SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
NO. 2
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
For the fiscal year ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 1-8707
PEC Israel Economic Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maine 13-1143528
- ---------------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
511 Fifth Avenue, New York, New York 10017
- ---------------------------------------- ------------------------------------
(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
------------------- -------------------
Common Stock (par value $1.00 per share) New York Stock Exchange
- -----------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(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. |X|
<PAGE>
The aggregate market value of the outstanding Common Stock of the
registrant held by non-affiliates on March 26, 1999 was approximately
$101,041,000. 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 26, 1999, 18,362,188 shares of Common Stock were outstanding.
<PAGE>
The Registrant, PEC Israel Economic Corporation ("PEC" or the "Company"),
hereby (i) amends (A) Item 8 of Part II of PEC's Annual Report on Form 10-K for
the year ended December 31, 1998 (the "1998 Form 10-K") by adding thereto the
financial statements of Cellcom Israel Ltd. as at and for the year ended
December 31, 1998, which begins on the next page and (B) Items 14(a)(2)(d) and
14(a)(2)(e) of Part IV of the 1998 Form 10-K by renumbering such Items as Items
14(a)(2)(e) and 14(a)(2)(f), respectively, and (ii) inserts the following as
Item 14(a)(2)(d) of Part IV of the 1998 Form 10-K between Item 14(a)(2)(c) and
Item 14(a)(2)(e) (as renumbered) of Part IV of the 1998 Form 10-K:
(a)(2)(d) Financial statement schedules filed in response to Item 14(d)
pursuant to Rule 3-09 of Regulation S-X:
Cellcom Israel Ltd.
Auditors' Report.
Balance Sheets as at December 31, 1998 and 1997.
Income Statements for the years ended December 31, 1998,
1997 and 1996.
Statement of Changes in Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996.
Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996.
Notes to the Financial Statements.
<PAGE>
CELLCOM ISRAEL LTD.
FINANCIAL STATEMENTS
AS AT
31 DECEMBER, 1998
CONTENTS
Page
----
Auditors' Report 1
Balance Sheet 2
Income Statement 3
Statement of Changes in Shareholders' Equity 4
Statement of Cash Flows 5 - 6
Notes to the Financial Statements 7 - 31
<PAGE>
Letterhead of KPMG/Somekh Chaikin
February 25, 1999
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, 1998 and 1997, the related statements of income
and shareholders' equity and cash flows for each of the three years 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 27 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, 1998 and
1997, the results of its operations, the changes in shareholders' equity and
cash flows for each of the three years ended December 31, 1998, in conformity
with accounting principles generally accepted in Israel, consistently applied.
Without qualifying our opinion, we call attention to Note 18a of the financial
statements in connection with a motion to recognize as a class action, a lawsuit
against other operators in the communications industry and the Company,
concerning the Company's billing of certain network services.
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 income and shareholders' equity.
s/SOMEKH CHAIKIN
Certified Public Accountants (Isr.)
1
<PAGE>
CELLCOM ISRAEL LTD.
BALANCE SHEET
AS AT 31 DECEMBER, 1998
Adjusted to NIS of December 1998
(NIS thousands)
Note 31.12.98 31.12.97
---- -------- --------
Current assets
Cash and cash eqivalents 3 2,222 3,469
Trade receivables 4 408,224 395,061
Other receivables 5 81,077 38,869
Inventory 6 141,921 109,296
--------- ---------
633,444 546,695
--------- ---------
Replacement inventory 6 1 55
--------- ---------
Long-term receivables 7 2,271 35,782
--------- ---------
Investee company 8 -- 1,435
--------- ---------
Property, plant and equipment 9 2,257,172 1,884,013
--------- ---------
Deferred taxes 25 -- 7,379
--------- ---------
Other assets and
deferred expenses 10 5,417 8,204
--------- ---------
--------- ---------
2,898,305 2,483,563
========= =========
Note 31.12.98 31.12.97
---- -------- --------
Current liabilities
Short-term credit from banks 11 286,679 455,228
Suppliers and service providers 12 342,525 310,934
Other credit balances 13 433,151 99,133
--------- ---------
1,062,355 865,295
--------- ---------
Long-term liabilities
Long-term suppliers and
service providers 14 7,722 --
Long-term loans from banks 15 938,944 777,564
Long-term loans from related
parties and others 16 558,859 857,700
Liability for termination of
employer - employee relations 17 1,262 1,161
Deferred taxes 25 33,361 --
--------- ---------
1,540,148 1,636,425
--------- ---------
Company's share of deficit
equity of investee company 8 3,782 --
--------- ---------
Guarantees, commitments and 18
contingent liabilities
Shareholders' equity 292,020 (18,157)
--------- ---------
--------- ---------
2,898,305 2,483,563
========= =========
----------- -------------- ---------------
25 February, 1999 Dov Tadmor Shlomo Piotrokowsky Jacob Perry
Chairman of Member - Board President & CEO
the Board of Directors
of Directors
The accompanying notes are an integral part of the Financial Statements
2
<PAGE>
CELLCOM ISRAEL LTD.
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER, 1998
Adjusted to NIS of December 1998
(NIS thousands)
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
Note 31.12.98 31.12.97 31.12.96
---- -------- -------- --------
<S> <C> <C> <C> <C>
Income from sales and services 19 2,772,035 2,342,221 1,164,554
Cost of sales and services 20 1,613,173 1,445,223* 860,728
--------- --------- ---------
Gross profit 1,158,862 896,998 303,826
Selling and marketing expenses 21 272,853 252,597* 170,146
General and administrative expenses 22 276,479 217,303 132,280
--------- --------- ---------
Profit from operations 609,530 427,098 1,400
Financial expenses, net 23 (119,177) (145,610) (49,916)
Other income (expenses) 24 (989) 24,461 (240)
--------- --------- ---------
Profit (loss) before income tax 489,364 305,949 (48,756)
Income tax 25 173,573 -- --
--------- --------- ---------
Profit (loss) after income tax 315,791 305,949 (48,756)
Company's equity in loss of investee company 8 (5,614) (666) --
--------- --------- ---------
Net profit (loss) 310,177 305,283 (48,756)
========= ========= =========
Profit (loss) per share
Net profit (loss) per NIS 1 par value of ordinary shares
In NIS 27,209 88,397 (436,882)
========= ========= =========
</TABLE>
* Reclassified
The accompanying notes are an integral part of the Financial Statements
3
<PAGE>
CELLCOM ISRAEL LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER, 1998
Adjusted to NIS of December 1998
(NIS thousands)
Retained Earnings/
Share (Accumulated
Capital Deficit) Total
------- -------- -----
Balance as of
1 January, 1996 1 (274,697) (274,696)
For the year ended
31 December, 1996
Net loss for the year -- (48,756) (48,756)
------ ------- -------
Balance as of
31 December, 1996 1 (323,453) (323,452)
For the year ended
31 December, 1997
Share capital issued 12 -- 12
Net profit for the year -- 305,283 305,283
------ ------- -------
Balance as of
31 December, 1997 13 (18,170) (18,157)
For the year ended
31 December, 1998
Net profit for the year -- 310,177 310,177
------ ------- -------
Balance as of
31 December, 1998 13 292,007 292,020
====== ======= =======
The accompanying notes are an integral part of the Financial Statements
4
<PAGE>
CELLCOM ISRAEL LTD.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER, 1998
Adjusted to NIS of December 1998
(NIS thousands)
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
<S> <C> <C> <C>
Cash flows from current operations
Net income (loss) per the income statement 310,177 305,283 (48,756)
Adjustments required to present cash flows
from current operations (Appendix A) 524,895 216,505 77,577
-------- -------- --------
Net cash from current operations 835,072 521,788 28,821
-------- -------- --------
Cash flows from investment activities
Acquisition of property, plant and equipment (757,238) (908,472) (660,053)
Proceeds from sales of property, plant and equipment 22,076 4,237 2,545
Payment in respect of investee company (349) (2,101) --
Payment in respect of other assets (102) -- (1,218)
-------- -------- --------
Net cash used in investment activities (735,613) (906,336) (658,726)
-------- -------- --------
Cash flows from financing activities
Short-term credit from banks (284,350) (380,307) 551,348
Receipt of long-term loans 338,670 765,126 125,663
Payment of long-term loans (155,026) -- (44,190)
Issue of share capital -- 12 --
-------- -------- --------
Net cash from (used in) financing activities (100,706) 384,831 632,821
-------- -------- --------
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,247) 283 2,916
Balance of cash and cash equivalents
at the beginning of the year 3,469 3,186 270
-------- -------- --------
Balance of cash and cash equivalents at the
end of the year 2,222 3,469 3,186
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the Financial Statements
5
<PAGE>
CELLCOM ISRAEL LTD.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER, 1998
Adjusted to NIS of December 1998
(NIS thousands)
Appendix A - Adjustments required to present cash flows from current operations
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
<S> <C> <C> <C>
Income and expenses that do not involve cash flows
Company's equity in loss of investee company 5,614 666 --
Depreciation and amortization 410,987 296,088 184,798
Deferred taxes 3,220 (17,999) --
Erosion of long-term loans 69,080 27,429 (52,833)
Interest accrued on long-term loans 56,701 54,523 50,909
Capital loss 989 1,620 240
Increase in liability for termination of
employer-employee relations 101 669 492
------- ------- -------
546,692 362,996 183,606
------- ------- -------
Changes in assets and liabilities
Decrease (increase) in trade receivables (including non-current maturities) 13,923 (145,113) (204,548)
Decrease (increase) in other receivables (including non-current maturities) 1,737 (14,710) 7,311
Decrease (increase) in inventories (32,625) (57,419) 32,780
Increase (decrease) in suppliers and service providers (including long-term) (7,717) 26,674 34,571
Increase in other credit balances 2,885 44,077 23,857
------- ------- -------
(21,797) (146,491) (106,029)
======= ======= =======
Total 524,895 216,505 77,577
======= ======= =======
</TABLE>
Appendix B - Non-cash activities
Acquisitions of property, plant and equipment totaling 141,675 thousand NIS
(31.12.97 - 91,775 thousand NIS, 31.12.96 - 166,821 thousand NIS) and deferred
expenses in the amount of 2,870 thousand NIS as at 31.12.97 and 31.12.96
(31.12.98 - none) are included in suppliers and service providers.
6
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements
Note 1 - General
Cellcom Israel Ltd. (hereinafter "the Company"), was incorporated in
Israel on 31 January, 1994. The Company commenced operations on 27 June,
1994, upon receiving a license from the Israel Ministry of Communications
(hereinafter "the MOC") to establish, operate and maintain a cellular
mobile telephone system and provide cellular mobile telephone services in
Israel. The Company began providing cellular mobile telephone services to
the Israeli public on 27 December, 1994. The License is for a period of 10
years (hereinafter "the original period"). According to the terms of the
license, the Company has the right to request an extension of the license
for an additional 6 years (hereinafter "the extended period"). In addition
to the original and extended periods, the Company has the right to request
that the MOC renew the license for an additional period or periods of 6
years.
Note 2 - Significant accounting policies
a. Definitions:
The Company - Cellcom Israel Ltd.
Related parties - as defined in Opinion No. 29 of the Institute of
Certified Public Accountants in Israel.
Interested parties - as defined in Article 1 of Israel Securities Law.
b. These financial statements are prepared in accordance with generally
accepted accounting principles in Israel.
c. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
These are management's best estimates based on experience and historical
data, however, actual results could differ from these estimates.
7
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 2 - Significant accounting policies (continued)
d. Financial statements in adjusted New Israeli Shekels (NIS):
1. The financial statements have been prepared on the basis of
historical cost adjusted for changes in the general purchasing power
of the New Israeli Shekel. The adjustment, in accordance with
Opinions No. 36 and 50 of the Institute of Certified Public
Accountants in Israel, expresses the financial data in adjusted NIS
of identical purchasing power. Condensed financial statements in
nominal NIS are provided in Note 27.
The adjusted value of non-monetary assets represents their
historical cost adjusted for changes in the general purchasing power
of the Israel currency and does not necessarily represent their
market value to the Company.
In these financial statements the term "cost" refers to the adjusted
cost, unless otherwise indicated.
Comparative data for the previous periods have been adjusted to NIS
of the current reporting period.
2. Balance sheet:
Non-monetary items (fixed assets, other assets, deferred expenses
and revenue, inventory, share capital and prepaid expenses) have
been adjusted for the changes in the Consumer Price Index
(hereinafter "the Index") which was published for the date of the
transaction, to the Index published for the balance sheet date.
The equity value of investments in the investee company is
determined on the basis of its financial statements adjusted for the
changes in the Index.
Monetary items are stated at their nominal value.
3. Income statement:
Income and expenses arising from non-monetary items (depreciation,
amortization, deferred expenses and revenue, changes in inventory
and prepaid expenses) have been adjusted based on specific indices
corresponding to the appropriate balance sheet items.
The share in the results of operations of the investee company is
determined on the basis of its financial statements adjusted for the
changes in the Index.
Income and expenses, except for financial expenses or income and
expenses arising from non-monetary items, have been adjusted on the
basis of the change in the Index from the transaction date until the
balance sheet date.
Net financial expenses are expressed in real terms. They include the
erosion of monetary balances, as well as adjustment differentials
which were created as a result of the adjustment of the financial
statements, as aforesaid.
8
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 2 - Significant accounting policies (continued)
e. Exchange rate and Consumer Price Index data:
1. Assets and liabilities which are linked to foreign currency are
included on the basis of the representative exchange rate of the
currency prevailing at the balance sheet date.
Balances which are linked to the Index are presented on the basis of
the last Index published prior to the balance sheet date or on the
basis of the first Index published subsequent to the balance sheet
date, based on the terms of the applicable transactions.
Income and expenses denominated in foreign currency are recorded
according to the representative exchange rate prevailing at the time
the transactions were effected.
2. Exchange rates and Consumer Price Indices are as follows:
Exchange rates Consumer Price
of US$ Index
------ -----
As of 31 December, 1996 3.251 143.1 points
As of 31 December, 1997 3.536 153.1 points
As of 31 December, 1998 4.160 166.3 points
Increase during the period
Year ended 31 December, 1996 3.7% 10.6%
Year ended 31 December, 1997 8.8% 7.0%
Year ended 31 December, 1998 17.6% 8.6%
f. Allowance for Doubtful Accounts:
The allowance for doubtful accounts is calculated primarily as a general
provision and partly as a specific allowance in respect of receivable
accounts that management believes adequately reflects the loss inherent in
receivables, of which the collection is in doubt. In determining the
fairness of the allowance, management based itself, inter alia, on
evaluation of the security received from the debtors as well as the period
passed from the original billing.
g. Inventory:
Inventory of cellular phone equipment and accessories (hereinafter "CPE")
and spare parts are stated at the lower of cost or net realizable value.
Cost is determined by the first-in first-out method.
Used telephone handsets utilized by the Company as replacement telephones,
in accordance with warranty agreements with its subscribers, are stated at
cost and are amortized using the straight line method over a period of two
years. The remainder of the used telephones, accessories and spare parts
are written off.
9
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 2 - Significant accounting policies (continued)
h. Investee company:
Investment in the investee company in which the Company has a significant
influence (i.e. more than 20% ownership), is stated by the equity method.
i. Property, plant and equipment:
Property, plant and equipment are stated at cost. Cost includes direct and
other expenditures necessary to prepare the assets for use. Other
expenditures do not include financial expenses (income), since those
expenses are not material.
Depreciation is calculated using the straight line method, at annual rates
considered adequate to write off the assets over their estimated useful
lives.
Annual depreciation rates are as follows:
%
--
Network equipment 15
Machinery and equipment 7-20 (mainly 15%)
Motor vehicles 15
Computers 20-33
Furniture and office equipment 6-15
Leasehold improvements - according to the length
of the lease
The cost of maintenance and repairs is charged to expenses as incurred.
The cost of significant renewals and improvements is added to the carrying
amount of the respective fixed asset.
j. Other assets and deferred expenses:
Other assets and deferred expenses are stated at cost and are amortized at
annual rates considered adequate to write off the assets over their
estimated useful lives.
Annual amortization rates are as follows:
%
--
License 10
Deferred expenses 10-33 (mainly 10.5%)
10
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 2 - Significant accounting policies (continued)
k. Revenue recognition:
The income from sales of CPE is recognized upon delivery to the customer.
The income derived from long-term credit arrangements (longer than one
year) is recognized on the basis of the present value of future cash
flows, discounted according to market interest rates at the time of the
transaction. The difference between the original debt and its present
value, as mentioned above, is spread over the credit period and is
recorded as interest income.
Income from services is recognized and accrued on a daily basis as earned.
Receipts from the sale of calling cards are recorded as deferred income
and are recognized to income as they are used.
l. Year 2000.
The costs required to prepare and convert the existing programs of the
Company, to be able to differentiate between years belonging to the 20th
century and years belonging to the 21st century (Year 2000 compliance),
are recorded as current expense when incurred. As for uncertainties that
arise from this issue see also Note 18i.
m. Income taxes:
Income taxes are provided on the basis of the liability method of
accounting. Deferred tax assets resulting from temporary differences are
based on the assumption that the net assets and liabilities will
eventually be realized at their recorded amounts.
The tax effect of the tax loss carryforward is recorded as a deferred tax
asset. As a result of current year profits and based on profit trends, the
Company allocated deferred taxes in respect of all temporary differences
without any valuation allowance.
The deferred amounts are calculated at the tax rates that will be in
effect when the deferred taxes are utilized or the tax benefits realized,
as far as they are known at the balance sheet date.
11
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 2 - Significant accounting policies (continued)
n. Derivative financial instruments:
The Company enters into certain currency hedging transactions to manage
exposure to foreign exchange rate fluctuations.
The gains and losses on derivative financial instruments held as hedging
instruments for existing liabilities are recognized concurrently with the
gains and losses on the hedged liabilities.
The gains and losses on derivative financial instruments hedging firm
commitments are deferred, and are recognized in the same period that gains
and losses from the hedged transactions are recognized.
The results of transactions, which do not meet all of the hedging criteria
specified in SFAS 52, are recorded as financial income or expense.
Note 3 - Cash and cash equivalents
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
NIS 1,775 3,352
U.S. Dollars 447 117
----- -----
2,222 3,469
===== =====
12
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 4 - Trade receivables
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Open accounts and accrued revenue 352,464 283,017
Checks and credit cards receivables 110,585 87,754
------- -------
463,049 370,771
Allowance for doubtful accounts (72,992) (35,073)
------- -------
390,057 335,698
Current maturity of long-term receivables 18,167 59,363
------- -------
408,224 395,061
======= =======
Note 5 - Other receivables
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Government institutions 57 35
Prepaid expenses 11,730 8,420
Deferred taxes 48,140 10,620
Other 18,100 19,794
------- -------
78,027 38,869
Current maturity of long term receivables 3,050 --
------- -------
81,077 38,869
======= =======
Note 6 - Inventory and replacement inventory
a. Composition
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Cellular telephones 88,295 92,855
Spare parts 32,125 10,732
Accessories 21,501 5,709
------- -------
141,921 109,296
======= =======
b. Inventories of cellular telephones, accessories and spare parts are shown
net of allowances for lower of cost or net realizable value in the amount
of 31,348 thousand NIS, (31.12.97 - 43,849).
c. Replacement inventory - Inventory of replacement cellular telephones is
shown net of amortization of 11,965 thousand NIS, (31.12.97 - 12,069).
13
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 7 - Long-term receivables
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Long-term trade receivables (a) 29,881 109,230
Other 3,050 6,425
------- -------
Total (c) 32,931 115,655
Less deferred interest income (b) 1,936 13,477
------- -------
30,995 102,178
Allowance for doubtful accounts 7,507 7,033
------- -------
23,488 95,145
Less current maturity 21,217 59,363
------- -------
2,271* 35,782
======= =======
* Will mature in 2000.
(a) The long-term trade receivables do not bear interest. Such receivables
arise from the sale of handsets on an installment basis (primarily for 24
monthly payments).
(b) The deferred interest income constitutes the difference between the amount
of the long-term receivables and their discounted value based upon the
relevant discount rate at date of the transaction (17%-22%).
(c) Details about debtors:
The receivables include a large number of debtors whose indebtedness does
not exceed 145 thousand NIS each.
Note 8 - Investee company
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
The investment is comprised of:
Acquisition cost 1,323 1,323
Accumulated loss (6,280) (666)
------ ------
(4,957) 657
Loans (a) 1,175 778
------ ------
(3,782) 1,435
====== ======
As at 31 December, 1998, the Company held 51% of the equity of the investee
company.
Due to immaterial amounts of the investee financial statements, the investee's
financial statements are not consolidated into these financial statements.
(a) 31.12.98 31.12.98 31.12.97
-------- -------- --------
Interest rate NIS thousands NIS thousands
------------- ------------- -------------
U.S. Dollars 7.22% 438 380
Linked to the Index 2.00% 389 398
Unlinked -- 348 --
----- ---
1,175 778
===== ===
The loan linked to the Index has maturity date of August 2002
14
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements
(continued)
Note 9 - Property, plant and equipment
a. Composition
<TABLE>
<CAPTION>
Computers,
Machinery furniture and Leasehold
Network and equipment Vehicles office equipment improvements Total
------- ------------- -------- ---------------- ------------ -----
NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cost
As of 1 January, 1998 2,149,790 37,402 31,609 187,805 18,453 2,425,059
Additions 681,978 8,764 7,306 101,292 7,798 807,138
Dispositions (27,628) -- (4,404) (4,540) -- (36,572)
--------- ------ ------ ------- ------ ---------
As of 31 December, 1998 2,804,140 46,166 34,511 284,557 26,251 3,195,625
--------- ------ ------ ------- ------ ---------
Accumulated depreciation
As of 1 January, 1998 468,444 9,260 6,485 51,120 5,737 541,046
Depreciation for the year 354,391 6,689 4,845 41,911 3,078 410,914
Dispositions (10,750) -- (1,961) (796) -- (13,507)
--------- ------ ------ ------- ------ ---------
As of 31 December, 1998 812,085 15,949 9,369 92,235 8,815 938,453
--------- ------ ------ ------- ------ ---------
Net depreciated cost as of
31 December, 1998 1,992,055 30,217 25,142 192,322 17,436 2,257,172
========= ====== ====== ======= ====== =========
Net depreciated cost as of
31 December, 1997 1,681,346 28,142 25,124 136,685 12,716 1,884,013
========= ====== ====== ======= ====== =========
</TABLE>
b. Additional information
Network includes costs incurred to construct the cellular mobile telephone
system, including 74,737 thousand NIS (31.12.97 - 61,823 thousand NIS) of
engineering and operation costs capitalized (primarily consulting fees).
Computers include consulting fees and other costs incurred to install computer
systems in the amount of 6,612 thousand NIS, (31.12.97 - same).
15
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 10 - Other assets and deferred expenses
a. Composition Deferred
License (1) Expenses (2) Total
----------- ------------ -----
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Cost 8,512 1,228 9,740
Accumulated amortization 3,654 669 4,323
----- --- -----
Balance as of
31 December, 1998 4,858 559 5,417
===== === =====
Net amortized cost as of
31 December, 1997 5,753 2,451 8,204
===== ===== =====
b. Additional information
1. License includes expenses paid by a related party in obtaining the
license, which were acquired by the Company in the amount of 8,281
thousand NIS, (31.12.97 - same).
2. Deferred expenses are in respect of office and retail store rentals and
finance expenses regarding long-term loans.
Note 11 - Short-term credit from banks
<TABLE>
<CAPTION>
31.12.98 31.12.98 31.12.97
-------- -------- --------
Interest rate NIS thousands NIS thousands
------------- ------------- -------------
%
---
<S> <C> <C> <C>
Short-term loans - unlinked 13.75 120,700 405,050
Current maturities of long-term loans 4.15 - 4.35 165,979 50,178
------- -------
286,679 455,228
======= =======
</TABLE>
Note 12 - Suppliers and service providers
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Open accounts:
NIS 42,332 130,122
U.S. Dollars 185,317 86,223
Accrued expenses (primarily NIS) 110,405 94,589
------- -------
338,054 310,934
Current maturity of long-term
suppliers and service providers 4,471 --
------- -------
342,525 310,934
======= =======
16
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 13 - Other credit balances
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Employees and related liabilities 42,372 34,255
Deferred revenue 33,275 27,858
Advances from customers 4,566 4,633
Other 28,245 32,387
------- ------
108,458 99,133
Current maturity of long-term loans
from related parties and others 324,693 --
------- ------
433,151 99,133
======= ======
Note 14 - Long-term suppliers and service providers
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Long-term suppliers and service providers 12,193 --
Less current maturity 4,471 --
------- ------
7,722 --
======= ======
Note 15 - Long-term loans from banks
<TABLE>
<CAPTION>
a. Composition 31.12.98 31.12.98 31.12.97
-------- -------- --------
Interest rate NIS thousands NIS thousands
------------- ------------- -------------
%
---
<S> <C> <C> <C>
Linked to the Index(*) 4.15 - 5.55 1,104,923 827,742
Less current maturities 165,979 50,178
--------- -------
938,944 777,564
========= =======
</TABLE>
(*) Including related parties (See Note 26)
b. Aggregate maturities are as follows: NIS thousands
-------------
2000 335,499
2001 232,370
2002 284,512
2003 86,563
-------
938,944
=======
17
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 16 - Long-term loans from related parties and others
a. Composition 31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
From related and interested parties:
U.S. Dollars 853,427 827,984
------- -------
From others:
U.S. Dollars 30,125 29,716
------- -------
883,552 857,700
------- -------
Less current maturity 324,693 --
------- -------
558,859 857,700
======= =======
b. The loans bear interest at the rate of Libor +1% per annum. The interest
rates for the year ended 31.12.98 range from 6.27% to 7.26%. The Libor
rate is adjusted independently for each loan on an annual basis.
Repayment of the loans and accrued interest are due as follows:
NIS thousands
-------------
2000 101,045
2001 6,235
2002 38,031
2003 382,095
2004 31,453
-------
558,859
-------
18
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 17 - Liability for termination of employer-employee relations
The Company's liability for termination of employer-employee relations is
computed according to Israeli Labor Law and is covered by deposits in a pension
fund and/or with an insurance company. The liability is calculated on the basis
of the latest salary paid to each employee multiplied by the number of years of
employment. After having received the relevant authorization from the Ministry
of Labor and Welfare and under the terms of section 14 of the Severance Law
1963, the Company's payments to the pension fund and to the insurance company
fully cover its severance pay liability arising from those salaries in respect
of which these payments were made.
The Company's liabilities disclosed in the balance sheet represent severance pay
liabilities not covered as above.
Note 18 - Guarantees, commitments and contingent liabilities
a. In December 1998, Bezek, as well as the Company and other operators in the
communications industry, received a copy of a motion filed with the
District Court in Tel-Aviv by one of Bezek's subscribers to approve a
lawsuit attached thereto as a class action pursuant to the Consumers
Protection Act on behalf of the Bezek's subscribers for damages in the
amount of approximately 2 billion NIS in respect of airtime charges
collected by Bezek and remitted to the Company for the use of some of the
network services.
The Company rejects such allegations and intends to vigorously contest
this lawsuit. In the opinion of management, based on the opinion of its
legal advisors, the Company has a strong defense against the claims of
this lawsuit. At this stage, management and its legal advisors are unable
to evaluate the outcome of the lawsuit referred to above and the effect
thereof, in the event that it is approved as a class action. Therefore, no
provision has been made in the financial statements with respect thereto.
b. The Company is a defendant in various lawsuits, including lawsuits
relating to the building of cell sites, patent infringement, and is
subject to various claims which arise in the normal course of business. In
the opinion of the management, the ultimate disposition of these matters
will not have a material adverse effect on the financial position,
liquidity or results of operations of the Company. The total of these
lawsuits filed against the Company, for which provisions have not been
made, amount to approximately 4.1 million NIS.
c. The Company has given bank guarantees as follows:
1. To the Government of Israel (to guarantee performance of the
License) - 10 million U.S. Dollars.
2. To suppliers and government institutions - 436 thousand NIS.
3. To guarantee the provision of CPE and services - 1,040 thousand NIS.
19
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 18 - Guarantees, commitments and contingent liabilities (continued)
d. Among the terms and conditions of the license, the Company undertook the
following:
1. To construct the network according to certain specifications and
timetables.
2. Commitments regarding maximum fees for services to be charged to its
subscribers for the first five years of operations.
3. Not to pledge any of its assets without the consent of the MOC.
4. To pay royalties in the amount of 8% of gross revenues from the sale
of airtime, the monthly service charge and connection fees.
The Company is not in default of any of the above undertakings.
e. As of 31 December, 1998, the Company has commitments to purchase CPE and
network equipment including services of approximately 276 million NIS.
f. The Company has entered into the following major lease agreements:
1. Office buildings - The agreements expire on 2 February, 2001 and 30
July, 2004.
2. Warehouse and switching stations - There are agreements for 4
warehouses and 6 switching stations for periods of up to 8 years.
3. Cell sites - There are agreements for 814 cell sites for periods of
up to 10 years.
4. Service centers and retail stores - There are agreements for 13
service centers and 3 retail stores for periods of up to 6 years.
The annual rents for the above mentioned leases are as follows:
NIS thousands
-------------
1999 46,257
2000 37,141
2001 29,165
2002 22,272
2003 and thereafter 34,566
20
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 18 - Guarantees, commitments and contingent liabilities (continued)
Seven. Derivative financial instruments:
The Company enters into foreign currency forward exchange commitments
(hereinafter- forward contracts) to manage overall exposure to supplier
balances, long-term loans and certain purchase commitments denominated in
or linked to the U.S. dollar. In 1998 and 1997, such transactions were
entered into with various financial institutions.
The Company does not hold derivative financial instruments for trading
purposes, but rather solely to manage its foreign currency exposure on
existing liabilities, long-term loans and on its commitments to acquire
fixed assets and inventory. Nevertheless, a significant portion of these
transactions do not meet all the hedging criteria pursuant to generally
accepted accounting principles and, accordingly, the results of such
transactions are recorded in earnings on a current basis.
Forward contracts outstanding at 31 December 1998 are as follows:
Forward transactions to exchange index linked NIS for U.S. Dollars:
Settlement date: Notional amount
31.12.98
--------
NIS thousands
-------------
1999 658,312
2000 189,421
2001 482,854
2002 105,199
---------
1,435,786
---------
Forward transactions to exchange NIS for U.S. Dollars:
Settlement date:
1999 166,400
---------
1,602,186
=========
Of the forward contracts outstanding at 31 December, 1998, approximately
1,083 million NIS relates to hedges of existing liabilities and long-term
loans. Approximately 275 NIS million relates to hedges of firm commitments
to acquire fixed assets and inventory and approximately 244 NIS million
relates to hedges which do not meet all of the hedging criteria specified
in SFAS 52. At 31 December, 1998 The Company has deferred approximately
6.4 NIS million of losses with regard to those hedges related to firm
commitments to acquire fixed assets and inventory.
21
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 18 - Guarantees, commitments and contingent liabilities (continued)
g. Derivative financial instruments (continued):
As of 31 December, 1997, the Company had 907 million NIS of forward
contracts to exchange Index linked NIS for U.S. Dollars outstanding. All
of the forward exchange transactions had settlement dates of twelve months
or less and were used to hedge the Company's existing liabilities and
long-term loans.
h. The amount of liabilities which are secured by liens is:
31.12.98
--------
NIS thousands
-------------
Long-term loans 938,944
Short-term loans 286,679
---------
1,225,623
=========
To secure the said liabilities, the Company has liens on all of its
assets.
a. Year 2000:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a Year. Date-sensitive systems may
recognize the Year 2000 as 1900 or some other date, resulting in errors
when systems information using Year 2000 dates is processed. Similar
problems may also occur in systems that use the digits "99" in a date
field as indication of something other than the Year 1999. The effects of
the Year 2000 Issue may be experienced before, on, or after January 1st,
2000, and if not resolved, the impact on operations and financial
reporting may range from minor errors to significant systems failure which
could affect a company's ability to conduct regular business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the remediation efforts
of customers, suppliers, or other third parties, will be fully resolved.
The Company is preparing its computer systems to become Year 2000
compliant and is in the process of mapping the management, financial and
other systems, including their interfaces, in order to locate possible
flaws in these systems. A plan for examination and correction of the flaws
and for the adaptation of the Year 2000 has been prepared and is expected
to be completed during 1999.
The Company has already replaced certain central computer systems with
more advanced systems which provide a solution to the Year 2000 problem.
The Company currently estimates that it will expense approximately 8
million NIS related to the Year 2000 problem of which 3.3 million NIS was
expensed in the year ending December 31, 1998.
22
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 19 - Income from sales and services
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Sales of CPE 228,245 315,485 368,003
Services 2,543,790 2,026,736 796,551
--------- --------- ---------
2,772,035 2,342,221 1,164,554
========= ========= =========
Note 20 - Cost of sales and services
<TABLE>
<CAPTION>
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
<S> <C> <C> <C>
a. According to source of income:
Cost of CPE 400,660 471,487 330,083
Cost of services 1,212,513 973,736 530,645
--------- --------- -------
1,613,173 1,445,223 860,728
========= ========= =======
b. Composition
Purchases of CPE 428,637 562,036 305,299
Decrease (increase) in inventory (58,780) (114,080) 23,046
Adjustment to net realizable value (12,501) 25,129 1,739
Salaries and related expenses 74,930 55,319* 22,653*
Fees to other operators 385,092 346,220 234,629
Depreciation 354,634 253,973 149,511
Amortization and write-off of replacement
and used telephones, accessories and spare parts 38,712 33,867 17,681
Royalties 146,437 119,936 33,806
Other 256,012 162,823* 72,364*
--------- --------- -------
1,613,173 1,445,223 860,728
========= ========= =======
</TABLE>
* Reclassified
Note 21 - Selling and marketing expenses
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Salaries and related expenses 82,084 65,395* 58,634*
Commissions 77,772 84,148 32,736
Advertising and public relations 56,630 50,802 29,049
Depreciation 3,346 3,147 2,193
Other 53,021 49,105* 47,534*
------- ------- -------
272,853 252,597 170,146
------- ------- -------
* Reclassified
23
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 22 - General and administrative expenses
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Salaries and related expenses 82,636 60,478* 42,539*
Depreciation and amortization 53,207 34,272 22,269
Rent and maintenance 30,176 24,171 22,002
Professional services 23,271 20,389 16,108
Bad and doubtful debts 38,963 43,845 4,988
Other 48,226 34,148* 24,374*
------- ------- -------
276,479 217,303 132,280
======= ======= =======
* Reclassified
Note 23 - Financial expenses, net
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Long-term loans (172,269) (97,385) 285
Short-term loans (4,787) (39,476) (21,368)
Foreign exchange instruments 72,682 (5,422) (14,063)
Sales promotions 5,698 8,569 --
Other, mainly derived from erosion
of trade receivables and suppliers (20,501) (11,896) (14,770)
-------- -------- -------
(119,177) (145,610) (49,916)
======== ======== =======
Note 24 - Other income (expenses)
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Other income* -- 26,081 --
Capital loss (989) (1,620) (240)
---- ------ ----
(989) 24,461 (240)
==== ====== ====
* Other income represents income as a result of an agreement between the Company
and one of its suppliers with regard to a business dispute.
24
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 25 - Income tax
a. The Company elected to compute its taxable income in accordance with
Income Tax Regulations (Rules for Accounting for Foreign Investors
Companies and Certain Partnerships and Setting its Taxable Income), 1986.
Accordingly, its taxable income or loss is calculated in U.S. Dollars.
b. The Company has not received a final tax assessment since inception.
c. The Company has a capital loss carryforward for tax purposes in the amount
of 2,788 thousand NIS. The capital loss carryforward is linked to the US
Dollar and expires in the years 2002 through 2005.
d. Reconciliation of income tax expense:
A reconciliation of the theoretical tax expense computed on earnings
before taxes at the statutory tax rate and the actual income tax provision
is presented as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
<S> <C> <C> <C>
Profit (loss) before income taxes as per income statement 489,364 305,949 (48,756)
------- ------- -------
Tax computed at the statutory tax rate 36% 176,171 110,141 (17,552)
Increase (decrease) in tax resulting from:
Non-deductible expenses 2,426 2,004 1,845
Difference between financial statements in
adjusted NIS and for tax purposes in U.S.$ (5,024) (390) (192)
Utilization of carry-forward losses from previous years -- (111,755) --
Change in valuation allowance -- -- 15,899
------- ------- -------
173,573 0 0
======= ======= =======
</TABLE>
25
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 25 - Income tax (continued)
e. Deferred taxes:
Deferred taxes are comprised of the following:
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Provision for employee benefits 4,291 3,459
Provision for loss contingency 1,469 3,288
Provision for unpaid interest -- 44,275
Allowance for doubtful accounts 28,980 15,158
Difference in the value of fixed assets and
deferred expenses per the financial statements
in adjusted NIS and for tax purposes (19,961) (48,181)
------ ------
14,779 17,999
====== ======
The deferred taxes are included in the balance sheet as follows:
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Other receivables 48,140 10,620
Deferred taxes (33,361) 7,379
------ ------
14,779 17,999
====== ======
f. Income tax Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Current taxes 183,455 17,999 --
Prior year taxes (13,102) --
Deferred taxes 3,220 (17,999) --
------- ------- -------
173,573 -- --
======= ======= =======
26
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements
(continued)
Note 26 - Related and interested parties
a. Balances:
<TABLE>
<CAPTION>
31.12.98 31.12.98 31.12.97
-------- -------- --------
Weighted average NIS thousands NIS thousands
Interest rate ------------- -------------
-------------
%
--
1. Cash and cash equivalents:
<S> <C> <C> <C>
NIS 315 81
U.S. Dollar 189 2
======= =======
<CAPTION>
2. Current assets 426 48
<S> <C> <C> <C>
======= =======
</TABLE>
The highest debit balances due from related and interested parties during
the reported period - 442 thousand NIS.
<TABLE>
<CAPTION>
3. Current liabilities:
<S> <C> <C> <C>
Unlinked 13.75 43,500 173,795
U.S. Dollar -- 311 288
------- -------
43,811 174,083
======= =======
<CAPTION>
4. Long-term loans:
<S> <C> <C> <C>
Linked to the Index 5.20 54,102 50,178
Linked to U.S. Dollar 6.63-7.26 124,628 107,491
U.S. Dollar 6.27-7.26 728,799 720,493
------- -------
907,529 878,162
======= =======
</TABLE>
The long-term loans linked to the Index will mature in 2002.
b. The Company has entered into forward contracts with related and interested
parties as follows:
Forward transactions to exchange index linked NIS for U.S. Dollars:
Settlement date: Notional amount
31.12.98
--------
NIS thousands
-------------
1999 227,539
2000 125,801
2001 356,841
2002 105,199
Forward transactions to exchange NIS for U.S. Dollars:
Settlement date:
1999 41,600
As of 31 December, 1997, the Company had 390 NIS million of forward
contracts to exchange Index linked NIS for U.S. Dollars outstanding with
related and interested parties. All of the forward exchange transactions
had settlement dates of twelve months or less.
27
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 26 - Related and interested parties (continued)
c. The Company conducts transactions in the ordinary course of business and
at arms length terms with related and interested parties.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
---------- ---------- ----------
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
<S> <C> <C> <C>
1. Income:
Sales of CPE 725 33 187
Financial income, net -- -- 2,316
2. Expenses:
Salaries and related expenses to
related parties and their
nominees
(1998 and 1997 - 1 individual
1996 - 2 individuals) 2,637 1,703 2,235
Professional services and other 1,455 2,973 2,396
Finance expenses, net 125,256 66,621 --
3. Acquisition of property, plant
and equipment and capitalized
expenditures -- -- 3,411
</TABLE>
The Company, within the ordinary course of business, conducts transactions
with companies who are interested parties. The Securities Authority,
within the authority granted in Regulation 64 ( Preparation of Annual
Financial Statements) 1993, excused the Company from disclosure of its
transactions with its interested parties (specifically The I.D.B. Group
and its investee companies who are interested parties also as a result of
cross-holdings) and companies owned by them.
28
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statements (continued)
Note 27 - Condensed financial statements in nominal NIS
a. Balance sheet
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Current assets
Cash and cash equivalents 2,222 3,193
Trade receivables 408,224 363,703
Other receivables 112,705 35,746
Inventory 141,037 100,360
--------- ---------
664,188 503,002
--------- ---------
Replacement inventory 1 45
--------- ---------
Long-term receivables 2,271 32,942
--------- ---------
Investee company -- 1,313
--------- ---------
Property, plant and equipment 1,969,873 1,561,116
--------- ---------
Deferred taxes 38,748 69,752
--------- ---------
Other assets and
deferred expenses 3,926 6,022
--------- ---------
--------- ---------
2,679,007 2,174,192
--------- ---------
31.12.98 31.12.97
-------- --------
NIS thousands NIS thousands
------------- -------------
Current liabilities
Short-term credit from banks 286,679 419,095
Suppliers and service providers 342,525 286,253
Other credit balances 433,151 91,265
--------- ---------
1,062,355 796,613
--------- ---------
Long-term liabilities
Long-term suppliers and
service providers 7,722 --
Long-term loans from banks 938,944 715,845
Long-term loans from related
parties and others 558,859 789,620
Liability for termination of
employer - employee relations 1,262 1,069
--------- ---------
1,506,787 1,506,534
--------- ---------
Company's share of deficit in
capital of investee company 3,830 --
--------- ---------
Shareholders' equity 106,035 (128,955)
--------- ---------
--------- ---------
2,679,007 2,174,192
--------- ---------
29
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Financial Statement (continued)
Note 27 - Condensed financial statements in nominal NIS (continued)
b. Income statement
<TABLE>
<CAPTION>
Year ended Year ended Year ended
31.12.98 31.12.97 31.12.96
-------- -------- --------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
<S> <C> <C> <C>
Income from sales and services 2,641,002 2,113,433 969,991
Cost of sales and services 1,483,594 1,267,873* 696,635
--------- --------- -------
Gross profit 1,157,408 845,560 273,356
Selling and marketing expenses 260,513 229,391* 141,425
General and administrative expenses 261,987 192,533 107,895
--------- --------- -------
Profit from operations 634,908 423,636 24,036
Financial expenses, net 269,700 247,743 159,381
Other income 432 22,743 132
--------- --------- -------
Profit (loss) before income tax 365,640 198,636 (135,213)
Income tax (125,012) 62,959 --
--------- --------- -------
Profit (loss) after income tax 240,628 261,595 (135,213)
Company's equity in loss of investee company (5,638) (612) --
--------- --------- -------
Net profit (loss) 234,990 260,983 (135,213)
========= ========= =======
</TABLE>
* Reclassified
30
<PAGE>
CELLCOM ISRAEL LTD.
Notes to the Finanacial Statements (continued)
Note 27 - Condensed financial statements in nominal NIS (continued)
c. Statement of changes in shareholders' equity
Share Retained Earnings/
capital (1) Accumulated deficit Total
----------- ------------------- -----
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Balance as of
1 January, 1996 1 (254,737) (254,736)
For the year ended
31 December, 1996
Net loss for the year -- (135,213) (135,213)
------ -------- --------
Balance as of
31 December, 1996 1 (389,950) (389,949)
For the year ended
31 December, 1997
Shared capital issued 11 -- 11
Net profit for the year -- 260,983 260,983
------ -------- --------
Balance as of
31 December, 1997 12 (128,967) (128,955)
For the year ended
31 December, 1998
Net profit for the year -- 234,990 234,990
------ -------- --------
Balance as of
31 December, 1998 12 106,023 106,035
====== ======== ========
(1) Share capital as at 31 December, 1998
Authorized Issued and paid
---------- ---------------
NIS NIS
--- ---
Ordinary shares of 0.1 NIS
par value each 1,000,000 11,400
31
<PAGE>
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
By: /s/JAMES I. EDELSON
----------------------------
DATE: May 24, 1999 James I. Edelson
Executive Vice President and
Secretary
