TEFRON Ltd.
Notes to consolidated financial statements
- --------------------------------------------------------------------------------
Note 25: DISCLOSURE CONCERNING ADOPTION OF INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRS) (Cont.)
a. BALANCE SHEET RECONCILIATION
January 1, 2007 December 31, 2007
------------------------------------------- -------------------------------------------
Impact
Impact of of
transition transition
US GAAP to IFRS IFRS US GAAP to IFRS IFRS
--------- --------- --------- --------- --------- ---------
Item $ in thousands
--------- ----------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 3,966 $ - $ 3,966 $ 2,384 $ - $ 2,384
Short-term investments 15,064 - 15,064 12,731 - 12,731
Trade receivables, net 30,655 - 30,655 29,033 - 29,033
Other current assets c1 4,166 (459) 3,707 5,404 (464) 4,940
Inventories c3 28,912 1,038 29,950 32,577 1,216 33,793
--------- --------- --------- --------- --------- ---------
82,763 579 83,342 82,129 752 82,881
--------- --------- --------- --------- --------- ---------
Non-current assets
Marketable securities - - - 1,284 - 1,284
Subordinated note
receivable 3,000 - 3,000 3,000 - 3,000
Property, plant and
equipment, net c3, c5 77,086 (1,596) 75,490 74,791 (1,813) 72,978
Goodwill and other
Intangible assets, net c5 - 558 558 - 597 597
Long-term deposit 1,029 - 1,029 - - -
Assets in respect of
employee benefits c2 778 (778) - 1,288 (1,288) -
--------- --------- --------- --------- --------- ---------
81,893 (1,816) 80,077 80,363 (2,504) 77,859
--------- --------- --------- --------- --------- ---------
TOTAL ASSETS $ 164,656 $ (1,237) $ 163,419 $ 162,492 $ (1,752) $ 160,740
========= ========= ========= ========= ========= =========
CURRENT LIABILITIES
Short - term bank loans $ 5,948 $ - $ 5,948 $ 5,948 $ - $ 5,948
Trade payables 31,143 - 31,143 29,720 - 29,720
Other current liabilities 10,402 - 10,402 8,635 - 8,635
--------- --------- --------- --------- --------- ---------
47,493 - 47,493 44,303 - 44,303
--------- --------- --------- --------- --------- ---------
NON-CURRENT LIABILITIES
Long - term loans from
banks 19,322 - 19,322 13,374 - 13,374
Employee benefit
liabilities, net c2 3,298 (1,885) 1,413 3,882 (2,397) 1,485
Deferred taxes, net c1, c2 12,313 (179) 12,134 12,397 (199) 12,198
--------- --------- --------- --------- --------- ---------
34,933 (2,064) 32,869 29,653 (2,596) 27,057
--------- --------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY
Share capital 7,411 - 7,411 7,518 - 7,518
Additional paid-in capital c4 101,684 416 102,100 106,530 334 106,864
Other capital reserves 55 (55) - 368 (368) -
Accumulated deficit c2, c4 (18,955) 466 (18,489) (18,472) 878 (17,594)
Treasury shares (7,408) - (7,408) (7,408) - (7,408)
--------- --------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 82,787 827 83,614 88,536 844 89,380
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES $ 164,656 $ (1,237) $ 163,419 $ 162,492 $ (1,752) $ 160,740
========= ========= ========= ========= ========= =========
F - 53
TEFRON Ltd.
Notes to consolidated financial statements
- --------------------------------------------------------------------------------
Note 25: DISCLOSURE CONCERNING ADOPTION OF INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRS) (Cont.)
b. STATEMENTS OF INCOME RECONCILIATION
For the year ended
December 31, 2007
---------------------------------------
Impact of
transition
US GAAP to IFRS IFRS
-------- -------- --------
$ in thousands
Item (except for per share data)
-------- ---------------------------------------
Sales $158,614 $ - $158,614
Cost of sales c2 139,147 (2) 139,145
-------- -------- --------
Gross profit 19,467 2 19,469
Sales and marketing expenses 12,443 - 12,443
General and administrative expenses c4 5,272 (82) 5,190
-------- -------- --------
Operating income 1,752 84 1,836
Financial income 1,401 - 1,401
Financial expenses 2,690 - 2,690
-------- -------- --------
Income before income taxes 463 84 547
Tax benefit c2 20 15 35
-------- -------- --------
Net Income $ 483 $ 99 $ 582
======== ======== ========
NET EARNINGS PER SHARE ATTRIBUTED TO COMPANY SHAREHOLDERS (IN $)
Basic diluted net earnings 0.3 *) - 0.3
======== ======== ========
*) Represents an amount less than $0.01.
c. NOTES TO RECONCILIATION OF FINANCIAL STATEMENTS
1. DEFERRED TAXES
According to US GAAP, deferred tax assets and liabilities were
classified as current assets or current liabilities and as
non-current assets or non-current liabilities based on the nature
of the related asset or liability. According to IFRS, deferred
tax assets and liabilities are classified as non-current assets
or non-current liabilities, respectively, even if it is
anticipated that they will be realized in the short term.
Therefore, as of December 31, 2007 and January 1, 2007, $464
thousand and $459 thousand, respectively, were reclassified from
other current assets to the net deferred tax liability.
2. EMPLOYEE BENEFITS
According to US GAAP, the severance pay liability was measured
based on the employee's most recent monthly salary multiplied by
the number of years of service as of each balance sheet date,
based on the "shut down" method, and severance pay reserve was
measured at its surrender value at each balance sheet date.
According to IAS 19 "Employee benefits", the Company's benefit
plan is considered a defined benefit plan and, therefore,
severance pay liability was calculated on an actuarial basis. The
actuarial calculation takes into consideration future salary
increases, rates of employee turnover, and the estimated timing
of payments. The amounts are measured based on expected future
discounted cash flows of interest rates on government bonds whose
maturity matches the period of the liabilities relating to the
severance pay.
F - 54
TEFRON Ltd.
Notes to consolidated financial statements
- --------------------------------------------------------------------------------
c. NOTES TO RECONCILIATION OF FINANCIAL STATEMENTS (CONT.)
2. EMPLOYEE BENEFITS (Cont.)
Therefore, as of January 1, 2007, the Company recorded a total
decrease in the net employee benefits liability of $1,107
thousand (a decrease in assets in respect of employee benefits of
$778 thousand offset by a decrease in the net employee benefits
liability of $1,885 thousand) with an offsetting entry to
accumulated deficit. In addition, the Company recorded an
increase in the net deferred tax liability of $280 thousand with
an offsetting entry to accumulated deficit. As of December 31,
2007, the Company recorded a total decrease in the net employee
benefits liability of $1,109 thousand (a decrease in assets in
respect of employee benefits of $1,288 thousand offset by a
decrease in the net employee benefits liability of $2,397
thousand) with an offsetting entry to accumulated deficit. In
addition, the Company recorded an increase in the net deferred
tax liability of $265 thousand with an offsetting entry to
accumulated deficit.
F - 55
TEFRON Ltd.
Notes to consolidated financial statements
- --------------------------------------------------------------------------------
Note 25: DISCLOSURE CONCERNING ADOPTION OF INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRS) (Cont.)
c. NOTES TO RECONCILIATION OF FINANCIAL STATEMENTS (Cont.)
3. SPARE PARTS
According to US GAAP, spare parts were classified as fixed
assets. According to IAS 16 "Property, plant and equipment",
spare parts are usually presented as inventories and are
recognized in the statements of income as they are consumed.
However, significant spare parts meet the criteria for fixed
assets when an entity expects to use them over more than one
period. Because the Company's spare parts are continuously
consumed as part of the production process, they do no meet the
definition of fixed assets and, therefore, $1,038, thousand and
$1,216, thousand were reclassified from property, plant and
equipment to inventories as of January 1, 2007 and December 31,
2007, respectively.
4. SHARE-BASED PAYMENTS
a. In accordance with SFAS No. 123(R), "Share-based payments",
the Company recognized, pursuant to transition provisions
set forth therein, compensation cost for awards granted to
employees after January 1, 2006, and compensation cost for
the unvested portion of awards granted prior to January 1,
2006 that are outstanding as of that date.
Upon adoption of IFRS, the Company adopted the provisions of
IFRS 2, "Share-based Payment", and recorded compensation
cost for the vested portion of awards granted prior to
January 1, 2006, but subsequent to November 7, 2002, which
were unvested as of January 1, 2007.
Accordingly, as of January 1, 2007 and December 31, 2007,
$416 thousand and $334 thousand was recorded as an increase
to additional paid-in capital with an offsetting entry to
accumulated deficit, respectively.
b. AWARDS THAT VEST IN INSTALLMENTS
According to SFAS No. 123(R), the Company used the
straight-line method to account for awards that vest in
installments. According to IFRS 2, the accelerated method
must be used to account for such awards. Therefore, as of
January 1, 2007 $59 thousand was recorded as an increase to
additional paid in capital and as of December 31, 2007 $10
thousand was recorded as a decrease to additional paid-in
capital with an offsetting entry to accumulated deficit,
respectively.
5. OTHER ASSETS
According to US GAAP, purchased software was classified as a
fixed asset. According to IAS 38 "Intangible assets", purchased
software may be classified as a fixed asset only if the software
is considered an integral part of the hardware; otherwise the
software is classified as an intangible asset. Because the
Company's software is not considered integral, $558 thousand and
$597 thousand were reclassified from property, plant, and
equipment to intangible assets as of January 1, 2007 and December
31, 2007, respectively.
F - 56
TEFRON Ltd.
Notes to consolidated financial statements
- --------------------------------------------------------------------------------
Note 26: EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
On January 20, 2009, a special General Meeting approved a reverse split of
Company share capital, such that each 10 ordinary shares of NIS 1 par value
would be converted into one ordinary share of NIS 10 par value. The
effective date for this reverse split was January 22, 2009 at trading start
on the Tel Aviv Stock Exchange. Earnings (loss) per share have been
retrospectively adjusted in the Company's financial statements - see also
Note 19a. Furthermore, the General Meeting of shareholders approved an
increase in the Company's authorized share capital, from 49,995,500 shares
of NIS 1 par value each to 69,995,500 shares of NIS 1 par value each, at
values prior to the reverse split of share capital, or from 4,999,550
shares of NIS 10 par value each to 6,999,550 shares of NIS 10 par value
each in values subsequent to the reverse-split of share capital. The
Company's Articles of Incorporation and Bylaws were amended accordingly.
F - 57
TEFRON Ltd.
Appendix to Consolidated Financial Statements - List of subsidiaries
- --------------------------------------------------------------------------------
LIST OF SUBSIDIARIES
Shares conferring voting and
dividend rights
----------------
December 31, 2008 and 2007
----------------
COMPANY NAME
Subsidiaries:
Hi-Tex, a Tefron Ltd. company 100% 100%
Macro Clothing Ltd. 100% 100%
Tefron USA Inc., wholly-owned by Tefron US Holdings 100% 100%
Tefron UK Ltd., wholly-owned by Macro Clothing Ltd. 100% 100%
El Masira Textile Co., wholly-owned by Tefron USA Inc. 100% 100%
Tefron Holdings (98) Ltd. 100% 100%
Tefron US Holdings Corp. 100% 100%
Tefron Macro HK Ltd., wholly-owned by Macro Clothing Ltd 100% 100%
Tefron Holding Netherlands B.V. 100% 100%
F - 58
SIGNATURES
The Company hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
TEFRON LTD.
By: /s/ Adi Livneh
-----------------------
Adi Livneh
Chief Executive Officer
By: /s/ Eran Rotem
-----------------------
Eran Rotem
Chief Financial Officer
June 30, 2009
