<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Month of March, 2000
Koor Industries Ltd.
- -------------------------------------------------------------------------------
(Translation of registrant's name into English)
4 Kaufman Street, Tel-Aviv, 68012, Israel
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
FORM 20-F X FORM 40-F
------- -------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of
1934.
YES NO X
------- -------
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-_____
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Koor Industries Limited
/s/ Jonathan Kolber
---------------------------------------
Jonathan Kolber
CEO and Vice Chairman
Of the Board of Directors
Dated: 23 March, 2000
<PAGE>
Exhibit Description
A. Translation from Hebrew to English of an Immediate Report (the
"Report"), which was served on the Israeli Securities Authority,
The Tel-Aviv Stock Exchange Ltd. and the Registrar of Companies,
on March 23, 2000, regarding the Consolidated Financial
Statements of Koor Industries Ltd. for the period of January 1,
1999 - December 31, 1999.
<PAGE>
[Koor Letterhead]
EXHIBIT A
March 23, 2000
The Securities Authority The Tel Aviv Stock The Registrar of Companies
22 Kanfei Nesharim St. Exchange 97 Yafo St.
Jerusalem 95464 54 Ahad Ha'am St. Jerusalem 91007
Tel Aviv 65202
- --------------- ------------------ ---------------
Fax: 02-6513940 Fax: 03-5105379
- --------------- ---------------
Re: Immediate Report - Koor Industries Ltd.
Company No. 52-001414-3
We hereby enclose the Consolidated Financial Statements of Koor
Industries Ltd., together with the Directors' Report for the period of January
1, 1999 - December 31, 1999.
Yours sincerely,
/s/ Yossef Ben Shalom
---------------------------------------
Koor Industries Ltd.
Yossef Ben Shalom
Executive Vice President
& Chief Financial Officer
<PAGE>
Koor Industries Ltd. (an Israeli Corporation)
Financial Statements as at 31 December, 1999
- -------------------------------------------------------------------------------
Contents
Page
Auditors' Report 2
Financial Statements
Consolidated Balance Sheets 3
Company Balance Sheets 4
Consolidated Statements of Operations 5
Company Statements of Operations 6
Statement of Shareholders' Equity 7
Consolidated Statements of Cash Flows 11
Company Statements of Cash Flows 16
Notes to the Financial Statements 18
<PAGE>
March 23, 2000
Auditors' Report to the Shareholders of
Koor Industries Ltd.
We have audited the accompanying balance sheets of Koor Industries Ltd.
(the "Company") as at December 31, 1999 and 1998, and the consolidated
balance sheets of the Company and its subsidiaries as at such dates, and
the related statements of operations, shareholders' equity, and cash flows,
for each of the three years, the last of which ended December 31, 1999.
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 18% and 30% of the total consolidated assets as at
December 31, 1999 and 1998 respectively, and whose revenues constitute 16%,
31% and 48% of the total consolidated revenues for the years ended December
31, 1999, 1998, and 1997 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 relating to the net asset value of the Company's
investments in affiliates and to its share in their operating results is
based on the financial statements of such affiliates, some of which were
audited by other auditors.
We conducted our audits in accordance with Israeli generally accepted
auditing standards, including those prescribed by the Israeli Auditors'
Regulations (Manner of Auditors Performance), 1973, which do not differ, in
any significant respect, from U.S. generally accepted auditing standards.
Such standards require that we plan and perform the audit to obtain
reasonable assurance that 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, and reports of the other auditors, provide a reasonable
basis for our opinion.
<PAGE>
In our opinion, based on our audits and on the reports of the above-mentioned
other auditors, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company and the
consolidated financial position of the Company and its subsidiaries as at
December 31, 1999 and 1998 and the results of their operations, the changes in
shareholders' equity and cash flows for each of the three years, the last of
which ended December 31, 1999, in conformity with generally accepted accounting
principles in Israel, which differ in certain respects from those followed in
the United States (see Note 28 to the consolidated financial statements).
Furthermore, these statements have, in our opinion, been prepared in accordance
with the Securities Regulations (Preparation of Annual Financial Statements),
1993.
As explained in Note 2B, the above-mentioned financial statements are stated in
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.
Without qualifying our above opinion we call attention to Note 18A(1) to the
financial statements, relating to an investigation by the Restrictive Trade
Practices Authority, concerning the alleged coordination of prices in the Koor
Group with respect to the products of its subsidiaries, Tadiran Ltd. and Telrad
Networks Ltd. (formerly - "Telrad Industries and Telecommunications Ltd.").
Certified Public Accountants (Isr.)
<PAGE>
Consolidated Balance Sheets as at December 31
- -------------------------------------------------------------------------------
In terms of shekels of December 1999
<TABLE>
<CAPTION>
Convenience
translation
(Note 2B)
December 31 --------------
--------------------------- December 31
1999 1998 1999
---------- ---------- --------------
Note NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents 1,448,706 1,491,373 348,834
Short-term deposits and investments 4 472,335 1,587,346 113,733
Trade receivables 5 3,213,207 3,629,163 773,707
Other receivables 6 660,608 683,944 159,068
Inventories and work in process,
net of customer advances 7 2,123,687 2,810,513 511,362
---------- ---------- ---------
Total current assets 7,918,543 10,202,339 1,906,704
---------- ---------- ---------
Investments and long-term
receivables
Investments in affiliates 8 3,495,772 1,623,060 841,746
Other investments and receivables 9 757,747 581,936 182,458
---------- ---------- ---------
4,253,519 2,204,996 1,024,204
---------- ---------- ---------
Fixed assets 10
Cost 10,662,967 10,841,579 2,567,533
Less - accumulated depreciation 6,091,693 6,325,688 1,466,817
---------- ---------- ---------
4,571,274 4,515,891 1,100,716
---------- ---------- ---------
Intangible assets and deferred expenses ---------- ---------- ---------
after amortisation 11 627,264 862,322 151,039
---------- ---------- ---------
17,370,600 17,785,548 4,182,663
========== ========== =========
</TABLE>
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convenience
translation
(Note 2B)
December 31 --------------
--------------------------- December 31
1999 1998 1999
---------- ---------- --------------
Note NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders Equity
<S> <C> <C> <C> <C>
Current liabilities
Credits from banks and others 12 3,559,014 2,730,806 856,975
Trade payables 13 1,512,037 1,545,269 364,083
Other payables and accruals 14 1,733,912 2,106,802 417,508
Customer advances, net of work in process 7 203,449 332,420 48,988
---------- ---------- ---------
Total current liabilities 7,008,412 6,715,297 1,687,554
---------- ---------- ---------
Long-term liabilities
Net of current maturities: 15,21
Bank loans 3,691,887 4,297,966 888,969
Other loans 133,060 106,760 32,039
Debentures 65,228 96,486 15,706
Convertible debentures 180,159 194,589 43,380
Customer advances 45,583 180,834 10,976
Deferred taxes 16F 236,895 219,514 57,042
Liability for employee severance benefits 17 304,891 264,048 73,415
---------- ---------- ---------
Total long-term liabilities 4,657,703 5,360,197 1,121,527
---------- ---------- ---------
Contingent liabilities and commitments 18
Minority Interest 1,319,771 1,634,136 317,787
---------- ---------- ---------
Shareholders' Equity 20 4,384,714 4,075,918 1,055,795
---------- ---------- ---------
---------- ---------- ---------
17,370,600 17,785,548 4,182,663
========== ========== =========
/s/ Jonathan Kolber /s/ Avraham Harel
------------------------- --------------------------------
March 23, 2000 Jonathan Kolber Avraham Harel
CEO and Vice Chairman Member of the Board of Directors
of the Board of Directors
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Company Balance Sheets as at December 31
- -------------------------------------------------------------------------------
In terms of shekels of December 1999
<TABLE>
<CAPTION>
Convenience
translation
(Note 2B)
December 31 --------------
--------------------------- December 31
1999 1998 1999
---------- ---------- --------------
Note NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents 725,354 315,453 174,658
Short-term deposits and investments 4 279,097 171,584 67,204
Current maturities of loans to investees 1,699 - 409
Receivables :
Investees 6,16E 94,905 442,302 22,852
Deferred taxes 129,000 - 31,062
Others 6 26,176 15,181 6,303
---------- ---------- ---------
Total current assets 1,256,231 944,520 302,488
---------- ---------- ---------
Investments and long-term receivables
Investments in investees 8 6,400,868 6,398,708 1,541,264
Other investments and receivables 9 383,377 98,897 92,313
---------- ---------- ---------
6,784,245 6,497,605 1,633,577
---------- ---------- ---------
Fixed assets 10
Cost 40,383 31,286 9,724
Less - accumulated depreciation (1,983) (3,091) (478)
---------- ---------- ---------
38,400 28,195 9,246
---------- ---------- ---------
Cost of raising of capital, net of
amortisation 11 1,564 2,773 376
---------- ---------- ---------
---------- ---------- ---------
8,080,440 7,473,093 1,945,687
========== ========== =========
</TABLE>
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convenience
translation
(Note 2B)
December 31 --------------
--------------------------- December 31
1999 1998 1999
---------- ---------- --------------
Note NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
<S> <C> <C> <C> <C>
Current liabilities
Credit from banks and others 12 977,516 72,027 235,376
Trade payables 1,657 7,187 399
Payables and accruals:
Investees 79,849 107,779 19,227
Interim dividend 166,962 87,299 40,203
Others 14 134,210 79,433 32,316
---------- ---------- ---------
Total current liabilities 1,360,194 353,725 327,521
---------- ---------- ---------
Long-term liabilities
Net of current maturities: 15, 21
Bank loans 2,128,779 2,829,509 512,588
Convertible debentures 170,897 165,918 41,150
Investees 29,342 30,956 7,065
Liability for employee severance
benefits, net 17 6,514 17,067 1,569
---------- ---------- ---------
Total long-term liabilities 2,335,532 3,043,450 562,372
---------- ---------- ---------
Contingent liabilities and commitments 18
Total shareholders' equity 20 4,384,714 4,075,918 1,055,794
---------- ---------- ---------
---------- ---------- ---------
8,080,440 7,473,093 1,945,687
========== ========== =========
/s/ Jonathan Kolber /s/ Avraham Harel
------------------------- --------------------------------
March 23, 2000 Jonathan Kolber Avraham Harel
CEO and Vice Chairman Member of the Board of Directors
of the Board of Directors
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Operations*
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
Note NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from sales
and services 23A 10,675,301 12,792,316 12,925,375 2,570,503
Cost of sales and services
23B 8,129,866 * 9,867,024 * 9,890,029 1,957,588
---------- ----------- ----------- ---------
Gross profit 2,545,435 * 2,925,292 * 3,035,346 612,915
Selling and marketing
expenses 23C 978,056 * 1,202,457 * 1,125,264 235,506
General and 23D
administrative expenses 729,509 1,010,885 874,488 175,658
---------- ----------- ----------- ---------
Operating earnings 837,870 711,950 1,035,594 201,751
Financing expenses, net 23E 358,289 251,015 151,843 86,273
---------- ----------- ----------- ---------
479,581 460,935 883,751 115,478
Other income (expenses),
net 23F 107,228 (71,270) 117,399 25,820
---------- ----------- ----------- ---------
Earnings before income
tax 586,809 389,665 1,001,150 141,298
Income tax 16G 161,887 233,985 235,847 38,981
---------- ----------- ----------- ---------
424,922 155,680 765,303 102,317
Group's equity in the
operating results of
affiliates, net 23G 121,725 61,985 10,635 29,310
---------- ----------- ----------- ---------
546,647 217,665 775,938 131,627
Minority interest in
subsidiaries, net 2,472 (239,964) (254,530) 595
---------- ----------- ----------- ---------
Net earnings (loss) from
continuing activities 549,119 (22,299) 521,408 132,222
Result of discontinued
activities, net 24H - 69,420 15,929 -
---------- ----------- ----------- ---------
Net earnings for the year 549,119 47,121 537,337 132,222
========== =========== =========== =========
NIS NIS NIS US$
---------- ----------- ----------- ---------
Basic earnings (loss) per
NIS 1 par value
of ordinary shares: 26
Continuing activities 34,892 (1,347) 34,014 8,402
Discontinued activities - 4,414 1,032 -
---------- ----------- ----------- ---------
34,892 3,067 35,046 8,402
========== =========== =========== =========
Diluted earnings per
NIS 1 par value of
ordinary shares: 26
Continuing activities 34,559 (1,347) 33,038 8,321
Discontinued activities - 4,414 1,015 -
---------- ----------- ----------- ---------
34,559 3,067 34,053 8,321
========== =========== =========== =========
* Reclassified.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Operations
- -------------------------------------------------------------------------------
In terms of shekels of December 1999
<TABLE>
<CAPTION>
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
Note NIS thousands US $ thousands
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income
Management services 23A 65,121 62,752 101,516 15,680
Others, net 23F - - 95,858 -
Financing, net 23E - - 8,639 -
---------- ----------- ----------- ---------
Total income 65,121 62,752 206,013 15,680
---------- ----------- ----------- ---------
Expenses
Administrative 23D 66,170 116,643 102,888 15,933
Others, net 23F 107,505 6,729 - 25,886
Financing, net 23E 160,475 84,568 - 38,641
---------- ----------- ----------- ---------
Total expenses 334,150 207,940 102,888 80,460
---------- ----------- ----------- ---------
Earnings (loss) before
income tax (269,029) (145,188) 103,125 (64,780)
Income tax 101,500 - - 24,440
---------- ----------- ----------- ---------
(167,529) (145,188) 103,125 (40,340)
Koor's equity in the
operating results of
investees, net 23G 716,648 122,889 418,283 172,562
---------- ----------- ----------- ---------
Net earnings (loss) from
continuing activities 549,119 (22,299) 521,408 132,222
Results of discontinued
activities, net 24H - 69,420 15,929 -
---------- ----------- ----------- ---------
Net earnings for the year 549,119 47,121 537,337 132,222
========== =========== =========== =========
NIS NIS NIS NIS
---------- ----------- ----------- ---------
Basic earnings (loss )
per NIS 1 par value of
ordinary shares : 26
Continuing activities 34,892 (1,347) 34,014 8,402
Discontinued activities - 4,414 1,032 -
---------- ----------- ----------- ---------
34,892 3,067 35,046 8,402
========== =========== =========== =========
Diluted earnings
(losses) per NIS 1 par
value of ordinary shares 26
Continuing activities 34,559 (1,347) 33,038 8,321
Discontinued activities - 4,414 1,015 -
---------- ----------- ----------- ---------
34,559 3,067 34,053 8,321
========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by currency
shares (1) subsidiaries translation
adjustments
--------------------------------------------------------------------------------
NIS thousands
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 15,079,830 532,746 2,176,402 (7,007) (738,856) 2,077,186 4,040,471
Changes during 1997:
Net income - - - - - 537,337 537,337
Exercise of stock options granted
to Israeli banks 1 1,855 - 1,856
Interim dividend - - - - - (57,902 (57,902)
Interim dividend - - - - - (29,817) (29,817)
Interim dividend - - - - - (30,668) (30,668)
Erosion of dividend proposed in 1996 - - - - - 2,717 2,717
Cumulative foreign currency translation
adjustments - - - - 18,228 - 18,228
Purchase of Company shares by subsidiaries,
net, and dividend received therefrom (132,924) (46,634) - 2,016 (44,618)
Exercise of stock options (series 2) 233,157 * - 94,602 - - - 94,602
Exercise of stock options granted to
senior employees (2) 127,506 * - - - - - -
---------- ------- --------- ------- ------- --------- ---------
Balance at 31 December, 1997 15,307,569 532,747 2,272,859 (53,641) (720,628) 2,500,869 4,532,206
========== ======= ========= ======= ======= ========= =========
* Represents an amount lower than NIS 1,000.
(1) Net of subsidiaries holdings.
(2) See also Note 20(c).
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity (cont'd)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by currency
shares (1) subsidiaries translation
adjustments
---------------------------------------------------------------------------------
NIS thousands
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 15,307,569 532,747 2,272,859 (53,641) (720,628) 2,500,869 4,532,206
Changes during 1997:
Net income - - - - - 47,121 47,121
Exercise of stock options granted
to Israeli banks - * - 619 - - - 619
Interim dividend - - - - - (68,870) (68,870)
Interim dividend - - - - - (66,352) (66,352)
Interim dividend - - - - - (87,299) (87,299)
Erosion of dividend proposed in 1996 - - - - - 724 724
Cumulative foreign currency translation adjustments - - - - 163,068 - 163,068
Dividend from company shares held by subsidiaries - - - - - 2,074 2,074
Conversion of debentures into shares 315,658 1 141,163 - - - 141,164
Employee benefit from options granted by a
controlling shareholder (2) - - 6,080 - - - 6,080
Adjustment of consideration in respect of purchase
of investment from controlling shareholder (3) - - (6,080) - - (588,904) (594,984)
Exercise of stock options granted to senior
employees (2) 100,100 * - - - - - -
Other adjustments - - 367 - - - 367
---------- ------- --------- ------- ------- --------- ---------
Balance at 31 December, 1998 15,723,327 532,748 2,415,008 (53,641) (557,560) 1,739,363 4,075,918
========== ======= ========= ======= ======= ========= =========
* Represents an amount lower than NIS 1,000.
(1) Net of subsidiaries' holdings.
(2) See also Note 20C.
(3) See Note 3A.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity (cont'd)
- -------------------------------------------------------------------------------
In terms of shekels of December 1999
<TABLE>
<CAPTION>
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by currency
shares (1) subsidiaries translation
adjustments
-------------------------------------------------------------------------------
NIS thousands
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1999 15,723,327 532,748 2,415,008 (53,641) (557,560) 1,739,363 4,075,918
Changes during 1999:
Net income - - - - - 549,119 549,119
Exercise of stock options granted
to Israeli banks - * - 414 - - - 414
Interim dividend - - - - - (58,228) (58,228)
Interim dividend - - - - - (42,934) (42,934)
Interim dividend - - - - - (124,028) (124,028)
Erosion of dividend proposed in 1998 - - - - - (442) (442)
Cumulative foreign currency translation adjustments - - - - (19,350) - (19,350)
Dividend from company shares held by subsidiaries - - - - - 2,412 2,412
Conversion of debentures into shares 2,171 * - 1,020 - - - 1,020
Employee benefit from options granted by a
controlling shareholder (2) - - 774 - - - 774
Exercise of stock options granted to senior
employees (2) 5,473 * - - - - -
Other adjustments - - 39 - - - 39
---------- ------- --------- ------- ------- --------- ---------
Balance at 31 December, 1999 15,730,971 532,748 2,417,255 (53,641) (576,910) 2,065,262 4,384,714
========== ======= ========= ======= ======= ========= =========
* Represents an amount lower than NIS 1,000.
(1) Net of subsidiaries' holdings.
(2) See also Note 20C.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity (cont'd)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convenience translation into US dollars (Note 2B)
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by currency
shares (1) subsidiaries translation
adjustments
--------------------------------------------------------------------------------
NIS thousands
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 15,723,327 128,280 581,509 (12,916) (134,255) 418,821 981,439
Changes during 1999:
Net income - - - - - 132,222 132,222
Exercise of stock options granted
to Israeli banks - * - 100 - - - 100
Interim dividend - - - - - (14,021) (14,021)
Interim dividend - - - - - (10,338) (10,338)
Interim dividend - - - - - (29,865) (29,865)
Erosion of dividend proposed in 1998 - - - - - (106) (106)
Cumulative foreign currency translation adjustments - - - - (4,659) - (4,659)
Dividend from company shares held by subsidiaries - - - - - 581 581
Conversion of debentures into shares 2,171 * - 246 - - - 246
Employee benefit from options granted by a
controlling shareholder (2) - - 186 - - - 186
Exercise of stock options granted to senior
employees (2) 5,473 * - - - - - -
Other adjustments - - 9 - - - 9
---------- ------- --------- ------ ------- --------- ---------
Balance at 31 December, 1999 15,730,971 128,280 582,050 (12,916) (138,914) 497,294 1,055,794
========== ======= ========= ====== ======= ========= =========
(1) Net of subsidiaries' holdings.
(2) See also Note 20C.
* Represents an amount lower than $ 1,000.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statement of Cash Flows
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
NIS thousands US $ thousands
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows generated by operating
activities:
Net earnings 549,119 47,121 537,337 132,222
Adjustments to reconcile net earnings to
cash flows generated by
operating activities (A) 171,509 632,419 285,503 41,298
---------- ------------ ----------- --------------
Net cash inflow generated by operating
activities 720,628 679,540 822,840 173,520
---------- ------------ ----------- --------------
Cash flows generated by investing
activities:
Purchase of fixed assets (654,694) (1,056,788) (991,967) (157,646)
Investment grants in respect of fixed assets 45,050 16,015 54,860 10,849
Amounts charged to intangible assets and
deferred expenses (107,293) (92,092) (58,337) (25,835)
Additional investments in subsidiaries (118,869) (1,255,337) (94,414) (28,622)
Acquisition of initially-consolidated
subsidiaries (B) (234,432) (231,504) (18,902) (56,449)
Investments in affiliates (886,984) (1,897,053) (40,451) (213,577)
Investments in loans to affiliates (5,911) (8,265) (10,874) (1,423)
Repayment of long-term loans to affiliates 105 27,007 4,966 25
Proceeds from realisation of investments in
formerly consolidated subsidiaries, net of
cash in those subsidiaries at the time they
ceased being consolidated (C) 508,144 540,513 168,914 122,357
Purchase of consolidated companies' shares
by their consolidated companies (116,497) - - (28,051)
Investment in restricted bank deposit - (746,194) - -
Proceeds from disposal of investments
in investees 140,277 314,401 241,660 33,777
Proceeds from sale of fixed assets 185,893 71,493 81,589 44,761
Decrease (increase) in other
investments (347,184) 184,082 (210,607) (83,598)
Changes in short-term deposits and
investments, net (150,962) (161,955) (193,615) (36,351)
---------- ------------ ----------- --------------
Net cash outflow generated by investing
activities (1,743,357) (4,295,677) (1,067,178) (419,783)
---------- ------------ ----------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
NIS thousands US $ thousands
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows generated by financing
activities:
Proceeds from exercise of stock options 414 619 96,458 100
Purchase of Company shares by
subsidiaries, net - - (46,634) -
Dividend paid (144,411) (193,176) (127,274) (34,773)
Issuance of shares to minority in
subsidiaries 13,552 299,638 182,147 3,263
Dividend paid to minority in
subsidiaries (12,894) (25,859) (30,555) (3,105)
Payment of suppliers credit received
for the purchase of fixed assets (1,232) (1,917) (5,150) (297)
Issuance of convertible debentures 62,220 746,194 - 14,982
Proceeds from principal of long-term
loans and other long-term liabilities 763,930 3,394,867 836,116 183,947
Repayment of long-term loans, debentures
and other long-term liabilities (606,496) (684,889) (683,921) (146,038)
Credit from banks and others, net 913,907 172,504 362,992 220,060
--------- --------- -------- ---------
Net cash inflow generated by financing
activities 988,990 3,707,981 584,179 238,139
-------- --------- ------- --------
Translation differences in respect of cash
balances of autonomous foreign investees (8,928) 64,746 4,091 (2,149)
-------- -------- ------ --------
Increase (decrease) in cash and cash
equivalents (42,667) 156,590 343,932 (10,273)
Balance of cash and cash equivalents
at beginning of year 1,491,373 1,334,783 990,851 359,107
--------- --------- ------- -------
Balance of cash and cash equivalents
at end of year 1,448,706 1,491,373 1,334,783 348,834
========= ========= ========= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A. Adjustments to reconcile net
earnings to cash flows generated
by operating activities:
Income and expenses not involving
cash flows:
Minority interest in subsidiaries, net (2,472) 247,052 266,784 (595)
Dividend received from affiliates net
of equity in the operating results
(equity in operating results of
affiliates net of dividend received
therefrom) (74,696) (34,240) 3,325 (17,986)
Depreciation and amortisation 570,070 683,095 672,359 137,267
Deferred taxes (155,683) (117,068) 15,815 (37,487)
Increase in liabilities in respect of
employee severance benefits, net 60,061 82,604 7,608 14,462
Capital losses (gains), net:
Fixed assets 2,993 7,339 (15,413) 721
Investments in formerly consolidated
subsidiaries (401,880) (147,902) (70,791) (96,769)
Investments in investees (47,560) (249,716) (108,855) (11,452)
Inflationary adjustment of principal of
long-term loans and other liabilities (43,814) 53,510 26,664 (10,550)
Inflationary erosion of principal of
credit from banks and others - 16,204 - -
Adjustment of value of investments,
deposits and loans receivable (2,619) (54,425) (5,321) (631)
Write-down in value of assets and
investments 262,232 227,398 47,052 63,144
Liquidating dividend - - (20,327) -
Employee benefits granted by a
controlling shareholder 774 6,080 - 186
-------- ------- -------- ------
167,406 719,931 818,900 40,310
-------- ------- -------- ------
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes in operating asset and
liability items:
Increase in trade receivables and other
receivables (after taking into
account non-current amounts) (363,926) (639,503) (426,242) (87,630)
Decrease (increase) in inventory, work
in process and customer advances
(including long-term customer
advances and deposits) (31,029) (10,777) 56,010 (7,471)
Increase (decrease) in trade payables
and other payables and accruals 399,058 562,768 (163,165) 96,089
--------- ---------- ------------ ---------
4,103 (87,512) (533,397) 988
--------- ---------- ------------ ---------
171,509 632,419 285,503 41,298
========= ========== ============ =========
B. Acquisition of initially
consolidated subsidiaries
Assets and liabilities of the
subsidiaries at date of acquisition:
Working capital deficit (surplus),
excluding cash and cash equivalents 137,360 (150,468) (1,070) 33,075
Fixed assets and investments (808,959) (43,830) (85,186) (194,789)
Long-term liabilities 192,422 4,675 75,859 46,333
Minority interest in subsidiaries 61,938 2,437 22,241 14,914
Excess of cost over net asset value
upon acquisition (37,921) (48,328) (48,470) (9,131)
Equity in net assets 108,597 4,010 (2,603) 26,149
Liquidating dividend - - 20,327 -
Liability for acquisition of subsidiaries 112,131 - - 27,000
--------- ---------- ------------ ---------
(234,432) (231,504) (18,902) (56,449)
========= ========== ============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
- -------------------------------------------------------------------------------
In terms of shekels of December 1999
<TABLE>
<CAPTION>
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
C. Proceeds from realisation of
investments in formerly
consolidated subsidiaries, net of cash
in those subsidiaries at the time
they ceased being consolidated:
Assets and liabilities of the formerly
consolidated subsidiaries at the
time they ceased being consolidated:
Working capital surplus, excluding
cash and cash equivalents 610,811 94,836 38,282 147,077
Fixed assets and investments 994,450 793,540 260,452 239,453
Long-term liabilities (233,786) (249,922) (168,786) (56,293)
Minority interest in the subsidiaries as at
the date of sale (243,164) (206,326) (25,551) (58,551)
Investments in affiliated companies, net (1,022,047) - - (246,098)
Consideration not yet received from
consolidation of companies - (39,517) (6,274) -
Capital gain on sale of investments
in the subsidiaries 401,880 147,902 70,791 96,768
--------- ---------- ------------ ---------
508,144 540,513 168,914 122,356
========= ========== ============ =========
D. Non-cash transactions:
Purchase of fixed assets 5,897 6,673 20,637 1,420
========= ========== ============ =========
Investment grant receivable - - 234 -
========= ========== ============ =========
Purchase of other assets 8,306 29,426 24,911 2,000
========= ========== ============ =========
Purchase of switching division 3,945 - - 950
========= ========== ============ =========
Proceeds from sale of fixed assets and
investees - 44,874 17,384 -
========= ========== ============ =========
Investment in initially consolidated
subsidiaries 112,131 - - 27,000
========= ========== ============ =========
Proposed dividend to minority shareholders - 8,793 12,963 -
========= ========== ============ =========
Interim dividend 165,172 86,363 59,820 39,772
========= ========== ============ =========
Conversion of convertible debentures into
shares of the Company and of subsidiaries 1,020 141,492 - 246
========= ========== ============ =========
Conversion of current trade receivables
into long-term loans receivable - - 8,508 -
========= ========== ============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Cash Flows
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows generated by operating
activities:
Net earnings 549,119 47,121 537,337 132,222
Adjustments to reconcile net earnings
to cash flows generated by
operating activities (A) (322,620) 175,337 (367,197) (78,875)
--------- ---------- ------------ ---------
Net cash inflow generated by operating
activities 226,499 222,458 170,140 53,347
--------- ---------- ------------ ---------
Cash flows generated by investing
activities:
Investees - acquisition of shares, payments
on account of shares, loans granted, and
non-current accounts (1,098,942) (3,633,853) (113,341) (259,010)
Purchase of fixed assets (14,052) (26,320) (776) (3,384)
Increase in investments and other
receivables, net (355,461) (39,464) (62,194) (85,591)
Proceeds from sale of fixed assets 949 1,707 440 229
Proceeds from realisation of investments
in investees, net 178,379 409,463 257,800 41,946
Dividend received from an investees 1,448,145 542,761 - 345,292
Investment in short-term deposits and
investments, net (86,748) (2,553) (30,820) (20,888)
--------- ---------- ------------ ---------
Net cash inflow (outflow) generated by
investing activities 72,270 (2,748,259) 51,109 18,594
--------- ---------- ------------ ---------
Cash flows generated by financing
activities:
Proceeds from exercise of stock options 414 619 96,458 100
Dividend paid (145,969) (194,979) (128,626) (35,148)
Receipt of long-term loans and other
long-term liabilities 107,062 2,779,618 10,594 25,779
Payments of long-term loans and
other long-term liabilities (90,819) (86,358) (68,910) (21,868)
Credit from banks and others, net 240,444 (6,137) (968) 57,896
--------- ---------- ------------ ---------
Net cash inflow (outflow) generated by
financing activities 111,132 2,492,763 (91,452) 26,759
--------- ---------- ------------ ---------
Increase (decrease) in cash and cash
equivalents 409,901 (33,038) 129,797 98,700
Balance of cash and cash equivalents at
beginning of year 315,453 348,491 218,694 75,958
--------- ---------- ------------ ---------
Balance of cash and cash equivalents at
end of year 725,354 315,453 348,491 174,658
========= ========== ============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Cash Flows (cont'd)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In terms of shekels of December 1999
Convenience
translation
(Note 2B)
--------------
Year Ended December 31 Year Ended
-------------------------------------------- December 31
1999 1998 1997 1999
---------- ------------ ----------- --------------
NIS thousands US $ thousands
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(A) Adjustments to reconcile net earnings
to cash flows generated by
operating activities:
Income and expenses not involving
cash flows:
Dividend received from investees net of equity
in their operating results (equity in operating
results of investees, net of dividend
received therefrom) (206,403) 141,275 (299,014) (46,294)
Depreciation and amortisation 2,433 3,143 4,608 587
Deferred taxes (129,000) - - (31,062)
Increase (decrease) in liability in respect of
employee severance benefits, net (10,553) (22,508) 12,425 (2,541)
Capital losses (gains), net:
Fixed assets 1,661 1,121 86 400
Investment in investees (44,699) (113,159) (93,088) (10,763)
Decrease (increase) in value of deposits
and other erosions, net 1,202 435 (3,834) 289
Exchange rate differences and erosion of
principal of long-term loans and other
liabilities (19,327) 13,059 5,171 (4,654)
Erosion of principal of credit from banks
and others - 6,678 - -
Employee benefits from option
granted by a controlling shareholder 774 6,080 - 186
Write down in value of investments 153,989 131,090 - 37,079
--------- ---------- ------------ ---------
(249,923) 167,214 (373,646) (56,773)
--------- ---------- ------------ ---------
Changes in operating assets and liability
items:
Decrease (increase) in current accounts of
investees, net (88,911) 26,003 (5,531) (26,007)
Decrease (increase) in receivables (11,007) (2,520) 1,743 (2,650)
Increase (decrease) in payables and
accruals 27,221 (15,360) 10,237 6,555
--------- ---------- ------------ ---------
(72,697) 8,123 6,449 (22,102)
--------- ---------- ------------ ---------
(322,620) 175,337 (367,197) (78,875)
========= ========== ============ =========
(B) Significant non-cash transactions:
Interim dividend 166,962 87,299 60,484 40,203
========= ========== ============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
- -------------------------------------------------------------------------------
Note 1 - General
A. Koor Industries Ltd. is a diversified holding company, which operates
in the fields of telecommunication, defence electronics,
agro-chemicals and other chemicals and building and infrastructure
materials, through its subsidiaries, proportionately consolidated
companies and affiliates (hereinafter - the "Koor Group" or the
"Group").
The Company's shares are traded both on the Tel-Aviv Stock Exchange
and on the New York Stock Exchange.
Note 2 - Significant Accounting Policies
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Israel, which differ in certain
respects from those followed in the United States, as described in
Note 28.
The significant accounting policies, which were applied on a consistent
basis, are as follows: In these financial Statements:
A. Definitions:
1. The Company - Koor Industries Ltd. (hereinafter - "Koor" or the
"Company").
2. Subsidiaries - companies in which more than 50% of the equity is held
by Koor.
3. Proportionately consolidated companies - jointly controlled
companies, which are consolidated by the proportionate consolidation
method in Koor's financial statements.
4. Affiliates - companies, in which Koor has voting or equity rights
which give it significant influence over the operating and financial
policies of these companies, and which are not fully or
proportionately consolidated. Such companies are included on the
equity basis.
5. Investees - subsidiaries, proportionately consolidated companies and
affiliates.
6. Related parties - as defined in the Israeli Securities Regulations
(Preparation of Annual Financial Statements), 1993, including related
parties as defined by the Institute of Certified Public Accountants
in Israel - (hereinafter - "ICPAI").
B. Adjusted financial statements:
1. a) All NIS figures in the financial statements are stated in terms
of NIS of a identical purchasing power (NIS of December 1999),
the required adjustments are based upon the changes in the
Israeli Consumer Price Index (hereinafter - "CPI")
b) The adjustments of the financial statements of the Koor Group's
is in accordance with the opinions of the ICPAI and is based on
the accounting records which are kept in historical NIS, or in
other functional currencies.
c) The adjusted amounts of non-monetary assets do not necessarily
represent their realisable or current economic value, but
rather the original historical cost of those assets in terms of
adjusted NIS. The term "cost" in these financial statements
means cost in adjusted NIS.
<PAGE>
2. The adjusted financial statements as at 31 December, 1999 and for the
year then ended have been translated into dollars using the
representative exchange rate as at that date ($ 1 = NIS 4.153). The
translation was made solely for the convenience of the reader. The
dollar amounts so presented in these financial statements should not
be construed as representing amounts receivable or payable in dollars
or convertible into dollars, unless otherwise indicated.
3. The following principles of adjustment relate to those companies of
the Koor Group whose financial statements were adjusted on the basis
of the CPI:
a) Non-monetary items (mainly fixed assets, inventory, work in
process and related customer advances, intangible assets and
deferred expenses), have been adjusted on the basis of the CPI
at the time when the related transactions were carried out. The
components of the statement of operations relating to
non-monetary items (mainly changes in inventory and work in
progress, depreciation and amortisation) have been adjusted on
the same basis used for the adjustment of the related balance
sheet items.
b) Investments in investees and the equity in their results of
operations for the current year, as well as the minority
interest in subsidiaries and their share in the results of their
operations for the current year, are based on the adjusted
financial statements of those companies.
c) Monetary items (items whose amounts in the balance sheet
reflect current or realisable values) are presented in the
balance sheet as at 31 December, 1999, at their historical
amounts (comparative figures are also stated in terms of
shekels of December 1999).
d) The components of the statement of operations (except for
financing), relating to transactions carried out during the year
- sales, purchases, labour costs, etc., have been adjusted
according to the CPI at the time the related transactions were
effected. The erosion of monetary balances relating to the
aforesaid transactions has been included in the financing item.
e) The components of the statement of operations relating to
provisions included in the balance sheet, such as: liability in
respect of employee severance benefits, provision for vacation
pay, etc., are based on the changes in the balances of the
related balance sheet items after their related cash flows were
taken into account.
f) The financing item which is derived from the other items of the
statement of operations reflects real financing income and
expenses, as well as the erosion of monetary balances during the
year, the earnings and losses from the realisation and pledging
of marketable securities and the earnings and losses from
derivative financial instruments.
g) Current income expense includes also the expense resulting from
the erosion in value of payments on account of income tax from
payment date to the end of the year.
<PAGE>
4. Adjustment of financial statements on the basis of the exchange rate
of the dollar:
The financial statements of certain subsidiaries and affiliates are
adjusted on the basis of the exchange rate of the dollar. For the
purpose of consolidation or inclusion according to the equity method,
of the above-mentioned companies, the amounts (in terms of foreign
currency), stated in the financial statements of those companies,
have been treated, as autonomous foreign investees.
According to Interpretation No. 8 to Opinion 36 of the ICPAI, at each
balance sheet date, the figures of the balance sheet and the
statements of operations for the year then ended are translated into
shekels at the exchange rate prevailing at the end of the year, of
the foreign currency in which the financial statements of those
companies were prepared. Balance sheet items as at the beginning of
the year, and changes in capital during the year, were translated
according to the exchange rate at the beginning of the year or at
the date of the change, respectively, and were then adjusted for the
changes in the CPI until December 1999. This treatment is relevant
both to the autonomous foreign investees as well as to the Israeli
companies whose functional currency is the dollar.
Differences arising from the translation were included in a separate
item of shareholders' equity under "Cumulative foreign currency
translation adjustments".
C. Principles of consolidation:
1. The consolidated financial statements include the accounts of Koor,
all its subsidiaries and proportionately consolidated companies.
The Group's share in the equity of subsidiaries and proportionately
consolidated companies is computed on the basis of their issued share
capital. To the extent that sale and/or exercise of convertible
securities issued by investee is probable, in accordance with the
criteria set forth in Opinions 48 and 53 of the ICPAI, and if the
percentage of Koor's holdings of such subsidiaries is expected to
decrease upon their conversion or exercise, following which Koor will
incur a loss, an appropriate provision is included for such an
anticipated loss.
2. Consolidation of financial statements of proportionately consolidated
companies
In accordance with generally accepted accounting principles in
Israel, the financial statements of companies that are jointly
controlled, mainly Mashav Initiating and Development Ltd. and its
subsidiaries, are included in Koor's consolidated financial
statements according to the proportionate consolidation method.
3. Goodwill deriving from the acquisition of an investment, which
represents the excess of acquisition cost or the investment in
subsidiaries over the fair value of identifiable assets less the fair
value of identifiable liabilities upon acquisition, is amortised at
equal annual rates over 10 years commencing from the acquisition
date.
Differences resulting from changes in holding rates are charged to
the statement of operations, as incurred.
4. Significant inter-company transactions and balances are eliminated
upon consolidation.
5. Koor's shares which were purchased by subsidiaries are accounted for
as treasury stock.
<PAGE>
D. Use of estimates:
The financial statements, which were prepared in accordance with generally
accepted accounting principles, include amounts based on estimates and
assumptions of the Management which take the factor of materiality into
consideration. Actual results may differ from such estimates.
E. Cash equivalents:
Cash equivalents are considered by the Company to be highly liquid
investments which include short-term bank deposits with an original
maturity of three months or less and which are not encumbered by a lien.
F. Marketable securities:
Investments in marketable securities designated for sale in the short
term, which can be sold immediately ("current investments"), are
stated at market value. Investments in marketable securities not
designated for sale in the short term ("permanent investment") are
stated at cost (debentures - including accrued interest), as long as
there has not been a decline in value which is not of a temporary
nature.
G. Allowance for doubtful debts:
The allowance is partly determined in respect of specific debts whose
collection is doubtful, and partly as a percentage of the balance of trade
receivables.
H. Inventory:
Inventory is stated at the lower of cost or market value. Cost is
determined as follows:
Raw materials, auxiliary materials and spare parts - at average cost or by
the "first-in,first-out" method.
Finished goods and goods in process - mainly on the basis of direct
manufacturing costs and, in part, on the basis of average manufacturing
costs with the addition of indirect manufacturing costs.
Merchandise - by the first-in, first-out method or by the moving average
method.
I. Work in process:
Work in process is valued at direct production cost, plus allocated
indirect expenses, all of which are on an average basis. The cost of work
in process under long-term contracts also includes allocation of general
expenses, as well as interest at an average rate for external financing.
Interest is calculated in respect of the excess of the cost of work in
process over customer advances received for each order or in respect
of the excess of customer advances received for each order over the
cost of work in process.
The excess of the investment in inventory and work in process, over
related advances received, is included in current assets, while the
excess of advances received over investment is included in current
liabilities.
<PAGE>
J. Investments in investees companies:
The investments in investees (consolidated - investments in affiliates)
are stated by the equity method. Goodwill, arising from the
acquisition of investments, is amortised at equal annual rates over a
10 year period, commencing from acquisition date.
K. Long-term receivables and liabilities:
Long-term receivables and liabilities, with below-market interest rates at
date of inception, were recorded at their present values.
L. Fixed assets:
1. The assets are stated at cost, net of related investment grants.
2. Cost includes interest capitalised during the period of construction
of the assets, calculated according to the specific interest rates
applicable to the sources used to finance the investment.
3. Depreciation is computed by the straight-line method, on the basis of
the estimated useful lives of the assets.
<TABLE>
<CAPTION>
The annual depreciation rates used are as follows:
%
-----------
<S> <C> <C>
Buildings and leasehold rights 1-10 (mainly 2%)
Machinery, equipment and installations 5-20 (mainly 10%)
Vehicles and forklifts 10-20 (mainly 15%)
Office furniture and equipment 6-33 (mainly 6%
and 25%)
</TABLE>
M. Debentures convertible into shares:
1. Debentures, conversion of which is not expected in the foreseeable
future, are stated at their liability value as at balance sheet date,
in accordance with the provision, of Opinion 53 of the ICPAI, and are
stated as long-term liabilities.
2. In accordance with Opinions 48 and 53 of the ICPAI, the provision for
anticipated loss on the reduction in the percentage of holdings of
investees is included in the item "Minority interest in
subsidiaries", in the balance sheet.
N. Intangible assets and deferred expenses:
1. Intangible assets - know-how, software and patents purchased and
payments for licensing of products abroad - are stated at cost and
are amortised in 5 to 10 annual installments beginning with the
commencement of the utilisation thereof.
2. Deferred expenses - debenture issuance costs:
These costs are amortised over the life of the debentures.
<PAGE>
O. Deferred taxes:
1. Deferred taxes are computed in respect of differences between the
amounts stated in the financial statements and those to be considered
for tax purposes. As for the main components in respect of which
deferred taxes have been created - see Note 16F.
2. Deferred tax balances are computed at the tax rate expected to be in
effect at the time these taxes will be charged to the statement of
operations. The amount stated in the statement of operations
represents the changes in the said balances during the current year.
3. Koor has not recorded deferred taxes in respect of the possible sale
of investments in investees that management intends to retain.
Similarly, deferred taxes have not been provided for future taxable
distributions from investees since it is the Group's policy not to
distribute taxable dividends in the foreseeable future.
P. Revenue recognition:
1. Work in process:
Revenue and costs related to work in process under long-term
contracts are recognised under the percentage of completion method,
once accumulated costs have become significant.
As for contracts involving technological uncertainties, revenue is
recognised on the basis of the completed contracts method.
Income and costs relating to contracts on a "cost plus" basis (i.e.
cost with the addition of profit at a fixed rate) are recognised when
the costs are incurred.
Full provision is made for anticipated losses.
2. Sale of products and rendering of services:
Sales are recognised upon delivery of the products or performance of
the services.
In special contracts, the sales are recognised after performing the
work and passing acceptance tests, as defined in the product delivery
contract.
Q. Adjustments of computer systems to Year 2000
The costs required to adjust and convert the existing programs of the
Group, so that they can differentiate between years belonging to the
20th century and years belonging to the 21st century (year 2000
capability), are recorded as current expenses as incurred.
R. Presentation of transactions between the Company and the controlling
shareholder
Transactions between the Company and the controlling shareholder of
the Company are presented in accordance with the Securities
Regulations (Presenting transactions between a company and its
controlling shareholder in the financial statements) - 1996.
Accordingly, the difference between the price paid to the controlling
shareholder in 1998, regarding the sale of an asset, and the book
value of the asset in the books of the controlling shareholder is
included in the item Shareholders' equity of the Company.
<PAGE>
S. Research and development:
Research and development costs, net of participations (mainly from
the Government of Israel), are charged to the statement of
operations, as incurred. Research and development costs financed by
the customer are charged to the cost of work in process, and are
included in the statement of operations, as part of the recognition
of revenue from such work in process.
T. Derivative financial instruments:
Koor and its subsidiaries enter into option contracts and forward
transactions that are designated to reduce the specific risks (i.e.,
commitments for the import of raw materials, export of goods,
liabilities linked to the CPI or foreign currency) involved in the
exposure to fluctuations in the exchange rates of foreign currency
and changes in the CPI.
The results of option contracts and forward transactions for the
purchase or sale of foreign currency, which are designated to hedge
the proceeds from export and the cost of imports against changes in
foreign currency (hedging transactions), are recorded in the
statement of operations, concurrently with the recording of the
related import and export results.
The results of option contracts and forward transactions for the
purchase or sale of foreign currency intended to hedge certain net
assets, but not classified as hedging transactions, are recorded in
the statement of operations, as financing expenses in the period of
the change in the exchange rate of the hedged balances (see also Note
21).
The fair value of derivative financial instruments is established
according to their market values, and when such does not exist,
according to a valuation model.
U. Earnings per share:
Earnings per share data is computed in accordance with Opinion 55 of the
ICPAI (see also Note 26).
V. Data regarding the CPI and the exchange rate of foreign currency:
1. Below is data regarding the CPI and the US dollar exchange rate:
Israeli Exchange rate
CPI* of one U.S.$
------- -------------
Points NIS
------- -------------
For the year ended:
December 1999 168.53 4.153
December 1998 166.3 4.160
December 1997 153.1 3.536
<PAGE>
% %
--- ----
Changes during:
1999 1.3 (0.2)
1998 8.6 17.6
1997 7.0 8.8
%
----
Real increase (decrease) in the CPI
relative to the exchange rate
of the dollar during the year:
1999 1.5
1998 (8.3)
1997 (1.7)
(*) According to the index in respect of the month (1993 average basis)
ended on balance sheet date.
2. Assets and liabilities in foreign currency or linked thereto are
included in the financial statements according to the representative
exchange rate, as published by Bank of Israel as at balance sheet
date.
3. Assets and liabilities linked to the CPI are included in the
financial statements according to the latest index published prior
to balance sheet.
Note 3 - Information Regarding Certain Investee Companies
A. ECI Telecom Ltd. - An Affiliated Company
1. Merger of ECI and Tadiran Telecommunications
a. On 16 March, 1999 ECI Telecom Ltd. (hereinafter: "ECI") and Tadiran
Telecommunications Ltd. (hereinafter: "TTL") announced the completion
of the merger between them, effective 1 January, 1999.
b. The merger was recorded in Koor's financial statements at book value,
based on the accounting principles applying to transactions in which
assets of similar nature are exchanged. This treatment is different
from accepted accounting treatment in the United States (GAAP), where
the transaction would have been recorded at market value. See also
Note 28A(2).
c. Following the merger and before the purchase by Koor of additional
shares in ECI as described in Section 2 below, the direct holdings of
Koor and Tadiran Ltd. (hereinafter: "Tadiran") in ECI were 16.6% and
12.6% respectively. As a result of the merger the balance of goodwill
of both Koor and Tadiran in ECI increased by some NIS 179 million.
<PAGE>
d. As a result of the merger, effective 1 January, 1999, Koor no longer
consolidates TTL's operations in its financial statements.
The details of TTL which are included in the consolidated financial
statements of the company for 1998 and 1997:
Year ended December 31
----------------------
1998 1997
---- ----
NIS millions
----------------------
Sales revenues 1,761 1,728
Operating income 179 114
Net profit as reported by TTL 169 93
Total assets 2,355 -
2. On 31 January, 1999 Koor notified Clal Electronics Industries Ltd.
(hereinafter: "Clal") of exercise of the call option for the purchase
from Clal of 3,830,000 ordinary shares of ECI at $37 per share. The
transaction was concluded on 8 February, 1999.
As at the balance sheet date, after purchase by Koor of additional
shares on the stock exchange and the purchase by a consolidated
company of ECI of treasury stock, Koor's direct and indirect holdings
in ECI reached 34.1%.
3. In October 1999 a subsidiary of ECI, whose principal business is the
development, production and marketing of fraud detection systems in
communications networks and improvement of traffic quality in
communications networks, completed an initial public offering on
NASDAQ. This offering caused ECI to register a capital gain of
approximately $ 30 million. As a result of the offering ECI's holding
in its subsidiary declined to approximately 75%.
4. During the fourth quarter of 1999 ECI registered a loss of
approximately $ 37 million as a result of the termination of four
different operations. In addition, in 1999 the current loss from the
terminated operations amounted to approximately $ 26 million.
5. In September 1999, Telegate Ltd., an affiliated company of ECI,
signed an agreement of principles whereby the shares and capital
notes held by its shareholders, including those of ECI, would be
exchanged for shares of Trion Communications Systems Ltd., a
company whose shares are listed for trading in the United States.
The share exchange enabled ECI to post a capital gain of $ 25.5
million, which was registered upon completion of the transaction
in the fourth quarter of 1999.
<PAGE>
6. Below is an adjustment of the profits of ECI based on the profit
reported by ECI pursuant to the United States accounting regulations,
to the profit pursuant to Israeli accounting regulations:
Year ended
December 31,
1999
------------
$ thousands
------------
Net profit of ECI based on its reported profit 102,519
Adjustments:
Finance income - marketable securities, see Note 28A(6) 11,171
Tax income - deferred taxes, see Note 28A(4) 2,000
-------
Net profit of ECI based on net profit pursuant to Israeli
accounting regulations 115,690
=======
B. Tadiran Ltd. - consolidated company
1. Completion of purchase offer
On 31 December, 1998 Koor held 97.4% of the issued capital of
Tadiran. Pursuant to the purchase offer documents, in January
1999 Koor transferred the consideration for the balance of
Tadiran shares amounting to NIS 79 million and achieved 100%
ownership of Tadiran's shares.
2. Reorganisation
During the accounting period decisions were taken in connection with
personnel and activities downsizing plan in respect of Tadiran's
consolidated companies. The managements of said companies estimate
that implementation of the above plan will cost NIS 30 million.
3. Divestitures
a. Within the framework of the merger agreement between ECI and
TTL, Tadiran purchased the assets and liabilities of TTL's
Switching Division (hereinafter: "Switching") in
consideration of approximately $ 29 million. On 21 March,
1999 an agreement was signed by Tadiran and a third party
for the sale of most of the assets and liabilities of
Switching in consideration of approximately $ 24 million
without accrual of a capital gain or loss as a result
thereof.
b. On 8 March, 1999 an agreement was signed whereunder Tadiran will
sell all its holdings (86.9%) of its shares in Contahal Ltd.
(hereinafter: "Contahal") for a total consideration of $24
million. The capital gain after tax to Koor from this sale
amounts to some NIS 45 million.
c. On 16 May, 1999 Tadiran signed an agreement of principles for
the sale of all its holdings (87%) in Advanced Technology
Ltd. in consideration of $ 64 million. The capital gain
before tax to Koor was approximately NIS 142 million.
<PAGE>
d. On 10 June, 1999 an agreement was signed by Tadiran for the sale
of all its holdings (49%) in Tadiran Information Systems Ltd. an
affiliated company, to IBM Israel Ltd. which prior to the
transaction held 51% of Tadiran Information Systems Ltd. for a
consideration (including dividend) of NIS 105 million. The
capital gain before tax amounted to some NIS 57 million.
e. On November 10, 1999 a final agreement was signed by the
Shamrock Group and others for the sale of all Tadiran's
holdings (100%) in Tadiran Com. Ltd. (hereinafter: "Com.")
for a total consideration of $ 149 million, of which $5
million was distributed as a dividend and $ 35 million was
paid by Com. for use of the Tadiran logo and a
non-competition agreement. The after tax capital gain to
Koor amounted to NIS 164 million. See Note 18A(12).
f. In August 1999 Tadiran signed an agreement to sell all its
holdings (100%) in Tadiran Batteries Ltd. in consideration of
approximately $ 19.5 million. Completion of the transaction was
contingent on compliance with certain terms determined in the
agreement, but since not all the required approvals were
received by the date set by the parties, the agreement was
cancelled. On 15 March, 2000 an agreement was signed by
Tadiran for the transfer of its holdings in Tadiran
Batteries. See Note 27F
g. On 25 November, 1999 Tadiran signed an agreement to sell all its
holdings in Tadiran Telematics Ltd. in consideration of
approximately $ 7.5 million after distribution of a dividend
amounting to approximately $ 1 million. In the financial
statements a provision was recorded for a loss of NIS 8 million
which reflects the loss from the realization of the holding. The
agreement was concluded on 15 February, 2000.
h. On 30 December, 1999 Tadiran signed a final agreement for the
sale of all its holdings (56.6%) in Tadiran Appliances. The
consideration amounted to approximately NIS 133 million.
Implementation of the transaction was contingent on receipt from
the relevant authorities of the approvals required for
completion of the transaction. In the financial statements a
provision was recorded for a loss of NIS 13 million which
reflects the loss from realisation of the holding.
C. M-A Industries Ltd. - Consolidated Company
1. On 26 December, 1999 the Board of Directors of M-A Industries Ltd.
(hereinafter: "M-A Industries") decided on a plan to reorganise the
group in light of the continuing crisis in the global agro-chemicals
industry, which will be applied in the group and its investee
companies overseas and in Israel, and which will include mainly a
focus on the company's key areas of business, closing and relocating
production installations, cutting fixed costs, as well as employee
retirement. The total cost of the plan, which was included in the
1999 financial statements, is estimated to be approximately $ 36
million (before tax on income) and it is scheduled for
implementation in 2000.
2. As at the balance sheet date Koor's holdings in M-A Industries are
approximately 59.7%.
<PAGE>
3. Acquiring operations -
In July 1999 M-A Industries purchased from the shareholders of
Luxembourg Pharmaceuticals Ltd. (a pharmaceuticals and medical
instruments company, hereinafter: "Luxembourg") 42.86% of its issued
and paid-up share capital and in addition, Luxembourg issued to M-A
Industries shares constituting 7.14% of its share capital in a total
consideration of $ 7.1 million. Concurrently with the issuance, M-A
Industries sold to Luxembourg its holdings (100% ownership and
control) in Koor Medica Ltd. in consideration of $ 1 million.
Following the above transactions M-A Industries holds 50% of the
shares of Luxembourg.
In addition M-A Industries has an option to purchase the remaining
shares of Luxembourg and the shareholders of Luxembourg have a sale
option, which enables them to obligate M-A Industries to purchase
their shares by 31 December, 2001, in consideration of $ 7
million. To secure the option M-A Industries has deposited $ 4
million with a trustee.
4. During 1999 the local currency in Brazil was devalued in relation to
the dollar by approximately 48%, and the currency rate was extremely
volatile during this period.
Until the third quarter of 1999 most of the customer debts of the
consolidated company in Brazil were linked to the exchange rate
of the dollar. During the third quarter, owing to the sharp
cumulative rise in the exchange rate of the local currency
against the dollar, the customer market in Brazil no longer
accepts linkage to the dollar and therefore, customer balances of
the consolidated company in Brazil, as at 31 December, 1999,
amounting to a total of $149 million, are not linked to the
dollar.
As a result of the change in the accounting method in the third
quarter, relating to the linkage of customer balances, a customer
debt from the previous period was adjusted to the new accounting
method, and this led to inclusion of expenses amounting to $ 12.6
million deriving from the adjustment of customer balances and
from the granting of discounts due to the devaluation.
Financing expenses, net, include expenses for translation
differentials amounting to approximately $ 8 million, which stemmed
mainly from the devaluation of the local currency in Brazil in the
first quarter of the year.
D. Mashav Initiation and Development Ltd. - a proportionately
consolidated investee
On 5 December, 1999 an agreement was signed by Koor and Clal
Industries and Investments Ltd. (hereinafter: "Clal") whereby Koor
will sell to Clal all its holdings (50%) in Mashav Initiation and
Development (hereinafter: "Mashav"). This agreement replaces the
previous agreement between Koor and Clal concerning Mashav.
During December 1999 before conclusion of the transaction, Mashav
distributed a dividend to Koor and Clal in the total amount of
NIS 710 million.
Upon conclusion of the transaction, on 6 January, 2000 NIS 889
million were paid to Koor. In addition Koor received 47.5% of the
share capital of Mashael Alumina Industries Ltd. The expected
gain to Koor from the sale is approximately NIS 357 million and
after allocation of deferred taxes is approximately NIS 228
million. This gain will be recorded in the first quarter of 2000.
See also Note 16E(1).
<PAGE>
As at the date of the balance sheet Mashav is still proportionately
consolidated in Koor's financial statements (50%).
Below are data (on the basis of relative consolidation) from Mashav's
financial statements for 1999.
For the year
ended
31 December
1999
------------
NIS millions
------------
Total assets 1,300
Shareholders' equity 544
Revenues from sales 876
Operating earnings 134
Net profit 97
E. Telrad Networks Ltd. - consolidated company
In 1998 the Board of Directors of Telrad Networks Ltd. (formerly
"Telrad Telecommunications and Electronics Industries Ltd.,
hereinafter: "Telrad") decided on a reorganisation plan which
includes employee retirement at a total cost of approximately NIS
223,000 thousand (NIS 152,000 thousand after tax on income). In
1999 and after the balance sheet date the company's Board of
Directors approved two additional reorganisation plans containing
further employee retirement at a total cost of some NIS 85,000
thousand (NIS57,800 thousand after tax on income). The estimated
cost of the retirement plan is calculated in accordance with
tables broken down by age and seniority of the retiring
employees. Pension payments for these employees are presented at
the present value at a computation using a discount rate of 3.6%
per year.
F. Sheraton Moriah (Israel) Ltd. - consolidated company
During April 1999, pursuant to a memorandum of understanding dated 27
January, 1999, Koor purchased 75% of the ownership of the
Radisson-Moriah hotel chain at a value of approximately $81.5 million
(before distribution of a dividend). The name of the company was
changed to Sheraton Moriah (Israel) Ltd. (hereinafter: "Sheraton
Moriah").
Sheraton Moriah was consolidated in Koor's financial statements
starting in the second quarter of 1999.
During October 1999 Koor concluded the sale of 20% of the
ownership of Sheraton Moriah in consideration of $ 13 million
(after distribution of a dividend) to Hapoalim Assets (Shares)
Ltd. of the Bank Hapoalim Group.
In December 1999 Koor sold its hotels and also the Sheraton
management company of which it owned 49% to Sheraton Moriah.
Prior to the sale of the hotels owned by Koor to Sheraton Moriah,
Koor recorded a provision for a write-off in value of the hotels
in the amount of NIS 38 million. Sheraton Moriah is in the
process of preparing a prospectus for a public offering on the
Tel Aviv Stock Exchange.
<PAGE>
G. BVR Systems (1998) Ltd. - an affiliated company
During 1999 Koor purchased shares on NASDAQ in BVR Systems (1998)
Ltd. (hereinafter: "BVR"). The total cost of the purchases amounts to
approximately $ 20 million.
On 5 August, 1999 Koor signed an agreement with a number of BVR's
shareholders for the purchase of additional BVR shares (part by way of
private placement and part in purchase from the other shareholders) in
consideration of approximately $ 14 million. The transaction was
closed on 22 September, 1999 by means of Elisra Electronic Systems
Ltd.
The agreement determined that the other shareholders of BVR, together
with Koor, will exercise their voting power so that three directors of
BVR will be recommended by Koor and the other four directors will be
recommended by the other shareholders. As of 1 October, 1999 Koor
recorded its investment in BVR according to the equity method, and the
original differential allocated to goodwill at approximately NIS 120
million, was calculated accordingly. As at the balance sheet date
Koor's holdings are approximately 28.6% of BVR's share capital.
H. Divestiture of additional holdings
1. On 3 March, 1999 an agreement was signed with Menorah Holdings and B.
Gaon Holdings Ltd. (hereinafter: the "Buyers") for the sale of most of
Koor's shares in Koor Finance Ltd., (hereinafter: "Koor Finance")
which controls, among others, Koor Capital Markets and Netivot Pension
under terms whose principal points are listed below:
Under the agreement, Koor sold to the Buyers 80% of its rights in Koor
Finance (share capital and capital note) for a total consideration
(including a dividend of NIS 8 million) of NIS 44 million, subject to
certain adjustments.
On 31 May, 1999 the transaction was concluded after the receipt of
approvals from various authorities and the consideration was paid. The
capital gain after tax to Koor from this sale amounted to some NIS 10
million and was recorded in the second quarter of 1999.
Koor and the Buyers granted one another put and call options for
purchase of the remainder in Koor's interest in Koor Finance. The put
option is exercisable starting from the end of one year after the date
of signature of the agreement until the end of two years from that
date. The call option is exercisable within 90 days of the expiry date
of the put option. The exercise price of the options is NIS 12
million, linked to the dollar and bearing interest. After the balance
sheet date in March 2000, Koor announced its intention to exercise the
put option. A capital gain of some NIS 2 million is expected to accrue
to Koor as a result of the exercise.
On 14 June, 1999 Tadiran sold its holdings (20%) in Koor Investment
House (H.A.L. Ltd.) to a subsidiary in the Koor Finance Group, in
consideration of NIS 5 million.
2. On 21 June, 1999 a transaction was completed for the sale of all
the holdings (76.37%) of Koor Investments Ltd. (a wholly owned
subsidiary of Koor) in Merhav Building Materials and Ceramics
Center Ltd. (hereinafter: "Merhav") in total consideration of NIS
35 million. As part of the transaction the buyers purchased from
Koor the capital note which Merhav had issued in favour of Koor
in the amount of approximately NIS 4 million, and Koor was
released from its guarantees in favour of Merhav and its
subsidiaries. After deduction of provisions for decreased value
which were included in 1998 for this investment, the capital gain
after tax arising from the sale amounted to approximately NIS 7
million which was included in the second quarter of 1999.
<PAGE>
3. On 21 July, 1999 an agreement was finalised for the sale of Koor's
holdings (100%) in Yonah Fishing and Industry Ltd. (hereinafter:
"Yonah") and its subsidiary. Under the agreement Koor was released
from the guarantees which it gave in respect of Yonah to banking
institutions and other parties in a total amount of approximately NIS
55 million. After provisions for a decline in value of NIS 9 million,
recorded up to the end of the second quarter of 1999, no capital gain
or loss accrued to Koor from the transaction. See Note 24H.
4. On 28 July, 1999 Koor signed an agreement for the sale of all its
holdings (about 75%) in Phoenicia Glass Works Ltd. (hereinafter:
"Phoenicia") in consideration of NIS 6 million and the release of Koor
from its guarantees in favour of Phoenicia towards other parties in
the amount of approximately NIS 36 million. On 20 October 1999 the
transaction was completed, the consideration was paid and the shares
transferred. The net gain after tax after cancellation of the
provisions recorded for decreased value amounted to approximately NIS
9 million. See Note 24H.
5. On 4 August, 1999 Koor sold all of its holdings (100%) in the
subsidiary Koor Metals Ltd. (hereinafter: "Koor Metals") for a total
consideration of approximately NIS 11 million and released Koor from
its guarantees in favour of Koor Metals and its subsidiary to banks
and third parties in consideration of approximately NIS 34 million. In
addition, the loans between Koor and the company were repaid. After
provisions for decreased value in the approximate amount of NIS 10
million which were recorded during 1998, no capital gain or loss was
recorded from the transaction.
6. On 25 November, 1999 a contract was signed by Koor and ISSTA Lines
Student Travel Company Israel Ltd. (hereinafter: "ISSTA") whereby Koor
undertook to transfer all its share capital in the subsidiary Histour
Eltiv Ltd. (hereinafter: "Histour") to ISSTA. In return ISSTA
undertook to release Koor from all its guarantees for the liabilities
of Histour. Furthermore, Koor undertook to invest in Histour
approximately NIS 13.5 million and in return Histour undertook to
allocate to Koor preferred shares which will confer upon it the right
to appoint one director in Histour and the preferential right to
receive dividends over a period of ten years, after which the
preferred shares will be deferred. The transaction was approved by the
Commissioner of Restrictive Trade Practices and it was concluded on 21
February, 2000. Koor is not expected to incure a loss or profit from
the transaction.
7. On 7 December, 1999 Koor signed an agreement to sell all its holdings
(51%) in Merkavim Metal Works Ltd. for a total consideration of
approximately NIS 17.5 million. The transaction was concluded in
January 2000. The capital gain after tax and after cancellation of the
provision recorded for decreased value, will be recorded in the first
quarter of 2000 in the amount of approximately NIS 4 million.
8. On 23 December, 1999 Koor signed an agreement to sell all its holdings
(approximately 76%) in Middle East Tubes Ltd. in consideration of some
NIS 84 million. After recording a provision for decreased value in the
approximate amount of some NIS 8 million during 1999, no gain or loss
is expected from the transaction.
<PAGE>
Note 4 - Short-Term Deposits and Investments
<TABLE>
<CAPTION>
Consolidated Company
------------ -------
December 31 December 31
----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
NIS thousands NIS thousands
------------------------- -----------------
<S> <C> <C> <C> <C>
Marketable securities (1):
Debentures 219,657 109,912 192,614 37,754
Short-term Treasury notes 35,368 58,581 29,122 10,461
Shares and options 84,678 120,593 36,596 35,958
Convertible securities 1,496 2,537 - -
Mutual fund participation
certificates 13,102 14,168 - -
------- -------- -------- --------
354,301 305,791 258,332 84,173
Deposits in banks and financial
institutions 96,177 533,537 - 87,411
Deposit in bank per merger
agreement (2) - 746,194 - -
Loans 21,857 1,824 20,765 -
------- --------- ------- -------
472,335 1,587,346 279,097 171,584
======= ========= ======= =======
</TABLE>
(1) Stated at market value.
(2) Bank deposit in accordance with the ECI - TTL merger agreement.
Within the framework of the merger agreement between TTL and ECI, as
aforesaid in Note 3A(1), in December 1998 TTL issued debentures
convertible to shares, in consideration of $ 177 million.
Note 5 - Trade Receivables
<TABLE>
<CAPTION>
Consolidated:
December 31
------------------------
1999 1998
--------- -----
NIS thousands
------------------------
<S> <C> <C>
On open account 2,936,846 3,291,169
Post dated checks receivable and credit card
companies 224,222 272,743
Current maturities of long-term trade receivables 52,139 65,251
--------- ----------
3,213,207 3,629,163
========= ==========
Including:
Affiliates 11 108
========= =========
Proportionately consolidated companies 173 255
========= =========
Net of allowance for doubtful accounts 46,024 114,981
========= =========
</TABLE>
<PAGE>
Note 6 - Other Receivables
<TABLE>
<CAPTION>
Consolidated Company
------------------------- ---------------------------
December 31 December 31
------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ------------ ---------
NIS thousands NIS thousands
------------------------- ---------------------------
<S> <C> <C> <C> <C>
Government agencies 112,644 162,184 8,837 3,995
Deferred taxes, see Note 16F 271,492 160,001 129,000 -
Accrued income (including
from a subsidiary) 53,571 90,377 5,193 2,545
Prepaid expenses 76,003 84,477 658 632
Employees 17,591 20,545 15 8
Receivables from the sale
of investments and fixed assets - 24,086 - -
Affiliates - current accounts 5,631 3,986 394 -
Proportionately consolidated
companies 21,418 3,567 3,035 -
Others 102,258 134,721 8,044 8,001
------- ------- ------- ------
660,608 683,944 155,176 15,181
======= ======= ======= ======
</TABLE>
Note 7 - Inventories and Work in Process
<TABLE>
<CAPTION>
Consolidated:
December 31
-------------------------
1999 1998
-------------------------
NIS thousands
-------------------------
<S> <C> <C>
A. Inventories and work in process, net of
customer advances - stated as
current assets:
Industrial inventory:
Raw and auxiliary materials 759,274 982,958
Goods and work in process (1)(2) 341,272 515,136
Finished goods 925,209 1,145,509
Advances in respect of materials 10,160 40,015
Inventories for trading operations -
merchandise (including advance payments) 161,482 174,248
--------- ---------
2,197,397 2,857,866
Less - customer advances 73,710 47,353
--------- ---------
2,123,687 2,810,513
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31
-------------------------
1999 1998
------------ ---------
NIS thousands
-------------------------
<S> <C> <C>
B. Customer advances, net of work in process -
stated as current liabilities:
Customer advances in respect of work in
process(1)(3)(4) 242,510 449,487
Less - inventory and work in process 39,061 117,067
--------- ---------
203,449 332,420
========= =========
(1) Net of provision for loss in
respect of work in process 15,917 1,703
========= =========
(2) Including long-term contracts, net: 64,247 65,872
========= =========
(3) Not including long-term advances.
(4) See Note 22 regarding guarantees provided for securing the
gross amounts of customer advances (including long-term advances).
</TABLE>
<PAGE>
Note 8 - Investments in Investee companies
<TABLE>
<CAPTION>
December 31
-------------------------
1999 1998
---------- ----------
NIS thousands
-------------------------
A. Consolidated balance sheet - affiliates
<S> <C> <C>
Net asset value of the investments (1)(2) 1,957,207 848,692
--------- ---------
Goodwill (2):
Original amount, net 1,739,625 806,586
Accumulated amortisation, net (230,418) (77,051)
--------- ---------
1,509,207 729,535
--------- ---------
Long-term loans (3) 29,358 44,833
--------- ---------
3,495,772 1,623,060
========= =========
(1) As follows:
Net asset value of investments as at
31 December, 1991 261,563 261,563
Changes from January 1, 1992:
Cost of shares acquired or received 1,071,477 754,220
Accumulated net earnings 441,233 194,383
Changes in capital reserves and
foreign currency translation adjustments (12,336) 10,719
Initially consolidated subsidiaries, net (233,838) (176,220)
Disposals, net 429,108 (195,973)
--------- ---------
1,957,207 848,692
========= =========
(2) Including investments in companies traded
on the Stock Exchange in Tel-Aviv or
abroad, in millions of NIS:
Carrying value 3,370 1,469
========= =========
Market value 4,517 2,511
========= =========
(3) Linkage terms and interest rates relating
to long-term loans:
Linked to the CPI - in part bearing
interest at the rate of 5%, and in part
bearing no interest 19,693 32,197
Linked to foreign currency (mainly to the
the dollar) - in part bearing interest up to
the rate of Libor + 2%, and in part bearing
no interest 7,411 12,636
Without linkage 2,254 -
--------- ---------
29,358 44,833
========= =========
</TABLE>
<PAGE>
B. Company balance sheet - investees
<TABLE>
<CAPTION>
December 31
-------------------------
1999 1998
----------- ---------
NIS thousands
-------------------------
<S> <C> <C>
Shares:
Net asset value of the investments 4,429,303 4,257,908
--------- ---------
Goodwill:
Original amount, net 1,273,568 1,135,356
Accumulated amortisation (155,817) (45,829)
--------- ---------
1,117,751 1,089,527
--------- ---------
Book value (1) 5,547,054 5,347,435
Payments on account of shares (1) 60,250 122,464
Long-term loans and capital notes (2) 822,058 895,245
Non-current inter-company accounts (3) 25,147 87,205
--------- ---------
6,454,509 6,452,349
Less - Company shares held by subsidiaries 53,641 53,641
--------- ---------
6,400,868 6,398,708
========= =========
(1) As follows:
Cost of shares including accumulated
earnings as at 31 December, 1991 1,918,301 1,918,301
Changes from January 1, 1992:
Cost of acquired shares 5,380,513 4,289,635
Accumulated net earnings 138,903 1,082,319
Changes in capital reserves, net (442,379) (389,943)
Disposals (1,388,034) (1,430,413)
--------- ---------
Book value, including payments on
account of shares (4) 5,607,304 5,469,899
========= =========
Net of investment in Koor Trusts (1995) Ltd. See Note 20C.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31
---------------------------
1999 1998
------------- ---------
NIS thousands
---------------------------
<S> <C> <C>
(2) Long-term loans and capital notes:
Long-term loans (a) 254,965 250,266
Capital notes - unlinked and not bearing
interest (b) 568,792 644,979
------- -------
823,757 895,245
Less - current maturities of long-term
loans 1,699 -
------- -------
822,058 895,245
======= =======
(a) Loans classified by linkage terms and interest rates:
Interest rate
at December 31 December 31 December 31
--------------- ----------- -----------
1998 1999 1998
---- ---- ----
% NIS thousands
- -------------
<S> <C> <C> <C>
Linked to the CPI 2-2.75 69,858 68,488
Linked to the CPI 4.5 54,318 1,697
Linked to the CPI 5.5 46,393 -
Linked to the CPI 6.5 30,472 29,195
Linked to the CPI - 53,924 150,886
------- -------
254,965 250,266
======= =======
(b) Capital notes are not stated at their present value, since their repayment date has not yet
been fixed by the parties.
(3) Non-current inter-company accounts:
December 31
-----------
1999 1998
---- -----
NIS thousands
-------------
<S> <C> <C>
Linked to the dollar exchange rate 125 -
Unlinked-bears interest at the rate of
the increase in the CPI 25,022 87,205
------ ------
25,147 87,205
====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31
------------
1999 1998
---- ----
NIS millions
------------
<S> <C> <C> <C>
(4) Including investments in marketable
shares traded on the Tel-Aviv Stock
Exchange or abroad in NIS millions::
Carrying value 2,288 * 3,484
====== ======
Market value 3,051 5,559
====== ======
* Net of a dividend receivable from a subsidiary of NIS 422 million which is
included in current assets.
</TABLE>
Note 9 - Other Investments and Receivables
<TABLE>
<CAPTION>
A. Composition:
Consolidated Company
------------ -------
December 31 December 31
----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
NIS thousands NIS thousands
------------- -------------
<S> <C> <C> <C> <C> <C>
Deposits in banks and in
financial institutions 391,459 111,308 365,000 -
Non-current trade receivables (1) 141,284 157,791 - -
Long-term loans receivable
from others (2) 129,143 109,285 15,464 8,131
---------- -------- -------- ------
661,886 378,384 380,464 8,131
Marketable securities -
mainly fixed investments (2), (3) 3,469 75,833 - -
---------- -------- -------- ------
Investment in a hotel under
construction - 50,214 - 50,214
Non-marketable shares 65,597 48,807 2,812 40,552
Others 26,795 28,648 101 -
---------- -------- -------- ------
757,747 581,936 383,377 98,897
========== ======== ======== ======
(1) Including a reserve for the
renewal of equipment
and for the construction
and expansion of plants
in a proportionately
consolidated company - 79,435
========== ========
(2) Including loans to
proportionately
consolidated companies 34,527 44,020
========== ========
</TABLE>
<PAGE>
(3) As at 31 December, 1998, includes NIS 42 million of debentures of a
subsidiary, pledged to secure long-term loans received from banks, in
order to invest in marketable government bonds. An additional amount
of NIS 172 million in debentures, which is the sole security for the
repayment of the maximum amount of the loans received for the purchase
of those debentures, was deducted from the balance of the loans.
B. Classification by linkage terms and interest rates of other
investments and receivables (not including marketable and other
securities):
<TABLE>
<CAPTION>
Consolidated:
Average
interest rates at
December 31 December 31
----------- -----------
1998 1999 1998
---- ---- -----
% NIS thousands
- -------------
<S> <C> <C> <C>
Linked to CPI 4-7 425,506 154,852
Linked to the dollar 4-7 228,618 198,528
Unlinked Mainly 15 7,762 25,004
-------- -------
661,886 378,384
======== =======
Company:
December 31
-----------
1999 1998
---- ----
NIS thousands
-------------
Linked to CPI 6.6 367,827 2,832
Linked to foreign currency
(mainly to the dollar) 6.2 12,637 5,299
-------- -----
380,464 8,131
======== =====
</TABLE>
<PAGE>
C. Repayment schedule of deposits, non-current customers balances and
long-term loans from others, in the consolidated balance sheet:
<TABLE>
<CAPTION>
Consolidated Company
------------ -------
December 31 December 31
----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
NIS thousands NIS thousands
------------- -------------
<S> <C> <C> <C> <C> <C>
Amounts collectible in the:
First year (1) 34,527 58,365 - -
Second year 124,279 139,673 7,267 -
Third year 60,628 59,013 - -
Fourth year 395,634 54,667 365,000 -
Fifth year 17,093 14,875 - -
Thereafter and without a
specific maturity date 29,725 51,791 8,197 8,131
------- ------- ------- -----
661,886 378,384 380,464 8,131
======= ======= ======= ======
(1) Management of a proportionately consolidated company is of the opinion
that these amounts are primarily designated for investment in fixed
assets, See also A(2) above
</TABLE>
<PAGE>
Note 10 - Fixed Assets
A. Consolidated
<TABLE>
<CAPTION>
Land Buildings Machinery, Office Tools Installations Total
(including equipment Vehicles furniture and under
leasehold and and and instruments construction
land) installations forklifts equipment and payments
on account of
acquisition
of assets
---------------------------------------------------------------------------------------------------
NIS thousands
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost as at January 1, 1998 377,795 2,424,284 7,348,027 520,700 323,858 17,920 353,856 11,366,440
Additions during the year 39,446 170,893 528,105 98,866 38,319 (16) 182,125 1,057,738
Disposals during the year 10,572 57,346 196,189 15,575 4,000 - 18,272 301,954
Adjustments resulting from
foreign currency translation
differences * (6,200) (526,082) (995,538) (48,194) (29,300) (3,187) (31,541) (1,640,042)
Formerly consolidated
subsidiaries, net 76,680 (64,361) (135,278) (106,110) (15,478) (1) 37 (244,511)
------- --------- --------- ------- ------- ------ ------- ----------
Balance as at
31 December, 1998 498,293 2,062,080 6,941,505 480,837 321,399 14,716 522,749 10,841,579
------- --------- --------- ------- ------- ------ ------- ----------
Additions during the year 11,663 131,175 780,833 99,547 29,812 (260) (437,229) 615,541
Other changes during the
year, net (5,580) (26,804) (38,962) (823) (485) - (2,886) (75,540)
Adjustments resulting from
foreign currency translation
differences* (31,055) 739,195 (532,760) (114,966) (96,340) 1,993 32,150 (1,783)
Formerly consolidated
subsidiaries, net (1,239) (206,942) (392,617) (92,893) (23,139) - - (716,830)
------- --------- --------- ------- ------- ------ ------- ----------
Balance as at
31 December, 1999 472,082 2,698,704 6,757,999 371,702 231,247 16,449 114,784 10,662,967
------- --------- --------- ------- ------- ------ ------- ----------
* See Note 2B(3).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Land Buildings Machinery, Office Tools Installations Total
(including equipment Vehicles furniture and under
leasehold and and and instruments construction
land) installations forklifts equipment and payments
on account of
acquisition
of assets
------------------------------------------------------------------------------------------------------
NIS thousands
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brought forward 472,082 2,698,704 6,757,999 371,702 231,247 16,449 114,784 10,662,967
Accumulated depreciation as at ------- --------- --------- ------- ------- ------ ------- ---------
January 1, 1998 3,012 1,266,661 5,002,700 281,133 196,208 - - 6,749,714
Additions during the year 3,089 66,814 464,158 59,709 29,165 - - 622,935
Other changes during the year, 51 35,130 104,767 6,726 (1,187) - - 145,487
net
Adjustments resulting from
foreign currency translation
differences* (102) (267,245) (768,243) (30,174) (17,194) - - (1,082,958)
Formerly consolidated
subsidiaries, net (1) (20,469) (21,984) (57,661) (9,375) - - (109,490)
------- --------- --------- ------- ------- ------ ------- ---------
Balance as at 31 December, 1998 6,049 1,080,891 4,781,398 259,733 197,617 - - 6,325,688
Additions during the year 161 70,084 344,025 43,847 23,214 - - 481,331
Adjustments resulting from
foreign currency translation
differences* (11) (14,275) (18,030) (90) (503) - - (32,909)
Formerly consolidated
subsidiaries, net 1,998 266,066 (463,830) (51,559) (53,356) - - (300,681)
Other changes, net - (100,595) (220,733) (44,555) (15,853) - - (381,736)
Balance as at ------- --------- --------- ------- ------- ------ ------- ---------
31 December, 1999 8,197 1,302,171 4,422,830 207,376 151,119 - - 6,091,693
Net book value as at ------- --------- --------- ------- ------- ------ ------- ---------
31 December, 1999 463,885 1,396,533 2,335,169 164,326 80,128 16,449 114,784 4,571,274
Net book value as at ======= ========= ========= ======= ======= ====== ======= =========
31 December, 1998 492,244 98,189 2,160,107 221,104 123,782 14,716 522,749 4,515,891
* See Note 2B(3) ======= ========= ========= ======= ======= ====== ======= =========
</TABLE>
<PAGE>
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
- --------------------------------------------------------------------------------
Supplementary data on consolidated fixed assets :
(1) Some of the properties have not yet been registered in the Land
Registry Office in the name of the subsidiaries, in some cases because
of the absence of formal parcelisation of the area.
Leasehold rights are for a period of 49 years, ending in the year 2000
and thereafter. Certain leases provide an option for extension for
another 49 years.
The cost of leasehold real estate as at 31 December, 1999, is NIS
1,267 million, of which NIS776 million is under a capitalised lease.
(2) After deduction of investment grants, net of depreciation, which have
been received from the State of Israel by certain subsidiaries under
the terms of the Law for the Encouragement of Capital Investments,
1959, amounting to NIS 130 million, adjusted, and NIS 191 million,
adjusted, as at 31 December, 1999 and 1998, respectively (see also
Note 16A).
If the subsidiaries will not comply with the conditions related to the
grants, they may be required to refund the grants, in whole or in
part, plus interest and linkage increments, from the date of receipt.
Most of the companies have complied with the conditions of these
grants through 31 December, 1999, and they believe that they will
continue to comply with the terms of the grants.
As security for the implementation of the approved projects and
compliance with the conditions of the approval, a charge has been
registered on the above subsidiaries' assets in favor of the State of
Israel.
(3) Includes capitalised interest amounting to NIS 73,404 thousand,
adjusted, and NIS 98,572 thousand, adjusted to 31 December, 1999 and
1998, respectively.
(4) As for amounts charged to cost of fixed assets, see Note 23B. and E.
(5) Including fully depreciated assets amounting to NIS 2,896 million,
adjusted to 31 December, 1999.
(6) See Note 22 regarding liens.
<PAGE>
B. Company
Composition of the assets and accumulated depreciation, according to major
groups, and changes therein during the current year, are as follows:
<TABLE>
<CAPTION>
Balance at
beginning Changes during the year Balance at
of year Additions Disposals end of year
--------- --------- -----------
NIS thousands
----------- --------------
<S> <C> <C> <C>
Cost:
Offices and land * 23,465 10,159 - 33,624
Vehicles 2,986 257 (1,847) 1,396
Office equipment 4,835 3,636 (3,108) 5,363
------ ------ ------ -------
31,286 14,052 (4,955) 40,383
------ ------ ------ -------
Accumulated depreciation:
Land and offices premises - 336 - 336
Vehicles 1,000 326 (892) 434
Office equipment 2,091 575 (1,453) 1,213
------ ------ ------ -------
3,091 1,237 (2,345) 1,983
------ ------ ------ -------
Net book value:
Land and offices premises 23,465 33,288
Vehicles 1,985 962
Office equipment 2,745 4,150
------ -------
28,195 38,400
====== ========
</TABLE>
(*) Represents the ownership of two stories in an office building in Tel Aviv
and leasehold rights to land in Dimona, in an area of 27 dunams, not yet
registered in the Company's name. These premises have not as yet been
registered in the name of the Company at the Land Registry Office. The
premises are on land leased under a capital lease for a period of 49 years
ending in 2044.
<PAGE>
Note 11 - Other Assets, Net of Amortisation
<TABLE>
<CAPTION>
Consolidated Company
-------------------- ---------------------
December 31 December 31
-------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
NIS thousands NIS thousands
----------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Intangible assets:
Goodwill
Original amounts 443,135 690,383 - -
Accumulated amortisation 84,993 61,510 - -
------- ------- ------- --------
358,142 628,873
------- ------- ------- --------
Licensing of products abroad:
Original amounts 392,903 323,186 - -
Accumulated amortisation 189,502 150,596 - -
------- ------- ------- -------
203,401 172,590 - -
------- ------- ------- -------
Know-how, software, patents
and others:
Original amounts 94,599 97,277
Accumulated amortisation 30,892 41,786 - -
------- ------- ------- -------
63,707 55,491 - -
------- ------- ------- -------
Deferred expenses:
Debentures issuance costs:
Original amount 41,854 72,852 25,004 25,004
Accumulated amortisation 39,840 67,484 23,440 22,231
------- ------- ------- ------
2,014 5,368 1,564 2,773
------- ------- ------- ------
627,264 862,322 1,564 2,773
======= ======= ======= ======
</TABLE>
<PAGE>
Note 12 - Credit from Banks and Others
<TABLE>
<CAPTION>
A. Composition:
Consolidated Company
--------------------------------- -----------------------------
December 31 December 31
--------------------------------- -----------------------------
1999 1998 1999 1998
--------------- -------------- ----------- --------------
NIS thousands NIS thousands
--------------------------------- -----------------------------
<S> <C> <C> <C> <C>
From banks 2,479,869 1,603,223 241,410 966
From others 386 160 - -
------------ --------- --------- ----------
2,480,255 1,603,383 241,410 966
Debentures convertible into
shares of a subsidiary (1) - 746,194 - -
------------ --------- --------- ----------
2,480,255 2,349,577 241,410 966
Current maturities of long-term
loans and debentures
(see Note 15) 1,078,759 381,229 736,106 71,061
------------ --------- --------- ----------
3,559,014 2,730,806 977,516 72,027
============ ========= ========= ==========
(1) See Note 4(2).
</TABLE>
<TABLE>
<CAPTION>
B. Classification by linkage terms and average interest rates:
Consolidated
Average -------------------
interest rates at December 31
December 31 -------------------
1999 1999 1998
------------------ ------------------- -------
% NIS thousands
------------------ -------------------------------
<S> <C> <C> <C>
Linked to foreign currency
(mainly to the dollar) L+0.3-1.8 1,737,078 1,758,748
Linked to the CPI 4-6 79,019 82,784
Unlinked 7-14 664,158 508,045
---------- ----------
2,480,255 2,349,577
========== ==========
Consolidated
Average -------------------
interest rates at December 31
December 31 -------------------
1999 1999 1998
------------------ ------------------- ----------
% NIS thousands
------------------ ------------------- ----------
6.6 240,961 -
Linked to the dollar 11.5 449 -
---------- --------
Unlinked 241,410 966
========== ========
</TABLE>
C. See Note 22 regarding liens to secure credit.
<PAGE>
<TABLE>
<CAPTION>
Note 13 - Trade Payables
Consolidated
--------------------------
December 31
--------------------------
1999 1998
------------- -------
NIS thousands
--------------------------
<S> <C> <C>
Including notes payable 28,681 36,726
====== ======
</TABLE>
<TABLE>
<CAPTION>
Note 14 - Other Payables and Accruals
Consolidated Company
------------------------------ ------------------------------
December 31 December 31
------------------------------ ------------------------------
1999 1998 1999 1998
----------------- ----------- ---------- ---------------
NIS thousands NIS thousands
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Employees and withholdings
remittable 194,633 296,947 5,834 8,379
Provision for vacation pay and
vacation expense allowance 159,043 275,895 1,445 1,610
Accrued expenses 238,756 380,886 27,267 25,552
Government agencies
(including taxes) 202,188 170,583 38,142 10,389
Provision for warranty and
repairs 64,636 141,389 - -
Payables for purchase of
investments 112,597 894 - -
Severance pay payable and
current portion of early
retirement pensions
(see Note 17) 187,488 250,625 300 709
Reserve for internal insurance 30,122 34,363 14,150 19,136
Interim dividend to Koor
shareholders 165,172 86,363 - -
Dividend to minority in
subsidiaries - 8,797 - -
Deferred income 49,950 61,811 654 851
Affiliates and proportionately
consolidated companies -
current accounts 20 7,950 - 2,762
Provision for loss for consolidated
company 33,837 - 24,709 -
Others 295,470 390,299 21,709 10,045
---------- --------- --------- -------
1,733,912 2,106,802 134,210 79,433
========== ========= ========= =======
Includes interested parties 830 1,331
========= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Note 15 - Long Term Liabilities
A. Loans
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- ------------- ---------------
NIS thousands NIS thousands NIS thousands NIS thousands
-------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
1. Loans from banks 4,644,001 4,539,938 2,795,670 2,843,650
Less - current
maturities 952,114 241,972 666,891 14,141
-------------- -------------- ------------- ---------------
3,691,887 4,297,966 2,128,779 2,829,509
-------------- -------------- ------------- ---------------
2. Loans from others
Shareholders in
subsidiaries
and in proportionately
consolidated
companies 58,350 52,211 - -
Investees 400 811 42,027 31,159
Receipts from time-sharing
units 35,302 - - -
Others and long-term
accrued expenses 42,637 78,953 - -
-------------- -------------- ------------- ---------------
136,689 131,975 42,027 31,159
Less - current
maturities 3,629 25,215 12,685 203
-------------- -------------- ------------- ---------------
133,060 106,760 29,342 30,956
-------------- -------------- ------------- ---------------
Total loans 3,824,947 4,404,726 2,158,121 2,860,465
============== ============== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
3. Classification by linkage terms and interest rates:
The consolidated balance sheet:
Interest rate at December 31
December 31 ------------------------------
1999 1999 1998
---------------- ------------ -----------
% NIS thousands
---------------- -------------------------------
<S> <C> <C> <C>
Foreign currency (mainly US dollar) Libor+0.3-1.8 3,937,683 3,665,814
Dollar exchange rate or CPI - the higher
of the two 4.9 216,850 219,755
CPI Up to 5 297,170 306,072
CPI Above 5 322,783 443,776
(mainly 6.2)
Unlinked 0-15 6,204 36,495
--------- ----------
4,780,690 4,671,912
Less - current maturities 955,743 267,186
--------- ---------
3,824,947 4,404,726
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Company balance sheet:
Interest rate at December 31
December 31 ------------------------
1999 1999 1998
--------------- ----- -----
% NIS thousands
--------------- -----------------------
<S> <C> <C> <C> <C>
a. From banks
Dollar exchange rate or CPI - the higher of the two 4.9 216,830 219,755
CPI 6.3 397,329 410,609
US dollar 6.5 2,181,511 2,213,286
--------- ---------
2,795,670 2,843,650
Less - current maturities 666,891 14,141
--------- ---------
2,128,779 2,829,509
========= =========
Interest rate at December 31
December 31 ----------------------
1999 1999 1998
---------------- ---- ----
% NIS thousands
---------------- -----------------------
b. From investees:
CPI 4.8 41,227 30,348
Unlinked -capital notes* - 800 811
------ ------
42,027 31,159
Less - current maturities 12,685 203
------ ------
29,342 30,956
====== ======
* The repayment date of the capital note has not yet been set but it
will not be before 31 December 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
B. Debentures
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
NIS thousands NIS thousands NIS thousands NIS thousands
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1. Debentures 96,536 129,288 - -
Less - current maturities 31,308 32,802 - -
------- ------- -------- -------
65,228 96,486 - -
======= ======= ======== ========
2. Debentures convertible into
shares
Issued by Koor
Series E 20,329 40,633 20,329 40,633
Series F 144,803 182,003 144,803 182,003
------- ------- ------- -------
165,132 222,636 165,132 222,636
Debentures convertible into shares
of investee companies:
Issued by Koor 62,295 - 62,295 -
Issued by subsidiaries and
proportionately consolidated
companies 44,440 53,194 - -
------ ------ ------- -------
Total debentures convertible
into shares 271,867 275,830 227,427 222,636
Less - current maturities 91,708 81,241 56,530 56,722
------- ------- -------- ---------
180,159 194,589 170,897 165,918
======= ======= ======== =========
</TABLE>
3. Debentures convertible into shares:
(a) NIS 11,340 thousand par value of debentures (Series E) are linked to
the CPI of December 1992 and bear interest at an annual rate of 1.75%.
The debentures were redeemed on 31 January, 2000.
(b) NIS 93,740 thousand par value of debentures (Series F), traded on the
Tel-Aviv Stock Exchange, are linked to the CPI of April 1994 and bear
interest at an annual rate of 2.75%. The debentures are redeemable, if
not previously converted into shares, in the years 2000-2003. The
debentures are convertible into registered ordinary shares of Koor of
a par value of NIS 0.001 at the conversion rate of NIS 330 par value
of debentures for 1 ordinary share.
(c) The debentures are secured by a first degree fixed token charge on a
NIS 1 coin deposited with a trustee. In addition, Koor undertook not
to create any charges on its assets, whether fixed or floating, prior
to receiving the trustee's explicit approval, and on the condition
that a charge of the same degree will also be registered in favor of
the trustee to secure the debentures, except for a token charge to
secure additional series of debentures that will be issued by Koor.
In the current period debentures of a par value of NIS 716 thousand (Series
F) were converted into shares.
<PAGE>
(d) According to the prospectuses of the issue of Koor's convertible
debentures, Koor will refrain from any distribution of dividends out
of capital reserves, or from profits deriving from capital reserves,
either of the Company or of the subsidiaries.
4. The debentures are classified by linkage basis and interest rate as
follows:
(1) Convertible debentures issued by the company, subsidiaries and
proportionately consolidated companies:
<TABLE>
<CAPTION>
Consolidated
--------------------------------
Interest rate as at December 31
December 31 --------------------------------
1999 1999 1998
------------------- --------------------------------
% Maturity NIS thousands NIS thousands
-------------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CPI (a) 3.0 2000-2001 44,440 53,194
US dollar (b) 2.5 2002 62,295 -
-------------- --------------
106,735 53,194
============== ==============
</TABLE>
(a) NIS 18,524 thousand were issued by United Steel Mills Ltd., see also
Note 27C.
(b) Debentures convertible in to ECI shares held by Koor at a minimum
realization price of $50 per share.
The convertible debentures are, for the most part, secured by a
subordinated floating charge on the entire assets of the issuing companies
and some by a token charge.
(2) Debentures of Series 7 issued by "Koor issuers" bear interest of 4.5%
and are linked to the CPI, both as to principal and interest, and are
redeemable until 2002.
The debentures are secured by a floating charge on all the said
company's assets. Under the terms of the trust deed the Company
has guaranteed the full payment of all principal, interest and
linkage differences of the debentures. The Company registered a
"negative pledge" to secure its guarantee.
<PAGE>
C. Liabilities (net of current maturities) that will mature in the
following years subsequent to balance sheet date, are as follows:
<TABLE>
<CAPTION>
1. Consolidated
Loans from banks Loans from others Debentures Total
---------------- ----------------- ---------- -----
December 31 December 31 December 31 December 31
----------- ----------- ----------- -----------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
NIS thousands
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Second year 811,495 1,255,573 15,124 15,976 139,056 107,423 965,684 1,378,971
Third year 298,189 673,101 13,969 19,442 70,121 76,952 382,279 769,495
Fourth year 1,853,130 260,596 9,008 11,268 36,210 70,300 1,898,339 342,164
Fifth year 393,569 1,819,108 10,097 1,762 - 36,400 403,666 1,857,270
Sixth year 172,242 78,456 17,733 28,597 - - 189,975 107,053
Subsequent years 163,262 211,132 67,129 29,715 - - 230,391 240,847
--------- --------- ------- ------- ------- ------- --------- ---------
3,691,887 4,297,966 133,060 106,760 245,387 291,075 4,070,334 4,695,801
======== ========= ======= ======= ======= ======= ========= =========
2. The Company
Convertible
Loans from banks Loans from investees debentures Total
---------------- -------------------- ------------ -----
December 31 December 31 December 31 December 31
----------- ----------- ----------- -----------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
NIS thousands
---------------------------------------------------------------------------------
Second year 477,595 676,327 12,685 203 98,495 56,716 588,775 733,246
Third year - 484,814 15,857 203 36,201 36,401 52,058 521,418
Fourth year 1,651,184 - - 29,740 36,201 36,401 1,687,385 66,141
Fifth year - 1,668,368 - - - 36,400 - 1,704,768
Sixth year - - - - - - - -
Subsequent years - - 800 810 - - 800 810
--------- --------- ------- ------- ------- ------- --------- ---------
2,128,779 2,829,509 29,342 30,956 170,897 165,918 2,329,018 3,026,383
========= ========= ======= ======= ======= ======= ========= =========
</TABLE>
D. See Note 22 for details of security pledged to secure loans.
<PAGE>
Note 16 - Taxes on Income
A. Tax benefits under the Law for Encouragement of Capital Investments, 1959:
Under this law, by virtue of the "approved enterprise" status granted to
certain enterprises of several investees, these companies are entitled to
various tax benefits. The income derived from these enterprises during a
period of up to 10 years, from the year in which these enterprises first
had taxable income (limited to 12 years from commencement of production or
14 years from the date of the approval, whichever is earlier), is subject
to a corporate tax rate of 0 - 25%.
In the event that an investee distributes a dividend to shareholders out of
income attributable to revenues from an approved enterprise which received
a tax exemption, the company that distributes the dividend would be liable
to tax at 25% of the earnings distributed. Deferred taxes in respect of
income from approved enterprises were not provided, since it is the Group's
policy not to initiate a distribution of dividend that involves an
additional tax liability to the Group.
B. Measurement of results for tax purposes in accordance with the Income Tax
(Inflationary Adjustments) Law, 1985 (hereinafter - "the Adjustments Law"):
In accordance with the Adjustments Law, the results for tax purposes are
measured in real (non-inflationary) terms, based on the changes in the CPI.
C. Law for the Encouragement of Industry (Taxation), 1969:
Certain companies qualify as "industrial companies" under the above law. By
virtue of this status and certain regulations published under the
inflationary adjustments law, the companies are entitled to claim, and have
in fact claimed, accelerated rates of depreciation.
D. Tax rates applicable to income from other sources:
Income not eligible to "approved enterprise" benefits, mentioned in A.
above, is liable to tax at the regular rate of 36%.
E. Losses for tax purposes carried forward to future years and tax
assessments:
1. The consolidated balance of net operating tax loss carryforwards at 31
December, 1999, amounted to approximately NIS 1,050 million, out of
which NIS 14 million relates to foreign subsidiaries and NIS510
million relates to Koor.
Tax loss carryforwards, for which deferred taxes were not created,
amounted to NIS 780 million.
The balance of the consolidated capital loss carryforward, as at 31
December, 1999, is NIS 460 million (out of which NIS 370 million
relates to the Company), which can be offset mainly until 2003.
In 1999 the utilization of capital losses and part of the business
losses carried forward for the Company's tax purposes became feasible
and in 1999 Koor accordingly recorded a tax asset of NIS 129 million
against the income tax income.
Under the inflationary adjustments law, carryforward tax losses are
linked to the CPI.
<PAGE>
2. Final tax assessments have been received by the Company and by some of
the subsidiaries through the 1998 tax year. Some of the Group
companies have received final assessments through the 1993 tax year.
The Company has received final assessments for the 1992 to 1998 tax
years, according to which the Company paid, after the balance date,
some NIS 28 million for the aforementioned tax years. This amount is
included in the tax expenses for previous years.
F. Deferred taxes:
1. Deferred taxes are presented in the consolidated balance sheet as
follows:
<TABLE>
<CAPTION>
December 31
-----------------------------
1999 1998
----------- --------
NIS thousands
-----------------------------
<S> <C> <C> <C>
Within current assets in respect of:
Provision for vacation pay and severance benefits (73,843) (95,632)
Operating loss and capital loss carryforwards (1) (151,05) (22,639)
Inventory, net of customer advances (9,428) (9,029)
Timing differences in respect of recognition of
income and expenses (37,165) (32,701)
-------- -------
Total in current assets (271,492) (160,001)
-------- -------
Within long-term liabilities in respect of:
Depreciation 391,212 386,809
Operating loss carryforwards (450,066) (352,561)
Capital loss carryforwards (37,500) (117,251)
Liability in respect of employee severance benefits (90,459) (79,638)
Other 17,339 (18,669)
-------- -------
(169,474) (181,310)
Balance not expected to be realised (2) 406,369 400,824
-------- -------
Total in long-term liabilities 236,895 219,514
-------- -------
Net amount of deferred tax (34,597) 59,513
======= =======
(1) Including in respect of the Company 129,000 -
======= =======
(2) The Company and certain subsidiaries have deferred tax assets, that
are not expected to be realised, because of accumulated tax loss
carryforwards and other temporary differences. Company Management
believes that it is not likely that these balances will be realised
and, accordingly, no deferred taxes were created in respect thereof.
2. Balances and movement of deferred taxes in the consolidated balance
sheet:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Depreciable Inventories Provisions Losses and Timing` Total
fixed net of for deductions differences
assets customer employee carried in respect of
advances rights forward recognition of
income and
expenses
----------- --------- --------- --------- -------------- -----
NIS thousands
-------------------------------------------------------------------------------------
Balance as at
<S> <C> <C> <C> <C> <C> <C>
January 1, 1998 370,060 (13,271) (110,898) (29,864) (48,735) 167,292
Translation differences
in subsidiaries 11,124 (1,469) (5,681) (564) (2,315) 1,095
Amounts charged to
statement of operations (1) 10,935 6,058 (63,502) (76,183) 6,250 (116,442)
Other changes, net * (5,309) (348) 4,812 9,963 (1,550) 7,568
-------- ------- --------- -------- -------- ---------
Balance as at
31 December, 1998 386,810 (9,030) (175,269) (96,648) (46,350) 59,513
Translation differences
in subsidiaries (2,464) 200 1,057 327 413 (467)
Amounts charged to
statement of operations (2) 30,287 (15,783) 3,478 (98,365) (75,300) (155,683)
Other changes, net * (23,421) 15,185 6,432 (29,172) 93,016 62,040
-------- -------- ------- --------- -------- --------
Balance as at
31 December, 1999 391,212 (9,428) (164,302) (223,858) (28,221) (34,597)
======= ======== ========= ========= ======== ========
(1) Including discontinued
operations
In 1998 (1,824) - - - 1,198 (626)
======== ======= ======== ======== ======= =======
(2) Including taxes for
previous years
</TABLE>
* Mainly companies whose consolidation was terminated, net.
Deferred taxes were computed at tax rates of 25%- 36% (mainly 28%).
<PAGE>
G. Taxes on income included in consolidated statements of operations:
1. Composition:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1999 1998 1997
---- ---- ----
NIS thousands
----------------------------------------
<S> <C> <C> <C> <C>
Earnings before income tax:
In Israel 520,833 167,722 785,806
Abroad 65,976 221,943 215,344
------- ------- ---------
586,809 389,665 1,001,150
======= ======= =========
For the current year:
Current taxes:
In Israel 284,821 287,246 161,031
Abroad 19,696 62,357 61,607
Deferred taxes:
In Israel (135,472) (110,635) 25,297
Abroad 14,371 (5,807) (5,330)
-------- --------- --------
183,416 233,161 242,605
In respect of previous years:
In Israel * (15,356) 2,353 (6,979)
Abroad (6,173) (1,529) 221
--------- --------- --------
161,887 233,985 235,847
========= ========= =========
</TABLE>
* Including deferred taxes in the amount of NIS 34,582 thousand.
<PAGE>
2. Below is a reconciliation between the theoretical tax expense, if all
the income of Koor and the subsidiaries were taxed at the regular rate
of 36%, and the actual tax expense as reported in the statement of
operations:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1999 1998 1997
---- ---- ----
NIS thousands
----------------------------------------
<S> <C> <C> <C> <C>
Earnings before taxes on income, as
reported in the statement of operations 586,809 389,665 1,001,150
======= ======= =========
Statutory tax rate 36% 36% 36%
======= ======= =========
Theoretical tax expenses in respect of
these earnings 211,251 140,279 360,414
Increase (decrease) in taxes resulting from
the following factors - the tax effect:
Tax benefits under various
encouragement laws (46,523) (72,272) (85,336)
Non-deductible expenses for tax
purposes (including depreciation) 38,509 29,159 27,670
Losses for which deferred taxes
were not recorded 29,303 36,900 58,148
Capital gains from sale of investments
and assets, net (27,104) (7,002) (45,665)
Provisions for anticipated
losses from the sale of assets, net 64,032 68,157 -
Tax loss carryforwards from prior years
for which deferred taxes were not
created and which were utilised during
the current year (102,980) (16,212) (60,803)
Inflationary erosion of tax advances (50) 5,499 1,709
Effect of the Inflationary Adjustments Law
in respect of companies
whose functional currency is the
U.S. dollar 7,302 65,890 6,319
Taxes in respect of prior years (21,529) 824 (6,758)
Effect of foreign subsidiaries 10,316 (23,349) (21,366)
Others (640) 6,112 1,515
-------- ------- --------
Total taxes on income 161,887 233,985 235,847
======== ======= ========
Effective tax rate 27.6% 60.0% 23.6%
======== ======= ========
</TABLE>
<PAGE>
Note 17 - Liabilities for Employee Severance Benefits, Net
A. Pension, severance pay and retirement grants:
Under current labour laws and existing labour agreements, the
companies in the Group are required to make severance payments, to
employees who are dismissed or who retire. In respect of these
liabilities, regular deposits are made by Group companies with pension
and severance pay funds. The balance sheet amount represents the
unfunded balance of the liabilities. Where the funds deposited are not
under the control and management of the Group companies, the funded
amounts are not reflected in the balance sheets. These deposits and
the amount stated in the balance sheet fully cover the Company's
liability for employee severance benefits.
Employees dismissed before reaching retirement age are entitled to
severance pay, computed on the basis of their latest salary. Where
amounts accumulated in the pension funds are insufficient to cover
such severance pay, the Company and its subsidiaries will make up the
amount of the shortfall at the time of payment. In Management's
opinion, an appropriate provision, based on the salary components used
in the computation of severance pay, has been included in the
financial statements to fully cover this liability.
Regarding companies in which enhanced severance pay has been planned
or agreed upon for the employees, appropriate provisions have been
made for the supplementary amounts.
B. Early retirement pension:
Under agreements with certain employees who retired from service, Koor
Group companies have undertaken to make pension payments until they
reach retirement age. The entire liability for such pensions is
included in the accounts on the basis of the present value of future
pension payments, computed at a monthly discount rate of 0.3% (3.7%
per year).
C. Compensation for unutilised sick leave:
A provision for this liability, according to agreements, is included
in the accounts in respect of those employees who have reached the age
of 55, due to the uncertainty as to whether employees who have not
reached that age will be entitled to such compensation (as a result of
utilisation of sick leave or early retirement). The provision is
computed on the basis of the latest salary for 8 working days in
respect of each year during which the sick leave was not utilised.
D. Liabilities for severance benefits, which are presented in the balance
sheet, and the amount funded in severance pay funds, are as follows:
<TABLE>
<CAPTION>
Consolidated Company
---------------------- ----------------------
December 31 December 31
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
NIS thousands NIS thousands
---------------------- -----------------------
<S> <C> <C> <C> <C> <C>
Severance pay and retirement
grants 518,168 860,302 7,051 11,955
Amount accrued for early
retirement 144,367 121,882 1,611 7,017
Amount accrued in respect of
unutilised sick leave 24,329 27,442 - -
------- --------- ------ -------
686,864 1,009,626 8,662 18,972
Less - amount funded * 381,973 745,578 2,148 1,905
------- --------- ------ -------
304,891 264,048 6,514 17,067
======= ========= ====== =======
</TABLE>
* The amounts funded can be withdrawn, subject to the fulfillment of the
provisions of the Severance Pay law.
<PAGE>
Note 18 - Contingent Liabilities and Commitments
A. Contingent liabilities
1. Commissioner of Restrictive Trade Practices:
a) During October 1997, proximate to the date of the publication of a
newspaper article containing details about alleged violations of the
Law for Restrictive Trade Practices, 1988 (hereinafter - the "Law")
regarding price coordination and lack of competition between TTL and
Telrad, the Commissioner of Restrictive Trade Practices (hereinafter -
the "Commissioner") conducted an examination at the offices of TTL,
Telrad and Koor, during which certain documents were confiscated,
certain employees were questioned and additional information was
submitted as requested.
On December 13, 1998, the Commissioner issued a press release, in
which he announced that the Investigations Department of the
Restrictive Trade Practices Authority (hereinafter - the Authority)
has concluded the investigation regarding suspicions about restrictive
arrangements between Koor, TTL, Telrad, Bezeq and Bezeqcall, in the
field of the supply of switchboards for the commercial market and in
the field of N.S.R.
According to a press release by the Commissioner, the investigators of
the Investigations Department of the Authority recommend submitting a
bill of indictment against some of the examinees regarding some of the
suspicions investigated, and that the Legal Department of the
Authority is to decide if offenses were in fact committed and if there
is a sufficient evidential basis for trial. In this press release,
nothing was mentioned regarding details about the findings of the
Legal Department of the Authority.
Under the Law, penalties may be imposed against an entity which has
violated the Law. There is also the possibility of repercussions at
the civil level, if damage should be proven as a result of a violation
of the law. The Management of the Company and the subsidiaries, after
consultation with their legal counsel, are of the opinion that, at
this stage, as long as the results of the Commissioner's examinations
have not yet been published, it is not possible to assess the possible
developments in this matter, nor to evaluate if a significant loss is
expected to result - if at all. Accordingly, it was not considered
appropriate to make any provision in the financial statements in
respect of this matter.
b) Pursuant to the directives of the Commissioner, in the conditions of
the permit to merge Claridge Group with the Company and the amendments
thereto, various restrictions were imposed on the Claridge Group, on
Koor and on companies in its Group. With the completion of the sale of
Koor's holding in Mashav Initiation and Development Ltd. the
restrictions imposed were cancelled. (See Note 3D).
<PAGE>
Note 18 - Contingent Liabilities and Commitments
2. Within the framework of the merger agreement as aforesaid in Note
3(A)1 Tadiran undertook to indemnify ECI for any damage it incurred as
a result of the matters listed below:
(a) Taxes imposed on TTL and its consolidated companies over and
above the provisions included in the financial statement.
(b) Errors, omissions, and inaccuracies detected in representations
made by TTL within the framework of the agreement concerning
matters linked to other property, claims, and transactions with
related parties.
(c) Breach of the obligations of Tadiran and TTL in the merger
agreement concerning agreement with related parties.
(d) Any subject connected with the matters being investigated by the
Commissioner (see Section 1 above).
(e) Non-receipt of the approvals and consent from third parties
required to transfer operations of the Switching Division of TTL.
The indemnity items will cover losses in excess of the deductible of
between $ 1.5 million and $ 10 million (contingent upon each section
separately) and/or are restricted to 81.67% of the loss incurred.
For indemnity purposes only the representations made by TTL shall remain
valid for one year from the date of the merger. Tadiran's indemnity in
respect of the matters or facts being investigated by the Commissioner,
shall remain valid for a period of seven years from the date of the merger
and shall be extendible for an additional period as long as these matters
are under investigation. Aside from this all the remaining representations
made by the company shall not remain valid after the date of the merger.
3. Environmental issues
The activities of M.A. Industries Ltd. are exposed to the risk of
causing damage to the environment, since the Group manufactures,
stores and sells chemicals. M.A. Industries invests significant
amounts in order to comply with the provisions of the laws and of the
environmental regulations, and in the opinion of management it does in
fact comply therewith. M.A. Industries' insurance policies provide
coverage in the event of a sudden unexpected crisis of environmental
pollution in Israel and worldwide, subject to relevant terms of the
policy. As at balance sheet date, M.A. Industries does not have
insurance coverage for continuous environmental pollution. Such
insurance is difficult to obtain, and in those cases where it is
obtainable, M.A. Industries' management is of the opinion, that the
terms of the policy, including the cost of the coverage, is, at
present, not justified.
One of M.A. Industries' plants is located in Ramat Hovav, along with
other chemical plants, since the Government decided that the
geological layers in that particular area are completely impenetrable
to liquid or pollution. Recently, the Ministry of the Environment
conducted examinations, which determined that there is data indicating
subterranean pollution in Ramat Hovav. The examiners recommended the
taking of measures to prevent the continuation of leakages from active
and inactive plants, which are liable to constitute a source of
pollution of the water table, in the area. At this stage, the
subsidiary cannot estimate the costs involved, if, in the light of the
research that will be carried out, a solution will be found, which it
will be decided to implement. Furthermore, the local Municipality at
Ramat Hovav is continuing to take rehabilitation steps relating to
past incidents.
<PAGE>
Note 18 - Contingent Liabilities and Commitments
4. Claims against Telrad:
a). In October 1994, a claim was filed by the Union Engineers against
Telrad, for an unspecified amount. The claim pertains to the
recognition and applicability of the salary tables included in the
general collective bargaining agreements, which were signed in 1994
and 1995 between the Engineers Union and the employers in the public
service sector, to Telrad engineers. On January 31, 1996, a ruling was
handed down by the Tel-Aviv District Labour Court completely rejecting
the claims of the Engineers Union. The Engineers Union has appealed
against the judgement. The appeal was heard in the National Labour
Court, and a decision thereon has not yet been handed down.
At the deliberation stage in the National Labour Court, the Engineers
Union filed a motion that Koor be added as a "liable party" in the
legal proceedings. The National Labour Court has not yet made a
determination on this issue.
In the opinion of the legal counsel which represents Koor in the above
procedure, the arguments against the motion are substantial, and they
believe that legally the motion is not acceptable. In the opinion of
the legal counsel, at this stage of the proceedings, the issue of
which is the status of the "Koor Agreement" as a collective agreement,
the results of the deliberation should not impose any liabilities on
Koor.
In April 1996, a parallel claim was filed, by the Lod Workers' Council
and the Workers Committee concerning the application of salary tables
of the public service sector to employees of Telrad. To date, it was
decided to abstain from deliberations in this claim until the National
Labour Court decides in the appeal of the Engineers Union.
b). In 1999 a claim was filed against Telrad by company employees who are
members of the company's workers' committee. They are suing for the
accounts so that the plaintiffs can examine the calculation of the
distribution of earnings to employees. They are also suing for a
declaratory judgment which will determine that Telrad is obliged to
draw up new accounts for the distribution of earnings. In addition an
application was filed to recognise the plaintiffs and representatives
of all Telrad's workers and employees. In response the company filed
an application as agreed to extend the date for submission of their
response on the grounds that another proceeding is pending between the
parties in which the matter of a class action has also arisen. The
application was accepted.
5. Claims filed against Tadiran and its subsidiaries:
a) In 1997, Qualcomm Inc. (hereinafter - Qualcomm), a U.S. corporation,
filed a claim against Elisra Electronics Systems Ltd. (hereinafter -
"Elisra"), a subsidiary of Tadiran, in response to a claim filed by
Elisra pertaining to a transaction cancelled by Qualcomm in August
1996. The claim filed by Elisra is in the amount of $ 25 million, and
the counter-claim is in the amount of $79 million, plus punitive
damages. The claims were filed during an arbitration procedure in the
United States. According to legal opinion received, Elisra has a
well-founded cause for its claim against Qualcomm and valid arguments
against the counter- claim. No provisions have been made in the
financial statements in respect of either the claim or the
counter-claim.
<PAGE>
b) Employees of a plant of Tadiran, which had been closed during 1990,
filed actions against the company, alleging that they sustained
injuries and certain related illnesses had been caused by exposure to
certain substances during their employment. Tadiran has insurance
policies, which, relying on legal opinion, cover possible damages as a
result of these claims, and, consequently, no provisions have been
made in respect of those claims. Tadiran recorded provisions in
respect of possible damages which had been covered by an insurance
company currently in the process of liquidation.
c) In May 1999 an application was filed for arbitration against Tadiran
by Adaptive Broadband Corporation (hereinafter - "ABC") (formerly
California Microwave Inc.), pursuant to the arbitration clause in the
agreement which was signed between those parties within the framework
of the sale of the business division by ABC to Tadiran.
The main thrust of the application is a declarative decision
determining that Tadiran is required to indemnify ABC in connection
with claims which were lodged at the arbitration institute against ABC
by a customer of the business division which was sold as aforesaid.
The claim lodged by the customer before the arbitration institution
which conducted discussion in Switzerland and on January 31, 2000 a
settlement was reached whereby the customer received $ 2 million. Half
of this amount was for the account of Tadiran and half for ABC. The
arbitration between Tadiran and ABC taking place in the United States
is supposed to resolve the issue of which of the two parties shall
incur the full amount of the payment to the customer.
In June 1999 Tadiran submitted its response to the deed of arbitration
and in addition it claimed financial restitution from ABC.
The management of Tadiran believes, based on the opinion of its legal
advisers, that it has appropriate defence arguments against the above
indemnity demands, and accordingly, no provision was made in the
financial statements for the arbitration results.
d) In October 1999, Bezeq, The Israel Telecommunication Corp. Ltd.
(hereinafter - "Bezeq") lodged a claim against Tadiran Ltd. whose main
cause is various losses incurred by Bezeq due to delays in the
performance of works which were ordered under development and
application contracts originally signed between Bezeq and TTL in the
amount of some $6.7 million (hereinafter - "the Principal Claim").
Alternatively, Bezeq is suing for the balance of arrearage penalties
to which it alleges it is entitled pursuant to those contracts, and
which were not paid in full, in the amount of approximately $1.7
million (hereinafter - "the Alternative Claim").
In an arbitration judgment handed down on February 17, 2000 all
Bezeq's arguments regarding the company's liability for the Principal
Claim were dismissed. The arbitration judgment determines that
pursuant to the engagement contracts between the parties Bezeq is
entitled to compensation within the framework of arrearage penalties
only. Since the period of time allocated to the arbitration has
elapsed, Bezeq is obligated to lodge a new claim in respect of its
Alternative Claim. At this stage negotiations for a settlement are in
progress. The financial statements contain a provision, based on the
opinion of its legal counsel, which the company's management believes
reflects the possible outcome of the Alternative Claim.
<PAGE>
a) A claim was filed against Makhteshim's subsidiary in Brazil and a
former employee of the claimant, alleging that the subsidiary has
copied and is employing a certain process, which is a protected trade
secret that is owned by the claimant. Accordingly, the subsidiary is
being sued to indemnify the claimant in respect of unfair competition,
in the amount of $ 13 million (based on a calculation involving the
amount of materials used). In addition, the claimant has requested
that a fine of 100 thousand Brazilian reals per day be levied against
the subsidiary in respect of the unlawful exploitation of trade
secrets. Based on the opinion of its legal counsel, the subsidiary's
management estimates that the claim has no validity and, therefore, no
provision has been included in the financial statements in respect
thereto.
b) A claim was filed against Makhteshim's subsidiary in Brazil and
others, in the aggregate amount of $ 24 million, by a group that
acquired the rights to two banks that had declared bankruptcy. The
subsidiary is requested to repay a loan of $ 1 million, out of the
aforementioned amount, which the claimants maintain had been granted
directly to the subsidiary. With respect to the balance of the claim,
the subsidiary has been sued as the guarantor of debts of agricultural
cooperatives, which were its former shareholders.
Based on the opinion of its legal counsel, the subsidiary's management
estimates that there is a reasonable likelihood that its defense
against the claim will be accepted and, therefore, no provision has
been included in the financial statements in respect thereto.
c) Claims and other monetary demands have been filed against Makhteshim's
investee in Brazil, in the aggregate amount of $ 15 million. Based,
inter alia, on the opinion of its legal counsel, the investee's
management estimates that the provisions recorded in its financial
statements are adequate to cover any possible damage, which may result
in respect of these claims.
7. A number of claims have been filed against certain other companies
concerning various matters pertaining to the normal course of
business, including tax, customs and VAT liabilities, which are in
various legal proceedings. The managements of said companies believe,
based on the opinion of the legal counsel handling the claims, that
appropriate provisions in light of the circumstances have been
included in the financial statements.
8. Under certain conditions, Nortel has the right to sell its holding of
shares (20%) in Telrad to a wholly-owned subsidiary of Koor in the
years 2000 - 2005 at a price which is the greater of $ 45 million or
the net asset value of the shares it sells at that date. Furthermore,
Nortel has the "right of equalisation" until the year 2000, at
specified terms - See also Note 18B3.
After the balance sheet date, on 6 March, 2000, Nortel realised its
right to sell its shares in Telrad to Koor. See Note 27D.
9. See Note 10A(2) regarding the matter of the fulfillment of the
conditions attached to the receipt of investment grants.
<PAGE>
10. The business activities of the Koor Group are characterised primarily
by advanced technologies. The accelerated rate of technological
developments and innovations in the Group's segments of operations,
require the investment of substantial financial resources in research
and development, in order to assure the Group's standing in its
respective segments of operations, while facing the constant
competition of both Israeli and worldwide entities. Consequently, the
Group may be exposed to the loss of its position in certain segments,
as well as to substantial research and development costs, which, in
turn, may have an adverse effect on the Group's operating results.
11. In March 1999 a collective labour agreement was signed between Middle
East Tubes Ltd. (METCO) and The New General Federation of Workers
concerning the retirement terms of 35 workers at the Acre plant of
METCO who it was agreed would retire from METCO and with regard to the
retirement of additional workers. A provision was made in the 1998
financial statements for the retirement of the aforementioned 35
workers. Under the agreement, workers from the Akko plant who resign
or who accept early retirement by 31.12.2000 are entitled to enlarged
compensation, depending on the number of years of their employment at
METCO.
It was also decided that additional workers who retire during the term
of the agreement will be entitled, upon reaching the age of 56 (or 54
for female workers), to early pension payments until they reach
retirement age. In addition, these workers will be entitled to grants
as stipulated in the agreement. Workers who are younger than 56 but
more than 54 on the date of signing the agreement and whom the
management of METCO has decided to dismiss, will also be entitled to
early pension payments. Every retirement is subjected to the approval
of the management of METCO.
The term of the above agreement is until 31 December, 2000, but will
remain in effect as long as no other agreement is signed. At this
stage it is not possible to estimate how many workers, if any, will
retire pursuant to the agreement, beyond the workers who have already
been dismissed, and therefore no additional provision was made for
them in the financial statements.
In addition, in February 2000 a claim was filed against METCO in the
Acre Labour Court by 45 employees from the plant regarding their
entitlement to receive increased severance compensation. As at the
date of publication of the financial statements METCO is unable to
assess the chances and results of the claim and so no provision
therefor has been made in METCO's books. See Note 3H(8).
12. Tadiran Com. Was sold to the buying company in a transaction of
representations. According to the terms of the transaction, should it
transpire that the condition of Tadiran Com. Is materially different
from the representation made, the buyer shall be entitled to
compensation therefore from Tadiran.
Koor Industries Ltd. Guarantees the liabilities of Tadiran in this
transaction up the amount of the consideration received. This
guarantee shall take effect if Tadiran's equity capital falls below
$250 million.
<PAGE>
B. Commitments
1. Certain subsidiaries have research and development contracts with the
Government of Israel. Under these contracts, the subsidiaries are
required to pay royalties (2% - 5% of proceeds of sales resulting from
the research and development) to the Government of Israel, in amounts
not exceeding 100% - 150% of the linked amounts of the grants received
by the subsidiaries as participation in the research and development
projects.
Royalty paid to the Government of Israel in respect of the
aforementioned research and development contracts, are as follows:
Year ended NIS thousand
----------------- ------------
31 December, 1997 67,017
31 December, 1998 75,732
31 December, 1999 35,957
Negotiations have been underway between a subsidiary and the Office of
the Chief Scientist (hereinafter - "OCS") of the Government of Israel,
to re-examine the royalties paid to the OCS during a period exceeding
10 years. The financial statements include a provision which, in the
opinion of the management of the subsidiary, will be required to pay
the royalties which will result from the negotiations.
2. Certain subsidiaries are required to pay royalties at the rate of 3%
per year of the increase in export sales, not to exceed the amount
financed by the Fund for the Encouragement of Marketing Abroad. Such
amounts are linked to the exchange rate of the U.S. dollar
3. In an agreement dated January 1997, Telrad undertook to acquire
know-how from Nortel over a 10 year period at a cost of $ 15 million
to be paid in four equal annual interest bearing installments,
beginning in January 1998. By 31 December, 1999, Telrad had acquired
know-how of a value of $ 6,406 thousand. In addition, Telrad paid $
1,100 thousand on account of the said undertaking. Telrad is
negotiating with Nortel in order to terminate the know-how agreement.
4. Commitments for the purchase of fixed assets are as follows: 31
December, 1999 - NIS60 million adjusted; 31 December, 1998 - NIS 130
million adjusted.
5. Koor has guaranteed, until the year 2004, the compliance of Elad
Hotels Ltd. with the terms of the agreement regarding management of
two hotels by a subsidiary. A subsidiary pays usage fees for hotel
services, as defined in the agreement.
6. Certain companies in the Group lease industrial and office premises
under non-cancelable, long-term leases with, in most cases, renewal
options. The rent expense of these companies was NIS 45 million in
1999, NIS 43 million in 1998 and NIS 53 million in 1997. Future
minimum payments under the non-cancelable operating leases, for the
years subsequent to balance sheet date, are as follows:
December 31
----------------
1999
----
(NIS thousands)
--------------
First year 41,010
Second year 31,753
Third year 25,329
Fourth year 19,800
Fifth year and thereafter 28,153
---------------
146,045
===============
<PAGE>
7. On 30 November, 1999 Koor's Board of Directors committee, having been
authorised for this purpose, passed a resolution to cooperate on an
equal basis with the Israel Corporation Ltd., in a joint venture with
an equity capital of up to $ 100 million. The joint venture will focus
on investments in high-tech projects and companies in the fields of
the Internet, telecommunications and operation of telecommunications
in Israel and abroad.
Note 19 - Convertible Securities of Investee Companies
A. Option warrants to senior employees:
Certain investors issued options to senior employees until 1999
inclusive. Employee entitlement to such options is be determined over
a number of years from their date of issue, subject to continued
employment. The exercise term of the options varies according to the
terms of the different plans.
The exercise price was, in most cases, identical to the market price
of the shares of subsidiary companies on the issuance date of the
option warrants.
The rate of dilution in these subsidiaries, following the exercise of
options, will not exceed approximately 2%.
B. An affiliated company - ECI
ECI has outstanding convertible notes (hereinafter - "the notes")
which are convertible until December 2003 of a par value of $85,000.
The conversion rate is 1 share for each $25 par value of notes.
Assuming the conversion of all the notes into shares, Koor's rate of
holding in ECI will decrease by 1.2%.
The Claridge Group, which is the controlling shareholder of Koor,
holds 47% of these outstanding convertible notes.
<PAGE>
Note 20 - Share Capital, Stock Options and Warrants
A. Share capital is composed as follows:
<TABLE>
<CAPTION>
31 December, 1999 31 December, 1998
---------------------------- ---------------------------
Authorised Issued and Authorised Issued and
outstanding outstanding
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Number of shares:
Ordinary shares of a
par value of NIS 0.001 (1) (3)
(4) 84,557,334 16,525,984 84,557,334 16,503,786
========== ========== ========== ==========
Deferred shares of a
par value of NIS 0.001
(2) (3) (4) 15,167,666 14,461,481 15,167,666 14,391,637
========== ========== ========== ==========
Amount in NIS:
Ordinary shares of a par value
of NIS 0.001 84,557 16,526 84,557 16,504
========== ========== ========= =========
Deferred shares of a par value
of NIS 0.001 15,168 14,461 15,168 14,391
========== ========= ======== ========
</TABLE>
(1) These shares are traded on the Tel-Aviv Stock Exchange. As at 31
December, 1999, the per share market price was NIS 415.
Traded on the New York Stock Exchange (NYSE). Each ADS represents 0.2
of Koor's ordinary Shares of NIS 0.001 par value. The market price in
New York of the ADS as at 31 December, 1999 was $20.
(2) Holders of the deferred shares are only entitled to receive the
nominal paid-up value of the deferred shares in the event of a winding
up of Koor, subject to prior payment of the nominal paid-up value of
the ordinary shares to the holders of ordinary shares. The holders of
the Deferred Shares do not have any voting rights, and they are not
entitled to participate in the distribution of dividends of any kind.
(3) The classification of the authorised and outstanding ordinary shares,
and the authorised and outstanding deferred shares changes as a result
of any deferral of ordinary shares occurring at the time of the
exercise of stock options issued by the Company to the Israeli banks
(see (b) below).
(4) As at balance sheet date 170,436 ordinary shares and 12,903,884
deferred shares are held by subsidiaries and, accordingly, an amount
of adjusted NIS 53,641 thousand was deducted from shareholders'
equity.
As for the rights and legal status of the additional 624,577 ordinary
shares held by a subsidiary, Koor Trusts 1995 Ltd., see B below.
The shares held by Koor Trusts will only be used in future for an
issuance to company employees, subject to receipt of the requisite
approvals. If these shares are not issued to the employees by June
2001 the company will reduce its capital. Until June 2001 Koor Trusts
will not have the right to participate or vote in general meetings of
the company's shareholders, nor will it have the right to receive a
dividend for these shares.
<PAGE>
B. Stock options:
Stock options issued to Israeli banks:
Within the framework of the comprehensive arrangement signed in
September 1991 between Koor and the Israeli banks, banks were given
options for the purchase of ordinary shares of Koor. The stock options
may be exercised at any time through 2001. Upon exercise of a stock
option by any of the banks, an ordinary share held by Hevrat Ha'ovdim
will be converted automatically into a deferred share, so, for all
practical purposes, the total number of ordinary shares does not
change.
In 1999 and 1998, the Israeli banks exercised options for the purchase
of 69,844 and 97,933 ordinary shares respectively.
As of 31 December, 1999 - 70,475 options were outstanding.
C. Key employee stock-based compensation plans:
1. The 1997 Stock-Based Compensation Plan:
On May 27, 1997, 134,547 options were issued (exercise price - $
90.989) and on November 6, 1997, an issuance of an additional 54,421
options was completed (exercise price - $ 98.747).
See Note 4 as to details of stock options that have not been exercised
and of exercise in the current year.
2. On August 28, 1997, Columbus Capital Corporation ("Columbus"), a
member of the Claridge Group, undertook to grant put options to those
senior employees of Koor, including Koor's President and Chief
Executive Officer who retired in 1998 , who are eligible for options
to purchase Koor ordinary Shares by virtue of the 1995 Plan and the
1997 Plan. These put options are exercisable within 90 days from the
first date upon which the employees are eligible to exercise the
options under the above Plans. The put options confer to the employees
the right to sell to Columbus the outstanding shares granted to them
and the profits inherent in the exercise of the options. Columbus will
purchase these shares from the employees, if they should desire, at a
price identical to that paid by the Claridge Group for the purchase of
Koor's shares held by the Shamrock group - $ 121.25 per Common Share
of NIS 0.001.
Each employee shall be eligible to sell his outstanding shares, all or
in part, to Columbus under the said terms and according to his
discretion.
In 1998 an expense of NIS 6,080 thousand was allocated for the
exercise of the aforementioned put options by all of the employees,
including the retired Chief Executive Officer. In 1999 an expense of
NIS 774 thousand was allocated for the exercise of the aforementioned
put options.
<PAGE>
3. The 1998 Stock-Based Compensation Plan:
On August 30, 1998, an Extraordinary General Shareholders Meeting
approved a private placement, at no cost, of up to 400,000 stock
options to employees of the Company. Each option may be exercised into
one ordinary share of a par value of NIS 0.001 each (hereinafter -
"the Plan").
The Plan authorises the allotment of up to 313,596 stock options,
under specified terms, to 5 senior employees of Koor, including
105,263 option warrants to Koor's Chief Executive Officer who is also
Vice Chairman of the Board of Directors.
In 1999 40,000 options were allotted and a balance of 46,404 options
has not yet been allotted.
The effective date for implementation of the Plan is 16 July 1998
(hereinafter: the "Effective Date" or "Determining Date"). At the end
of the first year from the Determining Date and at the end of each of
the first two years thereafter each employee will be entitled to
exercise up to one third of the total number of options in his
allotment.
The employee is entitled to exercise all or part of the stock options,
pursuant to the conditions of the Plan, from the date of entitlement
to exercise of the stock options on the dates set forth above and up
to five years from the Determining Date, in other words, up to 16
July, 2003 (with the exception of the CEO who will be entitled to
exercise the stock options until four years have elapsed from the
Determining Date).
Under the terms of the Plan, each option may be theoretically
exercised to purchase one ordinary share (subject to adjustments). In
practice, however, the optionee will not be issued the total number of
shares to which he is entitled upon exercising such options, but only
the number of shares reflecting the monetary benefit component of the
option as at the exercise date. The exercise price of the issued
options set for the purpose of calculating the benefit component when
exercising the option (excluding those issued to the trustee that do
not as yet have an exercise price) is $114.7 per share in respect of
each option, payable in NIS, (excluding options issued to the Chief
Executive Officer). The exercise price of the options issued to the
Chief Executive Officer equals the NIS equivalent of $118.3 per share
in respect of each option, subject to adjustment of exercise price for
dividend distribution.
The exercise price of the options issued to a trustee for those
employees to be defined in the future shall be determined based on the
share's market price on the Tel Aviv Stock Exchange at a date to be
decided by the Remuneration Committee.
The theoretical economic value of the option on August 5, 1998,
according to the Black-Scholes options pricing model was $38.8 per
option issued to the optionees (other than the CEO) and $31.92 per
option issued to the Chief Executive Officer.
<PAGE>
4. Detail of options that have not yet been exercised as at 31 December,
1999 are as follows:
<TABLE>
<CAPTION>
Exercise Number of Last exercise
price options date
-------- --------- -------------
$
-------- --------- --------------
<S> <C> <C> <C> <C>
1997 plan 90.989 66,518 May 2002
1997 plan 98.747 54,421 November 2002
1998 plan 110.90 - 111.60 248,333 July 2003
1999 plan 114.40 - 115.10 105,263 July 2002
-------
474,535
=======
</TABLE>
Movement in options during the year was as follows:
<TABLE>
<CAPTION>
1995 plan 1997 plan 1998 plan Total
--------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance as at
beginning of year 13,728 131,017 313,596 458,341
Exercised - - 40,000 40,000
Granted (13,728) (6,299) - (20,027)
Expired - (3,779) - (3,779)
-------- ------- ------- --------
Balance as at end
of year - 120,939 353,596 474,535
======== ======= ======= =======
Shares that were issued
to Koor Trusts (1995) Ltd.* 9,646 4,908 - 14,554
======== ======= ====== =======
</TABLE>
* In accordance with the exercise mechanism, the allotment was not shown
in the statement of shareholders' equity.
<PAGE>
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances
A. General:
The Company and certain subsidiaries have entered into forward
transactions and option contracts, in order to reduce the overall
exposure of assets and liabilities denominated in foreign currency and
commitments for the purchase of raw materials and the sale of goods,
in currencies other than the US dollar. Those subsidiaries neither
hold nor issue financial instruments for trading purposes.
B. Details of the open foreign exchange transactions made to hedge
subsidiaries' assets and liabilities in foreign currency as at 31
December, 1999:
<TABLE>
<CAPTION>
Forward Call Put Swap
transaction options options transactions
----------- ------- ------- ------------
NIS thousands
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchase of U.S. dollars in
exchange for:
NIS 417,486 1,949,604 999,336 588,173
European currencies 22,147 83,060 62,295 -
Purchase of European
currencies in exchange for:
NIS - 53,989 20,765 -
------- --------- --------- -------
683,993 2,016,653 1,082,396 588,173
======= ========= ========= =======
Sale of U.S. dollars in
exchange for:
NIS 51,092 83,226 237,136 672,636
European currencies 78,907 33,224 - 37,404
Sale of European currencies in
exchange for:
NIS - - 20,765 -
------- -------- ------- --------
129,999 116,450 257,901 710,040
======= ======== ======== ========
</TABLE>
The transactions are usually for a period of up to 12 months, with the
exception of financial instruments for the purchase of US dollars in
consideration of NIS 1,400, net, in Koor, which were terminated by the end
of February 2000 and not renewed.
The loss in respect of derivative financial instruments, as included in the
consolidated financial statements for the year ended 31 December, 1999,
amounts to NIS 26,064 thousand (for the year ended as at 31 December, 1998
the gain in respect of derivative financial instruments amounted to NIS
5,319 thousand).
<PAGE>
C. Fair value of financial instruments:
Condensed data of monetary assets and liabilities, whose fair value as at
31 December, 1999, based on their market value, is significantly different
from those presented in the financial statements, is as follows:
Carrying Fair
amount value
-------- -----
NIS millions
--------------------------
Investments in affiliates 3,370 4,517
Debentures and convertible debentures 281 268
The carrying amounts of cash and cash equivalents, short-term investment,
trade receivables, other accounts receivable, credits from banks and
others, trade payables and other accounts payable and accruals, and other
financial instruments approximate at their fair value.
D. Credit risk of trade receivables:
NIS millions
------------
Insured receivables 1,103
Receivables insured by foreign trade risk insurance 290
Receivables - Government authorities and Bezeq 290
Other receivables, including checks and credit
card companies 1,671
-----
Total, including non-current receivables 3,354
=====
In Management's estimation, the allowance for doubtful accounts adequately
covers all anticipated losses in respect of concentration of credit risks
of trade receivables.
The exposure to credit risks relating to trade receivables is limited, due
to the relatively large number of customers in the various segments.
<PAGE>
E. Linkage terms of monetary balances:
(1) Consolidated
<TABLE>
<CAPTION>
- 31 December, 1999
In foreign Linked Unlinked Total
currency to the
or linked CPI
thereto
---------- ------- --------- -----
NIS thousands
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents 932,747 3,591 512,368 1,448,706
Short-term deposits and
investments 105,354 209,810 157,171 472,335
Trade receivables 2,258,183 133,077 821,947 3,213,207
Other accounts receivable 133,016 25,126 154,882 313,024
Investments and other
long-term receivables 259,485 448,122 11,066 718,673
--------- ------- --------- ---------
3,688,785 819,726 1,657,434 6,165,945
========= ======= ========= =========
Liabilities
Current liabilities:
Credits from banks and others
(not including current
maturities of long-term
liabilities) 1,737,077 79,019 664,159 2,480,255
Trade payables 1,160,042 37,793 314,202 1,512,037
Other accounts payable 312,508 60,583 1,310,871 1,683,962
Long-term loans and
debentures (including current
maturities) 3,999,978 1,142,911 6,204 5,149,093
--------- --------- --------- ----------
7,209,605 1,320,306 2,295,436 10,825,347
========= ========= ========= ===========
<PAGE>
- 31 December, 1998
In foreign Linked Unlinked Total
currency to the
or linked CPI
thereto
----------- ------- --------- ------
NIS thousands
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents 982,699 3,487 505,187 1,491,373
Short-term deposits and
investments 1,206,005 114,181 267,160 1,587,346
Trade receivables 2,568,814 144,562 915,788 3,629,164
Other accounts receivable 234,362 67,164 137,940 439,466
Investments and other
long-term receivables 272,486 204,652 28,140 505,278
--------- ------- --------- ---------
5,264,366 534,046 1,854,215 7,652,627
========= ======= ========= ==========
Liabilities
Current liabilities:
Credits from banks and others
(not including current
maturities of long-term
liabilities) 1,758,748 82,784 508,044 2,349,576
Trade payables 1,109,019 3,194 433,056 1,545,269
Other accounts payable 1,139,310 160,447 745,234 2,044,991
Long-term loans and
debentures (including current
maturities) 3,885,569 1,154,966 36,495 5,077,030
--------- --------- --------- ----------
7,892,646 1,401,391 1,722,829 11,016,866
========= ========= ========= ==========
<PAGE>
(2) Company
- 31 December, 1999
In foreign Linked Unlinked Total
currency to the
or linked CPI
thereto
----------- ------- -------- -------
NIS thousands
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents 346,114 - 379,240 725,354
Short-term deposits and
investments 20,765 192,614 65,718 279,097
Other investments, loans and
receivables 12,738 367,827 - 380,565
Accounts receivable - - 25,518 25,518
Investments and other
long-term receivables 125 254,965 593,814 848,904
------- ------- --------- ---------
379,742 815,406 1,064,290 2,259,438
======= ======= ========= =========
Liabilities
Current liabilities:
Credits from banks and others
(not including current
maturities of long-term
liabilities) 240,961 - 449 241,410
Trade payables 8 - 1,649 1,657
Other accounts payable 27,261 29,857 243,400 300,518
Long-term loans and
debentures (including current
maturities) 2,352,808 711,516 800 3,065,124
--------- ------- ------- ---------
2,621,038 741,373 246,298 3,608,709
========= ======= ======= =========
<PAGE>
- 31 December, 1998
In foreign Linked Unlinked Total
currency to the
or linked CPI
thereto
----------- ------- --------- -------
NIS thousands
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents 4,185 - 311,268 315,453
Short-term deposits and
investments 43,664 43,748 84,173 171,585
Other investments, loans and
receivables 5,299 2,832 - 8,131
Accounts receivable - - 14,423 14,423
Investments and other
long-term receivables - 250,266 732,184 982,450
------ ------- --------- ---------
53,148 296,846 1,142,048 1,492,042
====== ======= ========= =========
Liabilities
Current liabilities:
Credits from banks and others
(not including current
maturities of long-term
liabilities) - - 966 966
Trade payables 1,685 - 5,502 7,187
Other accounts payable 14,349 31,207 120,325 165,881
Long-term loans and
debentures (including current
maturities) 2,652,795 443,839 811 3,097,445
--------- ------- ------- ----------
2,668,829 475,046 127,604 3,271,479
========= ======= ======= =========
</TABLE>
<PAGE>
Note 22 - Liens and Guarantees
A. In order to secure liabilities, certain subsidiaries have mortgaged
their real estate and have placed fixed charges on plant, equipment
and bank deposits, as well as floating charges on all of their assets.
They also pledged a portion of their shares in investee companies.
Regarding the lien in respect to an investment grant - see Note
10A(2).
B. The balances of secured liabilities are as follows:
<TABLE>
<CAPTION>
Consolidated
----------------------------
December 31
----------------------------
1999 1998
---------- ----------
NIS thousands
----------------------------
<S> <C> <C> <C>
Credit from banks 1,083,166 1,374,876
Loans from banks and
others and debentures (including current
maturities) (see Note 15, and also C
and D below) 820,226 668,147
--------- ---------
1,903,392 2,043,023
Others - mainly customer advances 153,262 306,378
--------- ---------
2,056,654 2,349,401
========= =========
</TABLE>
See Note 9 regarding bank loans which were taken to invest in
debentures, which have been pledged as securities for the loans
which were offset against the investment therein.
C. For the purpose of securing debentures convertible into Koor shares,
Koor has undertaken not to pledge its assets in future, except in
accordance with the terms stipulated by the trust deeds. See also
Note 15B.
D. Debentures issued by Koor Issuance Ltd. a subsidiary, are secured by
a floating charge on all the assets of the above company. Under
the terms of the deed of trust, Koor has guaranteed the full
repayment of all the amounts of the principal, interest and
linkage differences of the debentures. Koor registered a
"negative pledge" to secure its guarantee.
<PAGE>
E. Guarantees to banks and others for loans and for assuring credit
lines and other guarantees in favor of:
<TABLE>
<CAPTION>
Consolidated Company
----------------------- ----------------------
December 31 December 31
----------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
NIS thousands NIS thousands
----------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Subsidiaries - - 91,628 -
Affiliates 19,652 20,353 19,652 9,033
Others 9,114 23,529 1,622 33,086
------ ------ ------- ------
28,766 43,882 112,902 42,119
====== ====== ======= ======
</TABLE>
1) In certain cases when advances from customers are received, a
subsidiary provides its customers with bank guarantees to secure the
advances. Guarantees in excess of the amount of advance payments
stated as liabilities in the balance sheet, amounted to NIS 307,035
thousand as at 31 December, 1999, and NIS 223,049 as at 31 December,
1998.
2) In connection with the Bezeq agreement to transfer ownership of public
switching Bezeq received from Koor a guarantee in the amount of NIS
104 million. See also Note 18A5.
3) There are also guarantees, in an unlimited amount, to ensure due
performance of work, customer agreements, product warranty, advance
payments received, and liabilities to customs and excise authorities.
<PAGE>
Note 23 - Data concerning Items in Statements of Operations
A. Revenues from sales and services - net (1) (3) (4):
1. Consolidated
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1999 1998 1997
---------- ---------- ----------
NIS thousands
---------------------------------------------
<S> <C> <C> <C> <C>
Local:
Industrial operations (2) 3,425,703 4,631,273 5,451,809
Trading operations 1,064,315 945,412 1,052,089
Abroad:
Industrial operations - export and
international operations 5,591,566 6,591,239 5,800,158
Trading operations 593,717 624,392 621,319
---------- ---------- ----------
10,675,301 12,792,316 12,925,375
========== ========== ==========
(1) Not including agency sales 555,633 367,653 499,270
========== ========== ==========
(2) Including sales to major customer - 532,037 829,074
========== ========== ==========
(3) Including sales under long-term credit
arrangements (see also Note 2K) 510 78,004 67,175
========== ========== ==========
(4) Revenues and expenses relating
to work performed under long-term
contracts:
Revenues 830,637 869,969 836,619
Costs (617,547) (696,080) (712,705)
Decrease (increase) in provision
for losses 1,150 12,474 (3,223)
---------- ---------- ----------
214,240 186,363 120,691
========== ========== ==========
2. Company
Income from management fees :
From subsidiaries 45,589 42,181 73,348
From proportionately consolidated
investees 18,776 20,571 28,168
From affiliated companies 756 - -
---------- ---------- ----------
65,121 62,752 101,516
========== ========== ==========
<PAGE>
B. Cost of sales and services - consolidated :
Year ended December 31
---------------------------------------------
1999 1998 1997
---------- ---------- ----------
NIS thousands
---------------------------------------------
<S> <C> <C> <C> <C>
Industrial operations:
Materials 3,522,270 4,660,519 4,595,995
Labour 1,542,802 2,293,136 2,146,711
Subcontracted work 127,930 177,767 158,291
Depreciation and amortisation 397,591 511,250 490,306
Research and development expenses, net (*) 427,722 527,928 506,597
Other manufacturing expenses 609,489 762,012 799,255
---------- ---------- ----------
6,627,804 8,932,612 8,697,155
Less - expenses charged to cost of fixed assets 12,659 33,600 25,813
---------- ---------- ----------
6,615,145 8,899,012 8,671,342
Decrease (increase) in inventory of goods
and work in process 214,223 (17,223) 37,600
---------- ---------- ----------
6,829,368 8,881,789 8,708,942
Increase in inventory of finished goods 137,487 (162,766) (61,733)
---------- ---------- ----------
6,966,855 8,719,023 8,647,209
Trading operations:
Merchandise 839,499 923,767 1,011,410
Labour 145,194 101,209 104,932
Depreciation 43,680 33,022 35,428
Others 134,638 90,003 91,050
---------- ---------- ----------
1,163,011 1,148,001 1,242,820
---------- ---------- ----------
8,129,866 9,867,024 9,890,029
========== ========== ==========
(*) Net of grants and participations, net 15,645 56,180 45,665
========== ========== ==========
C. Selling and marketing expenses - consolidated :
Year ended December 31
---------------------------------------------
1999 1998 1997
---------- ---------- ----------
NIS thousands
---------------------------------------------
<S> <C> <C> <C> <C>
Salaries 337,646 422,873 375,111
Commissions 139,712 168,418 168,262
Advertising expenses 62,280 81,919 85,997
Depreciation and amortisation 44,350 47,001 39,187
Other 394,068 482,246 456,706
---------- ---------- ----------
978,056 1,202,457 1,125,264
========== ========== ==========
</TABLE>
<PAGE>
D. General and administrative expenses:
<TABLE>
<CAPTION>
Consolidated Company
------------------------------------ -----------------------------------
Year ended December 31 Year ended December 31
------------------------------------ -----------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- ------
NIS thousands NIS thousands
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries 384,613 557,363 489,168 26,402 81,316 70,447
Bad and
doubtful debts 27,463 58,783 14,866 - - -
Depreciation and
amortisation 32,190 35,976 32,751 1,237 1,240 1,305
Other 285,243 358,763 337,703 38,531 34,087 31,136
------- --------- ------- ------- ------- -------
729,509 1,010,885 874,488 66,170 116,643 102,888
======= ========= ======= ======= ======= =======
E. Financing expenses (income), net:
Consolidated Company
------------------------------------ -----------------------------------
Year ended December 31 Year ended December 31
------------------------------------ -----------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- ------
NIS thousands NIS thousands
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
In respect of
convertible debentures 7,598 9,876 19,880 6,079 7,653 16,240
In respect of debentures 5,102 6,458 11,347 - - -
In respect of
long-term loans 218,430 257,017 147,697 126,188 107,010 469
In respect of short-term
loans and credit 181,136 159,896 128,072 26,687 - 497
Amortisation of
capital raising
expenses 2,546 5,663 5,982 1,196 1,902 2,327
Losses (gains) from
marketable securities, net (67,707) (59,804) (49,436) (27,229) 11,757 (25,415)
Interest capitalised to
fixed assets and
work in process* 32,829 (48,892) (20,259) 28,257 (36,981) -
Revenue (expenses)
from investees, net - - - (3,397) 1,694 (2,375)
Revenue from deposits
and others, net (21,645) (79,199) (91,440) 2,694 (8,467) (382)
------- --------- ------- ------- ------- -------
358,289 251,015 151,843 160,475 84,568 (8,639)
======= ========= ======= ======= ======= =======
* Including amounts recorded directly to shareholders' equity as "cumulative
foreign currency adjustments."
</TABLE>
<PAGE>
F. Other income (expenses), net
1. Consolidated
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1999 1998 1997
---------------------------------------------
NIS thousands
---------------------------------------------
<S> <C> <C> <C> <C>
Sale of investments in investees (including
changes in rates of holding) 641,974 433,582 179,645
Liquidating dividend - - 20,327
Income in respect of settlement agreements - - -
Expenses relating to the termination
and/or sale of activities and
sale and write down of assets, net (319,312) (231,974) (70,166)
Supplemental severance pay and pensions (205,599) (269,061) (27,323)
Management services and participation in
selling general and administrative expenses:
Proportionately consolidated companies 9,567 9,812 14,142
Affiliates 2,765 3,413 10,707
Rent from buildings and equipment
(net of related depreciation) (1) 4,231 2,739 3,881
Joint ventures, net 415 1,181 1,327
Compensation for damages 560 368 4,680
Sale of know-how - 12,203 -
Earnings on severance pay fundings - - 854
Amortisation of goodwill (48,838) (27,170) (19,227)
Miscellaneous, net 21,465 (6,363) (1,448)
-------- -------- --------
107,228 (71,270) 117,399
======== ======== ========
(1) Including depreciation 745 1,427 4,227
======== ======== ========
2. Company
Year ended December 31
---------------------------------------------
1999 1998 1997
-------- -------- --------
NIS thousands
---------------------------------------------
Capital gain on sale of investments in investee
companies 44,699 113,159 73,810
Liquidating dividend - - 19,279
Joint venture 610 1,231 1,496
Write-down of investments (157,099) (131,091) -
Capital loss from sale of fixed assets (1,661) (1,122) (86)
Sale of know-how - 12,203 -
Miscellaneous, net 5,946 (1,109) 1,359
-------- -------- --------
(107,505) (6,729) 95,858
======== ======== ========
<PAGE>
G. Equity of the Koor Group in the operating results of affiliates, net
1. Consolidated
Year ended December 31
---------------------------------------------
1999 1998 1997
-------- -------- --------
NIS thousands
---------------------------------------------
Affiliates companies, net (1) 284,197 105,713 28,900
Amortisation of goodwill (2) (162,472) (43,728) (18,265)
-------- -------- --------
121,725 61,985 10,635
======== ======= ========
Dividend received 49,742 29,315 11,095
======== ======= ========
(1) Including discontinued operations in an
affiliate (86,773) - -
======== ======= ========
(2) Including write-off of goodwill balance
in an affiliate - - 8,852
======== ======= ========
2. Company
Year ended December 31
---------------------------------------------
1999 1998 1997
-------- -------- --------
NIS thousands
---------------------------------------------
Equity of Koor in operating results for the year (1) 836,845 160,396 423,548
Amortisation of goodwill (2) (120,197) (37,507) (5,265)
-------- -------- --------
716,648 122,889 418,283
========= ========= ========
Dividend received 1,539,910 1,297,923 135,197
========= ========= ========
(1) Including discontinued operation in
an affiliate (86,773) - -
========= ========= ========
(2) Including write-off of goodwill in
investee companies (1,849) - 4,913
========= ========= ========
</TABLE>
<PAGE>
H. Income (expenses) from investee companies and their participation in
expenses
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------- --------------------------------------- ---------------------------------------
1999 1998 1997
--------------------------------------- --------------------------------------- ---------------------------------------
Consolidated Consolidated Consolidated
companies by companies by companies by
Consolidated proportional Affiliated Consolidated proportional Affiliated Consolidated proportional Affiliated
companies consolidation companies companies consolidation companies companies consolidation companies
------------ ------------- ---------- ------------ ------------- ---------- ------------ ------------- ----------
NIS thousands NIS thousands NIS thousands
--------------------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Management
services 45,589 18,776 756 - 42,181 20,571 - 73,348 28,168
============ ============= ========== ============ ============= ========== ============ ============= ==========
Administrative
expenses (in
respect of
salaries of
plant managers
paid by Koor) - - - - 26,949 - - 41,242 22,499
============ ============= ========== ============ ============= ========== ============ ============= ==========
Financing income
(expenses),
net 4,443 (14) (1,032) - (2,324) 705 - 3,489 (1,393)
============ ============= ========== ============ ============= ========== ============ ============= ==========
</TABLE>
<PAGE>
Note 24 - Business Segments
A. The Koor Group operates in the following segments:
Following a change by the company's management in the definition of
Koor's segments of operation, the operations of the telecommunications
and electronics segments which had been reported in 1998 in the
telecommunications segment were divided retroactively into the
telecommunications, military electronics and "others" segments.
Pursuant thereto the comparison numbers were classified accordingly.
Following are Koor's segments after this reclassification:
Telecommunications
Defence electronics
Agro-chemicals and other chemicals
Building and infrastructure materials
The "others" segment includes mainly tourism, consumer products,
software and trade.
B. Segment sales include products sold and services rendered to unrelated
customers. Inter-industry segment sales are immaterial and are based
primarily on prices determined in the ordinary course of business.
Accordingly, these sales are not presented separately.
Segment operating earnings include all costs and expenses directly
related to the relevant segment and an allocation of expenses from
which more than one segment may benefit. Expenses and revenue
presented in the statements of operations after operating earnings are
not taken in account in the determination of operating earnings or
loss. Identifiable assets by industry segments are those assets that
are used by Koor in its activities in each segment.
C. See Note 24H for details of the discontinuation of the activities of
the energy segment.
D. Data regarding business segments of the Koor Group:*
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------------
NIS thousands % NIS thousands % NIS thousands %
------------- ----------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
from sales
and services:
Segments:
Telecommunication 2,199,702 20.61 3,419,501 26.73 3,408,168 26.37
Defence electronics 1,333,690 12.49 1,572,584 12.29 1,458,576 11.28
Agro-chemicals
and other chemicals 3,540,922 33.17 3,376,893 26.40 2,881,212 22.29
Building and
infrastructure materials 1,445,878 13.54 1,645,089 12.86 1,964,115 15.20
Others 2,155,109 20.19 2,778,249 21.72 3,213,304 24.86
---------- ------ ---------- ------ ---------- ------
Total segments 10,675,301 100.00 12,792,316 100.00 12,925,375 100.00
========== ====== ========== ====== ========== ======
* Reclassified
<PAGE>
Year ended December 31
------------------------------------------------------------------------------------------
1999 1998 1997
------------------- ----------------------- -----------------------------------
NIS thousands % NIS thousands % NIS thousands %
------------------------------------------------------------------------------------------
Pre-tax earnings
Operating earnings
according to segments:
Telecommunication 260,662 27.67 46,406 5.28 299,429 25.59
Defence electronics 69,060 7.33 167,684 19.07 138,126 11.81
Agro-chemicals and
other chemicals 390,503 41.45 428,441 48.74 359,271 30.7
Building and
infrastructure materials 127,210 13.50 76,251 8.67 202,857 17.34
Others 94,685 10.05 160,293 18.24 170,317 14.56
--------- ------ -------- ------ --------- ------
Total segments 942,120 100.00 879,075 100.00 1,170,000 100.00
====== ====== ======
Joint general expenses (104,250) (167,125) (134,406)
--------- --------- ---------
Total operating earnings 837,870 711,950 1,035,594
Financing expenses, net 358,289 (251,015) (151,843)
Other income (expenses), net 107,228 (71,270) 117,399
--------- --------- ---------
Pre-tax earnings 586,809 389,665 1,001,150
========= ========= ==========
The Koor Group's equity in the excess of earnings over losses of affiliates, net, is as follows:
Year ended December 31
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------- ---------------------------- --------------------------
NIS thousands % NIS thousands % NIS thousands %
-------------------- --------- ------------- ---------- ------------- --------
------------------------------------------------------------------------------------------
Telecommunications 137,018 112.56 37,504 60.51 (4,177) (39.28)
Defence electronics (8,018) (6.58) - - - -
Agro-chemicals and
other chemicals - - - - 4,512 42.42
Building and
infrastructure materials 1,355 1.11 552 0.89 (9,392) (88.31)
Others (8,630) (7.09) 23,929 38.60 19,692 185.17
-------------------- --------- ------------- ---------- ------------- --------
121,725 100.00 61,985 100.00 10,635 100.00
=========================================================================================
* Reclassified
<PAGE>
Year ended December 31
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------- ---------------------------- --------------------------
NIS thousands % NIS thousands % NIS thousands %
-------------------- --------- ------------- ---------- ------------- --------
Capital investments:
Segments:
Telecommunication 67,051 9.50 208,106 19.09 223,654 22.99
Defence electronics 42,888 6.07 67,772 6.22 50,429 5.18
Agro-chemicals and
other chemicals 277,545 39.31 340,780 31.25 312,166 32.08
Building and
infrastructure materials 119,455 16.93 289,308 26.53 165,007 16.96
Others 199,078 28.19 184,375 16.91 221,709 22.79
-------------------- --------- ------------- ---------- ------------- --------
Total segments 706,017 100.00 1,090,341 100.00 972,965 100.00
========= ========== ========
Discontinued activity - 31,873 64,053
Corporate assets 14,052 27,112 1,870
-------------------- ----------- ------------- --------
720,069 1,149,326 1,038,888
==================== =========== ============= ========
Depreciation and
amortisation:
Segments:
Telecommunication 85,090 14.99 152,891 23.31 136,358 21.87
Defence electronics 55,879 7.45 51,407 7.85 39,589 6.36
Agro-chemicals and
other chemicals 187,698 33.08 170,075 25.93 131,591 21.10
Building and
infrastructure materials 123,697 21.80 144,021 21.96 179,504 28.79
Others 114,973 22.68 137,370 20.95 136,449 21.88
-------------------- --------- ------------- ---------- ------------- --------
Total segments 567,337 100.00 655,764 100.00 623,491 100.00
========= ========== ========
Discontinued activity - 21,967 42,128
Corporate assets 2,733 5,364 6,740
-------------------- ----------- -------------
570,070 683,095 672,359
==================== =========== ==============
* Reclassified
<PAGE>
December 31
-------------------------------------------------------------------
1999 1998
-------------------------------- ------------------------------
NIS thousands % NIS thousands %
-------------- ------------ ---------------- --------
Identifiable assets:
Segments:
Telecommunication 1,843,738 15.49 4,116,743 27.43
Defence electronics 681,360 5.73 1,330,708 8.89
Agro-chemicals and other
chemicals 5,277,603 44.35 5,221,023 34.79
Building and infrastructure
materials 1,752,011 14.72 2,177,670 14.5
Others 2,345,877 19.71 2,159,999 14.39
-------------- ------------ ---------------- --------
Total segments 11,900,589 100.00 15,006,143 100.00
============ ========
Corporate assets 1,974,239 1,156,345
Affiliates** 3,495,772 1,623,060
-------------- ---------------
17,370,600 17,785,548
============== ============ ===============
* Reclassified
** Including an investment of NIS 3,067 million (31 December, 1998 - NIS 1,285 million) in ECI which
operates in the telecommunications segment.
</TABLE>
E. Industrial operations - export sales and foreign industrial operations
by geographical destination:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1999 1998 1997
---- ---- ----
NIS thousands
---------------------------------------------
<S> <C> <C> <C> <C>
North America 1,608,174 1,907,365 1,785,455
Europe 1,710,133 2,032,650 1,588,563
South America 1,433,075 1,563,876 1,295,827
Africa 129,132 176,423 77,826
Asia and Australia 711,052 910,925 1,052,487
--------- --------- ----------
5,591,566 6,591,239 5,800,158
========= ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
F. Assets by geographic location of manufacturing operation
Year ended December 31
--------------------------------
1999 1998
-------------- -------------
NIS thousands NIS thousands
--------------------------------
<S> <C> <C> <C>
Israel 15,724,883 16,197,462
Brazil 1,457,906 1,344,797
North America 192,811 243,289
-------------- -------------
17,375,600 17,785,548
============== =============
G. Capital investments in assets by geographic location
1999 1998
-------------- -------------
NIS thousands NIS thousands
-------------- -------------
<S> <C> <C> <C>
Israel 688,678 1,069,316
United States 5,972 5,767
Brazil 25,919 74,243
-------------- -------------
720,569 1,149,326
============== =============
</TABLE>
H. Discontinued activity
1. In Koor's financial statements the companies Phoenicia and Yonah
constituted part of the food segment included in the financial
statements as at 31 December, 1998, in the "Others" framework in the
Note relating to segments. After conclusion of the sale of the
companies, operations in Koor's food segment were terminated.
<TABLE>
<CAPTION>
The year ended 31 December
-------------------------------------------------
1999 1998 1997
------------- ------------- --------------
NIS thousands NIS thousands NIS thousands
------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues from sales and implementation of works 96,009 376,701 830,220
============= ============= ==============
Profit (loss) from operating earnings (429) 18,939 41,483
============= ============= ==============
Loss - Koor's share 4,078 1,439 6,018
============= ============= ==============
Total assets 109,412
=============
</TABLE>
2. In the 1997 financial statements Granite Hacarmel Investments Ltd.
constituted all the operations in the energy segment. As from the 1998
financial statements the operation was retroactively represented in
the energy segment of the statement of operations as a sector in which
operations had been terminated.
<PAGE>
I. Additional information on business segments of the Company*:
The Company operates through subsidiaries, proportionately
consolidated companies and affiliates in various sectors of the
economy.
Data according to business segments is as follows :
Equity of the Company in earnings (losses) net, of investees:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------
1999 1998 1997
------------- ------------- --------------
NIS thousands
-------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications 259,451 (162,928) 160,251
Defence Electronics 23,638 83,452 61,897
Agro-chemicals and other chemicals (1,281) 102,927 112,129
Buildings and infrastructure materials 75,500 (4,560) 76,929
Others 324,758 93,600 3,295
------------- ------------- --------------
682,066 112,491 414,501
Provision for severance benefits - 10,398 3,782
Provision for taxes 34,582 - -
Discontinued activities - 69,420 15,929
------------- ------------- --------------
716,648 192,309 434,212
============= ============= ==============
Investment of the Company in shares, loans and capital notes net, of investees:
</TABLE>
<TABLE>
<CAPTION>
December 31
-------------------------------------------------
1999 1998
---------- ----------
NIS thousands
-------------------------------------------------
<S> <C> <C> <C>
Telecommunications 3,743,766 2,784,023
Defence Electronics 442,804 497,382
Agro-chemicals and other chemicals 1,259,651 1,251,383
Buildings and infrastructure materials 609,618 1,015,824
Others 346,728 884,678
---------- ----------
6,402,567 6,433,290
Provision for taxes - (34,582)
- -
---------- ----------
6,402,567 6,398,708
========== ==========
* Restated
</TABLE>
<PAGE>
Note 25 - Transactions and Balances with Interested Parties
A. The following are details of interested parties in Koor resulting from
their holdings of Koor's ordinary shares:
1. Claridge Group (Claridge).
2. Bank Hapoalim B.M. group (Bank Hapoalim B.M.)
3. Bank Leumi B.M. Group (Bank Leumi B.M.) - after the balance
sheet date Bank Leumi B.M. ceased to be an interested party
in Koor.
B. Koor and its subsidiaries undertake transactions with interested
parties as detailed below. These transactions, which consist
principally of the receipt of banking services, are carried out in the
normal course of business and thus no separate records are kept of the
handling and recording of such transactions.
Consequently, and given the large number of the above mentioned
entities, it is not possible to accurately determine the scope and
scale of these transactions.
The Securities Authority, in a meeting on 10 February, 2000, decided
to exempt the Company from disclosure of transactions with Bank
Hapoalim B.M., Bank Leumi B.M., Claridge and their investee companies,
for purposes of the financial statements as at 31 December, 1999 ,
other than for exceptional transactions.
C. The balance of liabilities owed to Bank Hapoalim B.M. as at 31
December, 1999 and 1998 is NIS 2,396 million and NIS 2,432 million
respectively.
D. The balance of liabilities owed to Bank Leumi B.M. as at 31 December,
1999 and 1998 is NIS1,849 million and NIS 2,171 million respectively.
E. See Note 20C(2) regarding the granting of put options to senior
employees of the Koor Group by the Claridge Group for the purchase of
shares in Koor.
<PAGE>
F. Benefits to interested parties
1. Directors*
Year ended December 31
------------------------
1999 1998 1997
---- ---- ----
NIS thousands
------------------------
Directors employed by the Company:
Salary and related costs (a) (b) 8,376 11,497 13,568
===== ====== ======
Number of directors 2 3 1
===== ====== ======
Directors not employed by the Company:
Annual compensation and participation
in meetings:
Claridge Group 271 282 66
===== ====== ======
Number of directors 6 7 7
===== ====== ======
Poalim Assets (Shares ) Ltd. 173 206 187
===== ====== ======
Number of directors 3 3 3
===== ====== ======
Shamrock Group - - 216
===== ====== ======
Number of directors - - 5
===== ====== ======
Other directors 235 280 237
===== ====== ======
Number of directors 3 3 5
===== ====== ======
Consulting fee 1,101 555 1,062
===== ====== ======
Number of directors 1 1 1
===== ====== ======
* Including directors who resigned or were appointed during the year.
(a) On July 1, 1998 Mr. B. Gaon resigned from his position as General
Manager of the Company. At the request of the Board of Directors Mr.
Gaon remained with the Company until 31 December, 1998 and he
undertook to continue to render it services as a consultant in 1999
and 2000 for an annual consulting fee of $125,000.
The 1998 and 1997 figures include the cost of the retirement
arrangement with the outgoing General Manager.
In 1998, 137,274 options were exercised by Mr. Gaon, under the 1995
incentive plan.
The value of the benefit included in the exercise was NIS 23,334
thousand based on the market price at exercise date. In respect of
options granted by shareholders see also Note 20C(2).
(b) See Note 20C(3) in respect of the issue of options to the General
Manager and the Company's President under the 1998 Incentive Plan.
<PAGE>
2. Consultancy services
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1999 1998 1997
------ ------ ------
NIS thousands
-----------------------------------------
<S> <C> <C> <C> <C>
Claridge 1,683 1,734 382
----- ----- ------
Poalim Capital Markets and
Investment Ltd. 1,683 1,734 1,536
----- ----- -----
Shamrock* - - 1,384
----- ----- -----
</TABLE>
* Including expense reimbursement and special consultancy.
The Company has agreements with interested parties - Claridge and
Poalim Capital Markets and Investments Ltd. (Poalim) - for the receipt
of consultancy services. These services include, inter alia, advice in
respect of investment strategies, monetary policies, international
activities, strategic partnerships and company structuring. The
agreements include instructions regarding the indemnification of the
consultants (Claridge/Poalim) in respect of claims connected to the
consultancy, except for cases of gross negligence and/or intentional
damage.
In consideration for the consultancy the Company has agreed to pay an
annual sum which will not exceed US$ 400,000 to each of the
consultants. The agreements are for the period of one year and are
automatically renewable each year , unless one of the parties gives 60
days' prior notice of the termination of the agreement.
<PAGE>
Note 26 - Earnings Per Share
A. Adjusted net earnings used in the computation of earnings per NIS 1
par value of the share capital:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1999 1998 1997
------- ------- ----------
NIS thousands
---------------------------------------------
<S> <C> <C> <C> <C>
Earnings used in the computation of basic
earnings per NIS 1 par value of shares 549,119 48,240 541,047
Add - theoretical earnings resulting from:
Conversion of convertible debentures:
Series E 490 - 5,034
Series F 5,485 - 13,232
Effect of subsidiaries' convertible securities - - (3,108)
------- ------- --------
Net earnings used in the computation of fully
diluted earnings per NIS 1 par value of shares 555,094 48,240 556,205
======= ======= ========
</TABLE>
B. Weighted number of ordinary shares of NIS 0.001 used in the
computation of net earnings per NIS 1 par value of the share capital:
<TABLE>
<CAPTION>
Number of ordinary shares
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C> <C>
In the computation of basic earnings per share 15,737,564 15,723,996 15,438,487
Add - theoretical share capital resulting from:
Conversion of convertible debentures:
Series E 40,500 - 273,750
Series F 284,062 - 620,690
---------- ---------- ----------
Total share capital used in the computation of
fully diluted earnings per share 16,062,126 15,723,996 16,332,927
========== ========== ==========
</TABLE>
C. To examine that the conversion or exercise of convertible securities
is reasonable, the present value of these securities was computed
according to a discount rate of 6% (31 December, 1998 - 6%, 31
December, 1997 - 4%) for securities linked to the CPI.
<PAGE>
Note 27 - Subsequent Events
A. Following conclusion of the offer to purchase the holdings of various
shareholders in Q Group PLC (hereinafter: - "Q Group"), in which Koor
held, by means of Koor Multimedia Ltd. (100%), approximately 23%, on
18 January, 2000 Koor sold its holdings in Q Group in consideration of
approximately NIS 42 million. The capital gain before tax to Koor from
this sale amounted to NIS 30 million.
B. On 20 January, 2000 an agreement was signed by Tadiran, Koor and
Elisra Electronic Systems Ltd. (hereinafter: "Elisra") whereby Tadiran
will transfer all its holdings in Elisra to Koor, at no consideration.
Immediately after the transfer of shares (effective 31 January, 2000)
Elisra will receive shares in Tadiran Spectralink and Tadiran
Electronic Systems Ltd. (fully owned companies by Tadiran) at no
consideration. The share transfer as set forth above will be
implemented after compliance with prior terms stipulated in the
agreement, including inter alia the receipt of the requisite approvals
for conclusion of the transaction from the relevant authorities.
On 23 January, 2000 Tadiran lodged an application in the District
Court for approval of a reduction in capital as required following the
transfer of the shares. The court ordered that creditor meetings be
held. The meetings were held and the creditors approved the reduction.
The court has not yet approved the reduction.
C. On 2 March, 2000 United Steel Mills Ltd. (hereinafter: "United Steel")
(approximately 73%) announced that it had not obtained an arrangement
with the banks and other credit providers concerning rescheduling of
its long-term and short-term debts, and that the negotiations between
United Steel and the banks had been terminated.
In Koor's 1999 financial statements a write-off was recorded for the
total investment in United-Steel's shareholders' equity and the loans
granted by Koor to United Steel in the total amount of NIS 102
million. The assets of United Steel consolidated in the financial
statements constitute approximately 2.2% of all Koor's assets in its
consolidated balance sheet.
Owing to the fact that Koor does not guarantee United Steel's third
party liabilities, Koor and its legal counsel is in the opinion that
Koor will not be obligated to bear any financial cost whatsoever over
and above said provisions, for United Steel's third party debts.
Moreover, Koor's management does not intend to cover past debts and
the capital deficit in realisation values, if any.
On 16 March, 2000 United Steel and its subsidiaries applied to the
Haifa District Court for a stay of proceedings pursuant to Section 350
of the Companies law - 1999, and for the appointment of a trustee. The
application was lodged by the applicants only, with the consent of
some of the secured creditors. On the same date an order was given for
a stay of proceedings against the applicants, and each one of them,
for 90 days, thus rendering it impossible to continue or initiate any
legal proceedings against the applicants unless with the approval of
the court in order to formulate a comprehensive recovery plan and
creditor arrangement proposal which will be submitted to the court
within 45 days. Koor consents to the stay of proceedings and is ready
to grant a new loan to the special management of up to a maximum of
NIS 15 million so that the United Steel can continue operating. Each
new loan granted to the applicants during the stay of proceedings at
the request of the trustee, including loans granted by Koor, will
receive preferential status over all the company's creditors,
including secured creditors, and the loans will be repaid only from
the considerations received by the trustee while it is operating the
plant, and will be paid before any other payment within the framework
of the creditor arrangement.
<PAGE>
D. On 2 March, 2000 Koor signed documents enabling it to become a limited
partner in the Polaris Venture Capital Fund III L.P. which is a
limited partnership registered in Israel. Within the framework of its
commitment Koor is supposed to invest up to $ 35 million in the fund,
and it will be entitled to a permanent representative on the committee
advising the fund.
E. On 6 March, 2000 a binding memorandum of understanding was signed by
Nortel Networks, an international Canadian company, the Company and
Telrad. The said memorandum of understanding stipulates that the
Canadian Nortel and the Koor Group will set up a new company in Israel
("Nortel Israel") which will be controlled by Nortel, and the Koor
Group will hold 28% of its share capital. Once it is set up Nortel
Israel will acquire from Telrad the Public Switching and TX1 systems
businesses, together with Telrad's operations in this field outside
Israel, in return for some $ 95 million which will be paid to the Koor
Group. The business operation which Telrad will sell to Nortel Israel
constitutes approximately 40% - 50% of its business operation. The
Koor Group is expected to record a pre-tax capital gain from this
transaction of approximately $ 61 million. At the same time, Nortel
will sell to Koor all its holdings (20%) in Telrad in consideration of
$ 45 million, thereby turning Telrad into a fully owned subsidiary of
Koor, and in return the Koor Group will invest some $ 49 million in
Nortel in share capital and shareholders' loans. Nortel Israel will
take over all the operations of the Canadian Nortel currently being
implemented in Israel outside the Telrad framework, thereby obtaining
direct access to the use of the technologies of the global Nortel,
including future technologies. Implementation of the transaction is
contingent upon the receipt of various approvals, including that of
the Commissioner of Restrictive Trade Practices.
F. On 15 March 2000, agreement was signed by Tadiran and the Electric
Fuel Corporation (hereinafter: "EFC"), a public company registered in
the American state of Delaware, whose shares are traded on NASDAQ.
According to the agreement Tadiran will transfer all its holdings
(100%) in Tadiran Batteries Ltd., to EFC, and in return EFC will issue
to Tadiran 2,335,767 shares (subject to adjustments in accordance with
the market share price in the period defined in the agreement). On the
date of implementation of the transaction Koor will invest $10.5
million in EFC, and in return EFC will issue 613,139 shares to Koor.
After completion of these issues Koor will hold, directly and
indirectly, 14% of EFC's issued share capital and will have the right
to appoint one director to EFC's Board of Directors. On March 14,
2000, EFC's share price was $18.125, and pursuant thereto the
consideration in shares received by Tadiran for shares in Batteries
equals approximately $42.3 million. Implementation of the transaction
is contingent upon receipt of various approvals, including approval
from the Commissioner of Restrictive Trade Practices.
<PAGE>
Note 28 - Material Differences Between Israeli and U.S. GAAP and their Effect on
the Financial Statements
A. The consolidated financial statements of Koor conform with accounting
principles generally accepted in Israel ("Israeli GAAP"), which differ
in certain respects from those generally accepted in the United States
("U.S. GAAP") as described below:
1. Effect of inflation
In accordance with Israeli GAAP:
The consolidated financial statements of Koor are expressed in terms of a
uniform monetary unit - the inflation adjusted Israeli shekel - which is
after adjustment respect of the changes in the Consumer Price Index. (See
Note 2B for principles of the adjustment)
In accordance with US GAAP:
The financial statements are expressed in current nominal historical
monetary terms.
Measuring on the basis of the change in the CPI, which reflects the effect
of changes in the general price level in the Israeli economy, provides a
very valid picture of the financial position, results of operations and the
cash flows of the Koor Group for both Israeli and US accounting purposes.
In view of the above, no data on the effect of the differences between
measurement on the basis of cost adjusted to the CPI or on the basis of
historical cost, were included.
2. ECI and Tadiran Telecommunication - merger
In accordance with Israeli GAAP:
The merger described as aforesaid in Note 3A was recorded in Koor's
financial statement at book values in accordance with the accepted rules
governing similar asset exchange transactions. Pursuant to the merger
agreement, shares of Tadiran Telecommunications held by Tadiran were
exchanged for ECI shares at an exchange rate determined in the merger
agreement.
In accordance with U.S. GAAP:
According to EITF 98-3 and EITF/D-81 the merger of ECI and TTL is not
considered as an exchange of similar assets in respect of Koor and Tadiran
and therefore a capital gain from the realization of TTL is recorded and an
original differentials is recorded and allocated to goodwill. The capital
gain from this sale (after tax) amounted to NIS 64,473 thousand and an
increase in original differentials allocated to goodwill of NIS 190,954
thousand, amortized at equal annual rates over 10 years.
3. Debt arrangement within the framework of an overall financial
arrangement
In accordance with Israeli GAAP:
Koor reported an extraordinary gain in 1991 as a result of the
restructuring of part of its debts.
In accordance with US GAAP:
In accordance with FAS No. 15 - "Accounting by Debtors and Creditors for
Troubled Debt Restructuring" future interest payments must be deducted from
the restructuring of an old debt.
The recognition of non-realised earnings (which represents deferred
interest) is affected by payments of interest over the period from the date
of the restructuring of the debt up to its repayment date. The balance of
deferred interest, net of the tax effect, (before minority interest), at 31
December, 1999 and 1998,was NIS 48 million, and NIS 34 million,
respectively.
<PAGE>
4. Deferred taxes
a) Deferred taxes in respect to inflation adjustment differences
In accordance with Israeli GAAP:
Koor does not provide deferred taxes in respect to adjustment
differences to the CPI for assets defined as "immune assets" in the
Law for Taxation Under Inflationary Conditions and for which the
depreciation period is at least 20 years.
In accordance with US GAAP:
Under FAS No. 109, a provision for deferred taxes should be made for
all temporary differences, without relation to the period of
amortisation of the assets. The effect on net earnings, as a result of
the above provision for deferred taxes, was a decrease in income tax
in 1997, 1998 and 1999, by NIS4,856 thousand, NIS 5,232 thousand and
NIS12,300 thousand, respectively.
b) Deferred taxes in companies which adjust their financial statements
for inflation on the basis of changes in the U.S. dollar exchange
rate.
In accordance with Israeli GAAP:
Certain companies, which adjust their financial statements on the
basis of changes in the dollar exchange rate, create deferred taxes in
respect of all the differences between the amounts of assets (mainly
in respect to fixed assets and inventory) as stated in the financial
statements and the amounts for tax purposes.
In accordance with U.S. GAAP:
According to paragraph 9(f) of FAS No. 109, deferred taxes should not
be provided in respect of differences, the source of which is in the
difference of assets and liabilities for accounting purposes and their
amounts for tax purposes, where the source of the tax difference stems
from different measuring bases for accounting purposes and for tax
purposes. The ultimate effect of the above write-off of deferred taxes
on the statement of operations is a reduction in income tax in the
amount of NIS 1,739 thousand and NIS 40,366 thousand, in 1997 and
1998, respectively, and an increase in income tax in 1999 in the
amount of NIS 29,444 thousand.
c) Earnings from "Approved Enterprises"
Under the Israeli Law for Encouragement of Capital Investments, 1959,
a company which owns an "approved enterprise" is subject tax at a rate
of 25% of attributable earnings during "the period of benefits".
Dividends paid to shareholders from the earnings of an "approved
enterprise" are subject to income tax at a rate of 15%. A company that
received such a dividend is entitled to a 15% tax credit, if and when
this dividend is paid to its shareholders.
The owners of an "approved enterprise" who choose the "alternative
benefits" track are exempted from income tax on undistributed profits.
<PAGE>
In the event that a dividend is distributed out of tax exempt earnings
of the approved enterprise under on the "alternative benefits" track,
the distributing company will be subject to tax on the distributed
earnings at a rate of 25%. Furthermore, the shareholders will be
liable to tax at the rate of 15%. However, if the shareholder is a
company, that shareholder will be entitled to a 15% tax credit, if and
when such dividend out of "approved enterprise" earnings is
distributed to its shareholders.
In accordance with Israeli GAAP:
Deferred tax should not be provided in respect to the undistributed
tax-exempt earnings of an "approved enterprise" of subsidiaries, whose
earnings have been reinvested and will not be distributed to the
company shareholders.
c) Earnings from "Approved Enterprises" (cont'd)
Koor has not provided deferred tax in respect to undistributed
tax-exempt earnings attributed to the "approved enterprise" of
subsidiaries under the "alternative benefits" track, which may be
distributed, since it is the Group's policy not to initiate such a
dividend distribution.
In accordance with US GAAP:
A reserve for deferred tax should be provided on the undistributed
tax-exempt earnings of local subsidiaries established subsequent to
December 15, 1992, as their distribution results in additional tax.
The effect of providing a reserve for deferred tax on the
undistributed tax exempt earnings of an "approved enterprise",
assuming either the sale of the shares in the subsidiary, a merger
(change of structure), or its liquidation, was an increase in income
tax, in 1997, 1998 and 1999, amounting to NIS 25,714 thousand, NIS
34,980 thousand and NIS 3,270 thousand, respectively.
5. Handling of "benefit component" in respect of options issued to
employees
In accordance with Israeli GAAP:
The overall "benefit component", in respect to options granted to
employees of Koor, is not charged as an expense in the statement of
operations.
In accordance with US GAAP:
a) Fixed Option Plan:
Under U.S. GAAP (APB-25), the "benefit component" is measured as the
difference between the share market price and, the exercise price of
the option, when measuring the "benefit". The benefit is charged as a
salary expense during the period in which the employee performs the
services for which the benefit was granted.
<PAGE>
(b) Variable Option Plans:
In the event that the options have been issued to employees for the
future performance of work or services, the benefit is charged to
salary expense in the statement of operations. The "benefit component"
is computed on the basis of the full benefit valued as at that date,
and, the proportional part of the period which has passed from the
opening balance of that period.
For information regarding the effect of proforma data, according to
FAS No. 123 data, see subsection 3b below.
6. The accounting treatment of quoted securities:
In accordance with Israeli GAAP:
Quoted securities which constitute a short-term investment (see note
2F) are stated at market value. Quoted securities which constitute a
permanent investment are stated at cost (regarding debentures,
including accumulated interest), except where market value is lower,
and the decline in value is not considered to be temporary.
In accordance with US GAAP:
FAS No. 115 divides quoted securities, into three types: securities
held for a short period and traded at a high frequency (trading
securities), available for sale securities and held to maturity
securities.
A change in the value of trading securities, including unrealised
earnings, is charged to the statement of operations, while unrealised
earnings after tax of the available for sale type is reported as a
separate item within shareholders' equity.
7. Attribution of proceeds from an issuance to debentures, when
securities are issued as a package:
According to the accounting policy of Koor:
According to the accounting policy of Koor, the proceeds from an
issuance of debentures and stock options, as a package, are attributed
to debentures according to their par value while the remainder of the
proceeds is attributed to the share options.
According to Israeli GAAP:
The proceeds from an issuance of share options and convertible
debentures, as a package, are split based on the relative market
prices of these securities at the date of issuance. This will
sometimes result in the recording of a discount in respect of the
convertible debentures, that is to be amortised over the term of
debentures.
<PAGE>
8. Dividends
According to Israeli GAAP:
A dividend proposed prior to the date of approval of the financial
statements is included in the balance sheet as a current liability.
According to US GAAP:
Such a dividend is reflected only in the notes and is not recorded in
the balance sheet as a liability until declared.
9. Convertible securities of investees
According to Israeli GAAP:
According to the provisions of Opinion Nos. 48 and 53 of the ICPAI, a
parent company is required to create a provision for losses which it
may incur from the dilution of its holdings in investees, when it is
probable that the share options will be exercised or the debentures
will be converted.
According to US GAAP:
A loss in the parent company resulting from the dilution of its
holdings, because of share options being exercised or debentures being
converted, is recorded only at the time of exercise or conversion.
10. Employee severance benefits as a part of an efficiency program
According to Israeli GAAP:
Employee severance benefits as part of future anticipated dismissals
are recorded when Management decides on the dismissals.
According to US GAAP:
According to the provisions of EITF 94-3, employee severance benefits,
as part of a program for promoting efficiency, are charged as an
expense in the financial statements only when all the following
conditions exist:
a) Management has the appropriate authority to dismiss employees and
the efficiency program includes all employee severance benefits.
b) Management notified employees of its intention to dismiss them,
while supplying them with full details regarding employee
severance benefits.
c) The plan for dismissals states specifically the names of the
dismissed employees, their positions and their duties.
d) The period of time for completion of the program of dismissals
indicates that a significant change in the plan is not likely to
occur.
<PAGE>
11. Earnings per share
According to Israeli GAAP:
Opinion No. 55 - the dilutive effect of share options and convertible
debentures is included in the computation of basic earnings per share
only if their exercise or conversion is considered to be probable.
Calculation of the probability is based on the ratio between the
market price of the shares and the present value of the price of
exercising the stock options into shares or the present value of the
payments for conversion of the debentures into shares.
According to U.S. GAAP:
In accordance with FAS 128. Basic earnings per share is computed on
the basis of the weighted average number of shares outstanding during
the year. Diluted earnings per share is computed on the basis of the
weighted average number of shares outstanding during the year, plus
the dilutive potential of ordinary shares considered outstanding
during the year.
12. Acquiring an Investment in stages
According to Israeli GAAP:
Opinion 68 determines that when acquiring an investment in stages, on
the date of which the holding constitutes an initial material
influence, it is necessary to calculate the original differentials and
record the investment according to the equity method from this date
onwards.
According to U.S. GAAP:
When acquiring an investment in stages, on the date an initial
influence becomes material it is necessary to calculate post factum
for each acquisition the original differentials created by the
acquisition despite the fact that on that date the company did not yet
have a material influence and to implement the equity method
retroactivley.
13. FAS 133
During 1998, the FASB published a new statement, FAS 133, dealing with
the reporting of derivative financial instruments. This publication
requires that all derivative financial instruments be recorded in the
financial statements at their fair value as at the date of the
financial statement. FAS 133 is to be applied beginning with the
financial statements of 2001. The effect of the implementation of FAS
133 on the financial statements is expected to be immaterial.
<PAGE>
B. The effect of the material differences between Israeli and U.S. GAAP
on the financial statements
1. Statements of operations:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1999 1998 1997
------- ------ --------
NIS thousands
<S> <C> <C> <C> <C> <C>
a) Net earnings as reported, according
to Israeli GAAP 549,119 47,121 537,337
------- ------ --------
Amortisation of deferred interest in
respect of the restructuring of debts 11,924 17,236 22,166
Deferred taxes (37,055) 10,619 (20,768)
Salary expenses in respect of
share options issued to employees (3,544) (13,470) (82,341)
Correction of capital gain included in
results of discontinued activities - 4,354 -
Gain from marketable securities, net (43,566) (1,304) 18,428
Provisions for anticipated losses from
realisation of convertible securities in
investees 1,336 (2,492) 11,668
Amortisation of discount in respect of
convertible debentures (1,874) (2,543) (4,754)
Severance pay, including that arising
from an efficiency program 12,459 (4,743) 4,379
Capital gain from a merger 190,954 - -
Equity in an investee company purchased
in stages (4,967) - -
Amortization of goodwill in accordance with a
merger (see A2) (21,004) - -
------- ------ --------
104,663 7,657 (51,222)
Income taxes (129,321) 2,312 (9,837)
Minority interests in respect of the above
differences 7,963 (15,717) 1,820
------- ------ --------
(16,695) (5,748) (59,239)
Extraordinary item (1) 5,475 1,817 2,642
------- ------ --------
(11,220) (3,931) (56,597)
------- ------ --------
Net income according to U.S. GAAP 537,899 43,190 480,740
======= ====== ========
</TABLE>
(1) Deferred gains were recognized in respect of early repayment of debts.
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------
1999 1998 1997
----------- ------- -------
NIS thousands
------------------------------------------------
<S> <C> <C> <C> <C> <C>
b) Earnings per ordinary share
1. Basic earnings per ordinary
share:
As reported, according to
Israeli GAAP 34.89 3.07 35.04
========== =========== ==========
As per U.S. GAAP:
Before extraordinary item 33.85 2.65 31.86
Extraordinary item 0.35 0.12 0.17
---------- ----------- ----------
Total 34.20 2.77 32.03
========== =========== ==========
Weighted average of number of
shares and share equivalents
under U.S. GAAP 15,727,144 15,569,840 15,030,867
========== =========== ==========
2. Diluted earnings per ordinary
share:
As reported, according to Israeli
GAAP 34.56 3.07 34.06
========== =========== ==========
Before extraordinary item 33.52 2.64 30.76
Extraordinary item 0.34 0.12 0.17
---------- ----------- ----------
Total 33.86 2.76 30.93
========== =========== ==========
Weighted average of number of
shares and share equivalents
under U.S. GAAP 16,061,493 15,618,776 16,127,878
========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2. Balance sheet:
December 31
-----------------------------------------------------------------------------------------
1999 1998
As Adjustments As per As Adjustment As per
reported U.S. GAAP reported U.S. GAAP
----------- ----------- --------------- --------------- --------------- ---------------
NIS thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in
affiliates (10) 3,495,772 165,626 3,661,398 1,623,060 - 1,623,060
Other investments
and receivables (1) 757,747 - 757,747 581,934 (9) 174,158 756,092
Intangible assets -
net of
amortisation (10) 627,264 24,467 651,731 628,873 27,186 656,059
Total assets 17,370,600 190,093 17,560,693 17,785,548 201,343 17,986,891
Payables and
accruals (7)(8) 1,733,912 (135,161) 1,598,751 2,106,802 (86,363) 2,020,440
Long-term bank
loans 3,691,887 - 3,691,887 4,297,966 (9) 174,158 4,472,123
Deferred
interest (3) - 20,022 20,022 - 37,912 37,912
Convertible
debentures (4) 180,159 (3,408) 176,751 194,589 (5,282) 189,307
Deferred taxes(2) 236,895 295,676 532,571 219,514 129,275 348,788
Minority
interests (6) 1,319,771 (24,580) 1,295,191 1,634,136 (15,695) 1,618,441
Capital reserve
for "available for
sale" securities
(1) - 33,276 33,276 - (8,416) (8,416)
Capital reserves
(4)(5) 2,417,255 137,948 2,555,203 2,415,008 134,404 2,549,412
Retained
earnings (6) 2,065,262 (133,680) 1,931,582 1,739,365 (158,649) 1,580,716
Total
shareholders'
equity 4,384,714 37,544 4,422,258 4,075,919 (32,661) 4,043,258
(1) Adjustment of value of investment securities to market value.
(2) Change in deferred taxes.
(3) Deferred gain on debt restructuring.
(4) Debentures issued with stock options.
(5) Share options issued to employees.
(6) Effects of the reconciliation to US GAAP.
(7) Proposed dividend.
(8) Provision for employee severance benefits resulting from an efficiency program.
(9) The effect of presenting investment in marketable securities before deduction of long-term loans (see
Note 9A(3).
(10) Original differentials arising from the exchange of shares in the merger, acquiring an investment in
stages and increasing the holdings in a consolidated company.
</TABLE>
<PAGE>
3. Additional information according to US GAAP:
The effect of proforma data calculated according to FAS 123:
a) Under the provisions of FAS 123, all option plans are recorded in the
statement of operations, based on the fair value of the option at the
grant date.
b) The Company applies the Black-Scholes model to estimate fair value of
the options, utilizing the following assumptions:
Risk free interest rate 6%
Expected life of stock options 5 years
Anticipated weekly standard deviation 45.14%
Expected dividend per share 1.2%
See Note 20C relating to the fair value of share options at the time
they were granted, (according to the prevailing conditions at the
grant date).
For proforma disclosure, the fair value of the share options, as
estimated, is amortised over the period of the benefit.
c) If the cost of the benefit in respect of share options issued to
employees under this plan (including plans of certain subsidiaries)
had been computed on the basis of the fair value at date of grant in
accordance with FAS 123, the Company's net earnings and earnings per
share in accordance with U.S. GAAP would have been as follows:
Year ended December 31
-----------------------------------
1999 1998 1997
------- ------- --------
Proforma net earnings
(NIS thousands) 497,703 21,654 508,102
------- ------- --------
Proforma basic earnings
per share (NIS) 31.65 1.38 33.8
======= ======= ========
Proforma diluted earnings
per share (NIS) 31.36 1.38 32.64
======= ======= ========
<PAGE>
7. Comprehensive earnings
"Comprehensive earnings" consists of the change, during the current
period, in Company's shareholder equity that does not derive from
shareholders' investments or from the distribution of earnings to
shareholders.
A. Comprehensive earnings includes two components - net earnings and
other comprehensive earnings. Net earnings are the earnings stated in
the statement of operations and other comprehensive earnings includes
the amounts that are recorded directly in shareholders' equity and
that do not derive from transactions with shareholders.
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------
1999 1998 1997
-------- -------- --------
NIS thousands
<S> <C> <C> <C> <C>
Net earnings according to US GAAP 537,899 43,190 480,740
Other comprehensive earnings, after tax: -------- -------- --------
Adjustments from translation of
financial statements of investees (19,492) 162,710 18,069
Unrealised gains from securities 41,685 2,668 5,829
-------- -------- --------
Total other comprehensive earnings* 22,193 165,378 23,898
-------- -------- --------
Total comprehensive earnings 560,092 208,568 504,638
======== ======== =======
*Tax component included in the item (1,881) 2,333 (6,718)
======== ======== =======
B. The effect of taxes on the other comprehensive earnings:
Before tax Tax effect After tax
---------- ---------- ---------
NIS thousands
Adjustments from translation of
investees (19,492) - (19,492)
-------- -------- --------
Unrealised gains from securities:
Gains which arose in current year 7,345 (1,332) 6,013
Less realised gains credited to net
earnings 36,221 (549) 35,672
-------- -------- --------
43,566 (1,881) 41,685
-------- -------- --------
Net unrealised gains 24,134 (1,881) 22,193
======== ======== =======
ECI Telecom Ltd.
CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1999
- ----------------------------------------------------------------------------
CONTENTS
PAGE
Report of Independent Accountants 1
Consolidated Balance sheets as of
December 31, 1999 and 1998 2
Consolidated Statements of Income for the Years
Ended December 31, 1999, 1998 and 1997 4
Statements of Other Comprehensive Income
for the Years Ended December 31, 1999, 1998 and 1997 5
Statements of Changes in Shareholders' Equity
for the Years ended December 31, 1999, 1998 and 1997 6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 9
Notes to the Consolidated Financial Statements 11
February 7, 2000
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS OF ECI TELECOM LTD.
We have audited the accompanying consolidated financial statements of ECI
Telecom Ltd. ("the Company") and its subsidiaries for the purpose of
attaching them to the financial statements of Koor Industries Ltd., as a
significant affiliated company : consolidated balance sheets as of December
31, 1999 and 1998, consolidated statements of income, statements of other
comprehensive income, statements of changes in shareholders' equity and
consolidated cash flows for each of the three years the last of which ended
December 31, 1999. These consolidated 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 certain consolidated
subsidiaries, whose assets constitute approximately 15.2% and 18% of total
consolidated assets at December 31, 1999 and 1998, respectively and whose
revenues constitute approximately 7.6%, 4.3% and 19.1% of consolidated
revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. Those financial statements were audited by other certified
public accountants whose reports thereon have been furnished to us. Our
opinion expressed herein, insofar as it relates to the amounts included for
the abovementioned subsidiaries, is based solely upon the reports of the
other accountants. Furthermore, the data included in the financial
statements relating to the net asset value of the Company's investment in
affiliates and to its equity in their operating results were audited by
other auditors. Furthermore, the data relating to discontinued operations
are based on the financial statements of certain investee companies, most
of which were audited by other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the Untied States. 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 the 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 accountants provide a fair basis for our opinion.
In our opinion, based upon our audits and the reports of the other
accountants 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, 1999 and 1998,
and the results of their operations, statements of comprehensive income,
changes in shareholder's equity and their cash flows for each of the three
years the last of which ended December 31, 1999, in conformity with
generally accepted accounting principles (GAAP) in the United States.
The financial statement are prepared on the basis of the historical cost
convention and are stated in U.S. dollars.
Somekh Chaikin
Certified Public Accountants (Israel)
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31
- -----------------------------------------------------------------------------------
1999 1998
-------------- --------------
NOTE $ IN THOUSANDS $ IN THOUSANDS
----------- -------------- --------------
<S> <C> <C> <C>
ASSETS 13; 14; 16
CURRENT ASSETS
Cash and cash equivalents 1C; 17A 232,144 141,848
Short-term investments 1D; 2; 17B 227,619 299,679
Receivables:
Trade 1H; 17C 435,706 251,303
Other 97,797 26,037
Prepaid expenses 6,889 4,458
Recoverable costs and estimated
earnings - not yet billed 1L5 13,082 9,843
Inventories 1E; 3 185,754 162,664
---------- ----------
TOTAL CURRENT ASSETS 1,198,991 895,832
LONG-TERM BANK DEPOSITS AND
RECEIVABLES, NET OF CURRENT
MATURITIES 1L2; 4 105,568 82,658
---------- ----------
INVESTMENTS 1D; 5; 19 4,982 6,913
---------- ----------
PROPERTIES, PLANT AND EQUIPMENT 1F; 6
Cost 333,943 234,688
Less - Accumulated depreciation
and amortization 148,920 103,797
---------- ----------
185,023 130,891
---------- ----------
SOFTWARE DEVELOPMENT COSTS, NET 1I; 7 13,559 23,374
---------- ----------
OTHER ASSETS 1J; 8 149,143 11,265
---------- ----------
TOTAL ASSETS 1,657,266 1,150,933
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999 1998
-------------- --------------
NOTE $ IN THOUSANDS $ IN THOUSANDS
----------- -------------- --------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY 13; 14; 16
CURRENT LIABILITIES 13; 16
Short-term credits and current
maturities of long-term debt 17D 137 121,140
Trade payables 115,382 53,788
Other payables and accrued
liabilities 17E 175,309 98,401
Excess of liabilities over assets
relating to discontinued operations 20 1,011 -
---------- ----------
TOTAL CURRENT LIABILITIES 291,839 273,329
---------- ----------
LONG-TERM LIABILITIES
Convertible notes 9A 85,000 100,000
Other liabilities and loans 9B; 19 7,770 5,559
Liability for employee severance
benefits, net 10 24,559 2,511
---------- ----------
TOTAL LONG-TERM LIABILITIES 117,329 108,070
---------- ----------
TOTAL LIABILITIES 409,168 381,399
---------- ----------
MINORITY INTERESTS 23,778 6,442
---------- ----------
COMMITMENTS AND CONTINGENCIES 11
SHAREHOLDERS' EQUITY 12
Share capital 5,762 5,317
Capital surplus 587,639 156,559
Accumulated other comprehensive income 1R 11,171 648
Retained earnings 691,188 606,890
---------- ----------
1,295,760 769,414
Company's stock held by a
consolidated subsidiary 1K (71,440) (6,322)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,224,320 763,092
---------- ----------
/s/ Jonathan B. Kolber
__________________________________
Chairman of the Board of Directors
/s/ Doron Inbar
__________________________________
President, Chief Executive Officer
Petah Tikva, February 7, 2000
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 1,657,266 1,150,933
========== ==========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------
1999 1998 1997
---------- --------- ---------
NOTE $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 1L; 16 1,114,595 744,370 582,899
Cost of revenues 16; 17F 519,735 316,591 273,143
--------- --------- ---------
Gross profit 594,860 427,779 309,756
Research and development costs, net 1M; 17G 125,147 78,647 51,326
Selling and marketing expenses 16; 17H 180,413 107,589 79,379
General and administrative expenses 16; 17I 64,022 38,750 28,240
Amortization of acquisition-related
intangible assets 16,294 1,492 540
Restructuring expenses 19C 14,947 - -
Purchase of in process research
and development 1N; 19A 87,327 14,371 -
--------- --------- ---------
Operating income 106,710 186,930 150,271
Financial expenses 16; 17J (9,622) (8,007) (7,591)
Financial income 16; 17J 28,375 16,542 13,127
Other income (expenses) - net 17K 50,892 (53) (2,367)
--------- --------- ---------
Income from continuing
operations before taxes on income 176,355 195,412 153,440
Taxes on income 15 7,109 12,855 7,554
--------- --------- ---------
Income from continuing
operations after taxes on income 169,246 182,557 145,886
Company's equity in results of
investee companies, net (2,022) (2,952) (2,174)
Minority interest in income of a
subsidiary (1,703) (5,793) -
--------- --------- ---------
Income from continuing operations 165,521 173,812 143,712
Discontinued operations
Loss from discontinued operation,
net of income tax 1A3; 20 (25,593) (17,650) (11,272)
Loss from disposal of discontinued
operation, net of income tax 1A3; 20 (37,409) - -
--------- --------- ---------
Net income 102,519 156,162 132,440
========= ========= =========
EARNINGS PER SHARE 12; 17M
Basic earnings per share
Continuing operations 1.82 2.26 1.88
Discontinued operations (0.70) (0.23) (0.15)
--------- --------- ---------
Net income 1.12 2.03 1.73
========= ========= =========
Diluted earnings per share
Continuing operations 1.77 2.19 1.84
Discontinued operations (0.66) (0.22) (0.14)
--------- --------- ---------
Net income 1.11 1.97 1.70
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
NOTE $ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income 102,519 156,162 132,440
Other comprehensive income: 1R
Realization of gain on available
for sale securities (648) - -
Unrealized holding gains (losses)
on available for sale securities
arising during the period 1D2 11,171 1,056 (408)
--------- --------- ---------
Total other comprehensive income 10,523 1,056 (408)
--------- --------- ---------
Comprehensive income 113,042 157,218 132,032
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER SHARE CAPITAL ACCUMULATED RETAINED COMPANY'S TOTAL
OF SHARES* CAPITAL SURPLUS OTHER EARNINGS STOCK HELD SHAREHOLDERS'
COMPREHENSIVE (NOTE 15A1) BY A EQUITY
INCOME (LOSS) CONSOLIDATED
SUBSIDIARY
---------- ------- -------- ------------- ----------- ------------ -------------
$ IN THOUSANDS, EXCEPT SHARE AMOUNTS AND DIVIDENDS PER SHARE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 76,001,487 5,287 137,545 - 348,956 (7,282) 484,506
CHANGES DURING 1997 -
Net income for the year - - - - 132,440 - 132,440
Employee stock options exercised
and paid, net (Note 12C) 579,632 21 9,409 - - - 9,430
Net unrealized loss on available
for sale securities - - - (408) - - (408)
Amortization of deferred compensation
expenses - - 1,485 - - - 1,485
Sale of the Company's stock held by a
consolidated subsidiary, net of taxes 75,000 - 626 - - 960 1,586
Dividend** - - - - (15,301) - (15,301)
---------- ----- ------- ---- ------- ------ -------
Balance at December 31, 1997
carried forward 76,656,119 5,308 149,065 (408) 466,095 (6,322) 613,738
========== ===== ======= ===== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER SHARE CAPITAL ACCUMULATED RETAINED COMPANY'S TOTAL
OF SHARES* CAPITAL SURPLUS OTHER EARNINGS STOCK HELD SHAREHOLDERS'
COMPREHENSIVE (NOTE 15A1) BY A EQUITY
INCOME (LOSS) CONSOLIDATED
SUBSIDIARY
---------- ------- -------- ------------- ----------- ------------ -------------
$ IN THOUSANDS, EXCEPT SHARE AMOUNTS AND DIVIDENDS PER SHARE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997
brought forward 76,656,119 5,308 149,065 (408) 466,095 (6,322) 613,738
CHANGES DURING 1998 -
Net income for the year - - - - 156,162 - 156,162
Employee stock options exercised
and paid, net (Note 12C) 304,300 9 4,624 - - - 4,633
Amortization of deferred compensation
expenses - - 2,870 - - - 2,870
Net unrealized gain on available
for sale securities - - - 1,056 - - 1,056
Dividend** - - - - (15,367) - (15,367)
---------- ----- ------- ----- ------- ------ -------
Balance at December 31, 1998
carried forward 76,960,419 5,317 156,559 648 606,890 (6,322) 763,092
========== ===== ======= ===== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER SHARE CAPITAL ACCUMULATED RETAINED COMPANY'S TOTAL
OF SHARES* CAPITAL SURPLUS OTHER EARNINGS STOCK HELD SHAREHOLDERS'
COMPREHENSIVE (NOTE 15A1) BY A EQUITY
INCOME (LOSS) CONSOLIDATED
SUBSIDIARY
---------- ------- -------- ------------- ----------- ------------ -------------
$ IN THOUSANDS, EXCEPT SHARE AMOUNTS AND DIVIDENDS PER SHARE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998
brought forward 76,960,419 5,317 156,559 648 606,890 (6,322) 763,092
CHANGES DURING 1999 -
Net income for the year - - - - 102,519 - 102,519
Employee stock options exercised
and paid, net (Note 12C) 815,102 24 18,028 - - - 18,052
Share issuance 13,966,480 403 394,379 - - - 394,782
Conversion of convertible note
into share capital 600,000 18 14,982 - - - 15,000
Realization of gain on available
for sale securities - - - (648) - - (648)
Net unrealized gain on available
for sale securities - - - 11,171 - - 11,171
Amortization of deferred
compensation expenses - - 3,691 - - - 3,691
Acquisition of company's stock
held by a subsidiary (2,240,000) - - - - (65,118) (65,118)
Dividend** - - - - (18,221) - (18,221)
---------- ----- ------- ------ ------- ------- ---------
Balance at December 31, 1999 90,102,001 5,762 587,639 11,171 691,188 (71,440) 1,224,320
========== ===== ======= ====== ======= ======= =========
* Issued and outstanding
** Dividend per share as follows:
</TABLE>
FOR THE YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
---- ---- ----
$ $ $
---- ---- ----
Interim dividend 0.15 0.15 0.15
Proposed dividend 0.05 0.05 0.05
---- ---- ----
0.20 0.20 0.20
==== ==== ====
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 102,519 156,162 132,440
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 91,122 45,571 36,079
Loss (gain) on sale of property and equipment 162 9 (71)
Capital gains, net (52,383) - -
Other - net (mainly long-term deferred taxes) 2,777 (1,262) (2,647)
Purchase of in-process research and
development 87,327 14,371 -
Company's equity in results of investee
companies 2,378 2,952 2,174
Minority interest in income from subsidiaries 1,703 5,793 -
Decrease (increase) in marketable securities 8,826 (36,411) (12,552)
Increase in trade receivables (including
non-current maturities of bank deposits
and trade receivables (124,028) (2,576) (90,858)
Decrease (increase) in other receivables (28,264) (12,132) 5,641
Decrease (increase) in prepaid expenses (2,321) 347 86
Decrease (increase) in recoverable costs
and estimated earnings - not yet billed (4,026) 9,976 (19,819)
Decrease (increase) in inventories 23,125 (29,609) 46,164
Increase (decrease) in trade payables 33,825 (2,236) 8,519
Increase (decrease) in other payables
and accrued liabilities (5,394) 7,252 21,937
Increase (decrease) in other long-term
liabilities (856) 4,223 614
Increase (decrease) in liability for
employee severance benefits, net 1,196 (395) 818
-------------- -------------- --------------
Net cash provided by operating activities 137,688 162,035 128,525
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Software development costs capitalized (15,444) (12,905) (13,962)
Investment in property, plant and equipment (54,375) (44,039) (31,540)
Proceeds from sale of property, plant and
equipment 1,365 996 313
Purchase of technology (1,000) (16,371) -
Acquisition of investee companies (500) (1,741) (880)
Repayment of long-term receivables - - 132
Long-term loans granted to investee companies (4,850) (2,546) (1,596)
Acquisition of available for sale securities - (5,864) -
Proceeds from sale of available for sale
securities 1,905 7,891 -
Acquisition of newly consolidated 47,038 (624) -
subsidiaries
Acquisition of additional rights in
consolidated subsidiary (12,500) - (2,649)
Payments in respect of other assets (7,252) (385) -
Decrease (increase) in short-term investments 123,911 20,022 (92,277)
Repayment of due from related party 25,000 - -
Investment in convertible bond - (177,000) -
-------------- -------------- --------------
Net cash provided by (used in) investing
activities 103,298 (232,566) (142,459)
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31 (CONT'D)
- --------------------------------------------------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of employee stock options
(net of share issue expenses) 18,052 4,633 9,430
Repayment of long-term debt (5,779) (187) (189)
Increase (decrease) in short-term credit, net (122,707) 119,953 (4,853)
Public share issuance in consolidated company 43,199 - -
Dividend (17,564) (15,352) (15,268)
Acquisition of Company's stock by a subsidiary (65,118) - 1,780
-------------- -------------- --------------
Net cash provided by (used in) financing
activities (149,917) 109,047 (9,100)
-------------- -------------- --------------
Effect of change in exchange rate on cash (773) (1,459) (544)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 90,296 37,057 (23,578)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 141,848 104,791 128,369
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 232,144 141,848 104,791
============== ============== ==============
SUPPLEMENTAL DISCLOSURES:
INCOME TAXES PAID, NET OF TAX RETURNS 5,029 10,125 1,059
============== ============== ==============
INTEREST (RECEIVED) PAID, NET (15,789) 4,787 4,833
============== ============== ==============
A. ACQUISITION OF NEWLY CONSOLIDATED
SUBSIDIARIES (NOTE 19)
Working capital (other than cash) (256,937) 133 -
Long-term receivables, net of current
maturities (10,284) - -
Investment in investee companies 171,923 - -
Property, plant and equipment, net (52,114) (653) -
Other assets (mainly - deferred taxes) (2,431) - -
Goodwill (144,646) (104) -
In process research and development (87,327) - -
Long-term liabilities 31,996 - -
Minority interest 2,076 - -
Share issuance 394,782 - -
-------------- -------------- --------------
47,038 (624) -
============== ============== ==============
B. NON-CASH ACTIVITIES
Conversion of convertible note into share
capital 15,000 - -
Conversion of convertible debentures
into share capital of an investee company 177,000 - -
Sale of production activity on credit 16,689 - -
Sale of investment in investee company for
available for sale securities 29,266 - -
</TABLE>
The accompanying notes are an integral part of the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1999
- ----------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies, applied on a consistent basis, are
as follows:
A. GENERAL
1. The Company is an Israeli corporation which operates in the
telecommunication industries. The Company designs, develops and
manufactures telecommunications equipment, including hardware
and software, - partly to buyers' specifications - and markets
and services such equipment.
2. At the beginning of 1999 Tadiran Telecommunication Ltd.
(hereinafter "TTL) merged with ECI by share issuance of ECI
ordinary shares (which consisted approximately of 15% of the
issued and outstanding shares of ECI on the merger date) to TTL
shareholders (mainly Tadiran Ltd., hereinafter - "Tadiran").
The merger is accounted for under the "purchase" method of
accounting. The excess of cost is mainly allocated to goodwill
and intangible assets amounting to $230 million of which $87
million was written-off immediately as in process research and
development costs. (For more details - see Note 19).
3. On February 7, 2000 the Board of Directors approved a decision
made by company management to discontinue operation of certain
activities (for more details see Note 20), accordingly the
results of discontinued operations for all periods reported
were reclassified in one line on the income statement after the
result from continued operations. The assets regarding the
discontinued operations are classified in one line on current
liabilities.
4. The financial statements have been prepared in conformity with
generally accepted accounting principle (GAAP) in the United
States.
5. The currency of the primary economic environment in which the
operations of the Company and its subsidiaries are conducted is the
U.S. dollar ("dollar").
Most of the Company's sales are made outside of Israel - mainly
in dollars and other non-dollar currencies. Arrangements are
made to ensure that the dollar value of sales made in
non-dollar currencies is maintained (see Note 11E). Most
purchase of materials and components, as well as most selling
and other expenses incurred outside Israel, are in dollars. In
view of the foregoing, the dollar has been determined to be the
Company's functional currency.
Transactions and balances denominated in dollars are presented
at their original amounts. Non-dollar transactions and balances
have been remeasured into dollars in accordance with the
principles set forth in Statement No. 52 of the Financial
Accounting Standards Board (FASB) of the United States.
All exchange gains and losses from remeasurement of monetary
balance sheet items denominated in non-dollar currencies are
reflected in the income statement when they arise. Such
exchange gains and losses are included in the same income
statement items in which the related transactions are included.
The financial statements have been prepared in accordance with
the historical cost convention.
6. The preparation of financial statements in conformity 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. These are
management's best estimates based on experience and
historical data, however, actual results could differ from
these estimates.
7. The financial statements were prepared for the purpose of attaching
them to the financial statements of Koor Industries Ltd., as a
significant affiliated company. As such, they do not include
information on activity segments, as per SFAS 131.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
C. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity
of three months or less at date of purchase, to be cash equivalents.
D. INVESTMENTS
1. Investee companies
Investments in investee companies, in which the Company has
significant influence (affiliated companies) are stated by the
equity method, that is, at cost plus the Company's share of the
post-acquisition gains or losses.
Goodwill - as stated in "J" hereunder.
Investment in shares of companies in which the Company does not
have significant influence (hereinafter - "other companies"),
are stated as follows:
- Marketable securities - as stated in 2 hereunder.
- Non-marketable securities - at cost.
2. Marketable securities
These securities are classified as "trading" or as "available
for sale" and stated at market value. Gains or losses arising
from the realization of marketable securities which are
classified as "trading" are included in financial income in
accordance with the principles set forth in Statement No. 115
of the FASB. The changes in the market value during the current
year related to those classified as "available for sale" are
included in other comprehensive income, and are attributed to
income statement on realization.
E. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined as follows:
Raw materials (including components) - on the moving average basis.
Work in process and finished products:
Raw materials and components - on the moving average basis.
Labor and overhead components - on the basis of actual manufacturing
costs.
F. PROPERTY, PLANT AND EQUIPMENT
1. These assets are stated at cost.
2. Depreciation is computed using the straight-line method, over the
estimated useful life of the assets as estimated by the Company.
Annual rates of depreciation are as follows:
Buildings 2.5%
Machinery, equipment and
furniture 6%-33% (principally 10%)
Motor vehicles 15%-20% (principally 15%)
Leasehold improvements are amortized by the straight-line
method over the term of the lease.
3. Major renewals and improvements are capitalized, while repairs and
maintenance are expensed as incurred.
4. Upon the sale or retirement of equipment and leasehold
improvements, the cost and related accumulated depreciation and
amortization are eliminated from the respective accounts and
the resulting gain or loss is reflected in the consolidated
statements of income.
5. In 1996, the Company adopted FAS 121, Accounting for the Impairmen
of Long-lived Assets and for Long-Lived Assets to be Disposed
of. FAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable based on estimated
future cash flows expected to result from the use of the asset
and its eventual disposition. Impairment losses are required to
be recorded to reduce such asset to fair value if such asset is
not considered to be recoverable based on estimated future cash
flows.
G. ACCRUED WARRANTY COSTS
Accrued warranty costs are calculated in respect of products sold and
work performed (for periods subsequent to performance of the work or
delivery of the products) based on the Company's prior experience and
in accordance with management's estimation.
H. ALLOWANCE FOR DOUBTFUL DEBTS
The financial statements include an allowance which Management
believes reflects adequately the loss inherent in specific
receivables for which collection is in doubt. In determining the
fairness of the allowance Management based itself, inter alia, on
information at hand about debtors financial situation, the volume of
their operations, aging of the balance and evaluation of the security
received from them.
I. SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development costs in
accordance with Statement of Financial Accounting Standards (SFAS)
No. 86 "Accounting for Costs of Computer software to be sold, Leased
or Otherwise Marketed". Capitalization of software development costs
begins upon the establishment of technological feasibility as defined
in the Statement and continues up to the time the software is
available for general release to customers, at which time capitalized
software costs are amortized to product development expenses on a
straight-line basis over the expected life of the related product,
generally two to three years.
Software development costs include costs which relate principally to
projects which have recently been released or are not yet available
for release to customers. Management believes that future revenues
related to these projects will be sufficient to realize the amounts
capitalized at December 31, 1999, and as such these amounts will be
recovered over the lives of the related projects. It is possible,
however, that those estimates of future revenues could be adversely
impacted if these projects are not finally completed and released
during 2000 or if market acceptance of related technology is not as
anticipated by Management. As a result, the recoveries of these
capitalized software development costs through future revenues could
be reduced materially. In such as event, related capitalized software
development costs will be written-off in the following accounting
period.
As to Management's estimates and assumptions - see Note 1A6 above.
J. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets, excluding software development
cots, are included in other assets and are being amortized over a
period of 2-25 years, mainly 10 years, based on the estimated life of
the assets.
The Company continually assesses the carrying value of goodwill in
order to determine whether an impairment has occurred, taking into
accounts both historical and forecasted results of operations.
K. COMPANY'S STOCK HELD BY A CONSOLIDATED SUBSIDIARY
Holdings of Company shares by a consolidated subsidiary are presented
as Treasury Stock (cost to the Company).
L. REVENUE RECOGNITION
1. The Company generally recognizes revenue from sales of systems
when products are shipped, economic risk of loss has passed to
the customer, collection is probable and any future obligations
of the Company regarding the product are insignificant.
2. Revenues from sales involving long-term credit arrangements at
less than accepted interest rates are recorded at the present
value of the related future cash flows. The difference between
the amounts receivable and their present value is to be
recognized as interest income over the period of the debt.
3. Software license revenue is generally recognized at the time
the software is delivered to the customer, if collection is
probable and the Company has no significant obligations
remaining under the sales or licensing agreement and no
significant customer acceptance requirements exist subsequent
to software delivery.
4. Service revenues from product maintenance contracts and
separately priced extended warranty contracts are generally
recognized ratable over the contract period, while revenue from
software services generally is recognized as the services are
performed or, if no pattern of performance is evident, ratably
over the period during which they are performed.
5. The estimated sales value of performance on long-term contracts
is recognized using the percentage of completion method, which
is in accordance with statement of position (SOP81-1). The
percentage of completion is determined as a ratio of
accumulated costs incurred (including materials, labor and
overhead) to total estimated costs of the contract.
In the event that Management anticipates a loss on a particular
contract, such anticipated loss is provided for in full. As to
Management's evaluation and assumptions, see Note 1A6 above.
M. RESEARCH AND DEVELOPMENT
Research and development costs, net of related royalty bearing
participations, are charged to income statement as incurred. As to
software development costs (see I above)
N. PURCHASE OF IN PROCESS RESEARCH AND DEVELOPMENT COSTS (IPR&D)
The Company writes down to the operating costs in the income statement,
the excess of costs related to the process of research and development of
acquired companies according to FIN No. 4 of SFAS No. 2.
O. RECLASSIFICATION
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
P. INCOME TAXES
1. The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income taxes".
Under SFAS 109 deferred tax assets or liabilities are
recognized in respect of temporary differences between the tax
bases of assets and liabilities and their financial reporting
amounts as well as in respect of tax losses and other
deductions which may be deductible for tax purposes in future
years, based on tax rates applicable to the periods in which
such deferred taxes will be realized. Deferred tax assets for
future tax benefits from realization are not included when
their realization is more likely than not. Valuation allowances
are established when necessary to reduce deferred tax assets to
the amount expected to be realized. Deferred tax assets and
liabilities are presented as current or long-term items in
accordance with the nature of assets or liabilities to which
they relate, according to the date of their realization.
Deferred taxes were not recorded in respect of the following
matters -
o Taxes which may apply upon the realization of investments
in consolidated subsidiaries and affiliated companies, as
no intention to realize such investments exists (see 2
hereunder).
o Certain undistributed earnings of foreign consolidated
subsidiaries which are taxable upon distribution by way
of dividend, as no such dividend distribution intention
exists (for domestic consolidated subsidiaries, see 2
hereunder).
o Differences between the rate of change in the Israeli
Consumer Price Index (which serves as a basis for
measurement for tax purposes) and the rate of change in
the NIS/US dollar exchange rate, this in accordance with
paragraph 9 (f) of SFAS 109. The said differences are not
material.
2. In accordance with paragraph 33 of SFAS 109, deferred taxes
have not been provided for the Parent Company's temporary
difference relating to earnings in both its domestic
subsidiaries and domestic "approved enterprises" as the tax
laws provide methods whereby the reported amounts of these
investments can be recovered tax-free and the parent company
expects that it will ultimately use these methods.
- Earnings distributed by domestic subsidiaries relating to
"approved enterprises" can be transferred to the Parent Company
by way of a tax-free merger.
- Earnings distributed related to the Parent Company's "approved
enterprises" are not taxable to the Parent Company in a
liquidation as such taxes would be due from the shareholders.
- Earnings distributed by domestic subsidiaries which are not
generated by an "approved enterprise" are not taxable.
Income tax expense represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
Q. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign currency future contracts, put and
call option contracts to reduce the impact of fluctuations of certain
currencies against the U.S. dollar resulting from existing trade
receivables or from firm commitments not denominated in U.S. dollars
and in relation with anticipated transactions. Gains or losses
resulting from qualified hedges of firm commitments are deferred and
recognized when the hedged transactions occur, while results of
transactions which do not meet all the criteria specified in SFAS No.
52 are recorded as financial income or expense.
R. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive income,
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the
statements of stockholder's equity and comprehensive income. The SFAS
requires only additional disclosures in the consolidated financial
statements; it does not affect the Company's financial position or
results of operations.
S. STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25
Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its fixed plan stock options. As
such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the
exercise price.
NOTE 2 - SHORT-TERM INVESTMENTS
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Marketable securities (1) 50,456 49,138
Available for sale securities (2) 40,437 -
Short-term deposits 136,726 73,541
Convertible debentures - 177,000
-------------- --------------
227,619 299,679
============== ==============
(1) Classified as "trading". As at December 31, 1999, includes
unrealized holding loss of $11,343 thousand (December 31, 1998
- $1,302 thousand unrealized holding loss).
(2) See Note 5A(3). net unrealized holding gain in amount of $11,171
thousand credited as a comprehensive income directly to the
statement of changes in shareholders equity.
NOTE 3 - INVENTORIES
Consist of the following:
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Raw materials and components 94,077 65,764
Work in process 46,256 53,013
Finished products 45,421 43,887
-------------- --------------
185,754 162,664
============== ==============
NOTE 4 - LONG-TERM BANK DEPOSITS AND RECEIVABLES, NET OF CURRENT MATURITIES
A. CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
RATE AS OF
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1999 1998
----------- -------------- --------------
% $ IN THOUSANDS $ IN THOUSANDS
----------- -------------- --------------
<S> <C> <C> <C>
Long-term trade receivables (1) 7.3% 84,544 40,564
Long-term pledged deposits (2) 5% 62,658 63,903
Others - 341
------------- --------------
147,202 104,808
Less deferred interest income* 5,118 3,128
------------- --------------
Total (3) 142,084 101,680
Less - doubtful accounts 8,150 6,400
Less - current maturities 28,366 12,622
-------------- --------------
105,568 82,658
============== ==============
</TABLE>
The deposits and trade receivables are denominated in U.S. dollars.
* The deferred interest income derived from the difference
between the original amount of the receivables and their net
present value computed, at the transaction date, by the
relevant interest rate.
(1) Long-term trade receivables consist mainly of receivables,
resulting from sales of the Company's products, providing from
3 to 10 years credit commencing on the date of signing of the
sales contract or the finance agreement related thereto. Such
receivables are interest bearing. Principal and interest are
payable in between quarterly to semi-annually payments. These
receivables are partially secured by trade risk insurance
policies.
(2) The deposits are deposited with and pledged to a commercial
bank and are mainly released simultaneously with, and in
amounts equal to, payments on account of the loan extended by
the commercial bank to a foreign commercial bank (hereinafter
"the customer bank"). The commercial bank served the customer
bank as source of financing for the purpose of the sale
transaction with the Company.
(3) December 31, 1999 - includes two customers in the Philippines
accounting for $ 30 and $ 27 million each and 11 other
customers whose indebtedness does not exceed $10 million per
customer.
(4) In the opinion of the Company's management, due to the nature
of the customers and their activities, their financial
performance and, updated financial and business data, previous
business relations and existing trade insurance as stated
above, as well as provision for doubtful debts, the Company has
limited risk exposure in relation to the long-term receivables
as well as the long-term pledged deposits.
B. AGGREGATE MATURITIES ARE AS FOLLOWS:
DECEMBER 31
1999
--------------
$ IN THOUSANDS
--------------
First year (current maturities) 28,366
Second year 25,803
Third year 21,107
Fourth year 18,064
Fifth year 17,531
Thereafter 31,213
--------------
142,084
==============
NOTE 5 - INVESTMENTS
Consist of the following:
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Affiliated companies (A) 3,919 3,202
Available for sale and other companies 1,063 3,711
-------------- --------------
4,982 6,913
============== ==============
A.1. INVESTMENT IN AFFILIATED
COMPANIES COMPRISES:
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Cost of shares 945 4,868
Accumulated losses (651) (5,807)
-------------- -------------
294 (939)
Loans 3,625 4,141
------------- -------------
3,919 3,202
============= =============
A.2. GOODWILL
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Cost - 3,705
Less - Accumulated amortization - 2,103
-------------- --------------
- 1,602
============== ==============
A.3. AFFILIATED COMPANIES
On October 14, 1999, Telegate Ltd., an affiliated company and its
shareholders signed an agreement according to which its shares and
convertible notes that are held by its shareholders, including by the
Company, will be replaced by shares of another Company, shares which
are registered for trading on NASDAQ. Capital gain on amount of
$25,572 thousands was recorded according to accounting treatment for
non similar assets transactions in accordance with APB No. 29
"Accounting for non-monetary transactions" (See Note 17K). The
investment in the shares, which represents 3% of the acquired
company, is accounted as available for sale securities.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
FREEHOLD MACHINERY MOTOR OFFICE LEASEHOLD TOTAL
LAND AND AND VEHICLES FURNITURE AND IMPROVEMENTS
BUILDINGS EQUIPMENT EQUIPMENT
----------- ----------- ----------- ------------- ------------ -----------
$ THOUSANDS $ THOUSANDS $ THOUSANDS $ THOUSANDS $ THOUSANDS $ THOUSANDS
----------- ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
COST
Balance at beginning
of year 34,374 169,044 12,668 10,793 7,809 234,688
Additions from
acquired companies* 6,497 63,532 5,933 8,766 6,868 91,596
Additions 3,996 41,145 4,044 3,100 2,090 54,375
Disposals** - (35,908) (2,037) (2,122) (855) (40,922)
Discontinued operations
adjustment*** - (4,950) (131) (599) (114) (5,794)
----------- ----------- ----------- ------------- ------------ -----------
Balance at end of year 44,867 232,863 20,477 19,938 15,798 333,943
----------- ----------- ----------- ------------- ------------ -----------
ACCUMULATED DEPRECIATION
AND AMORTIZATION
Balance at beginning
of year 3,160 87,832 3,586 6,186 3,033 103,797
Additions from acquired
companies* 227 30,504 2,208 4,119 2,424 39,482
Additions 754 36,109 2,938 1,517 1,726 43,044
Disposals** - (28,994) (1,409) (1,637) (794) (32,834)
Discontinued operations
adjustment*** - (3,993) (93) (403) (80) (4,569)
----------- ----------- ----------- ------------- ------------ -----------
Balance at end of year 4,141 121,458 7,230 9,782 6,309 148,920
----------- ----------- ----------- ------------- ------------ -----------
Undepreciated balance
at December 31, 1999 40,726 111,405 13,247 10,156 9,489 185,023
=========== =========== =========== ============= ============ ===========
Undepreciated balance
at December 31, 1998 31,214 81,212 9,082 4,607 4,776 130,891
=========== =========== =========== ============= ============ ===========
* Including additions from acquired company. (See Note 19).
** Including discontinued operation write-off. (See Note 20).
*** See Note 1A3 and Note 20.
</TABLE>
NOTE 7 - SOFTWARE DEVELOPMENT COSTS
Capitalization and amortization of software development costs during
the years ended December 31, 1999, 1998 and 1997 is comprised as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of year 23,374 25,040 20,670
Capitalization of software development
costs during the year 15,444 12,905 13,962
Amortization and write-off during the
year (25,259) (14,571) (9,592)
-------------- -------------- --------------
13,559 23,374 25,040
============== ============== ==============
</TABLE>
NOTE 8 - OTHER ASSETS
Consists of the following:
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Goodwill, net* 80,010 1,286
Intangible assets related to TTL's
acquisition,net* 60,462 -
Other assets** 8,671 9,979
-------------- --------------
149,143 11,265
============== ==============
* Original amount 162,841 7,373
Less - accumulated amortization 22,369 6,087
-------------- --------------
140,472 1,286
============== ==============
** Including deferred taxes 6,578 7,166
============== ==============
NOTE 9 - LONG-TERM LIABILITIES
A. CONVERTIBLE NOTES
On December 30, 1996 (the "Closing Date"), the Company completed a
private placement of an aggregate amount of $100,000 thousand of
convertible subordinated notes (the "Notes") to three purchasers who
are related parties of the Company (the "Purchasers"). During the
current year $15 million was converted to ordinary shares by one of
the purchaser.
The Notes bear interest at the rate of 4.5% per year, payable
semi-annually, and mature on December 31, 2003.
The Purchasers have the right to convert the Notes into Ordinary
shares of the Company at the rate of one Ordinary Share for each
US$25 of the principal amount of the Notes subject to adjustments as
set forth in the Note Purchase Agreement (the "Agreement") entered
into by the Company and the Purchasers.
In case of certain events occurring as set forth in the Agreement,
the Company has the right to demand the conversion of the outstanding
principal amount of the Notes into Company Ordinary Shares. In such
case, each holder of the Notes has the right to demand repayment in
full of the principal amount of the Notes plus interest accrued and
unpaid thereon.
B. OTHER LONG-TERM LIABILITIES
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Liability for claims(*) 6,000 -
Liability for monetary incentive plan(**) 1,691 3,343
Liability in respect of other assets - 1,000
Deferred income taxes - 816
Loans - 348
Others 79 52
-------------- --------------
7,770 5,559
============== ==============
* See Note 11B(2)
** See Note 12C(5)
NOTE 10 - LIABILITY FOR EMPLOYEE SEVERANCE BENEFITS, NET
A. EMPLOYEES OF THE COMPANY AND OF ITS CONSOLIDATED SUBSIDIARIES IN
ISRAEL (ISRAELI COMPANIES)
Under Israeli law and labor agreements, the Israeli companies are
required to make severance and pension payments to their retired or
dismissed employees and to employees leaving employment in certain
other circumstances.
1.A. The liability in respect of most of its non-senior employees
is discharged by participating in a defined contribution
pension plan and making regular deposits with a pension fund.
The liability deposits with the pension fund is based on the
components prescribed in the existing labor agreement. The
custody and management of the amounts so deposited are
independent of the companies and accordingly such amounts
funded (included in expenses on an accrual basis) and related
liabilities are not reflected in the balance sheet.
B. As to certain employees of TTL (see Note 19) who are subject to
a labor agreement, the provision for severance benefits was
calculated in accordance with the wage component as defined in
the employment contract.
2. In respect of the liability to other employees, individual
insurance policies are purchased and deposits are made with
recognized severance pay funds.
The liability for severance pay is calculated on the basis of
the latest salary paid to each employee multiplied by the
number of years of employment. The liability is covered by the
amounts deposited including accumulated income thereon as well
as by the unfunded provision.
3. The liability for severance pay include provision for the
former TTL employees which are entitled to the retirement plan.
This plan gives the employees the right for early retirement
under unconditional terms. The main right of this plan is to
retire and get, until the formal retirement date, the same
conditions as if they were continuously working.
4. The expenses in respect of severance and pension pay for the
years ended December 31, 1999, 1998 and 1997 are $ 4,477
thousand, $5,301 thousand, and $5,715 thousand respectively.
Details of the provision and amounts funded relating to other
employees:
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
Provision for severance pay 71,626 13,274
Amounts funded including
accumulated income 47,067 10,763
-------------- --------------
24,559 2,511
============== ==============
Withdrawals from the funds may be made only for the purpose of
disbursement of severance pay.
B. EMPLOYEES OF U.S. CONSOLIDATED SUBSIDIARIES (U.S. COMPANIES)
The subsidiaries sponsors a section 401(K) defined contribution plan
or 401(A) plan which permits its employees to invest up to certain
amounts of their compensation (subject to limitation by Internal
Revenue Service Regulations) on a pretax basis in certain
self-directed investment programs. The subsidiaries may, at the
discretion of the Board of Directors, make contributions to the plan.
Company contribution with respect to this plan were $977 thousand,
$743 thousand and $741 thousand in 1999, 1998 and 1997, respectively.
C. EMPLOYEES OF THE REST OF THE WORLD
The provision for severance pay include amount related to employees
in countries other than Israel and U.S. and are calculated in
accordance with their locals' rules, if any, in the country that
operates.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
A. CLAIMS AND POTENTIAL CLAIMS
1. The Company is in discussions with an international technology
company ("technology company") regarding allegations that the
Company is using certain patents owned by the technology
company in its products. The Company is unable to determine at
this time with any certainty the ultimate outcome of these
allegations or their effect, if any, on the Company's financial
position, operating results and business. However, the Company
believes it has meritorious defenses and hopes to reach a
favorable settlement with the technology company, although
there can be no assurance that it will be able to do so.
2. The Company has been in contact with another international
technology company in which that company has raised the
possibility that the Company is utilizing certain of that
company's patents in its products. This allegation relates to
industry standards commonly used, which, according to such
company's claim, rely on such patents. The Company can not at
this stage assess whether there is any merit to this
allegation. The Company estimates that such allegation, even if
found justified, will not have a material adverse affect on the
Company's financial position.
3. Several claims have been submitted against the Company and
against consolidated subsidiaries, resulting from ordinary
business operations. Management of the companies, based mainly
on opinions of their legal advisors, believe that the effect,
if any, of the results of such claims on the financial position
of the Company and the results of its operations will be
insignificant and therefore the provisions which included in
the financial statements in respect thereof are appropriate and
sufficient.
B. TTL ACQUISITION
1. For certain commitments including contingencies that the
Company had burden in the TTL acquisition - see Note 19.
2. In October 1997, an investigation was commenced by the Israeli
Comptroller of Restrictive Trade Practices (hereinafter -
"comptroller") regarding alleged price fixing and non-competitive
practices among TTL, Tadiran and Telrad Telecommunications and
Electronics Industries Ltd., a subsidiary of Koor (Koor is a
significant shareholder of the company and Tadiran). Pursuant to
the Restrictive Trade Practices Law - 1988, criminal charges
may be commenced and a fine may be levied against an entity
or person which has violated the law. In addition, violators
may be liable for damages that are proven as a result of
their violation.
The Department of the Restrictive Trade Practice authority
investigators recommended filing criminal charges against
certain of the entities or persons investigated in connection
with such suspicions. The legal department of the Authority is
currently reviewing the investigation material and the
recommendation of the investigators. This review may take
months and at this time the outcome cannot be predicted.
Tadiran has agreed to indemnify the company from damages up to
$6 million. The Company can not estimate the results of the
investigation before the discussion of the comptroller.
C. LEASE COMMITMENTS
The Company and its consolidated subsidiaries have entered into
several operating lease agreements in Israel and abroad. The
agreements expire on various dates from 2000 to 2021 (some of which
have renewal options) and are in local currencies or linked to the
dollar or to the Israeli Consumer Prince Index.
Future minimum annual rental payments which the Company and its
subsidiaries are committed to pay under the above leases, at rates in
effect at December 31, 1999, are as follows ($ in thousands).
YEAR ENDING DECEMBER 31 $ IN THOUSANDS
----------------------- --------------
2000 11,709
2001 10,973
2002 3,897
2003 2,822
2004 and thereafter 5,012
As to rent expense under the Company's leases, see Note 17I.
D. ROYALTY COMMITMENTS
1. The Company is committed to pay royalties to the Government of
Israel on proceeds from sale of products in the Research and
Development of which the government participated by way of
grants. The royalties are computed at the rates of 2%-4% of the
aggregated proceeds from sale of such products, up to the
amount not exceeding 100% of such grants. As at December 31,
1999 such future commitment is approximately $19.8 million.
For the R&D projects of which the government participated by
way of grants from 1999, the Company is committed to pay
royalties which bear interest.
2. The Company is committed to pay royalties to certain parties
who participated in the development of certain components of
its products. Such royalties are based on sales of products
which incorporated the component and are paid based either on a
fixed rate or price per unit sold or as a rate of the until
sale price.
3. The Company entered during the fourth quarter of 1999 into
partnership, in which it would not have controlled, to develop
certain products. The Company is committed to pay royalties to
the Partnership up to 10% of its sales originating in
Partnership developments up to twice of R&D expenses actually
invested in their new value. The Company has the exclusive
rights to sell the Partnership products and an option to buy
the other partners parts in a prices that was agreed between
the partners (subject to the exercise date of the option by the
Company).
E. FINANCIAL INSTRUMENTS
1. Off-balance sheet contracts
The geographical distribution of the Company's operations gives
rise to exposure to market risks mainly from changes in foreign
currency exchange rates against the dollar. Financial
instruments are utilized by the Company to reduce these risks.
The Company enters into forward exchange contracts and
purchases currency options to hedge existing non-dollar assets
and liabilities, certain firm sale and purchase commitments, as
well as anticipated sale and purchase transactions.
As at December 31, 1999, the Company has purchased currency
futures contracts and foreign exchange options, for various
lengths of time, ending 2001 as a hedge against sales contracts
receivable, firm commitments and anticipated transaction as
follows:
Forward exchange contracts
- Obligation to sell Pounds Sterling 37,500 thousand for a
total amount of $61,008 thousand.
- Obligation to sell Euro currency 25,790 thousand for a
total amount of $ 26,480 thousand.
- Obligation to sell Dollar Singapore 2,102 thousand for a
total amount of $1,279 thousand.
In addition, the Company entered into certain put and call
options strategies for buying $ 74,752 thousand for Euro
currency 73,000 thousand.
The fair value and the carrying amount of the off-balance sheet
instrument are $1,342 thousand and $1,800 thousand respectively
(1998 - $2,387 thousand and $144 thousand, respectively).
The fair value of foreign currency contracts is estimated using
quoted exchange rate futures and quoted market prices (option).
2. Concentrations of credit risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally
of cash investments, currencies futures contracts and trade
accounts receivable.
The Company maintains cash and cash equivalents, short and
long-term investments, future contracts and certain other
financial instruments with various major financial
institutions.
These major financial institutions are located throughout
Israel, U.S.A. and Europe, and the Company's policy is designed
to limit exposure to any one institution. The Company performs
periodic evaluations of the relative credit standing of these
financial institutions and the value of business transacted
with them.
With respect to trade accounts receivable, credit risk is
limited due to the large number and geographical dispersion of
the Company's customer base, as well as allowance for doubtful
accounts which provided. With respect to long-term receivables
(including deposits) (see Note 4), the Company believes that
there is limited credit risk exposure since these customers are
large telecommunications providers which operates in countries
where the telecommunication market is anticipated to growth.
3. Fair value of financial statements
In management estimation, except for off-balance sheet
financial instruments (see E1 above) the estimated fair value
of the Company's financial instruments did not materially
differ from their respective carrying amount as at December 31,
1999 and 1998.
Considerable judgement is required in determining the estimates
of fair value. The management used certain estimates provided
herein, that are not necessarily indicative of amounts that
could be realized in a current market exchange.
- Cash and cash equivalents, short-term investments,
trading account assets, other accounts receivable, trade
payables, other payables, advances from customers:
The carrying amounts approximate the fair value because
of the short maturing of those instruments.
- Long-term receivables or debt:
Book values approximate fair value since the average
interest rate in relation to long-term receivables or
debt are not materially difference to those which
applicable or offer at the balance sheet date.
F. CAPITAL EXPENDITURE COMMITMENTS
The Company and its consolidated subsidiaries in Israel are incurring
capital expenditures pursuant to "Approved Enterprise" programs. At
December 31, 1999, the Companies are committed to invest
approximately $38,589 thousand pursuant to these programs. Completion
of such investment programs will provide tax benefits in the future
(see Note 15A1).
G. PURCHASE COMMITMENTS
At December 31, 1999, commitments for purchase of materials and for
acquisition of property, plant and equipment aggregated $ 107,097
thousand (December 31, 1998 - $82,531 thousand).
H. GUARANTEES
1. At December 31, 1999, the Company has granted guarantees to
third parties in the sum of $3,131 thousand mainly as
guarantees for tenders which the Company has attained or in
which it participates.
2. The Company also maintains certain third-party guarantees
(primarily with banks) to support its performance obligations
under customer contracts. These guarantees approximated $31,859
thousand.
NOTE 12 - SHAREHOLDERS' EQUITY
A. AUTHORIZED, ISSUED AND OUTSTANDING SHARES
AUTHORIZED
-------------------------
DECEMBER 31 DECEMBER 31
1999 1998
----------- -----------
NUMBER OF SHARES
-------------------------
(Each NIS 0.12 par value per share) 200,000,000 200,000,000
=========== ===========
1. The Company's shares (each NIS 0.12 par value) are traded in
the United States on the over the counter market and are listed
on the NASDAQ.
2. For details of the issued, paid up share capital and shares
hold by subsidiary, see Statement of Changes in shareholders'
Equity.
3. At the beginning of 1999 the Company issued 13,966,480 ordinary
shares to TTL shareholder (see Note 19), and 600,000 ordinary
shares in connection with the conversion of convertible note
(see Note 9), as well as 815,102 shares upon exercise of
employee options.
B. DIVIDENDS
Dividends may be paid by the Company only out of the retained
earnings. There are no restrictions on the transfer of funds to
foreign shareholders for the payment of dividends.
C. SHARE INCENTIVE AND STOCK OPTION PLANS
1.a ECI PLAN
The Company's current Key Employee Share Incentive Plan (the
"ECI Plan") was adopted by the shareholders at the Annual
General Meeting held on August 29, 1991. The ECI Plan will
expire on December 31, 2001.
The ECI Plan provides that options may be granted to any
employee, consultant or contractor of the Company pursuant to
(a) one or more sub-plans designed to benefit from the
provisions of Section 102 of the Israeli Income Tax Ordinance
(New Version) 1961 and (b) any other share incentive plan
approved by the Board of Directors of the Company.
Under the terms of the ECI Plan, the Company is authorized to
grant options for a total of 5,800,000 shares, subject to
anti-dilution adjustment. The option awards are personal and
non-assignable and terminate automatically upon termination of
employment (except for approved retirement or termination
caused by death or disability). Until the balance sheets date
options were given only to employees.
The exercise price per share under the option awards is to be
determined on the date of grant provided that such price shall
not be less than 80% of the fair market value on such date.
1.b Stock options under the ECI Plan are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997
---------------- ---------------- ----------------
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
---------------- ---------------- ----------------
<S> <C> <C> <C>
Total number authorized 5,800,000 5,800,000 3,800,000
Options unexercised at beginning
of year (2,387,750) (1,911,650) (1,450,050)
Exercised till beginning of year (1,466,582) (1,176,532) (621,900)
Granted (1,251,000) (872,650) (1,200,000)
Cancelled 120,000 106,500 183,768
---------------- ---------------- ----------------
Authorized for future grant at
end of year 814,668 1,945,668 711,818
================ ================ ================
Exercised during the current year* 328,900 290,050 554,632
================ ================ ================
* Average price of options
exercised during the year $ 16.89 $ 15.22 $ 16.47
================ ================ ================
Options unexercised at end of year 3,189,850 2,387,750 1,911,650
================ ================ ================
Options may be exercised as
follows (1):
First year or thereafter 1,364,100 1,061,100 548,900
Second year or thereafter 1,130,750 709,900 862,250
Third year or thereafter 695,000 541,750 341,750
Fourth year or thereafter - 75,000 158,750
---------------- ---------------- ----------------
3,189,850 2,387,750 1,911,650
================ ================ ================
</TABLE>
(1) To be paid in NIS based on the rate of exchange of the dollar on
the date of payment as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
---------------- ---------------- ----------------
<S> <C> <C> <C>
$ 7.60 per share 8,000 8,000 16,000
$ 7.61 per share 5,600 6,800 8,800
$14.02 per share 17,000 22,000 108,750
$14.93 per share 214,750 264,750 366,000
$15.01 per share 31,200 92,800 117,600
$15.19 per share 4,000 5,000 15,000
$17.00 per share 263,900 444,500 531,500
$18.70 per share 29,250 51,750 113,000
$20.81 per share 571,000 635,000 635,000
$21.00 per share 445,000 470,000 -
$24.25 per share 40,500 45,500 -
$26.00 per share 150,000 150,000 -
$26.38 per share 30,000 - -
$29.53 per share 1,110,000 - -
$30.00 per share 161,500 68,500 -
$31.00 per share 11,000 -
$32.00 per share 97,150 123,150 -
---------------- ---------------- ----------------
3,189,850 2,387,750 1,911,650
================ ================ ================
</TABLE>
Shares covered by unexercised options have no voting rights or
rights to cash dividends.
2.a ECI U.S. PLAN
At the Annual General Meeting held on August 29, 1991, the
shareholders also approved a Key Employee Incentive stock Option
Plan for the Company's wholly-owned U.S. subsidiary, ECI
Telecom Inc. (the "ECI U.S. Plan). Under the ECI U.S. Plan,
any officer, management employee or other key employee of
ECI Telecom Inc. may participate in the ECI U.S. Plan.
Under the terms of the ECI U.S. Plan, the Company is authorized
to grant options for a total of 400,000 shares, subject to the
anti-dilution adjustments. The exercise price per share under
the option awards is to be determined on the dates of grant,
provided that (1) in the case of options which qualify as
"incentive stock options" as defined in the Code, such price
shall not be less than the fair market value on such date, and
(2) in the case of options which do not qualify as incentive
stock options, such price shall not be less than 80% of the
fair market value on such date.
2.b Stock options under the ECI U.S. Plan are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997
----------- ----------- -----------
NUMBER OF SHARES
---------------------------------------
<S> <C> <C> <C>
Total number authorized 400,000 400,000 200,000
Options unexercised at beginning
of year (119,500) (101,500) (44,500)
Exercised till beginning of year (58,250) (44,000) (24,000)
Granted during the year (78,000) (60,000) (83,000)
Cancelled during the year 9,500 27,750 6,000
----------- ----------- -----------
Available for future grants at
end of year 153,750 222,250 54,500
=========== =========== ===========
Exercised during the current year* 17,500 14,250 20,000
=========== =========== ===========
* Average price of options
exercised during the year $ 17.24 $ 18.7 $ 16.14
=========== =========== ===========
Options unexercised at end of year 170,500 119,500 101,500
=========== =========== ===========
Options may be exercised as
follows (1):
First year or thereafter 75,500 70,000 17,750
Second year or thereafter 60,000 29,250 52,750
Third year or thereafter 35,000 20,250 31,000
----------- ----------- -----------
170,500 119,500 101,500
(1) To be paid as follows:
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997
----------- ----------- -----------
NUMBER OF SHARES
---------------------------------------
$17.00 per share 56,000 74,000 77,000
$18.70 per share 2,500 5,000 24,500
$23.88 per share 6,000 - -
$26.37 per share 7,000 - -
$27.96 per share 2,000 - -
$28.12 per share 15,000 - -
$29.12 per share 17,000 - -
$31.00 per share 30,000 - -
$32.00 per share 34,000 40,500 -
$32.94 per share 1,000 - -
----------- ----------- -----------
170,500 119,500 101,500
=========== =========== ===========
</TABLE>
3.a TTL PLAN
As a result of the Merger with TTL, the Company has options
outstanding which were granted before the Merger under plans
established by TTL as follows:
During 1996, TTL implemented the Tadiran Telecommunications
Ltd. 1996 Equity Incentive Plan ("the 1996 Plan") and granted
options to certain employees of TTL thereunder. In addition,
during 1997, TTL adopted a second employee option plan similar
to the 1996 Plan ("the 1997 Plan") and granted options to
certain employees of TTL thereunder.
Both plans ("the TTL Plan") provide that from the time an
optionee is entitled to exercise the options, he or she shall
have the right to exercise all or part of the options under the
expiration of the fifth anniversary of the date on which the
option was granted ("the Grant Date"). All of the options
expire on the fifth anniversary of their respective Grant
Dates.
Pursuant to the Agreement and Plan of Merger among the Company
and TTL options granted pursuant to the 1996 and 1997 Plans
were converted into fully vested options to purchase ordinary
shares of the Company. The exchange ratio for the options was
the same as that for shares of TTL held before the Merger; that
is, immediately following the Merger, optinees under the TTL
Plans would receive 0.55866 ordinary shares of ECI for each
ordinary share of TTL they would have received on exercise of
their options. As a result of the Merger, optionees under the
TTL Plans hold options for the purchase of 691,779 shares of
the Company.
Before the closing of the Merger, optionees were given the
opportunity to participate in an arrangement called an
"Exchange Program". Optionees choosing to participate in the
Exchange Program exercised their options and were given the
option ("the Put Option") to sell those shares to a trustee
(the same trustee with which the options were deposited in
accordance with the terms of the Plans) at a price of $39.35
per share ("the Put Price"). The Put Option is exercisable
during the three-month period beginning March 16, 2000. In
order to pay the Put Price, the trustee is to sell the related
shares to the Company at the market price on the Nasdaq, but no
less than $32.90. To the extent that the net proceeds from such
sale are equal to or less than $38.35, Tadiran has agreed to
pay the trustee up to a maximum of $5.45 per share and the
Company has agreed to pay up to $1 per share.
In accordance with the terms of the Merger Agreement, any
shares of the Company acquired as a result of exercising
options received under the TTL Plans (whether or not acquired
pursuant to the Exchange Program), the proceeds from the sale
of such shares and the options themselves may not be released
to any optionee until March 16, 2000.
No additional options are authorized to be granted under the
TTL Plans.
3.b Stock Option under the TTL Plan are as follows:
DECEMBER 31
1999
NUMBER OF
SHARES
------------
Total number authorized and granted 691,779
Options exercised (under the exchange program) (468,702)
------------
Options outstanding and exercisable at end of year 223,077
============
Price range of options outstanding at end of year $23.16-36.47
============
Average price of options exercised during year $ 26.70
============
4.a FAIR VALUE METHOD
The difference between the quoted market price of the shares on
the date of the grant of the options and the exercise price of
such options is charged to income over the expected vesting
period, generally over a period of 3 years, in accordance with
the methods prescribed by APB 25 "Accounting for stocks Issued
to Employees".
4.b In October 1995 the Financial Accounting Standards Board (FASB)
issued FAS 123 "Accounting for Stock-based Compensation" which
establishes financial accounting and reporting standards for
stock-based compensation plans. The statement defines a fair
value based method of accounting for an employee stock option.
In 1997 the Company adopted the disclosure provisions of FAS
123 but opted to remain under the expense recognition provision
of "Accounting for Stock Issued to Employees", as described in
4.a above.
As required by SFAS 123, the Company has determined the
weighted average fair value of stock-based arrangements grants
during 1999 to be $ 9.03. The fair values of stock based
compensation awards granted were estimated using the "Black -
Scholes" option pricing model with the following assumptions.
OPTION EXPECTED RISK FREE
YEAR OF GRANT TERM VOLATILITY INTEREST RATE
------------- ------ ---------- -------------
1999 5 58.3 6.00%
1998 5 52.5 5.25%
1997 5 47.0 6.00%
Had the compensation expenses for stock options granted under
the Company's stock option plans been determined based on fair
value at the grant dates consistent with the method of FAS 123,
the Company's net income and earnings per share would have
reduced to the pro forma amount below:
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998 1997
------- ------- -------
Net income ($ in thousands)
As reported 165,521 156,162 132,440
Pro forma 154,012 150,585 129,640
Basic earnings per share ($)
As reported 1.82 2.03 1.73
Pro forma 1.69 1.96 1.69
Diluted earnings per share ($)
As reported 1.77 1.97 1.70
Pro forma 1.65 1.90 1.67
The above pro forma amounts relate only to options granted
since the beginning of 1995.
5. OTHER PLANS
During 1998 and 1997 the Board of Directors approved a general
monetary incentive plan, according to which certain company
employees, to be determined by Management, will receive a
certain number of incentive units (Phantom shares).
Under this plan the holder of an incentive unit will be
entitled to a cash bonus, equal to the difference between a
base price of the Company shares and the market price of the
shares on the date of exercise.
Each such portion will be exercisable in three equal parts, at
the end of two, three and four years respectively from date of
grant of the relevant units.
As of December 31, 1999, a total of 1,096,350 incentive units
were held by employees. The cost of the incentive unit plan is
recognized by the Company over the period of the plan.
A provision of $1,533 thousands related to short-term grants
and $1,691 thousand related to long-term (in 1998 $1,494
thousand and $3,309 thousand respectively).
NOTE 13 - BALANCES IN CURRENCIES OTHER THAN THE DOLLAR
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------------------ --------------------------------------------------
ISRAELI CURRENCY FOREIGN CURRENCY ISRAELI CURRENCY FOREIGN CURRENCY
------------------- ----------------------- ------------------- ----------------------------
LINKED(*) UNLINKED EURO POUNDS OTHERS LINKED(*) UNLINKED DEUTSCHE POUNDS OTHERS
STERLING MARKS STERLING
--------- -------- ------ -------- ------ --------- -------- -------- -------- ------
$ IN THOUSANDS
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Trade 8,721 22,004 24,895 21,468 11,826 - 5,910 14,652 21,471 9,995
receivables
Other current assets 24,617 17,042 14,210 2,603 1,986 9,695 16,294 6,448 8,935 3,653
--------- -------- ------ -------- ------ --------- -------- -------- -------- ------
33,338 39,046 39,105 24,071 13,812 9,695 22,204 21,100 30,406 13,648
========= ======== ====== ======== ====== ========= ======== ======== ======== ======
LIABILITIES
Trade payables 709 66,679 646 782 2,836 - 30,444 1,634 651 4,343
Other current liabilities - 56,859 1,982 5,222 7,556 8 33,704 2,896 7,571 6,808
Long-term liabilities
(including current
maturities) 22,839 - - - - 522 2,413 98 - -
--------- -------- ------ -------- ------ --------- -------- -------- -------- ------
23,548 123,538 2,628 6,004 10,392 530 66,561 4,628 8,222 11,151
========= ======== ====== ======== ====== ========= ======== ======== ======== ======
* Linked to the Israeli CPI.
</TABLE>
NOTE 14 - CHARGES (ASSETS PLEDGED)
Some of the Company's existing and future indebtedness to the certain
Israeli banks are secured by Negative Pledges for unlimited amounts
on all of the Company's assets in accordance with the terms of the
Negative Pledges, the Company is committed to maintain certain
financial convenants with respect to shareholders' equity, the ratio
of shareholders' equity to total assets, current ratio and operating
income as a percentage of sales. As of December 31, 1999, the Company
was in compliance with all such convenants.
As to deposit pledged - see Note 4A.
As to restricted short-term investments - see Note 17B.
NOTE 15 - TAXES ON INCOME
A. TAX PROGRAMS UNDER VARIOUS ISRAELI TAX LAWS:
1. A. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959.
Pursuant to the above Law the Company and its Israeli
subsidiaries are entitled to tax benefits relating to
investments in "Approved Enterprises" in accordance with
letters of approval received.
A major part of the production facilities of the Company
and its Israeli subsidiaries has been granted the status
of an "Approved Enterprise" under the above Law.
According to the Law, the Company is entitled to a tax
benefit, which grants her a reduced tax rate of 20% for a
specific period (Alternative A). The Company's "Approved
Enterprise" is subject to zero tax rates under the
"Alternative Benefit Method" and reduced tax rates
(currently - 20%) based on the level of foreign
ownership, for specified periods (alternative B), all of
the approved enterprise which currently entitles the
Company to benefits is under alternative B.
The period of benefits in respect of most of the
Company's production facilities will terminate in the
years 2000-2010. The Company's current investments in
development facilities are made under new approvals.
In 1999, approximately 70% of the cost of production
facilities of the Company represented approved enterprise
facilities (1998 - 62%).
In the event of distribution of cash dividends from
income taxed at zero rate, a reduced tax rate in respect
of the amount distributed would have to be paid. As of
December 31, 1999, a distribution of all accumulated
profits in excess of approximately 139 million from
retained earnings as a cash dividend would result in an
additional tax expense which would approximate 99 million
as the tax rate which applies to such distribution would
be 20%. Effectively such dividend distribution would be
reduced by the amount of the tax. The benefits are
related to the "approved Enterprise" according to the
turnover growth from plan to plan.
In 1999 the tax authority published instructions that
allowed R&D companies under some conditions to reduce the
base turnover (which entitled to 36% tax rate) by 10% for
each year beginning 1996 till year 2001. Those
instructions are reducing the effective tax rate due to
reduced turnover under full tax rate.
B. According to the income tax ordinance in Israel, TTL ceased
to be an independent taxpayer, all its activities are
done with the framework of the Company. The income tax
rate applicable to TTL facilities attributed income to
the company is in the final stage of discussion with
the Israeli tax authorities' opinion. In the financial
statements, the income tax rate is based on the
Company's suggestion as submitted to the tax
authorities and represents management's estimate of the
effective tax rate will be agreed with the tax
authorities.
2. Measurement of results for tax purposes under the Income Tax Law
(Inflationary Adjustments), 1985.
Under this law, operating results for tax purposes are measured
in real terms, in accordance with the changes in the Israeli
CPI, or in the exchange rate of the dollar - for a "Foreign
Investors' Company", as defined by the Law for the
Encouragement of Capital Investments, 1959. The Company and its
Israeli subsidiaries elected to measure their operating results
on the basis of the changes in the Israeli CPI. As a result the
Company and its subsidiaries are entitled to deduct from their
taxable income an "equity preservation deduction" (which
partially compensates for the decrease in the value of
shareholders' equity resulting from the annual rise in the
Israel CPI).
3. Tax benefits under the Law for the Encouragement of Industry
(Taxation), 1969.
The Company is an "Industrial Company" as defined by this Law,
and as such is entitled, among other benefits, to claim
accelerated depreciation of machinery and equipment as
prescribed by regulations issued under the inflationary
adjustments tax law.
4. Tax rates applicable to income from other sources in Israel.
Income not eligible for "Approved Enterprise" benefits as
mentioned above is taxed at the ordinary tax rate of 36%.
B. NON-ISRAELI SUBSIDIARIES
Non Israeli subsidiaries are taxed based upon tax laws in their
countries of residence.
C. TAXES ON INCOME FROM CONTINUING OPERATIONS
Taxes on income included in the consolidated statement of income
comprise the follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
Current taxes relating to-
The Company and its Israeli
subsidiaries 4,576 2,945 2,660
Foreign subsidiaries 2,190 12,308 5,808
-------------- -------------- --------------
6,766 15,253 8,468
-------------- -------------- --------------
Deferred taxes relating to -
The Company and its Israeli
subsidiaries 422 (612) 83
Foreign subsidiaries (79) (1,786) (997)
-------------- -------------- --------------
343 (2,398) (914)
-------------- -------------- --------------
7,109 12,855 7,554
============== ============== ==============
</TABLE>
D. INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
The Company and its Israeli
subsidiaries 178,728 169,455 141,075
Foreign subsidiaries (2,373) 25,957 12,365
-------------- -------------- --------------
176,355 195,412 153,440
============== ============== ==============
</TABLE>
E. RECONCILIATION OF THE STATUTORY TAX EXPENSE TO ACTUAL TAX EXPENSE
A reconciliation of the statutory tax expense, assuming all income is
taxed at the statutory rate (see A4 above) applicable to the income
of companies in Israel, and the actual tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
Income from continuing operations
as reported in the consolidated
statements of income 176,355 195,412 153,440
============== ============== ==============
Theoretical tax on the above amount (36%) 63,488 70,348 55,238
Tax effect of non-Israeli subsidiaries 2,752 6,213 7,377
Tax benefit arising from the "Approved
Enterprise" (60,288) (90,907) (60,120)
Increase in taxes resulting from
permanent differences, (mainly
goodwill) net 4,386 531 522
Adjustments arising from differences
in the basis of measurement for tax
purposes and for financial reporting
purposes and other* (3,229) 26,670 4,537
-------------- -------------- --------------
Taxes on income for the reported year 7,109 12,855 7,554
============== ============== ==============
</TABLE>
* Resulting from the difference between the changes in the
Israeli CPI (the basis for computation of taxable income of the
Company and its Israeli subsidiaries - (see A2 above) and the
exchange rate of Israeli currency relative to the dollar.
F. COMPONENTS OF DEFERRED INCOME TAX
(1) At December 31, 1999 and December 31, 1998, deferred income tax
consists of future tax assets (liabilities) attributable to the
following:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards 3,626 4,215
Capital loss carrryforward 46,800 2,160
Operating loss carryforward 18,033 9,497
Vacation pay accruals and severance pay fund 4,393 2,277
Depreciation 2,923 2,068
Inventory obsolescence 5,187 2,312
Eliminated inter company profits* 1,628 1,813
Loss on disposition of discontinued operations 11,296 -
Other 4,115 1,636
-------------- --------------
Gross total deferred tax assets 98,001 25,978
Valuation allowance for deferred tax assets** (78,249) (10,513)
-------------- --------------
Net deferred tax assets 19,752 15,465
-------------- --------------
Deferred tax liabilities:
Software development costs (6,138) (3,965)
Depreciation - (1,266)
Amortization of intangibles (955) (1,018)
Other - (79)
-------------- --------------
Net deferred tax liabilities (7,093) (6,328)
-------------- --------------
Deferred income tax, net*** 12,659 9,137
============== ==============
* This deferred taxes relates to intercompany transactions
that have no impact on the consolidated income statement.
** The valuation allowance is in respect of capital loss
carryforward, depreciation related to foreign property
and miscellaneous tax credits. Management believes that
it is more likely than not that a portion of the deferred
tax asset will not be realized and the net deferred tax
will be realized.
*** Including changes from acquired companies and
classification of balances related to discontinued
operations in the amount of $3,179 thousands.
</TABLE>
(2) At December 31, 1999, the Company had, for tax purposes,
federal net operating loss carryforward, capital loss
carryforward, general business and minimum alternative
caryforwards of $50,550 thousand, $130,075 thousand, $2,740
thousands and $886 thousand, respectively. The capital loss
carryforwards expire in 2006 . The general business and other
credit carryforwards expire over the period 2000 through 2009
the federal net operating loss carryforward expire over 15
years beginning in 2011 and the alternative minimum tax
carryforward remains available indefinitely.
G. TAX ASSESSMENT
Final tax assessments have been received by some of Israeli companies
through the 1992 tax year.
NOTE 16 - RELATED PARTY TRANSACTIONS
Related parties are comprised of principal shareholders (10% and up
of the Company's share capital) and their subsidiaries and affiliates
as well as affiliates of the Company.
Transactions with related parties are mainly as follows:
a. Sales of certain of the Company's products and expenses related to
such sales.
b. Interest payable on convertible capital notes and other credits.
c. Buildings and rentals.
All transactions with related companies were in the ordinary course
of business and at terms identical to those applied to transactions
with other customers or suppliers.
A. BALANCE DUE TO OR FROM RELATED PARTIES:
DECEMBER 31 DECEMBER 31
1999 1998
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
ASSETS:
Trade receivables 9,700 9,495
Other receivables 2,760 2,254
Convertible debentures - 177,000
Loans to affiliates (Note 5) 3,625 4,141
LIABILITIES:
Trade payables 47 686
Other payables 2,173 741
Long-term loan, including
current maturities - 522
Convertible note 85,000 100,000
B. INCOME FROM, AND EXPENSES TO, RELATED PARTIES:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
Sales 16,950 22,957 7,048
Cost of sales 14,311 11,331 516
Selling and marketing expenses 2,912 2,755 2,280
General and administrative expenses 141 40 522
Financial expenses 3,938 4,677 5,670
Financial income 412 251 144
</TABLE>
C. PURCHASE OF EQUIPMENT 35 16 125
D. The Company has arm's-length banking relationships with a
number of Israeli Banks, one of which is a substantial
shareholder of a significant shareholder. The amounts stated
above do not include transactions with this bank.
NOTE 17 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
BALANCE SHEET:
A. CASH AND CASH EQUIVALENTS
1. Including deposits of $203,325 thousand at December 31, 1999
(December 31, 1998 - $104,958 thousand).
2. As to concentration of risk - see Note 11E2.
B. SHORT-TERM INVESTMENTS
Including restricted balances of $5,441 thousand at December 31, 1999
(December 31, 1998 - $4,079 thousand).
C. TRADE RECEIVABLES
1. Net of provision for doubtful accounts of $11,861 thousand at
December 31, 1999 (December 31, 1998 - $5,772 thousand).
2. Substantially all of the Company's sales are to large
telecommunications service providers around the world.
Historically, the Company's uncollectable accounts receivable
have not been significant, and typically the Company does not
require collateral for its receivables.
D. SHORT-TERM CREDITS AND CURRENT MATURITIES OF LONG-TERM DEBT
Consist of the following:
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
In U.S. dollars* 137 120,000
In Chinese Yuan - 966
In Israeli currency - non-linked - -
Current maturities of long-term debt - 174
-------------- --------------
137 121,140
============== ==============
* At December 30, 1998, the Company took a bank loan for
financing the investment in convertible debentures of TTL.
E. OTHER PAYABLES AND ACCRUED LIABILITIES
Consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1999 1998
-------------- --------------
$ IN THOUSANDS $ IN THOUSANDS
-------------- --------------
<S> <C> <C>
Employees and social benefits 56,535 41,242
Chief Scientist 13,071 1,541
Deferred revenue - 6,893
Tax authorities 17,845 5,770
Commissions payable 34,131 22,691
Advances from customers 1,855 2,655
Proposed dividend 4,505 3,848
Warranty accrual 9,186 3,136
Provisions related to TTL's acquisition (see Note 19) 9,312 -
Other payables and accrued liabilities 28,869 10,625
-------------- --------------
175,309 98,401
============== ==============
</TABLE>
F. COST OF REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
Materials and components consumed 367,345 278,203 183,506
Salaries, wages and employed benefits 97,089 50,461 47,915
Depreciation and amortization 28,891 10,713 8,214
Other manufacturing and other service costs 22,589 12,952 7,947
-------------- -------------- --------------
515,914 352,329 247,582
Decrease (increase) in inventories of
work in process and finished products 3,821 (35,738) 25,561
-------------- -------------- --------------
519,735 316,591 273,143
============== ============== ==============
<CAPTION>
G. RESEARCH AND DEVELOPMENT COSTS, NET
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
Expenses incurred 155,494 101,665 71,616
Less - grant participations (see Note 11D) 30,347 23,018 20,290
125,147 78,647 51,326
============== ============== ==============
<CAPTION>
H. SELLING AND MARKETING EXPENSES
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- -------------- --------------
<S> <C> <C> <C>
Salaries and employee benefits 63,603 46,309 27,545
Agents' commissions 34,348 10,289 12,619
Royalties to Chief Scientist and others 20,437 14,856 9,696
Advertising and exhibitions 6,041 3,076 2,503
Foreign travel 16,166 6,273 5,928
Marketing, selling and other expenses 39,818 26,786 21,088
-------------- -------------- --------------
180,413 107,589 79,379
============== ============== ==============
</TABLE>
I. GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- --------------- --------------
<S> <C> <C> <C>
Salaries and employee benefits 39,641 19,096 15,093
Rent and maintenance of premises 1,557 5,310 4,198
Other administrative and general expenses 22,824 14,344 8,949
-------------- --------------- --------------
64,022 38,750 28,240
============== =============== ==============
<CAPTION>
J. FINANCIAL INCOME, NET
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- --------------- --------------
<S> <C> <C> <C>
FINANCIAL EXPENSES:
On long-term debt 4,539 4,568 4,575
Interest and bank charges 2,419 1,473 3,016
Exchange rate differences (see Note 1A5) 2,664 1,966 -
-------------- --------------- --------------
9,622 8,007 7,591
============== =============== ==============
FINANCIAL INCOME:
Interest mainly on bank deposits and
other receivables 17,167 14,516 12,376
Exchange rate differences (see Note 1A5) 7,032 202 59
Gain on sale and revaluation of
marketable securities 4,176 1,824 692
-------------- --------------- --------------
28,375 16,542 13,127
============== =============== ==============
</TABLE>
K. CAPITAL GAIN AND OTHER INCOME, NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- --------------- --------------
<S> <C> <C> <C>
Gain from issuance of shares by 29,734 - -
subsidiary (1)
Gain from realization of an affiliated
company (2) 25,572 - -
Gain (loss) from sale of property and
equipment, net (3) (2,923) 27 341
Other income (expenses), net (4) (1,491) (80) (2,708)
-------------- --------------- --------------
Total other income (expenses), net 50,892 (53) (2,367)
============== =============== ==============
</TABLE>
(1) In October 1999, ECtel Ltd., a wholly owned subsidiary, which
mainly provides solutions for fraud detection, quality
monitoring of networks and interconnect billing, completed an
initial public offering in NASDAQ U.S. stock exchange, in which
it raised a net sum of $43.2 million. As a result of the
initial public offering, holdings in ECtel declined to 75%.
(2) See Note 5A3.
(3) In December 1999, agreement was signed with SCI Systems Inc.
(hereinafter - "SCI") to purchase TTL's Manufacturing Plant
(named "Shemer"). SCI is one of the world's largest providers
of electronics manufacturing services. The Shemer facility
produces printed circuit board assemblies and other products
for the Company and provided related services. The agreements
also include a multi-year supply agreement in which the Company
will subcontract part of its manufacturing activities to SCI
according to cost plus method.
(4) Include expenses amounting to $651 thousand, deriving from
selling certain trade account receivables, to an unaffiliated
financial institute ("the Purchaser"). The Company will not be
liable for any recourse, nevertheless, it will continue to
service, administer and collect the receivables on behalf of
the purchaser. In 1999, the impact of the above transaction
reduced trade receivables in the consolidated balance sheets
and increased cash flows from operating activities in the
consolidated statement of cash flows by $44,612 thousand.
L. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
$ IN THOUSANDS $ IN THOUSANDS $ IN THOUSANDS
-------------- --------------- --------------
<S> <C> <C> <C>
EXPENSES:
Maintenance and repairs 12,951 8,338 8,064
Depreciation of property, plant and 42,988 25,418 21,275
equipment
Taxes (other than income taxes) 2,747 3,003 2,125
Rent 12,542 8,685 8,220
Advertising costs 6,144 4,968 3,192
Royalties 20,625 15,045 10,038
</TABLE>
M. EARNINGS PER SHARE ("EPS")
Under SFAS No. 128 "Earnings per share" and "basic earnings per
share", is calculated based upon the weighted average number of
common shares actually outstanding, and "diluted earnings per share"
is calculated based upon the weighted average number of common
shares, common equivalent shares, and other convertible securities
outstanding.
Following are the details of the basic and diluted EPS:
1. EPS for continuing operations
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------- --------------------------------- ---------------------------------
INCOME FROM NUMBER OF PER SHARE INCOME FROM NUMBER OF PER SHARE INCOME FROM NUMBER OF PER SHARE
CONTINUING SHARES AMOUNT CONTINUING SHARES AMOUNT CONTINUING SHARES AMOUNT
OPERATIONS OPERATIONS OPERATIONS
------------ ---------- --------- ----------- --------- --------- ----------- --------- ---------
$ IN $ IN $ IN $ IN $ IN $ IN $ IN $ IN $ IN
THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS
------------ ---------- --------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS 165,521 91,148 1.82 173,812 76,787 2.26 143,712 76,375 1.88
========= ========= =========
Effect of dilutive
securities:
Employee stock options 893 - 776 - 415
Convertible notes 3,822 3,466 4,500 4,000 4,500 4,000
------------ ---------- ----------- --------- ----------- ---------
Diluted EPS 169,343 95,507 1.77 178,312 81,563 2.19 148,212 80,790 1.84
============ ========== ========== =========== ========= ========= =========== ========== =========
</TABLE>
2. EPS for discontinued operations
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------- --------------------------------- ---------------------------------
LOSS FROM NUMBER OF PER SHARE LOSS FROM NUMBER OF PER SHARE LOSS FROM NUMBER OF PER SHARE
DISCONTINUE SHARES AMOUNT DISCONTINUE SHARES AMOUNT DISCONTINUE SHARES AMOUNT
OPERATIONS OPERATIONS OPERATIONS
----------- --------- --------- ----------- --------- --------- ----------- --------- ---------
$ IN $ IN $ IN $ IN $ IN $ IN $ IN $ IN $ IN
THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS
----------- --------- --------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS (63,002) 91,148 (0.70) (17,650) 76,787 (0.23) (11,272) 76,375 (0.15)
========= ========= =========
Effect of dilutive
securities:
Employee stock options 893 - 776 - 415
Convertible notes - 3,466 - 4,000 - 4,000
------------ ---------- ----------- --------- ----------- ---------
Diluted EPS (63,002) 95,507 (0.66) (17,650) 81,563 (0.22) (11,272) 80,790 (0.14)
----------- --------- --------- ----------- --------- --------- ----------- --------- ---------
</TABLE>
3. EPS for Net income
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- --------------------------------- -----------------------------------
NET NUMBER OF PER SHARE NET NUMBER OF PER SHARE NET NUMBER OF PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARE AMOUNT
---------- --------- --------- ---------- --------- --------- ---------- --------- -----------
$ IN $ IN $ IN $ IN $ IN $ IN $ IN $ IN $ IN
THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS
----------- --------- --------- ----------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS 102,519 91,148 1.12 156,162 76,787 2.03 132,440 76,375 1.73
========= ========= ==========
Effect of dilutive securities:
Employee stock options 893 - 776 - 415
Convertible notes 3,822 3,466 4,500 4,000 4,500 4,000
Diluted EPS 106,341 95,507 1.11 160,662 81,563 1.97 136,940 80,790 1.70
=========== ========= ========= =========== ========= ========= =========== ========= ===========
</TABLE>
NOTE 18 - RECENTLY RELEVANT ENACTED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will require that all
derivative financial instruments be recognized as either assets or
liabilities in the balance sheet. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of SFAS No. 133", which deferred the
implementation of SFAS No. 133. SFAS No. 133 will be effective for the
Company's first quarter of fiscal 2001. The Company is evaluating the
effects of the new statement and how to implement the new
requirements. The Company has not yet evalute the impact of SFAS No.
133.
NOTE 19 - ACQUISITIONS
A. THE ACQUIRED COMPANIES
Tadiran Telecommunications Ltd. (hereinafter "TTL")
Effective the first quarter of 1999, ECI completed the merger with
TTL (hereinafter "merger"), a subsidiary of Tadiran Ltd. (hereinafter
"Tadiran"). TTL specialized in a variety of telecommunications
fields, including: transport and access systems, wireless local loop,
data communications, multiplexing equipment and business
telecommunications systems. TTL provided innovative solutions to
telecommunications operators and other businesses throughout the
world.
During the first quarter of 1999 the Board of Directors, the
shareholders, and the authorities in Israel, confirmed the merger.
The merger is accounted for under the "purchase" method of
accounting. Consequently, the assets and liabilities of TTL was
recorded on ECI's books at their fair market values.
The purchase price for the TTL acquisition is $403.8 million. The
purchase price is calculated based on the market price of the ECI
Ordinary Shares at the time that the merger conditions including the
Exchange Ratio were agreed upon in principle and publicly announced,
according to EITF No. 95-19.
The total excess of cost is $ 229.9 million, which was allocated as
follows:
$ IN THOUSANDS
--------------
In process research and development 87,327
Goodwill and Intangible asset 142,583
229,910
==============
* The IPR&D considered according to the specific requirements of
SFAS No.2 Critical elements of SFAS No. 2 Valuation of IPR&D
are that the product has not yet demonstrated technological
feasibility and that it does not have an alternative future
use.
The consideration of the IPR&D was modified by income approach
according to the guidance provided by SEC using specific factors as
follow:
o analysis of the stage of completion of each project.
o exclusion of value related to R&D yet-to-be completed as
part of ongoing IPR&D project, and
o the contribution of existing products/technologies.
In the merger agreement, the Company indemnify and hold harmless
Tadiran from and against all losses and damages incurred by Tadiran
arising out of (i) taxes imposed on ECI or certain of its
subsidiaries which are not fully provided for in ECI's consolidated
financial statements and (ii) any inaccuracy in the representations
and warranties made by ECI pursuant to the Merger Agreement with
respect to intangible assets and litigation. ECI's indemnification
obligations are subject to deductibles of between $5 million and
$22.5 million.
Solely for purposes of indemnification by Tadiran, the
representations and warranties made by TTL with respect to intangible
assets, litigations and related party transactions and the
representation and warranty made by Tadiran regarding related party
transactions shall survive for 12 months following the Closing Date.
Solely for purposes of ECI's indemnification of Tadiran, the
representations and warranties made by ECI with respect to intangible
assets and litigation shall survive for 12 months following the
Closing Date. Tadiran's indemnification obligations for any matter or
allegation being reviewed by the Israeli Comptroller of Restrictive
Trade Practices (see Note 11B2) shall survive the Closing Date by
seven years, extended by any period that such matters continue to be
under active investigation or review after the Closing Date.
B. UNAUDITED - PRO FORMA SUMMARY
The following unaudited pro forma summary presents the Company's
consolidated results of operations as if the acquisitions occurred at
the beginning of the respective periods, after giving effect to
certain adjustments including amortization of goodwill and other
intangibles acquired, business disposed of or to be disposed of,
reclassification and related income tax effects. These pro forma
results are not necessarily indicative of those that would have
occurred had the merger taken place at the beginning of the
respective periods.
YEAR ENDED
DECEMBER 31
1998
------------
$ IN MILLIONS (EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
------------
Revenues 1,041
Net income applicable to common stockholders 180
Net income applicable to common stockholders - per
share:
Basic 1.98
Diluted 1.93
C. RESTRUCTURING COST
Following the merger with TTL an analysis was performed of ECI's
product lines to determine where products which were duplicative with
products which were offered by TTL existed. Based on this analysis
and a comparison of functionality and features of the respective
products, the company recorded a charge of $14,947 thousand regarding
to assets and liabilities of ECI, as follows:
YEAR ENDED
DECEMBER 31
1999
($ IN THOUSANDS)
---------------
Inventory write-down 3,518
Equipment write-down 2,352
Capitalized software write-down 2,414
Severance pay 5,950
Others 713
---------------
14,947
===============
NOTE 20 - DISCONTINUED OPERATIONS
Before the approval of the financial statements for the year ended
December 31, 1999 the Management, after receiving the approval of the
Board of Directors, had completed a formal plan for disposal certain
segments, as defined at APB opinion No. 30, by method of sale or
abandonment.
The activities whose operations it was decided to discontinue were:
1. DNI (Data Networking/Internet) which operates in the field of
developing and marketing software and certain hardware for data
networking/internet, by way of abandonment until the last
quarter of 2000. Therefore, a provision of $36 million was
recorded for anticipated losses from abandoning this operation,
from which, in Management's estimation, no significant proceeds
will be had.
2. TNN, Taditel and Tactel - three investee companies of TTL which
merged with the Company at beginning of 1999. The subsidiaries
are in the field of marketing equipment of Newbridge in Israel
(TNN) and in the development, manufacturing and marketing of
components to the Automotor Industries (Tactel and Taditel).
The disposal of the subsidiaries intent to be by way of sales
of their shares/activities to a non related parties.
Summarized data for the discontinued operations is as follows:
A. RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1999 1998 1997
----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
<S> <C> <C> <C>
Net sales 67,753 61,834 94,842
----------- -------- ---------
Loss from discontinued operations
before taxes
on income 24,622 19,210 11,920
Taxes on income (loss) 614 (1,560) (648)
----------- -------- ---------
Loss from discontinued operations
after taxes on income 25,236 17,650 11,272
Company's equity in results of investee
companies, net 357 - -
----------- -------- ---------
Loss from discontinued operations (net
of income tax) 25,593 17,650 11,272
----------- -------- ---------
Loss from disposal of discontinued
operations
(net of income taxes) 37,409 - -
----------- -------- ---------
63,002 17,650 11,272
=========== ======== =========
Loss per Common Share
Basic (0.70) (0.23) (0.15)
=========== ======== =========
Diluted (0.66) (0.22) (0.14)
=========== ======== =========
</TABLE>
B. NET ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS, CONSIST:
DECEMBER 31
1999
-------------
(IN THOUSANDS)
-------------
Current assets 16,934
Investments in subsidiaries 4,915
Property, plant and equipment, net 1,225
Other assets 35
Current liabilities (23,726)
Non-current liabilities (394)
-------------
(1,011)
=============
DIRECTORS' REPORT ON THE STATE OF THE CORPORATION'S AFFAIRS FOR 1999
1. CONDENSED DESCRIPTION OF THE CORPORATION AND ITS BUSINESS ENVIRONMENT
THE CORPORATION
Koor Industries Ltd. (hereinafter: "Koor") is a holding company. In
1999 Koor's management continued to promote a business strategy aimed
at creating value for its shareholders by focusing on the
telecommunications, defence electronics and agro-chemical segments,
expanding existing operations and divesting assets with
low-profitability potential. Koor's management is exploring
opportunities of strengthening its presence in markets and fields
which are the core business of Koor with potential for growth and
profitability.
During 1999 and since the beginning of 2000, holdings have been
realised in Koor Finance, Contahal, Merhav, the Switching Division of
Tadiran Telecommunications, Tekem (ATL), Tadiran Information Systems,
Koor Metals, Phoenicia, Yonah, Tadiran Com., Tadiran Telematics,
Tadiran Appliances, Mashav, Merkavim, Middle East Tubes and the Q
Group.
Towards the end of the of the first quarter of the Year 2000, the
Company is scheduled to complete the first stage of the strategic
plan, which includes, among other things, divestitures, downsizing of
headquarters and the simplification of holding structures. In the
second stage of the plan the Company's management will focus on the
management and enhancement of its principal holdings and on new
investments in venture capital and growth companies.
Company headquarters
The Company's headquarters handles finance, accounting and control,
mergers and acquisitions, business development and legal advice. The
senior managers at Koor headquarters serve as chairmen of boards of
directors and directors of Koor's investee companies. Koor places at
the disposal of its subsidiaries and affiliated companies management
and advice services covering the following topics:
Finance
Investments in enterprises and their development
Acquisitions, mergers, strategic partners and realisation of
investments
Budget and control
Accounting and financial reporting
Legal advice
The principal sources of income of Koor - the parent company - are the
sale of assets and holdings, dividends, management fees and
commissions for the various services received from the investee
companies.
The business environment
1999 was characterised by a recovery in Israeli economic activity.
Annual growth in the last three quarters of 1999 increased at a rate
of 5.5%. This turnaround in the long recession which had lasted since
1996 was expressed in an acceleration of export, investments in
segments of the economy and private consumption. In contrast,
investments in the building industry declined sharply. In 1999 the
level of inflation actually obtained reached only 1.3%, against a
background of the appreciation of the shekel which had continued since
the end of 1998.
These macro-economic developments together with the measures taken by
Koor's management to rehabilitate the enterprises improved Koor's
overall profitability. In addition, the improvement was achieved
largely as a result of the significant capital gains produced in 1999.
2. PRINCIPAL EVENTS IN 1999 AND AFTER THE BALANCE SHEET DATE
A. MERGER OF ECI AND TADIRAN TELECOMMUNICATIONS
1) On 1 March, 1999 the merger of the two companies was
completed. After implementation of the merger Tadiran's
holding in ECI reached approximately 12.6%.
2) As part of the agreement Tadiran acquired the Switching
Division of Tadiran Telecommunications for the total amount of
approximately $28.8 million dollars (see J5 below).
3) The merger was recorded in Koor's financial statements at book
values in keeping with the rules for similar asset exchange
transactions. ECI included in its results an $87 million
write-off for research and development in process in respect
of Tadiran Telecommunications. This write-off was not included
in Koor's financial results.
4) As a result of the merger, as of 1 January, 1999 the
operations of Tadiran Telecommunications are no longer
consolidated in Koor's financial statements.
B. ECI TELECOM LTD. (ECI)
1) On 8 February, 1999, a call option to purchase from Clal
Electronic Industries Ltd. 3,830,000 ordinary shares of a par
value of NIS 0.12 each of ECI at $37 per share, was exercised
for a total amount of approximately $142 million, in
accordance with the provisions of the agreement from 9 April,
1998.
2) During 1999 Koor purchased additional shares in ECI for
approximately $15 million.
3) The percentage of Koor's holdings in ECI as at 31 December,
1999 was approximately 34.1%.
4) In October 1999 ECTEL, a subsidiary of ECI, whose principal
business is the development, production and marketing of fraud
detection systems in communications networks and improvement
of traffic quality in communications networks, completed an
initial public offering on NASDAQ. Due to this offering ECI
registered a capital gain of $29.7 million which was recorded
in the Statement of Operations of the fourth quarter of 1999.
5) In September 1999 Telegate, an affiliated company of ECI,
signed an agreement of principles whereby the shares and
capital notes held by its shareholders, including those of
ECI, would be exchanged for shares of Terayon Communications
Systems Ltd., a company whose shares are listed for trading in
the United States.
The transaction was completed in the fourth quarter of 1999
and resulted in a capital gain of $25.5 million.
ECI is expected to register an additional gain of $30 million
dollars in 2000 owing to hedging transactions implemented in
respect of Terayon's share price.
6) During the fourth quarter of 1999 ECI recorded a one-time loss
of approximately $37 million as a result of the
discontinuation of four different operations. In addition, a
loss from discontinued operations amounted in 1999 to $26
million.
Pursuant to the Securities Regulations, the financial
statements of ECI are attached to those of Koor. The financial
statements of ECI relate to consolidated ECI, and include the
results of Tadiran Telecommunications which merged with ECI
starting from the first quarter of 1999.
The statements of ECI do not include the results of Tadiran
Telecommunications in the corresponding period of 1998.
C. TADIRAN
1) In accordance with the purchase proposal documents, in January
1999 Koor transferred the consideration for the balance of
Tadiran's shares, approximately NIS 79 million, thereby
attaining 100% ownership of Tadiran.
2) Pursuant to a resolution of the Board of Directors of Tadiran,
a reorganisation program is in the final stages. This program
includes a significant reduction in the company's headquarters
staff and merger with Koor headquarters, transfer of real
estate management to Koor Properties, and the sale of software
and domestic appliance companies.
3) On 21 January, 2000 a share application was filed by Tadiran
in the Tel Aviv District Court for approval of a reduction in
Tadiran's capital within the framework of which Tadiran's
holdings in Elisra, Tadiran Electronic Systems and Tadiran
Spectralink (three companies specializing in defence
electronics) would be transferred to Koor Industries. The
Company is examining alternatives to offerings in defence
electronics.
D. TELRAD NETWORKS LTD. (FORMERLY TELRAD TELECOMMUNICATIONS AND
ELECTRONICS INDUSTRIES LTD.)
1) As part of a comprehensive program for an immediate
reorganisation which was approved at the end of 1998, in 1999
the company was organised into independent profit and loss
units and approximately 950 employees have left the company
without disruption of labour relations. In the second half of
the year Telrad's board approved a restructuring program which
was applied in two stages, including the retirement of
additional employees over and above the first plan which had
been decided upon at the end of the previous year. The total
cost of the additional plan amounts to approximately NIS 85
million (approximately NIS 57 million after deduction of
deferred taxes in respect thereof).
The financial statements as at 31 December, 1999 include
expenses for the above retirement agreements which were
recorded in the second half of the year and presented in the
Other Expenses item.
The total volume of sales for 1999 amounted to $462 million
(NIS 1,933 million) as compared with $364 million (NIS 1,449
million) in 1998 which constitute a growth of approximately
27% in dollar terms and 33% in shekel terms.
In 1999 Telrad reported substantial operating and net profit,
compared with operating and net loss in the previous year,
moreover the last quarter of that year also concluded with an
operating and net profit compared with an operating and net
loss in the corresponding quarter of the previous year.
Below are selected Telrad Networks data (in adjusted millions
of NIS):
1 - 12 10 - 12
--------------- -------------
1999 1998 1999 1998
----- ----- ---- ----
Revenues 1,933 1,449 564 361
Gross profit (loss) 505 86 166 (21)
Operating profit (loss) 250 (124) 91 (59)
2) On 6 March, 2000 a binding memorandum of understanding was
signed by Nortel Networks, an international Canadian
telecommunications company, Koor and its subsidiary Telrad
Networks Ltd.
The memorandum of understanding stipulates that the Nortel and
the Koor Group will set up a new company in Israel ("Nortel
Israel") which will be controlled by Nortel. Koor will hold
28% of its share capital. Once it is set up Nortel Israel will
acquire from Telrad the Public Switching and TXI systems
businesses, together with Telrad's operations in this field
outside Israel, in return for $95 million which will be paid
to the Koor Group. The business operation which Telrad will
sell to Nortel Israel constitutes 40% - 50% of its business
operation. The Koor Group is expected to record a pre-tax
capital gain from this transaction of $61 million. At the
same time, by exercising the option previously granted to it,
Nortel will sell to Koor all its holdings (20%) in Telrad for
$45 million, thereby transforming Telrad into a fully owned
subsidiary of Koor, and in return the Koor Group will invest $
49 million in Nortel Israel in share capital and shareholders'
loans. Together with the Koor Group investment in Nortel
Israel, Nortel Israel will assume all the operations of Nortel
currently being implemented in Israel outside the Telrad
framework, thereby obtaining direct access to the use of the
technologies of the global Nortel, including future
technologies. Implementation of the transaction is contingent
upon the receipt of various approvals, including that of the
Commissioner of Restrictive Trade Practices.
E. INVESTMENTS IN HIGH-TECH PROJECTS AND COMPANIES
1) On 30 November, 1999, a committee of Koor's Board of
Directors, having been authorised for this purpose, passed a
resolution to cooperate on an equal basis with the Israel
Corporation Ltd., in a joint venture with an equity capital of
up to $100 million. The joint venture will focus on
investments in high-tech projects and companies in the fields
of the Internet, telecommunications and operation of
telecommunications in Israel and abroad.
2) On 2 March, 2000 Koor signed documents enabling it to become a
limited partner in the Polaris Venture Capital Fund III L.P.
which is a limited partnership registered in Israel. Within
the framework of its commitment Koor is supposed to invest up
to $35 million in the fund, and will be entitled to a
permanent representative on the committee advising the fund.
This investment is part of Koor's activities to expand its
investments in technological companies with high growth
potential.
3) On 15 March 2000, agreement was signed by Tadiran and the
Electric Fuel Corporation (hereinafter: "EFC"), a public
company registered in the American state of Delaware, whose
shares are traded on NASDAQ. According to the agreement
Tadiran will transfer all its holdings (100%) in Tadiran
Batteries Ltd., to EFC, and in return EFC will issue to
Tadiran 2,335,767 shares (subject to adjustments in accordance
with the market share price in the period defined in the
agreement). On the date of implementation of the transaction
Koor will invest $10.5 million in EFC, and in return EFC will
issue 613,139 shares to Koor. After completion of these issues
Koor will hold, directly and indirectly, 14% of EFC's issued
share capital and will have the right to appoint one director
to EFC's Board of Directors. On March 14, 2000, EFC's share
price was $18.125, and pursuant thereto the consideration in
shares received by Tadiran for shares in Batteries equals
approximately $42.3 million. Implementation of the transaction
is contingent upon receipt of various approvals, including
approval from the Commissioner of Restrictive Trade Practices.
F. BVR (1998) SYSTEMS LTD. (BVR)
Since the beginning of 1999 Koor has acquired on NASDAQ shares in
BVR at various prices. The total cost of the acquisitions amounts
to $20 million.
On 5 August, 1999 Elisra Electronic Systems Ltd. (a subsidiary of
Tadiran Ltd. and wholly owned - 100% - by Koor) signed an
agreement with BVR and with its shareholders, whereby Elisra
purchased 1,060,000 BVR shares (part in a private placement from
BVR and part by purchase from the other shareholders), at $13
per share for a total consideration of approximately $14
million. On 22 September, 1999 the transaction was closed after
receipt of approvals from the various authorities and the
consideration was paid. On 31 December, 1999 Koor's holdings in
BVR reached approximately 28.6%.
G. MAKHTESHIM-AGAN
1999 was characterised by a structural change process affecting
the agro-chemical industry, which on the one hand leads to an
immediate fall in prices owing to competition between the leading
companies and on the other creates opportunities for a generic
manufacturer building a wide product basket, which is capable of
developing advanced manufacturing processes. In light of the
instability afflicting the industry, the company is being
compelled to confront a need for renewed internal reorganisation
and examination of the unique opportunities it is facing. The new
situation being experienced by the industry is leading
Makhteshim-Agan to a plan to optimise the operating aspect of its
activities and adjust its business units to a new environment by
reducing work costs and fixed expenses and making better use of
its working capital. The total cost of the program amounts to NIS
149 million (approximately NIS 96 million after deduction of
deferred taxes in respect thereof). The financial statements as
at 31 December, 1999 contain expenses for reorganisation,
including expenses for retirement agreements presented in the
Other Expenses item.
H. UNITED STEEL MILLS (UNITED STEEL)
Owing to the levels of short-term and long-term credit,
negotiations were conducted to reach agreement concerning the
rescheduling of debts between United Steel, its shareholders and
the banks granting credit to the company. On 2 March, 2000, in a
meeting held between Koor and representatives of Bank Hapoalim
B.M. and Bank Leumi le-Israel B.M. as part of the negotiations
conducted by Koor to reschedule the debts of United Steel to the
banks, it transpired that the parties are unable to reach an
arrangement with the banks in respect of rescheduling, including
the arrangement which had been proposed in the past.
In light of the above-mentioned, a provision of NIS 102 million -
which is included in the Other Expenses items - was made in
Koor's financial statements to write off the value of the
investment in United Steel and all its debts to Koor and its
subsidiaries. Since Koor is not guaranteeing United Steel's third
party debts, in the opinion of Koor and its legal advisers, Koor
will not be obligated in the future to bear any financial cost
whatsoever for debts, beyond said provisions. Koor does not
intend to cover past debts and the capital deficit in realisation
values, if any.
On 16 March, 2000 United Steel and its subsidiaries applied to
the Haifa District Court for a stay of proceedings pursuant to
Section 350 of the Companies Law - 1999, and for the appointment
of a trustee. The application was lodged by the applicants only,
with the consent of some of the secured creditors. On the same
date an order was given for a stay of proceedings against the
applicants, and each one of them, for 90 days, thus rendering it
impossible to continue or initiate any legal proceedings against
the applicants unless with the approval of the court in order to
formulate a comprehensive recovery plan and creditor arrangement
proposal which will be submitted to the court within 45 days.
Koor consents to the stay of proceedings and is ready to grant a
new loan to the special management of up to a maximum of NIS 15
million so that the United Steel can continue operating.
Each new loan granted to the applicants during the stay of
proceedings at the request of the trustee, including loans
granted by Koor, will receive preferential status over all the
company's creditors, including secured creditors, and the loans
will be repaid only from the considerations received by the
trustee while it is operating the plant, and will be paid before
any other payment within the framework of the creditor
arrangement.
I. SHERATON- MORIAH (ISRAEL) HOTELS
1) On 27 January, 1999 Koor won a tender for the purchase of Moriah
Hotels Ltd. jointly by the Koor Group (75%) and Sheraton
International (25%).
On 12 April, 1999 the transaction was closed at a value of
approximately $81.5 million for the entire chain (before
distribution of a dividend).
2) On 11 May, 1999 a memorandum of understanding was signed by Koor
and Hapoalim Assets (Shares) Ltd., a wholly-owned subsidiary of
Bank Hapoalim B.M., whereby Hapoalim Assets (Shares) Ltd. will
purchase from Koor 20% of the issued and paid up capital of
Moriah Hotels Ltd.
On 11 October, 1999 the transaction for the sale of 20% of the
issued and paid up capital of Sheraton Moriah (Israel) Ltd.
(formerly Moriah Hotels Ltd.) from Koor to Hapoalim Assets
(Shares) Ltd. was concluded. The shares were transferred against
payment of $13 million (after distribution of a dividend)
which was paid to Koor by Hapoalim Assets.
After completion of the transaction, the shareholders of
Sheraton Moriah (Israel) Ltd. are these: Koor - 55%, Sheraton
International Group - 25%, and Hapoalim Assets (Shares) Ltd. -
20%.
No capital gain was recorded in the financial statements of
Koor in respect of this transaction.
3) In December 1999 all the hotels owned by Koor were transferred
to Sheraton Moriah. Koor recorded other expenses of NIS 38
million for a write-off of the value of hotels.
4) On 10 May, 1999 Moriah Hotels Ltd. signed an agreement for the
sale of the Moriah Plaza Jerusalem Hotel to Dan Hotels Ltd. in
consideration of approximately $27 million. No capital gain was
recorded from this transaction in Koor's financial statements.
5) Moriah Hotels Ltd. is in the process of preparing a prospectus
for a public offering on the Tel Aviv Stock Exchange.
J. DIVESTITURES
As part of the strategy of focusing on the areas of operation
which are the core business, Koor divested itself of the
following holdings:
1) Subsidiaries and affiliated companies of Telrad Holdings Ltd.
During the reported period, all of the holdings of Telrad
Holdings Ltd. in a number of its subsidiaries and affiliated
companies were sold, in consideration of approximately NIS 20
million. The capital gain accruing to Koor for these sales is
approximately NIS 16 million.
2) Koor Finance (Koor Capital Markets and Netivot Pension)
On 3 March, 1999 an agreement was signed with Menorah Holdings
and B. Gaon Holdings Ltd. for the sale of most of Koor's shares
in Koor Finance Ltd., which controls, among others, Koor Capital
Markets and Netivot Pension.
Under the agreement, Koor sold to the buyers 80% of its rights
in Koor Finance (share capital and capital note). On 31 May,
1999 the transaction was closed after receipt of the approvals
of the various authorities and payment of the consideration,
which amounted to approximately NIS 44 million. The capital
gain is approximately NIS 10 million. Koor and the buyers
granted each other put and call options for purchase of the
balance of Koor's holdings and rights in Koor Finance. The put
option is valid starting from the end of one year from the
date of signing the agreement until the elapse of two years
from signing the agreement, while the call option is for a
period of 90 days after expiry of the put option.
Consideration of the exercise for Koor was set at NIS 12
million, linked to the dollar and bearing interest. In March
2000 Koor announced its intention to exercise the put option.
A capital gain of NIS 2 million is expected to accrue to Koor
as a result.
3) Contahal
On 8 March, 1999 an agreement was signed whereunder Tadiran
will sell all of the Contahal shares held by Tadiran and by
its wholly-owned subsidiary, which are 86.9% of Contahal's
shares. The consideration is approximately NIS 96 million.
Capital gain to Koor from this sale amounts to NIS 45 million.
The transaction was closed on 13 May, 1999, the shares were
transferred and the consideration received.
4) Merhav
On 13 April 1999 an agreement was signed for the sale of all of
the holdings (76.37%) of Koor Investments Ltd. (a wholly-owned
Koor company) in Merhav Building Materials and Ceramics Center
Ltd. to L. M. Lipsky Ltd.
The agreement stipulates, inter alia, that L. M. Lipsky Ltd.
will buy from Koor the capital note issued by Merhav in Koor's
favour in the amount of approximately NIS 3.6 million, and will
release Koor from its guarantees in favour of Merhav and its
subsidiaries.
The agreement was implemented on 21 June, 1999, the shares
were transferred and the consideration paid, after fulfillment
of all the conditions stipulated therefor between the parties.
The total consideration (including the capital note) amounts
to approximately NIS 35 million. The pre-tax capital gain to
Koor from this sale is approximately NIS 6.6 million.
5) Switching Division of Tadiran Telecommunications
During the year, Tadiran sold most of the assets and
liabilities of the Switching Division in consideration of $24
million. Neither profit nor loss was recorded in the financial
statements as a result of the transaction.
6) Tekem
On 16 May, 1999 Tadiran Ltd. signed an agreement of principles
for the sale of all of its holdings (87.4%) in Advanced
Technologies Ltd. (ATL) to Ness Technologies. On 29 July, 1999
the transaction was closed, the shares were transferred and
the consideration received. The consideration amounts to NIS
263 million. The capital gain (before tax) to Koor amounts to
NIS 142 million.
7) Tadiran Information Systems Ltd. (TIS)
On 10 June, 1999 an agreement was signed by Tadiran for the
sale of all of its holdings (49%) in TIS to IBM Israel Ltd.,
which prior to the agreement had held 51% of TIS. The
consideration (including a dividend) amounted to approximately
NIS 105 million, and the capital gain to Koor (before taxes)
amounts to NIS 57 million.
8) Tadiran Com.
On 11 June, 1999, agreement in principle was reached between
Tadiran and Shamrock Group together with a third party, for
sale of all of Tadiran's holdings in Tadiran Com. Ltd. On 10
November, 1999 an agreement was signed with the buyers for the
sale of all Tadiran's holdings in Tadiran Com. Additional
agreements were signed together with the sale agreement. Since
all the necessary approvals had been received prior to
signature, the transaction was closed there and then, the
shares were transferred and the consideration paid. The
consideration (including dividend) amounts to approximately
NIS 616 million. The (pre-tax) capital gain to Koor amounts to
NIS 317 million.
9) Koor Metals Ltd.
On 11 July, 1999 an agreement was signed for the sale of all
of Koor's holdings in Koor Metals Ltd. to Accord Technologies
Holdings (1999) Ltd., in consideration of NIS 11 million, and
the release of Koor from its guarantees in favour of Koor
Metals and its subsidiaries to banks and third parties in
consideration of NIS 34 million.
The transaction was closed on 4 August, 1999, the shares
transferred and the consideration received, and Koor was
released from its guarantees.
After deductions of provisions for a decline in value which
were included in respect of this investment, no capital gain
accrued from this transaction.
10) Phoenicia
On 28 July, 1999 an agreement was signed for the sale of all
of Koor's holdings (about 75%) in Phoenicia Glass Works Ltd.
in consideration of NIS 6 million and the release of Koor from
its guarantees in favour of Phoenicia towards third parties of
approximately NIS 36 million.
The transaction was closed on 20 October, 1999, the shares
transferred and the consideration received, and Koor was
released from its guarantees.
The capital gain, after the cancellation of the provisions for
a decline in value which had been previously recorded,
amounted to NIS 29 million.
11) Yonah Fishing & Industry Ltd. (Yonah)
On 21 July, 1999 an agreement was finalised for the sale of
Koor's holdings in Yonah and its subsidiary. Under the
agreement, Koor will be released from guarantees it gave in
respect of Yonah to banking institutions and other parties in
a total amount of approximately NIS 55 million. The
transaction was closed in September 1999 and the shares were
transferred.
After deduction of provisions of NIS 9 million which had been
included in respect of the investment, no capital gain or loss
was recorded from the transaction.
12) Tadiran Batteries
In August 1999, Tadiran signed an agreement for the sale of
all of its holdings (100%) in Tadiran Batteries Ltd. in
consideration of approximately $19.5 million. Since all the
required approvals were not received by the date determined by
the parties, the agreement was cancelled. On 15 March, 2000 an
agreement was signed by Tadiran for the transfer of its
holdings in Tadiran Batteries. See 2E(3) above.
13) Tadiran Appliances
On 26 October, 1999 Tadiran Ltd. signed a memorandum of
principles for the sale of all its holdings (56.6%) in Tadiran
Appliances Ltd. to Nehushtan Investments Ltd. On 30 December,
1999 the final contract was signed with Nehushtan. Closing of
the transaction is contingent upon the receipt of certain
approvals, including approval from the Commissioner of
Restrictive Trade Practices. The consideration determined in
the final contract amounts to NIS 132.7 million. The capital
loss to Koor amounts to approximately NIS 13 million and was
recorded in 1999.
14) Tadiran Telematics Ltd.
On 25 November, 1999 an agreement was signed whereby Tadiran
Ltd. will sell all its holdings (100%) in its subsidiary
Tadiran Telematics Ltd. The consideration amounts to $8.5
million, including a dividend of $1 million. The capital loss
to Koor of NIS 7.5 million was recorded in the fourth quarter
of 1999. The agreement was implemented on 15 February, 2000.
15) Mashav
On 5 December, 1999 an agreement was signed by Koor and Clal
Industries and Investments Ltd. whereby Koor will sell to Clal
all its holdings in Mashav Initiation and Development Ltd.
This agreement replaces a previous agreement between Koor and
Clal concerning Mashav.
The consideration to Koor amounts to $216 million. In
addition Koor will receive 47.5% of the share capital of
Mashael Alumina Industries Ltd. (a subsidiary of Mashav which
develops an alumina (aluminium extract) manufacturing
process). Before implementation of the transaction Mashav
distributed a dividend of $168 million to Koor and Clal which
was divided equally.
The transaction was concluded on 6 January, 2000. The expected
net profit (after deferred taxes) to Koor for this transaction
amounts to NIS 228 million and will be recorded in the first
quarter of 2000.
16) Merkavim
On 7 December, 1999 an agreement was signed by Koor and Mayer
Automobiles and Trucks Ltd. to sell all Koor's holdings (51%)
in Merkavim Metal Enterprises Ltd. for NIS 17.5 million. The
expected capital gain for Koor for this transaction amounts to
NIS 4 million and will be recorded in the first quarter of
2000. The transaction was concluded on January 2000.
17) Middle East Tubes
On 23 December, 1999 an agreement was signed by a company from
the Gaon Holdings Group and 3A Investment in Industry Ltd. for
the sale of all Koor's holdings (76%) in Middle East Tubes
Ltd. The consideration amounted to NIS 84 million. The capital
loss to Koor for this transaction amounted to approximately
NIS 8 million and it was recorded in the fourth quarter of
1999.
18) Q Group
On 18 January, 2000 Koor Industries announced that following
completion of the offer to purchase the holdings of various
shareholders in Q Group PLC, in which Koor, by means of Koor
Multimedia Ltd. (a fully owned subsidiary of Koor) holds 23%,
Koor is selling its holdings in the Q Group for approximately
NIS 42 million. The expected capital gain to Koor from this
sale (before tax) amounts to NIS 30 million.
K. HOLDINGS OF THE SHAREHOLDERS
1) On September 8, 1999 an agreement was made by Claridge Israel
LLC (a member of the Claridge Group, an interested party in
Koor) and Bank Leumi le-Israel B.M. (an interested party in
Koor holding 5.56% of its issued share capital), which brought
about a change in their holdings in Koor.
Under the agreement Bank Leumi sold all its holdings in Koor
(5.56%) as follows: 3.77% to Claridge Group and 1.79% to
Poalim Investments Ltd. The sale was made at $90.652 per
share, subject to adjustments as set forth in the agreement.
The shares were transferred and the consideration paid on 4
January, 2000.
Upon conclusion of the transaction Bank Leumi was no longer an
interested party in Koor.
2) On 28 September, 1999 an agreement was reached between
Claridge Group and a wholly owned subsidiary of Israel
Corporation Ltd., which brought about a change in the holdings
of Claridge Group in Koor.
It was agreed that Claridge Group will sell to the Israel
Corporation 295,402 ordinary shares of Koor ( 1.78% of Koor's
issued share capital) at $90.652 per share, subject to agreed
adjustments.
Transfer of the shares and payment of the consideration were
completed on 4 January, 2000.
3) On 1 November, 1999 Bank Hapoalim notified Claridge Group of
exercise of the put option granted to it under the agreement
which was signed on 12 July, 1998 between Claridge Group and
Bank Hapoalim B.M. in the name of Hapoalim Assets (Shares)
Ltd. Under the notice of exercise, Bank Hapoalim sold to
Claridge Group 364,038 ordinary shares of Koor at $142.50 per
share. Transfer of the shares to Claridge Group was completed
on 29 December, 1999.
4) The holdings of Koor ordinary shares are these:
FOLLOWING COMPLETION
31.12.99 OF ABOVE TRANSACTIONS
--------- ---------------------
NUMBER OF SHARES
--------------------------------
Claridge Group 5,061,349 5,389,573
Hapoalim Assets (Shares) Ltd. 3,180,279 3,180,279
Bank Leumi le-Israel B.M. 919,028 -
Telrad Holdings Ltd. and
Koor Investments Ltd. 170,436 170,436
The public 6,570,315 7,161,119
---------- ----------
15,901,407 15,901,407
========== ==========
L. DIVIDEND
Below are details of the dividend in accordance with resolutions
of Koor's Board of Directors:
SHARE AMOUNT IN
RESOLUTION PAYMENT ---------------
DATE DATE DESCRIPTION NOMINAL NIS
---------- ------- ----------- ---------------
20.12.98 27.1.99 (*) Interim for 1998 5.42
24.5.99 28.6.99 Interim for 1999 3.60
24.11.99 11.1.00 Interim for 1999 2.70
24.2.00 10.4.00 Interim for 1999 7.80
(*) Final dividend for 1998 13.50
M. THE BOARD OF DIRECTORS AND ITS COMMITTEES
In 1999 the Board of Directors and its committees met as follows:
Plenary session 7
Audit Committee 3
Compensation Committee 4
Executive Committee 6
3. FINANCIAL CONDITION
SHAREHOLDERS' EQUITY as at 31 December, 1999 amounted to approximately
NIS 4,385 million ($1,056 million) and constitutes 25.2% of the
balance sheet, compared with NIS 4,076 million which were 22.9% of the
balance sheet as at the end of 1998.
MINORITY RIGHTS in subsidiaries which were consolidated as at 31
December, 1999 amount to NIS 1,320 million, compared with NIS 1,634
million at 31 December, 1998. The decline in this item derives mainly
from purchase of the minority rights in Tadiran as a result of the
purchase offer of Tadiran shares by Koor, in Makhteshim as a result of
the purchase of shares of Makhteshim by its consolidated company, and
from termination of the consolidation of Tadiran Telecommunications.
The decline was partly offset by a growth in the minority rights as
the result of consolidation for the first time of Moriah Hotels since
the beginning of the second quarter of 1999.
CURRENT ASSETS as at 31 December, 1999, amount to NIS 7,919 million,
which are 45.6% of the balance sheet, compared with NIS 10,202 million
which were 57.4% of the balance sheet on 31 December, 1998. The
decrease in current assets derives mainly from termination of the
consolidation of Tadiran Telecommunications as of 1 January, 1999 and
of additional companies, primarily Tadiran Com. and Tekem, a holding
which was realised during the reported year. The decrease in current
assets was offset by a growth in cash and cash equivalents and
short-term deposits primarily in Koor - the parent company - as a
result of the considerations received from realisation of the
companies, and in Telrad, less a decline in cash in Makhteshim for
financing the purchase of Company shares by its consolidated company.
The decline in customer balances, which derives mainly from
termination of the consolidation of Tadiran Telecommunications and
other companies in which holdings were divested during the reported
period, was partly offset by the increase in customer balances, mainly
in Telrad and Makhteshim-Agan. The decline in inventory derives mainly
from termination of the consolidation of the companies in which
holdings were divested and from a decline in inventory, mainly in
Telrad and Makhteshim-Agan.
INVESTMENTS IN AFFILIATED COMPANIES as at 31 December, 1999 amount to
NIS 3,496 million, compared with NIS 1,623 million at the end of 1998.
The increase is largely the result of the investment in ECI after
completion of the merger of ECI and Tadiran Telecommunications, and
exercise of the call option from Clal Electronics Industries, and from
investment in BVR by Koor and Elisra.
FIXED ASSETS on the date of the balance sheet amount to NIS 4,571
million, which are 26.3% of the balance sheet compared with NIS 4,516
million which were 25.4% of the balance sheet at 31 December, 1998.
The decrease in fixed assets derives mostly from termination of
consolidation of Tadiran Telecommunications and other companies, the
holding in which was sold during the year, which was partly offset by
an increase in fixed assets deriving from the consolidation of the
Radisson-Moriah hotel chain from the beginning of the second quarter
of 1999.
INTANGIBLE ASSETS AND DEFERRED CHARGES as at 31 December, 1999 amount
to NIS 627 million, compared with NIS 862 million at 31 December,
1998. The decline in this item derives mainly from goodwill assigned
to Tadiran Telecommunications which is included as at the balance
sheet date in investments in affiliated companies after completion of
the merger.
LONG-TERM FINANCIAL LIABILITIES amount to NIS 4,070 million and are
23.4% of the balance sheet, compared with NIS 4,696 million which were
26.4% of the balance sheet at 31 December, 1998.
TOTAL FINANCIAL LIABILITIES as at 31 December, 1999 are NIS 7,629
million - 43.9% of the balance sheet, compared with NIS 7,427 million
- 41.8% of the balance sheet at 31 December, 1998. The growth in the
total amount of this item stems from the growth in short-term credit
from banking and other corporations, mainly in Koor - the parent
company - in Tadiran, Mashav and United Steel. The growth in the total
amount of financial liabilities was partly offset by termination of
the consolidation of Tadiran Telecommunications - NIS 760 million in
short-term credit and NIS 20 million in long-term liabilities.
Long-term liabilities net, declined mainly at Koor - the parent
company.
CURRENCY EXPOSURE of Koor as at 31 December, 1999 is reflected in a
surplus of NIS 3,521 million in financial liabilities over financial
assets denominated in or linked to foreign currency, compared with NIS
2,628 million at 31 December, 1998. Surplus financial liabilities over
financial assets linked to the CPI as at the balance sheet date amount
to NIS 501 million, compared with NIS 867 million at 31 December,
1998.
4. RESULTS OF OPERATIONS
Koor's policy of investing in affiliated companies included in Koor's
financial statements on the equity basis on the one hand, (ECI) and
realising holdings in companies which are not synergetic with Koor's
core business and are consolidated in Koor's financial statements
until realisation on the other, significantly reduces revenues and,
pursuant thereto, the gross profit and operating profit in Koor's
consolidated statements.
A. 1999 COMPARED WITH 1998
-----------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(NIS MILLIONS ADJUSTED)
-----------------------
THE CHANGE
1999 % 1998 % %
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales 10,675 100.0 12,792 100.0 (16.5)
Cost of sales 8,130 76.2 9,867 77.1 (17.6)
------ ------ ------ ------ ------
Gross profit 2,545 23.8 2,925 22.9 (13.0)
Selling expenses 978 9.2 1,202 9.4 (18.6)
General & administrative expenses 729 6.8 1,011 7.9 (27.9)
------ ------ ------ ------ ------
Operating profit 838 7.8 712 5.6 17.7
Finance expenses 358 3.3 251 2.0 42.6
------ ------ ------ ------ ------
480 4.5 461 3.6 4.1
Other income (expenses), net 107 1.0 (71) (0.6)
------ ------ ------ ------ ------
Income before taxes on income 587 5.5 390 3.0 50.5
Taxes on income 162 1.5 234 1.8 (30.8)
------ ------ ------ ------ ------
425 4.0 156 1.2 172.4
Equity in results of affiliates, net 122 1.1 62 0.5 96.8
------ ------ ------ ------ ------
Profit before minority interest 547 5.1 218 1.7 150.9
Minority interest (2) 0 240 1.9
------ ------ ------ ------ ------
Net profit (loss) from continuing operations 549 5.1 (22) (0.2)
Result of discontinued operations, net - - 69 0.6
------ ------ ------ ------ ------
Net income for the year 549 5.1 47 0.4 1,068.1
====== ====== ====== ======= =======
</TABLE>
SALES in 1999 amounted to NIS 10,675 in comparison with sales of NIS
12,792 million in 1998. The decline in sales in 1999 reached 16.5% of
the sales. In the framework of the industrial operation sales amounted
in 1999 to NIS 9,017 million in comparison with sales of NIS 11,223
million in 1998.
Following is a breakdown of sales in 1999 as compared with sales in
1998 by the principal segments of operation:
<TABLE>
<CAPTION>
1999 1998 THE CHANGE
---------------- --------------- -----------------
THE SEGMENT NIS NIS NIS
----------- MILLIONS % MILLIONS % MILLIONS %
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Telecommunications 2,200 20.6 3,419 26.7 (1,219) (35.7)
Defence electronics 1,333 12.5 1,573 12.3 (240) (15.3)
Agro-chemicals and other chemicals 3,541 33.2 3,377 26.4 164 4.9
Building and infrastructure materials 1,446 13.5 1,645 12.9 (199) (12.1)
Others 2,155 20.2 2,778 21.7 (623) (22.4)
------ ----- ------ ----- ------ ------
Total 10,675 100.0 12,792 100.0 (2,117) (16.5)
</TABLE>
Following are the main companies which increased their sales in 1999
compared with 1998:
Telrad NIS 484 million (33.4%) as a result of the
considerable growth in supplies to Nortel.
Makhteshim-Agan NIS 164 million (4.9%) ($52 million - 6.4% in
dollar terms) from an expansion of operations and
acquisition of holdings in Latin America during the
previous year.
Tadiran NIS 73 million (3.6%), ($25 million dollars - 5.2% in
dollar terms) mainly in Elisra.
In addition, the increase in sales in 1999, which amounted to NIS 142
million, was due to the consolidation for the first time of Moriah
Hotels starting from the beginning of the second quarter of 1999.
In contrast there was a decline in the sales of a number of companies
in 1999 compared with 1998, as follows:
Mashav NIS 151 million (7.9%) mainly as a result of the
erosion in selling prices and slowdown in the
construction industry.
Middle East Tubes NIS 45 million (18.7%) as a result of the
quantitative decline caused by the continuing
slowdown in the scope of investment in water and
sewage infrastructure and a decline in construction
and in selling prices.
THE DECLINE DERIVING FROM SALES OF COMPANIES WHICH HAD PREVIOUSLY BEEN
CONSOLIDATED amounts to NIS 2,931 (of which Tadiran Telecommunications
was NIS 1,717). In the reported year the sales of Tadiran
Telecommunications, Soltam, Pri Hagalil, Hod Lavan, Shallon, Hornet,
Secutech, and others in which holdings were sold during last year,
were not included. Sales of Koor Metals, Yonah, Merhav, Phoenicia,
Tekem, Contahal, Tadiran Com. and others in which holdings were sold
during the year were included in part of the reported period.
The results of 1999 are characterised by an increase of 7.1% in export
and industrial international operations in dollar terms. Following are
data of export and international operations in 1998 and 1999 in
millions of American dollars:
<TABLE>
<CAPTION>
1999 1998 INCREASE (DECREASE)
------ ------ -------------------
$ $ $ %
------ ------ ----- ------
<S> <C> <C> <C> <C>
Tadiran (not including companies in
which holdings were realised) 263 289 (26) (9.0)
Makhteshim - Agan 703 662 41 6.2
Telrad 308 238 70 29.4
------ ------ ----- ------
Total without companies in which
holdings were realised 1,274 1,189 85 7.1
Others (including companies in
which holdings were realised) 70 391*
------ ------
1,344 1,580
====== ======
* of which - Tadiran Telecommunications - $262 million.
</TABLE>
COST OF SALES IN 1999 amounted to NIS 8,130 million compared with NIS
9,867 million in 1998, and was 17.6% lower than in 1998.
COSTS OF RESEARCH AND DEVELOPMENT, NET, after deduction of
participation amounted in 1999 to NIS 428 million as compared with NIS
528 million in 1998, of this NIS 183 million in Tadiran
Telecommunications represents 4.0% of 1999 sales as compared with 4.1%
of sales in 1998. Most of the research and development costs derive
from TADIRAN - NIS 147 million, TELRAD - NIS 206 million, and
MAKHTESHIM-AGAN - NIS 75 million.
GROSS PROFIT in 1999 amounted to NIS 2,545 million, which are 13.0%
less than the gross profit of NIS 2,925 million in 1998. In 1999 gross
profit reached 23.8% of sales which is higher than the gross profit of
22.9% in 1998. The NIS 380 million decline in the absolute figure of
gross profit in 1999 is due to the termination of consolidation of
Tadiran Telecommunications from the beginning of 1999 - NIS 463
million and of other companies in which holdings were sold - NIS 316
million. In contrast, gross profit increased in 1999 compared with the
corresponding period in 1998, mainly in Telrad, in United Steel and
Middle East Tubes. In Tadiran gross profit declined mainly in Tadiran
Electronic Systems as a result of the inclusion of additional
provisions for employee retirement arrangements in 1999.
SELLING EXPENSES in 1999 amounted to NIS 978 million, 18.6% less than
the selling expenses of NIS 1,202 million in 1998. The principal
factor in the decline of the selling expenses is the termination of
the consolidation of those companies which were consolidated in the
past - NIS 269 million (of which, Tadiran Telecommunications NIS 176
million). In contrast there was an increase in selling expenses in
1999 in comparison with the corresponding period in the previous year
in Telrad as a result of significant increase in operations.
GENERAL AND ADMINISTRATIVE EXPENSES in 1999 amounted to NIS 729
million, in comparison with NIS 1,011 million in 1998. The decline in
general and administrative expenses in 1999 in comparison with the
corresponding period in 1998 occurred mainly at Koor - the parent
company, following the downsizing of headquarters and the inclusion of
additional provisions for employee retirement arrangements in 1998, at
Mashav, at Middle East Tubes and at United Steel following adjustment
of expenses to the level of operations. The decline derived from the
administrative expenses of Tadiran Telecommunications amounting to NIS
111 million and other companies which had previously been consolidated
- NIS 98 million.
OPERATING PROFIT in 1999 amounted to NIS 838 million, an increase of
17.7% over the operating profit of NIS 712 million in 1998.
THE BREAKDOWN OF OPERATING PROFIT in 1999 compared with 1998 by main
segments of operations is as follows:
<TABLE>
<CAPTION>
1999 1998 THE CHANGE
---------------- ---------------- ----------------
THE SEGMENT NS NIS NIS
----------- MILLIONS % MILLIONS % MILLIONS %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Telecommunications 261 27.7 47 5.3 214 455.3
Defence electronics 69 7.3 168 19.1 (99) (58.9)
Agro-chemicals and other chemicals 390 41.4 428 48.7 (38) (8.9)
Building materials and infrastructure 127 13.5 76 8.7 51 67.1
Others 95 10.1 160 18.2 (65) (40.6)
----- ----- ----- ----- ----- -----
Total* 942 100.0 879 100.0 63 7.2
* Before deduction of joint general expenses
</TABLE>
The increase in operating profit stems mainly from a significant
improvement in the operating profit of Telrad and also of Mashav,
United Steel and Middle East Tubes. The increase in operating profit
was partially offset by termination of the consolidation of Tadiran
Telecommunications - NIS 176 million and of other companies which had
previously been consolidated - NIS 105 million and by a decline in the
operating profit of Tadiran (mainly in Tadiran Electronic Systems, TMN
and Telematics) and in Makhteshim-Agan.
FINANCING EXPENSES, NET in 1999 amounted to NIS 358 million compared
with NIS 251 million in 1998. For comparison purposes it is necessary
to take into account the fact that in 1999 there was a real
appreciation, in other words, the shekel appreciated in relation to
the American dollar vis-a-vis a 1.5% increase in the CPI whereas in
1998 there was a real devaluation of 7.7%. The increase in financing
expenses occurred mainly in Koor - the parent company - as a result of
an increase in total financial liabilities, net for financing the
purchase of ECI and Tadiran shares, mainly during the previous year,
in Makhteshim-Agan as a result of translation differences between the
Brazilian currency (the real) and the dollar, which derived from the
sharp devaluation of the Brazilian currency in the first quarter of
1999, in Telrad and in Mashav. In Tadiran there was a decline in
financing expenses as a result of the real appreciation in contrast to
a real devaluation in the previous year.
OTHER INCOME NET in 1999 amounted to NIS 107 million, compared with
OTHER INCOME, NET of NIS 71 million in 1998. This item consists mainly
of capital gains of NIS 642 million from divesting holdings in Tadiran
Com., Tekem, Tadiran Information Systems, Contahal, in subsidiaries
and affiliated companies of Telrad Holdings Ltd. (primarily ISDN -
NET), Phoenicia, and Merhav, compared with NIS 434 million in the
corresponding period of 1998 from divesting holdings in Gvanim,
Soltam, Home Center, Tambour and Wireless Communications at Tadiran.
The other expenses in this item are mainly a provision owing to the
uncertainty in Brazil - NIS 53 million at Makhteshim-Agan, NIS 49
million in amortisation of goodwill compared with NIS 27 million in
the corresponding period in 1998, and NIS 206 million for
supplementary severance pay, mainly in Makhteshim and Telrad, compared
with NIS 269 million in 1998. The item also includes other expenses of
NIS 266 million for a decline of asset value, particularly United
Steel, Hotels, Scopus and Tadiran Batteries and Tadiran Appliances due
to an anticipated loss from divestiture, and in Makhteshim-Agan due to
a reorganisation program compared with NIS 232 million in 1998.
PROFIT BEFORE INCOME TAX in 1999 amounted to NIS 587 million, compared
with NIS 390 million in 1998.
INCOME TAX in 1999 amounts to NIS 162 million, compared with NIS 234
million in 1998. The decline in income tax derives from the fact that
in 1999, the utilisation of capital losses and part of the operating
losses transferred for income tax purposes became anticipated, and
Koor accordingly recorded a tax asset of NIS 129 million against
recorded tax income. The decline in income tax also applies largely to
Makhteshim-Agan as a result of tax saved on translation differences
between the Brazilian currency and the dollar and from a relative
improvement in the contribution of subsidiaries whose tax rate is
lower than the average of all the Makhteshim-Agan companies, and as a
result of a decline in profit, and in Tadiran as a result of a decline
in pre-tax profit. In contrast income tax increased, mainly in Telrad
as a result of a significant increase in pre-tax profit. In addition,
the amount of income tax increased as a result of taxes on capital
gains mainly from the realisation of Tadiran Com. and Tadiran
Information Systems amounting to NIS 190 million compared with NIS 95
from the realisation of Gvanim in the previous year. Moreover Koor
received final income tax assessments for the 1992-1998 tax years on
the basis of which after the balance sheet date it paid approximately
NIS 28 million for these tax years. This amount is included in the tax
expenses for previous years. This enabled the release of deferred
taxes of NIS 35 million which was recorded in tax income.
EQUITY OF KOOR GROUP IN THE PROFITS OF AFFILIATES in 1999 amounted to
NIS 122 million, compared with NIS 62 million in 1998. This item
consists mainly of Koor's equity in the net profits of ECI - NIS 144
million compared with NIS 49 million in 1998, and Koor's equity in the
profits of the affiliated companies of Tadiran, Knafayim and Balton
C.P. less Koor's equity in the losses of BVR Systems, Herod's Hotel
and Ba-Li Travel.
MINORITY INTEREST in the losses of consolidated subsidiaries amounted
in 1999 to NIS 2 million, compared with NIS 240 million of minority
interest in the profits of consolidated subsidiaries in 1998. The
decrease in this item occurred mainly in the minority interest in the
profits of Tadiran as a result of the purchase offer for Tadiran
shares by Koor and termination of the consolidation of Tadiran
Telecommunications, and in the minority interest in the profits of
Makhteshim-Agan as a result of lower profits.
PROFIT FROM CONTINUED OPERATIONS IN 1999 AMOUNTED TO NIS 549 MILLION,
compared with a loss from continued operations of NIS 22 million in
1998.
RESULTS OF DISCONTINUED OPERATIONS, net, in 1998 amounted to NIS 69
million.
NET PROFIT IN 1999 AMOUNTED TO NIS 549 MILLION, compared with NIS 47
million in 1998.
B. ANALYSIS OF RESULTS BY SEGMENTS OF OPERATION
(1) TELECOMMUNICATIONS
The telecommunications segment in 1999 consisted mainly of
Telrad, in contrast to 1998 when two principal companies were
included in this segment - Tadiran Telecommunications and Telrad.
The investment in ECI as at the balance sheet date of NIS 3.1
billion is included on the equity basis.
SALES from this segment in 1999 amounted to NIS 2,200 million
compared with NIS 3,419 million in 1998; a decline of 35.7%. A
decline in sales amounting to NIS 1,717 million stems from
termination of the consolidation of Tadiran Telecommunications
from the beginning of 1999 which had been included in this
segment in 1998.
TELRAD increased its sales by NIS 484 million mainly as a result
of the increase in supplies to Nortel. Telrad's exports in 1999
amounted to $308 million which is higher by 29.4% than 1998's
export figure of $238 million. Sales to Nortel constitute a
substantial part of sales in the telecommunication segment. Sales
to Nortel in 1999 reached NIS 836 million - 38.0% of the sales in
the segment compared with NIS 533 million - 15.6% in 1998 (see
2D(2) above).
THE OPERATING PROFIT of the segment in 1999 amounted to NIS 261
million compared with NIS 47 million in 1998; an increase of
455.3%. R&D expenses, net which were intended for the development
of civilian communications, and wireless communications products
designated for export in TELRAD amounted to NIS 206 million
compared with NIS 124 million in the previous year.
INVESTMENTS IN FIXED ASSETS of the segment amounted in 1999 to
NIS 67 million compared with NIS 208 million in the previous
year.
(2) DEFENCE ELECTRONICS
The principal companies in this segment are Elisra, Tadiran
Electronic Systems and Spectralink. In addition, in 1998 and in
the first three quarter of 1999 this segment included Tadiran
Com. SALES of the segment in 1999 amounted to NIS 1,333 million
compared with NIS 1,573 million in 1998; a decrease of 15.3%. The
decrease of sales in this segment derives from the termination of
the consolidation of Tadiran Com. in the fourth quarter of 1999
and from a decrease in sales of Systems. In contrast there was an
increase in sales of Elisra.
THE OPERATING PROFIT of the segment in 1999 amounted to NIS 69
million compared with NIS 168 million in 1998, a decline of
58.9%. The decline in operating profit of the segment stems from
the termination of the consolidation of Tadiran Com. at the
beginning of the fourth quarter of 1999 and from a decline in the
operating profit of Systems. In contrast there was an increase in
the operating profit of Elisra.
INVESTMENTS in the fixed assets segment in 1999 amounted to NIS
43 million compared with NIS 68 million in 1998.
(3) AGRO-CHEMICALS AND OTHER CHEMICALS
The principal companies in this segment are MAKHTESHIM
(pesticides) and AGAN (herbicides and aroma chemicals). 1999 was
characterised by a structural change process which had a
substantial effect on the agro-chemicals segment (see 3 G above).
SALES of the segment in 1999 amounted to NIS 3,541 million
compared with NIS 3,377 million in 1998; an increase of 4.9%.
EXPORT AND INTERNATIONAL OPERATIONS of the segment in 1999
amounted to $703 million compared with $662 million in 1998; an
increase of 6.2% The principal overseas target markets in 1999
were Latin America (39.5%), Europe (29.0%) and North America
(17.6%). A substantial part of the increase in sales in Latin
America stemmed from the inclusion of the operations of the new
companies which had been acquired in the course of the previous
year.
The segment's OPERATING PROFIT in 1999 amounted to NIS 390
million compared with NIS 428 million in 1998; a decline of 8.9%.
In 1999 INVESTMENTS in the FIXED ASSETS segment and in the
licensing of products amounted to NIS 278 million compared with
NIS 341 million in 1998. The investments were applied to the
construction and adaptation of production and process absorption
installations for the production of new products, and in the
ecology field to the adaptation of installations to European
ecology and safety standards.
(4) CONSTRUCTION MATERIALS AND INFRASTRUCTURE
The principal companies in this segment are NESHER (cement),
UNITED STEEL MILLS AND MIDDLE EAST TUBES. In 1999 SALES in this
segment amounted to NIS 1,446 million compared with NIS 1,645
million in 1998; a decline of 12.1%.
The 1999 sales of MIDDLE EAST TUBES amounted to NIS 196 million
compared with NIS 241 million in 1998. The decline in the sales
turnover was caused primarily by an erosion in selling prices and
a decline in sales volumes owing to the continued slowdown in
investments in infrastructure and a decline in construction.
The OPERATING PROFIT of the segment in 1999 amounted to NIS 127
million compared with NIS 76 million in 1998; an increase of
67.1%. The decline in the operating loss was due mainly to UNITED
STEEL MILLS - NIS 38 million and MIDDLE EAST TUBES - NIS 10
million - an increase in operating profit.
INVESTMENTS IN FIXED ASSETS in the segment amounted in 1999 to
NIS 119 million compared with NIS 289 million in 1998. Most of
the companies in this segment were sold after the balance sheet
date.
(5) OTHERS
The principal companies in the segment belong to the TOURISM,
CONSUMER PRODUCTS, TRADE AND REAL ESTATE industries. In 1998 and
part of 1999 this segment contained companies belonging to the
software, food and metal industries.
SALES of the segment in 1999 amounted to NIS 2,155 million
compared with NIS 2,778 million in 1998; a decline of 22.4%. The
reported year did not include sales of Soltam, Pri Hagalil, Hod
Lavan, and others, holdings in which were sold in the course of
the previous year. The sales of Koor Metals, Yonah, Tekem,
Contahal and others, holdings in which were sold in the course of
1999, were included in part of the reported period.
THE OPERATING PROFIT of the segment in 1999 amounted to NIS 95
million compared with an operating profit of NIS 160 million in
1998; a decline of 40.6%.
INVESTMENTS IN FIXED ASSETS of the segment in 1999 amounted to
NIS 199 million compared with NIS 184 million in 1998.
C. SELECTED QUARTERLY DATA
-----------------------
1999 1998
--------------------------- ----------------------------
OPERATING NET OPERATING NET
QUARTER SALES PROFIT PROFIT SALES PROFIT PROFIT
------- ------ --------- ------ ------ --------- ------
IN MILLIONS OF ADJUSTED NIS
----------------------------------------------------------------------
1 2,670 169 47 3,072 196 44
2 2,657 147 95 3,121 169 135
3 2,966 332 170 3,252 192 68
4 2,382 190 237 3,347 155 (200)
------ ----- ------ ------ ----- ------
10,675 838 549 12,792 712 47
====== ===== ====== ====== ===== ======
PERCENTAGE
------------------------------------------------------------
% % % % % % %
----- ----- ----- ----- ----- ----- ------
1 25.0 20.2 8.5 24.0 27.5 93.6
2 24.9 17.5 17.3 24.4 23.7 287.2
3 27.8 39.6 31.0 25.4 27.0 144.7
4 22.3 22.7 43.2 26.2 21.8 (425.5)
----- ----- ----- ----- ----- ------
100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== ======
D. THE 4TH QUARTER OF 1999 COMPARED WITH THE 4TH QUARTER OF 1998
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
(IN ADJUSTED MILLIONS OF NIS)
CHANGE
10-12/99 % 10-12/98 % %
-------- ----- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Sales 2,382 100.0 3,347 100.0 (28.8)
Cost of sales 1,801 75.6 2,588 77.3 (30.4)
----- ----- ----- ----- -----
Gross profit 581 24.4 759 22.7 (23.5)
Selling expenses 227 9.5 323 9.7 (29.7)
General and administrative expenses 164 6.9 281 8.4 (41.6)
----- ----- ----- ----- -----
Operating profit 190 8.0 155 4.6 22.6
Finance expenses 50 2.1 104 3.1 (51.9)
----- ----- ----- ----- -----
140 5.9 51 1.5 174.5
Other income (expenses), net 79 3.3 (253) (7.5) -
----- ----- ----- ----- -----
Profit (loss) before taxes 219 9.2 (202) (6.0) -
Taxes on income 65 2.7 (29) (0.8) -
----- ----- ----- ----- -----
154 6.5 (173) (5.2)
Equity in results of affiliated companies 31 1.3 19 0.6 63.2
----- ----- ----- ----- -----
Profit (loss) before minority interest 185 7.8 (154) (4.6) -
Minority interest (52) (2.2) 46 1.4 -
----- ----- ----- ----- -----
Net profit (loss) for the quarter 237 10.0 (200) (6.0) -
=== ==== ===== =====
</TABLE>
THE PRINCIPAL POINTS TO BE NOTED in the results of Koor's operations
in the fourth quarter of 1999 compared with the fourth quarter of 1998
are the following:
SALES in the fourth quarter of 1999 amounted to NIS 2,382 million
compared with sales of NIS 3,347 million in the corresponding quarter
of the previous year; a decline of 28.8%.
The decline stems from the sales of previously consolidated companies
amounting to NIS 869 million (of which Tadiran Telecommunications -
NIS 492 million). In addition the decline in sales in the fourth
quarter of 1999 compared with sales in the corresponding quarter of
the previous year stems from the adjustment of the sales of companies
whose financial statements were adjusted on the basis of changes in
the exchange rate of the dollar, while Koor's consolidated financial
statements were adjusted on the basis of changes in the CPI. For
comparison purposes it is necessary to take into account the fact that
in the fourth quarter of 1999 there was a real appreciation of 3.5% as
opposed to a real devaluation of 3.5% in the corresponding quarter of
the previous year. In addition there was a decline in sales of a
number of companies in the fourth quarter of 1999 compared with the
corresponding quarter of 1998, mainly in Mashav and United Steel. In
contrast there had been an increase in sales in the fourth quarter of
1999 compared with the corresponding quarter of the previous year,
mainly in Telrad. Moreover there was an increase in sales in the
reported quarter as a result of the consolidation for the first time
of Moriah Hotels starting from the beginning of the second quarter of
1999.
EXPORT and international operations in dollar terms in the fourth
quarter of 1999 amounted to $337 million compared with $414 million
in the corresponding quarter of the previous year. The decline
stemming from the export of companies which had previously been
consolidated amounts to $101 million (of which Tadiran
Telecommunications - $79 million). In contrast there was an increase
in export, mainly in Telrad - $31 million.
THE GROSS PROFIT of NIS 581 million in the last quarter of 1999 is
lower than the gross profit of NIS 759 million in the last quarter of
1998. In the fourth quarter of 1999 there was a decline in the
absolute amount of gross profit compared with the corresponding
quarter of the previous year as a result of the termination of the
consolidation of Tadiran Telecommunications - NIS 166 million and of
other companies in which holdings were sold - NIS 105 million. In
addition there was a decline in the gross profit of Mashav and
Tadiran. In contrast there was an increase in gross profit, mainly in
Telrad and United Steel and Middle East Tubes.
THE GROSS PROFIT MARGIN from sales in the last quarter of 1999 reached
24.4% compared with 22.7% in the corresponding quarter of the previous
year.
SELLING EXPENSES in the fourth quarter of 1999 amounted to NIS 227
million compared with NIS 323 million in the corresponding quarter of
the previous year. The percentage of selling expenses from sales -
9.5% - is lower than that of the corresponding quarter of the previous
year - 9.7%.
A decline stemming from the selling expenses of the companies which
had previously been consolidated amounts to NIS 81 million (of which
Tadiran Telecommunications - NIS 56 million).
GENERAL AND ADMINISTRATIVE EXPENSES in the last quarter of 1999
amounted to NIS 164 million compared with NIS 281 million in the
corresponding quarter of the previous year. The percentage of general
and administrative expenses from sales declined from 8.4% in the
corresponding quarter of the previous year to 6.9% in the last quarter
of 1999. The decline in administrative expenses occurred mainly as a
result of the downsizing of Tadiran's headquarters. A decline stemming
from the administrative expenses of Tadiran Telecommunications
amounted to NIS 34 million, and of other companies which had
previously been consolidated, to NIS 51 million.
KOOR'S OPERATING PROFIT in the last quarter of 1999 amounted to NIS
190 million compared with NIS 155 million in the last quarter of 1998.
The increase in operating profit in the last quarter of 1999 was
recorded mainly in Telrad and also in Middle East Tubes and United
Steel. The increase in operating profit was partially offset by the
termination of the consolidation of Tadiran Telecommunications - NIS
76 million and a decline in operating profit, mainly in
Makhteshim-Agan. The percentage of operating profit in the last
quarter of 1999 is 8.0% compared with 4.6% in the corresponding
quarter of the previous year.
FINANCING EXPENSES in the fourth quarter of 1999 amounted to NIS 50
million compared with NIS 104 million in the fourth quarter of 1998.
In order to make comparisons it is necessary to take into account the
fact that in the fourth quarter of 1999 there was a real appreciation
of 3.5% compared with a real devaluation of 3.5% in the corresponding
quarter of the previous year. This led to a decrease in financing
expenses, mainly in Koor - the parent company - and in other
companies.
OTHER INCOME, NET in the fourth quarter of 1999 amounted to NIS 79
million compared with other expenses amounting to NIS 253 million in
the fourth quarter of the previous year. This item contains mainly
capital gains of NIS 336 million from divesting holdings, mainly in
Tadiran Com., compared with NIS 22 million in the corresponding
quarter of the previous year. The other expenses in this item are
primarily expenses for supplementary severance pay amounting to NIS
143 million, mainly in Makhteshim and Telrad compared with NIS 220
million in the corresponding quarter of the previous year. This item
also contains other expenses amounting to NIS 123 million for a
decline in asset value, mainly in Makhteshim and United Steel compared
with NIS 47 million in the fourth quarter of 1998.
INCOME TAX EXPENSES in the last quarter of 1999 amounted to NIS 65
million compared with income of NIS 29 million in the corresponding
quarter of the previous year. The increase in this item is due to
capital gains taxes, mainly from the realisation of Tadiran Com.,
amounting to NIS 152 million, which was offset by recording tax income
of NIS 79 million resulting from the fact that utilisation of capital
losses and part of the business losses transferred for tax purposes
became possible. In addition, there was an increase in the amount of
income tax in Telrad compared with a decrease in Makhteshim-Agan.
EQUITY IN THE PROFITS OF AFFILIATED COMPANIES in the last quarter of
1999 amounted to NIS 31 million compared with NIS 19 million in the
corresponding quarter of the previous year. This item consists mainly
of Koor's equity in the profits of ECI, less Koor's equity in the
losses of BVR Systems.
MINORITY INTEREST IN THE LOSSES OF CONSOLIDATED COMPANIES, NET in the
last quarter of 1999 amounted to NIS 52 million compared with the
minority interest in profits of NIS 46 million in the last quarter of
1998. This item contains mainly the minority interest in the losses of
Makhteshim-Agan.
NET PROFIT in the last quarter of 1999 reached NIS 237 million
compared with a loss of NIS 200 million in the last quarter of 1998.
5. LIQUIDITY AND SOURCES OF FINANCE
WORKING CAPITAL as at 31 December, 1999 amounts to NIS 910 million,
compared with NIS 3,487 million at 31 December, 1998. The current
ratio is now 1.13, compared with 1.52 at the end of last year, and the
quick ratio is now 0.85, compared with 1.16 at the end of last year.
CASH FLOWS FROM OPERATING ACTIVITIES in 1999 amounted to NIS 721
million, compared with NIS 680 in 1998. Permanent cash flow from
operating activities, i.e., net profit plus income and expenses not
involving cash flows - amounted to NIS 717 million in 1999 compared
with NIS 767 in 1998. The share of depreciation and amortisation
amounts in the permanent cash flow in the reported year amounted to
NIS 570 million compared with NIS 683 million in the corresponding
period of the previous year. The decline in the assets and liabilities
items linked to operating activities, mainly customers and receivables
items less an increase in suppliers and payables in 1999, amounting to
NIS 4 million, caused an increase in cash flow from operating
activities compared with an increase in these items of NIS 88 million
in the corresponding period of the previous year. The increase in the
customers and receivables item of NIS 364 million occurred mainly at
Telrad and Makhteshim-Agan and derived from an expansion of customer
credit. The NIS 399 million increase in the suppliers and accounts
Payable item occurred mainly at Makhteshim-Agan, Telrad and Tadiran.
INVESTMENT ACTIVITIES in 1999 consumed NIS 1,743 million compared with
NIS 4,296 million in 1998. Investment in fixed assets, net - after
deduction of an investment grant - amounted to NIS 717 million,
compared with NIS 1,133 million last year, and constitutes 125.8% of
depreciation and amortisation, compared with 165.8% last year.
Principal investments in the reported period were in Makhteshim-Agan,
Mashav, Tadiran, Telrad and Y.D. Vehicles and Transportation. Receipts
from the realisation of fixed assets and investments contributed NIS
833 million to cash flow from investment activities compared with NIS
926 million last year. This amount consists mainly of the
consideration for realisation of the holdings in Tadiran Com., Tekem,
Tadiran Information Systems, Contahal, Koor Finance, Merhav and others
and also from the realisation of fixed assets, mainly in Sheraton
Moriah Hotels and a car rental company and Tadiran.
The investment in affiliated companies in 1999 amounted to NIS 887
million, primarily ECI - NIS 662 million, BVR - NIS 141 million, and
City Tower and Herod's Hotel - NIS 70 million.
The investment in consolidated companies in 1999 amounted to NIS 119
million, which consists mainly of the balance of Tadiran shares
purchased in the framework of the purchase offer. The investment in
consolidated companies which were consolidated for the first time in
1999 amounted to NIS 234 million and it consists mainly of the
acquisition of Sheraton Moriah Hotels.
FINANCING ACTIVITIES in 1999 contributed NIS 989 million compared with
NIS 3,708 million last year. The long-term loans received in the
reported period amounted to NIS 764 million, compared with NIS 3,395
million in the corresponding period last year. The major part of the
loans were received in Makhteshim-Agan, Telrad, Tadiran, Koor - the
parent company, Mashav and Middle East Tubes. Repayment of long-term
loans and debentures in the reported period amounted to NIS 606
million in 1999, compared with NIS 685 million in 1998. The amount of
long-term loan repayment refers mainly to Makhteshim-Agan, Koor - the
parent company, Koor Issuances, Telrad, and Mashav. The increase in
short-term credit, net, amounted in 1999 to NIS 914 million compared
with NIS 173 million in 1998. Most of the increase was at Koor - the
parent company, Tadiran, Mashav and United Steel..
In 1999, a dividend was paid to the shareholders of Koor Industries Ltd.
in the amount of NIS 144 million.
TOTAL CASH AND CASH EQUIVALENTS declined in 1999 by NIS 43 million,
net. The decline was mainly at Tadiran and Makhteshim-Agan and it was
offset by an increase in cash, mainly at Koor - the parent company -
and Telrad.
AVERAGE CREDIT VOLUME
NIS MILLIONS
------------
Long term loans, including debentures 4,304
Short-term credit 2,938
Supplier credit 1,484
Customer credit 3,394
6. EFFECT OF EXTERNAL FACTORS
A. THE NEED TO DEVELOP NEW PRODUCTS AND DEPENDENCE ON THE SUPPLY OF
KNOW-HOW FROM OVERSEAS IN THE TELECOMMUNICATIONS AND DEFENCE
ELECTRONICS INDUSTRIES
In 1999 and 1998 the telecommunications and defence electronics
segments constituted 33.1% and 39.0% respectively of Koor's
consolidated sales and 82.5% and 86.0% respectively of
consolidated research and development expenses. In addition, the
investment in ECI as at the balance sheet date amounting to NIS
3.1 billion was included on the equity basis. These segments are
characterised by extremely rapid technological developments. This
is the reason that the degree of success in predicting
technological changes is a significant factor in the capabilities
of the telecommunications and defence electronics segments to
grow and maintain their competitiveness.
B. DEPENDENCE ON EXPIRY OF PATENTS IN THE AGRO-CHEMICALS SEGMENT
In 1999 and 1998 sales of the chemicals segment constituted 33.2%
and 26.4% respectively of all Koor's consolidated sales. The
companies in this segment specialise in the enhancement and
production of generic products in the agro-chemical segment based
on patents which have expired. The development of new generic
products requires substantial investments in research and
development, product licensing, setting up production lines and
marketing. The success of market penetration of new generic
products shortly after expiry of a patent is a prerequisite for
the growth of the agricultural chemicals segment. Patent
protection in Europe is valid for 20 years from the date of the
application. In the initial segment of the patent period
companies owning the patent license the product in various
countries.
In February 1997 European patent authorities approved an extension
of the patent validity period in respect of patents submitted for
registration since 1985 and onward. This extension of the patent
period will guarantee the patent owner an exclusive selling
period of 15 years from the date of receipt of the first license
provided that the extension does not exceed 5 years. In most
countries the marketing of new products is contingent upon
obtaining a license from the qualified authorities. Obtaining
licenses is a lengthy process involving substantial costs. A
possible delay in the development of new products and/or
obtaining the requisite licenses is liable to have a negative
effect on the results of operations and the financial condition
of this segment.
C. DECLINE IN DEMAND FOR MILITARY PRODUCTS
In 1999 and 1998 the sales of military products constituted 14.6%
and 10.9% respectively of all Koor's consolidated sales. In the
world and in Israel the trend is for a decline in demand for
military products. A strengthening of this trend is liable to
have a negative effect on productivity and the financial
condition, particularly in the defence electronics segment.
D. DEPENDENCE ON KEY CUSTOMERS AND SUPPLIERS
Telrad is largely dependent on its relationship with Nortel which
is a supplier of know-how, a shareholder and key customer of the
company. This dependence will be substantially reduced after
conclusion of the transaction with Nortel (see 2 D2 above).
E. GOVERNMENT CONTRACTS
Some of the government contracts, under which the purchases from
the Koor Group companies are effected contain a termination for
convenience clause which permits the customer to terminate a
contract at its discretion. Should a contract be terminated for
this reason the company is entitled to reimbursement of the
expenses incurred in the framework of the terminated contract,
and in most cases it is also entitled to compensation for
expected loss of profit. However, in certain contracts, or under
special circumstances pursuant to other contracts, the company is
liable not to be entitled to any compensation at all or only to
partial compensation, and is therefore obliged to bear losses
equivalent to its investments in the project. Furthermore, some
of the contracts contain clauses permitting a temporary
suspension of the contract, where in some cases the customer is
not obligated to compensate the company for costs incurred as a
result of the suspension.
F. DEPENDENCE ON GOVERNMENT POLICIES OF SUPPORT FOR INDUSTRY
In 1999 and 1998 Koor benefited from government grants in the
area of investment encouragement and research and development as
follows:
1999 1998
NIS MILLIONS NIS MILLIONS
------------ ------------
Investments grant 45 16
============ ============
Research and development 52 144
============ ============
A change in government policy in these areas is liable to have a
negative effect on profitability and the company's financial
condition.
G. CHANGES IN THE EXCHANGE RATE AND THE EFFECT OF INFLATION
Exports constitute a substantial part of Koor's sales. Exporting
companies receiving most of their export considerations in US
dollars and other foreign currencies bear a considerable
proportion of the costs in Israeli currency. Other companies,
whose sales are destined for the local market, bear part of the
costs in US dollars and other foreign currencies. The income of
the telecommunications, defence electronics and chemicals
segments is in US dollars while some of the costs are in Israeli
currency and some are linked to the CPI. In addition, some of the
loans are linked to the US dollar or to other foreign currencies
or the CPI. In order to finance investments in ECI and
consolidated companies, Koor - the parent company - took out
dollar-linked loans, which as at the balance sheet date amount to
approximately NIS 2.4 billion, of which dollar-linked loans
amounting to approximately NIS 1.9 billion are specific loans for
the acquisition of companies whose operating currency is the US
dollar, and consequently exchange rate differentials therefor are
allocated to the adjustments deriving from translation of the
financial statements of investee companies in foreign currency.
These are the reasons that the creation of gaps between
devaluation rates and the rate of inflation is liable to have a
negative effect on the operating results and on the financial
condition of the company.
As at the balance sheet date, pursuant to a resolution passed by
the Board of Directors, protection transactions amounting to
approximately $350 million were concluded in order to hedge
dollar loans, net and considerations received after the balance
sheet date. Since the date of the annual financial statements
Koor regards the US dollar as its operating currency and
consequently significant dollar hedging transactions have not
been concluded after the date of the balance sheet.
H. TRADE RESTRICTIONS
1) The Commissioner of Restrictive Trade Practices approved
certain marketing arrangements in respect of MAKHTESHIM-AGAN.
UNITED STEEL MILLS (United Steel) was not declared a monopoly
in the supply of its products, including embossed steel for
construction, however, in the framework of a settlement with
the Restrictive Trade Practices Authority, it undertook to
comply with the rules laid down by the Commissioner. USM will
examine the possibility of requesting the cancellation of
these rules depending on the development of competition in the
steel market. On 28 August, 1997 United Steel was declared a
monopoly (monopsony) in respect of the purchase in Israel of
the scrap steel used as a raw material in its products. In
this specific market it is therefore subject to the provisions
of the Restrictive Trade Practices Law 5748 - 1988, which
relates to the matter of monopolistic behaviour.
2) In October 1997, following the publication of a newspaper
article containing details about alleged violations of the law
regarding price coordination and the lack of competition,
between TADIRAN and its subsidiary TADIRAN TELECOMMUNICATIONS
and TELRAD, the Commissioner of Restrictive Trade Practices
(the "Commissioner") conducted an investigation in the offices
of Koor, Telrad, Tadiran and Tadiran Telecommunications during
which certain documents were confiscated, certain employees
were questioned and additional information was submitted as
requested. Pursuant to the law, fines can be imposed on the
violating party and consequences in the civilian domain are
possible should it be proven that damage stemming from a
breach of the law was incurred.
On 13 December, 1998 the Commissioner issued a press release,
in which he announced that the Investigations Department of
the Restrictive Trade Practices Authority (the "Authority")
had concluded the investigation launched during the past year
in connection with suspected restrictive arrangements between
Koor, Tadiran Telecommunications, Telrad, Bezeq and Bezeqcall
relating to the supply of switchboards for public switching
and to C.P.E. operations. According to information released to
the press by the Commissioner, the investigators of the
Investigation Department of the Authority recommended
submitting indictments against some of the investigated
employees regarding some of the suspicions investigated, and
that the Legal Department of the Authority was to decide if
offenses were in fact committed and if there is sufficient
evidential basis for a trial. Since said press release nothing
has been mentioned regarding the details of the findings of
the Legal Department of the Authority.
The managements of Koor, Tadiran and Telrad, after consulting
with their legal advisers, are of the opinion that, at this
stage, as long as the results of the Commissioner's
investigations have not been published, it is still impossible
to assess potential developments in the matter, and to
determine whether a significant loss is expected to result.
Accordingly it was not considered appropriate to make any
provision for this matter in the financial statements.
3) Pursuant to the directives of the Commissioner in the terms of
the permit granted for a merger of Claridge Group with the
Company and the amendments thereto, various restrictions were
imposed on Claridge Group, Koor and the companies in the Koor
Group. Upon conclusion of the sale of Koor's holding in Mashav
Initiation and Development Ltd. these restrictions were
cancelled.
I. PRESERVATION OF THE ENVIRONMENT
The activity of the companies in the Koor Group is liable to harm
environmental preservation since it produces, uses, conducts,
stores and sells poisonous and other materials. The companies
believe that they comply with the provisions of the relevant laws
and regulations. The companies have incurred significant expenses
and made significant investments to comply with environmental
regulations and laws. Koor is unable to estimate the scope of
additional investments which are liable to become necessary
following further demands, if any, by virtue of amendments to the
law, including investments in the adaptation of products to
requirements. It should be noted that the risks of causing
environmental damage cannot be insured.
J. ADDRESSING THE Y2K ISSUE
The essence of the year 2000 issue (Y2K) is possible failure of
computer systems in reading the date.
The matter relates to data which are stored in data bases,
application programs, computer platform systems,
computer-embedded systems (such as production systems,
switchboards and elevators) and the like, in which the date is
defined in a 6-character field (in which 2 characters represent
the year), rather than an 8-character field (in which 4
characters represent the year).
In addition, in some systems the digits "99" in the year field
were defined as a combination that does not indicate the year
1999.
Data systems from the high-risk group which are not adapted are
susceptible to a range of malfunctions, including total shutdown,
partial work, or work accomplished while providing erroneous data
to users who will be unaware of the errors.
Such malfunctions could well harm the current operations of the
corporation, including its financial reporting.
The Company sees fit to emphasise that an inherent uncertainty
exists in respect of the Y2K issue.
It is not possible to guarantee that all aspects of the Y2K issue
impacting on Group companies, including aspects relating to third
parties, will be fully resolved.
Critical systems have been identified in all companies in the
Group. These systems are operated mainly by outside entities
(service providers). The Group's companies have implemented a
strategy of action for dealing with the Y2K issue, which includes
the formulation of contingency plans.
According to reports from companies in the Group, by the date of
this report, no failures and/or malfunctions relating to the Y2K
issue had been detected in the transition to the year 2000, or on
other dates defined as critical.
Pursuant to the Securities Regulations, below is a report on how
Koor is addressing the Y2K issue.
ATTACHED QUESTIONNAIRE
ADDENDUM
(Regulation 2)
REPORT ON ADDRESSING THE Y2K ISSUE
1. DETAILS OF PLANS FOR SOLVING Y2K BUG PROBLEMS
a. Do you have a list of computer systems and computer-integrated
systems used by the corporation in its operations? YES
b. Have you identified critical systems? YES
c. Are the systems operated by the corporation? Yes/No
IN SOME OF THE INVESTEE COMPANIES, OPERATION IS BY THE CORPORATIONS
THEMSELVES AND OTHERS ARE OPERATED BY OUTSIDE ENTITIES, SUCH AS
SERVICE PROVIDERS.
d. If the answer to (c) is no, state whether the service is provided
by a service provider, a subsidiary or other entity, and what means
the corporation is employing to ensure organisation in good time
for the year 2000.
THE CORPORATIONS APPLIED TO THE PROVIDERS OF THE DATA FOR RECEIPT
OF A DOCUMENT OF READINESS OF THE SYSTEMS FOR THE YEAR 2000,
INCLUDING THE METHODS EMPLOYED FOR DEALING WITH THE ISSUE. IN THIS
CONTEXT, AN EXPLANATION IS REQUIRED OF INTERMEDIATE SITUATIONS,
SUCH AS WHERE SOME OF THE SYSTEMS ARE MANAGED BY THE CORPORATION
AND SOME BY OTHERS.
THE SERVICE CAN BE PROVIDED TO AN INVESTEE CORPORATION BY AN
OUTSIDE SERVICE PROVIDER, A SUBSIDIARY OR ANOTHER OUTSIDE ENTITY.
e. Does the corporation have plans for dealing with the Y2K issue? YES
EACH OF THE INVESTEE CORPORATIONS HAS A PROGRAM FOR DEALING WITH
THE Y2K ISSUE.
f. If the answer to (e) is yes, to which systems does the program refer?
(Circle the appropriate answers. More than one answer is possible.)
(1) All systems
(2) Critical systems
(3) Computer-integrated systems
(4) Communications systems
(5) Interfaces with computer systems of third parties which are
linked to the corporation's systems
Give details:
IN SOME OF THE CORPORATIONS THE PROGRAM RELATES TO ALL SYSTEMS, IN
OTHERS IT RELATES ONLY TO THE CRITICAL SYSTEMS AND IN SOME ONLY TO
SPECIFIC SYSTEMS.
IN GENERAL, EACH INVESTEE CORPORATION HAS A PROGRAM FOR ADDRESSING
THE Y2K ISSUE.
g. If the answer to (e) is no, state the reasons therefor and how the
corporation intends to address the Y2K issue.
NOT APPLICABLE.
h. If the Y2K bug problem is not material to the functioning of the
corporation's computer systems, state the reason.
NOT APPLICABLE.
2. COST OF ADDRESSING THE Y2K ISSUE
Give details of investments made in addressing the Y2K issue, according
to financial year:
Financial Have costs or If yes, describe the activities Approximate
year budgets been included in the planned costs amounts,
designated? in NIS
millions
-------------------------------------------------------------------------
1998 YES CONVERSION AND REPLACEMENT OF 46
SYSTEMS.
1999 YES CONVERSION, REPLACEMENT AND 86
ASSIMILATION OF SYSTEMS
2000 YES REPAIRS AND DEALING WITH ANY 4
PROBLEMS
------------------------------------------------------------------------
For the current year - will the corporation meet the planned budget?
AT THIS STAGE, EACH INVESTEE CORPORATION IS WITHIN THE PLANNED BUDGET.
3. HUMAN RESOURCES FOR THE PLAN
List the persons appointed to be responsible for implementation of the
company's Y2K activities.
EACH CORPORATION IN THE GROUP, INCLUDING COMPANY HEADQUARTERS, HAS
APPOINTED A SENIOR PERSON TO BE RESPONSIBLE AND/OR A STEERING COMMITTEE
TO COORDINATE THE HANDLING OF Y2K PROBLEMS.
4. OUTSIDE PROFESSIONAL ASSISTANCE
Have you hired professional assistance? YES
OUTSIDE PROFESSIONAL ASSISTANCE HAS BEEN HIRED BY SOME OF THE COMPANIES
IN THE GROUP.
If yes, state the type of assistance (more than one answer is possible).
1. Assessment of the problem.
2. Insertion of corrections in the system.
3. System replacement.
4. Internal audit.
5. Instruction.
6. Supplier assessment.
7. Testing of communications systems to third party.
IN EACH OF THE CORPORATIONS, THE OUTSIDE PROFESSIONAL ASSISTANCE
RELATES TO SEVERAL OF THE TYPES OF ASSISTANCE LISTED ABOVE, AS MAY BE
NECESSARY.
5. PROGRESS ASSESSMENT
a. How is progress assessed? (more than one answer is possible).
(1) Periodic discussions for assessing progress? In which forums?
DISCUSSIONS IN THE STEERING COMMITTEES AND MANAGEMENTS OF THE
GROUP'S CORPORATIONS.
(2) Written reports on fixed dates? To whom?
REPORTS ARE MADE IN WRITING, USUALLY TO CORPORATION MANAGEMENTS.
(3) Describe any other monitoring methods.
IN A NUMBER OF CASES, OTHER MEANS OF MONITORING AND CONTROL ARE
IN PLACE, SUCH AS GANTT CHARTS AND COMPLIANCE WITH TIMETABLES.
b. Does the Board of Directors receive a regular report? YES
If yes, how often? If not, why not?
SINCE JANUARY 1999, ALL THE INVESTEE CORPORATION AND THE COMPANY
HAVE STARTED TO REPORT REGULARLY TO THEIR BOARDS OF DIRECTORS AT
LEAST QUARTERLY.
6. COMPLIANCE WITH TIMETABLE
Is the company keeping to the timetable it set for itself for addressing
the Y2K issue? YES
ALL OF THE INVESTEE CORPORATIONS HAVE REPORTED THAT THEY ARE KEEPING TO
THE TIMETABLES SET FOR DEALING WITH THE Y2K ISSUE.
7. CONTINGENCY PLAN FOR SYSTEM FAILURE
Is there a contingency plan for system failure due to the Y2K issue?
Yes/No If yes, describe the main points of the plan. If not, explain
why not.
SOME OF THE PRINCIPAL INVESTEE CORPORATIONS IN THE GROUP HAVE SUCH A
PLAN.
8. THIRD PARTY SYSTEMS
Is there a list of existing third party systems which are critical for
the operation of the corporation?
YES
To what extent are these systems ready?
AS PART OF ITS ASSESSMENT OF THE PROBLEM, EACH CORPORATION MAPPED THIRD
PARTY CRITICAL SYSTEMS. THE CORPORATIONS ADDRESSED THESE PARTIES FOR
RECEIPT OF DOCUMENTS ATTESTING TO READINESS AND THE WAYS IN WHICH THEY
ARE DEALING WITH THE ISSUE.
COMFORT LETTERS HAVE NOT YET BEEN RECEIVED FROM ALL OF THESE ENTITIES.
IN ADDITION, ALL THE COMPANIES OF THE GROUP ARE EXPOSED TO NATIONAL
INFRASTRUCTURE SUPPLIERS SUCH AS ISRAEL ELECTRIC CORPORATION, BEZEQ,
TRANSPORTATION INFRASTRUCTURES, ETC.
9. ADDITIONAL INFORMATION
State any additional information which you believe to be important for
the reasonable investor, relating to the Y2K issue in your corporation.
9.1 KOOR INDUSTRIES LTD. ("KOOR") IS A HOLDING COMPANY, ALL OF WHOSE
BUSINESSES AND OPERATIONS ARE IN FACT MANAGED BY INVESTEE
COMPANIES, AND THEREFORE THE EXTENT OF READINESS OF ITS INVESTEE
COMPANIES IS LIABLE TO AFFECT KOOR ITSELF.
MOST OF THE ACTIVITIES IN ADDRESSING THE Y2K ISSUE ARE CARRIED OUT
IN THE INVESTEE COMPANIES. IN THESE COMPANIES, THE ISSUE INVOLVES
MAINLY THE TELECOMMUNICATIONS AND DEFENCE ELECTRONICS FIELDS. IT
IS POSSIBLE THAT KOOR WILL REALISE, IN RETROSPECT, THAT SOME OF
THE ACTIONS WERE INADEQUATE, OR DO NOT PROVIDE AN APPROPRIATE
SOLUTION TO THE Y2K PROBLEM, FOR A VARIETY OF REASONS, SUCH AS THE
"DOMINO EFFECT" - FAILURE OF THE SYSTEMS OF INVESTEE COMPANIES
AND/OR OF THIRD PARTIES WHICH AFFECT THE COMPANY (AND WHICH THE
COMPANY DOES NOT CONTROL), INADEQUATE IMPLEMENTATION OF THE PLANS,
INEXACT OR INCOMPLETE IDENTIFICATION OF POSSIBLE FAILURES BETWEEN
THE COMPANY AND THE INVESTEE COMPANIES, AND FAILURES IN THE LINK
BETWEEN DIFFERENT COMPUTER SYSTEMS (SUCH AS INTERFACES BETWEEN THE
COMPUTER SYSTEMS OF THE COMPANY AND OTHER COMPUTER SYSTEMS).
9.2 KOOR IS TAKING STEPS AND MAKING EFFORTS TO PREPARE ITSELF AND TO
ENSURE THAT THE INVESTEE COMPANIES ARE ALSO READY FOR THE YEAR
2000. EACH COMPANY HAS APPOINTED A RESPONSIBLE SENIOR PERSON OR
STEERING COMMITTEE TO COORDINATE AND MONITOR THE ISSUE, AND THESE
ARE MONITORING THE ISSUE SO AS TO PINPOINT ANY PROBLEMS ASSOCIATED
WITH THE ISSUE AND FIND SOLUTIONS IN A TIMELY MANNER.
9.3 ALL OF THE COMPANIES IN THE GROUP ARE EXPOSED TO FAILURE OF THE
SYSTEMS OF NATIONAL INFRASTRUCTURE PROVIDERS - ISRAEL ELECTRIC
CORPORATION, BEZEQ, ETC.
FURTHERMORE, IN SOME OF THE INVESTEE COMPANIES - SUCH AS TELRAD
NETWORKS LTD. ("TELRAD"), TADIRAN LTD. ("TADIRAN") AND ECI TELECOM
LTD. ("ECI") - ADDITIONAL EXPOSURE DERIVES FROM THE FACT THAT THEY
SELL COMPUTER-EMBEDDED COMMUNICATIONS SYSTEMS. ON THIS POINT, SEE
SECTION 9.6 BELOW.
9.4 THE INFORMATION SET OUT HERE SHOULD NOT BE CONSTRUED AS A
REPRESENTATION OR UNDERTAKING THAT KOOR, ITS INVESTEE COMPANIES OR
ITS BUSINESS ENVIRONMENT WILL BE FULLY PREPARED FOR THE YEAR 2000,
OR THAT FAILURES IN THIS REGARD WILL NOT CAUSE, DIRECTLY OR
INDIRECTLY, MATERIAL DAMAGES IN THE COMPANY.
9.5 THE INVESTEE COMPANIES IN WHICH KOOR'S INVESTMENT IS MATERIAL AND
WHOSE SECURITIES ARE LISTED ON THE TEL AVIV STOCK EXCHANGE AS AT THE
BALANCE SHEET DATE, ARE THESE: M. A. INDUSTRIES LTD., MIDDLE EAST
TUBES LTD., UNITED STEEL MILLS LTD.
THESE COMPANIES PUBLISHED THEIR FINANCIAL REPORTS SEPARATELY, AND
THOSE REPORTS INCLUDE DETAILS OF THEIR ACTIVITIES IN RESPECT OF
THE YEAR 2000 ISSUE, IN COMPLIANCE WITH THE SECURITIES REGULATIONS
(RULES FOR REPORTING ON PREPARATION FOR SOLVING THE YEAR 2000
PROBLEM), 5758-1998, AND SHOULD BE REFERRED TO. ACCORDINGLY, THE
STATEMENTS MADE HERE DO NOT REFER TO THOSE COMPANIES.
9.6 KOOR HAS APPLIED TO THE INVESTEE COMPANIES, REQUESTING INFORMATION
ON THEIR PREPARATIONS FOR THE YEAR 2000 TO WHICH IT COULD REFER IN
THE ABOVE DIRECTORS' REPORT. BELOW ARE SOME OF THE POINTS WHICH
AROSE, INTER ALIA, FROM THE QUESTIONNAIRES WHICH WERE FILLED IN BY
THE INVESTEE COMPANIES. WE NOTE THAT THE REVIEW BELOW IS PRESENTED
TO THE BEST OF KOOR'S KNOWLEDGE, AND IS BASED ON THE ANSWERS IT
RECEIVED FROM THE INVESTEE COMPANIES.
o ECI TELECOM LTD. (ECI) (IN WHICH KOOR'S HOLDING AS AT THE
BALANCE SHEET DATE IS 34.1%) -ECI HAS PUBLISHED DETAILS OF ITS
PREPARATIONS ACCORDING TO THE REPORTING RULES APPLICABLE TO
IT.
o TELRAD (HOLDING AS AT THE BALANCE SHEET DATE - 80%) - TELRAD
ADVISED THAT A FIRST REPORT WAS CONVEYED TO THE BOARD OF
DIRECTORS IN MARCH 1999, SINCE WHEN REPORTS HAVE BEEN MADE
PERIODICALLY. ASSESSMENT OF PROGRESS IN DEALING WITH THE ISSUE
IS MADE BY MEANS OF FOLLOW-UP DISCUSSIONS WITH THE RESPONSIBLE
ENTITIES. ACCORDING TO ITS REPORTS, TELRAD HAS A DETAILED WORK
PLAN FOR DEALING WITH THE ISSUE AND IS KEEPING TO THE
TIMETABLE IT SET FOR ITSELF. TELRAD ALSO NOTED THAT IT HAS NOT
YET COMPLETED ITS Y2K CONTINGENCY PLANS. THESE ARE IN
PREPARATION. TO THE BEST OF TELRAD'S KNOWLEDGE, ITS BUSINESS
ACTIVITIES ARE NOT EXPECTED TO BE SIGNIFICANTLY HARMED ON
1.1.2000 AND ONWARDS.
ACCORDING TO ITS REPORTS, TELRAD HAS MADE TIMELY PREPARATION
WITH REGARD TO THE COMPUTER-EMBEDDED SYSTEMS WHICH IT SELLS TO
ITS CUSTOMERS, AND, WHERE RELEVANT, HAS OFFERED THEM SOLUTIONS
BY WAY OF APPROPRIATE UPGRADING AND ADAPTATION.
SINCE 1 JUNE, 1999, THE OPERATION OF INFORMATION SYSTEMS IN
THE CORPORATION IS OUTSOURCED TO A SUBCONTRACTOR, TADIRAN
INFORMATION SYSTEMS LTD. (TIS), UNDER THE SUPERVISION OF THE
CORPORATION'S OWN INFORMATION SYSTEMS MANAGER. TIS REPORTED
THAT IT HAS A Y2K PROGRAM AND THAT IT IS OPERATING
ACCORDINGLY.
THE CORPORATION HAS REPORTED THAT IT DID NOT DETECT ANY SYSTEM
FAILURES IN THE TRANSITION TO THE YEAR 2000.
o TADIRAN (HOLDING AS AT BALANCE SHEET DATE - 100%) - MOST OF
THE MANAGERIAL DATA SYSTEMS OF TADIRAN AND OF ITS SUBSIDIARIES
WERE DEVELOPED AND ARE OPERATED BY TADIRAN INFORMATION SYSTEMS
LTD. (TIS) BY OUTSOURCING. TADIRAN REPORTED THAT IT HAS Y2K
PLANS UNDER AN AGREEMENT WITH TIS FOR THE ADAPTATION OF THE
MANAGERIAL DATA SYSTEMS TO THE YEAR 2000, FOR ITSELF AND FOR
ALL OF ITS SUBSIDIARIES. ACCORDING TO THE REPORTS, THE COMPANY
AND ITS SUBSIDIARIES HAVE PLANS FOR DEALING WITH THE ISSUE AND
ARE KEEPING TO THE TIMETABLES THEY SET FOR THEMSELVES.
THE TADIRAN SUBSIDIARIES WHICH OPERATE INDEPENDENT DATA
SYSTEMS (ENGINEERING AND PERSONAL) ARE EFFECTING THE
ADAPTATIONS THEMSELVES OR, IN CASES OF PURCHASED SYSTEMS AND
USE OF SERVICE PROVIDERS, THE CONVERSION IS EFFECTED BY THE
SUPPLIER. ALL THE SYSTEMS, WHETHER SELF-OPERATED OR OPERATED
BY ANOTHER, ARE INCLUDED IN THE Y2K PLANS AND ARE REVIEWED IN
THE PROGRESS ASSESSMENT PROCESS.
THE COMPANY ALSO REPORTED THAT ITS SUBSIDIARIES HAVE
CONTINGENCY PLANS FOR SYSTEMS FAILURES.
ON THE MATTER OF ADAPTATION OF COMPUTER-EMBEDDED PRODUCTS, WE
NOTE THAT TADIRAN ITSELF DOES NOT SELL PRODUCTS. EACH OF ITS
SUBSIDIARIES WHICH SELLS COMPUTER-EMBEDDED SYSTEMS HAS PRODUCT
UPDATE PLANS WHICH ARE IMPLEMENTED IN RESPECT OF THEIR
CUSTOMERS ACCORDING TO THEIR CONTRACTUAL COMMITMENTS. TADIRAN
HAS REPORTED THAT IT DID NOT DETECT ANY SYSTEM FAILURES AMONG
THE GROUP'S COMPANIES IN THE TRANSITION TO THE YEAR 2000.
o MASHAV INITIATION AND DEVELOPMENT LTD. (HOLDING AS AT THE
BALANCE SHEET DATE - 50%) - ACCORDING TO ITS REPORTS, MASHAV
HAS PLANS FOR ADDRESSING THE ISSUE AND IS KEEPING TO THE
TIMETABLE IT SET FOR ITSELF. THE COMPANY REPORTED THAT IT HAS
Y2K CONTINGENCY PLANS. ON COMPLETION OF CONVERSION OF THE
SYSTEMS, SIMULATION TESTS WERE CARRIED OUT FOR DATES BEYOND
THE YEAR 2000. THE CORPORATION HAS REPORTED THAT IT DID NOT
DETECT ANY SYSTEM FAILURES IN THE TRANSITION TO THE YEAR 2000.
9.7 WE FURTHER CLARIFY THAT MALFUNCTIONS IN INVESTEE COMPANIES OF
KOOR, WHETHER AS A RESULT OF ACTIVITIES WHICH TURN OUT TO BE
INADEQUATE OR AS A RESULT OF HUMAN ERROR, ARE LIABLE TO CAUSE A
CHAIN REACTION WHICH WILL ALSO AFFECT KOOR. IN ADDITION, SYSTEMS
FAILURES IN A NUMBER OF INVESTEE COMPANIES COULD HAVE A CUMULATIVE
EFFECT ON KOOR.
K. QUALITATIVE REPORT REGARDING EXPOSURE TO MARKET RISKS AND MANAGEMENT
METHODS
1. GENERAL
Koor Industries Ltd. is a holding company, most of whose businesses
and operations are managed by investee companies.
Following is a list of the companies whose securities are listed
for trading on the Tel Aviv Stock Exchange or on NASDAQ: M.A.
Industries Ltd., Middle East Tubes Ltd., United Steel Mills Ltd.,
Knafayim - Arkia Holdings Ltd., ECI.
These companies publish separate reports pursuant to the
regulations by which they are bound, and reference should be made
thereto. The information and clarifications provided here do
therefore not relate to these companies.
2. RESPONSIBILITY
2.1 The person responsible for market risks management is the
Vice President and Chief Financial Officer, a senior company
executive. Financial risk management in the company is
implemented by the Corporate Finance Manager.
2.2 The investee companies have appointed a person to be
responsible for risk management (usually the Vice
President/Chief Financial Officer in each of the
corporations) in the reported year, or from 1 January, 2000.
3. DETAILED DESCRIPTION OF THE MARKET RISKS TO WHICH THE CORPORATION
IS EXPOSED
3.1 CURRENCY RATE FLUCTUATIONS
3.1.1 In respect of Koor - the parent company - see 5G above.
3.1.2 The investee companies are exposed to currency rate
fluctuations, since they have assets and liabilities
which are not in the currency of the report (balance
sheet exposure) and/or the linkage bases and expenses do
not always correspond (economic exposure).
3.2 INTEREST RATE CHANGES
3.2.1 The majority of the corporation's financial shekel
liabilities are linked to the CPI and bear fixed
interest. Some of its shekel assets are linked to the CPI
and bear interest, and some bear shekel nominal interest.
Dollar-denominated liabilities have fluctuating interest
so that changes in the LIBOR interest rate are liable to
affect the company's financing expenses.
3.2.2 The investee companies relate to interest rate changes in
a manner similar to the one described above.
3.3 CHANGES IN THE PRICES OF SECURITIES
The company has holdings in investee companies whose securities
are listed on the Tel Aviv Stock Exchange and on NASDAQ. Changes
in the prices of securities affect the market value of the
investments. These holdings are defined as long-term holdings.
3.4 FINANCIAL INSTRUMENTS
3.4.1 The company uses various financial instruments
(derivatives and non-derivatives), including futures
contracts, purchase and sale of dollar rate options and
CPI/dollar swap transactions.
The transactions are implemented for protection purposes.
Following are details of the financial instruments as at
31 December, 1999:
$ MILLIONS
----------
Dollar purchase options, net 195
Forward contracts 88
3.4.2 The investee companies make use of these financial
instruments for hedging purposes only.
3.5 CHANGES IN THE PRICES OF RAW MATERIALS AND COMMODITIES
Some of the investee companies are exposed to the changes in the
prices of raw materials and commodities. These companies enter
into long-term agreements and set prices for periods of between
six and twelve months in advance.
3.6 OTHERS
The company, by means of investee companies, operates in the
tourism industry. This industry is exposed to security and
political risks so that the Israeli security situation and
political climate affect the level of activity in the industry.
In addition, the tourism industry (primarily leisure tourism) is
affected by the seasonal factor, an effect which is likely to
vary between Israel's various tourist regions and in accordance
with market segments.
4. CORPORATE MARKET RISK MANAGEMENT POLICY
4.1 KOOR INDUSTRIES
Koor's Board of Directors has approved its financial risk
management policy, as follows:
Koor has a policy of hedging balance sheet exposure caused by
currency rate fluctuations, by using financial instruments and
derivatives as described above.
Koor does not apply a hedging policy to interest rates. It
regards its holdings in investee companies whose securities are
traded on the stock exchange as long-term holdings and does not
institute a hedging policy.
Koor has reached agreements to implement hedging transactions
only with institutions bound by capital adequacy, and it also
operates a mechanism to monitor market developments in real time
which enables it to examine positions and decide on changes
accordingly.
4.2 The Board of Directors or committee of each investee company has
established its own risk management policy and determined its
degree of exposure. Some of the investee corporations have hired
an outside adviser to examine and manage risks. Some of these
corporations employ various financial instruments to engage in
currency-hedging transactions. They do not trade in derivatives
of a speculative nature, nor do they implement interest rate
hedging transactions The manufacturing corporations which
purchase raw materials usually protect themselves by long-term
agreements for periods of between six and twelve months.
Each investee corporation conducts transaction with banking
corporations and financial institutions which are bound by
capital adequacy.
5. MEANS OF SUPERVISION AND IMPLEMENTATION OF POLICY
5.1 The measures taken at the corporation level are as follows:
- Risk management policy approved by the company's Board of
Directors.
- The Board of Directors receives from time to time
(usually every quarter) reports on application of policy
and existing exposures.
- The policy is applied by the Chief Financial Officer.
- The Finance Department monitors the degree of exposure
and reacts to changes and developments in various
markets.
- The company prepares and preserves regular documentation
of its transactions and their destinations.
5.2 In investee companies the risk management policy has been
approved by the Board of Directors of the company and
supervision is implemented at the board level or by an
appointed committee.
Policy is implemented by a person appointed in every
corporation (usually its CFO). Documentation of implemented
transactions is maintained by the person responsible in
every corporation.
6. THE REASONS FOR THE BOARD OF DIRECTORS' DECISION TO AWARD GRANTS
TO EACH OF THE FIVE HIGHEST WAGE EARNERS AMONG SENIOR EXECUTIVES
IN 1999, PURSUANT TO REGULATION 21 OF THE SECURITY REGULATIONS
(PERIODIC AND IMMEDIATE REPORTS) (AMENDMENT 2), 5760 -2000.
GRANTS
In 1999 the Board of Directors awarded grants to senior
executives in light of their achievements in implementing the
strategic plan and Koor's overall profitability. The scope of
operations of the company's operations and attainment of goals
was also taken into account.
7. PRINCIPAL SUBSIDIARIES
Below are selected data from the results from the financial statements
of principal subsidiaries (in rounded and adjusted NIS millions):
1 - 12 CHANGE 10 - 12 CHANGE
---------------- ------ --------------- ------
1999 1998 % 1999 1998 %
----- ----- ----- ----- ----- -----
SALES:
Tadiran (a) 2,631 4,719* (44.2) 482 1,129* (57.3)
Telrad 1,933 1,449 33.4 564 361 56.2
Makhteshim-Agan (a) 3,541 3,327** 6.4 889 880 1.0
Mashav 1,752 1,903 (7.9) 436 468 (6.8)
Middle East Tubes 196 241 (18.7) 59 52 13.5
NET PROFIT:
Tadiran (a) 591 273 116.5 301 40 652.5
Telrad 95 (248) - 41 (199) -
Makhteshim-Agan (a) 36 203** (82.3) (75) 44 -
Mashav 194 305*** (36.4) 57 47 21.3
Middle East Tubes 1 (39) - 4 (23) -
(a) The financial statements are adjusted on the basis of changes in the
exchange rate of the dollar.
(*) Including Tadiran Telecommunications.
(**) Proforma data reflecting the results of operations had the arrangement
for changing the structure of the holdings been implemented at the
beginning of the reported period.
(***) Including capital gain from sales of discontinued operations, net.
/s/ Jonathan Kolber /s/ Avraham Harel
- ----------------------------- ----------------------------
JONATHAN KOLBER AVRAHAM HAREL
CEO AND VICE CHAIRMAN MEMBER OF THE
OF THE BOARD OF DIRECTORS BOARD OF DIRECTORS
March 23, 2000
