EXHIBIT A
Directors' Report on the State of the Company's affairs
for the period 1 January to 30 September, 2000
1. STRATEGIC PLAN
During 2000, Company management is continuing to implement a strategic plan
designed to create value for its shareholders and improve the overall
profitability of Koor.
At the beginning of the year, the Company completed the first stage of the
plan, which includes, inter alia, the realisation of holdings, streamlining
of headquarters and simplification of the holding structure, and started
implementation of the second stage, the object of which is focus on the
management and the enhancement of the principal holdings and new
investments in venture capital and growth companies.
2. PRINCIPAL EVENTS AND CHANGES IN THE STATE OF THE COMPANY'S AFFAIRS
A. Investments in projects and high-tech companies
1. On 2 January 2000, Koor and a wholly owned subsidiary established a
registered partnership called "Koor Corporate Venture Capital"
(hereinafter: "Koor CVC"), within which Koor is concentrating its
investment activities in venture capital funds and in high-tech
companies with growth potential. The action was taken in
implementation of Koor's strategic decision to increase its
investments in those fields.
In this framework, Koor CVC signed documents for joining as a limited
partner, existing venture capital funds, among them: Polaris Venture
Capital Fund III L.P., BRM Capital Fund L.P., Genesis Partners II
(Israel) L.P., Carmel Software Fund (Israel) L.P., Synergy Ventures
Partner (BVI) L.T., Star Management of Investment No II (2000) L.P.,
and in which it committed to invest up to a total of 73 million
dollars. Koor CVC will be entitled to permanent representation on the
advisory committees of some of the aforementioned funds. Koor CVC also
signed agreements with various high-tech companies, to invest in them
directly up to a total of 71 million dollars.
Up to the date of the financial statements, Koor had invested, through
Koor CVC, in venture capital funds and high-tech companies
approximately 64 million dollars, including 8 million dollars
investment in Tadiran Scopus Ltd., which has been purchased from
Tadiran Ltd.
2. During the third quarter of 2000, Koor invested, through Koor CVC, a
total of approximately 25 million dollars in hi-tech companies
(Camelot Information Technologies, Chiaro, Global Factory, Glycodata,
hLAN, Scopus, Anota, EvoRx, Sigmaone), and also invested approximately
8 million dollars in venture capital funds (Genesis Partners II
Israel, Star Management of Investment, Polaris Venture).
3. After the balance sheet date, Koor CVC invested follow on investments
in existing portfolio and in new companies a total of approximately 18
million dollars (Camelot Information Technologies, FolloWAP, Orsus
Solutions, Telespree).
4. On 24 July, 2000, Koor and Israel Corporation Limited announced that
they would continue their cooperation in investments in
telecommunications in Israel and abroad, but without establishing a
joint venture, as the two companies had previously announced.
B. Telrad Networks Limited
1. On 31 August, 2000, a series of agreements was signed and closed
between the Company, Telrad and Nortel Networks Ltd. (hereinafter
"Nortel"), an Canadian international telecommunications company.
Pursuant to the agreements, a new company has been established in
Israel, Nortel Networks Israel (Sales and Marketing) Limited
(hereinafter "Nortel Israel"), controlled by Nortel. Koor group holds
28% of the rights to profits, without voting rights, and has the right
to appoint one director out of six.
Under the series of agreements, Koor was given a PUT option to sell to
Nortel Koor shares at Nortel Israel, while Nortel was given a CALL
option to purchase those shares from Koor. The two options have the
same exercise price and they can be exercised in 2003, at a price
which reflects the amount of Koor's investment in the company plus the
yield stipulated in the agreements, which is based on the performance
of Nortel Israel. The Company estimates that the probability of one of
the options not being exercised is low.
Thus, the investment of Koor Group in Nortel Israel is presented under
the cost method, in the item "Other investments and receivables".
Pursuant to the aforesaid series of agreements, Koor Group invested
approximately 5.6 million dollars in the share capital of Nortel
Israel, and made available to it a shareholders' loan of approximately
42 million dollars. The loan is repayable in 2003, and bears interest
at 6% p.a.
In addition, on the date of closing the above transactions, Nortel
exercised the option which it received in 1997 and sold to Koor 20% of
Telrad's shares in consideration of 45 million dollars thereby making
Telrad a wholly-owned subsidiary of Koor.
Concurrently, Telrad signed an agreement whereby the marketing, the
installations and the support in Israel, Africa and several other
countries, of the public networks and the TX1 business exchanges, will
from now on be conducted by Nortel Israel, and elsewhere will be
conducted by another company of Nortel Group.
Telrad will serve as a sub-contractor of Nortel Israel for the
manufacture of exchanges, which will be marketed by Nortel Israel for
the period defined in the agreement.
These activities in 1999 and the six months ended 30 June, 2000,
constituted approximately 43.5% and 31.3% of Telrad's sales. Telrad
received approximately 90 million dollars for the transaction, over
the book value of the above transferred assets.
As part of the above series of agreements, earlier agreements relating
to a commitment made by Telrad to purchase know-how and pay royalties
to Nortel, were cancelled by mutual consent.
As a result of the transaction, Koor recorded a capital gain, after
tax, of approximately NIS 277 million in the third quarter of 2000.
2. During the third quarter, Telrad sold its plant in Maalot to a third
party. As part of the sale agreement, the third party undertook to
manufacture electronic PCB's for Telrad for at least four years. The
capital gain to Koor is about NIS 14 million after tax.
3. The Board of Directors of Telrad, following agreement with the
employees' representatives, approved a retirement plan for 400
additional employees. The principal terms of the agreement constitute
early retirement or increased compensation for those employees
according to agreed rules and criteria. The total cost of this plan is
approximately NIS 245 million (approximately NIS 167 million after the
tax effects). The financial statements as at 30 September, 2000
include expenses for the aforementioned retirement agreements which
are presented in the item Other income (expenses), net.
4. Below are selected data for Telrad (in adjusted millions of shekels):
1 - 9 7 - 9
------------------------- -------------------------
2000 1999 2000 1999
------------------------- -------------------------
Income 1,519.6 1363.0 456.7 525.9
Gross profit
(after R&D) 438.4 325.7 110.0 190.6
Operating
Profit 244.9 157.9 52.4 129.6
Net profit 276.6 53.5 231.6 43.4
C. ECI Telecom Limited (ECI)
ECI is in the midst of the reorganization process that it announced at the
beginning of the year. During the reporting period, the company's
management focused on two main goals: rapid growth in company sales, and
increasing company value for its shareholders. The cornerstone of this plan
is to turn the company's business units into separate public companies to
be held directly by the current shareholders of ECI.
To attain these goals, the company continued its efforts in mergers and
acquisitions, which on the one hand strengthened the company's strategic
growth areas, while on the other hand, the company sold operations that are
not part of its core businesses.
In addition, the Company intends divestiture activities of its Business
Systems Division.
The results of the first quarter of 2000 include a net capital gain of
approximately 31 million dollars from the sale of Terayon shares.
The results of the second quarter of 2000 include one-time expenses of
approximately 29 million dollars for the purchase of R&D in process
deriving from acquisition of companies.
D. BVR Systems (1998) Limited (BVR)
1. During August 2000, BVR issued 1,000,000 shares to Elisra in
consideration of 5 million dollars. In addition, BVR gave an option to
Elisra entitling it to purchase 1,500,000 shares of BVR by 25 June,
2003 at 6 dollars per share.
2. On 19 July, 2000, Elisra and three additional shareholders in BVR
signed a new voting agreement, whereby the Board of Directors of BVR
will consist of no more than 11 directors, of whom Elisra will be
entitled to appoint up to 6 directors.
3. In July, 2000, Elisra purchased 997,000 shares of BVR from a third
party in consideration of approximately 4.5 million dollars. As at the
balance sheet date, Koor Group's holdings in BVR amounted to 44.5%. In
the financial statements as at 30 September, 2000, BVR was
consolidated for the first time.
4. During the quarter, a provision of approximately NIS 40 million was
recorded for the write-off of part of the goodwill, due to a decrease
in the value of the shares that is not of a temporary nature.
E. Tadiran
On 20 January, 2000, an agreement was signed between Tadiran, Koor and
Elisra Electronic Systems Limited (hereinafter: "Elisra"), whereby Tadiran
would transfer its entire holding in Elisra to Koor, effective from 1
January 2000, free of charge. Immediately after transfer of the shares,
Elisra would receive the shares of Tadiran Spectralink Limited and the
shares of Tadiran Electronic Systems Limited (wholly owned companies of
Tadiran), free of charge.
On 28 June, 2000, upon receipt of the relevant approvals, the shares were
transferred as aforesaid.
F. Electric Fuel Corporation
In May 2000, pursuant to an agreement signed that month between Koor and
Electric Fuel Corporation (hereinafter: "EFC"), Koor invested a total of 10
million dollars in EFC, in consideration of which it was allotted
approximately 5.3% (after dilution deriving from the above issue) of the
share capital of EFC.
On 30 September, 2000, Koor held approximately 4% of the EFC share capital
(following divestiture of about 25% of the investment). The investment in
EFC shares is presented as a current investment in marketed securities in
the amount of approximately 9 million dollars.
According to the agreement, as a result of the adjustment to EFC share
price, Koor is entitled, at the end of November 2000, to receive an
additional 111,000 shares at no cost.
G. M-A Industries
1. On 4 August, 2000, an agreement was signed between a company from M-A
Industries Group and the minority shareholders of a consolidated
company of M-A Industries in Brazil (hereinafter: "Millennia") for the
purchase of all their shares at a rate of 28.5% in Millennia
(hereinafter: "the minority shares").
The consideration for the minority shares includes the following
components:
a. Immediate cash payment of approximately 22 million dollars.
b. Transfer to the minority shareholders of 12.4 million shares of
M-A Industries, which are owned by another consolidated company
of M-A Industries, with a market value on the date of the
transaction of about 28 million dollars. For 8.9 million of these
shares, the minority shareholders were granted a PUT option
granting them, on certain terms, the right to sell the shares to
the other consolidated company on 31 January, 2002, in
consideration of 2.57 dollars per share.
c. Future payment based on the cumulative profits of Millennia in
the years 2000-2001, in an amount which could reach to
approximately 27 million dollars, if the cumulative profits
amount to at least 50 million dollars.
Following the acquisition, M-A Industries has full ownership and
control of Millennia. The goodwill generated on the date of the
acquisition amounts to approximately 40 million dollars.
2. On November 21, 2000, two wholly-owned subsidiaries of M-A Industries
signed agreements with Syngenta AG, the world's largest agro-chemical
company, for acquisition of two of its agro-chemical product lines.
One of the products is protected by patents which will be transferred
to the acquiring company. Total sales in 1999 of the two products
amounted to 78 million Swiss francs. The consideration to be paid for
acquisition of the aforementioned two product lines is 135 million
Swiss francs. If the sales during the next three years exceed certain
levels, additional consideration will have to be paid, which could
reach up to 15 million Swiss francs.
The execution of the aforementioned agreements is contingent on
approval of the European Commission. M-A Industries' management
estimate that acquisition of the said product lines will have major
profit contribution.
H. United Steel Mills
On 16 March, 2000, United Steel Mills Limited and its subsidiaries filed an
application for a Stay Order on proceedings pursuant to Section 350 of the
Companies Law, 5759-1999 and for the appointment of a trustee in the Haifa
District Court. The court acceded to the application and gave an order to
freeze proceedings against the applicants, making it impossible to continue
or open any legal proceeding against the applicants without court approval.
The court did this to enable the applicants to formulate a comprehensive
recovery plan and a proposal for a creditors' arrangement, which will be
submitted to the court.
In addition, the court decided to revoke the powers of the Board of
Directors and to appoint a trustee for the period of the freeze order. In
the decision, all management powers in the company and the subsidiaries
were vested in the trustee. Furthermore, the court decided to approve the
approach by the trustee to various business corporations, in order to
interest them in acquiring United Steel Mills and/or its subsidiaries
and/or operating the company.
Koor agreed to the Stay Order and in March 2000 made NIS 15 million
available in credit for the special management account and for current
operation at United Steel Mills.
If no deficit is generated in the trustee's fund account, this credit,
under certain conditions, will have status that is preferred to the
company's creditors. During the third quarter of 2000, a provision of NIS
15 million was recorded in Koor's financial statements for the credit which
was made available.
Furthermore the court extended the authority of the Stay Order on
proceedings until the end of December 2000.
I. Divestiture
1) Tadiran Appliances
On 26 October, 1999, Tadiran Limited signed a document of principles
for the sale of its entire holding (approximately 56%) in Tadiran
Appliances Limited to Nechushtan Investment Co. Limited. On 30
December, 1999, the final contract was signed with Nechushtan.
The consideration amounted to approximately NIS 133 million. The
capital loss to Koor was recorded in 1999. The transaction was closed
on 30 March, 2000.
2) Tadiran Telematics
On 25 November, 1999, an agreement was signed whereby Tadiran Ltd.
would sell its entire holding (100%) in its subsidiary, Tadiran
Telematics Limited., to Ituran Location and Control Limited.
The consideration amounted to approximately NIS 31 million. The
capital loss to Koor was recorded in the fourth quarter of 1999.
The transaction was closed 15 February, 2000.
3) Mashav
On 5 December, 1999, an agreement was signed between Koor and Clal
Industries and Investments Ltd., whereby Koor will sell to Clal Koor's
entire holding in Mashav Initiating & Development Ltd.
The transaction was closed on 6 January, 2000.
The consideration to Koor amounts to approximately NIS 886 million.
Koor also received 47.5% of the share capital of Mashal Alumina
Industries Ltd. (a former subsidiary of Mashav whose business is the
development of a process for producing alumina - aluminium compound).
The net capital gain to Koor in respect of this transaction amounted
to approximately NIS 233 million (after allocation of approximately
NIS 128 million deferred taxes), and was recorded in the first quarter
of 2000.
4) Merkavim
On 7 December, 1999, an agreement was signed between Koor and Meir
Automobiles and Trucks Co. Ltd. for the sale of Koor's entire holding
(51%) in Merkavim Metal Enterprises Ltd. in consideration of
approximately NIS 18 million. The transaction was closed in January
2000. The capital gain to Koor in respect of this transaction amounts
to approximately NIS 4 million, and was recorded in the first quarter
of 2000.
5) Middle East Tube Co. Limited
On 23 December, 1999, an agreement was signed between Yakobinski Lerer
Civil Engineering Contractors Ltd. (of Gaon Holdings Group Ltd.) and
3-A Investment in Industry Ltd., for the sale of Koor's entire holding
(approximately 76%) in Middle East Tube Co. Ltd., in consideration of
approximately NIS 83 million. The transaction was closed on 30 March,
2000. Following a loss of NIS 25 million which was reported by Middle
East Tube in the first quarter, Koor recorded a capital gain of
approximately NIS 20 million in the same quarter of 2000.
6) Q Group
On 18 January, 2000, Koor announced that following completion of a
tender offer for the purchase of the holdings of various shareholders
in Q Group PLC, in which Koor holds, through Koor Multimedia Limited.
(a wholly-owned subsidiary) approximately 23%, Koor sold its holdings
in Q Group in consideration of approximately NIS 41 million. The
capital gain to Koor from this sale (before tax) amounts to
approximately NIS 30 million, and was recorded in the first quarter of
2000.
7) Histour Eltiv
On 21 February, 2000, a transaction was closed for the sale of Koor's
entire holding (approximately 51%) in Histour-Eltiv Ltd., in
accordance with an agreement from 25 November, 1999. Koor invested
approximately NIS 16 million in Histour-Eltiv, and was released from
all its guarantees for the commitments of Histour-Eltiv towards third
parties.
8) Koor Finance
On 16 March, 2000, sale of Koor's holding (20%) in Koor Financing Ltd.
was completed by virtue of a PUT option that was granted, in
consideration of approximately NIS 12 million. The capital gain after
tax that was generated in the sale, amounted to approximately NIS 2
million, and was recorded in the first quarter of 2000.
9) Y.D. Vehicles and Transport
On 4 September, 2000, the transaction was closed for the sale of all
of Koor's holdings (approximately 33.3%) in Y.D. Vehicles and
Transport Ltd. in consideration of approximately NIS 16 million. The
capital gain to Koor, after tax, amounts to approximately NIS 1
million, and was recorded in the second quarter of 2000.
10) Tadiran Batteries
On 15 June, 2000, Tadiran signed an agreement for the sale of all its
holdings (100%) in Tadiran Batteries Ltd. The consideration amounts to
approximately 33 million dollars (including a dividend).
The transaction was closed on 25 July, 2000.
The capital gain to Koor, after tax, is approximately NIS 46 million,
and the transaction was recorded in the third quarter of 2000.
11) Koor Properties
A. On 15 August, 2000, an agreement was signed by Koor Properties
Ltd. - a wholly owned subsidiary of Koor - (hereinafter "Koor
Properties") for the sale of the holdings (50%) of Koor
Properties), in Carmel Gate (a company with high-yield real
estate) to the foreign company, APS Carmel Gate Holdings.
On 3 October, 2000, the transaction was closed in consideration
of 20 million dollars. The capital gain after tax which Koor will
record in the fourth quarter, amounts to approximately NIS 55
million.
B. On 11 October, 2000, Koor Properties signed a series of
agreements with various companies of the Delek Group (hereinafter
"the Buyers"). These agreements relate to the rights of Koor
Properties in various real estate assets covering a total area of
about 135 dunams. These are properties with various designations
- agriculture, industry and residential. In addition, Koor
Properties undertook to build for the Buyers on some of the
aforementioned land, a logistics center covering about 10,000
s.qm. The total consideration for Koor Properties for the rights
in the land and construction of the building is approximately
20.8 million dollars. The capital gain after tax that Koor
Properties will record in the fourth quarter is approximately NIS
24 million.
C. On 8 November, 2000, Koor Properties signed an agreement for the
sale of all its shares in Yuval Gad Ltd., in consideration of
approximately 6.5 million dollars. Performance of the agreement
is contingent upon the approval of the Restrictive Trade
Practices Commissioner. The capital gain after tax expected by
Koor amounts to approximately NIS 4 million.
J. Employee Stock Options
1. On 22 March, 2000, the Board of Directors of Koor decided to amend the
stock option plans for senior employees of Koor - except with regard
to options that are held by interested parties in Koor.
a. With regard to options for which the effective date falls on 16
July, 1998, adjustment of the exercise price in respect of
distribution of a dividend which is set in the original plan,
will be effected in respect of all options, including those for
which the date for entitlement to exercise falls before the date
referring to entitlement to a dividend.
b. The Board of Directors also decided, with regard to both the
options mentioned in paragraph `a above and those whose effective
date falls on 24 July, 1997 and 28 October, 1998, that an
employee who resigned and who holds options in respect of which
the date of entitlement to exercise falls before his resignation,
the exercise period will be until the end of a period of five
years from the date of inception of the plan (rather than only 90
days).
c. As mentioned, according to the resolution of the Board of
Directors, the amendment to the plan will apply in respect of
employees who are not interested parties in Koor.
d. During the report period, the Company allotted 30,000 additional
options in the framework of the 1998 plan.
2. On 15 June, 2000, the Executive Committee of the Board of Directors of
the company approved a new stock options plan for employees - called
Options Plan 2000, which was approved by the Company's Board of
Directors on 6 August, 2000. On 5 October, 2000, 125,000 options were
allotted to various employees from a pool of 400,000 options that were
approved in Options Plan 2000.
The main points of the plan are as follows:
a. A framework was approved for the allotment of 400,000 stock
options theoretically exercisable into up to 400,000 ordinary
shares of the Company, i.e. approximately 2.5% of the Company's
issued share capital.
b. The options will be exercised into shares in a quantity that will
reflect the amount of the monetary benefit inherent in the
options, i.e. against the difference between the rate of the
ordinary share of the Company as was on the date of exercise of
the option, and the exercise price of the option. Thus, the
aforesaid regarding the number and price of the underlying shares
is theoretical only.
c. The exercise price of each option will be the average closing
price of the ordinary share of the Company (dollar-linked) in the
month preceding the date of the committee's decision, i.e. an
exercise price of $97.39.
d. Since the underlying shares will be allotted only against the
monetary benefit, the employees will not be required to pay the
exercise price on the date of exercising the options. The price
will serve purely for calculating the amount of the monetary
benefit.
e. The options are designated for the Company's employees who are
not "interested parties" in the Company, and who will not become
"interested parties" in the Company as a result of allotment of
the options.
f. Entitlement to exercise the options will apply according to a
breakdown of the options into three parcels, so that at the end
of the first year from the effective date (i.e. from 14 June,
2000) or from the date on which the employee started work at the
Company (whichever is the later), entitlement to exercise one
third of the quantity to be allotted will mature, and the
remaining two thirds at the end of each of the subsequent two
years.
g. The exercise period of each option that matures to entitlement to
exercise, is 5 years from the date of maturity of the
entitlement. In order to prevent discrimination, it was also
decided to amend the Company's previous option plans in a way
that the exercise of option period will be extended up to 5 years
from the date of formulation of its entitlement, in relation to
option-bearing employees who are not interested parties in the
Company and who will not retire before the end of 2000.
h. The total quantity of 400,000 options will be allotted to a
trustee, and the Executive Reward Committee of the Company will
be authorized to designate the employees options and the
quantities to be allotted to each of them.
K. Dividend
1. At the meeting of the Board of Directors held on 24 February, 2000, a
resolution was adopted to distribute a third interim dividend for 1999
in the amount of NIS 7.8 per ordinary share of a par value of NIS
0.001. The date of payment of the dividend was set for 10 April, 2000
(final dividend for 1999 - NIS 14.1 per ordinary share of a par value
of NIS 0.001).
2. At the meeting of the Board of Directors on 24 May, 2000, a resolution
was adopted to distribute a first interim dividend for 2000, of NIS
3.8 per ordinary shares of a par value of NIS 0.001. Date of payment
of the dividend was set for 3 July, 2000.
L. Repurchase of Koor shares
On 7 April, 2000, the Board of Directors of Koor adopted a resolution to
approve a total sum of 50 million dollars for the repurchase of Koor's
ordinary shares. It was decided that these purchases would be effected from
time to time during stock exchange trading, under the supervision of the
Executive Committee of the Company and in accordance with its guidelines.
In this framework, which was fully utilized, 538,592 ordinary shares
(approximately 3.4% of the ordinary share capital) were repurchased until
30 September, 2000, at a cost of approximately NIS 203 million. This sum is
deducted from the Company's shareholders' equity.
On 12 May, 2000, Koor wrote an off-the-floor PUT option in consideration of
NIS 1.9 million, which can be exercised on 14 August, 2000, for 115,000
ordinary shares of Koor, at an exercise price of $92.949 per one ordinary
share.
The above option expired on 14 August, 2000.
3. FINANCIAL CONDITION
Shareholders' equity as at 30 September, 2000, amounted to approximately
NIS 4,564 million ($1,134 million) and constitutes 30.4% of the balance
sheet, compared with NIS 4,364 million which were 25.2% of the balance
sheet as at the end of the previous year. The increase in shareholders'
equity derives mainly from net profit in the first nine months of 2000,
which was partially offset by a decrease in shareholders' equity as a
result of repurchase of the company's shares.
Minority interest in subsidiaries which were consolidated as at 30
September, 2000, amount to NIS 984 million, compared with NIS 1,314 million
on 31 December, 1999. The decrease in this item derives mainly from
termination of the consolidation of Tadiran Appliances and Middle East Tube
Co., and from the purchase of the minority share in Telrad by Koor.
Current assets as at 30 September, 2000, amount to NIS 6,510 million, which
are 43.3% of the balance sheet, compared with NIS 7,881 million which were
45.6% of the balance sheet on 31 December, 1999. The decrease in current
assets derives mainly from termination of the consolidation of Mashav,
Tadiran Appliances, Tadiran Batteries, Middle East Tube, Histour-Eltiv,
Merkavim, Telematics and others in which the holding was divested, as well
as from the sale of activities by Telrad.
The decrease in the amount of cash and short-term deposits, mainly at Koor
- the parent company - is a result of repayment of loans, repurchase of
shares and payment of a dividend. In contrast, cash and short-term deposits
increased, mainly at Telrad and M-A Industries.
The decrease in customer balances stems mainly from the sale of customer
debts to banks at M-A Industries, less an increase in customer balances,
primarily at Elisra.
The increase in inventory stems mainly from termination of consolidation of
companies in which at the holding was divested at that period.
The decrease in the balance of other accounts receivable, stems mainly from
the release of short-term deferred taxes on capital gains from the
divestiture of Mashav, which were recorded at Koor - the parent company -
at the end of the previous year and offset by an increase at Telrad.
Investments in affiliated companies as at 30 September, 2000, amount to NIS
3,249 million, compared with NIS 3,479 million on 31 December, 1999.
Fixed assets as at 30 September, 2000, amount to NIS 3,338 million, which
constitute 22.2% of the balance sheet, compared with NIS 4,550 million
which were 26.3% of the balance sheet at the end of 1999. The decrease in
fixed assets derives mostly from termination of consolidation of companies
in which the holding was divested, and realization of assets by the group.
Intangible assets and deferred charges as at 30 September, 2000, amount to
NIS 850 million, compared with NIS 624 million on 31 December, 1999. The
increase in intangible assets stems mainly from goodwill that derived from
the purchase of the minority shares in Millennia by M-A Industries, as well
as from a first-time consolidation of BVR.
Long-term financial liabilities as at 30 September, 2000, amount to NIS
3,920 million and are 26.1% of the balance sheet, compared with NIS 4,051
million which were 23.4% of the balance sheet at 31 December, 1999.
Total financial liabilities as at 30 September, 2000, are NIS 5,988 million
- 39.8% of the balance sheet, compared with NIS 7,594 million - 43.9% of
the balance sheet at 31 December, 1999. The decrease in the total amount of
these financial liabilities stems mainly from a decrease in liabilities at
Koor - the parent company - of approximately NIS 672 million, and from
termination of consolidation of divested companies - NIS 554 million in
short-term credit and NIS 150 million in long-term liabilities. In
addition, there was a decrease in short-term credit from banks and others,
mainly at Tadiran, M-A Industries and Telrad, which was partially offset by
an increase in short-term credit at Moriah Hotels and at Elisra. The
increase in long-term liabilities, net, primarily at Tadiran, was offset
mainly by a decrease in long-term liabilities at Telrad and Koor Issuances.
Currency exposure of Koor as at 30 September, 2000, is reflected in a
surplus of financial liabilities on financial assets in foreign currency or
linked to foreign currency, totaling NIS 2,038 million compared with NIS
3,504 million at 31 December, 1999. Surplus liabilities over assets linked
to the CPI as at the balance sheet date amount to NIS 169 million, compared
with NIS 498 million at the end of the previous year.
Currency exposure of Koor - the parent company as at 30 September, 2000, is
reflected in a surplus of approximately NIS 1.5 billion in monetary
liabilities over monetary assets denominated in or linked to foreign
currency, compared with NIS 2.2 billion at 31 December, 1999. Surplus
assets over liabilities linked to the CPI as on the balance sheet date
amount to approximately NIS 143 million, compared with NIS 74 million
surplus liabilities over assets at the end of 1999.
Surplus unlinked assets over unlinked liabilities amount to approximately
NIS 751 million as at the balance sheet date, compared with NIS 817 million
at 31 December, 1999.
4. RESULTS OF OPERATIONS
Sales in the first nine months of 2000 amounted to NIS 6,315 million,
compared with NIS 8,255 million in the first nine months of 1999, a
decrease of 23.5%.
Sales in the third quarter of 2000 amounted to NIS 2,015 million, compared
with NIS 2,952 million in the third quarter of 1999, a decrease of 31.7%.
A decrease deriving from the sale of companies which were consolidated in
the past amounted to NIS 2,179 million in the first nine months of 2000,
and NIS 696 million in the third quarter of 2000. Sales of Mashav, Tadiran
Com., Tadiran Appliances, Techem, Contahal, Merhav, Koor Metals, Phoenicia,
Yonah, Merkavim and others in which holdings were divested, were not
included in the report period. In contrast, there was a considerable
increase in sales in the first nine months of 2000 compared with the
corresponding period last year, mainly at Telrad, as well as an increase in
the sales of Elisra, Telrad Business Communications, Isram and Moriah
Hotels. However, there was a decrease in sales of M-A Industries.
In the third quarter of 2000, there was an increase in sales compared with
the corresponding period last year at Elisra and at the Moriah Hotels,
which was offset by a decrease in sales at M-A Industries and Telrad.
Exports and international operations in the first nine months of 2000
reached 1,015 million dollars, compared with 1,007 million dollars in the
first nine months of 1999. A decrease deriving from exports of companies
which were consolidated in the past, mainly Tadiran Com., Tadiran
Appliances and Techem, amounted to 90 million dollars. In contrast, a
considerable increase of 82 million dollars was recorded in the exports of
Telrad and an increase in the exports of Elisra.
Exports and international operations in the third quarter of 2000 and 1999
reached 333 million dollars. A decrease deriving from exports of companies
which were consolidated in the past, amounted to 34 million dollars in the
third quarter of 2000.
Cost of sales in the first nine months of 2000 amounted to NIS 4,728
million, compared with NIS 6,299 million in the corresponding period in
1999, and was 24.9% lower than in the corresponding period last year.
Cost of sales in the third quarter of 2000 amounted to NIS 1,533 million,
compared with NIS 2,181 million in the corresponding period in 1999, and
was 29.7% lower than in the corresponding period last year.
Costs of research and development, net included in the cost of sales
amounted to NIS 267 million in the first nine months of 2000, compared with
NIS 293 million in the first nine months of 1999. Most of the research and
development costs were expended at Telrad, M-A Industries and Elisra.
Gross profit in the first nine months of 2000 amounted to NIS 1,587
million, and is 18.8% lower than the gross profit of NIS 1,956 million in
the first nine months of 1999. The gross profit margin in the first nine
months of 2000 reached 25.1% of sales, compared with 23.7% of sales in the
corresponding period last year.
Gross profit in the third quarter of 2000 amounted to NIS 482 million, and
is 37.5% lower than the gross profit of NIS 771 million in the third
quarter of 1999. The gross profit margin in the third quarter of 2000
reached 23.9% of sales, compared with 26.1% of sales in the third quarter
of 1999.
The NIS 369 million decrease in gross profit in the first nine months of
2000, and NIS 290 million in the third quarter of 2000, occurred following
termination of the consolidation of companies in which holdings were
divested during 1999 and 2000 - NIS 537 million, and 183 million
respectively, which was offset mainly by an increase in gross profit mainly
at Telrad and Elisra in the first nine months of 2000. In the third quarter
of 2000, gross profit at Telrad decreased by NIS 80 million.
Selling expenses in the first nine months of 2000 amounted to NIS 586
million, and is 21.6% lower than the selling expenses of NIS 748 million in
the first nine months of 1999.
Selling expenses in the third quarter of 2000 amounted to NIS 186 million,
and is 27.8% lower than the selling expenses of NIS 258 million in the
third quarter of 1999.
The main cause of the decrease in selling expenses is termination of the
consolidation of formerly consolidated companies - NIS 153 million for the
first nine months and NIS 44 million for the third quarter of the year.
General and administrative expenses in the first nine months of 2000
amounted to NIS 385 million, which are 31.6% lower than the NIS 563 million
in G&A expenses recorded in the first nine months of 1999.
General and administrative expenses in the third quarter of 2000 amounted
to NIS 130 million, which are 28.8% lower than the NIS 183 million in G&A
expenses recorded in the third quarter of 1999.
A decrease deriving from general and administrative expenses of formerly
consolidated companies amounted to NIS 180 million in the first nine months
of the year and to NIS 41 million in the third quarter of the year,
however, an increase in management expenses was recorded, at Telrad.
In addition there was a decrease in the administrative expenses of M-A
Industries, deriving from implementation of its plan of reorganization.
Operating profit in the first nine months of 2000 amounted to NIS 616
million, compared with operating profit of NIS 645 million in the first
nine months of 1999, a decrease of 4.5%. The operating profit margin in the
first nine months of 2000 reached 9.8%, compared with 7.8% in the
corresponding period in the previous year.
Operating profit in the third quarter of 2000 amounted to NIS 165 million,
compared with NIS 330 million in the third quarter of 1999, a margin of
8.2%, compared with 11.2% margin in the third quarter in 1999.
The decrease in the operating profit in the first nine months of 2000
derives mainly from termination of consolidation of formerly consolidated
companies -- NIS 185 million, which was offset primarily by an increase in
the operating profit of Telrad - NIS 87 million, and of Elisra - NIS 43
million.
The decrease in the operating profit in the third quarter of 2000 derives
mainly from termination of the consolidation of formerly consolidated
companies - NIS 87 million, and a decrease in the operating profit of
Telrad - NIS 77 million.
Net financing expenses in the first nine months of 2000 amounted to NIS 226
million, of which NIS 92 million in the third quarter of 2000, compared
with NIS 307 million in the first nine months of 1999, of which NIS 135
million in the third quarter of 1999.
The decrease in financing expenses in the first nine months of 2000
occurred mainly at Koor - the parent company - as a result of a decrease in
net financial liabilities, at Telrad and at M-A Industries as a result of
the relative stability of the Brazilian cruzeiro exchange rate compared
with a severe devaluation in the corresponding period last year (in the
first quarter of 1999). In the third quarter of 2000, financing expenses
decreased, mainly at Koor and at Telrad, and as a result of termination of
the consolidation of formerly consolidated companies.
Other income, net in the first nine months of 2000 amounted to NIS 492
million, of which NIS 224 million in the third quarter of 2000, compared
with NIS 28 million in Other income, net in the first nine months of 1999,
of which NIS 36 million Other expenses, net, in the third quarter of 1999.
This item includes mainly capital gains in the amount of NIS 838 million
from divestiture of holdings and activities, mainly at Mashav, Telrad
public exchange operations, Telrad plant in Maalot, Tadiran Batteries and
others, compared with NIS 304 million in the first nine months of 1999.
In the first nine months of 2000, this item includes severance pay expenses
totalling NIS 263 million, mainly at Telrad, compared with NIS 62 million
last year and amortization of goodwill in the amount of NIS 35 million
compared with NIS 41 million last year, and write-off of goodwill at BVR in
the third quarter of 2000 in the amount of approximately NIS 40 million
compared with write-off of value of assets in the amount of NIS 142 million
last year. Furthermore, last year this item included a provision of NIS 64
million for risks due to uncertainty in Brazil at M-A Industries.
In the third quarter of 2000, this item includes mainly capital gains from
divestiture of activities at Telrad and divestiture of Tadiran Batteries in
the amount of NIS 401 million, less severance pay expenses totaling NIS 121
million, mainly at Telrad.
Income before taxes in the first nine months of 2000 amounted to NIS 882
million, of which NIS 297 million in the third quarter of the year,
compared with NIS 366 million in the first nine months of 1999, of which
NIS 159 million in the third quarter of 1999.
Taxes on income in the first nine months of 2000 amounted to NIS 268
million, compared with NIS 96 million in the corresponding period last
year. The increase in the amount of taxes on income occurred as a result of
deferred taxes on capital gain from divestiture of Mashav in the amount of
NIS 128 million and from taxes on capital gain from divestiture of
activities at Telrad and Tadiran Batteries. In addition, the increase in
the amount of taxes on income derives from an increase in pre-tax profit on
income, mainly at M-A Industries. The increase in the tax amount was
partially offset by termination of consolidation of formerly consolidated
companies, mainly Mashav.
Taxes on income in the third quarter of 2000 amounted to NIS 75 million,
compared with NIS 11 million in the third quarter of 1999.
The net increase in taxes on income amounting to NIS 64 million derives
mainly from capital gains tax from divestiture of activities at Telrad and
divestiture of Tadiran Batteries.
Equity of Koor Group in the losses of affiliates in the first nine months
of 2000 amounted to approximately NIS 29 million, of which NIS 24 million
in the third quarter of the year, compared with NIS 90 million equity of
Koor Group in the profits of affiliated companies in the first nine months
of 1999, of which NIS 41 million in the third quarter of 1999. This item
includes mainly Koor's share in the net losses of ECI, net in the amount of
NIS 2 million, compared with a profit of NIS 93 million in the first nine
months of 1999, as well as Koor's share in the losses of BVR amounting to
NIS 20 million in the first nine montshs of 2000.
Minority interest in the profits of the consolidated companies amounted to
NIS 43 million in the first nine months of 2000, of which NIS 14 million in
the third quarter of 2000, compared with NIS 49 million in the first nine
months of 1999, of which NIS 20 million in the third quarter of 1999.
Net profit in the first nine months of 2000 amounted to NIS 542 million,
compared with NIS 311 million in the corresponding period last year.
Net profit in the third quarter of 2000 amounted to NIS 184 million,
compared with NIS 169 million in the third quarter of 1999.
The increase in net profit in the third quarter of 2000 compared with the
third quarter of 1999, derives mainly from an increase in capital gain from
divestiture of companies, which was offset by an increase in s severance
pay expense, and from a decrease in profitability, mainly at Telrad, and a
decrease in the equity of Koor Group in the profits of affiliated
companies.
5. LIQUIDITY
Working capital as at 30 September, 2000, amounts to NIS 1,628 million,
compared with NIS 906 million at 31 December, 1999. The current ratio is
now 1.33, compared with 1.13 at the end of 1999, and the quick ratio is now
1.04, compared with 0.85 at the end of 1999.
Cash flows from operating activities in the first nine months of 2000
amounted to NIS 583 million, compared with NIS 322 in the first nine months
of 1999. Permanent cash flow from operating activities, i.e. - net profit
plus income and expenses not involving cash flows - amounted to NIS 371
million in the reporting period, compared with NIS 646 in the corresponding
period in 1999. The decrease in customers and other trade receivables,
which amounts to NIS 98 million, caused an increase in the cash flow from
operating activities. The decrease in customers and other accounts
receivable occurred mainly at M-A Industries less an increase in customers
and trade receivables, mainly at Elisra. The increase of NIS 33 million in
the inventory item caused a decrease in the cash flow from operating
activities, while an increase of NIS 148 million in suppliers and accounts
payable caused an increase in the cash flow from operating activities.
Investment activities in the first nine months of 2000 contributed NIS 232
million compared with NIS 1,388 million which were used for investment
activity in the first nine months of 1999. Proceeds from the realization of
investments and fixed assets contributed NIS 1,740 million to the cash flow
from investment activities. This sum consists mainly of porceeds from the
realization of holdings and activities at Mashav, Telrad, Tadiran
Appliances, Tadiran Batteries, Middle East Tube and others. The investment
in fixed and other assets, net of an investment grant, amounted to NIS 362
million, compared with NIS 521 million in the corresponding period in 1999.
Principal investments in fixed assets in the report period were in M-A
Industries, Telrad, Moriah Hotels, Koor Properties and Elisra.
An additional investment in consolidated companies consumed NIS 298
million, and included NIS 179 million in the purchase of Nortel's shares in
Telrad by Koor and NIS 88 in the purchase of the minority interest in
Millennia by M-A Industries.
Financing activities in the first nine months of 2000 consumed NIS 1,316
million compared with NIS 273 million, net cash which derived from
financing activities in the first nine months of 1999. The long-term loans
received in the reporting period amounted to NIS 512 million, compared with
NIS 617 million in the corresponding period in 1999. The principal amounts
of the loans were received at Tadiran and M-A Industries. Repayment of
long-term loans in the report period amounted to NIS 1,043 million,
compared with NIS 515 million in the corresponding period in 1999. The
long-term loan repayment amount relates mainly to Koor - the parent company
(NIS 701 million), M-A Industries, Moriah Hotels, Telrad and Koor
Issuances.
Short-term credit, net decreased in the report period by NIS 395 million,
compared with an increase of NIS 313 million in short-term credit, net in
the corresponding period in 1999. Most of the decrease was at Tadiran, M-A
Industries and Telrad, which was offset by an increase, mainly at Moriah
Hotels.
Total cash and cash equivalents declined in the first nine months of 2000
by NIS 514 million. The decrease occurred mainly at Koor - the parent
company, which was partially offset by an increase in the sum of cash and
cash equivalents, mainly at Telrad and M-A Industries.
6. Quality report on exposure to market risks and their management
There are no changes in comparison with the Directors' Report on the State
of Company Affairs for 1999, dated 23 March, 2000, except for Section 3.4 -
Financial Instruments.
Below are the data on financial instruments:
30.9.2000 31.12.1999
in $ millions
----------------------------------------
Dollar purchase options, net -- 195
Forward contracts -- 88
------------------------------------- -------------------------------------
Jonathan Kolber Ron Feinstein
CEO and Vice-Chairman Member of the
of the Board of Directors Board of Directors
28 November, 2000
