- -- -- -- (4,216) (4,216)
Net income -- -- -- -- 28,213 -- 28,213
------- -------- ------- -------- -------- -------- --------
Balance, December 31, 1996 $31,952 $103,282 $ 1,938 $(26,317) $280,431 $(17,410) $373,876
======= ======== ======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended December 31,
------------------------
1996 1995 1994
------ ------ ------
Cash Flows From Operating
Activities:
Net income $ 28,213 $ 25,242 $ 32,566
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities -
Cumulative effect of
change in accounting for
trading securities -- -- (2,473)
Change in market value of
trading securities (1,506) (3,217) 2,628
Purchase of trading
securities (13,131) (14,566) (16,398)
Purchase of U.S.
Government obligations -- (25,310) --
Proceeds from sale of
trading securities 17,602 16,435 11,155
Proceeds from sale of U.S.
Government obligations -- 25,807 --
Equity in net income
of Affiliated Companies (23,438) (23,720) (25,338)
Net gain on sales of
investments in Affiliated
Companies (2,512) (1,181) (179)
Net (gain) loss on sales
of trading securities (3,661) (1,285) 421
(Gain) loss on invest-
ment in partnerships (794) (31) 375
Income of consolidated
subsidiaries (1,124) (665) (997)
Loss from discontinued
operations, net of income
taxes -- 380 104
Amortization of premiums
on receivables, net -- 83 130
Net gain on issuance
of shares by Affiliated
Companies (849) (2,282) (7,092)
Dividends from
Affiliated Companies 12,459 9,291 4,832
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(continued)
Years Ended December 31,
------------------------
1996 1995 1994
------ ------ ------
Decrease (increase) in
other assets $ 2,289 $ 2,060 $ (120)
Provision for deferred
income taxes (1,537) (3,099) (500)
(Decrease) increase
in other liabilities (57) (407) 70
Write-off of deferred
charges -- 246 --
-------- -------- --------
Net cash provided by (used
in) operating activities 11,954 3,781 (816)
-------- -------- --------
Cash Flows From Investing
Activities:
Collection of U.S.
Government and State
obligations 3,015 -- 10,495
Purchases of notes
receivable (4,892) (16,295) (62)
Collection of capital
notes and loans
receivable 1,349 483 97
Proceeds from sales of
equity interests 8,687 28,833 2,400
Acquisitions of equity
interests (23,556) (22,835) (34,044)
-------- -------- --------
Net cash used in
investing activities (15,397) (9,814) (21,114)
-------- -------- --------
Cash Flows From Financing
Activities:
Purchases of treasury stock (4,216) -- --
-------- -------- --------
Net cash used in financing
activities (4,216) -- --
-------- -------- --------
Net decrease in cash and
cash equivalents (7,659) (6,033) (21,930)
Cash and Cash Equivalents,
beginning of year 14,703 20,736 42,666
-------- -------- --------
Cash and Cash Equivalents,
end of year $ 7,044 $ 14,703 $ 20,736
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
8
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(continued)
Years Ended December 31,
------------------------
1996 1995 1994
------ ------ ------
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the
year for income taxes $5,905 $8,830 $1,577
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 equity interests in, finances and participates in the management of
companies, predominantly 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,
1996, IDB Development owned approximately 71.3% 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 corporations
in the IDB Group, 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.
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
All investments in which the Company owns less than 20% that are not accounted
for on the equity method and are not marketable securities, are accounted for
using the cost method.
The Company accounts for its investments in marketable securities in accordance
with 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, 1996, the
unrealized gain, net of taxes, from those securities included in shareholders'
equity as of December 31, 1996 decreased to $1,938,000 from $3,226,000.
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
Financial information is prepared in NIS by subsidiaries and Affiliated
Companies whose "functional currency" is the local currency, and translated to
the U.S. dollar 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 in the
future, such cumulative translation adjustments are likely to result in
additional reductions of shareholders' equity.
For Affiliated Companies whose functional currency is the U.S. dollar, their
assets and liabilities 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 trading
securities. At December 31, 1996, PEC provided $26 million of deferred income
taxes with respect to its share of 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 trading securities. The Company's
foreign subsidiaries and the Affiliated Companies file separate tax returns and
provide for taxes accordingly.
12
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd
The deferred income tax provision is determined under the liability method in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes". 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.
Deferred income taxes of approximately $53 million have not been accrued on the
Company's temporary differences, totaling approximately $152 million, related to
its investments in Affiliated Companies which are more than 50% owned by the IDB
Group and one other company in which the IDB Group has 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.
Use of 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 1995 and 1994 consolidated
financial statements to conform with the 1996 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,
-----------------------------------------------
1996 1995
--------------------- ---------------------
Percentage Carrying Percentage Carrying
Owned Value Owned Value
---------- -------- ---------- --------
Affiliated Companies:
Property and Building
Corporation Ltd.
(a)(i) See Note 5 38% $ 65,669 37% $ 49,811
Tambour Ltd.(b)(i) 43% 61,322 42% 58,665
Super-Sol Ltd.(c)(i) 18% 44,300 19% 42,234
Scitex Corporation Ltd.
(d)(i) See Note 6(g) 7% 34,994 6% 43,750
Elron Electronic
Industries Ltd.
(f)(i) 14% 32,670 14% 32,006
El-Yam Ships Ltd. (f) 10% 26,644 10% 25,452
Caniel-Israel Can
Company Ltd.(f)(i) 29% 15,768 29% 14,466
Klil Industries Ltd.
(f)(i) 17% 12,205 15% 11,032
Cellcom Israel Ltd. (e) 13% 11,304 11% 12,535
Mul-T-Lock Ltd.(f)(i) 17% 7,510 14% 6,178
"Delek" The Israel Fuel
Corp. Ltd. (f)(i) 3% 7,362 2% 5,628
DIC and PEC Cable TV Ltd.(f)
See Note 6(e) 49% 6,998 49% 4,435
Gilat Satellite Networks
Ltd. (f)(g)(i) 7% 6,361 7% 6,392
Renaissance Fund LDC 4% 5,225 4% 3,292
Gemini Israel Fund L.P. 11% 2,971 11% 2,010
Maxima Air Separation
Center Ltd. (f)(i) 12% 2,267 12% 2,038
Tefron Ltd. (f) 13% 1,849 13% 808
Tel-Ad Jerusalem Studios
Ltd. (f) See Note 6(f) 12% 1,564 12% 1,022
Other (f)(g)(i)* 15,914 15,938
-------- --------
$362,897 $337,692
-------- --------
14
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS - cont'd
December 31,
---------------------------------------
1996 1995
------------------- -------------------
Carrying Carrying
Value Value
-------- --------
Investments at cost $ 2,854 $ 2,038
Investments in marketable
securities 25,653 25,730
State obligations and
Government of Israel Bonds 398 3,636
-------- --------
28,905 31,404
-------- --------
Total $391,802 $369,096
======== ========
* Included in other liabilities is $1.4 million of negative
equity.
Information about certain Affiliated Companies follows:
(a) 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,
------------------------------
1996 1995 1994
-------- -------- ------
Current assets* $ 72,518 $ 42,543 $ 55,050
Total assets 399,880 303,980 230,689
Current liabilities 55,753 42,543 38,975
Long-term liabilities 116,292 69,253 22,917
Shareholders' equity 168,376 133,182 115,971
Income 111,800 99,283 95,925
Earnings before taxes on
income 40,136 39,106 30,705
Net earnings 24,309 19,907 15,868
* Including building
projects and inventories
of apartments 21,075 8,797 9,754
15
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS - cont'd
In May 1996, Property and Building raised approximately $25 million of
capital through a rights offering in Israel to its shareholders to
purchase ordinary shares of Property and Building. The Company
exercised the rights offered to it for $8.2 million and purchased
additional ordinary shares in the open market for $1.5 million,
slightly increasing the Company's ownership interest to 38% at a total
cost of $9.7 million.
The Company's equity in net income of Property and Building was $9.1
million for 1996, of which $4.9 million was recognized in the fourth
quarter as Property and Building recognizes revenue under the
completed contract method of accounting.
(b) Tambour Ltd. ("Tambour") is Israel's largest paint
manufacturer. Summarized financial information for Tambour
follows (in thousands):
December 31,
----------------------------
1996 1995 1994
------- -------- ------
Current assets $121,471 $121,217 $ 96,506
Total assets 184,867 167,019 154,562
Current liabilities 29,895 21,916 18,877
Shareholders' equity 142,840 138,110 128,986
Revenue from sales 189,028 160,317 123,060
Income before taxes
on income 30,843 27,252 22,549
Net income 22,702 20,018 19,618
In February 1994, all of the then outstanding one year options for
ordinary shares of Tambour were exercised and Tambour's capital rose
by $20 million. As a result, the Company's proportionate share in
Tambour decreased from 44.9% to 41%, and the Company realized a gain
on issuance of shares by Tambour of approximately $5.9 million in
1994.
16
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS - cont'd
(c) Super-Sol Ltd. operates one of Israel's largest chains of
supermarkets. Summarized financial information for
Super-Sol Ltd. follows (in thousands):
December 31,
----------------------------
1996 1995 1994
------- ------- ------
Current assets $ 234,803 $205,971 $181,160
Total assets 480,377 392,852 338,711
Current liabilities 220,715 159,910 125,638
Long-term debt 9,021 6,525 6,699
Shareholders' equity 250,919 224,023 201,458
Income 1,047,122 834,836 635,830
Earnings before taxes 58,928 53,602 43,340
Net earnings 41,653 36,216 30,970
During January and February 1997, the Company sold shares of
Super-Sol, Ltd. for $6.9 million, reducing its ownership interest in
Super-Sol, Ltd. from 17.6% to 16.2% and realizing a gain of
approximately $2.8 million.
(d) Scitex Corporation Ltd. ("Scitex") is a world leader in
visual information communication for the graphic arts,
digital printing and digital video markets. Summarized
financial information for Scitex follows (in thousands):
December 31,
----------------------------
1996 1995 1994
------- ------- ------
Current assets $ 523,587 $703,030 $759,259
Total assets 704,734 920,831 942,023
Current liabilities 203,511 224,991 190,724
Shareholders' equity 500,727 700,981 749,735
Revenues 695,048 728,900 704,138
(Loss) income before taxes on
income (180,132) (46,852) 79,320
Net (loss) income (178,279) (34,511) 63,750
Scitex incurred a net loss of $178.3 million for 1996, of which $110
million was attributable to restructuring and other charges, compared
with a net loss of $34.5 million for 1995, all of which was
attributable to special charges.
17
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS - cont'd
(e) Cellcom Israel Ltd. ("Cellcom") operates Israel's second
cellular telephone system, which began operations in
December 1994. Summarized financial information for
Cellcom follows (in thousands):
December 31,
------------------------------
1996 1995 1994
-------- -------- -------
Current assets $ 93,666 $ 44,993 $ 21,394
Total assets 419,028 240,783 97,153
Current liabilities 316,938 133,700 42,001
Long-term liabilities 222,033* 188,339* 69,222
Shareholders' deficit (119,947) (81,256) (14,070)
Income from sales and
services 304,072 130,232 2,075
Loss before taxes
on income (42,387) (70,247) (14,070)
Net loss (42,387) (70,247) (14,070)
* Includes loans from the Company of approximately $25 million and
$21 million for 1996 and 1995, respectively.
In late March 1997, Cellcom received a copy of a Motion filed with the
District Court in Haifa, Israel by two of Cellcom's subscribers
requesting that the court approve a lawsuit filed with the motion as a
class action on behalf of Cellcom's subscribers against Cellcom for
refunds and other compensation in the amount of approximately $140
million in respect of payments made by Cellcom's subscribers to
Cellcom for loss and damage insurance for cellular telephones
purchased from Cellcom. The plaintiffs allege that Cellcom was not
entitled to collect such payments from its subscribers and
alternatively that Cellcom overcharged its subscribers; the amount
claimed is based on various estimates and assumptions of the
plaintiffs. At this early stage, it is impossible for Cellcom's
management to evaluate the merits and chances of success of this
motion and lawsuit and their effect on Cellcom.
(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
above (in thousands):
December 31,
---------------------------
1996 1995 1994
------- ------- ------
Current assets $ 66,626 $ 56,200 $ 48,925
Total assets 168,068 161,733 134,921
Long-term debt 16,777 12,937 9,652
Shareholders' equity 117,723 126,250 94,472
Revenue 130,410 93,939 59,116
Net income 15,276 11,865 6,804
(g) Significant capital transactions during the three years ended December
31, 1996, and subsequent to December 31, 1996 through March 31, 1997,
that are not otherwise discussed in Note 3 are as follows:
18
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS - cont'd
During January and February 1997, the Company sold shares
of Nice Systems Ltd. for $2.6 million reducing its
ownership in Nice Systems Ltd. from 5.0% to 3.5% and
realizing a gain of approximately $2.0 million.
In October 1995, Gilat Satellite Network Ltd. sold ordinary shares in
a secondary public offering in the United States in which the Company
also sold ordinary shares of Gilat Satellite Network Ltd. As a result
of the sale, the Company realized a gain on issuance of shares by
Gilat Satellite Network 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 Network Ltd. was
reduced from 10% to 7%.
(h) The Company's equity in the net income of Affiliated Companies by
major lines of business was as follows (in thousands):
December 31,
-------------------------
1996 1995 1994
------ ------ -----
Telecommunications and
technology $(10,193) $(4,254) $ 1,056
Industry 14,638 12,284 12,180
Real Estate 9,119 6,246 4,701
Retail, shipping and other 9,874 9,444 7,401
-------- ------- -------
$ 23,438 $23,720 $25,338
======== ======= =======
(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 $347 million and $367 million and their
carrying values were approximately $300 million and $283 million at
December 31, 1996 and 1995, respectively.
(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 equaled 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.
19
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS - cont'd
(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 years ended December 31,
1995 and 1994 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,
---------------------------
1996 1995 1994
------ ------ ------
U.S. $ 3,229 $ 5,364 $ 4,176
Foreign 29,773 26,540 27,345
------- ------- -------
$33,002 $31,904 $31,521
======= ======= =======
Income tax expense is made up of the following components (in thousands):
December 31,
-------------------------
1996 1995 1994
------ ------ -----
Current:
U.S. $ 3,790 $ 7,298 $ 210
Foreign 2,536 2,083 1,614
Deferred (1,537) (3,099) (500)
------- ------- -------
$ 4,789 $ 6,282 $ 1,324
======= ======= =======
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 trading securities.
20
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES - cont'd
A reconciliation of income tax expense as reflected in the accompanying
statements with the statutory U.S. Federal income tax rate is as follows (in
thousands):
December 31,
------------------------
1996 1995 1994
------ ------ ------
U.S. income taxes at statutory
rate 35% $11,551 $11,166 $11,032
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 (6,805) (4,781) (9,299)
Other 43 (103) (409)
------- ------- -------
$ 4,789 $ 6,282 $ 1,324
======= ======= =======
5. SHAREHOLDERS' EQUITY
In July 1996, the Company announced that it would purchase from time to time up
to 500,000 shares of its common stock in the open market at its discretion,
taking into account such factors as price and prevailing market conditions.
During 1996, the Company purchased 250,200 shares of its common stock for $4.2
million.
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 in 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.
21
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHAREHOLDERS' EQUITY - cont'd
Earnings Per Common Share
The computations of earnings per common share are calculated using the weighted
average number of common shares outstanding during the year. The weighted
average number of outstanding shares in 1996 was 18,714,113 and in 1995 and 1994
was 18,758,588.
6. COMMITMENTS AND CONTINGENCIES
(a) 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 $4.8 million as of December 31, 1996
through the purchase of capital notes of DEP. In February 1997, the
Company contributed approximately $500,000 to DEP through the purchase
of an additional capital note.
(b) 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.
(c) The Company has contracted with IDB Development for it 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 1996, 1995 and 1994, the Company
incurred expenses of $130,000 for these services.
(d) 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 or long-term debt invested by such paying party in business
opportunities initiated or initially presented by the other party. In
1996 and 1995 the Company incurred fees of $133,750 and $34,610 under
this agreement, respectively.
(e) 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.
22
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES - cont'd
(f) 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.
(g) 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. In March 1997, Scitex entered
into a settlement of this action, which settlement is subject to court
approval. Scitex believes that the settlement, net of insurance
coverage, is not material and has accrued in its financial statements
the net amount of the settlement.
In May 1996, a shareholder derivative action was filed on behalf of
the Company against the directors of the Company, the Company's
Israeli parent companies and certain shareholders thereof. The action
generally alleges that the defendants breached fiduciary duties to
the Company and its shareholders and wasted the Company's assets in
responding to a purported offer to take Scitex private. In March
1997, the parties entered into an agreement in principle for the
settlement of the action which provides that (i) all of the claims
against the defendants will be dismissed with prejudice, (ii) if
certain offers are made to purchase Scitex, the Company's Board of
Directors will appoint a committee to evaluate and recommend to the
Board of Directors what action to take with respect to the offer and
(iii) the Company will pay the plaintiff's legal fees, expenses and
costs substantially all of which will be covered by the Company's
insurance carrier, net of the insurance policy deductible.
Implementation of the settlement is subject to completion by
plaintiff's counsel of confirmatory discovery and court approval.
23
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES - cont'd
In April and May 1996, four actions with similar allegations (which
purport to be class actions) were filed against Scitex, and, in
several of these actions, a number of Scitex's current and former
directors, certain officers of Scitex, the four largest shareholders
of Scitex, including the Company, the Company's Israeli parent
companies and certain shareholders thereof. The actions generally
allege that the defendants breached their fiduciary duties to Scitex
or its shareholders in responding to a purported offer to take Scitex
private. In March 1997, the parties entered into an agreement in
principle for the settlement of the actions which provides that (i)
all of the claims against the defendants, including Scitex and the
Company, will be dismissed with prejudice, (ii) the Scitex Board of
Directors will include at least two independent directors and if
certain offers are made to purchase Scitex, the Board of Directors
will appoint a committee to evaluate the offer and determine the
appropriate response to the offer and (iii) Scitex will pay the
plaintiff's legal fees, expenses and costs, a substantial portion of
which Scitex believes will be covered by Scitex's insurance carrier,
net of the insurance policy deductible. The settlement will not result
in any cost or expense to the Company. Implementation of the
settlement is subject to completion by plaintiff's counsel of
confirmatory discovery and court approval.
(h) Certain directors of IDB Holding and/or its affiliates are
also directors of the Company.
(i) Lawsuits have been filed against some of the Company's
affiliates in the ordinary course of their businesses.
Management 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.
24
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 107 ("SFAS 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 107 does not
apply to investments accounted for under the equity method (See Notes 2 and 3).
Cash equivalents and non-marketable investments not accounted for on the equity
method are reflected at cost, which approximates their fair values.
The commitments described in Note 6 are generally for the near term, and,
accordingly, their contract value is considered their fair value.
25
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. QUARTERLY RESULTS OF OPERATIONS - (UNAUDITED)
Quarter Ended
--------------------------------------------
1996 March 31 June 30 September 30 December 31
------ -------- ------- ------------ -----------
(in thousands, except per share data)
Revenues $15,551 $14,281 $ 2,088 $12,615
======= ======= ======= =======
Net income $10,391 $ 8,485 $ 1,032 $ 8,305
======= ======= ======= =======
Earnings per
common share $ 0.55 $ 0.45 $ 0.06 $ 0.45
======= ======= ======= =======
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)
income from
discontinued
operations 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)
income 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
======= ======= ======= =======
26
<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 1997 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, 1996 and 1995.
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994.
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, 1996 and 1995.
Statements of Earnings for the years ended December 31, 1996,
1995 and 1994.
Statement of Shareholders' Equity for the years ended December
31, 1996, 1995 and 1994.
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
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.
Consolidated Balance Sheets as at December 31, 1996 and 1995.
IV-1
<PAGE>
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994.
Statement of Shareholders' Equity for the years ended December
31, 1996, 1995 and 1994.
Consolidated Cash Flows Statements for the years ended
December 31, 1996, 1995 and 1994.
Balance Sheets as at December 31, 1996 and 1995.
Statements of Income for the years ended December 31, 1996,
1995 and 1994.
Cash Flows Statements for the years ended December 31, 1996,
1995 and 1994.
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:
Caniel-Israel Can Company Ltd.
Cellcom Israel Ltd.
DIC and PEC Cable TV Ltd.
El-Yam Ships Ltd.
Gemini Capital Fund Management Ltd.
Gemini Israel Fund L.P.
Gilat Satellite Networks Ltd.
Ispah Holdings Limited
Klil Industries Ltd.
Maxima Air Separation Center Ltd.
Mul-T-Lock Ltd.
PEC Israel Finance Corporation Ltd.
Scitex Corporation Ltd.
Super-Sol Ltd.
Tel-Ad Jerusalem Studios Ltd.
IV-2
<PAGE>
(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.
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, filed as
Exhibit 10(b)(i) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 and incorporated herein by
reference.
10 (i) (c). Amendment to Exhibit 10(i)(a) dated as of February 1, 1993,
filed as Exhibit 10(i)(c) to the Company's Annual Report on Form
10-K for the fiscal year ended December 30, 1992 and incorporated
herein by reference.
10 (i) (d). Shareholders' Agreement dated May 20, 1992 among Clal
Electronics Industries Ltd., the Company, Discount Investment
Corporation Ltd. and International Paper Company, filed as Exhibit
A to Amendment No. 13 to the Company's Statement on Schedule 13D in
respect of ordinary shares of Scitex Corporation Ltd. held as of
June 12, 1992 and incorporated herein by reference.
10 (i) (e). Business Opportunities Agreement dated as of November 30, 1993
among the Company, DIC Finance and Management Ltd., and, for the
purpose of section 5 thereof only, PEC Finance Company Ltd. and
Discount Investment Corporation Ltd., filed as Exhibit 10(i)(f) to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
IV-3
<PAGE>
10 (i) (f). Amendment to Exhibit 10(i)(e) dated as of December 25, 1996.
10 (i) (g). Agreement dated July 1, 1995 between IDB Development
Corporation Ltd. and PEC Finance Company Ltd. (now named PEC Israel
Financial 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, 1995 and incorporated herein by reference.
10 (i) (h). 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) (i). Exchange Agreement dated as of January 4, 1994 among the
Company, PEC Holdings Limited and IDB Development Corporation Ltd.,
filed as Exhibit 10(i)(l) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference.
10 (iii) (a). 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, 1996.
- ----------
*This is a management contract or a compensatory plan or
arrangement required to be filed as an exhibit.
IV-4
<PAGE>
Property and Building Corporation Limited
and Subsidiaries
Financial Statements as at
December 31, 1996 and 1995
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Financial Statements as at December 31, 1996 and 1995
- --------------------------------------------------------------------------------
Contents
Page
Auditors' Report 2
Balance Sheets 3
Statements of Earnings 4
Statement of Shareholders' Equity 5
Statements of Cash Flows 6
Notes to the Financial Statements 9
Annex - Percentage of Holding in Related Companies 57
<PAGE>
Certified Public Accountants (Isr) Tel Aviv 61006
33 Yavetz Street
P.O.Box 609
Tel: (03) 511 0400
Telecopier: (972) 3 517 4440
Tirat HaCarmel 39101 Jerusalem 91001
7 Etgar Street 31 Haneviim Street
P.O.Box 240 P.O.Box 212
Tel: (04) 857 9888 Tel: (02) 625 3291
Telecopier: (972) 4 857 9857 Telecopier: (972) 2 625 3292
- --------------------------------------------------------------------------------
Somekh Chaikin [LOGO]
Tel-Aviv, March 13, 1997
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, 1996 and 1995.
- - Statements of earnings, statements of changes in shareholders' equity and
statements of cash flows for each of the three years the last of which
ended December 31, 1996.
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 certain subsidiaries, including
those consolidated by the proportionate consolidation method, whose assets
constitute 72% and 79% of the total consolidated assets as at December 31, 1996
and 1995 respectively, and whose revenues constitute 90%, 86% and 92% of the
consolidated revenues for the years ended on December 31, 1996, 1995 and 1994
respectively. The financial statements of those subsidiaries were audited by
other auditors 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 auditors.
Furthermore, the data included in the financial statements which relates to the
net asset value of an affiliate and the Company's equity in its earnings is
based on financial statements which were audited by other auditors.
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.
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
As stated in Note 1D(17) the comparative figures are based on financial
statements which were restated and issued on May 30, 1996 (the original
statements were issued on March 18, 1996) in order to retroactively reflect a
change with which we concur in the accounting treatment of the recognition of
income from construction work by a subsidiary.
The above mentioned financial statements were prepared on the basis of the
historical cost convention, in historical values, adjusted for the changes in
the general purchasing power of the Israeli currency in accordance with opinions
of the Institute of Certified Public Accountants in Israel. Condensed data in
nominal historical values, 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 auditors, the financial statements referred to above present fairly, in
all material respects, in conformity with accounting principles generally
accepted in Israel, consistently applied, the financial position of the Company
and the consolidated financial position of the Company and its subsidiaries as
at December 31, 1996 and 1995 and the results of their operations, the changes
in the shareholders' equity and their cash flows for each of the three years the
last of which ended December 31, 1996. 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
- --------------------------------------------------------------------------------
In terms of shekels of December 1996
(in NIS thousands)
Consolidated The Company
Note 1996 1995 1996 1995
--------- --------- --------- -------- --------
Current Assets
Cash and cash
equivalents 2 54,563 20,632 1,076 847
Short-term deposits
and loans 15,760 334
Marketable securities 3 32,454 33,024 584 665
Trade receivables 4 39,430 25,338
Other receivables
and debit balances 5 22,193 37,587 3,509 3,290
Apartments and other
inventories 6 17,608 10,026
Building projects
under construction 7 76,476 38,385 6,676 980
--------- --------- -------- --------
258,484 165,326 11,845 5,782
--------- --------- -------- --------
Land 8 391,577 332,957 19,309 18,255
--------- --------- -------- --------
Long-term Deposits 9 1,091 1,733 1,059
--------- --------- --------
Investments
In investee companies 10 126,977 113,883 789,140 654,561
--------- --------- -------- --------
Fixed Assets 11
Buildings, land, plantations
and other 1,089,822 963,984 47,316 47,378
Less/- Accumulated
depreciation 271,972 255,584 19,378 18,420
--------- --------- -------- --------
817,850 708,400 27,938 28,958
--------- --------- -------- --------
Deferred Charges
and Other Assets 12 13,091 9,726 378 405
--------- --------- -------- --------
--------- --------- -------- --------
1,609,070 1,332,025 849,669 707,961
========= ========= ======== ========
The notes and the annex are an integral part of the financial statements.
<PAGE>
Property and Building Corporation Limited and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated The Company
Note 1996 1995 1996 1995
--------- --------- --------- -------- --------
Current Liabilities
Advances from
purchasers of
apartments and
others, net 13 11,067 2,346 9,454 951
Short-term credit
from banks 14 12,252 26,837 349
Current maturities
of long-term
liabilities 47,519 14,485 8,360 18,978
Suppliers and
subcontractors 15 31,518 28,894
Creditors and
credit balances 16 54,619 79,253 43,746 15,070
Deferred taxes 17 13,908 5,363
Proposed dividend 16,289 13,830 11,500 9,400
--------- --------- -------- --------
187,172 171,008 73,409 44,399
--------- --------- -------- --------
Long-term Liabilities
Convertible
debentures 18 49,008 4,869
Debentures 18 37,964 45,238
Liabilities to banks
and provident funds 18 206,901 112,290 348 693
Other long term
liabilities 18 59,463 58,617 7,980
Deferred taxes 17 16,345 18,689 26 24
Liability for employee
severance benefits, net 19 2,232 2,311 1
--------- --------- -------- --------
371,913 242,014 375 8,697
--------- --------- -------- --------
Minority interest 264,783 264,138
--------- ---------
Receipt on account of
option warrants in
a subsidiary 9,317
---------
Shareholders' Equity 775,885 654,865 775,885 654,865
--------- --------- -------- --------
Contingent Liabilities
and Commitments 20
/s/ Dov Tadmor
- ----------------------------------
Dov Tadmor - Chairman of the Board
/s/ A. Attias
- ----------------------------------
Abraham Attias - Managing Director
March 13, 1997
--------- --------- -------- --------
1,609,070 1,332,025 849,669 707,961
========= ========= ======== ========
3
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Statements of Earnings for the Year Ended December 31
- --------------------------------------------------------------------------------
In terms of shekels of December 1996
(in NIS thousands)
<TABLE>
<CAPTION>
Consolidated The Company
Note 1996 1995 1994 1996 1995 1994
------- ------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Rentals and warehousing 120,419 110,191 99,811 7,166 7,171 7,122
From construction and other sources 21 215,043 220,157* 218,736*
The Company's equity in the
net earnings of investee companies 22 11,864 12,070 4,730 59,465 56,493* 28,799*
Gain on sale of investments and fixed assets 23 2,656 6,214 17,810 69 108 4,243
Income from securities, financing and others 24 6,470 7,520 6,198 2,320 2,180 1,629
------- -------- ------- -------- -------- -------
356,452 356,152 347,285 69,020 65,952 41,793
------- -------- ------- -------- -------- -------
Costs and Expenses
Construction and other costs 25 151,059 163,450* 169,095*
Administrative and general 26 29,068 28,232 24,268 6,388 6,229 5,399
Selling and marketing 27 3,568 3,144 2,549
Property maintenance (excluding depreciation) 9,849 9,768 9,046 760 755 1,161
Depreciation and amortization 28 18,564 16,877 15,324 1,180 1,163 1,135
Property taxes on land 7,090 5,599 5,695 903 467 672
Financing 29 15,403 4,744 34,111 2,919 2,649 1,020
------- -------- ------- -------- -------- -------
234,601 231,814 260,088 12,150 11,263 9,387
------- -------- ------- -------- -------- -------
Earnings before taxes on income 121,851 124,338 87,197 56,870 54,689 32,406
Taxes on income 30 39,855 43,643* 39,517* (867) (912) 311
------- -------- ------- -------- -------- -------
Earnings after taxation 81,996 80,695 47,680 57,737 55,601 32,095
Less/- Minority interest in earnings 24,259 25,094* 15,585*
------- -------- ------- -------- -------- -------
Net earnings for the year 57,737 55,601* 32,095* 57,737 55,601 32,095
======= ======== ======= ======== ======== =======
Earnings Per Share
Net earnings per share of a par value
of NIS 1.00 (in NIS), 1D (16) 14.83 15.23* 8.79* 14.83 15.23 8.79
======= ======== ======= ======== ======== =======
</TABLE>
* Reclassified - Note 1D(17)
The notes and the annex are an integral part of the financial statements.
4
<PAGE>
Property and Building Corporation and Subsidiaries
Statement of Shareholders' Equity
- --------------------------------------------------------------------------------
In terms of shekels of December 1996
(in NIS thousands)
Share Capital Retained Total
capital surplus earnings
---------- ---------- ---------- ---------
Balance as at January 1, 1994 166,191 146,617 258,802 571,610
Net earnings for the year 32,095 32,095
Inflationary erosion of dividend
declared in the previous year 431 431
Proposed dividend, net - 170% (7,205) (7,205)
---------- ---------- ---------- ---------
Balance as at December 31, 1994 166,191 146,617 284,123 596,931
Net earnings for the year 55,601 55,601
Capital surplus from
private placement of
shares of a subsidiary 11,650 11,650
Inflationary erosion of dividend
declared in the previous year 83 83
Proposed dividend - 240% (9,400) (9,400)
---------- ---------- ---------- ---------
Balance as at December 31, 1995 166,191 158,267 330,407 654,865
Net earnings for the year 57,737 57,737
Issue of shares 576 73,653 74,229
Inflationary erosion of dividend
declared in the previous year 554 554
Proposed dividend - 280% (11,500) (11,500)
---------- ---------- ---------- ---------
Balance as at December 31, 1996 166,767 231,920 377,198 775,885
========== ========== ========== =========
5
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Statements of Cash Flows for the Year Ended December 31
- --------------------------------------------------------------------------------
In terms of shekels of December 1996
(in NIS thousands)
<TABLE>
<CAPTION>
Consolidated The Company
----------------------------------------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash flows generated by operating activities
Net earnings 57,737 55,601 32,095 57,737 55,601 32,095
Adjustments to reconcile net earnings to
net cash flows generated by operating activities (Annex): 54,135 23,564 85,370 (23,470) (57,149) (18,723)
--------- --------- --------- --------- --------- ---------
Net cash inflow (outflow) generated by operating activities 111,872 79,165 117,465 34,267 (1,548) 13,372
--------- --------- --------- --------- --------- ---------
Cash flows generating by investing activities
Proceeds from realization of investment
in investee companies 1,958
Investments in investee companies (34,737) (3,904) (14,676) (87,727) (158) (12,713)
Dividend received from investee companies 7,617 8,728 1,719 11,927 10,442 6,864
Purchase of marketable securities (563,493) (36,582) (54,438) (9) (174) (4)
Proceeds from sale of marketable securities 568,722 97,814 77,524 112 173
Acquisition and development of land (113,853) (120,984) (38,990) (4,587) (6,469) (12,124)
Purchase and construction of fixed assets (117,680) (112,527) (72,128) (145) (2,826) (40)
Collections of credit relating to sale of real estate 1,602 639 604
Proceeds from sale of fixed assets and real estate 1,892 7,737 15,115 31
Repayment of long-term deposits and loans 680 1,400 1,357 54 -
Granting of short-term deposits (15,426) - - -
Granting of long-term loans - - - (1,059) - -
Granting of loans to subsidiaries - - (831) (1,452)
Repayment of loans to subsidiaries - - - 737 836
--------- --------- --------- --------- --------- ---------
Net cash inflow (outflow) generated by
investing activities (264,676) (157,679) (81,955) (80,720) 1,047 (19,469)
--------- --------- --------- --------- --------- ---------
</TABLE>
6
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Statements of Cash Flows for the Year Ended December 31 (cont'd)
- --------------------------------------------------------------------------------
In terms of shekels of December 1996
(in NIS thousands)
<TABLE>
<CAPTION>
Consolidated The Company
------------------------------ ------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash flows generated by financing activities
Dividend paid
- - by the parent company (8,846) (7,142) (7,814) (8,846) (7,124) (7,814)
- - to outside shareholders of subsidiary companies (4,229) (3,592) (2,981)
Payment of debentures (12,366) (11,993) (7,123)
Payment of long term loans (3,005) (14,570) (280) (276) (278) (280)
Receipt of long-term loans 127,564 111,616
Receipt of long-term loan from subsidiary (18,774) 7,991 13,949
Receipt (repayment) of short-term bank credit (14,585) 18,416 7,673 349
Payments to outside shareholders of subsidiary (426) (2,534) (5,279)
Repayments of credit in respect of real estate acquisition (31,440) (18,679) (28,231)
Securities issue by a subsidiary 59,839
Share issue by the Company 74,229 74,229
-------- -------- -------- -------- -------- --------
Net cash inflow (outflow) generated by financing activities 186,735 71,540 (44,035) 46,682 589 5,855
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 33,931 (6,974) (8,525) 229 88 (242)
Cash and cash equivalents at beginning of year 20,632 27,606 36,131 847 759 1,001
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of year 54,563 20,632 27,606 1,076 847 759
======== ======== ======== ======== ======== ========
</TABLE>
7
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Statements of Cash Flows for the Year Ended December 31 (cont'd)
- --------------------------------------------------------------------------------
In terms of shekels of December 1996
(in NIS thousands)
<TABLE>
<CAPTION>
Consolidated The Company
------------------------------ ------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- --------
Annex
<S> <C> <C> <C> <C> <C> <C>
Adjustments to reconcile net earnings to net cash generated by
operating activities:
Cash flows not involving cash flows:
The Company's equity in the net earnings of
investee companies (11,864) (12,070) (4,730) (59,465) (56,493) (28,799)
Outside shareholders' interest in earnings 24,259 25,094 15,585
Depreciation and amortization 19,084 17,417 15,798 1,180 1,163 1,135
Net changes in deferred taxes 3,874 (2,176) 1,127 (1,543) (1,304) (28)
Increase (decrease) in liability for
employee severance benefits (79) 337 (2,138) 1
Decrease (increase) in value of securities (4,659) (397) 33,591 (22) 34 27
Income from realization of investments
in investee companies and issue of capital (50) (58) (5,491) (50) (58) (4,243)
Capital gains on sale of fixed assets and real estate (2,606) (6,156) (12,319) (19) (50)
Inflationary erosion of long-term deposits and loans, net 1,585 (22) (451) 106 (76) (55)
Amortization of debenture discount 778
Changes in current assets and liabilities:
Trade and other receivables 3,299 (28,008) 12,970 1,326 (231) 3,570
Construction costs, net 18,976 8,568 44,947 6,340 2,880 --
Other payables 1,538 21,035 (13,519) 28,676 (3,014) 9,670
-------- -------- -------- -------- -------- --------
Total adjustments 54,135 23,564 85,370 (23,470) (57,149) (18,723)
======== ======== ======== ======== ======== ========
Significant non-cash transactions:
Purchase of fixed assets on credit 9,848 64,795 11,373
======== ======== ========
Purchase of real estate on credit 2,771 25,673
======== ========
Proceeds from the sale of fixed assets on credit 1,287 367 1,947
======== ======== ========
</TABLE>
8
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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 net asset value of investments in shares of investee
companies as at acquisition date.
g. Related parties - as defined in Opinion No. 29 of the Institute
of Certified Public Accountants in Israel.
h. Interested parties - as defined in the Israeli Securities Law.
2. The financial statements have been prepared in a format suited, in the
opinion of the Management, to the Company's type 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
historical 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 also been adjusted to the shekel of December
1996.
9
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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, real estate,
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 historical values.
The net asset 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 equity in the results of
operation of the investee companies and the outside
shareholders' share in the results of operation of the
subsidiaries was based on the adjusted financial statements
of such companies.
4) The net financing items 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, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (cont'd)
C. Principles of adjustment (cont'd)
b. Taxes on income
Current taxes comprise payments on account made during the year
plus amounts due at balance sheet date (or less amounts
refundable at balance sheet date). The payments on account have
been adjusted on the basis of the consumer price index of the
date the payments were made. Those amounts payable (or
refundable) have been included unadjusted. Current taxes include,
therefore, the expense derived from the inflationary erosion of
the value of payments made on account from the time of payment to
the year end.
Deferred taxes - see Note 1D.11. below.
3. Statement of 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 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, and is expressed in
terms of shekels of the end of the current year.
11
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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 subsidiaries. (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.
c. For the purposes of consolidation, the amounts in the financial
statements of the subsidiary companies being consolidated were
included after adjustments required in respect of application of
the uniform accounting principles of the Group.
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 properties of the Company and its subsidiaries that
are requested 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 based on the cost of these assets to those subsidiaries.
In the statement of earnings, the income and expenses relating to
the above assets were included based on the Company's rate of
holding in the stated subsidiary companies.
2. Marketable securities
a. Marketable government bonds and other marketable securities are
stated at their market value as at balance sheet date.
b. Mutual fund certificates in trust funds are stated at redemption
value as at balance sheet date.
c. Changes in value of securities are fully recognized on a current
basis.
3. Building projects
a. The Company and subsidiary construction companies record
construction work on the basis of approved invoices and amounts
paid on account to the contractors, designers and others.
b. The completed units and units under construction are stated in
the financial statements at cost but not exceeding their market
value.
12
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (cont'd)
D. Accounting policies
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.
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. Shops in completed buildings are stated at cost but not in excess
of 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 fair 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 such companies (building projects, real estate and
fixed assets) and their amortization as an expense or as 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 by the
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.
13
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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. Convertible of debentures
a. Debentures, the conversion of which is not, as at balance sheet
date, expected according to guidelines set by the Institute, are
stated as long-term liabilities. The debentures include the
liabilities at balance sheet date in accordance with the
conditions of the issue, less the discount which has not been
amortized as at 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.
14
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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.
15
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consumer
price
index, in
points 143.1 129.4 119.7 10.6 8.1 14.6
Consumer price
index, (latest
known index)
in points 142.0 127.9 118.7 11.0 7.8 14.3
Exchange
rate
of the
U.S. dollar,
in NIS 3.251 3.135 3.018 3.7 3.9 1.1
</TABLE>
16
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 1 - Reporting Principles and Accounting Policies (cont'd)
D. Accounting policies (cont'd)
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 par value of the issued and paid up share capital outstanding
during the year as stated in Note 34D.
17. Restatement of comparative figures
The comparative figures have been restated so as to retroactively
correct the accounting treatment of the recognition of profit from
construction work of a subsidiary. Under the new treatment income from
the sale of building units is recognized under the percentage of
completion method when all of the units in the project have been sold.
While under the previously used method income was recognized, in
certain cases, when the overwhelming majority of the units had been
sold. The restatement resulted in an increase in the net earnings of
the year ended December 31, 1995 of NIS 1,833 thousand and a decrease
in the earnings of the year ended December 31, 1994.
A. Effect on the net earnings:
Consolidated
----------------------------
1995 1994
------------- -------------
NIS thousands NIS thousands
------------- -------------
Net earnings as previously reported 53,708 33,928
Effect of the restatement:
Increase (decrease) in income from sale of
apartments 16,945 (16,945)
Decrease (increase) in cost of apartments sold (12,189) 12,189
Decrease (increase) in income tax (1,759) 1,759
Minority interest in earnings (1,164) 1,164
------------- -------------
Net earnings after restatement 55,601 32,095
------------- -------------
B. Effect on each NIS 1 par value of the share capital:
Consolidated
----------------------------
1995 1994
------------- -------------
NIS thousands NIS thousands
------------- -------------
Net earnings per share par value of NIS 1 -
As previously reported 14.73 9.29
Effect of the restatement 0.50 (0.50)
------------- -------------
Net earnings per share after restatement 15.23 8.79
============= =============
17
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 2 - Cash and Cash Equivalents
<TABLE>
<CAPTION>
Consolidated The Company
---------------------------- ----------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Short-term deposits with banks 53,151 20,288 1,075 839
Cash at bank 1,412 344 1 8
----------- ----------- ----------- -----------
54,563 20,632 1,076 847
=========== =========== =========== ===========
</TABLE>
Note 3 - Marketable Securities
<TABLE>
<CAPTION>
Consolidated The Company
---------------------------- ----------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Government loans 21,400 15,562
Mutual fund certificates 7,878 15,208
Debentures issued by a
subsidiary* 584 665
Other debentures 2,490 1,294
Shares 470 897
Convertible securities 216 63
----------- ----------- ----------- -----------
32,454 33,024 584 665
=========== =========== =========== ===========
</TABLE>
* See Note 20 C (1)
Note 4 - Trade Receivables
A. Composed of:
Consolidated
December 31 December 31
----------- -----------
1996 1995
----------- -----------
Purchasers of apartments and shops 28,586 15,988
With respect to rentals and warehousing* 6,612 5,504
With respect to air conditioning and other* 2,033 2,430
Notes receivable 2,199 1,416
----------- -----------
39,430 25,338
=========== ===========
* After deduction of allowance for
doubtful debts 840 730
=========== ===========
B. Purchasers of apartments are linked mainly to the construction inputs
index.
18
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 5 - Other Receivables and Debit Balances
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------- --------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current maturities of
long-term deposits 1,728 1,744
Accrued income 7,246 8,867 109 1
Purchasers of land* 1,405 1,641
Future tax benefits 4,842 2,515 3,220 1,675
Deposits and prepaid expenses 658 1,471 8
Advances to Tax Authorities
less provisions 3,644 1,500
Employees 292 365 12 17
Other debtors 2,130 1,695 160 8
Israel Treasury - value
added tax 248 17,789 1,589
----------- ----------- ----------- -----------
22,193 37,587 3,509 3,290
=========== =========== =========== ===========
</TABLE>
* Balance linked mainly to U.S. dollar.
Note 6 - Apartments and Other Inventories
Consolidated
-------------------------
December 31 December 31
1996 1995
----------- -----------
Apartments in completed building 16,582 8,774
Air-conditioning equipment and other 1,026 1,252
----------- -----------
17,608 10,026
=========== ===========
Note 7 - Building Projects Under Construction
Consolidated The Company
------------------------ ------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
Land 68,636 40,772 4,361 1,454
Construction work 99,024 62,966 2,880 1,305
----------- ----------- ----------- -----------
Land and construction works 167,660 103,738 7,241 2,759
Less - Advances from
apartment purchasers
91,184 65,353 565 1,779
----------- ----------- ----------- -----------
76,476 38,385 6,676 980
=========== =========== =========== ===========
19
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 8 - Land
<TABLE>
<CAPTION>
Consolidated The Company
------------------------- -------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A. Composed of:
Freehold land (1) 214,520 221,050 19,309 18,255
Leasehold land 167,645 102,273
Stores in completed
buildings and other
installations 5,033 4,949
Parking lot and sports
center 2,958 2,841
Expenses relating to
future stages of
construction 1,421 1,844
----------- ----------- ----------- -----------
391,577 332,957 19,309 18,255
=========== =========== =========== ===========
</TABLE>
(1) Including NIS 1.9 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.
B. In the opinion of Management the value of land exceeds the value
stated in the balance sheet.
C. Leasehold rights in land:
The lease Cost
expires in
---------- --------
Capitalized leasehold 2048 166,830
Uncapitalized leasehold 2040 815 *
--------
167,645
========
* The land has not as yet been registered in the name of the Company at
the Land Registry Office.
20
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 9 - Long-term Deposits and Loans
A. Compositition
(1) In the consolidated balance sheet:
December 31
December 31, 1996 1995
----------------------------------- ----------
Interest Total Current Balance Balance
rate maturities
-------- --------- ---------- --------- ---------
%
--------
Deposits
with banks -
For the
granting
of loans to
apartment
purchasers 6-4 61 29 32 40
For deposit
with the
Israel Treasury 5.25 1,699 1,699 - 1,693
Loans to employees 1,059 - 1,059 -
--------- ---------- --------- ---------
2,819 1,728 1,091 1,733
========= ========== ========= =========
(2) In the company balance sheet:
Loans to employees - 1,059 1,059
========= ==========
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 61 thousand (December 31, 1995 - NIS 91 thousand), in connection
with guarantees given to apartment purchasers on behalf of
subsidiaries.
D. (1) Classification of long-term deposits and loans by years of
maturity:
Consolidated
------------------------
December 31 December 31
1996 1995
----------- -----------
Within 12 months - current maturities 1,728 1,744
=========== ===========
During second year 32 1,733
=========== ===========
(2) Loans to employees in connection with the purchase of shares, as
described in Note 32C are repayable after five years from the
date of the prospectus. The loans can be repaid early, fully or
partially, at the option of the employee.
21
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 10 - Investments in Investee Companies
A. Consolidated balance sheet
1. Composition:
December 31 December 31
1996 1995
----------- -----------
Total Total
----------- -----------
Affiliated companies
Shares at cost, include -
Adjusted net asset value at the date of
acquisition (a) 97,451 88,574
Initial difference, net 5,010 5,089
----------- -----------
102,461 93,663
Add -
The Company's share in the net post-
acquisition profits 25,214 20,455
Total amounts of the initial difference
amortized (1,069) (606)
----------- -----------
Book value of shares (b) 126,606 113,512
----------- -----------
Other company 371 371
----------- -----------
126,977 113,883
=========== ===========
(a) The investment is presented net of dividends distributed by an
affiliated company out of pre-acquisition earnings, amounting to NIS
4,523 thousand.
(b) Includes quoted shares whose adjusted equity value at balance sheet
date is NIS 91,755 thousand (December 31, 1995 - NIS 78,963 thousand).
The market value of these shares at balance sheet date is NIS 109,062
thousand (December 31, 1995 - NIS 106,733 thousand).
22
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 10 - Investments in Investee Companies
A. Consolidated balance sheet (cont'd)
2. The following are details pertaining to proportionally consolidated
subsidiaries which were included in the consolidated financial
statements of the company as at December 31, 1996 and 1995:
December 31 December 31
1996 1995
----------- -----------
(a) Balance sheet data
Assets:
Current assets 1,299 830
Fixed assets 60,296 58,889
----------- -----------
61,595 59,719
----------- -----------
Liabilities and shareholders' equity:
Current liabilities 1,674 4,370
Long-term liabilities 45,253 41,677
Shareholders' equity 14,668 13,672
----------- -----------
61,595 59,719
=========== ===========
(b) Statements of earnings
Year ended Year ended
December 31 December 31
1996 1995
----------- -----------
Income 4,392 2,615
----------- -----------
Costs and expenses:
Property maintenance 357 168
Administrative and general 510 304
Financing, net 682 662
Depreciation 1,280 1,164
----------- -----------
2,829 2,258
----------- -----------
Earnings before taxes 1,563 357
Taxes on income 566 174
----------- -----------
997 183
=========== ===========
23
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 10 - Investments in Investee and Other Companies (cont'd)
B. Company balance sheet
<TABLE>
<CAPTION>
Subsidiaries Proportionally Affiliated December 31 December 31
consolidated companies 1996 1995
subsidiaries Total Total
------------ -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shares at cost, include -
Adjusted net asset
value at the date of
acquisition 270,694 4,104 12,059 286,857 200,448
Initial difference, net 10,489 4,056 14,545 13,221
------------ -------------- ---------- ----------- -----------
281,183 4,104 16,115 301,402 213,669
Add -
The Company's share in
the net post-acquisition
profits 481,324 331 1,109 482,764 434,869
Total amounts of the
initial difference
amortized (5,170) (598) (5,768) (5,456)
------------ -------------- ---------- ----------- -----------
Book value of shares (1) 757,337 4,435 16,626 778,398 643,082
Loans (2) 10,371 10,371 11,108
------------ -------------- ---------- ----------- -----------
757,337 14,806 16,626 788,769 654,190
Other company 371 371 371
------------ -------------- ---------- ----------- -----------
757,337 14,806 16,997 789,140 654,561
============ ============== ========== =========== ===========
</TABLE>
(1) Includes quoted shares whose adjusted equity value at balance sheet
date is NIS 726,432 thousand (December 31, 1995 - NIS 556,293
thousand). The market value of these shares at balance sheet date is
NIS 783,680 thousand (December 31, 1995 - NIS 793,940 thousand).
(2) The loans to investee companies are linked to the consumer price
index, bear annual interest rates of 7% (December 31, 1995 - up to 6%
annually) and have no specific repayment date.
24
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 11 - 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)(4) 1996 1995
--------- --------- --------- ----------- -------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost
Balance at beginning
of year 643,944 53,087 239,947 7,572 4,738 6,603 8,093 963,984 785,458
Additions 76,972 48,451 112 36 922 99 936 127,528 179,406
Transfers 7,522 (7,552)
Disposals (134) (1,004) (16) (1,004) (16) (536) (1,690) (880)
--------- --------- --------- ----------- -------- --------- --------- ---------- -----------
Balance at end of year 728,304 101,538 232,537 7,608 4,656 6,686 8,493 1,089,822 963,984
--------- --------- --------- ----------- -------- --------- --------- ---------- -----------
Accumulated depreciation
Balance at beginning
of year 236,098 6,392 2,090 5,541 5,463 255,584 240,455
Additions 15,892 2 651 285 675 17,505 15,906
Disposals (629) (13) (475) (1,117) (777)
--------- --------- --------- ----------- -------- --------- --------- ---------- -----------
Balance at end of year 251,990 6,394 2,112 5,813 5,663 271,972 255,584
--------- --------- --------- ----------- -------- --------- --------- ---------- -----------
Depreciated cost
as at December 31, 1996 476,314 101,538 232,537 1,214 2,544 873 2,830 817,850
========= ========= ========= =========== ======== ========= ========= ==========
Depreciated cost
as at December 31, 1995 407,846 53,097 239,947 1,178 2,648 1,062 2,632 708,400
========= ========= ========= =========== ======== ========= ========= ===========
</TABLE>
25
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 11 - Fixed Assets (cont'd)
A. Consolidated balance sheet: (cont'd)
(1) Including rights in land aggregating NIS 336,170 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 172,265
thousand, is freehold land of the Company and the subsidiaries.
Another part, of an adjusted cost of NIS 163,905 thousand, is
leasehold land, leased by subsidiaries (of which NIS 159,025
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 12,995 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).
(4) Including land of a value of NIS 360 thousand, in respect of which the
Residential Building Commission approved a plan to rezone the land
from agricultural land to land for residential and commercial
purposes.
26
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 11 - 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
1996 1995
----------- -------------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost
Balance at beginning of year 32,502 13,190 849 837 47,378 44,924
Additions 111 35 146 2,856
Disposals (125) (83) (208) (402)
----------- -------------- -------- ------- ----------- -----------
Balance at end of year 32,502 13,301 724 789 47,316 47,378
----------- -------------- -------- ------- ----------- -----------
Accumulated depreciation
Balance at beginning of year 17,859 400 161 18,420 17,651
Additions 898 114 142 1,154 1,137
Disposals (118) (78) (196) (368)
----------- -------------- -------- ------- ----------- -----------
Balance at end of year 18,757 396 225 19,378 18,420
----------- -------------- -------- ------- ----------- -----------
Depreciated cost as at December 31, 1996 13,745 13,301 328 564 27,938
=========== ============== ======== ======= ===========
Depreciated cost as at December 31, 1995 14,643 13,190 449 676 28,958
=========== ============== ======== ======= ===========
</TABLE>
* Includes rights in land amounting to NIS 7,843.
27
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 11 - Fixed Assets (cont'd)
C. Rates of depreciation
%
---------
Buildings 2 - 4
Plantations and irrigation plants 15 - 20
Vehicles 15
Machinery and equipment 10 - 20
Other assets 6 - 20
Note 12 - Deferred Charges and Other Assets
<TABLE>
<CAPTION>
Cost Accumulated
amortization Amortized cost
---------- ------------ ------------------------
December 31 December 31
1996 1995
A. Consolidated ----------- -----------
<S> <C> <C> <C> <C>
Deferred charges -
Capital raising expenses 13,475 7,759 5,716 3,750
Taxes in connection with
unrealized profits from
real estate transactions 3,265 1,027 2,238 2,440
Vacating payments 112 112 30
---------- ------------ ----------- -----------
Deferred charges 16,852 8,898 7,954 6,220
Other assets - initial difference 5,404 267 5,137 3,506
---------- ------------ ----------- -----------
22,256 9,165 13,091 9,726
========== ============ =========== ===========
B. The Company
Deferred charges -
Taxes in connection with
unrealized profits from
real estate transactions 650 272 378 405
========== ============ =========== ===========
</TABLE>
28
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 13 - Advances from Purchasers of Apartments and Others, Net
Consolidated The Company
------------------------ ------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
Advances from purchasers 29,033 13,722 26,577 5,493
----------- ----------- ----------- -----------
Less - land 2,081 1,981 2,081 1,454
construction work 15,885 9,395 15,042 3,088
----------- ----------- ----------- -----------
17,966 11,376 17,123 4,542
----------- ----------- ----------- -----------
11,067 2,346 9,454 951
=========== =========== =========== ===========
Note 14 - Credit from Banking Entities
Consolidated The Company
Terms of ------------------------ -----------
linkage December 31 December 31 December 31
and interest 1996 1995 1996
-------------- ----------- ----------- -----------
Overdraft Prime + 1% 459 358 349
Import financing German Marks 2,451 1,612
Short-term loans 15.1% - 15.7% 9,342 24,867
----------- ----------- -----------
12,252 26,837 349
=========== =========== ===========
Note 15 - Suppliers and Subcontractors
Consolidated
------------------------
December 31 December 31
1996 1995
----------- -----------
Provision for completion of construction 21,968 10,749
Current accounts 7,373 16,547
Checks and notes payable 2,177 1,598
----------- -----------
31,518 28,894
=========== ===========
29
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 16 - Creditors and Credit Balances
<TABLE>
<CAPTION>
Consolidated The Company
----------------------------- -----------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sellers of land 11,832 35,379
Income received in advance 2,200 4,554 71 125
Employees and other liabilities
related to salaries 3,952 3,743 1,283 1,137
Withholdings and taxes
remittable 11,544 16,198 2,144 446
Subsidiary current account* 39,153 12,322
Liability relating to
appreciation tax and
consent fees 8,758 9,586
Expenses payable 11,477 5,166 1,032 795
Others 4,856 4,627 63 245
----------- ----------- ----------- -----------
54,619 79,253 43,746 15,070
=========== =========== =========== ===========
</TABLE>
* Bear annual interest at prime rate + 1.5% (1995 - bear annual interest at
prime rate + 1%).
Note 17 - 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 1996 1995
-------------- ------------- ----------- ----------- -----------
a. Consolidated
<S> <C> <C> <C> <C> <C>
Balance as at
beginning of year (6,891) (19,567) 4,921 (21,537) (23,713)
Changes (39) (5,498) 1,663 (3,874) 2,176
-------------- ------------- ----------- ----------- -----------
Balance as at
end of year (6,930) (25,065) 6,584 (25,411) (21,537)
============== ============= =========== =========== ===========
b. The Company
Balance as at
beginning of year (24) 1,675 1,651 346
Changes (2) 1,605 1,543 1,305
-------------- ------------- ----------- ----------- -----------
Balance as at
end of year (26) 3,280 3,194 1,651
============== ============= =========== =========== ===========
</TABLE>
30
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 17 - Deferred Taxes (cont'd)
2. The deferred taxes are stated as follows:
Consolidated The Company
------------------------ -----------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
Under current assets 4,842 2,515 3,220 1,675
Under current liabilities (13,908) (5,363)
Under long-term liabilities (16,345) (18,689) (26) (24)
----------- ----------- ----------- -----------
(25,411) (21,537) 3,194 1,651
=========== =========== =========== ===========
Note 18 - Long-term Liabilities
A. Composition:
<TABLE>
<CAPTION>
Consolidated The Company
----------------------------- -----------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Debentures convertible
to shares (1) 49,008 4,869
Debentures (2) 37,964 45,238
Liabilities to banks(3) 78,529 112,290 348 693
Liabilities to provident funds(4) 128,372 - - -
Other liabilities (5) 59,463 58,617 7,980
----------- ----------- ----------- -----------
353,336 221,014 348 8,673
=========== =========== =========== ===========
</TABLE>
(1) Debentures convertible into shares
Composition:
Consolidated
-------------------------
December 31 December 31
1996 1995
----------- -----------
Total debentures convertible to shares
Hadarim Properties Ltd (a) 49,008 -
Bayside Land Corporaiton Ltd. (b) 4,898 9,738
Current maturities (4,898) (4,869)
----------- -----------
49,008 4,869
=========== ===========
31
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 18 - Long-term Liabilities (cont'd)
A. Composition: (cont'd)
(a) Convertible debentures, with a balance, as at balance sheet date, of
NIS 49,008 thousand were issued by Hadarim Properties Ltd. (a
subsidiary) per a prospectus published on February 28, 1996.
The debentures bear interest at the rate of 3.5% p.a.. Both principal
and interest are linked to the CPI published for February 1996, and
they are redeemable on February 28 of each year from 1998 to 2005. The
debentures can be converted into shares on any business day, beginning
with the day they are registered for trading and until February 8,
2001 at the conversion price of NIS 80 par value of debentures per
each ordinary shares of a par value of NIS 1. After February 8, 2001
the debentures will no longer be convertible.
The market value of the debentures as at December is NIS 53,238
thousand.
The debentures are secured by a fixed charge on a token deposit which
was deposited with the trustee of the debentures. The subsidiary is
free to pledge its assets without limitation as to amount and degree,
including the registering of charges on additional debenture series,
without the necessity of obtaining the consent of the trustee.
(b) Debentures convertible into shares, the balance of which at balance
sheet date was NIS 4,898 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 (principal and interest) to the consumer price index. The
balance is payable on June 30, 1997. Alternatively, conversion is
permitted on any business day until June 9, 1997 into regular shares
of NIS 1 par value of Bayside Land Corporation Ltd. at the conversion
rate of NIS 192 nominal value of debentures for one share of NIS 1 par
value (19,220%), subject to adjustments.
In 1995, the Company paid for redemption of debentures (par value of
NIS 4,900 thousand (1995 - NIS 4,935 thousand).
In 1995, debentures of a par value of NIS 32 thousand were converted
into 169 ordinary shares. The market value of the debentures as at
December 31, 1996 is NIS 4,912 thousand.
The debentures are secured by a first fixed charge on a token deposit
which was deposited with the trustee of the debentures. The subsidiary
undertook not to create any lien on existing assets to secure any debt
or liability without creating a similar lien of like kind and degree
in favor of the trustee until redemption and/or conversion of all the
debentures from this issue.
32
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 18 - Long-term Liabilities (cont'd)
A. Composition: (cont'd)
(2) Debentures
Composition:
Consolidated
-------------------------
December 31 December 31
1996 1995
----------- -----------
Total debentures 45,525 52,769
Current maturities (7,561) (7,531)
----------- -----------
37,964 45,238
=========== ===========
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 2,732 thousand (December 31, 1995 - NIS
5,443 thousand), bear interest at the rate of 5% per annum and are linked
(principle and interest) to the consumer price index. The redemption dates
of the balance of debentures are in the years up to 1997.
Series B
Debentures from this series, the balance of which as at the balance sheet
date was NIS 43,460 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 (principal 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 undertook 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 20C(1).
33
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 18 - Long-term Liabilities (cont'd)
A. Composition: (cont'd)
(3) Liabilities to banks
December 31 December 31
Interest Current 1996 1995
rate Total maturities Balance Balance
--------- -------- ----------- ----------- ------------
%
---------
Consolidated
balance sheet 4.95-5.55 112,709 34,180 78,529 112,290
======== =========== =========== ============
Company balance
sheet 5.75 696 348 348 693
======== =========== =========== ============
(4) Liabilities to
provident funds
Consolidated
balance sheet 4.9 128,372
===========
The liabilities at (3) and (4) are linked to the consumer price index.
(5) Other long-term
liabilities
Consolidated
balance sheet
Sellers of land (1) 880 880 - 7,800
Liabilities for
construction (2) 59,463 59,463 50,817
-------- ----------- ----------- ------------
60,343 880 59,463 58,617
======== =========== =========== ============
Company balance sheet
Subsidiary
company (3) 5.25-5.5 8,012 8,01 - 7,980
======== =========== =========== ============
(1) The liability is one half linked to the CPI and one half to the U.S.
dollar. It bears interest of 2% p.a. and is repayable in 1997.
(2) The liability is non-interest bearing and is linked to the
construction input index (pertaining to an amount of NIS 48,811 - see
also Note 20C(5).
(3) The loan is linked to the consumer price index.
34
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 18 - Long-term Liabilities (cont'd)
B. Classification of long-term liabilities by years of maturity
Consolidated The Company
------------------------ ------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
Within 12 months -
current maturities 47,519 14,485 8,360 18,978
=========== =========== =========== ===========
During second year 34,267 47,345 348 8,327
During third year 36,546 5,156 346
During fourth year 114,726 4,809
During fifth year 36,546 82,707
Beyond fifth year till 2005 71,788 22,380
Without redemption date * 59,463 58,617
----------- ----------- ----------- -----------
353,336 221,014 348 8,673
=========== =========== =========== ===========
* Liabilities pertaining to construction and land sellers.
Note 19 - Liability For Employee Severance Benefits, net
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
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Liability in respect of
employee severance* 7,622 7,667 370 337
Less - amounts funded* 5,390 5,356 369 337
----------- ----------- ----------- -----------
2,232 2,311 1 -
=========== =========== =========== ===========
</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, 1995 - NIS 2.3 millions) is included in the
balance sheet.
35
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 20 - Contingent Liabilities and Commitments
A. Contingent liabilities
Consolidated The Company
------------------------ ------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
1. Guarantees Granted
(a) In respect of dwelling
purchase insurance* 248 278 248 278
(b) On behalf of subsidiaries
in respect of -
Performance guarantees 15 15
Debentures 46,245 53,542
Securing payments in
respect of the purchase
of land** 15,958
* See also Note 9C.
** Relating to implementation guarantees. The Company balance sheet
includes also guarantees relating to debentures issued.
The guarantees are linked mainly to the consumer price index and partly to
the construction inputs index and to the rate of the U.S. dollar.
2. A legal suit has been filed against a subsidiary regarding the
distribution of the profit from a project which was executed in the
years 1981-1985. The plaintiff contends that a partnership, with which
the Company had an agreement, is entitled to receive a share in the
profits in a cumulative amount of NIS 7,087 thousand as at balance
sheet date. The plaintiff who claims that he is entitled to one half
of the profits of the partnership, is demanding that the said
subsidiary pay him NIS 3,449 plus legal costs connected with the claim
and interest and linkage increments. The subsidiary has filed a
statement of defense against the said claim in which it denies the
facts stated in the statement of claim. The subsidiary has made no
provision in its books in respect thereto.
36
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 20 - Contingent Liabilities and Commitments (cont'd)
B. Liens
(1) A subsidiary has pledged real estate purchased in 1995 as well as the
assets and anticipated receipts of a project in favor of a bank (an
interested party) in respect of the financing accompaniment to the
project.
(2) Another subsidiary has rights in land in favor of banks to secure
loans received to finance its acquisition. The Company has also given
a dollar linked promissory note in the amount of NIS 2.9 million as
security as well as a bank guarantee in the amount of NIS 0.58 million
linked to the dollar to secure the performance of its undertaking
towards the Israel Lands Administration to develop the area.
C. Commitments
1. Under the terms of a prospectus for the issue of debentures (series
"B") by a subsidiary as stated in Note 18A.(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, 1996, balances held by the bank, per the above
arrangement, amounted to NIS 314,475 (nominal value) in debentures and
NIS 810,000 in cash (including short-term deposits) (December 31, 1995
- NIS 364,924 nominal value and NIS 730 thousand, in cash).
2. There are commitments of the Company and subsidiaries in respect of
the purchase of real estate, residential construction, and development
and construction of building estimated as at balance sheet date at an
approximate amount of NIS 215 million.
3. A subsidiary leased part of a building to the Government of Israel for
a term of 15 years, from the year 1992, with a right, of the lessee,
to shorten the term to 12 years.
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 current year, approximately NIS 569
thousand (1995 - NIS 177 thousand) was paid.
5. During 1995, a subsidiary purchased 72% of the rights in 72 dunams of
land at a price of approximately NIS 48.8 million that will be paid by
way of construction services.
37
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 20 - Contingent Liabilities and Commitments (cont'd)
C. Commitments (cont'd)
Note 21 - Income from Construction and Other Sources
Consolidated
-------------------------------------
Year ended Year ended Year ended
December 31 December 31 December 31
1996 1995 1994
----------- ----------- -----------
Apartments, stores and land 183,333 184,445 192,640
Air-conditioning systems and others 30,607 34,236 25,190
Citrus crop 1,103 1,476 906
----------- ----------- -----------
215,043 220,157 218,736
=========== =========== ===========
Note 22 - The Company's Equity 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
1996 1995* 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
The Company's
equity, net, in
the earnings
of investee
companies 12,327 12,515* 4,952 59,777 56,877* 28,777
Add - Portion
of initial
difference
amortized (463) (445) (222) (312) (384) 22
----------- ----------- ----------- ----------- ----------- -----------
11,864 12,070 4,730 59,465 56,493 28,799
=========== =========== =========== =========== =========== ===========
Includes dividend
received 7,617 8,728 1,719 11,927 10,442 6,864
=========== =========== =========== =========== =========== ===========
</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, 1996 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 equity in the earnings of
affiliates increased by NIS 2,055 thousand.
38
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 23 - 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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Profit from
issues of
capital by
investee companies 50 58 4,243 50 58 4,243
Gains on
realization of
investments in
investee companies 1,248
Gains on sale
of fixed
assets and land 2,606 6,156 12,319 19 50
----------- ----------- ----------- ----------- ----------- -----------
2,656 6,214 17,810 69 108 4,243
=========== =========== =========== =========== =========== ===========
</TABLE>
Note 24 - Income from Securities, Financing and Other Income
<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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gains relating to
marketable
securities -
Appreciation
in value 1,119 397 22
Interest from
securities 962 1,355 13
----------- ----------- ----------- ----------- -----------
2,081 1,752 35
Interest -
From banks
and others 2,838 2,574 1,930 35 195
From investee
companies 62 701 630 123
Management fees 1,401 1,944 1,902 1,584 1,515 1,311
Decrease in the
liability
for pensions 2,304
Other income 150 1,250
----------- ----------- ----------- ----------- ----------- -----------
6,470 7,520 6,198 2,320 2,180 1,629
=========== =========== =========== =========== =========== ===========
</TABLE>
39
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 25 - Construction and Other Costs
Consolidated
-------------------------------------
Year ended Year ended Year ended
December 31 December 31 December 31
1996 1995 1994
----------- ----------- -----------
Apartments, shops and land -
Construction expenses 96,472 123,305 124,300
Land 19,991 15,186 21,299
Change in inventories of apartments
and shops 5,285 (5,773) 760
----------- ----------- -----------
121,748 132,718 146,359
----------- ----------- -----------
Air-conditioning systems and others -
Materials and installation* 24,817 30,750 22,660
Change in inventories of air-conditioning
and other equipment 3,359 (1,187) (984)
----------- ----------- -----------
28,176 29,563 21,676
----------- ----------- -----------
Citrus crop -
Cultivating and picking expenses 1,135 1,169 1,060
----------- ----------- -----------
151,059 163,450 169,095
=========== =========== ===========
* Includes depreciation 520 540 474
=========== =========== ===========
Note 26 - Administrative and General Expenses
<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
----------------------------------------- -----------------------------------------
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Salaries and
related
expenses 20,753 19,109 17,045 5,161 4,709 4,132
Directors' fees 898 865 766 278 279 276
Professional
services 2,273 2,650 1,991 165 245 278
Office
maintenance 2,744 3,135 2,806 840 953 736
Other 2,692 2,728 1,950 385 480 398
----------- ----------- ----------- ----------- ----------- -----------
29,360 28,487 24,558 6,829 6,666 5,820
Less -
Directors' fees
received from
affiliated
companies (292) (255) (290)
Participation
in expenses
by a subsidiary (441) (437) (421)
----------- ----------- ----------- ----------- ----------- -----------
29,068 28,232 24,268 6,388 6,229 5,399
=========== =========== =========== =========== =========== ===========
</TABLE>
40
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 27 - Selling and Marketing Expenses
Consolidated
-------------------------------------
Year ended Year ended Year ended
December 31 December 31 December 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Salaries and related expenses 1,240 1,231 973
Advertising and others 2,328 1,913 1,576
----------- ----------- -----------
3,568 3,144 2,549
=========== =========== ===========
Note 28 - 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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Depreciation 16,985 15,366 14,050 1,154 1,137 1,108
Amortization 1,579 1,511 1,274 26 26 27
----------- ----------- ----------- ----------- ----------- -----------
18,564 16,877 15,324 1,180 1,163 1,135
=========== =========== =========== =========== =========== ===========
</TABLE>
Note 29 - Financing Expenses
<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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Decrease in value
of securities 33,591 34 27
Interest on
securities (1,505) (14) (10)
---------- ----------- -----------
32,086 20 17
To investee companies 2,901 2,629 837
In respect
of debentures 3,781 1,178 1,377
To banks and others 11,616 3,566 535 18 166
To income tax
authority 6 113
----------- ----------- ----------- ----------- ----------- -----------
15,403 4,744 34,111 2,919 2,649 1,020
=========== =========== =========== =========== =========== ===========
</TABLE>
41
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 30 - Taxes on Income
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 (non-inflationary) 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.
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 17,689 thousand
as at balance sheet date (December 31, 1995 - NIS 18,237 thousand). Losses
from securities that are deductible in the future years against a real
income from marketable securities amount to an adjusted amount of NIS
15,950 thousand at balance sheet date. Deductions for inflation of
subsidiaries carried forward are in the amount of NIS 31,240 thousand
(December 31, 1995 - NIS 20,398 thousand).
B. Carryforward to coming years of losses and deductions for tax purposes
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.
No deferred taxes have been created in respect of these carryforwards.
C. 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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Provision for
current year 35,896 45,801 38,937 687 929 364
Adjustments
relating to
prior years 85 18 (547) (11) (536) (25)
Deferred taxes,
net 3,874 (2,176) 1,127 (1,543) (1,305) (28)
----------- ----------- ----------- ----------- ----------- -----------
39,855 43,643 39,517 (867) (912) 311
=========== =========== =========== =========== =========== ===========
</TABLE>
42
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 30 - Taxes on Income (cont'd)
D. Final tax assessments for the Company have been received through the years
1993. Subsidiary companies have received final assessments for tax years
1984-1994. One subsidiary has not received tax assessments since inception
(1986).
E. Subsequent to balance sheet date, a subsidiary received "best judgement"
assessments for the years 1990 to 1994, which reduced the losses claimed by
an inflation adjusted amount of NIS 2,700 thousand. The subsidiary is
contesting the assessment for 1990-1991.
43
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 30 - Taxes on Income (cont'd)
F. 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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Adjusted income
before taxes
per statement
of earnings 121,851 124,338 87,197 56,870 52,856 34,239
=========== =========== =========== =========== =========== ===========
Statutory
tax rate (%) 36 37 38 36 37 38
=========== =========== =========== =========== =========== ===========
Theoretical tax
on the
adjusted earnings 43,866 46,005 33,134 20,473 19,557 13,011
Addition (saving) of tax, from:
Company's equity in
the net earnings of
investee companies (4,271) (4,466) (1,797) (21,407) (20,224) (11,640)
Realization of
investments in
and gain on
issue of capital
by investee companies (18) (21) (2,024) (25) (21) (1,612)
Expenses not recognized
for tax purposes:
Depreciation and
amortization 2,538 3,405 3,252 303 295 318
Others 139 361 745 110 110 164
Inflationary
erosion of advance
tax payments 1,007 982 1,239 8 28 60
Income subject to
reduced tax rates (856) (295) (1,135)
Losses carried forward
from prior years (2,884) (752) (703)
Losses for which
deferred taxes were
not provided (mainly
from securities) 1,146 33 9,338
Outside shareholder
interest in
joint venture (155) (288) (995)
Other - mainly
difference in
inflationary
adjustment principles
for financial
reporting purposes
and for tax purposes (742) (1,339) (990) (318) (121) 10
Adjustments in relating
to prior years 85 18 (547) (11) (536) -
----------- ----------- ----------- ----------- ----------- -----------
39,855 43,643 39,517 (867) (912) 311
=========== =========== =========== =========== =========== ===========
</TABLE>
44
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 31 - Related Parties and Interested Parties
<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
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
A. Balance sheet data
Cash and security
deposits at banks 72,462 21,188 28,125 2,721 1,512 1,458
Loans from banks
and provident funds 141,320 11,789 6,080 1,045 2,077 1,252
Loans from
investee companies -
Creditors - Orchard
cultivation and others 361 90
Subsidiary -
current account 29,153
Highest balance
during the year 29,153
B. Statement of
earnings data
Financing income from
deposits and loans
From investee companies 62 701 630 123
From banks and others 1,938 2,564 1,373 35 123
Participation of
related parties
in general expenses 441 437 421
Other income from
related parties
Management fees 1,401 1,944 1,902 1,584 1,515 1,311
Rent 13,150 13,779 13,865 1,120 1,172 1,134
Financing charges to
related parties
Investee companies 2,901 2,629 837
Banks and others 4,463 2,083 871 166
Benefits to an
interested party
employed by the
Company:
Salary and fringe
benefits 1,296 1,272 1,124 1,296 1,272 1,124
Other - imputed value
of gain on securities 91 91
Payments to members of
the Board of Directors
(for 8 directors) 278 279 276 278 279 276
</TABLE>
45
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 31 - Related Parties and Interested Parties (cont'd)
C. Trust funds are managed by a related parties.
D. Transactions with entities connected with certain banking groups.
The Company was exempted by the Securities Authority, from including the
disclosure of transactions with banks which are held by an interested
party, as is required by the regulations, other than in the case of
extraordinary transactions. In the opinion of Management the transactions
with such banks were effected in the ordinary course of business, at terms
and at prices which are not different than regular market terms and prices.
Note 32 - 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. A security issue by a subsidiary
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 58,895 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 77,466 thousand.
46
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 32 - Private Placement and Issue of Subsidiary (cont'd)
C. A security issue by the Company
In May 1996 the Company issued 549,356 ordinary shares of a par value of
NIS 1 each, by way of rights to shareholders and by holders of the unquoted
option warrants of the Company.
In addition, the Company issued 7,357 ordinary shares to employees. The net
proceeds of the issues was NIS 74,229 thousand.
Note - 33 Financial Instruments and Risk Management
A. Risk management
As at December 31, 1996 and 1995 the Group had cash and cash equivalents on
deposit with Israeli banks in the amount of NIS 54,563 thousand and NIS
20,632 thousand respectively. Marketable securities of NIS 32,454 thousand
and NIS 33,024 respectively, held by the Group consist mainly of quoted
government bonds, mutual fund certificates and other debentures. The debts
of apartment purchases included in the balance sheet are secured by the
apartments themselves until delivery, which is effected only upon final
payment. Therefore, the Company does not consider itself subject to any
significant risk exposure.
B. Fair value of financial instruments
The Groups financial instruments consist of non-derivative assets; cash and
cash equivalents, quoted securities, and accounts receivable, and
non-derivative liabilities, short-term credit, accounts payable, loans,
convertible debentures and other liabilities. Because of their nature the
fair value of the financial instrument described above, included in working
capital is the same as the value at which they are stated in the balance
sheet. The fair value of the loans included in other long-term liabilities
is also close to its value as stated in the balance sheet, since such
financial instruments bear interest at rates which are close to the going
market interest rates. The fair value of the convertible debentures is
given in Note 18A(1).
47
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 34 - Condensed Financial Statements in Nominal
Historical Values - The Company
A. Balance Sheet
December 31 December 31
1996 1995
----------- -----------
Current Assets
Cash and cash equivalents 1,076 766
Marketable securities 584 601
Trade receivables
Other receivables 3,509 2,975
Building projects under construction and
other inventory 5,676 668
----------- -----------
10,845 5,010
----------- -----------
Land 14,962 13,535
----------- -----------
Long term Liabilities 1,059
-----------
Investments
In investee and other companies 500,860 343,365
----------- -----------
Fixed Assets
Buildings, land, plantations
and other 9,160 9,093
Less/- Accumulated depreciation 454 374
----------- -----------
8,706 8,719
----------- -----------
Deferred Charges 30 32
----------- -----------
----------- -----------
536,462 370,661
=========== ===========
48
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 34 - Condensed Financial Statements in Nominal
Historical Values - The Company (cont'd)
A. Balance Sheet (cont'd)
December 31 December 31
1996 1995
----------- -----------
Current Liabilities
Advances from purchasers of
apartments and others, net 9,172 990
Short-term bank credit 349 -
Current maturities of long-term liabilities 8,360 17,161
Other payables 43,746 13,627
Proposed dividend 11,500 8,500
----------- -----------
73,127 40,278
----------- -----------
Long-term Liabilities
Liabilities to banks and provident funds 348 627
Other long-term liabilities - 7,216
Liability for employee severance benefits 1 -
----------- -----------
349 7,843
----------- -----------
Shareholders' Equity 462,986 322,540
----------- -----------
----------- -----------
536,462 370,661
=========== ===========
49
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 34 - Condensed Financial Statements in Nominal
Historical Values - The Company (cont'd)
B. Statements of Earnings for the Year Ended December 31
1996 1995 1994
-------- -------- --------
Income
Rentals and warehousing 6,827 6,156 5,536
The Company's equity in the net
earnings of investee companies, net* 86,417 66,690 50,003
Gains from investments and fixed assets 22 103 5,734
Income from securities, financing
and others income 3,603 2,843 2,459
-------- -------- --------
96,869 75,792 63,732
-------- -------- --------
Costs and expenses
Administrative, selling and others 6,340 5,485 4,392
Property maintenance (excluding depreciation) 733 652 909
Depreciation and amortization 146 150 83
Property taxes on land 864 398 506
Interest and linkage differences 9,720 5,313 2,079
-------- -------- --------
17,803 11,998 7,969
-------- -------- --------
Earnings before taxes on income 79,066 63,794 55,763
Taxes on income (1,036) (864) 145
-------- -------- --------
Net earnings for the year 80,102 64,658 55,618
======== ======== ========
* In determining the net earnings of investee companies, financing
charges relating to the acquisition of land were capitalized to the
cost of the asset.
50
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 34 - Condensed Financial Statements in Nominal
Historical Value - The Company (cont'd)
C. Statement of Shareholders' Equity
Share Capital Retained Total
capital surplus earnings
-------- ---------- ---------- --------
Balance as at
January 1, 1994 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 the year
ended December 31, 1995 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 as at
December 31, 1995 3,546 17,409 301,585 322,540
Net earnings for current year 80,102 80,102
Capital issue 557 71,287 71,844
Proposed dividend - 280% (11,500) (11,500)
-------- ---------- ---------- --------
Balance at December 31, 1996 4,103 88,696 370,187 462,986
======== ========== ========== ========
51
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 34 - Condensed Financial Statements in Nominal
Historical Value - The Company (cont'd)
D. Share capital (cont'd)
1. Composition
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------- ----------------------
Authorized Issued Authorized Issued
----------- ---------- ---------- ----------
NIS NIS NIS NIS
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Ordinary shares of a
par value of NIS 1 each
(registered) -
Listed on the Tel-Aviv
Stock Exchange 6,000,000 4,103,480 6,000,000 3,545,814
=========== ========== ========== ==========
</TABLE>
2. (a) On May 19, 1992 the Company published a profile regarding the
private placement of options exercisable into ordinary registered
shares of NIS 1 par 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 close to 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. During 1996 one of the
holders exercised 953 options at a price of NIS 144 thousand.
(b) On December 2, 1994, the Company published an additional profile
with respect to a private placement of 13,948 options,
exercisable into registered ordinary shares of NIS 1 par value of
the Company, 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 a year thereafter. The
options will be exercisable during a two year period beginning
from the date they were granted.
In accordance with the prospectus of the Company described in
Note 32A, the holders of the options hold, as at balance sheet
date, rights for the purchase of 2,145 shares, of a par value of
NIS 1 each of the Company. The holders of the options can
exercise such rights beginning with the earliest date at which
they can exercise the options.
Assuming exercise of all of the options, the total shares
distributed will represent approximately 0.97% of the Company's
equity and the voting power therein.
3. See also Note 32.
52
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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, 1996 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 1992 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, 1992
according to the exchange rate in effect at that date ($1 = NIS
2.764).
3. Transactions executed after January 1, 1993 are stated in the special
statements at their original value in nominal NIS.
4. In addition to their being presented according to the instructions of
PEC, the special statements were adjusted to accounting principles
generally accepted 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 proportionate basis. For the purposes of
this note the opinion has not been implemented. The non-
implementation has no effect on the profits reported in this note.
53
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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
1996 1995
----------- -----------
Current Assets
Cash and cash equivalents 55,336 19,001
Short-term deposits and loans 15,760 302
Marketable securities 32,454 29,862
Trade receivables 39,544 22,936
Other receivables and debit balances 24,143 33,694
Apartments and other inventories 15,051 7,069
Building projects under construction 53,467 20,509
----------- -----------
235,755 133,373
----------- -----------
Land 321,738 241,907
----------- -----------
Long-term Deposits 1,091 1,567
----------- -----------
Investments
In investee companies 121,735 99,966
----------- -----------
Fixed Assets
Buildings, land and other 675,157 539,903
Less/- Accumulated depreciation 96,850 87,619
----------- -----------
578,307 452,284
----------- -----------
Deferred Charges and Other Assets 41,383 23,879
----------- -----------
----------- -----------
1,300,009 952,976
----------- -----------
54
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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
1996 1995
----------- -----------
Current Liabilities
Advances from purchasers of apartments and others, net 12,873 2,571
Credit from banks 12,252 24,268
Current maturities of long-term liabilities 46,639 13,098
Suppliers and sub-contractors 31,518 16,408
Other payables 55,182 81,358
Deferred taxes 6,500 2,735
Proposed dividend 16,289 12,506
----------- -----------
181,253 152,944
----------- -----------
Long-term Liabilities
Long-term loans 374,174 217,108
Deferred taxes 1,660 2,215
Liability in respect of employee severance benefits 2,232 2,090
----------- -----------
378,066 221,413
----------- -----------
Minority interest 184,636 169,594
----------- -----------
Receivable from issue of stock options
in a consolidated company 8,665
-----------
Shareholders' Equity
Share capital 81,287 80,729
Capital surplus 88,460 16,700
Retained earnings 77,642 311,596
----------- -----------
547,389 409,025
----------- -----------
1,300,009 952,976
=========== ===========
55
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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
-----------------------
1996 1995
----------- ----------
Income
Rentals and warehousing 114,593 93,306
From construction and other sources 201,753 172,010
The Company's equity in the net
earnings of investee companies 16,710 13,474
Gains on sale of investments and fixed assets 2,780 6,447
Income from securities, financing
and other income 20,810 13,092
----------- ----------
356,646 298,329
----------- ----------
Cost and expenses
Construction and other costs 135,188 120,250
Administrative, selling and others 32,123 27,666
Property maintenance (excluding depreciation) 9,598 8,418
Depreciation and amortization 10,854 8,738
Property taxes on land 6,617 4,805
Financing(*) 34,239 10,945
----------- ----------
228,619 180,822
----------- ----------
Earnings before taxes on income 128,027 117,507
----------- ----------
Taxes on income 20,324 31,000
----------- ----------
Earnings after taxation 107,703 86,507
Less/- Minority interest in earnings 30,157 26,690
----------- ----------
Net earnings 77,546 59,817
=========== ==========
Earnings Per Share
Primary earnings per share of NIS 1.00
par value (in NIS) 20.31 16.87
=========== ==========
* A subsidiary engaged in construction work, purchased real estate
rights for construction projects. These investments were financed by
bank loans and by other Group companies, in a total amount of NIS 131
million. The financing expenses relating to such loans, which amounted
to NIS 17,400 thousands during the year ended December 31, 1996, were
attributed in these statements to the cost of the real estate,
resulting in an increase in the net earnings for the period of NIS
11,136 thousands.
56
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (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
Share Capital Retained Total
capital surplus earnings
--------- ---------- ---------- ---------
Balance as at
January 1, 1995 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
Net earnings for the year
ended December 31, 1996 77,546 77,546
Issue of shares 558 71,287 71,845
Paid in capital stock
options, net 473 473
Proposed dividend, net - 280% (11,500) (11,500)
--------- ---------- ---------- ---------
Balance as at
December 31, 1996 81,287 88,460 377,642 547,389
========= ========== ========== =========
* 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.
57
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996 (in NIS thousands)
- --------------------------------------------------------------------------------
Note 35 - Statements for Incorporation in the Financial Statements of PEC
(cont'd)
C. Adjustment of the nominal historical income
to the income for the purpose of PEC:
December 31 December 31
1996 1995
----------- -----------
Nominal historical net income
as per the statement of earnings 80,102 64,658
Adjustment of differences relating
to the following items:
Advances from apartment purchasers (195) (21)
Construction work and land (2,677) (3,255)
The Company's equity in the net earnings
of investee companies (1,355) (4,111)
Income from investments and fixed assets 19 (363)
Financing (2,609) 43
Depreciation and amortization (3,287) (3,225)
Deferred taxes 8,370 5,315
Minority interest in earnings (701) 1,620
Others (121) (844)
------ ------
Net income for the special purpose
statement of earnings 77,546 59,817
====== ======
58
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Annex - Percentage of Holding in Investee Companies as at December 31, 1996
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ----------------------------
Percent of holding(1) Percent of holding(1)
--------------------------------- ----------------------------
Voting Equity Voting Equity
----------- ------------ ------------ -----------
% % % %
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Subsidiary companies
Bayside Land Corporation Ltd.*(2) 71.12 64.87 66.04 61.18
Hadarim Properties Ltd. (3) 90.00 90.00 90.00 90.00
Naveh Building & Development Ltd. 90.00 90.00 90.00 90.00
"Gad" Building Company Ltd. 90.00 90.00 90.00 90.00
"Ispro" The Israeli Properties
Rental Corp. Ltd. 65.26 65.26 58.42 58.42
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. (4) 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.(5) 50.00 50.00 50.00 50.00
Affiliated companies
Science Based Campus Ltd. 50.00 50.00 50.00 50.00
Mehadrin Ltd. 35.06 35.06 31.35 31.35
Pri - Or Ltd. (6) 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. (7) 20.59 20.59 20.59 20.59
</TABLE>
(1) Including shareholding through subsidiaries.
(2) (a) In accordance with the plan for the distribution of options to
senior employees exercisable into ordinary shares of NIS 1 par
value of the Bayside Land Company Ltd. from November 13, 1994,
options are to be distributed, at no consideration, having an
aggregate par value of NIS 6,970. The options are granted in two
annual equal portions and will first become exercisable at the
end of the two year period beginning on the date of their grant,
at the exercise prices approved in the exercise plan. The
exercise of all of the options will result in a 0.5% decrease in
voting power in the Company and 0.36% decrease in the equity.
(b) The exercise of all of the options of the subsidiary will result
in the dilution of the Company's holding in the subsidiary to a
rate of 70.41% of the voting rights and 64.42% of the equity.
59
<PAGE>
Property and Building Corporation Limited and Subsidiaries
Annex - Percentage of Holding in Investee Companies as at December 31, 1996
(cont'd)
(3) The conversion of the debentures of the subsidiary will result in the
dilution of the Company's holding therein to 82.86%.
The exercise of the option warrants of the subsidiary together with
the conversion of the debentures will results in the dilution of the
Company's holding to 76.78%.
(4) This shareholding entitles the Company to 97.35% of the profits
distributed by way of cash dividend.
(5) A proportionately consolidated investee.
(6) An additional shareholding is held in "Pri-Or" through "Mehadrin".
(7) Directly and through A.A. Holdings Ltd.
60
<PAGE>
[LETTERHEAD OF KESSELMAN & KESSELMAN COOPERS & LYBRAND]
March 10, 1997
Somekh Chaikin, CPA's Tel-Aviv
Dear Sirs,
Re: Bayside Land Corporation Ltd.
We have audited the primary financial statements of Bayside Land Corporation
Ltd. (hereafter - the company) at December 31, 1996 and for the year then ended,
which have been adjusted on the basis of the changes in the consumer price
index, in accordance with the provisions of Opinions of the Institute of
Certified Public Accountants in Israel.
Based on our audit, we issued an unqualified auditors' report, dated March 10,
1997, on the above financial statements.
The attached special condensed financial statements of the company and its
subsidiaries at December 31, 1996 and for the year then ended (the "special
statements") were drawn up in accordance with the instructions of the company's
ultimate American shareholder - PEC Israel Economic Corporation ("PEC"), solely
tor the purpose of inclusion in PEC's consolidated financial statements (see
note to the special statements).
At the company's request, we hereby report that the special statements are
presented properly, in accordance with the instructions of PEC, as explained in
the note to the special statements.
Sincerely,
Kesselman & Kesselman
Certified Public Accountants (Isr.)
<PAGE>
[LETTERHEAD OF KESSELMAN & KESSELMAN COOPERS & LYBRAND]
March 10, 1997
Naveh Building and Development Limited
Tel-Aviv.
Dear Sirs,
Re: Naveh Building and Development Limited
We have audited the primary financial statements of Naveh Building and
Development Limited (hereafter - the company) at December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996, which have
been adjusted on the basis of the changes in the consumer price index, in
accordance with the provisions of Opinions of the Institute of Certified Public
Accountants in Israel.
Based on our audit, we issued an unqualified auditors' report, dated March
3, 1997, on the above financial statements.
The attached special condensed financial statements of the company and its
subsidiaries at December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 (the "special statements") were drawn up in
accordance with the Instructions of the company's ultimate American shareholder
- -PEC Israel Economic Corporation ("PEC"), solely for the purpose of inclusion in
PEC's consolidated financial statements (see note to the special statements).
At the company's request, we hereby report that the special statements are
presented properly, in accordance with the instructions of PEC, as explained in
the note to the special statements.
Sincerely,
Kesselman & Kesselman
Certified Public Accountants (Isr.)
<PAGE>
Tambour Limited and Subsidiaries
Financial Statements
December 31, 1996
<PAGE>
Tambour Limited and Subsidiaries
Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
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 60
<PAGE>
[Letterhead of Somekh Chaikin] [LOGO]
Tirat HaCarmel, March 5, 1997
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, 1996
and 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.
The financial statements of consolidated subsidiaries whose assets at December
31, 1996 comprised approximately 9.5% of the total assets in the Consolidated
Balance Sheet and whose revenues for the year ended December 31, 1996 comprised
approximately 12.4% of the total revenues in the Consolidated Statement of
Income were audited by other auditors. The data relating to these subsidiaries
included in the financial statements, are based on the financial statements
audited by these other auditors.
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 21 to the financial statements.
<PAGE>
In our opinion, based on our audit and the financial statements audited by other
auditors, the above-mentioned financial statements present fairly the financial
position of the Company and of the Company and subsidiary companies as at
December 31, 1996 and 1995, 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, 1996, 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 23 to the
financial statements.
/s/ Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL)
<PAGE>
Consolidated Balance Sheets as at December 31
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995
Adjusted NIS Adjusted NIS
Note thousands thousands
--------- ------------ ------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 57,275 29,791
Marketable securities 3 52,161 58,292
Accounts receivable - trade 4A 155,419 130,924
Other receivables 4B 24,204 20,006
Bank deposits 5A 3,328 74,123
Inventories 6 103,633 108,447
------- -------
396,020 421,583
------- -------
Investments and long-term assets
Affiliated companies and others 7 19,869 15,990
Bank deposits and other receivables 5B 18,625 4,291
Deferred taxes, net 17C 177 4,521
------- -------
38,671 24,802
------- -------
Property, plant and equipment 8
Cost 576,615 505,797
Less: Accumulated depreciation 388,175 347,977
------- -------
188,440 157,820
------- -------
Intangible assets and deferred charges, net 9 14,062 442
------- -------
637,193 604,647
======= =======
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
<PAGE>
Tambour Limited and Subsidiaries
- --------------------------------------------------------------------------------
1996 1995
Adjusted NIS Adjusted NIS
Note thousands thousands
-------- ------------ ------------
Current liabilities
Bank credits and others 10 23,564 9,241
Accounts payable - trade 11A 36,089 37,930
Other accounts payable 11B 37,537 29,055
Dividend declared 22 50,000 --
------- -------
147,190 76,226
------- -------
Long-term liabilities
Long-term debt 12A 3,670 3,507
Convertible debentures of subsidiary 12B 2,887 --
Liability regarding termination of
employee-employer relationship, net 13 1,965 1,640
Deferred taxes 17C 4,490 1,673
------- -------
13,012 6,820
------- -------
Deferred credits, net 2D -- 232
------- -------
Minority interest 34,677 21,111
------- -------
Liens, guarantees
contingencies and commitments 15
Shareholders' equity
Common stock 14 90,951 90,951
Paid-in capital 213,801 213,801
Retained earnings 138,597 195,506
------- -------
443,349 500,258
Less: Company shares held by subsidiary 1,035 --
------- -------
442,314 500,258
------- -------
637,193 604,647
======= =======
The accompanying notes and appendix are an integral part of the financial
statements.
s/ Jacob Eshel
- ----------------------------------
Jacob Eshel - Vice-Chairman
s/ Reuben Shulstein
- ----------------------------------
Reuben Shulstein - Director and General Manager
March 5, 1997
3
<PAGE>
Consolidated Statements of Income for the Year Ended December 31
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995 1994
Adjusted NIS Adjusted NIS Adjusted NIS
Note thousands thousands thousands
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue from sales 19A 627,095 555,969 471,383
Cost of sales 19B 409,315 371,335 306,738
-------- -------- --------
Gross profit 217,780 184,634 164,645
-------- -------- --------
Selling and marketing expenses 19C 111,016 88,899 81,526
General and administrative expenses 19D 41,286 34,466 30,372
-------- -------- --------
152,302 123,365 111,898
-------- -------- --------
Operating income 65,478 61,269 52,747
Finance expenses, net 19E (6,026) (2,654) (21,192)
Other income, net 19F 1,111 3,768 6,296
-------- -------- --------
Income before income taxes 60,563 62,383 37,851
Income taxes 17E 24,055 26,032 20,232
-------- -------- --------
Net income after income taxes 36,508 36,351 17,619
Equity in income (losses) of affiliated
companies and others, net 28 (610) (631)
Minority interest in subsidiaries'
income (3,002) (779) (458)
-------- -------- --------
Net income before extraordinary item 33,534 34,962 16,530
Extraordinary item - salary expense
relating to the portion of
securities issued which constitutes
an employee benefit, net 14B -- -- 15,075
-------- -------- --------
Net income for the year 33,534 34,962 1,455
======== ======== ========
Earnings per NIS 1 par value of
shares in NIS 16
Primary and diluted earnings per
share before extraordinary item 0.55 0.58 0.28
======== ======== ========
Primary and diluted earnings per
share after extraordinary item 0.55 0.58 0.02
======== ======== ========
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
4
<PAGE>
Tambour Limited and Subsidiaries
Statement of Shareholders' Equity
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
Share Premium Proceeds from Retained Company shares Total
Capital issue earnings held by
of warrants subsidiary
------------ ------------ ------------ ------------ ------------ ------------
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>
Balance as at
December 31, 1993 83,610 97,275 19,311 199,447 -- 399,643
Changes during 1994:
Salary expense
relating to the
portion of
securities issued
which constitutes
an employee benefit -- 13,411 12,117 -- -- 25,528
Exercise of
warrants, net 7,341 *79,624 *(7,937) -- -- 79,028
Net income -- -- -- 1,455 -- 1,455
Dividend** -- -- -- (18,216) -- (18,216)
-------- -------- -------- -------- -------- --------
Balance as at
December 31, 1994 90,951 190,310 23,491 182,686 -- 487,438
Changes during 1995
Expiration of warrants -- 23,491 (23,491) -- -- --
Net income -- -- -- 34,962 -- 34,962
Dividend -- -- -- (22,142) -- (22,142)
-------- -------- -------- -------- -------- --------
Balance as at
December 31, 1995 90,951 213,801 -- 195,506 -- 500,258
Changes during 1996
Net income -- -- -- 33,534 -- 33,534
Dividend*** -- -- -- (90,443) -- (90,443)
Company shares held by
subsidiary -- -- -- -- (1,035) (1,035)
-------- -------- -------- -------- -------- --------
Balance at
December 31, 1996 90,951 213,801 -- 138,597 (1,035) 442,314
======== ======== ======== ======== ======== ========
</TABLE>
* Net of issue and registration expenses, after tax affect.
** Including dividend declared of NIS 11,954 thousands.
*** Including dividend declared of NIS 50,000 thousands (see note 22).
The accompanying notes and appendix are an integral part of the financial
statements.
5
<PAGE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995 1994
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income for the year 33,534 34,962 1,455
Reconciliation of net income to net cash
provided by operating activities (a) 55,888 27,830 31,725
------------ ------------ ------------
Net cash provided by operating activities 89,422 62,792 33,180
------------ ------------ ------------
Cash flows from investing activities
Acquisition of shares in affiliated companies
that became subsidiaries (b) (588) (1,011) 41
Acquisition of shares of newly-consolidated subsidiary (c) (44,215) - -
Additions to property, plant and equipment (39,853) (41,286) (35,677)
Proceeds from sale of property and equipment 3,067 2,125 2,357
Sales (Purchases) of marketable securities, net 16,438 (3,686) 18,212
Collections of government loans - - 1,141
Investments in affiliated companies and others (223) (748) (3,423)
Proceeds from sale of affiliate - 149 -
Loans to affiliated companies and others (6,678) (5,127) (5,316)
Collections of loans to affiliated companies and others 397 748 1,576
Long-term bank deposit and other
long-term receivables - - (71,171)
Collections of capital notes of
affiliated companies - - (203)
Redemption of capital notes - - 1,686
Decrease (Increase) in short-term
deposits and loans, net 61,195 35,139 (8,599)
Loans to others (3,436) - -
Acquisiton of shares of subsidiary (699) (1,615) -
Investment in intangible assets
and deferred charges (232) - -
Dividend received from affiliated company - - 59
------------ ------------ ------------
Net cash used in investment activities (14,827) (15,312) (99,317)
------------ ------------ ------------
Cash flows from financing activities
Dividend distributed (40,443) (34,096) (6,262)
Dividend to minority in subsidiary (9,368) - -
Issue of minority capital in consolidated subsidiary - - 6,478
Increase (Decrease) in short-term bank credits, net 6,428 (3,460) (11,851)
Receipt of long-term loans 1,860 1,087 1,440
Repayment of long-term loans (4,619) (1,608) (1,601)
Acquisition of company shares by subsidiary (1,035) - -
Proceeds from redemption of debentures in subsidiary 66 - -
Proceeds from exercise of warrants, net - - 78,747
------------ ------------ ------------
Net cash provided by (used in) financing activities (47,111) (38,077) 66,951
------------ ------------ ------------
Increase in cash and cash equivalents 27,484 9,403 814
Balance of cash and cash equivalents
at beginning of year 29,791 20,388 19,574
------------ ------------ ------------
Balance of cash and cash equivalents
at end of year 57,275 29,791 20,388
============ ============ ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
6
<PAGE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd)
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995 1994
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 32,207 27,282 24,333
Deferred taxes, net 10,581 699 3,852
Salary expense relating to the employee benefit
portion of securities issued, net - - 15,075
Increase (Decrease) in liability regarding termination
of employee - employer relationship, net 325 397 55
Minority interest in earnings of subsidiaries 3,002 779 458
Equity in losses of
affiliated companies and others, net 180 737 1,236
Gain from share issue of subsidiary - - (4,212)
Loss (Gain) on sale of affiliates 206 (149) -
Capital gains, net (909) (1,701) (860)
(Increase) Decrease in value of government loans
and erosion of loans, net (942) (268) 175
(Increase) Decrease in value of marketable securities (153) 503 14,747
Increase in value of bank deposits (1,794) (2,766) (2,952)
Changes in assets and liabilities:
Increase in accounts receivable - trade 4,229 (18,167) (4,490)
(Increase) Decrease in other receivables (960) 26,632 (17,237)
(Increase) Decrease in inventories 19,324 173 (7,513)
Increase (Decrease) in accounts payable - trade (11,573) (9,890) 12,081
Increase (Decrease) in other accounts payable 2,165 3,569 (3,023)
------------ ------------ ------------
55,888 27,830 31,725
============ ============ ============
(b) Acquisition of shares in an affiliated company
that became a consolidated company
1996 - Chemitas (1988) Ltd.
1995 - Serafon Resinous Chemicals Ltd.
1994 - Solar Dynamics Ltd.
Assets and liabilities of the affiliated company
as at the date of acquisition
(other than cash):
Working capital (Other than cash) 4,064 12,898 (749)
Fixed assets, net 1,666 23,984 106
Intangible assets, net - 650 -
Long-term liabilities - (1,674) (64)
Deferred Taxes 34 - -
Goodwill created on acquisition 45 801 -
Minority interest at
date of acquisition (2,495) (17,803) (9)
------------ ------------ ------------
3,314 18,856 (716)
Investment on equity basis as at date of
becoming a consolidated company (2,726) (17,845) 675
------------ ------------ ------------
588 1,011 (41)
============ ============ ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
7
<PAGE>
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd)
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995 1994
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ------------ ------------
<S> <C> <C> <C>
(c) Acquisition of shares in a newly
consolidated subsidiary
Assets and liabilities of Kedem
Chemicals Ltd. as at the date of
acquisition (net of cash):
Working capital (net of cash): 33,029 - -
Fixed assets, net 20,044 - -
Intangible assets, net 993 - -
Long term liabilities (6,864) - -
Goodwill at date of acquisition 14,757 - -
Minority interest at date
of acquisition (17,744) - -
------------ ------------ ------------
44,215 - -
============ ============ ============
(d) Material non-cash transactions
Fixed assets acquired under
credit 1,094 - -
============ ============ ============
Sale of fixed assets by subsidiary
against long-term loan - 523 -
============ ============ ============
Minority portion of dividend
declared by a subsidiary - 246 -
============ ============ ============
Dividend declared 50,000 - 11,954
============ ============ ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
8
<PAGE>
Balance Sheets as at December 31
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995
Adjusted NIS Adjusted NIS
Note thousands thousands
---------- ------------ ------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 48,675 27,556
Marketable securities 3 52,161 58,292
Accounts receivable - trade 4A 78,452 79,627
Other receivables 4B 33,621 35,630
Bank deposits 5A 3,328 74,123
Inventories 6 69,071 84,994
------------ ------------
285,308 360,222
------------ ------------
Investments and long-term assets
Investments in subsidiaries, affiliates and others 7 99,741 57,240
Bank deposits and other receivables 5B 18,153 3,599
Deferred taxes, net 17C - 4,348
------------ ------------
117,894 65,187
------------ ------------
Property, plant and equipment 8
Cost 454,133 428,909
Less: Accumulated depreciation 328,047 309,118
------------ ------------
126,086 119,791
------------ ------------
Intangible assets and deferred charges, net 9 177 -
------------ ------------
529,465 545,200
============ ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
9
<PAGE>
Tambour Limited
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
Adjusted NIS Adjusted NIS
Note thousands thousands
---------- ------------ ------------
<S> <C> <C> <C>
Current liabilities
Bank credits 10 96 133
Accounts payable - trade 11A 10,747 19,007
Other accounts payable 11B 22,642 22,231
Dividend declared 22 50,000 -
------------ ------------
83,485 41,371
------------ ------------
Long-term liabilities
Liability regarding termination of employee -
employer relationship, net 13 1,499 1,287
Capital notes issued to subsidiaries 12C 2,065 2,284
Deferred taxes, net 17C 102 -
------------ ------------
3,666 3,571
------------ ------------
Liens, guarantees, contingencies and
commitments 15
Shareholders' equity 14
Share capital 90,951 90,951
Paid-in capital 213,801 213,801
Retained earnings 138,597 195,506
------------ ------------
443,349 500,258
Less: Company shares held by
subsidiary 1,035 -
------------ ------------
442,314 500,258
------------ ------------
529,465 545,200
============ ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
/s/ Jacob Eshel
- -----------------------------------------------
Jacob Eshel - Vice-Chairman
/s/ Reuben Shulstein
- -----------------------------------------------
Reuben Shulstein - Director and General Manager
March 5, 1997
10
<PAGE>
Tambour Limited
Statement of Income for the Year Ended December 31
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995 1994
Adjusted NIS Adjusted NIS Adjusted NIS
Note thousands thousands thousands
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue from sales 19A 417,130 436,410 399,647
Cost of sales 19B 270,201 280,673 257,566
------------ ------------ ------------
Gross profit 146,929 155,737 142,081
------------ ------------ ------------
Selling and marketing expenses 19C 72,942 72,876 68,615
General and administrative expenses 19D 25,514 25,448 23,960
------------ ------------ ------------
98,456 98,324 92,575
------------ ------------ ------------
Operating income 48,473 57,413 49,506
Finance income (expenses), net 19E (1,551) 199 (18,710)
Other income, net 19F 2,805 2,016 5,454
------------ ------------ ------------
Income before income taxes 49,727 59,628 36,250
Income taxes 17E 18,657 24,241 18,861
------------ ------------ ------------
Net income after income taxes 31,070 35,387 17,389
Equity in earnings (losses) of subsidiaries,
affiliates and others, net 2,464 (425) (859)
------------ ------------ ------------
Net income before extraordinary item 33,534 34,962 16,530
Extraordinary item - Salary expense
relating to the securities issued
which constitutes an employee
benefit, net 14B - - 15,075
------------ ------------ ------------
Net income for the year 33,534 34,962 1,455
============ ============ ============
Earnings per NIS 1 par value of
shares in NIS 16
Primary and diluted earnings per share before
extraordinary item 0.55 0.58 0.28
============ ============ ============
Primary and diluted earnings per share after
extraordinary item 0.55 0.58 0.02
============ ============ ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
11
<PAGE>
Tambour Limited
Cash Flows Statements for the Year Ended December 31
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995 1994
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income for the year 33,534 34,962 1,455
Reconciliation of net income to net cash
provided by operating activities (a) 35,656 20,103 32,904
------------ ------------ ------------
Net cash provided by operating activities 69,190 55,065 34,359
------------ ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (27,021) (35,663) (30,420)
Proceeds from sale of property and equipment 1,214 1,021 1,641
Sales (Purchases) of marketable securities, net 6,783 (2,987) 18,212
Redemption of government loans - - 1,017
Investments in affiliates, subsidiaries and others (50,348) (3,420) (3,453)
Proceeds from sale of affiliate 20,495 149 -
Loans to affiliates, subsidiaries and others (8,913) (7,747) (7,179)
Loans to others (3,436) - -
Collections of loans to affiliates
subsidiaries 825 4,732 4,436
Long-term bank deposit and other
long-term receivables - - (71,010)
Investment in capital notes of affiliates and
subsidiaries (21,406) - -
Collections of capital notes of affiliates
and subsidiaries - - 1,686
(Increase) Decrease in short-term
deposits and loans, net 61,062 35,033 (10,393)
Dividend received from affiliated companies 13,371 - 59
Investment in intangible assets, net (217) - -
------------ ------------ ------------
Net cash used in investment activities (7,591) (8,882) (95,404)
------------ ------------ ------------
Cash flows from financing activities:
Dividend distributed (40,443) (34,096) (6,262)
Increase (Decrease) in short-term bank credits, net (37) 119 (13,402)
Proceeds from exercise of warrants, net - - 78,747
------------ ------------ ------------
Net cash provided by (used in) financing activities (40,480) (33,977) 59,083
------------ ------------ ------------
Increase (Decrease) in cash and cash equivalents 21,119 12,206 (1,962)
Balance of cash and cash equivalents
at beginning of year 27,556 15,350 17,312
------------ ------------ ------------
Balance of cash and cash equivalents
at end of year 48,675 27,556 15,350
============ ============ ============
</TABLE>
The accompanying notes and appendix are an integral part of the financial
statements.
12
<PAGE>
Tambour Limited
Cash Flows Statements for the Year Ended December 31 (cont'd)
- --------------------------------------------------------------------------------
Adjusted to New Israel Shekels of December 1996
<TABLE>
<CAPTION>
1996 1995 1994
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 21,263 21,322 20,734
Deferred taxes, net 9,144 207 3,582
Salary expense relating to the employee benefit
portion of securities issued, net - - 15,075
Increase in liability regarding termination
of employee - employer relationship, net 212 165 85
Equity in (earnings) losses of subsidiaries, affiliates
and others, net (2,256) 550 3,835
Gain from private offering of subsidiary - - (4,213)
Gain on sale of affiliate 206 (149) -
Capital gains, net (727) (822) (833)
Revaluation of government loans and
erosion of loans, net (487) 382 453
Decrease (Increase) in value of marketable
securities (652) (196) 14,747
Increase in value of bank deposits (1,794) (2,766) (2,952)
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable - trade 1,175 (14,760) (1,772)
(Increase) Decrease in other receivables 2,482 21,250 (16,118)
(Increase) Decrease in inventories 15,923 (1,460) (6,894)
Increase (Decrease) in accounts payable - trade (8,260) (7,082) 9,467
Increase (Decrease) in other accounts payable (573) 3,462 (2,292)
------------ ------------ ------------
35,656 20,103 32,904
============ ============ ============
(b) Non-cash transactions:
Dividend Declared 50,000 - 11,954
============ ============ ============
Fixed assets acquired
under credit 983 - -
============ ============ ============
</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, 1996
- --------------------------------------------------------------------------------
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. As of 1996, the
group is also involved in the manufacture and marketing of detergents and
disinfectants for the wholesale and institutional markets, through Kedem
Chemicals Ltd. whose control was acquired at the beginning of the year.
Note 2 - Reporting and Accounting Policies
A. Definitions
In these financial statements -
1. Subsidiary - A company whose financial statements are fully
consolidated with those of the Company.
2. Affiliate - A company other than a consolidated company, including
partnerships, which is included, directly or indirectly, 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 paragraph 1(1) of the Securities
Law.
6. Index - The consumer price index published by the Central Statistics
Institute.
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 21 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"
signify 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, 1996
- --------------------------------------------------------------------------------
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 on the basis of the adjusted financial statements of
those companies.
Deferred taxes, net, are calculated based on the adjusted data.
2. Statements of Income
The items of the statements of income were adjusted according to the
changes in the Consumer Price Index as follows:
a. Income and expenses deriving from non-monetary items (such as
depreciation and amortization, changes in inventory, prepaid
expenses and income, etc.) or from provisions included in the
balance sheet (such as severance pay and vacation provision,
etc.), were adjusted according to specific indices together
with adjustment of the balance sheet item.
b. The remaining items of the statement of income (such as sales,
purchases and production costs, etc.), other than the elements
of finance income (expense), have been adjusted according to
indices of the month the transactions were carried out.
c. The equity in the operating results of affiliated and
subsidiary companies not consolidated, and the minority
interest of consolidated subsidiaries' operating results, were
determined based on the adjusted financial statements of the
respective companies.
d. Finance income (expense), net, which cannot be calculated
separately, is derived from the other elements of the
financial statements. The item contains, inter alia, amounts
required to correct various items in the statement of income
for the inflationary component of the finance expenses
incorporated therein.
e. Income taxes - Current taxes consist of advance payments made
during the year and amounts due at the balance sheet date (or
net of amounts to be refunded as of the balance sheet date).
The advance payments are adjusted on the basis of the index at
the time of each payment, while the amounts due (or refund
due) are not adjusted. Therefore, the current taxes include
the expense resulting from the erosion in value of the
payments on account of income taxes from payment date to the
balance sheet date.
Deferred taxes - see Notes 2K and 17C.
15
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
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 which
pertains to the period from the beginning of the current year
through the date the dividend was actually paid, is presented
as a reduction of 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. Goodwill represents the excess of acquisition cost of the
investement in subsidiaries over fair value of the identifiable
assets less the fair value of the identifiable liabilites (after
recording deferred taxes from temporary differences) upon
acquisition.
3. The excess of acquisition cost ascribed to assets and liabilites is
included in the appropriate balance sheet items.
4. The equity acquired in excess of the cost of the investment is
included in the consolidated Balance Sheet in liabilities, as
"Deferred credits, net".
5. Goodwill is included in the Consolidated Balance Sheet as part of
"Intangible assets and deferred charges" and is amortized on a
straight-line basis over 10 years. Such balances pertaining to
acquisitions prior to 1995 are amortized over five years.
6. 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, according to management, does not exceed their fair
value.
2. In calculating the company's share in equity, anticipated losses
from the redemption of
16
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
convertible securities issued by subsidiaries are taken into
consideration if redemption or conversion is considered probable. No
such losses have been included in these financial statements since
the redemption of conversion of these securities is not considered
probable.
3. Income from sales not yet realized outside the group have been
eliminated.
4. Amortization of goodwill - see note 2D(5).
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, 1996
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
J. Property, plant and equipment
1. Property, plant and equipment are presented at cost.
2. The cost of assets for which an investment grant was received is
reflected net of the amount of the grant.
3. Improvements are added to the cost of assets, while maintenance and
repair expenses are expenses as incurred.
4. Depreciation is computed on the straight-line method, based on the
estimated useful lives of the assets.
Annual depreciation rates:
%
--------
Buildings 5 - 10
Machinery and equipment 5 - 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 dependant 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, 1996
- --------------------------------------------------------------------------------
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,
liability regarding termination of employee-employer relationship, 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.
L. Intangible assets and deferred charges, net
1. Know-how and patent rights, manfacturing and distribution rights and
foundation costs are stated at amortized cost and amortized on the
straight-line basis over 3-8 years upon commencement of their
utilization over their anticipated period benefits.
2. Goodwill of subsidiaries is presented at amortized cost and is
amortized in equal annual installments over 10 years.
3. Issue costs of convertible debentures of a subsidiary are amortized
in equal annual installments through the date of redemption of the
debentures.
4. The carrying value of the intangible assets and deferred charges
does not exceed their economical value as of the balance sheet date.
M. Convertible debentures
Convertible debentures are included based on tests of probability of
conversion, as determined under Opinion No. 53 of the Institute of
Certified Public Accountants in Israel. Convertible debentures whose
conversion is not considered probable are reflected under long-term
liabilities at the value of the liability as of the balance sheet date.
N. 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.
19
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
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).
O. Foreign currency and linkage
1. Assets (other than securities) and liabilities denominated in or
linked to a foreign currency are stated at the representative
exchange rates published by the Bank of Israel on the balance sheet
date.
Assets (other than securities) and liabilities linked to the
Consumer Price Index are stated at the linkage terms determined for
each balance.
Data on Consumer Price Indices and exchange rates:
December 31 Percentage of change
------------------------- -------------------------
1996 1995 1994 1996 1995 1994
------- ------- ------- ------- ------- -------
CPI in
points 143.1 129.4 119.7 10.59 8.10 14.45
======= ======= ======= ======= ======= =======
U.S. dollar
exchange
rate 3.251 3.135 3.018 3.70 3.88 1.07
======= ======= ======= ======= ======= =======
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.
P. Financial Instruments
1. The fair value of financial instruments (bank deposits, long-term
liabilities and the components of working capital except inventory
and deferred taxes) is not materially different from their book
value as of the balance sheet date. Financial instruments are
presented at book value as at the balance sheet date.
2. Foreign exchange forward contracts - gains and losses are included
in the Statement of Income as they occur. The volume of foreign
exchange forward contracts during the reporting period is
immaterial.
Q. 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.
20
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
R. Research and development expenses
Research and development costs are expensed as incurred.
S. Subsidiaries newly-consolidated in 1996
1. The financial statements of the following companies have been
consolidated for the first time this year:
- Kedem Chemicals Ltd. (hereafter - Kedem) - was acquired and
consolidated for the first time during the year.
- Chemitas (1988) Ltd. (hereafter - Chemitas) - an affiliate that
became a subsidiary during the year following an increase in the
Company's holding from 50% to 58.95%.
2A. Condensed Balance Sheet and Statement of Income information
regarding Kedem that has been included in the consolidated financial
statements:
Upon obtaining On December 31
control* 1996 and for the
period from the
acquisition
through the
above date
-------------- ----------------
Adjusted NIS Adjusted NIS
Balance sheet thousands thousands
-------------- ----------------
Cash and cash equivalents 4,361 3,690
Working Capital (except cash and cash
equivalents), net 33,029 5,995
Property plant and equipment, net** 20,004 23,385
Intangible assets and deferred charges 993 616
Long-term liabilities** (6,864) (4,727)
Goodwill acquired upon acquisition 14,757 12,937
Minority interest (17,744) (10,459)
Statement of income
Revenue from sales 77,642
Net income 4,004
* From January 1, 1996.
** Including excess cost allocated.
2B. The consolidated Statements of Income and Cash Flows for the year ended
December 31, 1996 include the Statements of Income and Cash Flows of
Kedem.
21
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (cont'd)
3A. Condensed Balance Sheet information regarding Chemitas that has been
included in the consolidated financial statements:
Upon obtaining
control*
Adjusted NIS
thousands
--------------
Working Capital, net 4,064
Deferred taxes 34
Property, plant and equipment, net 1,666
Goodwill acquired upon acquisition 45
Minority interest (2,495)
* December 31, 1996
3B. The Consolidated Statements of Income and Cash Flows for the year
ended December 31, 1996 do not include the Statements of Income and
Cash Flows of Chemitas.
4. The Consolidated Statements of Income and Cash Flows for the years
ended December 31, 1995 and 1994 do not iclude the Statements of
Income and Cash Flows of Kedem and Chemitas.
T. 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.
U. Use of estimates
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 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 income and expenses during the reporting period. Actual results
could differ from those estimates.
Note 3 - Marketable Securities
Consist of: Consolidated and the Company
-------------------------------
December 31 December 31
1996 1995
------------- -------------
Adjusted NIS Adjusted NIS
thousands thousands
------------- -------------
Shares 10 4,920
Participation certificates
in mutual funds 8,805 1,798
Debentures 43,346 51,574
------------- -------------
52,161 58,292
============= =============
22
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 4 - Accounts Receivable - Trade and Others
Consist of:
<TABLE>
<CAPTION>
Consolidated The Company
---------------------------- ----------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
------------ ------------ ------------ ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
A. Trade
Open accounts 109,301 97,157 54,706 64,278
Checks receivable 43,426 33,577 18,905 16,445
Related and interested parties 7,512 3,211 10,398 4,948
Income receivable 6,809 6,802 708 288
------------ ------------ ------------ ------------
167,048 140,747 84,717 85,959
Less: Allowance for
doubtful accounts 11,629 9,823 6,265 6,332
------------ ------------ ------------ ------------
155,419 130,924 78,452 79,627
============ ============ ============ ============
B. Others
Advance payments of income
taxes less provision 10,278 6,898 7,591 4,793
Advances to Suppliers 671 - 363 -
Affiliates and subsidiaries 25 361 13,775 15,039
Government institutions 183 124 58 -
Deferred taxes, net (1) 6,560 5,391 4,305 4,287
Employees 161 291 49 239
Prepaid expenses 2,311 4,965 903 4,209
Short-term loans (2) 716 478 5,047 6560
Current maturities of
long-term loans
to affiliates and subsidiaries - 66 - 66
Sundry 3,299 1,432 1,530 437
------------ ------------ ------------ ------------
24,204 20,006 33,621 35,630
============ ============ ============ ============
</TABLE>
(1) See Note 17C.
(2) December 31, 1996 - in the Company, includes a loan to a
consolidated company in the amount of NIS 4,418 thousand, unlinked,
at 15.2% interest p.a. (December 31, 1995 - NIS 6,082 thousand,
unlinked, at 18% interest p.a.)
23
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 5 - Bank Deposits and Other Receivables
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
1996 1996 1995 1996 1995
-------------- ------------ ------------ ------------ ------------
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 3.1 3,328 74,123 3,328 74,123
============ ============ ============ ============
B. Included in
investments
and long-term
assets
Deposit in a
commercial bank
linked to the index 4.6 8,180 - 8,180 -
Deposit in a
mortgage bank
linked to
the index 5.3 7,320 3,094 7,320 3,094
Other
receivables 0 - 5.1 3,125 *1,197 2,653 505
------------ ------------ ------------ ------------
18,625 4,291 18,153 3,599
============ ============ ============ ============
Maturity Dates:
Second year 15,905 3,433 15,782 3,174
Third year 369 177 282 90
Fourth year 369 187 282 100
Fifth year 369 198 282 111
Thereafter 1,613 296 1,525 124
------------ ------------ ------------ ------------
18,625 4,291 18,153 3,599
============ ============ ============ ============
</TABLE>
* Includes NIS 675 thousand unlinked, bearing no interest.
24
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 6 - Inventories
Consist of:
<TABLE>
<CAPTION>
Consolidated The Company
------------------------------ ------------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
------------ ------------ ------------ ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Finished products 43,599 40,968 26,542 30,604
Work-in-process 5,200 8,063 5,198 7,786
Raw materials and packing
materials 50,037 54,687 33,299 42,936
In transit 4,797 4,729 4,032 3,668
------------ ------------ ------------ ------------
103,633 108,447 69,071 84,994
============ ============ ============ ============
</TABLE>
Note 7 - Investments in Subsidiaries, Affiliates and Others
A. Consolidated subsidiaries
<TABLE>
<CAPTION>
The Company
------------------------------
December 31 December 31
1996 1995
------------ ------------
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 15,751 15,751
Additions, at cost *55,755 10,930
Dividend from subsidiary (13,678) (307)
Share in accumulated income net since January 1, 1992 8,391 6,072
Affiliate that became a consolidated subsidiary 7,292 3,978
Reductions (20,495) -
Company shares held by subsidiary (1,035) -
------------ ------------
Balance of investments at end of year (I) 51,981 36,424
Capital notes (II) 23,627 2,456
Long-term loans and debit balances (see C below) 4,245 2,433
------------ ------------
79,853 41,313
============ ============
</TABLE>
(I) Includes a deferred credit not yet fully amortized - see Note 9.
(II) Unlinked, bearing no interest.
* Includes adjusted goodwill - see Note 9.
25
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 7 - Investments in Subsidiaries, Affiliates and Others (cont'd)
B. Affiliates and others
<TABLE>
<CAPTION>
Consolidated Company
------------------------------ ------------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
------------ ------------ ------------ ------------
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 10,227 10,227 751 751
Additions at cost (I) 15,170 14,947 10,962 10,151
Share in accumulated
loss, net, since 1.1.92 (I) (892) (712) (1,220) (1,157)
Reductions (147) - (147) -
------------ ------------ ------------ ------------
Balance at end of year 24,358 24,462 10,346 9,745
Less: Affiliate that became
a consolidated subsidiary (21,588) (18,862) (7,292) (3,978)
------------ ------------ ------------ ------------
Balance at end of year 2,770 5,600 3,054 5,767
Capital notes (II) 150 166 - -
Long-term loans and
debit balances (see E below) 16,949 10,290 16,834 10,226
------------ ------------ ------------ ------------
19,869 16,056 19,888 15,993
Less: Current maturities
of long-term loans - 66 - 66
------------ ------------ ------------ ------------
19,869 15,990 19,888 15,927
============ ============ ============ ============
</TABLE>
(I) Includes partnerships
(II) Unlinked, bearing no interest
26
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 7 - Investments in Subsidiaries, Affiliates and Others (cont'd)
C. Long-term loans and debit balances
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- -----------------------------
Linked to Linked to Linked to Linked to
index index index foreign currency
Average interest rate 0% 5% 0% 2%
------------- ------------- ------------- -------------
Adjusted Adjusted Adjusted Adjusted
NIS thousands NIS thousands NIS thousands NIS thousands
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Consolidated
Long-term loans and
debit balances
12,149 4,800 9,812 478
============= ============= ============= =============
The Company
Long-term loans and
debit balances 16,279 4,800 12,182 478
============= ============= ============= =============
Consolidated
By due dates:
First year - - - 66
Second year - - - 260
Third year - - - 152
No due date 12,149 4,800 9,812 -
------------- ------------- ------------- -------------
12,149 4,800 9,812 478
============= ============= ============= =============
The Company
By due dates:
First year - - - 66
Second year - - - 260
Third year - - - 152
No due date 16,279 4,800 12,182 -
------------- ------------- ------------- -------------
16,279 4,800 12,182 478
============= ============= ============= =============
</TABLE>
27
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 7 - Investments in Subsidiaries, Affiliates and Others (cont'd)
D. Securities listed for trading
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------- ----------------------------
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>
Securities of subsidiaries
traded on the Tel-Aviv
Stock Exchange 34,998 53,044 16,303 21,122
============ ============ ============ ============
</TABLE>
E. On February 1, 1996, the Company acquired, outside of the stock exchange,
approximately 59% of the share capital of Kedem Chemicals Ltd. (hereafter
- Kedem), a company whose shares are traded on the Tel Aviv Stock
Exchange. The company paid NIS 48.6 million for the purchase of Kedem,
which approximated their value on the Stock Exchange at the date of
acquisition. On December 30, 1996, the Company sold its holding in Kedem
to a wholly - owned subsidiary, Tambour Investments 1996 Ltd., at the
market value on that date. Kedem is active in special chemicals including
cleaning materials for the wholesale and institutional markets.
F. On December 29, 1996, three subsidiaries, Chemitas (1988) Ltd., Italchem
Ayalon Ltd. and Aniam Purification Systems Ltd. (hereafter - Chemitas,
Italchem and Aniam respectively, or together - the merging companies)
filed a request for a merger in accordance with paragraph 234 of the
Companies Ordinance - new version - 1983. According to the request, the
effective date of the merger will be December 31, 1996. In addition,
according to the request filed, the assets and liabilities of the merging
companies will be transferred to Chemitas in exchange for ordinary shares
to be alloted by Chemitas to the shareholders of the merging companies.
In addition to the aforesaid, the merging companies filed a request with
the income tax authorities in accordance with paragaraph 103I of the
Income Tax Ordinance, to recieve authorization that the merger meets the
requirements detailed in paragraph 103C of the Income Tax Ordinance. The
merging companies also requested authorization from the Investment Center
to transfer the benefits that Italchem is entitled to under the Law for
Encouragement of Capital Investments.
The merger is conditional pending the granting of a merge order by the
courts and the granting of authorization from the income tax authorities,
the Investement Center and the Controller of Restrictive Practices. As of
the signature date of the financial statements, the authorization has been
received by The Controller of Restrictive Practices only. The merger has
not been reflected in these financial statements as it will become
effective only upon receipt of all the aforementioned authorizations.
The Company does not anticipate any material change to the financial
statements and results of operations as a result of the merger.
28
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment
A. Consist of:
Consolidated:
<TABLE>
<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, 1996 161,675 284,654 18,609 17,709 23,150 505,797
Additions during
the year 10,596 (a)21,948 1,264 1,453 (a)5,686 40,947
Affiliate that became
a consolidated
subsidiary 273 2,479 299 84 1,168 4,303
Consolidated for the
first time 14,223 12,327 2,535 -- 3,334 32,419
Reductions during
the year 1,421 485 6 6 4,933 6,851
------------ ------------ ------------ ------------ ------------ ------------
Balance -
December 31,
1996 185,346 (d)320,923 22,701 19,240 28,405 576,615
============ ============ ============ ============ ============ ============
Accumulated
depreciation and
amortization:
Balance -
January 1, 1996 96,658 212,537 12,264 15,136 11,382 347,977
Additions during
the year 4,658 17,554 2,036 1,341 4,290 29,879
Affiliate that
became a consolidated
subsidiary 217 1,383 230 59 748 2,637
Consolidated for
the first time 1,752 7,044 1,784 -- 1,795 12,375
Reductions during
the year 532 460 1 4 3,696 4,693
------------ ------------ ------------ ------------ ------------ ------------
Balance -
December 31,
1996 102,753 238,058 16,313 16,532 14,519 388,175
============ ============ ============ ============ ============ ============
Depreciated
balance:
December 31,
1996 (c)82,593 82,865 6,388 2,708 (b)13,886 188,440
============ ============ ============ ============ ============ ============
Depreciated
balance:
December 31,
1995 (c)65,017 72,117 6,345 2,573 (b)11,768 157,820
============ ============ ============ ============ ============ ============
</TABLE>
(a) In both the Company and Consolidated figures, includes advance payments in
the amount of NIS 300 thousand (December 31, 1995 - 1,659 thousand).
(b) Includes depreciated balance of motor vehicles acquired by capital lease
in the amount of NIS 694 thousand (December 31, 1995 - NIS 320 thousand).
(c) Includes amortized balance of leasehold improvements in the amount of NIS
913 thousand. (December 31, 1995 - NIS 3,443 thousand).
(d) Net of NIS 758 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.
29
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment (cont'd)
The Company
<TABLE>
<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, 1996 147,351 237,853 15,208 16,064 12,433 428,909
Additions during
the year 5,811 (a) 18,726 535 1,198 1,734 28,004
Reductions during
the year - 434 - - 2,346 2,780
------------- -------------- ------------- ------------- ------------- -------------
Balance -
December 31,
1996 153,162 256,145 15,743 17,262 11,821 454,133
============= ============== ============= ============= ============= =============
Accumulated
depreciation and
amortization:
Balance -
January 1, 1996 *87,963 190,543 10,591 14,006 6,015 309,118
Additions during
the year 4,178 13,104 1,096 927 1,918 21,223
Reductions during
the year - 434 - - 1,860 2,294
------------- -------------- ------------- ------------- ------------- -------------
Balance -
December 31,
1996 92,141 203,213 11,687 14,933 6,073 328,047
============= ============== ============= ============= ============= =============
Depreciated
balance:
December 31,
1996 61,021 52,932 4,056 2,329 5,748 126,086
============= ============== ============= ============= ============= =============
Depreciated
balance:
December 31,
1995 59,388 47,310 4,617 2,058 6,418 119,791
============= ============== ============= ============= ============= =============
</TABLE>
(a) See previous page.
(*) In both the Company and consolidated figures, includes amortization of
land lease rights in the amount of NIS 48 thousand (1995 - NIS 48
thousand).
30
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment (cont'd)
B.1. Part of the land and buildings in the amount of NIS 297 thousand
is registered in the Land Registry Office in the name of a
wholly-owned subsidiary.
2. NIS 1,190 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 15.
Note 9 - Intangible Assets and Deferred Credits, Net
Consists of:
<TABLE>
<CAPTION>
Amortized Balance
--------------------------------
Accumulated December 31 December 31
Cost Amortization 1996 1995
-------------- -------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Consolidated
Goodwill, net **13,348 (300) 13,648 * -
Know-how, production
and distribution rights 729 396 333 84
Issue cost of debentures 154 89 65 -
Foundation costs 666 650 16 358
-------------- -------------- -------------- --------------
14,897 835 14,062 442
============== ============== ============== ==============
The Company:
Distribution rights 217 40 177 -
============== ============== ============== ==============
</TABLE>
* 1995 - Amortized balance of deferred credits, net of NIS 232 thousand, is
presented in liabilities.
** Includes a decrease in goodwill of NIS 4,712 thousand for tax benefit.
31
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 10 - 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
1996 1996 1995 1996 1995
-------------- ------------ ------------ ------------ ------------
% Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
-------------- Thousands Thousands Thousands Thousands
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Bank credit in
Israeli currency,
unlinked 15.1 - 18.7 18,349 5,273 96 133
Bank credit linked to
foreign currency 3.4 1,570 3,015 - -
Current maturities of
long-term loans 605 953 - -
Current maturities of
convertible debentures 3,040 - - -
------------ ------------ ------------ -----------
23,564 9,241 96 133
============ ============ ============ ===========
</TABLE>
Note 11 - Accounts Payable - Trade and Others
<TABLE>
<CAPTION>
Consolidated The Company
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
------------ ------------ ------------ ------------
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 24,870 31,289 9,437 17,698
Related parties 1,077 1,364 1,077 1,273
Checks payable 10,142 5,277 233 36
------------ ------------ ------------ ------------
36,089 37,930 10,747 19,007
============ ============ ============ ============
B. Others
Employees including
provisions for
fringe benefits 18,643 14,723 12,402 11,596
Government institutions 8,986 3,877 2,997 2,849
Affiliated and subsidiary
companies - - 1,552 1,724
Customer advances 1,340 1,813 631 -
Other accruals 8,568 8,642 5,060 6,062
------------ ------------ ------------ ------------
37,537 29,055 22,642 22,231
============ ============ ============ ============
</TABLE>
32
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 12 - Long-Term Liabilities
A. Long-term loans *
1. Balances on linkage and interest rate basis
<TABLE>
<CAPTION>
Annual interest Consolidated
rates as of ------------------------------
December 31 December 31 December 31
1996 1996 1995
-------------- -------------- -------------
% Adjusted NIS thousands
------------- ------------------------------
<S> <C> <C> <C>
Unlinked Israeli currency debt 1 13.5 - 17.2 946 619
Index-linked Israeli currency debt 2 - 609 1,706
Debts in or linked to foreign currencies 7 - 7.25 2,088 1,945
Capital lease debt - index-linked 4.8 - 7.2 632 41
Capital lease debt - linked to
foreign currency 9 - 13 - 149
-------------- --------------
4,275 4,460
Less - current maturities 605 953
-------------- --------------
3,670 3,507
============== ==============
1 Includes capital notes unlinked bearing no
interest, to related parties
in the amount of 923 485
============== ==============
2 Includes loans linked to the index, bearing
no interest, from related parties
in the amount of 609 700
============== ==============
</TABLE>
2. Balances by due dates
<TABLE>
<CAPTION>
Consolidated
-------------------------------
December 31 December 31
1996 1995
-------------- --------------
Adjusted NIS Adjusted NIS
thousands thousands
-------------- --------------
<S> <C> <C>
First year 605 953
Second year 573 792
Third year 563 446
Fourth year 471 391
Fifth year 531 693
No due date 1,532 1,185
-------------- --------------
4,275 4,460
============== ==============
</TABLE>
* All loans, except capital lease debt and notes and loans from related
parties, are bank loans.
33
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 12 - Long-Term Liabilities (Cont'd)
B. Debentures convertible into shares of a subsidiary
Consolidated
--------------------------------
December 31 December 31
1996 1995
-------------- --------------
Adjusted NIS thousands
--------------------------------
Debentures convertible into shares
of a subsidiary* 5,927 -
Less: current maturities 3,040 -
-------------- --------------
2,887 -
============== ==============
* Market value of convertible debentures
(value on the stock exchange) 5,718 -
============== ==============
2. The convertible debentrues were issued by Kedem Chemicals Ltd. (hereafter -
Kedem), a company consolidated for the first time during the reporting
period, as part of a public offering on July 9, 1990. The debentures'
nominal par value is NIS 6,080 thousand, are linked both principle and
interest to the CPI, bear interest of an annual rate of 2% and mature in 4
equal installments on June 30 of each year from 1995 through 1998.
The debentures are convertible each business day until June 25, 1998 to
ordinary shares of Kedem, registered in the name of the holder, 1 NIS par
value each, at the conversion rate of NIS 38 par value of debenture for one
ordinary share of 1 NIS par value, before adjustments. Debentures of NIS 27
thousand par value are held by a subsidiary.
3. Payment of debentures are secured by liens - see note 15 (A) (3).
C. Capital notes issued to consolidated companies
are unlinked with no interest.
34
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 13 - Liability Regarding Termination of Employee - Employer Relationship,
Net
A. Consists of:
<TABLE>
<CAPTION>
Consolidated The Company
--------------------------- ---------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
------------ ------------ ------------ ------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Provisions for severance pay 5,287 5,023 3,710 3,600
Less: Deposits 4,282 4,212 3,171 3,142
------------ ------------ ------------ ------------
1,005 811 539 458
Provision for unutilized
sick leave* 960 829 960 829
------------ ------------ ------------ ------------
1,965 1,640 1,499 1,287
============ ============ ============ ============
</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).
35
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 13 - 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 14 - 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
1996 1995 1996 1995
----------- ----------- ----------- -----------
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. As mentioned in the notes to the December 31, 1993 audited
financial statements, the warrants issued to employees were issued
free of charge, as part of the public offering in 1993, and were
presented in those financial statements accordingly. 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 25,528 thousand, in the
Statement of Income against the paid-in capital. The expense was
shown net of the tax effect which was NIS 10,453 thousand, which
was also the net effect on shareholders' equity.
C. The balance of warrants issued in 1993 which were not exercised,
expired on February 10, 1995.
36
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 15 - Liens, Guarantees, Contingencies and Commitments
A. Liens
1. Subsidiary companies' loans from banks and debt to automobile
leasing companies in the amount of NIS 800 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, 1996 that
are secured by liens amounted to approximately NIS 7,000 thousand.
3. Convertible debentures of a subsidiary are secured by a lien of the
lowest level on all the assets of the subsidiary, to a trustee.
This lien does not limit the subsidiary in securing additional
liens of a higher level.
B. Guarantees
1. Bank loans and other liabilities of subsidiaries and affiliates in
the maximum amount of approximately NIS 4,500 thousand are
guaranteed by the Company. The balance of these bank loans and
other liabilities as of December 31, 1996 amounted to approximately
NIS 2,450 thousand.
The Company also has an unlimited guarantee towards banks for
several subsidiaries and affiliates. As of December 31, 1996 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 2,600 thousand. The Company also
guaranteed the payment of monthly rents of a subsidiaries in the
approximate amount of NIS 200 thousand (total future liability -
approximately NIS 7,500 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 2,700 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. A lawsuit in the amount of NIS 20 million has been filed against
Kedem, a 59.5% owned subsidiary, by a customer caused bodily harm
by the subsidiary's product. According to the subsidiary's
manageent, based on legal counsel's the claim, if they will be
required to pay, will be much smaller than the amount of the
lawsuit and is covered by their insurance.
3. Credit Risk - Credit Risk is the maximum loss incurred when one
party to a financial instrument fails to discharge an obligation.
The credit risk to which the Company is exposed as of the balance
sheet date is equal to the book value of its assets.
4. 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 of the
Company and most of its subsidiaries and affiliates are covered by
an insurance policy of an interested party.
37
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 15 - Liens, Guarantees, Contingencies and Commitments (cont'd)
D. Commitments
1. The group is committed, as of the balance sheet date, to purchase
fixed assets in the approximate amount of NIS 6,800 thousand.
2. Commitments for the purchase of raw materials are presented as
"Inventory-in-transit" - see Note 6.
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 1,899
thousand for the group in 1996 (1995 - NIS 937 thousand, 1994 - NIS
2,622 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 16 - Earnings per Share
A. Primary and diluted earnings
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
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 33,534 60,529 34,962 60,582 16,464 60,582
============ ========== ============= ========== ============ ==========
Primary earnings
after
extraordinary
item 33,534 60,529 34,962 60,582 1,389 60,582
============= ========== ============= =========== ============ ===========
</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%. (1995 - 4.5%; 1994 - 4%), for securities linked to the
index.
38
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 17 - 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
1996 1995 1996 1995
-------------- -------------- -------------- -------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
For fixed assets (7,873) (2,753) (389) 3,060
For provision for fringe benefits, etc. 7,648 7,512 4,994 6,133
For tax losses and deductions
carried forward 3,118 4,221 - -
For public offering
issue expenses* - 73 - 73
-------------- -------------- -------------- -------------
2,893 9,053 4,605 9,266
Less - for inventories 646 814 402 631
-------------- -------------- -------------- -------------
2,247 8,239 4,203 8,635
============== ============== ============== =============
Included:
In current assets 6,560 5,391 4,305 4,287
In investments and
long term assets 177 4,521 - 4,348
In long-term liabilities (4,490) (1,673) (102) -
-------------- -------------- -------------- -------------
2,247 8,239 4,203 8,635
============== ============== ============== =============
</TABLE>
* Total tax savings resulting from these expenses - NIS 2,893 thousand.
39
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- -------------------------------------------------------------------------------
Note 17 - Taxes on Income (Cont'd)
D. Changes in deferred taxes
<TABLE>
<CAPTION>
Consolidated The Company
----------------------------- -----------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
------------- ------------- ------------- -------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance beginning of year 8,239 9,118 8,635 8,842
Affiliate that became a
subsidiary 348 (166) - -
Newly-consolidated subsidiary* 4,241 - 4,712 -
Change in deferred taxes
presented in Statement
of Income (10,581) (713) (9,144) (207)
------------- ------------- ------------- -------------
Balance at end of year 2,247 8,239 4,203 8,635
============= ============= ============= =============
</TABLE>
* Includes tax effect reflected in goodwill - see Note 9.
E. Income taxes in Statements of Income
Income taxes in the adjusted Statements of Income consist of:
<TABLE>
<CAPTION>
For the year ended December 31
-------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Consolidated
Provision for current year 13,127 23,992 16,380
Change in deferred taxes, net* **10,581 713 3,852
Over-provision for previous years 347 1,327 -
-------------- -------------- --------------
24,055 26,032 20,232
============== ============== ==============
* Includes change resulting from decrease in tax rate in the amount of:
Consolidated - 118 126
============== ============== ==============
The Company - 114 112
============== ============== ==============
</TABLE>
** Includes tax effect reflected in Goodwill - see Note 9.
40
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 17 - Taxes on Income (Cont'd)
E. Income taxes in Statements of Income (Cont'd)
<TABLE>
<CAPTION>
The Company
-----------
For the year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Company:
Provision for current year 9,513 22,690 15,279
Change in deferred taxes, net* **9,144 207 3,582
Over-provision for previous years - 1,344 -
-------------- -------------- --------------
18,657 24,241 18,861
============== ============== ==============
</TABLE>
* See previous page.
** See previous page.
F. Tax assessments
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 up to and including 1995.
G. Effective tax reconciliation
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Tax rates in effect 36% 37% 38%
============== ============== ==============
Consolidated:
Theoretical tax at rates in effect 21,803 23,089 14,385
Erosion of tax advances 340 770 997
Tax effect of permanent differences, net 1,737 2,076 (2,413)
Losses and tax benefits not utilized 458 477 6,716
Prior year tax losses and benefits utilized (1,234) - -
Differences between the definition of equity
and assets for tax purposes and book
purposes and others, net 523 (1,707) 547
Taxes for previous years 428 1,327 -
-------------- -------------- --------------
24,055 26,032 20,232
============== ============== ==============
</TABLE>
41
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 17 - Taxes on Income (Cont'd)
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Tax rates in effect 36% 37% 38%
============== ============== ==============
The Company:
Theoretical tax at rates in effect 17,902 22,062 14,676
Erosion of tax advances 170 732 928
Tax effect of permanent differences, net 613 1,204 (2,518)
Losses and tax benefits not utilized - - 5,556
Differences between the definition of equity
and assets for tax purposes and book
purposes and others, net (28) (1,101) 219
Taxes for previous years - 1,344 -
-------------- -------------- --------------
18,657 24,241 18,861
============== ============== ==============
</TABLE>
H. Tax - losses carried forward to future years
1. The Company has accumulated real losses on securities for tax
purposes in the approximate amount of NIS 27,000 thousand. This loss,
linked to the index, will only be tax- deductible in future years
against income from securities, if they so exist. No deferred taxes
receivable have been recorded for these losses - see Note 2K.
2. Several subsidiaries have accumulated losses for tax purposes in the
approximate amount of NIS 13,000 thousand (See Note 2K) for which no
deferred taxes receivable have been recorded.
42
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 18 - Linked Balances
Consolidated:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------------------------------------------------------------------
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 13,763 - 43,512 4,924 - 24,867
Marketable
securities 1,674 24,183 26,304 4,598 38,378 15,316
Accounts
receivable - 452 3,108 11,773 - 7,615 2,035
trade and
others* 13,865 - 141,554 12,357 3,915 114,652
Bank deposits - 3,328 - - 74,123 -
------------- ------------- ------------- ------------- ------------- -------------
29,754 30,619 223,143 21,879 124,031 156,870
Investments
Affiliated
companies
and others,
capital notes
and loans
including
current
maturities - 16,949 150 478 9,812 166
Bank deposits
and other
receivables - 18,625 - - 3,616 675
------------- ------------- ------------- ------------- ------------- -------------
Total assets 29,754 66,193 223,293 22,357 137,459 157,711
============= ============= ============= ============= ============= =============
Current liabilities
Short-term
bank credits 1,570 - 18,349 2,922 - 5,366
Accounts payable -
trade and others:
Trade 10,541 1,192 24,356 14,363 - 23,567
Others 587 36 36,914 411 - 28,644
------------- ------------- ------------- ------------- ------------- -------------
12,698 1,228 79,619 17,696 - 57,577
Long-term liabilities
Liability regarding
termination of
employee-employer
relationship, net - 1,499 466 - 1,640 -
Long-term loans,
including current
maturities 2,092 1,212 971 2,095 1,746 619
Convertible debentures - 5,927 - - - -
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities 14,790 9,866 81,056 19,791 3,386 58,196
============= ============= ============= ============= ============= =============
</TABLE>
* Exclusive of deferred taxes and prepaid expenses.
43
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 18 - Linked Balances (cont'd)
Company:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------------------------- -------------------------------------------
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 13,028 - 35,647 4,475 - 23,081
Marketable
securities 1,674 24,183 26,304 4,598 38,378 15,316
Accounts
receivable - 616 18,569 9,228 - 5,509 21,625
trade and others* 11,298 - 67,154 10,257 - 69,370
Bank deposits - 3,328 - - 74,123 -
------------- ------------- ------------- ------------- ------------- -------------
26,616 46,080 138,333 19,330 118,010 129,392
Investments
Loans and capital
notes, including
current maturities - 4,245 23,627 478 12,182 2,456
Affiliated companies
and others -
capital notes
and loans,
including
current maturities - 16,834 - - 3,095 504
Government loans
Bank deposits
and other
receivables - 18,153 - - - -
------------- ------------- ------------- ------------- ------------- -------------
Total assets 26,616 85,312 161,960 19,808 133,287 132,352
============= ============= ============= ============= ============= =============
Current liabilities
Short-term
bank credits - - 96 - - 133
Accounts payable -
trade and others:
Trade 3,930 - 6,817 5,720 - 13,287
Others - - 22,642 - - 22,231
------------- ------------- ------------- ------------- ------------- -------------
3,930 - 29,555 5,720 - 35,651
Long-term liabilities
Liability regarding
termination of
employee-employer
relationship, net - 1,499 - - 1,287 -
Long-term notes,
to subsidiaries - - 2,065 - - 2,284
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities 3,930 1,499 31,620 5,720 1,287 37,935
============= ============= ============= ============= ============= =============
</TABLE>
* Exclusive of deferred taxes and prepaid expenses.
44
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 19 - Supplementary Information to the Statements of Income
A. Sales (net of allowances)
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Consolidated:
Local 559,712 518,038 441,867
Export 67,383 37,931 29,516
-------------- -------------- --------------
627,095 555,969 471,383
============== ============== ==============
Company:
Local 359,361 404,260 374,255
Export 57,769 32,150 25,392
-------------- -------------- --------------
417,130 436,410 399,647
============== ============== ==============
B. Cost of sales
Consolidated:
Materials 284,089 270,213 219,062
Labor 59,111 49,951 45,018
Other manufacturing expenses 36,777 33,215 27,305
Depreciation and amortization 22,196 20,285 18,311
-------------- -------------- --------------
402,173 373,664 309,696
-------------- -------------- --------------
(Increase) Decrease in inventories of:
Work in process 2,664 803 (1,533)
Finished products 4,478 (3,132) (1,425)
-------------- -------------- --------------
7,142 (2,329) (2,958)
-------------- -------------- ---------------
409,315 371,335 306,738
============== ============== ==============
</TABLE>
45
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 19 - Supplementary Information to the Statements of Income (cont'd)
B. Cost of sales (cont'd)
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Company:
Materials 180,870 199,311 178,818
Labor 41,568 41,426 39,329
Other manufacturing expenses 24,553 26,720 25,844
Depreciation and amortization 16,560 16,621 16,151
-------------- -------------- --------------
263,551 284,078 260,142
-------------- -------------- --------------
(Increase) Decrease in inventories of:
Work in process 2,588 (1,007) (1,506)
Finished products 4,062 (2,398) (1,070)
-------------- -------------- ---------------
6,650 (3,405) (2,576)
-------------- -------------- ---------------
270,201 280,673 257,566
============== ============== ==============
C. Selling and marketing expenses
Consolidated:
Labor 42,865 34,637 29,089
Depreciation and amortization 7,990 5,768 5,235
Advertising 19,228 15,317 14,937
Agents' commissions 8,826 1,427 2,382
Others 29,303 28,624 25,358
Doubtful accounts and bad debt expense 2,804 3,126 4,525
-------------- -------------- --------------
111,016 88,899 81,526
============== ============== ==============
Company:
Labor 30,965 28,350 24,428
Depreciation and amortization 3,610 3,638 3,742
Advertising 13,298 14,100 14,487
Others 23,194 24,344 21,841
Doubtful accounts and bad debt expense 1,875 2,444 4,117
-------------- -------------- --------------
72,942 72,876 68,615
============== ============== ==============
</TABLE>
46
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 19 - Supplementary Information to the Statements of Income (cont'd)
D. General and administrative expenses:
<TABLE>
<CAPTION>
For the year ended December 31
-------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Consolidated:
Labor 24,342 20,023 17,570
Depreciation and amortization 2,501 1,557 1,319
Others 14,443 12,886 11,483
-------------- -------------- --------------
41,286 34,466 30,372
============== ============== ==============
Company:
Labor 15,316 15,703 14,540
Depreciation and amortization 1,053 1,063 840
Others 9,145 8,682 8,580
-------------- -------------- --------------
25,514 25,448 23,960
============== ============== ==============
E. Finance income (expense), net
For the year ended December 31
-------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
Consolidated:
Bank credit 85 (494) 457
Long-term loans (21) (165) 8
Interest on bank deposits 1,832 3,399 3,349
Gain (loss) from marketable securities 1,803 1,429 (13,555)
Commissions and bank expenses (681) (1,344) (2,393)
Erosion of monetary items and others, net (9,044) (5,479) (9,058)
--------------- --------------- ---------------
(6,026) (2,654) (21,192)
=============== =============== ===============
Company:
Bank credit 130 84 400
Interest in bank deposits 1,794 3,422 3,313
Gain (loss) from marketable securities 1,693 1,429 (13,555)
Commission and bank expenses (112) (657) (1,886)
Erosion of monetary items and others, net (5,056) (4,079) (6,982)
--------------- --------------- ---------------
(1,551) 199 (18,710)
============== ============== ===============
</TABLE>
47
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 19 - Supplementary Information to the Statements of Income (cont'd)
F. Other income, net
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Consolidated:
Capital gains, net 909 1,701 860
Profit (Loss) on realization of investment
in affiliated company and others (206) 149 (932)
Commission income 97 565 -
Sundry income 1,063 166 719
Amortization of (goodwill) deferred credit (1,368) 327 533
Income from capital issue of
affiliate and subsidiary* - - 4,212
Related parties:
Income from rentals 531 639 706
Management fees and participation
in expenses 85 221 198
-------------- -------------- --------------
1,111 3,768 6,296
============== ============== ==============
Company:
Capital gains, net 728 822 833
Profit (Loss) on realization of investment
in affiliates and others (206) 149 (932)
Sundry income 1,063 185 277
Income from private issue of subsidiary - - 4,212
Related parties:
Income from rentals 1,063 639 706
Management fees and participation
in expenses 157 221 358
-------------- -------------- --------------
Miscellaneous
2,805 2,016 5,454
============== ============== ==============
</TABLE>
* 1994 - Includes a gain resulting from a private issue of 20% of the
capital of Tzah - Israeli Printing Inks Limited, a subsidiary, which was
fully owned by the company until that time.
48
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 20 - Related and Interested Parties
A. The Company, as well as its subsidiaries and affiliates, also carry
out transaction, 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. Details regarding balances
and transactions with related parties and other interested parties,
mainly companies in the Tambour group, are presented in this note as
well as in others notes (see paragraph F1).
B. Balance sheet:
<TABLE>
<CAPTION>
Consolidated The Company
------------------------------- -------------------------------
December 31 December 31 December 31 December 31
1996 1995 1996 1995
-------------- -------------- -------------- --------------
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 29,030 11,945 22,760 10,637
============== ============== ============== ==============
Marketable securities 6,517 761 6,517 761
============== ============== ============== ==============
Short-term bank deposits - 43,088 - 43,088
============== ============== ============== ==============
Long-term bank deposits 7,324 - 7,324 -
============== ============== ============== ==============
(2) Included in liabilities
Bank credits 6,116 4,278 - -
============== ============== ============== ==============
Liability regarding
termination of employee-
employer relationship 1,544 1,454 1,544 1,454
============== ============== ============== ==============
</TABLE>
C. The highest balance in current assets
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------------- --------------------------------
Year ended December 31 Year ended December 31
-------------------------------- --------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
In cash and cash equivalents 29,030 12,585 22,760 12,585
============== ============== ============== ==============
In accounts receivable -
trade and others 6,900 3,408 14,936 10,937
============== ============== ============== ==============
In bank deposits 43,088 51,539 43,088 51,539
============== ============== ============== ==============
</TABLE>
49
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 20 - Related Parties (cont'd)
D. Transactions (in the normal course of business):
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Consolidated:
Sales 25,306 5,602 3,302
============== ============== ==============
Purchases and other expenses 926 842 1,403
============== ============== ==============
Finance income 220 - 100
============== ============== ==============
Finance expense - - 217
============== ============== ==============
Company:
Sales 39,419 9,616 6,076
============== ============== ==============
Purchases and other expenses 2,094 2,792 1,409
============== ============== ==============
Management fees paid 1,029 854 901
============== ============== ==============
Finance income 484 365 100
============== ============== ==============
Finance expense - - 1,017
============== ============== ==============
</TABLE>
E. Remuneration of interested parties
<TABLE>
<CAPTION>
Consolidated and Company
------------------------------------------------
Year ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
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 1,657 1,740 1,855
============== ============== ==============
Interested parties not employed
by the company or on its behalf 10 360 355 388
============== ============== ==============
</TABLE>
F. Also see Notes 4, 7, 11, 12, 15 and 19F.
50
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 21 - Condensed Nominal Financial Statements of the Company
A. Balance Sheet
December 31 December 31
1996 1995
------------- -------------
NIS thousands NIS thousands
------------- -------------
Current assets
Cash and cash equivalents 48,675 24,918
Marketable securities 52,161 52,711
Accounts receivable - trade 78,452 72,004
Other accounts receivable 33,963 32,710
Bank deposits 3,328 67,027
Inventories 67,954 75,272
------------- -------------
284,533 324,642
------------- -------------
Investments and long-term assets
Investments in subsidiaries,
affiliates and others 89,926 45,770
Bank deposits and other receivables 18,153 3,254
Deferred taxes, net - 607
------------- -------------
108,079 49,631
------------- -------------
Property, plant and equipment
Cost 192,179 166,947
Less: Accumulated depreciation 93,181 79,144
------------- -------------
98,998 87,803
------------- -------------
Intangible assets and deferred
charges, net 163 -
------------- -------------
491,773 462,076
============= =============
Current liabilities
Bank credits 96 120
Accounts payable - trade 10,747 17,187
Other accounts payable 22,642 20,103
Dividend declared 50,000 -
------------- -------------
83,485 37,410
------------- -------------
Long-term liabilities
Liability regarding termination of
employee-employer relationship, net 1,499 1,164
Capital notes issued to subsidiaries 2,065 2,065
Deferred taxes 2,802 -
------------- -------------
6,366 3,229
------------- -------------
Shareholders' equity
Share capital 60,582 60,582
Paid-in capital 149,934 149,934
Retained earnings 192,426 210,921
------------- -------------
402,942 421,437
Less: Company shares
held by subsidiary (1,020) -
------------- -------------
401,922 421,437
-------------- -------------
491,773 462,076
============== =============
51
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 21 - Condensed Nominal Financial Statements of the Company (cont'd)
B. Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------
1996 1995 1994
NIS thousands NIS thousands NIS thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue from sales 401,231 376,446 313,667
Cost of sales 247,523 232,959 192,306
-------------- -------------- --------------
Gross profit 153,708 143,487 121,361
-------------- -------------- --------------
Selling and marketing expenses 69,737 62,613 53,687
General and administrative expenses 24,284 21,784 18,628
-------------- -------------- --------------
94,021 84,397 72,315
-------------- -------------- --------------
Operating income 59,687 59,090 49,046
Finance income, net 19,500 17,881 13,949
Other income, net 2,956 1,840 4,835
-------------- -------------- --------------
Income before income taxes 82,143 78,811 67,830
Income taxes 17,111 20,021 13,125
-------------- -------------- --------------
Net income after income taxes 65,032 58,790 54,705
Equity in earnings of subsidiaries, affiliates
and others, net 6,473 1,004 1,243
-------------- -------------- --------------
Net income before extraordinary item 71,505 59,794 55,948
Extraordinary item -
Salary expense relating to the portion of
securities issued which constitutes an
employee benefit, net - - 9,465
-------------- -------------- --------------
Net income for the year 71,505 59,794 46,483
============== ============== ==============
</TABLE>
52
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 21 - Condensed Nominal Financial Statements of the Company (cont'd)
C. Statement of shareholders' equity
<TABLE>
<CAPTION>
Share Premium Proceeds from Retained Company shares Total
Capital issue earnings held by
of warrants subsidiary
------------ ------------- ------------- ------------- ------------- -------------
Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS Adjusted NIS
thousands thousands thousands thousands thousands thousands
------------ ------------- ------------- ------------- ------------- -------------
Balance as of
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994 55,686 66,149 12,999 139,644 - 274,478
Changes in 1994:
Issue of bonus shares
Issue of share capital
and warrants, 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, net - *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
Changes in 1996:
Net income - - - 71,505 - 71,505
Dividend*** - - - (90,000) - (90,000)
Company shares
held by subsidiary - - - - (1,020) (1,020)
------------ ------------- ------------- ------------- ------------- -------------
Balance as of
December 31, 1996 60,582 149,934 - 192,426 (1,020) 401,922
============ ============= ============= ============= ============= =============
</TABLE>
* Net of issue and registration expenses, after tax affect.
** Includes NIS 10,000 thousand dividend declared.
*** Includes NIS 50,000 thousand dividend declared subsequent to Balance Sheet
date (see Note 22).
53
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 22 - Subsequent Events
On March 5, 1997 the Company's Board of Directors declared an additional
interim cash dividend distribution of NIS 50,000 thousand which is
approximately NIS 0.825 per NIS 1 par value of shares outstanding on the
date declared. The dividend will be paid on March 30, 1997 and is included
in these financial statements as a dividend declared. In addition, the
Board of Directors decided to recommend to the shareholders at the General
Meeting the interim dividend as the final dividend of 1996.
Note 23 - 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.
54
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 23 - 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 differences 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 a
compensation 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.
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) Goodwill
Amortization of goodwill is included, for the purposes of the
financial statements contained in this note, in General and
Administrative Expenses while included in Other Income, Net for the
purposes of the Nominal NIS financial statements.
(5) 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.
55
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 23 - Condensed Nominal Financial Statements Prepared
in Accordance with U.S. GAAP (cont'd)
C. Balance Sheets
December 31 December 31
1996 1995
------------- -------------
NIS thousands NIS thousands
------------- -------------
Assets
Current assets
Cash and cash equivalents 57,275 26,939
Marketable securities 52,161 52,711
Accounts receivable - trade and others 180,349 137,398
Bank deposits 3,328 67,027
Inventories 101,790 95,941
------------- ------------
394,903 380,016
------------- ------------
Investments and long-term assets
Affiliated companies and others 20,927 13,033
Bank deposits and other receivables 15,536 3,880
Deferred taxes, net 6,949 10,033
------------- ------------
43,412 26,946
------------- ------------
Property, plant and equipment
Cost 336,256 278,006
Less - accumulated depreciation 187,671 162,250
------------- ------------
148,585 115,756
------------- ------------
Intangible assets and deferred charges, net 14,101 888
------------- ------------
601,001 523,606
============= ============
56
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 23 - Condensed Nominal Financial Statements Prepared
C. Balance Sheets (cont'd)
December 31 December 31
1996 1995
------------- -------------
NIS thousands NIS thousands
------------- -------------
Liabilities and Shareholders' Equity
Current liabilities
Bank credits and others 23,564 8,356
Accounts payable - trade and others 73,626 60,350
------------- -------------
97,190 68,706
------------- -------------
Long-term liabilities
Long-term debt 6,557 3,171
Liability regarding termination of
employee-employer relationship, net 1,965 1,483
------------- -------------
8,522 4,654
------------- -------------
Minority interest 30,915 17,272
------------- -------------
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 238,409 205,989
------------- -------------
465,394 432,974
Less: Treasury Stock 1,020 -
------------- -------------
464,374 432,974
------------- -------------
601,001 523,606
============= =============
57
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 23 - Condensed Nominal Financial Statements Prepared
D. Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------
1996 1995 1994
NIS thousands NIS thousands NIS thousands
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue from sales 602,999 481,997 369,983
Cost of sales 377,662 312,207 230,953
-------------- -------------- --------------
Gross profit 225,337 169,790 139,030
-------------- -------------- --------------
Selling and marketing expenses 105,352 76,072 63,489
General and administrative expenses 41,499 30,006 23,690
Employee warrants[see B(1)] - - -
-------------- -------------- --------------
146,851 106,078 87,179
-------------- -------------- --------------
Operating income 78,486 63,712 51,851
Financing income, net 16,613 14,810 11,073
-------------- -------------- --------------
Operating income 95,099 78,522 62,924
Other income, net 3,289 3,412 4,871
-------------- -------------- --------------
Income before income taxes 98,388 81,934 67,795
Income taxes 19,651 19,550 8,580
-------------- -------------- --------------
Net income after income taxes 78,737 62,384 59,215
Equity in earnings (losses) of affiliated
companies and others, net 238 (500) 305
Minority interest in consolidated
subsidiaries' income (6,555) (1,751) (538)
-------------- -------------- --------------
Net income 72,420 60,133 58,982
============== ============== ==============
</TABLE>
58
<PAGE>
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1996
- --------------------------------------------------------------------------------
Note 23 - 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 Company
capital paid-in from currency earnings shares
capital issue of translation acquired by
warrants adjustment subsidiary
------------- ------------- ------------- ------------- ------------- -------------
NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994 75,664 65,995 20,251 1,703 121,874 -
In the year 1994:
Exercise of
warrants, net 4,897 62,603* (9,010)* - - -
Tax Benefits of
employee warrants - 2,563 2,319 - - -
Net income - - - - 58,982 -
Cash dividend - - - - (5,000) -
------------- ------------- ------------- ------------- ------------- -------------
Balance as of
December 31,
1994 80,561 131,161 13,560 1,703 175,856 -
In the year 1995:
Expiration of
warrants - 13,560* (13,560)* - - -
Net income - - - - 60,133 -
Cash dividend - - - - (30,000) -
------------- ------------- ------------- ------------- ------------- -------------
Balance as of
December 31,
1995 80,561 144,721 - 1,703 205,989 -
In the year 1996:
Net Income - - - - 72,420 -
Cash dividend - - - - (40,000) -
Company shares
acquired by subsidiary - - - - - (1,020)
------------- ------------- ------------- ------------- ------------- -------------
Balance as of
December 31,
1996 80,561 144,721 - 1,703 238,409 (1,020)
============= ============= ============= ============= ============= =============
</TABLE>
* Net of issue and registration expenses, after tax effect.
59
<PAGE>
Tambour Limited and Subsidiaries
Appendix - Consolidated and Affiliated Companies as of December 31, 1996
- --------------------------------------------------------------------------------
Control and
ownership
-----------
%
-----------
Consolidated companies
Italchem Ayalon Ltd. 70.0
Aniam Purification Systems Ltd. 66.7
R.R.E. Rotem Engineering Ltd. 66.7
Gains Properties Ltd. 59.5
Gil - the Israeli Marketing Paint Company 24*
Tambour Holdings 1993 Ltd. 100
Tambour Investments 1996 Ltd. 100
Chemitas (1988) Ltd. 58.95
Solar Dynamics Ltd. 66
Scilab Laboratories Manufacturing Chemists Ltd. 59.5
Sicca Israel Chemical Enterprises Ltd. 59.5
Tzevah Paint Industries Ltd. 100
Tzah - Israeli Printing Inks Ltd. 80
R.D. Glaso-Center Ltd. 100
Serafon Resinous Chemicals Corp. Ltd.** 56.15
Tovalah Ltd. 100
T.P. Development Establishment 100
Cotachem Farben G.M.B.H. 100
Tambour Paints (Hellas) LLC 100
Kedem Chemicals Ltd.** 59.5
Affiliated companies
Vertigo Robotics Technology Ltd. 37.5
Alram Cooling Systems Ltd. 33.35
Kne Uvne Marketing (1993) Ltd. 20
British Paints L.L.C. 18.15
International Ilios Cotachem S.A. 43
Tambour Switzerland 100
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
Tambour Holdings Akko (1996) Ltd. 100
Tambourechev Ltd. 100
Chemetal Ltd. 100
Memberfil Ltd. 50
Nad (Investments) Ltd. 100
C.T.I. Inks (1983) Ltd. 80
Fantastic Chemicals (2500) Ltd. 59.5
Kedem Chemicals Technologies Ltd. 59.5
Tamarin (Marine Paints) Ltd. 100
* 100% ownership and control, in effect.
** Traded on the Tel-Aviv Stock Exchange.
60
<PAGE>
[LETTERHEAD OF ROJANSKY, HALIFI, MEIRI & CO.
CERTIFIED PUBLIC ACCOUNTANTS]
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 and subsidiaries as of December 31, 1996 and 1995, 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 United States. 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 historical 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 and subsidiaries
as of December 31, 1996 and 1995, the results of their operations, the changes
in shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1996, 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 income and shareholders' equity to the extent summarized in Note 24 to the
financial statements.
Tel Aviv, February 24, 1997 ROJANSKY, HALIFI, MEIRI & CO.
CERTIFIED PUBLIC ACCOUNTANTS
-2-
<PAGE>
[LETTERHEAD OF SOMEKH CHAIKIN
CERTIFIED PUBLIC ACCOUNTANTS]
Tel-Aviv, February 14, 1997
Report of Independent Public Accountants
Cellcom Israel Ltd.
We have audited the balance sheets of Cellcom Israel Ltd. (hereinafter the
"Company") as at December 31, 1996 and 1995, the related statements of income
and shareholders' equity and cash flows for each of the three years in the
period (1994 - from inception) 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 statements
present fairly the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in shareholders; equity and
cash flows for each of the three years in the period (1994 - from inception)
ended December 31, 1996, 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.
Somekh Chaikin
Certified Public Accountants (Isr.)
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
[LETTERHEAD OF SOMEKH CHAIKIN
CERTIFIED PUBLIC ACCOUNTANTS]
Tel-Aviv, March 17, 1997
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 of December
31, 1996 and 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 4 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, 1996 and
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 income (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>
[LETTERHEAD OF H.H.S.L. Haft & Haft & Co.
CERTIFIED PUBLIC ACCOUNTANTS]
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 the related Consolidated Statements of
Income, Retained Earnings and Cash Flows for the year 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 the results of the operations
and cash flows for the year ended December 31, 1994.
Pursuant to the United States Securities and Exchange Commission
requirements we state:
(1) The auditing standards and procedures mentioned above are Israeli auditing
standards and procedures and were augmented by any additional procedures that
were considered necessary, in order to comply with generally accepted auditing
standards in the United States.
(2) These financial statements differ from those issued in Israel (in conformity
with generally accepted accounting principles in Israel) as explained in Note 1
to the financial statements.
March 31, 1997 H.H.S.L. Haft & Haft & Co.
Tel-Aviv, Israel Certified Public Accountants (Isr.)
MEMBER OF NEXIA INTERNATIONAL
<PAGE>
[LETTERHEAD OF SOMEKH CHAIKIN
CERTIFIED PUBLIC ACCOUNTANTS]
Tel-Aviv, February 25, 1997
Report of Independent Public Accountants
to the Shareholders of
Gemini Capital Fund Management Ltd.
We have audited the accompanying balance sheets of Gemini Capital Fund
Management Ltd. as at December 31, 1996 and December 31, 1995, statements of
income, changes in shareholders' equity and cash flows for each of the three
years the last of which ended on December 31, 1996, 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, 1996 and December 31, 1995, 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, 1996, in conformity with
accounting principles generally accepted in the United States and Israel on the
basis outlined in Note 2A to the financial statements.
Somekh Chaikin
Certified Public Accountants
- --------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
[LETTERHEAD OF SOMEKH CHAIKIN
CERTIFIED PUBLIC ACCOUNTANTS]
Tel-Aviv, February 25, 1997
Report of Independent Public Accountants
to the Partners of Gemini Israel Fund L.P.
We have audited the accompanying balance sheets of Gemini Israel Fund L.P. as of
December 31, 1996 and December 31, 1995, statements of income, changes in
partners capital and cash flows for each of the three years the last of which
ended on December 31, 1996, 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, 1996 and December 31, 1995, 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, 1996 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.
As explained in Note 2, the financial statements include investments valued at
U.S. dollars 20,733 thousand (previous year - U.S. dollars 10,822 thousand) (75%
of partners capital at balance sheet date, previous year - 56%) 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
- --------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
[LETTERHEAD OF KESSELMAN & KESSELMAN COOPERS & LYBRAND]
REPORTS OF INDEPENDENT AUDITORS
To the shareholders of
GILAT SATELLITE NETWORKS LTD.
We have audited the consolidated balance sheets of Gilat Satellite Networks Ltd.
(the "Company") and its subsidiaries at December 31, 1996 and 1995 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, 1996.
These financial statements are the responsibility of the Company's Board of
Directors and management. Our responsibility is to express an opinion on these
financial statements based on our audits.
The consolidated financial statements give retroactive effect to the merger of
the Company and Skydata, Inc. ("Skydata"), which has been accounted for as a
pooling of interests, as described in note 2 to the consolidated financial
statements. We did not audit the financial statements of Skydata for the years
ended December 31, 1996 and 1995. The assets of Skydata at December 31, 1996 and
1995 constitute 5.7% and 5.2%, respectively, of total consolidated assets, and
its sales for the years ended December 31, 1996, 1995, and 1994 constitute
28.6%, 23.5% and 28.8%, respectively, of total consolidated sales. The financial
statements of Skydata were audited by other auditors, whose reports have been
furnished to us, and our opinion, insofar as it relates to amounts included for
Skydata, is based solely on the reports of the other auditors.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audits to obtain reasonable assurance that the financial statements are free
of material misstatement, whether caused by an error in the financial statements
or by misleading information included therein. 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 Company's Board of Directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits and the reports of the other auditors provide a fair basis for
our opinion.
In our opinion, based on our audits and the reports of the other auditors
referred to above, the aforementioned financial statements present fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries at December 31, 1996 and 1995 and the results of their
operations, the changes in shareholders' equity and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles 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 20, 1997 Certified Public Accounting (Isr.)
<PAGE>
[LETTERHEAD OF BERMAN, HOPKINS, WRIGHT, ARNOLD & LAHAM, LLP]
Independent Auditors' Report
Board of Directors
and Stockholders
Skydata, Inc.
West Melbourne, Florida
We have audited the accompanying balance sheets of Skydata, Inc. as of December
31, 1996 and 1995, and the related statements of income, changes in stockholders
deficit and cash flows for each of the three years in the period ended December
31, 1996. 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 audits 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 Skydata, Inc. as of December
31, 1996, and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
February 20, 1997 Berman, Hopkins, Wright
Arnold & LaHam, LLP
Melbourne, Florida
<PAGE>
[LETTERHEAD OF SOMEKH CHAIKIN
CERTIFIED PUBLIC ACCOUNTANTS]
Tel-Aviv, March 4, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE
SHAREHOLDERS OF ISPAH HOLDINGS LIMITED
We have audited the balance sheets of Ispah Holdings Limited as of December 31,
1996 and 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.
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>
The data relating to the net asset value of the Company's investments in an
investee company and to its equity in that Company's operating results, is based
on financial statements audited by other auditors.
In our opinion, based on our audit and on the report of the abovementioned other
auditors, the above mentioned financial statements present fairly the financial
position of the Company as at December 31, 1996 and 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, 1996, in conformity with accounting
principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
nominal/historical net profit (loss) and shareholders' equity to the extent
summarized in Note 5 to the financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR)
<PAGE>
[LETTERHEAD OF Kesselman & Kesselman Coopers & Lybrand]
Certified Public
Accountants (Isr.) AUDITORS' REPORT
To the shareholders of
KLIL INDUSTRIES LIMITED
We have audited the financial statements of Klil Industries Limited (hereafter -
the company) and the consolidated financial statements of the company and its
subsidiary: balance sheets at December 31, 1996 and 1995, and statements of
income (loss), changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the company's board of directors and 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 associated company (see note
3). The financial statements of this company were audited by other auditors,
whose reports have been furnished to us, and our opinion, insofar as it relates
to amounts included for the foregoing company, is based solely on the reports of
the other auditors.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Auditors (Mode of Performance)
Regulations, 1973. Those standards require that we plan and perform the audit to
obtain reasonable assurance that the financial statements are free of material
misstatement, whether caused by an error in the financial statements or by
misleading information included therein. 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 company's board of directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
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 12.
<PAGE>
In our opinion, based upon our audits and the reports of the other auditors
referred to above, the aforementioned financial statements present fairly, in
all material respects, the financial position - of the company and consolidated
- - at December 31, 1996 and 1995 and the results of operations, changes in
shareholders' equity and cash flows - of the company and consolidated - for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. 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 13.
Haifa, Israel Kesselman & Kesselman
March 4,1997 Certified Public Accountants (Isr.)
2
Kesselman & Kesselman is a member of Coopers & Lybrand International, a limited
liability association incorporated in Switzerland.
<PAGE>
[LETTERHEAD OF IGAL BRIGHTMAN & CO.
CERTIFIED PUBLIC ACCOUNTANTS]
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
"MAXIMA" - AIR SEPARATION CENTER LTD.
We have audited the accompanying balance sheets of "Maxima" - Air Separation
Center Ltd. ("the Company") as of December 31, 1996 and 1995, and the
consolidated balance sheets as of such dates, and the related statements of
operations, changes in shareholders' equity and cash flows - of the Company and
on a consolidated basis - for each of the three years in the period ended
December 31, 1996, expressed in Israeli currency. These financial statements are
the responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of a jointly controlled subsidiary
included under the proportionate consolidation method, whose assets constitute
approximately 5.2% and 6.7% of consolidated total assets as of December 31, 1996
and 1995, respectively, and whose revenues constitute approximately 7.1%, 8.3%
and 8% of consolidated total revenues for the years ended December 31, 1996,
1995 and 1994, respectively. 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 in respect of the aforementioned subsidiary, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973, which, for purposes of these financial statements,
are substantially identical to generally accepted auditing standards in the
United States. 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 the Board of Directors and management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted to reflect changes in the general purchasing power of
the Israeli currency in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data,
on the basis of which the adjusted financial statements were prepared, is
presented in Note 30.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements present fairly, in all material respects, the financial
position - of the Company and on a consolidated basis - as of December 31, 1996
and 1995, and the results of operations, changes in shareholders' equity and
cash flows - of the Company and on a consolidated basis - for each of the three
years in the period ended December 31, 1996, in accordance with generally
accepted accounting principles in Israel. Furthermore, in our opinion, the
financial statements are prepared in accordance with the Israeli Securities
Regulations (Preparation of Annual Financial Statements) - 1993.
The financial information presented in accordance with generally accepted
accounting principles in the United States is based on nominal historical data
in Israeli currency and is included in Note 31 to the financial statements.
Igal Brightman & Co.
Certified Public Accountants
Tel Aviv, Israel
February 26, 1997.
- ----------
Deloitte Touche
Tohmatsu
International
<PAGE>
[Letterhead of Kesselman & Kesselman Coopers & Lybrand]
AUDITORS' REPORT To the shareholders of MUL-T-LOCK LIMITED
We have audited the financial statements of Mul-T-Lock Limited (hereafter - the
company) and the consolidated financial statements of the company and its
subsidiaries: balance sheets at December 31, 1996 and 1995 and the statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the company's board of directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of a consolidated subsidiary, whose
assets at December 31, 1996 and 1995 constitute approximately 1.7% and 1.3%,
respectively, of total consolidated assets, and whose turnover for the years
ended December 31, 1996, 1995 and 1994 constitutes approximately 3.4%, 2.7% and
3%, respectively, of total consolidated turnover. The financial statements of
this company were audited by other auditors, whose report has been furnished to
us, and our opinion, insofar as it relates to amounts included for the foregoing
subsidiary, is based solely on the report of the other auditors.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Auditors (Mode of Performance)
Regulations, 1973. Those standards require that we plan and perform the audit to
obtain reasonable assurance that the financial statements are free of material
misstatement, whether caused by an error in the financial statements or by
misleading information included therein. 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 company's board of directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
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.
2
<PAGE>
In our opinion, based upon our audits and the report of the other auditors
referred to above, the aforementioned financial statements present fairly, in
all material respects, the financial position - of the company and consolidated
- - at December 31, 1996 and 1995 and the results of operations, changes in
shareholders' equity and cash flows - of the company and consolidated - for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. 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.
/s/ Kesselman & Kesselman
----------------------------
Tel-Aviv, Kesselman & Kesselman
March 6, 1997 Certified Public Accountants (Isr.)
<PAGE>
[LETTERHEAD OF HAFT & HAFT & CO.]
INCL. STRAUSS, LAZER & CO.
AUDITORS' REPORT TO THE SHAREHOLDERS OF PEC ISRAEL FINANCE CORPORATION LTD.
FOR PARENT COMPANY PURPOSES
We have audited the accompanying balance sheets of PEC Israel Finance
Corporation Ltd. as of December 31, 1996 and 1995, and the related statements of
profit and loss, changes in shareholders' equity and cash flows for the three
years ended. These financial statements are the responsibility of the Company's
Board of Directors and 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 Auditor's Regulations (Auditor's
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 the Board of Directors and management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted to the reflect changes in the general purchasing power
of the Israeli currency in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data,
on the basis of which the adjusted financial statements of the Company were
prepared, is presented in Note 9.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and
1995, and of the results of its operations, changes in shareholders' equity and
cash flows for the three years then ended, in accordance with generally accepted
accounting principles.
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,
1996.
March 31, 1997 H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (lsr.)
MEMBER OF NEXIA INTERNATIONAL
<PAGE>
[LETTERHEAD OF KESSELMAN & KESSELMAN COOPERS & LYBRAND]
REPORT OF INDEPENDENT AUDITORS
To the shareholders of
SCITEX CORPORATION LTD.
We have audited the consolidated balance sheets of Scitex Corporation Ltd. (the
"Company") and its subsidiaries at December 31, 1996 and 1995 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, 1996.
These financial statements are the responsibility of the Company's Board of
Directors and management. Our responsibility is to express an opinion on these
financial statements based on our audits.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance that the financial statements are free
of material misstatement, whether caused by an error in the financial statements
or by misleading information included therein. 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 Company's Board of Directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries at December 31, 1996 and 1995 and the results of their operations,
the changes in shareholders' equity and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with accounting
principles generally accepted in the United States.
Tel-Aviv, Israel Kesselman & Kesselman
February 13, 1997 Certified Public Accountants (Isr.)
(Except for notes 9b2) and 3), as to
which the date is March 11)
<PAGE>
[LETTERHEAD OF SOMEKH CHAIKIN
CERTIFIED PUBLIC ACCOUNTANTS]
Tel-Aviv, March 11, 1997
Auditor's Report to the Shareholders of
Super-Sol Limited
We have audited the financial statements of Super-Sol Limited (the Company) and
the consolidated financial statements of the Company and its subsidiaries
detailed below:
- - Balance sheets as at December 31, 1996 and December 31, 1995
- - Statements of income, changes in shareholders' equity and cash flows for
the years ended on December 31, 1996, 1995 and 1994.
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 have not audited the financial statements of certain consolidated companies
whose assets represent approximately 0.6% and 2.8% of the total assets included
in the consolidated balance sheets at December 31, 1996 and 1995 respectively
and whose income represents approximately 5.6%, 5.8% and 3.9% of the income
included in the consolidated statements of income for the years ended December
31, 1996, 1995 and 1994 respectively. The financial statements of these
companies 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.
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.
We conducted our audits in accordance with generally accepted auditing
standards, including standards prescribed by the Auditors Regulations (Auditor's
Mode of 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.
- --------------------------------------------------------------------------------
A Member of the Price Waterhouse Worldwide Organization
<PAGE>
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. We believe that our audits provide a reasonable
basis for our opinion.
The above mentioned financial statements have been prepared on the basis of
historical cost, in historical values 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 nominal historical terms, on the basis of which the adjusted
statements were prepared, are presented in Notes 29 and 30.
In our opinion, based on our audit and the reports of other auditors 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 December 31, 1996 and 1995 and the changes in
shareholders' equity and the results of their operations and cash flows company
and consolidated for each of the three years ended on December 31, 1996.
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 would have affected the determination of historical
net profit and shareholders' equity to the extent summarized in Note 31 to the
financial statements.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
<PAGE>
[LETTERHEAD OF KOST, LEVARY AND FORER]
Messrs.: D.I.C. Ltd.
PEC Israel Economic Corporation
Re: Financial statements of Tel-Ad Jerusalem Studios Ltd.
("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, 1996 and 1995, and the related
statements of operations and changes in shareholders' equity for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards including those prescribed by the Israeli regulations (Mode of
Performance), 1973, which do not differ in any significant respect from United
States 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, either originating
within the financial statements themselves, or due to any misleading statement
included therein. 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 financial statements are to be read in conjunction with the
accompanying primary audited financial statements of the company, see Note 2.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1995, the results of its operations and changes in its
shareholders' equity for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles in Israel,
which differ in certain respects from those followed in the United States (see
Note 3 to the financial statements).
Tel-Aviv, Israel KOST, LEVARY AND FORER
March 2, 1997 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 31, 1997 By:/s/JAMES I. EDELSON
---------------------------------
James I. Edelson,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Date
---- ----
/s/RAPHAEL RECANATI March 31, 1997
- -----------------------------
Raphael Recanati,
Chairman of the Board
of Directors
/s/FRANK J. KLEIN March 31, 1997
- -----------------------------
Frank J. Klein,
President and Principal
Executive Officer; Director
/s/WILLIAM GOLD March 31, 1997
- -----------------------------
William Gold,
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
<PAGE>
Name Date
---- ----
_____________________________ March , 1997
Robert H. Arnow, Director
_____________________________ March , 1997
Joseph Ciechanover, Director
/s/ELIAHU COHEN March 31, 1997
- -----------------------------
Eliahu Cohen, Director
_____________________________ March , 1997
Roger Cukierman, Director
/s/ALAN S. JAFFE March 31, 1997
- -----------------------------
Alan S. Jaffe, Director
/s/HERMANN MERKIN March 31, 1997
- -----------------------------
Hermann Merkin, Director
/s/HARVEY M. MEYERHOFF March 31, 1997
- -----------------------------
Harvey M. Meyerhoff, Director
/s/OUDI RECANATI March 31, 1997
- -----------------------------
Oudi Recanati, Director
/s/ALAN S. ROSENBERG March 31, 1997
- -----------------------------
Alan S. Rosenberg, Director
_____________________________ March , 1997
Richard S. Zeisler, Director
<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.),
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, filed as Exhibit 10(i)(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995 and incorporated herein by reference.
10(i)(c). Amendment to Exhibit 10(i)(a) dated as of February
1, 1993, filed as Exhibit 10(i)(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 30, 1992 and incorporated herein by reference.
10(i)(d). Shareholders' Agreement dated May 20, 1992 among
Clal Electronics Industries Ltd., the Company, Discount
Investment Corporation Ltd. and International Paper
Company, filed as Exhibit A to Amendment No. 13 to the
Company's Statement on Schedule 13D in respect of
ordinary shares of Scitex Corporation Ltd. held as of
June 12, 1992 and incorporated herein by reference.
10(i)(e). Business Opportunities Agreement dated as of
November 30, 1993 among the Company, DIC Finance and
Management Ltd., and, for the purpose of section 5
thereof only, PEC Finance Company Ltd. and Discount
Investment Corporation Ltd., filed as Exhibit 10(i)(f)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference.
10(i)(f). Amendment to Exhibit 10(i)(e) dated as of December
25, 1996. 247
<PAGE>
10(i)(g). Agreement dated July 1, 1995 between IDB
Development Corporation Ltd. and PEC Finance Company
Ltd. (now named PEC Israel Financial 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, 1995 and incorporated herein by reference.
10(i)(h). 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)(i). Exchange Agreement dated as of January 4, 1994
among the Company, PEC Holdings Limited and IDB
Development Corporation Ltd., filed as Exhibit 10(i)(l)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference.
10(iii)(a). 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. 250
27. Financial Data Schedule. 251
- --------
*This is a management contract or a compensatory plan or arrangement
required to be filed as an exhibit.
<PAGE>
EXHIBITS
TO
REPORT ON FORM 10-K
OF
PEC ISRAEL ECONOMIC CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1996
EXHIBIT 10(i)(f)
<PAGE>
AMENDMENT
TO
BUSINESS OPPORTUNITIES AGREEMENT
This Amendment is made as of December 25, 1996 by PEC Israel Economic
Corporation ("PEC") and DIC Finance and Management Ltd. ("DIC-FM")
PEC and DIC-FM are parties to a Business Opportunities Agreement dated as
of November 30, 1993 among them and others (the "Agreement"), and they
hereby agree to amend the Agreement as follows:
l. The meaning of the term "equity invested" set forth in Section 1 of the
Agreement shall be replaced by the following definition:
"equity invested" with respect to any entity - -
(i) the amount paid pursuant to an Investment Transaction for
shares of such entity or Investment Rights relating thereto
(including the amount paid for such shares upon the exercise of such
Investment Rights), and
(ii) the amount paid in cash as a loan to, or for a debt instrument of,
such entity, provided that either (a) such loan or debt security is
convertible into shares of such entity or Investment Rights relating
thereto, or (b) such entity is an Enterprise when such amount is
paid, and such loan or debt security is repayable, in whole or in
part, over a period (including any extension thereof) exceeding three
years in the aggregate.
2. The following terms and their respective meanings shall be added to Section
1 of the Agreement:
"Investment Rights" with respect to any entity - -
(i) options, warrants and other rights to purchase shares of such entity,
and
(ii) securities (other than shares) that are convertible into or otherwise
exchangeable for shares of such entity.
"Investment Transaction" - -
(i) any type of a negotiated transaction whereby shares of any entity or
Investment Rights relating thereto are purchased or otherwise
received, and
<PAGE>
-2-
(ii) any transaction occurring with respect to any entity that is not an
Enterprise immediately prior thereto, and any additional transaction
occurring with respect to such entity within the first sixty days
thereafter, which is either (a) a purchase of shares of such entity or
Investment Rights relating thereto in a public offering thereof, or
(b) an open market purchase of shares of such entity or Investment
Rights relating thereto that are traded on a stock exchange or other
stock market; provided, however, that such purchase is made for
investment purposes.
The foregoing amendments shall apply to any equity invested by PEC or DIC
at any time after January l, 1996. Inasmuch as the fee resulting therefrom
has not been paid prior to the date hereof it shall be paid by December 31,
1996.
4. Except as set forth herein, the provisions of the Agreement shall not be
amended and shall remain in full force and effect.
This Amendment constitutes an integral part of the Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Amendment as of the
date first above written:
s/ DOV TADMOR s/ S. COHEN
--------------------------------
PEC Israel Economic Corporation DIC Finance and Management Ltd.
By: s/FRANK J. KLEIN
-------------------------------
Frank J. Klein, President
EXHIBIT 21
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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,044
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 407,703
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 31,952
<OTHER-SE> 341,924
<TOTAL-LIABILITY-AND-EQUITY> 407,703
<SALES> 0
<TOTAL-REVENUES> 44,535
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,002
<INCOME-TAX> 4,789
<INCOME-CONTINUING> 28,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,213
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
