The compensation committee recommends to the board of directors in accordance to issuance of employee share options under our share option plan, determines salaries and bonuses for our executive officers and incentive compensation for our other employees. The members of our compensation committee are Ze’ev Feldman as chairman, Joseph Tzur and Ami Samuels. The composition and functions of the compensation committee meet the requirements of the NASDAQ Global Market rules.
The nominating and governance committee makes recommendations to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board regarding corporate governance matters. The members of the nominating and governance committee are Ze’ev Feldman as chairman, Joseph Tzur and Guy Vaadia. The composition and functions of the nominating and governance committee meet the requirements of the NASDAQ Global Market rules.
Under the Israeli Companies Law, the board of directors of a Public Company must appoint an internal auditor following the recommendation of its audit committee. The role of the internal auditor is to examine whether a company’s actions comply with the law and proper business procedure. The internal auditor may be an employee of the company but may not be an interested party or officer in the company, or a relative of an interested party or officer, and may not be a member of the company’s independent accounting firm or its representative. The Israeli Companies Law defines an interested party as a shareholder of 5% or more of the company’s issued share capital or of voting rights, or a person or entity that has the power to appoint one or more directors or the general manager of the company, or a person who serves in the company as a director or as general manager of a company. We appointed an internal auditor in June 2005.
As of June 15, 2008, our worldwide workforce consists of 1,345 people, which includes approximately 52 employees who provide services to us through our working service agreement with Kibbutz Shamir (see “Item 7. Major Shareholders and Related Party Transactions.”). The following table shows the breakdown of our workforce by main category of activity and geographic location for the past three years.
We consider the changes in the numbers of employees in our various departments or geographic regions to be in line with our expectations for our company’s growth. We believe that our relations with our employees are good. None of our employees work under any collective bargaining agreements, and we have no relations with any labor unions.
In Israel, we are subject to the instructions of the Extension Order in the Industrial Field for Extensive Pension Insurance 2006 according to the Israeli Collective Bargaining Agreements Law, 1957 (the “Extension Order”). The Extension Order ensures the pension insurance of certain employees which fall under its criteria, including the employees of Eyal, SSOP, Shamir Israel, Shamir Or and Shamir.
6.ESHARE OWNERSHIP
Our executive officers and other certain employees, other than directors, hold options to purchase 1,439,096 of our ordinary shares. At our special general meetings on July 18, 2005, and August 8, 2005, our shareholders approved the issuance of 23,540 options to our directors (except for the former chairman of our board, Yair Shamir, and our former chief executive officer, Giora Ben-Ze’ev). In addition, at our special general meeting on December 5, 2007, our shareholders approved the issuance of 51,460 options to Mr. Uzi Tzur, the chairman of our board of directors. For a description of the options held by our directors, please see “–Compensation of Directors and Management.”
On August 24, 2004, our board of directors granted options to purchase 683,120 of our shares to certain of our executive officers and other employees. Out of these options, the board granted options to purchase up to 301,376 of our shares to our former chief executive officer, Giora Ben-Ze’ev, and options to purchase up to 66,973 of our shares to each of our former chief financial officer, Amir Hai, and to our vice president of marketing, Dagan Avishai. The exercise price for these options was set at $10.30 per share. Also out of these options, the board granted options to purchase a total of up to 214,312 of our shares to certain employees in research and development, and options to purchase up to 33,486 of our shares to Dan Katzman, the head of the research and development department. The exercise price for these options is $12.43. The board authorized our chief executive officer to finally determine the allocation of the options among the development employees. Furthermore, the board approved options to purchase an additional 288,360 of our shares for future grants to directors or employees. On January 1, 2005, we agreed to grant 160,961 out of these 288,360 additional options to Yair Shamir, the chairman of our board of directors at the date of the grant (see “–Compensation of Directors and Management”). On August 21, 2005, the board’s compensation committee approved an additional grant to Amir Hai, our former chief financial officer, of options to purchase 33,487 shares at the exercise price of $11.55 per share.
On June 8, 2005, Shamir Insight granted options to acquire its shares to two of its officers. On December 29, 2005, the option grant was cancelled by Shamir Insight. On May 15, 2006, we granted options to purchase 58,000 of our shares to those officers of Shamir Insight, at an exercise price of $11.07 per share. The vesting schedule is as follows: 25% immediately, 25% on May 31, 2006, 30% on January 31, 2007, and 20% on January 31, 2008. In addition, 100,000 options were granted to Eyal Hayardeny at an exercise price of $9.97 per share. On August 14, 2006 we granted Eyal Hayardeny 47,000 options with an exercise price of $8.86 per share. On August 21, 2007, we granted Eyal Hayardeny 13,000 options with an exercise price of $9.99 per share. On September 23, 2007 we granted Eyal Hayardeny 80,000 options with an exercise price of $12.29 per share. On March 10, 2008 we granted Eyal Hayardeny 61,000 options with an exercise price of $7.1 per share.
On July 1, 2006, our former chief financial officer, Amir Hai, resigned from his position in our company. Pursuant to his retirement agreement, 33,486 of his options, which were unvested and were not expected to be vested as of the resignation date were cancelled. The vesting period of the remaining 66,974 options was accelerated so that they were all fully vested as of July 1, 2006. The exercise price of 50,230 options is $10.3 per share, and of 16,744 options is $11.55 per share. All of the options are valid until July 31, 2008.
On June 30, 2006, we granted Yagen Moshe, our chief financial officer, 50,000 options at an exercise price of $9.00 per share. In addition, on August 21, 2007 we granted Yagen 50,000 options with an exercise price of $9.99 per share.
On April 30, 2007, we granted 35,000 options with an exercise price of $9.82 per share each to Youval and Zohar Katzman, employees of SSOP, in place of the options that had been granted to them as consultants on May 15, 2006, which were canceled.
On August 21, 2007 we granted Rami Ben-Ze’ev, our vice president of business management, and Noam Bachar, a vice president at Altra, 23,540 and 50,000 options each, respectively, with an exercise price of $9.99 per share.
At our special general meeting on December 5, 2007, our shareholders approved the issuance of 51,460 options to Mr. Uzi Tzur, the chairman of our board of directors, with an exercise price of $8.59 per share.
All of the options described above are granted pursuant to our 2005 General Share and Incentive Plan that was approved and adopted by our board on February1, 2006. The Plan provides that 25% of the shares shall vest one year after the date of grant, and the remaining 75% shall vest on a monthly basis, with 1/36 of the remaining shares vesting on each month commencing at the end of the first anniversary of the date of grant. According to the Plan during the year 2006 we could grant 350,000 options to purchase our shares and in each following year the option pool shall increase by an additional 280,000 options. On May 27, 2008, our audit committee and board of directors resolved, subject to the approval of our shareholders, to amend our 2005 General Share and Incentive Plan to provide that in the event we distribute a cash dividend and the record date for such distribution is subsequent to the date of grant of an award in the form of an option to purchase shares, but prior to its exercise or expiration, the exercise price of each such award will be reduced by the dividend amount per share. Further, on May 27, 2008, our audit committee and board of directors resolved, subject to the approval of our shareholders, to adjust the exercise price of the outstanding options, including outstanding options previously granted to directors and external directors in the Company, by reducing the exercise price by $0.243, the dividend per share declared by the Company in January 2008. The adjustment to the exercise price of outstanding options is contingent on shareholder approval of the abovementioned amendment to the 2005 General Share and Incentive Plan.
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The options that were granted prior to the adoption of the 2005 General Share and Incentive Plan during the years 2004 and 2005 will vest in four tranches of 25% per year. The first tranche vested on March 10, 2006. The options were granted and authorized pursuant to Section 102 of the Israeli Income Tax Ordinance, which grants certain tax advantages to the employee grantees of options. In order for these tax advantages to take effect, the options must be held by a trustee, and the underlying shares cannot be sold until the end of the second fiscal year after the year in which they were granted.
On September 30, 2003, we granted options to purchase 167,226 of our shares to Dan Katzman. The exercise price of these options is less than $0.01 per share. These options were exercised in July 2007. On the same date, the board granted Mr. Katzman additional options to purchase 167,105 of our outstanding shares. The exercise price of these options is $2.46 per share. The options in both tranches are granted pursuant to our Israeli Plan for the Allotment of Shares/Options for 2003, and are exercisable for a period of ten years following the grant date and vested immediately. The options were granted pursuant to Section 102 of the Israeli Income Tax Ordinance and are subject to its holding requirements, as described above.
On June 5, 2000, we granted options to purchase 120,480 of our ordinary shares to Michael Latzer, the President of Shamir USA, with an exercise price of $9.96 per share. The options may be exercised no later than December 31, 2008.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.AMAJOR SHAREHOLDERS
The following table and footnotes set forth information, as of June 15, 2008, regarding the beneficial ownership of our ordinary shares by:
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· | each person or entity that we know beneficially owns more than 5% of our outstanding ordinary shares; and |
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· | each of our directors or executive officers who beneficially owns one percent or more of our shares. |
Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power and options currently exercisable or exercisable within 60 days of June 15, 2008.
Except as indicated in the footnotes to this table, each shareholder in the table has sole voting and investment power for the shares shown as beneficially owned by it. All of our shareholders have the same voting rights. Percentage ownership is based on 16,423,470 ordinary shares outstanding as of June 15, 2008, Except as otherwise disclosed, the address of Kibbutz Shamir and of Dan Katzman is c/o Shamir Optical Industry, Kibbutz Shamir, Upper Galilee, 12135 Israel. FIBI’s address is FIBI Investment House Ltd., 17th Floor, Africa Israel Building, 14 Ehad Ha-Am Street, Tel Aviv, Israel. The offices of Royce & Associates, LLC, are located at 1414 Avenue of the Americas, New York, NY 10019. Other than Dan Katzman, none of our directors or executive officers beneficially owns one percent or more of our outstanding share capital.
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Name of Beneficial Owner | | Percent of Shares | | Number of Shares |
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Kibbutz Shamir(1) | | 59.04 | % | | 9,695,809 | |
FIBI Investment House Ltd.(2) | | 8.28 | % | | 1,360,226 | |
Dan Katzman(3) | | 1.77 | % | | 307,817 | |
Royce & Associates, LLC(4) | | 9.98 | % | | 1,639,100 | |
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(1) | Based on a schedule 13G filed on February 13, 2008 and other information provided to us by Kibbutz Shamir, Kibbutz Shamir holds shares in our company through Shamir Optica Holdings A.C.S. Ltd. The management board of Kibbutz Shamir manages the economic activities and strategy of Kibbutz Shamir and makes the voting and investment decisions of Kibbutz Shamir (by majority vote) with regard to our shares. The management board of Kibbutz Shamir has 16 members. Giora Ben-Ze’ev, Efrat Cohen, Dagan Avishai, Rami Ben-Ze’ev and Uzi Tzur are directors or officers of our company and also members of the management board of Kibbutz Shamir, and our shares held by Kibbutz Shamir may be attributed to them. The other members of the management board of Kibbutz Shamir are Edy Kudlash, Nili Van Der Meer, Yitzchak Cahana, Avraham Hadar, Ze’ev Markman, Ilan Pickman, Pinchas Carmi, Yossi Michaeli, Ya’akov Gotlib, Maya Segal and Omry Rotem. The number of ordinary shares held by Kibbutz Shamir excludes additional ordinary shares of Shamir that Kibbutz Shamir, through Shamir Optica, may be deemed to beneficially hold as a result of the shareholders agreement entered into with certain other shareholders of Shamir relating to, among other things, the voting of nominees to our board of directors, as further described in “Related Party Transactions–Shareholders Agreement.” Kibbutz Shamir and Shamir Optica disclaim beneficial ownership in the shares owned by the other parties to the shareholders agreement. |
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(2) | Based on information provided to us by the chief executive officer and chief financial officer of FIBI, the voting and investment decisions for FIBI Investment House Ltd., or FIBI, are made by the chief executive officer of FIBI. The chief executive officer may also request the approval of the board of FIBI with regard to unusually important votes. In case of a disposition of all or substantially all of our shares by FIBI, a decision regarding this disposition will be taken by the board of directors of FIBI. The chief executive officer of FIBI is Guy Vaadia. The members of the board of directors of FIBI are Zadik Bino, Gil Bino Garry Stock and Guy Vaadia. The members of the board of directors of FIBI Holdings Ltd. are Zadik Bino, Gil Bino, Garry Stock, Harry (Hersh) Cooper, Yossef Alchech, Gabriel Roter and Nilli Even-Chen. |
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| FIBI is an affiliate of a broker-dealer. FIBI has represented to us that it purchased the shares being registered for resale in the ordinary course of business and that, at the time of the purchase, it had no agreements or understandings, directly or indirectly, with any person to distribute the securities. |
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| Based on Schedule 13G filed on April 2, 2007, the number of ordinary shares held by FIBI excludes additional ordinary shares of Shamir that FIBI and FIBI Holdings Ltd. each may be deemed to beneficially hold as a result of the shareholders agreement entered into by FIBI with certain other shareholders of Shamir relating to, among other things, the voting of nominees to our board of directors, as further described in “Related Party Transactions–Shareholders Agreement.” FIBI and FIBI Holdings Ltd. each disclaim beneficial ownership in the shares owned by the other parties to the shareholders agreement. |
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(3) | Consists of 107,226 ordinary shares and currently exercisable options to acquire 200,591 ordinary shares. The percentages of shares held by Dan Katzman are based on the number of our shares outstanding at the relevant time, partially diluted to include the number of shares corresponding to the options held by Dan Katzman. |
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(4) | Based solely on information contained in Schedule 13G filed with the SEC by Royce & Associates, LLC on February 6, 2008. |
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| There are no holders of record of our ordinary shares who are, to our knowledge, U.S. persons. |
7.BRELATED PARTY TRANSACTIONS
We have, from time to time, entered into agreements with our shareholders and affiliates. We describe these relationships and related party transactions below.
Relationship with Kibbutz Shamir
Our majority shareholder is Kibbutz Shamir, a small communal society with approximately 300 members and approximately 600 total residents located in upper Galilee, in northern Israel. Established in 1944, Kibbutz Shamir is a largely self-governed community of members who share certain social ideals and professional interests and who live in a distinct geographic area, which they own and develop on a communal basis. Initially, the social idea behind the formation of the kibbutzim in Israel was to create a communal society in which all members share equally in all of the society’s resources and which provides for the needs of the community. Over the years, the structure of the kibbutzim has evolved, and today there are a number of different economic and social arrangements adopted by various kibbutzim. Kibbutz Shamir has moved toward more private ownership and voluntary participation in communal activities, although each member continues to own an equal part of the assets of Kibbutz Shamir. The members of Kibbutz Shamir are engaged in a number of economic activities, from farming to research and development of progressive spectacle lenses. In addition to being our majority shareholder, Kibbutz Shamir is the majority shareholder of Shalag Industries, Ltd., a company that, like us, is located on the grounds of Kibbutz Shamir. Shalag Industries, Ltd. is engaged in the manufacture and sale of non-woven cloth and is listed on the Tel Aviv Stock Exchange. The kibbutz community holds in common all land, buildings and production assets of these companies.
Most of the members of Kibbutz Shamir work in one of the production activities of Kibbutz Shamir, according to the requirements of the Kibbutz and the career objectives of the individual concerned. Some other members work outside of Kibbutz Shamir in businesses owned by other entities. Each member receives an income based on the position the member holds and his or her economic contribution to the community, as well as the size and composition of his or her family. Each member’s income depends on the income of Kibbutz Shamir from its economic activities. Each member has a personal pension fund that is funded by Kibbutz Shamir, and all accommodation, educational, health and old age care services, as well as social and municipal services, are provided either by or through Kibbutz Shamir and are subsidized by Kibbutz Shamir.
The economic activities and strategy of Kibbutz Shamir are managed by an elected management board. This board is the key economic decision-making body of Kibbutz Shamir. Its members are elected by the members of the council of Kibbutz Shamir for terms of three years. The chairman of the management board is elected for a term of four years directly by the members of Kibbutz Shamir. Kibbutz Shamir’s council is elected annually by the Kibbutz Shamir members. The council may remove a member of the management board by a simple majority vote. The boards of directors of Kibbutz Shamir’s companies operate independently from the management board of Kibbutz Shamir itself. The chairman of our board of directors, Uzi Tzur, is also the chairman of the management board of Kibbutz Shamir and a member of Kibbutz Shamir. Our board members and two of our company’s executive officers, Dagan Avishai and Rami Ben-Ze’ev, are also members Kibbutz Shamir and of the management board of Kibbutz Shamir. Another one of our directors, Efrat Cohen, is a member of the management board of Kibbutz Shamir but not a member of Kibbutz Shamir itself. As of June 15, 2008, approximately 52 members of our workforce in Israel are also members of Kibbutz Shamir. Our headquarters and main production facilities, which we lease from Kibbutz Shamir, are located on the premises of Kibbutz Shamir, and we have entered into several professional agreements with Kibbutz Shamir that are described below. While these agreements have been negotiated on an arm’s length basis, they may contain terms that are different from the terms that would have been included had these agreements been negotiated with unaffiliated third parties.
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Working Service Agreement with Kibbutz Shamir
We entered into a working service agreement with Kibbutz Shamir in February 2005. On July 19, 2007, we entered into a new working service agreement with Kibbutz Shamir which replaces the agreement from February 2005. The terms of the new working service agreement are substantially similar to the terms of the agreement from February 2005. Under the working service agreement Kibbutz Shamir undertakes on a best efforts basis (but is not strictly obligated) to provide us with individuals to fill the relevant positions for which we request staffing. In addition, we are obligated to grant Kibbutz Shamir a first opportunity to provide such individuals for any positions for which we seek staffing. Pursuant to the agreement, our chief executive officer at the time, Giora Ben-Ze’ev, and our executive vice president at the time, Dagan Avishai, each entered into individual employment agreements with the Company and are not part of the working service agreement.
We are entitled to determine, with respect to all kibbutz members who provide services to us, the type of position to be filled by kibbutz members, the number of positions, the scope of each position, as well as, with respect to new workers provided by Kibbutz Shamir, the fees to be paid in consideration for the member’s services. We may, for reasonable cause, refuse to accept workers referred to us by Kibbutz Shamir or demand the replacement of existing workers. The agreement sets the reimbursement rights of the Company for any liabilities that may arise under an imputed employer-employee relationship between us and the members of Kibbutz Shamir who provide the services. In addition, the Company is entitled to determine at its discretion with respect to new workers provided by Kibbutz Shamir and current workers whose scope of position has changed since the date of the new working service agreement, the consideration to be paid by the Company. The agreement includes a non-disclosure undertaking by Kibbutz Shamir on its own behalf and on behalf of Kibbutz Shamir members through whom services are provided to us.
The initial term of the agreement expires on March 10, 2010, with subsequent automatic extensions for additional periods of five years, unless one party notifies the other, in writing, at least 180 days before the end of the then current effective period.
In 2007 we paid a total of approximately $1.2 million to Kibbutz Shamir under the working service agreement.
In addition, from time to time we pay bonuses to our employees. These bonuses are not governed by the working services agreement. Employees who are members of the kibbutz receive these bonuses on the same terms as non-member employees.
On January 18, 2007, Kibbutz Shamir granted approval for our subsidiaries SSOP and Eyal Optical Industries (95) Ltd. to employ directly (i.e. not through the working service agreement) local members of Kibbutz Shamir.
Service Agreement with Kibbutz Shamir
In February 2005, we entered into a service agreement with Kibbutz Shamir, pursuant to which Kibbutz Shamir provides us with catering, laundry, switchboard and communications, maintenance and landscaping, trash removal services and water usage.
The fee for all of these services except water usage was initially fixed at NIS 92,000 per month. The fee is linked to the consumer price index and reviewed every five years. In the event that the cost to Kibbutz Shamir of providing these services increases or decreases during the final year of the agreement’s five-year cycle as compared to the effective date of the agreement, the service fee shall be adjusted accordingly. If the costs increase or decrease by 30% or more in any particular year during the term of the agreement, the service fee will be adjusted for the following year. If Kibbutz Shamir provides additional services to us, the fee shall be adjusted accordingly. The fee for catering services is adjusted continuously based on the actual number of employees using these services.
The agreement specifies that Kibbutz Shamir will indemnify us for any liabilities that might arise under an imputed employer-employee relationship between us and the members of Kibbutz Shamir who provide the services.
The initial term of the agreement expires on March 10, 2010, with automatic renewal for periods of five years, unless terminated earlier by either party upon 12 months written notice.
On July 19, 2007, we entered into an additional arrangement with Kibbutz Shamir. Under the additional service arrangement between the Company and Kibbutz Shamir, we and our subsidiaries will be entitled to purchase additional services not covered by the current service agreement. The consideration for a single transaction will be no greater than $7,000 (plus VAT, if required by law), and the aggregate consideration for services purchased by us and our subsidiaries during any calendar year will be no greater than $300,000 (plus VAT, if required by law). At least one additional proposal in writing from an unaffiliated third party shall be obtained prior to each service order.
In 2007 we paid a total of approximately $0.4 million to Kibbutz Shamir under the service agreement.
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On March 8, 2007, our shareholders at a special shareholders meeting approved a new service agreement between Kibbutz Shamir and our subsidiary, Shamir Special Optical Products Ltd., or SSOP, for the period commencing upon the acceptance of the new factory that is being built in Kibbutz Shamir for SSOP and ending on February 9, 2010, pursuant to which Kibbutz Shamir will provide administrative and maintenance services to SSOP to maintain the factory. SSOP shall pay Kibbutz Shamir a monthly fee of NIS 25,000 linked to the Consumer Price Index. In the event that the actual cost of services in any year is higher or lower by 30% or more compared to the service fee paid in the preceding calendar year, not taking into account extraordinary expenses not in the ordinary course of business, the service fee for the following year will be adjusted accordingly. The term of the service agreement will be extended automatically for additional periods of five years each unless either of the parties terminates the service agreement by giving 12-months’ advance notice prior to the scheduled expiration date. The service fee will be adjusted at the end of the initial term of the service agreement and then every five years, assuming that the service agreement is extended, based on the actual cost of services in the year preceding the adjustment date.
Lease and Sublease Agreements with Kibbutz Shamir
Our principal offices, manufacturing and research and development facilities are located on the premises of Kibbutz Shamir and include a building of approximately 4,786 square meters, and a yard of approximately 2,287 square meters (the “Facilities”). The Facilities are subleased from Kibbutz Shamir, which has a long-term lease on the property from the Israel Lands Administration, or ILA.
The lease agreement between Kibbutz Shamir and the ILA was signed on December 27, 1990 for a term of 49 years, with an option to extend for an additional 49 years. Pursuant to the lease, Kibbutz Shamir may use the lands for agricultural and residential purposes and services to members of Kibbutz Shamir and for commercial purposes, including the Company’s factory.
The ILA may cancel the lease in certain circumstances, including if Kibbutz Shamir commences proceedings to disband or liquidate or in the event that Kibbutz Shamir ceases to be a “kibbutz” as defined in the lease (i.e., a registered cooperative society classified as a kibbutz).
Pursuant to the lease, Kibbutz Shamir may, with permission from the ILA and without additional fees, sublease the parcel to a corporation under its control.
On January 5, 1999, we and Kibbutz Shamir signed a sublease agreement pursuant to which Kibbutz Shamir subleased to us the Facilities for a period of twenty years beginning on January 1, 1999. Annual rental payments are $1 for each square meter of yard and $4 for each square meter of building. At that time, the Facilities included a building of approximately 3,646 square meters and a yard of approximately 2,287 square meters. Kibbutz Shamir constructed an additional 1,149 square meters of an extension to our headquarters and manufacturing building at its own expense, for which we pay rent of $6 per square meter.
The rent is paid every six months in advance. Every two years, the rent will be adjusted in accordance with market rental prices for similar properties.
The agreement also states that any construction or changes in the building located on the property are subject to Kibbutz Shamir’s prior consent and all such construction will belong to Kibbutz Shamir. Kibbutz Shamir has the right of first refusal to carry out any construction work for us with respect to the subleased property. Kibbutz Shamir may demand that we finance the cost of the construction, and we are entitled to set off construction costs related only to buildings against our rental payments. Any additional internal construction work will be at our expense and is not subject to this offsetting. In the event of a disagreement between the parties with respect to the cost of construction, the cost shall be determined by a licensed appraiser.
In the event of additional construction, the rental fee for the property is increased to $6 for each additional square meter of building. We have insured the Facilities and added Kibbutz Shamir as a beneficiary in the insurance policy.
The sublease will be terminated in the event that Kibbutz Shamir holds, directly or indirectly, less than 50% of our share capital, unless the ILA agrees otherwise. We are entitled to terminate the sublease agreement by a prior written notice of 36 months.
On February 9, 2005, we entered into an amendment to the sublease agreement with Kibbutz Shamir governing the facilities we use that are located on the premises of Kibbutz Shamir. The amendment became effective upon the listing of our securities for trading on a U.S. stock exchange. Except as noted below, the operative terms of the new agreement remain unchanged from the prior agreement.
The term of the amended agreement is extended from 20 years to 24 years and 11 months. The base rent will be updated every five years rather than two years, to a level comparable to that of similar properties in the area. We will continue to be entitled to provide Kibbutz Shamir with a 36-month written termination notice after 10 years of lease.
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Rental payments under the amended agreement are the same as under the prior agreement, except that the amended agreement specifies that any additional construction of industrial facilities will be charged a rent of $4 per square meter, while additional construction of the new offices will be charged $6 per square meter. The rent for any other additional construction will be negotiated in good faith. In addition, the rent for a specific production area identified in the agreement is reduced from $6 to $4 per square meter.
Except for these changes, we believe that the payments to be made under the amended agreement will for the foreseeable future be substantially similar to the amounts we have paid under the prior agreement. In 2007 we paid a total of approximately $0.3 million to Kibbutz Shamir under the sublease agreement.
If the agreement is terminated for any reason other than a breach by Kibbutz Shamir, Kibbutz Shamir shall not be obligated to repay any loans that we have provided for construction unless the newly constructed parts of the building are occupied by a third party or used by Kibbutz Shamir.
The ILA may, from time to time, change its regulations governing the lease agreement, and these changes could affect the terms of the sublease agreement, as amended, including the provisions governing its termination.
At our special general meeting of August 8, 2005, our shareholders approved the entry of Shamir and/or a subsidiary of Shamir into a lease agreement with Kibbutz Shamir.
On June 4, 2006, we signed a memorandum of understanding with Shalag Industries Ltd., pursuant to which we rented 120 square meters for SSOP. This memorandum of understanding provided for the same rental amounts as the sublease agreement with Kibbutz Shamir, as described above. On December 15, 2007, we terminated the memorandum of understanding with Shalag Industries Ltd.
On November 1, 2007, in lieu of the lease with Shalag, we and Kibbutz Shamir entered into a lease agreement pursuant to which we lease a newly constructed facility in the Kibbutz for SSOP until November 30, 2023. We are entitled to terminate the lease at any time; provided, however, that we have located an alternate tenant and Kibbutz Shamir has given its consent, which consent would not be reasonably withheld. The parcel of land underlying the facility is included in the long-term lease between Kibbutz Shamir and the ILA, pursuant to which Kibbutz Shamir may, with the consent of the ILA, sublease the parcel to a corporation under its control. The consent of the ILA for the lease, though, has not been obtained. In addition, the ILA may, from time to time, change its regulations governing such lease agreements, which could affect the terms of the lease, and may trigger the termination of the lease. Under the lease, Kibbutz Shamir is responsible for any expense resulting from actions of the ILA. The annual rental fees pursuant to the lease are payable quarterly, in an amount equal to 10% of the actual construction cost of the facility, excluding VAT and grants of the Investment Center, as certified by the board of directors of SSOP, but in no event more than $500,000 per annum. The current annual lease payment to Kibbutz Shamir for the use of this facility is approximately $460,000.
Loan Agreement with Kibbutz Shamir
In accordance with our sublease agreement with Kibbutz Shamir dated January 5, 1999 (as amended on February 9, 2005), we granted a loan of approximately $0.4 million to Kibbutz Shamir in several installments in 2004 in order to fund the construction of an extension to our premises in Kibbutz Shamir. The loan is to be repaid in equal quarterly installments over a period of four years commencing March 31, 2005, through deductions of the rental fees we pay to Kibbutz Shamir. The loan bears interest at 1.5% per year.
At our special general meeting of shareholders on August 8, 2005, our shareholders approved a loan to Kibbutz Shamir in an amount not greater than $4.4 million, which bears annual interest at a variable rate equal to annual LIBOR plus 1.5%. The loan provided Kibbutz Shamir with funds for the construction of a building on the Kibbutz’s grounds, for our use. At our special general meeting of shareholders on March 8, 2007, our shareholders approved the termination of the loan. As of the date of this annual report, the loan was fully repaid.
Shareholders Agreement
On February 9, 2005, certain of our shareholders entered into a new shareholders agreement, which became effective upon the listing of our securities for trading on a U.S. stock exchange.
The agreement gives FIBI the right to nominate one director to our board of directors. The agreement obligates Kibbutz Shamir and the other shareholders party to the agreement to vote in favor of FIBI’s nominee, and FIBI to vote in favor of the directors nominated by Kibbutz Shamir.
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In addition, the agreement gives FIBI, Scorpio BSG Ltd., Gishrei Asia Ltd. and JFJ International Trading Ltd. a tag-along right to participate in a sale (other than a transfer to an affiliate or sales to the public on the stock exchange on which our shares are listed) of our shares by Kibbutz Shamir to a third party on a pro rata basis and on the same terms as those negotiated by Kibbutz Shamir with the third party.
Finally, the agreement gives Kibbutz Shamir a right of first offer to purchase any of our shares held by FIBI, Scorpio BSG Ltd., Gishrei Asia Ltd. and JFJ International Trading Ltd. that any one of these entities intends to offer for sale to a third party and which constitutes at least 2.5% of our share capital on the same terms as those to be offered by the selling entity to the third party. This right of first offer will not apply to transfers to affiliates or sales to the public on the stock exchange on which our shares are listed.
The agreement terminates when the aggregate holdings of FIBI, Scorpio BSG Ltd., Gishrei Asia Ltd. and JFJ International Trading Ltd. decrease below 5% of our issued and outstanding share capital and remain below 5% for a period of at least 90 consecutive days. These four entities currently hold approximately 10.5% of our outstanding shares.
Registration Rights Agreement
Prior to the initial public offering of our shares in March 2005, we entered into a registration rights agreement with our then shareholders. See “Item 10. Additional Information – Shares Eligible for Future Sale – Registration Rights Agreement.”
Relationship with Kibbutz Eyal
Kibbutz Eyal held 3.95% of our shares prior to the March 2005 offering. We acquired our wholly-owned manufacturing subsidiary, Eyal Optical Industries (1995) Ltd., or Eyal, from Kibbutz Eyal in a series of transactions between 1997 and 2003. Eyal is located on the premises of Kibbutz Eyal pursuant to a lease agreement between Eyal and Kibbutz Eyal.
In December 2003, we granted Kibbutz Eyal a call option exercisable until January 10, 2004, to purchase 4,170 of our shares in consideration for an exercise price of $2.0 million. Kibbutz Eyal exercised the call option on January 4, 2004. We also granted Kibbutz Eyal a put option to sell the shares subject to the call option to us in consideration for $3.0 million. The put option was exercisable between January 1, 2006 and January 10, 2010. It expired upon the reorganization of our company from an A.C.S. into an Israeli corporation.
Kibbutz Eyal holds a tag-along right to join a sale of our shares by Kibbutz Shamir in certain circumstances. Kibbutz Eyal waived its right to appoint a member of our board of directors on November 27, 2004, effective as of the closing of the March 2005 offering. Kibbutz Eyal currently holds approximately 1.69% of our shares.
Kibbutz Eyal holds our shares through Haklaei Hasharon A.C.S. Ltd., an agricultural collective society owned by Kibbutz Eyal. The options and agreements discussed in this sub-section have been granted to or entered into with Haklaei Hasharon A.C.S. Ltd.
Relationship with Altra’s Former Chief Executive Officer
In the fourth quarter of 2001, we acquired 100% of the shares of Altra Trading GmbH. Shortly thereafter, we transferred 6% of Altra’s shares to Altra’s chief executive officer at that time, Michael Oppenheimer. In 2002, we sold an additional 43% of Altra’s shares to Mr. Oppenheimer. In the context of this purchase, we entered into a shareholder agreement with Mr. Oppenheimer pursuant to which Mr. Oppenheimer’s consent is required for certain resolutions or transactions, including any shareholder resolution that contradicts any of the existing commercial agreements between Altra, Eyal Optical Industries (1995) Ltd. and us; issuances of shares or securities, except at an agreed-upon company valuation; any transaction between Altra and a related party or any other transaction outside the ordinary course of business, and the distribution of any dividends that exceed 50% of Altra’s net profit. Mr. Oppenheimer has a put option exercisable for seven years beginning December 31, 2004, to sell 15% of the shares he holds in Altra to us per year, at a price based on the fair value of the net assets of Altra at the time of sale. We have a right of first refusal to purchase any shares in Altra not held by us, and Mr. Oppenheimer has a tag-along right to participate in any sale of shares for as long as he holds more than 5% of Altra’s shares, as well as a drag-along obligation to sell his Altra shares if we receive an offer from a third party to purchase 100% of Altra’s shares.
7.C INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
53
ITEM 8. FINANCIAL INFORMATION
8.ACONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18 for a list of financial statements filed as part of this annual report.
Export Sales
In 2007, substantially, all of our mold and semi-finished lenses were produced in Israel. Production of finished lenses took place outside of Israel. Most of our export sales from Israel abroad are to our subsidiaries. Our export sales from Israel abroad to external customers totaled approximately $8.8 million, which is 7.3% of our total sales volume.
Legal Proceedings
From time to time, we and our subsidiaries may be involved in lawsuits, claims, investigations or other legal or arbitral proceedings that arise in the ordinary course of our business. These proceedings may include general commercial disputes, claims regarding intellectual property or labor disputes with former employees. We are involved in two disputes concerning allegations of breach of third parties’ patents, as described below.
In November 2003, one of Shamir’s laboratory customers in the United States was notified by a large lens manufacturer that the manufacturer believes that the sales of a certain lens constitutes an infringement of a certain patent belonging to it. Shamir has denied any such infringement allegations and has entered into negotiations with the manufacturer with regard to this patent in order to reach a resolution. In August 2007 a licensing agreement regarding the use of such patent in the U.S. was executed between the parties and all allegations were fully settled.
On June 8, 2006, BMC Industries, Inc. (Vision Ease) filed a complaint in order to avoid and recover preferential transfers due to Shamir USA. The payment amount in question that was received during the “Preferential Period” (March 25, 2004 through June 22, 2004) was estimated at $0.347 million. In January 2007, we settled the dispute for the sum of $0.1 million and all charges have been withdrawn.
In September 2003, we received a notice from a large lens manufacturer regarding a claim of patent infringement relating to lenses produced using our software. We have denied any such infringement, and numerous discussions between the companies (and counsel) have ensued and are ongoing in order to resolve the matter without resorting to litigation.
In January 2008, we received a notice from a shareholder of one of our subsidiaries claiming unlawful use of the subsidiary’s intellectual property and unjust enrichment. We have denied any such infringement, and numerous discussions between the parties (and counsel) have ensued and are ongoing in order to resolve the matter without resorting to litigation.
We currently cannot predict the development or ultimate outcome of the discussions with regard to these claims.
Dividend Policy
In August 2004, we declared a special dividend totaling $9.2 million in order to take advantage of certain tax benefits for our shareholders. We paid $4.0 million of this dividend in December 2004, and $5.2 million in 2005. On June 27, 2007, we declared a dividend of $4.0 million, which was paid in July 2007. On January 14, 2008, we declared a dividend of $4.0 million, which was paid in February 2008.
We may decide not to maintain the level of dividend payments made during prior years, or not to make any dividend payments at all. Any future decisions regarding the distribution of dividends will depend on our net income, our investment policy and our dividend policy at that time.
8.BSIGNIFICANT CHANGES
See Note 20 to our consolidated financial statements included elsewhere in this annual report.
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ITEM 9. THE LISTING
9.ALISTING DETAILS
Our ordinary shares began trading publicly on March 11, 2005. Prior to that date, there was no public market for our ordinary shares. The table below shows the high and low sales prices of our ordinary shares on the NASDAQ Global Market for each of periods indicated below.
| | | | | | | |
Year | | High | | Low | |
| |
| |
| |
|
2005 (for the period from March 10, 2005 through December 31, 2005) | | $ | 16.74 | | $ | 8.45 | |
2006 | | $ | 11.75 | | $ | 8.08 | |
2007 | | $ | 12.75 | | $ | 7.60 | |
| | | | | | | |
2006 | | High | | Low | |
| |
| |
| |
|
First Quarter | | $ | 11.75 | | $ | 9.26 | |
Second Quarter | | $ | 10.75 | | $ | 8.70 | |
Third Quarter | | $ | 9.80 | | $ | 8.08 | |
Fourth Quarter | | $ | 9.75 | | $ | 8.51 | |
| | | | | | | |
2007 | | | | | | | |
| | | | | | | |
|
First Quarter | | $ | 9.06 | | $ | 7.60 | |
Second Quarter | | $ | 10.64 | | $ | 8.83 | |
Third Quarter | | $ | 12.75 | | $ | 9.84 | |
Fourth Quarter | | $ | 12.12 | | $ | 7.94 | |
| | | | | | | |
2008 | | | | | | | |
| | | | | | | |
|
First Quarter | | $ | 9.56 | | $ | 6.61 | |
Second Quarter (through June 15, 2008) | | $ | 7.80 | | $ | 6.70 | |
| | | | | | | |
Month | | High | | Low | |
| |
| |
| |
|
December 2007 | | $ | 10.00 | | $ | 7.94 | |
January 2008 | | $ | 9.56 | | $ | 8.01 | |
February 2008 | | $ | 8.11 | | $ | 7.10 | |
March 2008 | | $ | 8.01 | | $ | 6.61 | |
April 2008 | | $ | 7.29 | | $ | 6.71 | |
May 2008 | | $ | 7.80 | | $ | 6.74 | |
June 2008 (through June 15, 2008) | | $ | 7.20 | | $ | 6.70 | |
Our ordinary shares began trading publicly on the Tel-Aviv Stock Exchange on May 2, 2005. The table below shows the high and low sales prices of our ordinary shares on the Tel Aviv Stock Exchange for each of the periods indicated below.
| | | | | | | |
Year | | High | | Low | |
| |
| |
| |
|
2005 (for the period from March 10, 2005 through December 31, 2005) | | | NIS 76.42 | | | NIS 41.40 | |
2006 | | | NIS 54.00 | | | NIS 35.92 | |
2007 | | | NIS 52.77 | | | NIS 31.78 | |
| | | | | | | |
2006 | | High | | Low | |
| |
| |
| |
|
First Quarter | | | NIS 54.00 | | | NIS 44.35 | |
Second Quarter | | | NIS 49.11 | | | NIS 40.00 | |
Third Quarter | | | NIS 41.87 | | | NIS 35.92 | |
Fourth Quarter | | | NIS 41.85 | | | NIS 33.09 | |
| | | | | | | |
2007 | | | | | | | |
| | | | | | | |
|
First Quarter | | | NIS 37.57 | | | NIS 32.30 | |
Second Quarter | | | NIS 42.77 | | | NIS 35.17 | |
Third Quarter | | | NIS 52.77 | | | NIS 41.57 | |
Fourth Quarter | | | NIS 48.42 | | | NIS 31.78 | |
| | | | | | | |
2008 | | | | | | | |
| | | | | | | |
|
First Quarter | | | NIS 39.00 | | | NIS 22.31 | |
Second Quarter (through June 15, 2008) | | | NIS 27.09 | | | NIS 22.41 | |
| | | | | | | |
Month | | High | | Low | |
| |
| |
| |
|
December 2007 | | | NIS 38.50 | | | NIS 31.78 | |
January 2008 | | | NIS 39.00 | | | NIS 28.00 | |
February 2008 | | | NIS 29.50 | | | NIS 25.94 | |
March 2008 | | | NIS 28.29 | | | NIS 22.31 | |
April 2008 | | | NIS 25.74 | | | NIS 23.75 | |
May 2008 | | | NIS 27.09 | | | NIS 22.41 | |
June 2008 (through June 15, 2008) | | | NIS 25.12 | | | NIS 23.03 | |
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9.BPLAN OF DISTRIBUTION
Not applicable.
9.CMARKETS
Our ordinary shares have been listed on the NASDAQ Global Market since March 11, 2005, under the symbol “SHMR”. Our ordinary shares have also been listed on the Tel Aviv Stock Exchange since May 2, 2005. The address of the website of the Tel Aviv Stock Exchange is www.tase.co.il.
9.D SELLING SHAREHOLDERS
Not applicable.
9.E DILUTION
Not applicable.
9.F EXPENSES OF THE ISSUE
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
10.ASHARE CAPITAL
Not applicable
10.BARTICLES OF ASSOCIATION
Our registration number with the Israeli registrar of companies is 51-365956-5.
The purpose of the Company is to engage, directly or indirectly, in any lawful business activity or occupation whatsoever; provided, however, that the Company may donate reasonable amounts to worthy causes, as our board of directors may determine at its discretion, even if such donations are not within the framework of business considerations. See Article 3 of our Articles of Association, which sets forth our purposes.
The following sections, to the extent they refer to our Articles of Association are qualified in their entirety by the articles themselves, filed as an exhibit to this annual report.
For a summary of the provisions of our Articles of Association and bylaws with respect to the board of directors, see “Item 6. Directors Senior Management and Employees - Board of Directors.”
Transfer of Shares and Notices
Our fully paid ordinary shares are issued in registered form and are freely transferable under our Articles of Association. Under the Companies Law and our Articles of Association, shareholders’ meetings require prior notice of at least 21 days.
Anti-Takeover Provisions; Mergers and Acquisitions under Israeli Law
The Israeli Companies Law regulates mergers where the target company is dissolved into the acquiring company and allows such a merger to be effected if the merger receives the approval of the boards of directors of each of the merging companies and a majority of the shareholders present and voting at the general shareholders’ meeting of each of the merging companies, or by a majority of 75% of the shareholders present and voting on the proposed merger in case a company was incorporated under the Israeli Companies Ordinance. However, an approval of the general shareholders’ meeting of any of the following is not required: (a) in a target company wholly owned and controlled by the acquiring company; (b) in the acquiring company provided all of the following conditions are fulfilled: (i) the acquiring company is not required as a result of the merger to amend its articles and memorandum of association; and (ii) the acquiring company will not issue, as part of the merger, more than 20% of the voting rights in the acquiring company, and as a result of the issuance no shareholder becomes a holder of a controlling party as defined in the Companies Law. In addition to the approval of the merger by the requisite majority at the shareholders’ general meeting, in case the other party to the merger or a person holding 25% or more of the shares of the other party to the merger, then the majority must include a majority of the shares held by those shareholders participating in the vote (abstaining votes shall not be taken into account) who do not have an interest in the other party. Upon petition by a creditor of a merging company, the court may delay or prevent the consummation of the merger, if it deems there to be a reasonable concern that as a result of the merger, the surviving company will not be able to meet the obligation to creditors of either of the merging companies. A merger may not be completed until 30 days have passed from the time that the general shareholders’ meetings of each of the merging companies have approved the merger and 50 days have passed from the time that the merger proposal has been filed with the Israeli Registrar of Companies, including all approvals necessary for its completion.
The Israeli Companies Law also provides that an acquisition of shares in a public company such as us must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 25% shareholder of the company. This rule does not apply if there is already another 25% shareholder of the company. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become more than a 45% shareholder of the company, unless there is already a shareholder holding more than 45% of the voting rights of the company. These rules do not apply if: (a) the acquisition is made by way of a private issue, provided that the acquisition was approved by the general shareholders’ meeting as a private issue which will grant the offeree 25% or more of the shares of the company, if there is not a person holding 25% or more of the shares of the company, or as a private issue which will grant the offeree 45% of the voting rights of the company, provided there is no person holding 45% of the voting rights in the company; (b) the acquisition is from a person holding more than 25% of the voting rights in the company, and as a result of the acquisition the purchaser will hold 25% or more of the voting rights in the company; (c) the acquisition is from a person holding more than 45% of the voting rights of the company, and as a result of the acquisition the purchaser will hold more than 45% of the voting rights of the company. In order to be accepted, the special tender offer must be accepted by a majority of the offerees and result in the acquisition of no less than 5% of the voting rights in the company. These restrictions do not apply if according to the laws of the country where the securities are registered for trading there are restrictions in respect of an acquisition of certain control rights or the acquisition of certain control rights obligates the purchaser to also make a tender offer to the public.
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An acquisition of shares following which the purchaser would become a holder of more than 90% of a public company’s shares must be made by a tender offer for the purchase of all the remaining shares (a full tender offer); if a full tender offer is accepted by holders to the extent that non-accepting holders hold less than 5% of the company’s issued shares, then the holders of the remaining shares must sell their shares to the acquirer on the terms of the tender offer. However, if the acquirer is unsuccessful in completing a full tender offer, the acquirer will not be permitted to acquire tendered shares to the extent that the acquisition of those shares would bring the acquirer’s holdings to more than 90% of the target company’s shares. Offerees of a successful full tender offer may petition the courts to raise the purchase price on the basis that it is an “unfair” price.
In addition, a shareholder who holds more than 90% of the shares of a public company may not purchase additional shares as long as the shareholder holds more than 90%. Shares acquired in violation of these provisions become dormant and cease to confer any rights upon their holder as long as they are held by the acquirer.
Dividend and Liquidation Rights
Our board of directors may, without seeking shareholder approval, declare a dividend to be paid to the holders of ordinary shares out of our retained earnings or our earnings derived over the two most recent years, whichever is higher, as reflected in the last audited or reviewed financial report for a period ending less than six months prior to distribution (the “Profit Requirement”), provided that there is no reasonable concern that a payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. If we do not meet the Profit Requirement, a court may allow us to distribute a dividend, as long as the court is convinced that there is no reasonable concern that a distribution might prevent us from being able to meet our existing and anticipated obligations as they become due. Dividends are distributed to shareholders in proportion to the nominal value of their respective holdings.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their respective holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of any class of shares with preferential rights that may be authorized in the future. Our shareholders would need to approve any class of shares with preferential rights.
Tax Law
Israeli tax law treats some acquisitions, particularly stock-for-stock swaps between an Israeli company and a foreign company, less favorably than U.S. tax law. Israeli tax law may, for example, subject a shareholder who exchanges our shares for shares in a foreign corporation to immediate Israeli taxation. See “– Israeli Taxation.”
Modification of Class Rights
Unless otherwise provided by the Articles of Association, an amendment to the Articles of Association that prejudices the rights of a particular class of shares may be adopted by a resolution of the holders of a 75% majority of the shares of that class present at a separate class meeting, in addition to the approval of the general meeting of all classes of shares.
Election of Directors
Our ordinary shares do not have cumulative voting rights in the election of directors. Therefore, the holders of ordinary shares representing more than 50% of the voting power at the general meeting of the shareholders, in person or by proxy, have the power to elect all of the directors whose positions are being filled at that meeting, to the exclusion of the remaining shareholders. External Directors are elected by a majority vote at a shareholders’ meeting, provided that either: (i) the majority of shares voting for the election includes at least one-third of the shares of non-controlling shareholders participating in the vote (abstaining votes shall not be taken into account); or (ii) the total number of shares of non-controlling shareholders voting against the election of the External Director does not exceed one percent of the aggregate voting rights in the company. Our Articles of Association contain provisions providing for staggered terms for the members of our board of directors.
Voting, Shareholders’ Meetings and Resolutions
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of the shareholders. These voting rights may be affected by the grant of special voting rights to the holders of any class of shares with preferential rights that may be authorized in the future; however, currently no holders of our shares have any special voting rights.
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An annual meeting of the shareholders must be held every year, and not later than 15 months following the last annual meeting. A special meeting of the shareholders may be convened by the board of directors at its discretion or upon the demand of any of: (1) two of the directors or 25% of the then serving directors, whichever is fewer; (2) shareholders owning at least 10% of the issued share capital and at least 1% of the voting rights in the company; or (3) shareholders owning at least 10% of the voting rights in the company. If the board does not convene a meeting upon a valid demand of any of the above, then whoever made the demand, and in the case of shareholders, those shareholders holding more than half of the voting rights of the persons making the demand, may convene a meeting of the shareholders to be held within three months of the demand. Alternatively, upon petition by the individuals making the demand, a court may order that a meeting be convened.
The quorum required for any general meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least 331/3% of the voting rights. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or to a later date specified in the summons or notice of the meeting. At the reconvened meeting, the required quorum consists of any number of shareholders present. In any shareholders’ meeting, a shareholder can vote either in person or by proxy. General meetings of shareholders will be held in Israel, unless decided otherwise by our board.
Under Israeli law, unless otherwise provided in the Articles of Association or applicable law, all resolutions of the shareholders require a simple majority. Under our Articles of Association, resolutions requiring special voting procedures include any amendments of a provision in our Articles of Association, which requires the approval of the holders of 75% of the voting rights represented at the meeting and voting on the resolution.
Under the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner in exercising his rights and duties towards the company and other shareholders, to refrain from prejudicing the rights of other shareholders and to refrain from abusing his power in the company. The rights and duties apply, among other things, to voting at the general meeting of the shareholders on any of the following matters: (1) amendments to the Articles of Association, (2) increasing our registered share capital, (3) a merger, or (4) an approval of those related party transactions that require shareholder approval.
In addition, shareholders who are one of the following are under a duty to act fairly toward the company: (1) a controlling shareholder; (2) a shareholder who knows that its vote will determine the outcome of a shareholder vote; or (3) a shareholder who, under the provisions of the articles, has the power to appoint or to prevent the appointment of an office holder in the company or holds other powers with respect to the company.
Transfer Agent and Registrar
We have appointed American Stock Transfer & Trust Company as the transfer agent and registrar for our ordinary shares.
Israeli Securities Law Requirements
According to the Israeli Securities Law, the publication of this annual report does not require the approval of the Israeli Securities Authority.
Listing
Our ordinary shares are listed on the NASDAQ Global Market under the symbol “SHMR” and on the Tel Aviv Stock Exchange.
10.CMATERIAL CONTRACTS
For a description of material contracts other than the one described below, see “Item 7. Major Shareholders and Related Party Transactions–Related Party Transactions.”
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Registration Rights Agreement
On February 9, 2005, we entered into a registration rights agreement with our shareholders, according to which these shareholders, who held a total of 12,711,332 shares prior to the offering and currently hold a total of 11,650,079 shares, have the right, subject to some limited conditions, to demand that we file a registration statement on their behalf to register their shares under the U.S. Securities Act of 1933. Each of the shareholders has the right to make two such demands, with the exception of Vision Capital LLC, which has the right to make one such demand. According to the agreement, we will bear the registration fees, filing fees and certain other costs incurred in connection with the registration resulting from the first of these demands by each shareholder, while the shareholders will bear the costs resulting from a second such demand. Under the agreement, the shareholders also have the right to demand that we include their shares in a registration statement that we file on our behalf or on behalf of other shareholders. These rights became effective in September 2005 and will terminate either in February 2011, or with respect to any shareholder, at such a time as that shareholder either disposes of its shares or will be able to sell all of the registrable securities it holds without registration and without restrictions in compliance with Rule 144.
10.DEXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding some transactions. However, legislation remains in effect under which currency controls can be imposed by administrative action at any time.
The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or Articles of Association or by the laws of the State of Israel.
10.ETAXATION
United States Taxation
The following discussion is a summary of certain material U.S. federal income tax considerations applicable to the ownership and disposition of shares by U.S. holders. In general for purposes of this summary you will be a “U.S. holder” if:
| | |
| · | you are the beneficial owner of shares; |
| | |
| · | you are either (i) an individual resident or citizen of the United States, (ii) a corporation or other entity treated as a corporation for U.S. federal income tax purposes created in or organized under the laws of the United States or any state thereof, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons are authorized to control all substantial decisions of the trust; |
| | |
| · | you own our shares as capital assets; |
| | |
| · | you own directly or indirectly less than 10% of our outstanding voting stock; |
| | |
| · | you are fully eligible for benefits under the Limitation on Benefits article of the Income Tax Treaty between the United States of America and the State of Israel, which entered into force on December 30, 2004 (the “Treaty”); and |
| | |
| · | you are not also a resident of Israel for Israeli tax purposes. |
The Treaty benefits discussed below generally are not available to holders who hold shares in connection with the conduct of business through a permanent establishment, or the performance of personal services through a fixed base, in Israel.
If a partnership holds shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership that holds shares, you are urged to consult your own tax advisor regarding the specific tax consequences of owning and disposing of your shares.
The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular holder, including tax considerations that arise from rules of general application or that are generally assumed to be known by U.S. holders. This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury Regulations, rulings, administrative pronouncements and judicial decisions in effect as of the date of this annual report. All of the authorities are subject to change, possibly with retroactive effect, and to differing interpretations. In addition, this summary does not discuss all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances or to U.S. holders who are subject to special treatment under U.S. federal income tax law, including insurance companies, dealers in stocks or securities, financial institutions, tax-exempt organizations, persons subject to the alternative minimum tax, and persons having a functional currency other than the U.S. dollar.
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U.S. holders are urged to consult with their own tax advisors regarding the tax consequences of the ownership and disposition of shares, including the effects of U.S. federal, state, local, Israeli, foreign and other tax laws with respect to their particular circumstances.
This discussion assumes that we will not be considered a passive foreign investment company, as discussed below.
Dividends
If we make any distributions of cash or other property to you, you generally will be required to include in gross income as dividend income the amount of any distributions (including the amount of any Israeli taxes withheld in respect of such distribution as described below in the section “–Israeli Taxation”), to the extent that such distributions are paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess of our earnings and profits will be applied against and will reduce your tax basis in your shares and, to the extent in excess of such tax basis, will be treated as gain from a sale or exchange of such shares. Dividends paid by us will not be eligible for the dividends received deduction applicable in some cases to U.S. corporations.
Any dividend paid in Israeli shekels, including the amount of any Israeli taxes withheld there from will be includible in your gross income in an amount equal to the U.S. dollar value of the Israeli shekels calculated by reference to the spot rate of exchange in effect on the date the dividend is received by you, regardless of whether the Israeli shekels are converted into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is received by you to the date such payment is converted into U.S. dollars will be treated as U.S. source ordinary income or loss.
Any dividends paid by us to you with respect to shares will be treated as foreign source income and will be characterized as “passive income” or, in the case of some U.S. holders, “financial services income” for U.S. foreign tax credit purposes. For our taxable years beginning January 1, 2008, dividend income generally will constitute “passive category income” or, in the case of certain U.S. holders, “general category income.” Subject to the foreign tax credit limitation, you may elect to claim a foreign tax credit against your U.S. federal income tax liability for Israeli income tax withheld from dividends received in respect of shares at a rate not in excess of the U.S. tax rate. The rules relating to the determination of the foreign tax credit are complex. Accordingly, you should consult your own tax advisor to determine whether and to what extent you would be entitled to the credit. If you do not elect to claim a foreign tax credit, you may instead claim a deduction for Israeli income tax withheld, but only for a year in which you elect to do so with respect to all foreign income taxes.
Absent an election, a U.S. holder that is an accrual method taxpayer generally must translate Israeli taxes into U.S. dollars at a rate equal to the average exchange rate for the taxable year in which the taxes accrue, but must translate taxable dividends into U.S. dollars at the spot rate on the date received. This difference in exchange rates may reduce the U.S. dollar value of the credits for Israeli taxes relative to its U.S. federal income tax liability attributable to a dividend. An accrual method U.S. holder may elect to translate Israeli taxes into U.S. dollars using the exchange rate in effect at the time the taxes were paid. Any such election will apply for the taxable year in which it is made and all subsequent years, unless revoked with the consent of the Internal Revenue Service (“IRS”).
“Qualified dividend income” received by individuals in taxable years beginning on or before December 31, 2010, generally will be taxed at the rates applicable to capital gains (that is, a maximum rate of 15%) rather than the rates applicable to other items of ordinary income. For this purpose, “qualified dividend income” generally includes dividends paid on shares of U.S. corporations as well as dividends paid on shares of certain non-U.S. corporations if, among other things, (i) the shares of the non-U.S. corporation are readily tradable on an established securities market in the United States, or (ii) the non-U.S. corporation is eligible with respect to substantially all of its income for the benefits of a comprehensive income tax treaty with the United States which contains an exchange of information program (the Treaty has been identified by the U.S. Treasury as a qualifying treaty). Dividends paid by us with respect to the shares should constitute “qualified dividend income” for U.S. federal income tax purposes and therefore U.S. holders who are individuals should, subject to applicable limitations, be entitled to the reduced rates of tax.
Sale or exchange of shares
Upon the sale or other disposition of shares, you generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition and your adjusted tax basis in your shares. Gain or loss upon the disposition of shares generally will be U.S. source gain or loss, and will be treated as long-term capital gain or loss if, at the time of the disposition, your holding period for the shares exceeds one year. If you are an individual, any capital gains generally will be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met. For shares held for over one year and sold or exchanged in taxable years beginning on or before December 31, 2010, the maximum rate of tax for individuals generally will be 15%. The deductibility of capital losses is subject to significant limitations.
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Passive Foreign Investment Company status
We currently believe that we will not be treated as a Passive Foreign Investment Company (a “PFIC”) for U.S. federal income tax purposes for the taxable year ended December 31, 2008. However, this conclusion is a factual determination that must be made annually and thus may be subject to change. A non-U.S. corporation will be classified as a PFIC for any taxable year if at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties, or gains on the disposition of certain minority interests), or at least 50% of the average value of its assets consists of assets that produce, or are held for the production of, passive income, taking into account a proportionate share of the income and assets of corporations at least 25% owned by such corporation. If we were characterized as a PFIC for any taxable year, you could suffer adverse tax consequences. These consequences may include having gains realized on the disposition of shares and certain dividends treated as ordinary income earned over your holding period for the shares taxable at maximum rates applicable during the years in which it is treated as earned and subject to certain interest charges for the deemed deferral benefit. Furthermore, dividends paid by a PFIC would not be “qualified dividend income” as discussed above.
U.S. information reporting and backup withholding
Dividend payments with respect to shares and proceeds from the sale, exchange, redemption, or other disposition of shares may be subject to information reporting to the IRS and possible U.S. backup withholding at a current rate of 28%. Certain exempt recipients (such as corporations) are not subject to these information reporting requirements. Backup withholding will also not apply to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification. U.S. persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification).
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.
Israeli Taxation
The following summary describes the current tax structure applicable to companies in Israel, with special reference to its effect on us. It also discusses Israeli tax consequences material to persons purchasing our ordinary shares. To the extent that the summary is based on new tax legislation yet to be judicially or administratively interpreted, we cannot be sure that the views expressed will be consistent with any future interpretation. The summary is not intended, and should not be considered, to be legal or professional tax advice and does not exhaust all possible tax considerations. Therefore, you should consult your own tax advisor about the particular tax consequences of an investment in our ordinary shares.
General Corporate Tax Structure
Israeli companies are currently subject to tax at the rate of 27% of taxable income. Beginning from 2004, there has been a gradual reduction in the Israeli corporate tax rate from 35% in 2004 to 34% in 2005, 31% in 2006, 29% in 2007, 27% in 2008, 26% in 2009 and in 2010 and thereafter – 25%. From 2010 and onward the corporate tax rate will be 25%, the capital gains subject to a tax rate of 25%. However, the effective tax rate payable by a company that derives income from an approved enterprise may be considerably less, as further discussed below.
Until December 31, 2004, Shamir was not assessed for tax purposes and its business results were passed through to its shareholders. As a result, Shamir’s tax expenses were not included in the statements of income. Commencing January 1, 2005, Shamir became a taxable entity as a result of the change in legal status from an ACS to an Israeli limited corporation which took place in March 2005
Tax Benefits under the Law for the Encouragement of Capital Investments, 1959
The Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”), provides that upon application to the Investment Center of the Ministry of Industry and Commerce of the State of Israel, a proposed capital investment in eligible facilities may be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its capital sources, and by its physical characteristics, such as the equipment to be purchased and utilized under the program. The tax benefits derived from any certificate of approval relate only to taxable income derived from growth in manufacturing revenues attributable to the specific Approved Enterprise. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the result of a weighted combination of the applicable rates. The tax benefits under the law are not available for income derived from products manufactured outside of Israel.
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According to the grant track, taxable income of a company derived from an Approved Enterprise is subject to tax exemption or reduction to a rate of 10%-25% based on the level of foreign ownership and geographic location, rather than the usual rate described above, for the benefit period. This period is seven to ten years also based on the level of foreign ownership beginning with the year in which the Approved Enterprise first generates taxable income, and the reduced tax rate period is limited to 12 years from when production begins or 14 years from the date of approval, whichever is earlier. A company owning an Approved Enterprise may elect to receive an alternative package of benefits, which allows the company to receive tax exemptions rather than grants. Under the alternative package, the company’s undistributed income derived from an Approved Enterprise will be exempt from tax for a period of between two and ten years from the first year of taxable income, depending on the geographic location of the Approved Enterprise within Israel, and the company will be eligible for the tax benefits under the law for the remainder of the benefit period.
A company that has an approved enterprise program is eligible for further tax benefits if it qualifies as a foreign investors’ company. A foreign investors’ company is a company that more than 25% of whose share capital and combined share and loan capital is owned by non-Israeli residents. A company, which qualifies as a foreign investors’ company and has an approved enterprise program is eligible for tax benefits for a ten-year benefit period instead of the ordinary seven-year period. Income derived from the approved enterprise program will be exempt from tax for a specified period and will be taxed at a reduced rate for the rest of the period. The tax rate for the additional eight years is 25%, unless the level of foreign investment exceeds 49%, in which case the tax rate is 20% if the foreign investment is more than 49% and less than 74%, 15% if more than 74% and less than 90%, and 10% if 90% or more.
The Investment Center bases its decision of whether to approve or reject a company’s application for designation as an Approved Enterprise on criteria described in the law and related regulations, the then prevailing policy of the Investment Center and the specific objectives and financial criteria of the applicant. Therefore, a company cannot be certain in advance whether its application will be approved. In addition, the benefits available to an approved enterprise are conditional upon compliance with the conditions stipulated in the law and related regulations and the criteria described in the specific certificate of approval. If a company violates these conditions, in whole or in part, it would be required to refund the amount of tax benefits and any grants received plus an amount linked to the Israeli consumer price index and interest.
A portion of our production operations has been granted the status of an Approved Enterprises under three programs of grants track that are still active. Income arising from our Approved Enterprise facilities is exempted from tax for two years and entitled to reduced tax rates based on the level of foreign ownership for a period of five to eight years. We have derived and expect to continue to derive a certain portion of the income from our Approved Enterprise facilities. Subject to compliance with applicable requirements and assuming that more than 25% of the shares of the company are held by foreign residents, the current benefits will continue until 2008 with respect to the first approved enterprise, until 2010 with respect to the second approved enterprise program, and until 2014 with respect to the third approved enterprise program.
A portion of the operations of Eyal has been granted the status of an Approved Enterprise under three programs of the alternative package of benefits. Income arising from our Approved Enterprise facilities in Eyal is exempted from tax for two years and entitled to reduced tax rates based on the level of foreign ownership for a period of five to eight years. The last year for reduced tax rates in the three programs are 2006, 2008, 2012, respectively. The benefits are contingent upon compliance with the terms of the approval and of the Encouragement Law.
As of the year 2010, as detailed above, the percentage the Israeli corporate tax rate will be at the same rate of the Approved Enterprise tax rate.
Dividends that are derived from Approved Enterprise are generally subject to 15% withholding tax rate. When a company with an approved enterprise income and regular income distributes dividend, it is considered to be attributable to the entire enterprise and their effective tax rate is the result of a weighted combination of the applicable tax rates. If we pay a cash dividend from tax-exempt income that is derived from our approved enterprise, we will be required to pay corporate tax on the amount intended to be distributed as dividends at the reduced tax rate (maximum 25%). We would also be required to withhold on behalf of the dividend recipient an additional 15% of the amount distributed as dividends. The law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program.
On April 1, 2005, an amendment to the Investment Law came into effect (“the Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Beneficiary Enterprise, such as provisions generally requiring that at least 25% of the Beneficiary Enterprise’s income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.
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The operations of SSOP, the polycarbonate and the finished lenses production facilities, received a pre-ruling from the ITA, where it was declare a Privilege Enterprise (establishment), so that all of its income forms the abovementioned facilities will be exempted from tax for a period of ten years beginning with the year in which it first had taxable income. SSOP has not begun to enjoy the tax benefits in the year 2007 due to its accumulated losses. In addition, during the fiscal year 2007, a portion of Eyals’ activities have been acting under the status of a Privileged Enterprise under the amendment to the Investment Law. As stated above, Eyal’s status as a Privileged Enterprise is subject to the approval of the ITA.
Shamir has decided not to declare dividends out of such tax-exempt income. Accordingly, no deferred income taxes have been provided on income attributable to the Company’s “Approved Enterprise” and “Privileged Enterprise”.
Dollar Regulations
Results for tax purposes of Israeli entities are measured and reflected in real terms in accordance with the change in the Israeli Consumer Price Index (“CPI”) or changes in the exchange rate of the NIS against the dollar for a “Foreign Investors” company. Shamir has elected to measure its results for tax purposes on the basis of the changes in the exchange rate of NIS against the dollar. As of the year 2007, Eyal and SSOP also elected to measure their results for tax purposes on the basis of the changes in the exchange rate of NIS against the U.S. dollar.
Tax Benefits for Research and Development
The Israeli tax law allows a tax deduction in the year incurred for expenditures, including capital expenditures, in scientific research and development projects, if the expenditures are approved by the relevant Israeli government ministry and the research and development is for the promotion of the enterprise. Expenditures not so approved are deductible over a three-year period.
Tax Benefits under the Law for the Encouragement of Industry (Taxes), 1969
According to the Law for the Encouragement of Industry (Taxes), 1969, an industrial company is a company resident in Israel, at least 90% of the income of which, exclusive of income from defense loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose primary activity in a given tax year is industrial production activity. We believe that we currently qualify as an industrial company under this definition in Shamir, Eyal and SSOP.
Under the law, industrial companies are entitled to the following preferred corporate tax benefits:
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· | deduction of purchases of know-how and patents over an eight-year period for tax purposes; |
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· | the option to file a consolidated tax return with related Israeli industrial corporations that satisfy conditions described in the law; and |
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· | accelerated depreciation rates on equipment and buildings. |
The Israeli tax authorities may determine that we do not qualify as an Industrial Company, which would entail the loss of the benefits that relate to this status. In addition, we might not continue to qualify for Industrial Company status in the future, in which case the benefits described above might not be available to us in the future.
Taxation of our Shareholders
Capital Gain
Capital gain tax is imposed on the disposal of capital assets by an Israeli resident, as defined for Israeli tax purposes, and on the disposal of such assets by a non- Israel resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation (iii) represent, directly or indirectly, rights to assets located in Israel. In calculating capital gain, the Israeli Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. The Inflationary Surplus is the portion of the total capital gain equal to the increase in the relevant asset’s value that is attributable to the increase in the Israeli CPI between the date of the purchase and the date of sale. The Real Gain is the excess of the total capital gain over Inflationary Surplus. A non-resident that invests in taxable assets with foreign currency, or any individual that holds securities the price of which is stated in foreign currency, may elect calculate the amount of inflationary surplus in that foreign currency.
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The capital gain accrued by individuals on the sale of an asset purchased on or after January 1, 2003, will be taxed at the rate of 20%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with other, 10% or more of one of the Israeli resident company’s means of control at the time of distribution or at any time during the preceding 12 months period) such gain will be taxed at the rate of 25%. In addition, capital gain derived by an individual claiming deduction of financing expenses in respect of such gain will be taxed at the rate of 25%. The real capital gain derived by corporation will be generally subject to tax at the rate of 25%. However, the real capital gain derived from sale of securities, as defined in Section 6 of the Inflationary Adjustment Law, by a corporation, which was subject upon December 31, 2005, to the provisions of the Inflationary Adjustment Law, will be taxed at the corporate tax rate (27% in 2008).
Individual and corporate shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income (in 2008 - 27% tax rate for a corporation and a marginal tax rate of up to 47% for individual). Notwithstanding the foregoing, if the shareholder is a non-Israeli resident, then such taxation is subject to the provision of any applicable double tax treaty. Moreover, capital gain derived from the sale of the Shares by a non-Israeli shareholder may be exempt under the Israeli income tax ordinance from Israeli taxation provided the following cumulative conditions are met: (i) the Shares were purchased upon or after the registration of the Shares at the stock exchange, (ii) the seller doesn’t have a permanent establishment in Israel to which the derived capital gain is attributed, and (iii) if the seller is a corporation, less than 25% of its means of control are held by Israeli resident shareholders. In addition, the sale of the Shares may be exempt from Israeli capital gain tax under an applicable tax treaty. Thus, the U.S.-Israel Double Tax Treaty exempts U.S. resident from Israeli capital gain tax in connection with such sale, provided (i) the U.S. resident owned, directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the 12 – month period preceding such sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183 days at the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel.
Either the seller, the Israeli stockbrokers or financial institution through which the sold securities are held are obliged, subject to the above mentioned exemptions, to withhold tax upon the sale of securities from the real capital gain at the rate of 25% in respect of a corporation and 20% in respect of an individual.
Dividends
A distribution of dividend from income attributed to an “Approved Enterprise” and “Privileged Enterprise” will be subject to tax in Israel at the rate of 15%, subject to a reduced rate under any applicable double tax treaty. A distribution of dividend from income, which is not attributed to an “Approved Enterprise” to an Israeli resident individual, will generally be subject to income tax at a rate of 20%. However, a 25% tax rate will apply if the dividend recipient is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with other, 10% or more of one of the Israeli resident company’s means of control at the time of distribution or at any time during the preceding 12 months period). If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from income tax provided the income from which such dividend is distributed was derived or accrued within Israel.
Under the Israeli income tax ordinance, a non-Israeli resident (either individual or corporation) is generally subject to an Israeli income tax on the receipt of dividends at the rate of 20% (25% if the dividends recipient is a “Controlling Shareholder” (as defined above)); those rates are subject to a reduced tax rate under an applicable double tax treaty. Thus, under the Double Tax Treaty concluded between the State of Israel and the U.S. the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more then 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends – the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate applicable to an “approved enterprise” under the Israeli Law for the Encouragement of Capital Investments of 1959– the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.
An Israeli resident company whose shares are listed in a stock exchange is obligated to withhold tax, upon the distribution of a dividend attributed to an Approved Enterprise’s income, from the amount distributed, at the following rates: (i) Israeli resident corporation – 15%, (ii) Israeli resident individual – 15%, and (iii) non-Israeli resident – 15%, subject to a reduced tax rate under an applicable double tax treaty. If the dividend is distributed from an income not attributed to the Approved Enterprise, the following withholding tax rates will apply: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual – 20% (iii) non-Israeli resident – 20%, subject to a reduced tax rate under an applicable double tax treaty.
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Taxation of Non-Resident Shareholders
Non-residents of Israel are subject to Israeli income tax on income accrued or derived from sources in Israel, including passive income such as dividends, royalties and interest. On distributions of dividends, other than bonus shares and stock dividends, income tax at the rate of 25% is withheld at the source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a Treaty U.S. Resident will be 25% or 12.5% for dividends not generated by an approved enterprise if the non-resident is a U.S. corporation and holds 10% or more of our voting power throughout a certain period; however, under the Investment Law, dividends generated by an approved enterprise are taxed at the rate of 15%.
Foreign Exchange Regulations
Non-residents of Israel who hold our ordinary shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, freely reparable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of exchange controls has not been eliminated, and may be restored at any time by administrative action.
10.FDIVIDENDS AND PAYING AGENTS
Not applicable.
10.G STATEMENTS BY EXPERTS
Not applicable.
10.HDOCUMENTS ON DISPLAY
We are subject to the reporting and informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In accordance with these requirements, we file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission (SEC). However, as we are a foreign private issuer, we and our shareholders are exempt from some of the Exchange Act reporting requirements. The reporting requirements that do not apply to us or our shareholders include the proxy solicitation rules and Section 16 short-swing profit reporting for our officers and directors and for holders of more than 10% of our shares. In addition, we are not required to file annual, quarterly or current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, as long as we are required to do so, within 180 days after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We also intend to file periodic reports on Form 6-K. You may read and obtain copies, at the prescribed rate, of any document we file with the SEC at its public reference room at 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms and their copy charges. Our SEC filings are also available to you on the SEC’s web site at www.sec.gov.
10.ISUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not engage in trading market risk instruments or purchasing hedging or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, commodity price or equity price risk. From time to time we purchase options or enter forward contracts to hedge our foreign currency risk. We have also entered into an interest-rate swap. We do not use derivative instruments for speculative trading purposes.
Foreign Currency Risk
We conduct our business primarily in U.S. dollars and Euros but also in the currencies of the United Kingdom, South Africa, Turkey, Mexico, Israel and other countries as well as other currencies. Thus, we are exposed to foreign exchange movements. We monitor foreign currency exposure and, from time to time, may enter into various derivative transactions intended to protect against changes in foreign currencies. We hedge, from time to time, some of our foreign currency exposure to offset the effects of changes in exchange rates. The derivative instruments were not designated as hedging instruments in accordance with SFAS No. 133.
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Our foreign currency exposures give rise to market risks associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, against the Euro and the NIS and other currencies. In 2007 we generated approximately 43% of our revenues in dollars and 46% in Euros, and we incurred approximately 16% of our operating expenses in NIS, 32% in dollars and 42% in Euros.
In Europe we operate through our subsidiary Altra, which has most of its assets and liabilities in Euros and credit facilities in Euros. In the United States we operate through our subsidiaries Shamir Insight and Shamir USA, which have assets and liabilities in U.S. dollars. Shamir and our Israeli subsidiaries operate in Israel and have assets and liabilities mainly in dollars, as well as some assets in Euros and some liabilities in Euros and NIS (for employee compensation). We attempt to match our assets and liabilities in the same currency in order to counteract fluctuations in currency exchange rates. Commencing in 2008 we have assets and liabilities in Mexican Pesos as well.
As of December 31, 2007, we had $23.3 million in monetary current assets and $33.7 million in monetary current liabilities that are denominated in Euros. Additionally, we had $3.1 million in monetary current assets and $5.2 million in monetary current liabilities that are denominated in NIS.
Interest Rate Risk
We believe that we are not exposed to a material interest rate risk due to the fact that the majority of our liabilities are short-term and most of our long-term liabilities are at a fixed interest rate. Most of our assets are short-term assets.
Credit Risk
Credit risk is the possibility that the value of our assets may become impaired if counterparties cannot meet their obligations in transactions involving financial instruments. While we may in a small number of instances be exposed to credit risk with respect to our customers and our suppliers, we believe that this risk is not material.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
In preparation for the initial public offering of our ordinary shares in March 2005, we changed the structure of our company from an A.C.S. into an Israeli corporation. As part of this reorganization, we adopted new Articles of Association and restructured our share capital by splitting the 105,506 existing shares so that each share with a par value of NIS 1.00 was divided into 100 ordinary shares with a par value of NIS 0.01 each. In addition, we distributed to our shareholders out of our equity 2,160,732 new ordinary shares with a par value of NIS 0.01 each. With this distribution, the old shares of the A.C.S. were in effect split at a ratio of 120.48-to-one, and our total issued and outstanding share capital then amounted to NIS 127,113 consisting of 12,711,332 ordinary shares with a par value of NIS 0.01 each. We also created authorized share capital of 100,000,000 ordinary shares with a par value of NIS 0.01 each. As part of the March 2005 offering of our shares, we then issued 3,400,000 new shares with a par value of NIS 0.01 each.
The following use of proceeds information relates to our registration statement on Form F-1 (File No. 333-122736), filed by us in connection with our initial public offering. Our shares commenced trading on the NASDAQ on March 11, 2005. William Blair & Company, L.L.C., CIBC World Markets Corp. and C.E. Unterberg, Towbin, L.L.C. acted as representatives for the underwriters.
The following table sets forth information regarding our shares registered and sold in our initial public offering, including the exercise of the over-allotment option:
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| | Amount Registered
And Sold | | Aggregate Price
of the Amount Registered
and Sold to Date (US$) | |
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Shamir | | 3,400,000 | | 42,275,000 | |
Selling Shareholders | | 1,200,000 | | 15,624,000 | |
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|
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Total | | 4,600,000 | | 57,899,000 | |
The amount of expenses incurred by us in connection with the issuance and distribution of the registered securities totaled $6,501,000 including $4,508,000 for underwriting discounts and commissions, and approximately $1,993,000 for other expenses. None of the payments were direct or indirect payments to our directors, officers, general partners of our associates, persons owning 10% or more of any class of our shares, or any of our affiliates.
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| | Up to June 15, 2008, we used part of the net proceeds from the offering as follows: |
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| · | to pay approximately $2.2 million for early repayments of some of our outstanding indebtedness; |
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| · | to pay a dividend payable of $5.2 million; |
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| · | to pay approximately $2.3 million for establishing our new subsidiary in Turkey, including the purchase of facilities; |
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| · | to pay approximately $2.6 million for additional shares in our subsidiary Shamir Insight, Inc., raising our holdings to 90%; |
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| · | to pay approximately $0.8 million to acquire a 51% stake in our South Africa distributor; |
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| · | to pay approximately $11.6 million to establish the new SSOP production facilities; |
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| · | to pay approximately $1.0 million in order to establish and expand Shamir Israel’s operation; |
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| · | to pay approximately $1.2 million for establishing our new subsidiary in France; |
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| · | to pay approximately $0.7 million to expand our marketing and distribution network in the UK; |
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| · | to pay approximately $0.4 million to expand our marketing and distribution network in the United States; |
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| · | to pay approximately $6.4 million to acquire a 51% stake in each of our Mexican distributors, including obligations to shareholders loans; and |
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| · | to pay approximately $0.8 million to acquire a 25.8% stake in our Thai manufacture and distributor. |
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We expect to use the remaining net proceeds from the offering as follows to fund working capital requirements and other general corporate purposes. Until we use the proceeds of the offering for the above purposes, we intend to invest the funds in short-term and medium-term investment grade, interest bearing securities. See “Item 5. Operating and Financial Review and Prospects–Liquidity and Capital Resources” for additional information regarding our sources and uses of capital.
ITEM 15T. CONTROLS AND PROCEDURES
(a) Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2007. Based on such review, our chief executive officer and chief financial officer have concluded that we have in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
(b) Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
| | |
| – | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; |
| | |
| – | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| | |
| – | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. |
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2007, based on the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2007.
This management report on internal control over financial reporting shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liabilities of that Section.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
(c) There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the period covered by this annual report that have materially affected, or are reasonable likely to materially affect our internal control over financial reporting.
69
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Ze’ev Feldman, member of our audit committee, qualifies as an audit committee financial expert in accordance with the terms of this item. All three members of our audit committee qualify as “Independent Directors” under the listing rules of the NASDAQ Global Market. See “Item 6. Directors, Senior Management and Employees.”
ITEM 16B. CODE OF ETHICS
We have adopted a code of ethics and business conduct that applies to our chief executive officer, our chief financial officer and our controller, as well as to the members of our board of directors, all of our other executive officers and all of our employees. This code of ethics is attached as an exhibit to this annual report and is incorporated by reference.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The fees for professional services rendered by our auditors Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, and to other global members of Ernst & Young Global, for the fiscal years ended December 31,2006 and 2007, are set below:
| | | | | | | |
Audit Fees Shamir | | 2006 | | 2007 | |
| |
| |
| |
| | (in $) | |
|
Audit fees | | | 276,535 | | | 335,680 | |
Audit-related fees | | | - | | | - | |
Tax fees | | | 53,891 | | | 51,841 | |
Other fees | | | - | | | - | |
| |
| |
| |
Total | | | 330,426 | | | 387,521 | |
| |
| |
| |
“Audit fees” consist of services that would normally be provided in connection with statutory and regulatory fillings or engagements, including services that generally only an independent auditor can reasonably provide. “Audit-related fees” relate to assurance and associated services that traditionally are preformed by an independent auditor, including: accounting consultation and consultation concerning financial accounting and reporting standards. “Tax fees” are fees that relate to tax compliance, planning and advise.
On April 26, 2007, the annual meeting of our shareholders approved the re-nomination of Kost Forer Gabbay & Kasierer as our auditors for the period ending at the close of the next annual general meeting.
Our audit committee is responsible for assisting the board of directors in its oversight of, among others, the independent auditor’s qualifications and independence and the performance of the Company’s internal audit function and independent auditors. In accordance with the requirements of Israeli law, the committee is responsible for or shall make recommendations regarding the appointment, retention, evaluation, remuneration, independence, oversight and termination of the work of the independent auditor employed by the Company (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The charter of the audit committee provides for a process with respect to the prior approval of all services, including non-audit services, to be performed by the independent auditors for Shamir.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
We have not and do not expect to apply for any exemptions from the NASDAQ listing standards for audit committees.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
70
PART III
ITEM 17. FINANCIAL STATEMENTS
We have responded to Item 18 in lieu of responding to this item.
ITEM 18. FINANCIAL STATMENTS
The following financial statements, together with the reports of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for the fiscal years ended December 31, 2006 and 2007, are filed as part of this annual report:
| | | | |
| | Page | |
| |
| |
|
Report of Independent Registered Public Accounting Firm | | | F-2 | |
Consolidated Balance Sheets as of December 31, 2006 and 2007 | | | F- 3-4 | |
Consolidated Statements of Income for the years ended December 31, 2005, 2006 and 2007 | | | F- 5 | |
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2005, 2006 and 2007 | | | F- 6 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007 | | | F- 7-9 | |
Notes to Consolidated Financial Statements | | | F- 10-49 | |
ITEM 19. EXHIBITS
See Exhibit Index.
71
SHAMIR OPTICAL INDUSTRY LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2007
IN U.S. DOLLARS
INDEX
| |
|---|
 | Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 67067, Israel
Tel: 972 (3)6232525
Fax: 972 (3)5622555
www.ey.com/il |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
SHAMIR OPTICAL INDUSTRY LTD.
We have audited the accompanying consolidated balance sheets of Shamir Optical Industry Ltd. (“the Company”) and its subsidiaries (collectively “Shamir”) as of December 31, 2006 and 2007, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2006 and 2007, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 2006, the Company adopted Financial Accounting Standard Board Statement No. 123(R), “Share-Based Payment.”
| | |
Tel-Aviv, Israel | | /s/ Kost, Forer, Gabbay & Kasierer
KOST FORER GABBAY & KASIERER |
June 26, 2008 | | A Member of Ernst & Young Global |
F-2
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
CONSOLIDATED BALANCE SHEETS |
|
U.S. dollars in thousands |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
| | | | | | | |
ASSETS | | | | | | | |
| | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | | $ | 23,205 | | $ | 18,953 | |
Marketable securities | | | 16,911 | | | 14,375 | |
Trade receivables (net of allowance for doubtful accounts of $ 1,053 and $ 2,140 at December 31, 2006 and 2007, respectively) *) | | | 23,903 | | | 30,719 | |
Other accounts receivable and prepaid expenses *) | | | 5,667 | | | 7,523 | |
Inventory | | | 27,898 | | | 27,972 | |
| |
|
| |
|
| |
| | | | | | | |
Total current assets | | | 97,584 | | | 99,542 | |
| |
|
| |
|
| |
| | | | | | | |
LONG-TERM INVESTMENTS: | | | | | | | |
Severance pay fund | | | 2,542 | | | 3,089 | |
Loan to related party *) | | | 1,297 | | | - | |
Loan to others | | | 240 | | | - | |
Long-term receivables | | | 912 | | | 1,299 | |
Investments in affiliates and others | | | 3,513 | | | 4,437 | |
| |
|
| |
|
| |
| | | | | | | |
Total long-term investments | | | 8,504 | | | 8,825 | |
| |
|
| |
|
| |
| | | | | | | |
PROPERTY, PLANT AND EQUIPMENT, NET | | | 28,368 | | | 39,170 | |
| |
|
| |
|
| |
| | | | | | | |
OTHER ASSETS | | | 5,362 | | | 5,412 | |
| |
|
| |
|
| |
| | | | | | | |
GOODWILL | | | 7,178 | | | 7,542 | |
| |
|
| |
|
| |
| | | | | | | |
Total assets | | $ | 146,996 | | $ | 160,491 | |
| |
|
| |
|
| |
| |
*) | As for transactions with related parties, see Note 17. |
The accompanying notes are an integral part of the consolidated financial statements.
F-3
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
CONSOLIDATED BALANCE SHEETS |
|
U.S. dollars in thousands (except share and per share data) |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Short-term bank credit and loans | | $ | 13,654 | | $ | 15,950 | |
Current maturities of long-term loans and capital leases | | | 4,428 | | | 7,689 | |
Trade payables*) | | | 8,930 | | | 10,852 | |
Accrued expenses and other liabilities *) | | | 11,544 | | | 12,735 | |
| |
|
| |
|
| |
| | | | | | | |
Total current liabilities | | | 38,556 | | | 47,226 | |
| |
|
| |
|
| |
| | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | |
Long-term loans | | | 17,995 | | | 17,491 | |
Capital leases | | | 4,304 | | | 4,303 | |
Accrued severance pay | | | 2,828 | | | 3,337 | |
Other long-term liabilities | | | - | | | 753 | |
Deferred tax liabilities | | | 1,287 | | | 1,358 | |
| |
|
| |
|
| |
| | | | | | | |
Total long-term liabilities | | | 26,414 | | | 27,242 | |
| |
|
| |
|
| |
| | | | | | | |
MINORITY INTERESTS | | | 2,223 | | | 800 | |
| |
|
| |
|
| |
| | | | | | | |
COMMITMENTS AND CONTINGENT LIABILITIES | | | | | | | |
| | | | | | | |
SHAREHOLDERS’ EQUITY: | | | | | | | |
Share capital - | | | | | | | |
Ordinary shares of NIS 0.01 par value - | | | | | | | |
Authorized: 100,000,000 shares at December 31, 2006 and 2007; Issued and outstanding: 16,256,514 and 16,423,740 shares at December 31, 2006 and 2007, respectively. | | | 37 | | | 37 | |
Additional paid-in capital | | | 65,599 | | | 66,629 | |
Accumulated other comprehensive income | | | 958 | | | 1,628 | |
Retained earnings | | | 13,209 | | | 16,929 | |
| |
|
| |
|
| |
| | | | | | | |
Total shareholders’ equity | | | 79,803 | | | 85,223 | |
| |
|
| |
|
| |
| | | | | | | |
Total liabilities and shareholders’ equity | | $ | 146,996 | | $ | 160,491 | |
| |
|
| |
|
| |
| |
*) | As for transactions with related parties, see Note 17. |
The accompanying notes are an integral part of the consolidated financial statements.
F-4
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF INCOME |
|
U.S. dollars in thousands (except per share data) |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | | | | | | | | | |
Revenues, net *) | | $ | 80,364 | | $ | 97,280 | | $ | 120,419 | |
Cost of revenues *) | | | 36,030 | | | 44,038 | | | 55,856 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Gross profit | | | 44,334 | | | 53,242 | | | 64,563 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Operating expenses: | | | | | | | | | | |
Research and development | | | 1,688 | | | 2,372 | | | 2,564 | |
Selling and marketing | | | 23,663 | | | 32,798 | | | 36,552 | |
General and administrative | | | 6,887 | | | 10,986 | | | 13,549 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Total operating expenses *) | | | 32,238 | | | 46,156 | | | 52,665 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Operating income | | | 12,096 | | | 7,086 | | | 11,898 | |
Financial and other income (expenses), net *) | | | 401 | | | (159 | ) | | (239 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Income before taxes on income | | | 12,497 | | | 6,927 | | | 11,659 | |
Taxes on income | | | 4,504 | | | 2,179 | | | 5,013 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Income after taxes on income | | | 7,993 | | | 4,748 | | | 6,646 | |
Equity in gains (losses) of affiliates, net | | | - | | | (245 | ) | | 46 | |
Minority interest in losses of subsidiaries | | | 112 | | | 1,957 | | | 1,509 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net income | | $ | 8,105 | | $ | 6,460 | | $ | 8,201 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net earnings per share: | | | | | | | | | | |
Basic | | $ | 0.52 | | $ | 0.40 | | $ | 0.50 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Diluted | | $ | 0.51 | | $ | 0.39 | | $ | 0.50 | |
| |
|
| |
|
| |
|
| |
| |
*) | As for transactions with related parties, see Note 17. |
The accompanying notes are an integral part of the consolidated financial statements.
F-5
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
|
U.S. dollars in thousands (except share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number
of shares | | Share
capital | | Additional
paid-in
capital | | Deferred
stock
compensation | | Accumulated
other
comprehensive
income | | Retained
earnings | | Total
comprehensive
income | | Total
shareholders’
equity | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2005 | | | 12,208,932 | | $ | 29 | | $ | 10,053 | | $ | (844 | ) | $ | **) 1,236 | | $ | 4,156 | | | | | $ | 14,630 | |
Issuance of shares, net in the IPO | | | 3,400,000 | | | 8 | | | 43,720 | | | - | | | - | | | - | | | | | | 43,728 | |
Issuance of shares in respect of acquisition of additional share of SII | | | 145,182 | | | *) - | | | 2,155 | | | - | | | - | | | - | | | | | | 2,155 | |
Reclassification of puttable shares from temporary equity | | | 502,400 | | | *) - | | | 3,000 | | | - | | | - | | | - | | | | | | 3,000 | |
Reclassification of retained earnings into additional paid-in capital due to reorganization | | | - | | | - | | | 5,512 | | | - | | | - | | | (5,512 | ) | | | | | - | |
Deferred stock compensation related to grant of options to employees | | | - | | | - | | | 338 | | | (338 | ) | | - | | | - | | | | | | - | |
Amortization of deferred stock compensation | | | - | | | - | | | - | | | 300 | | | - | | | - | | | | | | 300 | |
Compensation expenses in respect of options granted in subsidiary’s share | | | - | | | - | | | 277 | | | - | | | - | | | - | | | | | | 277 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | - | | | - | | | - | | | - | | | (807 | ) | | - | | $ | (807 | ) | | (807 | ) |
Net income | | | - | | | - | | | - | | | - | | | - | | | 8,105 | | | 8,105 | | | 8,105 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | $ | 7,298 | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | |
Balance as of December 31, 2005 | | | 16,256,514 | | | 37 | | | 65,055 | | | (882 | ) | | **) 429 | | | 6,749 | | | | | | 71,388 | |
Compensation in respect of options to employees | | | - | | | - | | | (882 | ) | | 882 | | | - | | | - | | | | | | - | |
Stock based compensation related to options granted to employees and consultants | | | - | | | - | | | 1,426 | | | - | | | - | | | - | | | | | | 1,426 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | - | | | - | | | - | | | - | | | 548 | | | - | | $ | 548 | | | 548 | |
Unrealized loss on short-term investments, net of tax | | | - | | | - | | | - | | | - | | | (19 | ) | | - | | | (19 | ) | | (19 | ) |
Net income | | | - | | | - | | | - | | | - | | | - | | | 6,460 | | | 6,460 | | | 6,460 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | $ | 6,989 | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | |
Balance as of December 31, 2006 | | | 16,256,514 | | | 37 | | | 65,599 | | | - | | | ***) 958 | | | 13,209 | | | | | | 79,803 | |
Cumulative impact of change in accounting for uncertainties in income taxes (FIN 48) | | | - | | | - | | | - | | | - | | | - | | | (481 | ) | | | | | (481 | ) |
Distribution of earnings to shareholders ($0.244 per share) | | | - | | | - | | | - | | | - | | | - | | | (4,000 | ) | | | | | (4,000 | ) |
Stock-based compensation related to options to employees and consultants | | | - | | | - | | | 1,030 | | | - | | | - | | | - | | | | | | 1,030 | |
Exercise of options granted to employees | | | 167,226 | | | * | ) | | - | | | - | | | - | | | - | | | | | | * | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | - | | | - | | | - | | | - | | | 620 | | | - | | $ | 620 | | | 620 | |
Unrealized gain on short-term investments, net of tax | | | - | | | - | | | - | | | - | | | 50 | | | - | | | 50 | | | 50 | |
Net income | | | - | | | - | | | - | | | - | | | - | | | 8,201 | | | 8,201 | | | 8,201 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | $ | 8,871 | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | |
Balance as of December 31, 2007 | | | 16,423,740 | | | 37 | | $ | 66,629 | | $ | - | | $ | ***)1,628 | | $ | 16,929 | | | | | $ | 85,223 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
|
| |
| |
*) | Represent an amount lower than $1. |
**) | The full amount represents foreign currency translation adjustments. |
***) | Represent an amount of $ 977 and $ 1,597 foreign currency translation adjustment as of December 31, 2006 and 2007 respectively, and $ (19) loss and $ 31 gain on short-term investment, net of tax as of December 31, 2006 and 2007 respectively. |
The accompanying notes are an integral part of the consolidated financial statements.
F-6
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
U.S. dollars in thousands |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | |
Net income | | $ | 8,105 | | $ | 6,460 | | $ | 8,201 | |
Adjustments required to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | |
Depreciation and amortization | | | 4,729 | | | 6,250 | | | 6,152 | |
Stock based compensation | | | 608 | | | 1,426 | | | 1,030 | |
Accrued severance pay, net | | | (60 | ) | | 62 | | | (52 | ) |
Currency fluctuations of long-term loans | | | (672 | ) | | 166 | | | 526 | |
Decrease (increase) in deferred tax assets, net | | | 85 | | | (1,987 | ) | | 1,317 | |
Equity in losses (gains) of affiliates, net | | | - | | | 245 | | | (46 | ) |
Minority interest in losses of subsidiaries | | | (112 | ) | | (1,957 | ) | | (1,509 | ) |
Interest receivable on marketable securities | | | - | | | (190 | ) | | 85 | |
Foreign currency translation losses (gains) | | | 712 | | | (604 | ) | | (1,239 | ) |
Increase in trade receivables | | | (3,128 | ) | | (4,852 | ) | | (4,915 | ) |
Increase in other accounts receivable and prepaid expenses and in long term receivables | | | (264 | ) | | (1,598 | ) | | (2,016 | ) |
Decrease (increase) in inventory | | | (5,343 | ) | | (6,210 | ) | | 2,825 | |
Increase (decrease) in trade payables | | | 3,786 | | | (97 | ) | | 989 | |
Increase in accrued expenses and other liabilities | | | 1,691 | | | 1,696 | | | 184 | |
Others | | | (135 | ) | | 175 | | | 213 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net cash provided by (used in) operating activities | | | 10,002 | | | (1,015 | ) | | 11,745 | |
| |
|
| |
|
| |
|
| |
Cash flows from investing activities: | | | | | | | | | | |
Loans granted to affiliates | | | (13 | ) | | (723 | ) | | (909 | ) |
Loans granted to others | | | - | | | (240 | ) | | - | |
Investment in affiliates | | | - | | | (2,356 | ) | | (292 | ) |
Acquisition of Altra Turkey (a) | | | (2,568 | ) | | - | | | - | |
Acquisition of additional shares in SII in 2005 | | | (2,077 | ) | | - | | | - | |
Additional consideration on SII acquisition in 2005 (see Note 1d) | | | - | | | - | | | (449 | ) |
Acquisition of Spherical Optics (b) | | | - | | | (849 | ) | | - | |
Acquisition of Shamir Or | | | - | | | (27 | ) | | - | |
Acquisition of Shamir Israel (c) | | | - | | | - | | | 30 | |
Purchase of property, plant and equipment | | | (5,909 | ) | | (7,281 | ) | | (13,375 | ) |
Purchase of intangible assets | | | - | | | - | | | (331 | ) |
Government participation in purchase of property, plant and equipment | | | 83 | | | - | | | - | |
Proceeds from sale of property and equipment | | | 77 | | | 74 | | | 489 | |
Loan granted to related party | | | (136 | ) | | (986 | ) | | - | |
Repayment of loan by related party | | | 105 | | | - | | | 1,297 | |
Purchase of marketable securities and other short-term investments | | | (14,350 | ) | | (29,666 | ) | | (20,352 | ) |
Proceeds from sale of marketable securities and other short-term investments | | | - | | | 27,504 | | | 22,886 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net cash used in investing activities | | | (24,788 | ) | | (14,550 | ) | | (11,006 | ) |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the consolidated financial statements.
F-7
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
U.S. dollars in thousands |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
| | | | | | | | | | |
Distribution of earnings to shareholders | | | (5,201 | ) | | - | | | (4,000 | ) |
Short-term bank credit and loans, net | | | (1,173 | ) | | 3,975 | | | 702 | |
Issuance of shares, net | | | 42,571 | | | - | | | - | |
Receipt of long-term loans | | | 5,638 | | | 12,290 | | | 3,091 | |
Repayment of long-term loans | | | (4,031 | ) | | (3,949 | ) | | (3,236 | ) |
Repayment of long-term loans in capital lease | | | (1,274 | ) | | (1,380 | ) | | (1,956 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 36,530 | | | 10,936 | | | (5,399 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Effect of exchange rate differences on cash and cash equivalents | | | (477 | ) | | 332 | | | 408 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 21,267 | | | (4,297 | ) | | (4,252 | ) |
Cash and cash equivalents at beginning of year | | | 6,235 | | | 27,502 | | | 23,205 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 27,502 | | $ | 23,205 | | $ | 18,953 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Supplemental information and disclosures of non-cash investing and financing activities: | | | | | | | | | | |
| | | | | | | | | | |
Issuance of shares as partial consideration of SII acquisition | | $ | 2,155 | | $ | - | | $ | - | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Deferred tax benefit on offering expense | | $ | 1,453 | | $ | - | | $ | - | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Purchase of property, plant and equipment in capital lease | | $ | 1,951 | | $ | 5,343 | | $ | 1,898 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Purchase of intangible assets to be paid in future periods | | $ | - | | $ | - | | $ | 564 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Additional consideration on SII acquisition in 2005 (see Note 1d) | | $ | - | | $ | 449 | | $ | 139 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Grant from the Portuguese government | | $ | - | | $ | - | | $ | 611 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Grant from the Israeli government (see Note 15 d) | | $ | - | | $ | - | | $ | 189 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Consideration on SII additional acquisition in 2007 (see Note 1d) | | $ | - | | $ | - | | $ | 427 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Long-term loan written off (see Note 1b) | | $ | - | | $ | 355 | | $ | - | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | |
| | | | | | | | | | |
Interest | | $ | 1,038 | | $ | 1,646 | | $ | 1,747 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Income taxes | | $ | 3,114 | | $ | 3,666 | | $ | 5,383 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the consolidated financial statements.
F-8
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
U.S. dollars in thousands |
| | | | | | | | | | | |
| | | Year ended December 31, | |
| | |
| |
| | | 2005 | | 2006 | | 2007 | |
| | |
| |
| |
| |
| | | | | | | | |
(a) | Acquisition of Altra Turkey: | | | | | | | | | | |
| | | | | | | | | | | |
| Fair value of assets acquired at the acquisition date: | | | | | | | | | | |
| | | | | | | | | | | |
| Working capital (excluding cash and cash equivalents) | | $ | 541 | | | | | | | |
| Property and equipment | | | 979 | | | | | | | |
| Other intangible assets | | | 733 | | | | | | | |
| Goodwill | | | 315 | | | | | | | |
| | |
|
| | | | | | | |
| | | | | | | | | | | |
| | | $ | 2,568 | | | | | | | |
| | |
|
| | | | | | | |
| | | | | | | | | | | |
(b) | Acquisition ofSpherical Optics (PTY) Ltd: | | | | | | | | | | |
| | | | | | | | | | | |
| Fair value of assets acquired at the acquisition date: | | | | | | | | | | |
| | | | | | | | | | | |
| Working capital (excluding cash and cash equivalents) | | | | | $ | 579 | | | | |
| Property and equipment | | | | | | 28 | | | | |
| Other intangible assets | | | | | | 652 | | | | |
| Goodwill | | | | | | 70 | | | | |
| Long-term deferred tax liabilities | | | | | | (171 | ) | | | |
| Minority interest | | | | | | (309 | ) | | | |
| | | | | |
|
| | | | |
| | | | | | | | | | | |
| | | | | | $ | 849 | | | | |
| | | | | |
|
| | | | |
| | | | | | | | | | | |
(c) | Acquisition ofShamir Israel Optical Marketing Ltd: | | | | | | | | | | |
| | | | | | | | | | | |
| Estimated fair value of assets acquired at the acquisition date: | | | | | | | | | | |
| | | | | | | | | | | |
| Working capital (excluding cash and cash equivalents) | | | | | | | | $ | 96 | |
| Long-term deferred tax assets | | | | | | | | | 167 | |
| Property and equipment | | | | | | | | | 44 | |
| Other intangible assets | | | | | | | | | 153 | |
| Goodwill | | | | | | | | | 128 | |
| Long-term loans and other long-term liabilities | | | | | | | | | (215 | ) |
| Long-term deferred tax liabilities | | | | | | | | | (38 | ) |
| | | | | | | | |
|
| |
| Net assets acquired | | | | | | | | | 335 | |
| | | | | | | | | | | |
| Investment in Shamir Israel Optical Marketing Ltd. prior to acquisition that was accounted for by the equity method and shareholder’s loans | | | | | | | | | (365 | ) |
| | | | | | | | |
|
| |
| | | | | | | | | $ | (30 | ) |
| | | | | | | | |
|
| |
The accompanying notes are an integral part of the consolidated financial statements.
F-9
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 1:- | GENERAL |
| | |
| a. | General: |
| | |
| | Shamir Optical Industry Ltd. (“the Company”) was incorporated under the laws of the State of Israel in the early 1970s. Shamir and its subsidiaries (collectively - “Shamir”) design, develop, manufacture and market optical progressive and other lenses and molds. As of December 31, 2007, Shamir had 15 subsidiaries all over the world. Some of the subsidiaries engage in production of Shamir products, some are optical laboratories that process lenses for the opticians, and some engage in marketing and distributing the products. |
| | |
| | On March 16, 2005, Shamir completed an Initial Public Offering (“IPO”) on the NASDAQ stock exchange and issued 3,400,000 Ordinary shares of NIS 0.01 par value in a net consideration of approximately $ 42,275 (excluding tax benefit of $ 1,453). On March 6, 2005, in connection with its IPO, the Company changed its legal structure from an Agricultural Cooperative Society (“ACS”) into an Israeli limited liability company (“LLC”). |
| | |
| | Most of the raw materials used in the manufacture of lenses, including Shamir’s products, are available from a limited number of suppliers. Shamir purchases its raw materials from some of these suppliers. The loss of any one of these suppliers, or a significant decrease in the supply of glass blanks or monomers, would require Shamir to obtain these raw materials elsewhere. If Shamir is unable to obtain glass blanks or monomers from its suppliers (or alternative suppliers) at acceptable prices, Shamir may realize lower margins and experience difficulty in meeting its customers’ requirements. |
| | |
| b. | Acquisition of Cambridge Optical Group Limited (“Cambridge”): |
| | |
| | On August 31, 2004, Altra acquired all of the outstanding shares of Cambridge, a UK based company. Altra paid ₤ 1,500 thousand (approximately $ 2,700). Under the terms of the acquisition agreement, contingent cash payments were supposed to be paid if certain financial performance criteria with respect to Cambridge were met in three years from the acquisition date. As of August 31, 2007 (the end of the period), the financial performance criteria were not met. |
| | |
| | During 2006, part of the long-term loan that was part of the liabilities assumed was written off. Accordingly the goodwill was reduced by $ 355. |
| | |
| c. | Acquisition of Altra Optik Sanayi ve Ticaret A.S. (“Altra Turkey”) |
| | |
| | On June 27, 2005, Altra established a new Turkish optical subsidiary, Altra Altra Turkey. Altra Turkey acquired all the assets of Emin Optic, a Turkish company that engaged in the business of producing spectacle lenses. Altra Turkey paid New Turkish ₤ 3,430 thousand ($ 2,568). |
| | |
| | The asset purchase was accounted for as a business combination by the purchase method and, accordingly, the purchase price has been allocated to the fair value of the assets acquired. The results of Altra Turkey operations have been included in the consolidated financial statements of Shamir starting June 30, 2005. |
F-10
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 1:- | GENERAL (Cont.) |
| | |
| | With the establishment of Altra Turkey, Shamir expanded its customer base and its presence in Europe. |
| | |
| | The following table summarizes the fair values of the assets acquired: |
| | | | |
Inventory | | $ | 541 | |
Property and equipment | | | 979 | |
Technology | | | 83 | |
Customer relationship | | | 364 | |
Non-competition | | | 286 | |
Goodwill | | | 315 | |
| |
|
| |
| | | | |
Total assets acquired | | $ | 2,568 | |
| |
|
| |
| | |
| | Acquired other identifiable intangible assets in the amount of $ 733 with definite lives are amortized using the straight-line method at an annual weighted average rate of 31%. |
| | |
| | Pro forma information was not provided due to immateriality. |
| | |
| d. | Additional acquisition of shares of SII: |
| | |
| | On April 14, 2005, Shamir acquired an additional 2.0% of the ownership interest and the voting power in SII, the American distribution center of Shamir, for the amount of $ 183, increasing its ownership interest to 58.7%. |
| | |
| | On July 31, 2005, Shamir signed an agreement to purchase an additional 31.3% stake in SII, increasing Shamir’s ownership interest in SII to 90%. The transaction consideration was approximately $ 1,894 in cash and 145,182 shares of Shamir valued at approximately $ 2,155 in newly issued Ordinary shares of the Company. Under the terms of the agreement, annual contingent cash payments will be paid, for a period of five years, if certain financial performance criteria are met in respect of future earnings of SII in that period. The transaction was closed on September 30, 2005. |
| | |
| | The additional consideration regarding this purchase in respect of 2006 and 2007 earnings is $ 449 and $ 139 respectively, and as of December 31, 2006 and 2007, the goodwill increased accordingly. |
F-11
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 1:- | GENERAL (Cont.) |
| | |
| | The following table summarizes the fair values of the assets acquired, liabilities assumed and the buyout of the minority interest as of July 31, 2005: |
| | | | |
Distribution channels | | $ | 1,006 | |
Trade name | | | 688 | |
Goodwill | | | 2,640 | |
| |
|
| |
| | | | |
Total assets acquired | | | 4,334 | |
| |
|
| |
| | | | |
Long-term deferred tax liability | | | (474 | ) |
| |
|
| |
| | | | |
Net assets acquired | | $ | 3,860 | |
| |
|
| |
| | | | |
Minority interests buyout | | $ | 372 | |
| |
|
| |
| | | | |
| | $ | 4,232 | |
| |
|
| |
| | |
| | Acquired distribution channels and trade name assets in the amount of $ 1,694 with definite lives are amortized using the straight-line method at an annual weighted average rate of 20%. |
| | |
| | On July 17, 2007, Shamir signed an agreement to purchase an additional 10% of the outstanding shares of SII, increasing Shamir ownership interest in SII to 100%. Under the terms of the agreement Shamir will pay a discounted amount of $ 346 over the next four years, and annual contingent cash payments based on SII revenues in the years 2007 to 2010. Therefore, as of December 31, 2007, Shamir recorded a liability in the amount of $ 427 related to this purchase. |
| | |
| | Should any contingent payment be made under the agreement in the future, the additional consideration, when determined, will increase the purchase price and accordingly additional goodwill will be recorded. |
| | |
| | The additional consideration regarding this purchase in respect of 2007 earnings is $ 18, and as of December 31, 2007, the goodwill increased accordingly. |
| | |
| | The acquisition was accounted for by the purchase method and, accordingly, the purchase price has been allocated to the estimated fair value of the assets acquired and liabilities assumed of SII. The fair values of the assets acquired, liabilities assumed and the buyout of the minority interest are not provided due to immateriality. |
| | |
| | With the acquisition of additional shares of SII, Shamir increased its control on a critical distribution channel in the U.S.A. |
| | |
| | Pro-forma information was not provided due to immateriality. |
F-12
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 1:- | GENERAL (Cont.) |
| | |
| e. | Acquisition of Spherical Optics (PTY) Ltd.: |
| | |
| | On January 2, 2006, the Company acquired 51% of the share capital of and ownership interest in Spherical Optics (PTY) Ltd. (“Spherical”), a South African optical lenses distribution company. The Company paid R 5.4 million ($ 855). |
| | |
| | The asset purchase was accounted for as a business combination by the purchase method and, accordingly, the purchase price has been allocated to the fair value of the assets acquired. The results of Spherical’s operations have been included in the consolidated financial statements of Shamir starting January 2, 2006. |
| | |
| | With the acquisition of Spherical, Shamir expanded its customer base and its presence in South Africa. |
| | |
| | The following table summarizes the estimated fair values of the assets acquired and liabilities assumed: |
| | | | |
Current assets | | $ | 1,249 | |
Property and equipment | | | 28 | |
Long-term deferred tax assets | | | 19 | |
Customer relationship | | | 633 | |
Goodwill | | | 70 | |
| |
|
| |
| | | | |
Total assets acquired | | | 1,999 | |
| |
|
| |
| | | | |
Current liabilities | | | (664 | ) |
Long-term deferred tax liability | | | (171 | ) |
| |
|
| |
| | | | |
Total liabilities assumed | | | (835 | ) |
| |
|
| |
| | | | |
Net assets acquired | | | 1,164 | |
| |
|
| |
| | | | |
Minority interest | | | (309 | ) |
| |
|
| |
| | | | |
Total purchase price | | $ | 855 | |
| |
|
| |
| | |
| | Acquired other intangible assets in the amount of $ 633 with definite lives are amortized using the straight-line method at an annual rate of 14%. |
| | |
| | Pro forma information was not provided due to immateriality. |
F-13
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
| | |
| The consolidated financial statements have been prepared according to U.S. generally accepted accounting principles (“U.S. GAAP”). |
| | |
| a. | Use of estimates: |
| | |
| | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
| | |
| b. | Financial statements in U.S. dollars: |
| | |
| | A majority of the revenues of the Company and certain subsidiaries are generated in United States dollars (“dollars”). The Company’s management believes that the dollar is the currency of the primary economic environment in which the Company and these certain subsidiaries operate. Thus, the functional and reporting currency of the Company and these certain subsidiaries is the U.S. dollar. |
| | |
| | Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with SFAS No. 52, “Foreign Currency Translation”. All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statement of income as financial income or expenses, as appropriate. |
| | |
| | For those foreign subsidiaries whose functional currency has been determined to be a currency other than the U.S. dollar, assets and liabilities are translated at year-end exchange rates and statement of income items are translated at average exchange rates prevailing during the year for that currency. Translation adjustments are recorded in accumulated other comprehensive income, a separate component of shareholders’ equity. |
| | |
| c. | Principles of consolidation: |
| | |
| | The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. Intercompany transactions and balances including profit from intercompany sales not yet realized outside Shamir, have been eliminated upon consolidation. |
| | |
| d. | Cash equivalents: |
| | |
| | Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less at the date acquired. |
F-14
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | |
| e. | Investments in marketable securities: |
| | |
| | The Company accounts for investments in marketable securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). |
| | |
| | Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determinations at each balance sheet date. At December 31, 2007 and 2006, all marketable securities covered by SFAS No. 115 were designated as available-for-sale. Accordingly, these securities are stated at fair value, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income, a separate component of shareholders’ equity. The amortized cost of available-for-sale securities is adjusted for amortization of premiums to maturity. Such amortization and interest are included in financial and other income (expenses), net. |
| | |
| | Impairment losses are recognized as realized or when the Company has determined that other-than-temporary decline in fair value has occurred. FASB Staff Position (FSP) No. 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investment” (“FSP 115-1”) provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment’s cost and its fair value. |
| | |
| | During 2007, 2006 and 2005, no impairment losses were identified in accordance with FSP 115-1. |
| | |
| f. | Inventories: |
| | |
| | Inventories are stated at the lower of cost or market value. Cost is determined as follows: |
| | |
| | Raw materials and work-in-progress - using the “first in - first out” method. |
| | |
| | Finished products – finished products that are produced by Shamir are recorded on the basis of direct manufacturing costs with the addition of allocable indirect manufacturing costs, using the “first in – first out” method. Finished products that are purchased for commercial purposes are recorded using the “first in – first out” method. |
| | |
| | Inventory provisions are provided to cover risks arising from slow-moving items and discontinued products. Inventory provisions have been included in the cost of revenues. |
| | |
| g. | Investments in affiliates and others: |
| | |
| | Affiliated companies are companies held to the extent of 20% or more (which are not subsidiaries), over which Shamir can exercise significant influence on their operating and financial policies of the affiliate. |
F-15
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | | | |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | | | |
| | The investment in affiliated companies is accounted for by the equity method. Profits on inter-company sales, not realized outside Shamir, were eliminated. The excess of the purchase price over the proportional fair value of net tangible assets of the investee is attributed to goodwill and other identifiable intangible assets. Other identifiable intangible assets are amortized over a weighted averaged period of approximately 10 years, commencing from the acquisition date. |
| | | | |
| | Goodwill embedded in an equity method investment is not amortized. Instead, it is subject to other than temporary impairment assessment together with the entire carrying value of the investment. |
| | | | |
| | Investments in companies in which Shamir holds less than 20% are stated at cost, since Shamir does not have the ability to exercise significant influence over the operating and financial policies of those investees. Shamir’s investments in these companies are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable, in accordance with Accounting Principle Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” (“APB No. 18”). As of December 31, 2007, no impairment losses have been identified. |
| | | | |
| h. | Property, plant and equipment: |
| | | | |
| | | I. | Property, plant and equipment are stated at cost, net of accumulated depreciation and investment grants. |
| | | | |
| | | II. | Materials, payroll and other costs that are direct incremental costs necessary to bring an asset to the condition of its intended use incurred during the construction are capitalized to the cost of such assets. |
| | | | |
| | | III. | Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual rates: |
| | | | |
| | % | |
| |
| |
| | | | |
Machinery and manufacturing equipment | | 7 - 40 | | |
Office equipment and furniture | | 7 - 33 | | |
Motor vehicles | | 15 - 25 | | |
Buildings | | 4 - 5 | | |
| | |
| | Leasehold improvements are depreciated by the straight-line method over the shorter of the lease or the estimated useful life of the improvements. |
| | |
| | Shamir has accounted for its fixed assets which are under a capital lease arrangement in accordance with SFAS 13 “Accounting for Leases”. Accordingly, fixed assets under a capital lease are stated as assets of Shamir on the basis of ordinary purchase prices (without the financing component), and they are depreciated according to the usual depreciation rates applicable to such assets. The lease payments payable in forthcoming years, net of the interest component included in them are included in liabilities. The interest in respect of such amounts is accrued on a current basis and is charged to earnings. |
F-16
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | |
| i. | Other intangible assets, net: |
| | |
| | Intangible assets are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. |
| | |
| | Amortization is calculated using the straight-line method over the estimated useful lives at the following annual rates: |
| | | | |
| | Weighted average % | |
| |
|
|
| | | | |
Technology | | | 23 | |
Customer relationship | | | 20 | |
Non competition | | | 33 | |
Distribution channels | | | 20 | |
Patents | | | 10 | |
Trade name | | | 20 | |
| | |
| j. | Impairment of long-lived assets: |
| | |
| | Shamir’s long-lived assets are reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During 2007, 2006 and 2005, no impairment losses have been identified. |
| | |
| k. | Goodwill: |
| | |
| | Goodwill represents excess of the costs over the net assets of businesses acquired. SFAS No. 142 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment, while the second phase (if necessary) measures impairment. |
| | |
| | In the first phase of impairment testing, goodwill attributable to each of the reporting units is tested for impairment by comparing the fair value of each reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second phase is then performed. The second phase of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. |
| | |
| | Goodwill attributable to Shamir’s single reporting unit as defined under SFAS No. 142, was tested for impairment by comparing its fair value with its carrying value. |
F-17
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | |
| | Fair value is determined using Shamir’s market capitalization. Shamir performs the impairment tests during the fourth fiscal quarter. During 2007, 2006 and 2005, no impairment losses have been identified. |
| | |
| l. | Revenue recognition: |
| | |
| | Shamir derives its revenues from sales of lenses and from design services to third party lens manufacturers. |
| | |
| | Revenues from sale of lenses are recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition in Financial Statements”, when delivery has occurred, persuasive evidence of an agreement exists, the vendor’s fee is fixed or determinable, no further obligation exists and collectibility is probable. |
| | |
| | Shamir has various programs that allow opticians to earn rebates on their accumulated purchases. Rebates are recognized as a reduction of revenues, in accordance with EITF No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”. |
| | |
| | Design services are provided to third party manufacturers and include development services, production of molds for lenses and royalties from sales of lenses by third party manufacturers. Revenues from development services are recognized at the time services are provided. Revenues from production of molds are recognized upon delivery of the molds when all other criteria of SAB No. 104 are met. Revenues from minimum royalties are recognized when due. Other royalties are recognized quarterly, upon the receipt of sales reports from the third party manufacturer customers. |
| | |
| | Amounts billed to customers for shipping and handling costs are classified as revenues in the consolidated statements of income with the associated costs included as a component of cost of revenues. |
| | |
| m. | Research and development costs: |
| | |
| | Research and development costs are charged to the statement of income as incurred. |
| | |
| n. | Income taxes: |
| | |
| | Until 2005, no provision for income taxes was reflected in respect of the Company in the comparative figures in the financial statements, since the tax effects of the Company’s income were passed through to the individual shareholders. On March 6, 2005, in connection with the IPO, the Company changed its legal structure from an Agricultural Cooperative Society (“ACS”) into an Israeli limited liability company. |
| | |
| | Shamir accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. This Statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Shamir provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. |
F-18
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | |
| | On January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. |
| | |
| | As a result of the implementation of FIN No. 48, the Company recognized a $ 481 increase in liability for unrecognized tax benefits, which was accounted for as a decrease to the January 1, 2007 balance of retained earnings. |
| | |
| o. | Advertising expenses: |
| | |
| | Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2005, 2006 and 2007, were $ 1,851, $ 2,964 and $ 2,566, respectively. |
| | |
| p. | Concentrations of credit risk: |
| | |
| | Financial instruments that potentially subject Shamir to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and trade receivables. The majority of Shamir’s cash and cash equivalents are invested mainly in dollar and Euro instruments with major banks in Israel, Germany and the U.S. Marketable securities include investments in debentures of U.S. government agencies and corporations. Shamir’s investment policy provides for a minimum grading of debentures in which Shamir can invest, thereby reducing credit risk. |
| | |
| | Shamir’s trade receivables are derived from sales to customers located mainly in the U.S. and Europe. Shamir performs ongoing credit evaluations of its customers and to date has not experienced any material losses. In certain circumstances, Shamir may require letters of credit or prepayments. An allowance for doubtful accounts is determined with respect to those amounts that Shamir has determined to be doubtful of collection. Provisions for doubtful accounts were recorded in general and administrative expenses. |
| | |
| | Shamir from time to time enters into forward contracts and option strategies (together: “derivative instruments”) intended to protect against changes in foreign currencies. Shamir has also entered into interest-rate swaps. The derivative instruments were not qualified for hedge accounting under SFAS No. 133. All the derivatives are recognized on the balance-sheet at their fair value, with changes in the fair value carried to the statements of income and included in financial and other income (expenses), net. |
F-19
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| | |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | |
| q. | Severance pay: |
| | |
| | Shamir’s liability for severance pay is calculated pursuant to Israel’s Severance Pay Law based on the most recent salary of Shamir’s Israeli employees multiplied by the number of years of employment, as of balance sheet date. These employees are entitled to one month’s salary for each year of employment or a portion thereof. Shamir’s liability for these employees is fully provided by monthly deposits for insurance policies and by an accrual. |
| | |
| | The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel’s Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies and includes immaterial profits. |
| | |
| | Severance expense for the years ended December 31, 2005, 2006 and 2007, amounted to $ 463, $ 504 and $ 535, respectively. |
| | |
| r. | Net earnings per share: |
| | |
| | Basic net earnings per share are computed based on the weighted average number of shares outstanding during each year. Diluted net earnings per share are computed based on the weighted average number of shares outstanding during each year, plus dilutive potential shares considered outstanding during the year, in accordance with SFAS No. 128, “Earnings per Share”. |
| | |
| | The total weighted average number of shares related to the outstanding options excluded from the calculations of diluted net earnings per share because these securities are anti-dilutive was 357,416, 1,331,660 and 1,392,682 for the years ended December 31, 2005, 2006 and 2007, respectively. |
| | |
| s. | Accounting for stock-based compensation: |
| | |
| | On January 1, 2006, Shamir adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”) which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors. SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), for periods beginning in fiscal year 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123(R). Shamir has applied the provisions of SAB 107 in its adoption of SFAS No. 123(R). |
F-20
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Effective January 1, 2006, Shamir adopted SFAS No. 123(R) using the modified prospective transition method. Under that transition method, compensation cost recognized in the years ended December 31, 2006 and December 31, 2007 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Results for prior periods have not been restated, in accordance with the modified prospective transition method.
SFAS No. 123(R) requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in Shamir’s consolidated income statements. Prior to the adoption of SFAS No. 123(R), Shamir accounted for equity-based awards to employees and directors using the intrinsic value method in accordance with APB No. 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Under the intrinsic value, equity-based compensation recognized for the years ended December 31, 2005 was $608 (including minority share related to SII options in the amount of $ 110).
The following table illustrates the effect on net income and earnings per share if Shamir had applied the fair value recognition provisions of SFAS No. 123 to options granted under Shamir’s stock option plans in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing formula and amortized to expense over the options’ vesting periods.
| | | | |
| | Year ended
December 31, | |
| |
| |
| | 2005 | |
| |
| |
| | | | |
Net income as reported | | $ | 8,105 | |
Add: stock-based compensation expenses, net of minority share related to SII options, included in the reported net income | | | 498 | |
Deduct: Total stock-based compensation expenses determined under fair value based method for all awards, net of minority share related to SII options | | | (1,418 | ) |
| |
|
| |
| | | | |
Pro forma net income | | $ | 7,185 | |
| |
|
| |
| | | | |
Earnings per share | | | | |
Basic net earnings per share- as reported | | $ | 0.52 | |
| |
|
| |
Basic net earning per share - pro forma | | $ | 0.47 | |
| |
|
| |
Diluted net earning per share- as reported | | $ | 0.51 | |
| |
|
| |
Diluted net earning per share- pro forma | | $ | 0.46 | |
| |
|
| |
F-21
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
The fair value for these options was estimated at the date of grant using the Black and Scholes option pricing model based on the following weighted-average assumptions:
| | | | |
| | 2005 | |
| |
| |
| | | |
Dividend yield | | 0 | % | |
Expected volatility | | 32 | % | |
Risk-free interest rate | | 4 | % | |
Expected life (years) | | 5 | | |
Shamir estimates the fair value of stock options granted to employees and directors under SFAS No. 123(R) using the Black-Scholes option-pricing model that uses the assumption noted in the following table.
Expected volatility was calculated based upon actual historical stock price movements of similar traded companies. The expected term of options granted represent the period of time that options granted are expected to be outstanding and was determined based on the simplified method, average of vesting and contractual term of Shamir’s stock options, in accordance with SAB 107. The risk free interest rate is based on the yield of U.S Treasury bonds with equivalent terms. The dividend yield is based on the Company’s historical and future expectation of dividends payouts.
Shamir recognizes compensation expense for the value of its awards based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures at the time of grant. Estimated forfeitures are based on historical pre-vesting forfeitures. SFAS 123(R) requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The fair value of Shamir’s stock options granted to employees and directors for the years ended December 31, 2006 and 2007, was estimated using the following assumptions:
| | | | | | | |
| | Year ended
December 31,
2006 | | Year ended
December 31,
2007 | |
| |
| |
| |
| | | | | |
Expected volatility | | | 26.98% - 27.47% | | | 24.99% - 25.59% | |
Risk-free interest rate | | | 4.92% - 5.1% | | | 3.28% - 4.54% | |
Dividend yield | | | 0% | | | 0.81%-1.36% | |
Forfeiture rate | | | 0% | | | 4.48% | |
Expected life (years) | | | 3.79 - 4.58 | | | 3.62 - 6.05 | |
F-22
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
A summary of option activity under Shamir’s stock option plans as of December 31, 2007, and changes during the year then ended are as follows:
| | | | | | | | | | | | | |
| | Number of
options | | Weighted-
average
exercise price | | Weighted-
average
remaining
contractual
term (in years) | | Aggregate
intrinsic
value as of
December
31, 2007 | |
| |
| |
| |
| |
| |
| |
Outstanding at January 1, 2007 *) | | | 1,846,673 | | $ | 9.36 | | | | | | | |
Granted | | | 268,000 | | $ | 10.41 | | | | | | | |
Exercised | | | (167,226 | ) | | **) | | | | | | | |
Forfeited | | | (289,581 | ) | $ | 12.36 | | | | | | | |
| |
|
| | | | | | | | | | |
Outstanding at December 31, 2007 | | | 1,657,866 | | $ | 9.95 | | | 4.42 | | $ | 1,458 | |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Exercisable at December 31, 2007 | | | 862,967 | | $ | 9.22 | | | 3.80 | | $ | 1,309 | |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Vested and expected to vest at December 31, 2007 | | | 1,622,229 | | $ | 9.93 | | | 4.40 | | $ | 1,451 | |
| |
|
| |
|
| |
|
| |
|
| |
*) Includes options to non-employees (consultants), see note 16.
**) Less than $0.01.
| | |
| | The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on the last trading day of the fourth quarter of fiscal 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2007. |
| | |
| | The weighted-average grant-date fair value of options granted during the years ended December 31, 2005, 2006 and 2007, was $ 4.99, $ 3.00 and $ 2.87, respectively. The total intrinsic value of options exercised during the years ended December 31, 2005, 2006 and 2007, was $ 0, $ 0 and $ 1,671, respectively. |
| | |
| | As of December 31, 2007, there was $ 1,714 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under Shamir’s stock option plans to employees and directors. That cost is expected to be recognized over a weighted average period of 2.2 years. The total fair value of options vested during the year ended December 31, 2007, was $ 1,037. |
| | |
| t. | Fair value of financial instruments: |
| | |
| | The following methods and assumptions were used by Shamir in estimating fair value and disclosures for financial instruments: |
| | |
| | The carrying amount reported in the balance sheet for cash and cash equivalents, trade receivables, short-term bank credit and trade payables approximate their fair values due to the short-term maturities of such instruments. The fair value of marketable securities is based on quoted market prices and does not differ significantly from the carrying amount. The fair value of long-term loans is estimated by discounting the future cash flows using the current interest rate for loans of similar terms and maturities. The carrying amount of the long-term loans approximates their fair value. |
F-23
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| | |
| u. | Reclassification: |
| | |
| | Certain amounts in prior years’ financial statements have been reclassified to conform to the current year’s presentation. |
| | |
| v. | Impact of recently issued accounting standards: |
| | |
| | In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for the Company beginning January 1, 2008. The FASB issued a FASB Staff Position (FSP) to defer the effective date of SFAS No. 157 for one year for all nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Shamir does not expect the adoption will have a material impact on its consolidated financial statements. |
| | |
| | In December 2007, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 110 (SAB 110) to amend the SEC’s views discussed in Staff Accounting Bulletin 107 (SAB 107) regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB 110 is effective for the company beginning in the first quarter of fiscal year 2008. The adoption did not have a material impact on Shamir’s consolidated financial statements. |
| | |
| | In December 2007, the FASB issued SFAS 141(R), Business Combinations (“SFAS No. 141(R)”). This Statement replaces SFAS 141, Business Combinations (“SFAS No. 141”), and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)’s requirement to measure the non-controlling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the non-controlling interest in addition to that attributable to the acquirer. SFAS 141(R) amends SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”), to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), to, among other things; provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Shamir is currently assessing the potential impact that the adoption of SFAS 141(R) could have on its consolidated financial statements. |
F-24
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
In December 2007, the FASB issued SFAS 160 (“SFAS No. 160”), Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. Shamir is currently assessing the potential impact that the adoption of SFAS 160 could have on its consolidated financial statements.
| |
NOTE 3:- | MARKETABLE SECURITIES |
| |
| The following is a summary of the Shamir’s investments in marketable securities: |
| | | | | | | | | | |
| | December 31, 2006 | |
| |
| |
| | Amortized
cost | | Gross
unrealized
gain (loss) | | Fair
market
value | |
| |
| |
| |
| |
|
Available-for-sale: | | | | | | | | | | |
| | | | | | | | | | |
Corporate debentures | | $ | 1,005 | | $ | (3 | ) | $ | 1,002 | |
U.S. government agencies securities | | | 11,938 | | | (30 | ) | | 11,908 | |
Other securities | | | 3,760 | | | 12 | | | 3,772 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Total | | $ | 16,703 | | $ | (21 | ) | | 16,682 | |
| |
|
| |
|
| | | | |
Accrued interest | | | | | | | | | 229 | |
| | | | | | | |
|
| |
| | | | | | | | $ | 16,911 | |
| | | | | | | |
|
| |
| | | | | | | | | | |
| | December 31, 2007 | |
| |
| |
| | Amortized
cost | | Net
Unrealized
gain (loss) | | Fair
market
value | |
| |
| |
| |
| |
|
Available-for-sale: | | | | | | | | | | |
| | | | | | | | | | |
Corporate debentures | | $ | 2,002 | | $ | (6 | ) | $ | 1,996 | |
U.S. government agencies securities | | | 12,137 | | | 48 | | | 12,185 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Total | | $ | 14,139 | | $ | 42 | | | 14,181 | |
| |
|
| |
|
| | | | |
Accrued interest | | | | | | | | | 194 | |
| | | | | | | |
|
| |
| | | | | | | | $ | 14,375 | |
| | | | | | | |
|
| |
F-25
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 3:- | MARKETABLE SECURITIES (Cont.) |
As of December 31, 2007, the gross unrealized gains amounted to $ 51 and the gross unrealized losses amounted to $ 9.
The amortized cost and fair value of marketable securities as of December 31, 2007, by contractual maturity, are shown below:
| | | | | | | |
| | December 31, 2007 | |
| |
| |
| | Amortized
cost | | Fair
market value | |
| |
| |
| |
|
Matures in one year | | $ | 2,176 | | $ | 2,175 | |
Matures after one year through five years | | | 11,963 | | | 12,006 | |
| |
|
| |
|
| |
| | | | | | | |
Total | | $ | 14,139 | | $ | 14,181 | |
| |
|
| |
|
| |
| |
NOTE 4:- | OTHER ACCOUNTS RECEIVABLES AND PREPAID EXPENSES |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
|
Prepaid expenses | | $ | 1,283 | | $ | 1,145 | |
Government authorities | | | 1,200 | | | 3,155 | |
Deferred tax assets | | | 2,418 | | | 1,794 | |
Related parties | | | 93 | | | 90 | |
Government grants and subsidies | | | - | | | 270 | |
Employees | | | 123 | | | 160 | |
Derivatives | | | 21 | | | 129 | |
Other | | | 529 | | | 780 | |
| |
|
| |
|
| |
| | | | | | | |
| | $ | 5,667 | | $ | 7,523 | |
| |
|
| |
|
| |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
|
Raw materials | | $ | 3,161 | | $ | 3,372 | |
Work-in-progress | | | 332 | | | 985 | |
Finished goods | | | 24,405 | | | 23,615 | |
| |
|
| |
|
| |
| | | | | | | |
| | $ | 27,898 | | $ | 27,972 | |
| |
|
| |
|
| |
F-26
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 6:- | INVESTMENTS IN AFFILIATES AND OTHERS |
| | |
| a. | Affiliated companies are as follows: |
| | | | | | | | | | |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2006 | | 2007 | |
| | | | |
| |
| |
| | Note | | Percentage of ownership of
outstanding share capital | |
| |
| |
| |
|
Shamir Israel | | | | | 50 | % | | | *) | |
Centro Integral Optico S.A. de C.V. (“CIO”) | | 6c | (1) | | 26 | % | | 26 | % | |
Shalens S.A. de C.V. (“Shalens”) | | 6d | | | 26 | % | | 26 | % | |
Siam Optical Technology Company Ltd.**) | | 6d | | | - | | | 25.8 | % | |
e-Vision LLC | | | | | | ***) | | | ***) | |
| | |
| *) | On August 15, 2007, Shamir acquired an additional 50% of the ownership interest and the voting power in Shamir Israel, an Israeli based affiliate, increasing its ownership interest to 100%. |
| **) | On January 4, 2007, Shamir acquired 25.8% of the ownership interests and voting power in Siam Optical Technology Company Ltd.(“SOT”), an optical laboratory in Thailand, which holds 70% of its local subsidiary, K.T. Optic Company Limited. |
| ***) | Less than 20% ownership. The investment is stated on the cost basis. |
| | |
| b. | Composition of investments: |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
|
Shamir Israel | | $ | 185 | | $ | - | |
CIO | | | 2,554 | | | 2,785 | |
Shalens S.A. de C.V. | | | 98 | | | 136 | |
SOT | | | - | | | 840 | |
e-Vision LLC | | | 676 | | | 676 | |
| |
|
| |
|
| |
| | | | | | | |
| | $ | 3,513 | | $ | 4,437 | |
| |
|
| |
|
| |
| | |
| c. | Additional information - investment in CIO: |
| | | | |
| | December 31, | |
| | 2007 | |
| |
| |
|
Equity, net (1) | | $ | 2,187 | |
| | | | |
Long-term loans (2) | | | 598 | |
| |
|
| |
| | | | |
Total investments in CIO | | $ | 2,785 | |
| |
|
| |
F-27
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 6:- | INVESTMENTS IN AFFILIATES AND OTHERS (cont.) |
| | |
| (1) | Net equity as follows: |
| | | | |
| | December 31,
2007 | |
| |
| |
|
Net equity as of purchase date | | $ | 428 | |
Unamortized goodwill | | | 1,088 | |
Customers relationships, net of accumulated amortization | | | 648 | |
Accumulated net losses | | | (77 | ) |
Option value *) | | | 100 | |
| |
|
| |
| | | | |
Total investments in CIO. | | $ | 2,187 | |
| |
|
| |
| | |
| *) | On February 19, 2008, Shamir has exercised its option to increase its holdings in CIO and Shalens by an additional 25% to a total of 51%. The option was exercised in full for an additional $2,860 in cash that was paid directly to CIO’s shareholders. The option in Shalens was exercised per value of the shares. |
| | |
| (2) | The loans bear an interest rate of 4% per annum. |
| | |
| d. | Additional information - investment in SOT and Shalens: |
| | | | | | | |
| | SOT | | Shalens | |
| |
| |
| |
|
Investment in shares and option *) | | $ | 270 | | $ | 32 | |
| | | | | | | |
Long-term loans **) | | | 570 | | | 104 | |
| |
|
| |
|
| |
| | | | | | | |
Total investments as of December 31, 2007 | | $ | 840 | | $ | 136 | |
| |
|
| |
|
| |
| | |
| *) | Shamir has an option to increase holdings in SOT’s Ordinary Shares by additional 23.2% to a total of 49% and to 51% of voting rights. The option expired at January 8, 2008. At the expiration date the option was renewed and amended until June 30, 2008. The option price, should it be exercised in full, is an additional $ 762 in cash (including a shareholder’s loan) that would be paid to SOT and certain shareholders. The parties are currently negotiating a second amendment to the terms of the above mentioned option of Shamir. |
| | |
| **) | The loans to SOT bear no interest rate and the loans to Shalens S.A. bear an interest rate of 4% per annum. |
F-28
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 7:- | PROPERTY, PLANT AND EQUIPMENT, NET |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
| |
Cost: | | | | | | | |
Machinery and manufacturing equipment | | $ | 29,977 | | $ | 38,599 | |
Office equipment and furniture | | | 5,847 | | | 7,085 | |
Motor vehicles | | | 987 | | | 291 | |
Land, buildings and leasehold improvements | | | 10,662 | | | 17,222 | |
| |
|
| |
|
| |
| | | | | | | |
| | | 47,473 | | | 63,197 | |
Accumulated depreciation | | | 19,105 | | | 24,027 | |
| |
|
| |
|
| |
| | | | | | | |
Depreciated cost | | $ | 28,368 | | $ | 39,170 | |
| |
|
| |
|
| |
Depreciation expense totaled $ 4,228, $ 5,282 and $ 5,094 for the years ended December 31, 2005, 2006 and 2007, respectively.
At December 31, 2006 and 2007, property and equipment under capital leases consisted of assets with a depreciated cost of $ 7,362 and $ 8,089, respectively.
Depreciation of property and equipment under capital leases totaled $ 816, $ 1,535 and $ 1,599 for the years ended December 31, 2005, 2006 and 2007, respectively.
As for pledges, see Note 14c.
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
| |
Deferred tax assets | | $ | 2,430 | | $ | 1,997 | |
Other intangible assets, net (b) | | | 2,932 | | | 3,415 | |
| |
|
| |
|
| |
| | | | | | | |
Total other assets | | $ | 5,362 | | $ | 5,412 | |
| |
|
| |
|
| |
F-29
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 8:- | OTHER ASSETS (cont.) |
| | | |
| b. | (1) | Other intangible assets, net: |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
|
Original amounts: | | | | | | | |
Technology | | $ | 407 | | $ | 422 | |
Customer relationship | | | 2,209 | | | 2,438 | |
Non-competition | | | 317 | | | 353 | |
Distribution channels | | | 1,006 | | | 1,200 | |
Patents | | | - | | | 895 | |
Trade name | | | 688 | | | 936 | |
| |
|
| |
|
| |
| | | | | | | |
| | | 4,627 | | | 6,244 | |
| |
|
| |
|
| |
Accumulated amortization: | | | | | | | |
Technology | | | 213 | | | 285 | |
Customer relationship | | | 901 | | | 1,403 | |
Non-competition | | | 158 | | | 293 | |
Distribution channels | | | 252 | | | 472 | |
Patents | | | - | | | 45 | |
Trade name | | | 171 | | | 331 | |
| |
|
| |
|
| |
| | | | | | | |
| | | 1,695 | | | 2,829 | |
| |
|
| |
|
| |
| | | | | | | |
Total other intangible assets | | $ | 2,932 | | $ | 3,415 | |
| |
|
| |
|
| |
| | |
| (2) | Amortization expense amounted to $ 501, $ 968 and $ 1,058 for the years ended December 31, 2005, 2006 and 2007, respectively. |
| | |
| (3) | Estimated amortization expense for the years ended: |
| | | | |
2008 | | $ | 1,047 | |
2009 | | | 709 | |
2010 | | | 625 | |
2011 | | | 292 | |
2012 and thereafter | | | 742 | |
| |
|
| |
| | | | |
| | $ | 3,415 | |
| |
|
| |
F-30
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 9:- | GOODWILL |
| |
| The changes in the carrying amount of goodwill for the years ended December 31, 2006 and 2007, are as follows: |
| | | | |
Balance as of January 1, 2006 | | $ | 6,745 | |
Goodwill acquired during the year | | | 104 | |
Additional consideration in respect of 2006 earnings *) | | | 449 | |
Reduction of goodwill due to loan write off **) | | | (355 | ) |
Foreign currency translation adjustments | | | 235 | |
| |
|
| |
| | | | |
Balance as of December 31, 2006 | | | 7,178 | |
Goodwill acquired during the year | | | 66 | |
Additional consideration in respect of 2007 earnings *) | | | 220 | |
Foreign currency translation adjustments | | | 78 | |
| |
|
| |
| | | | |
Balance as of December 31, 2007 | | $ | 7,542 | |
| |
|
| |
| | |
| *) | See Note 1d. |
| **) | See Note 1b. |
| | |
| |
NOTE 10:- | SHORT-TERM BANK CREDIT AND LOANS |
| |
| Short-term bank credit and loans are classified by currencies as follows: |
| | | | | | | | | | | | | |
| | Weighted average
interest rate | | | | | | | |
| |
| | | | | | | |
| | December 31, | | December 31, | |
| |
| |
| |
| | 2006 | | 2007 | | 2006 | | 2007 | |
| |
| |
| |
| |
| |
| | % | | | | | | | |
| |
| | | | | | | |
|
Short-term bank loans - Euro | | | 5.0 | | | 6.5 | | $ | 12,258 | | $ | 14,303 | |
Short-term bank credit *) | | | 5.5 | | | 5.7 | | | 1,396 | | | 1,647 | |
| | | | | | | |
|
| |
|
| |
| | | | | | | | | | | | | |
Total short-term bank credit and loans | | | 5.1 | | | 6.4 | | $ | 13,654 | | $ | 15,950 | |
| | | | | | | |
|
| |
|
| |
| | |
| *) | Mostly denominated in Euro. |
| | |
| As of December 31, 2007, Shamir had authorized unused credit lines from banks in the amount of approximately $ 4,884. |
F-31
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 11:- | ACCRUED EXPENSES AND OTHER LIABILITIES |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
|
Employees and payroll accruals | | $ | 3,511 | | $ | 4,471 | |
Accrued expenses | | | 3,997 | | | 4,743 | |
Advances from customers | | | 29 | | | 76 | |
Government authorities | | | 2,290 | | | 1,934 | |
Related party | | | 390 | | | 230 | |
Former shareholders in SII | | | 449 | | | 355 | |
Others | | | 878 | | | 926 | |
| |
|
| |
|
| |
| | | | | | | |
| | $ | 11,544 | | $ | 12,735 | |
| |
|
| |
|
| |
| | |
| a. | Long-term loans are classified by currencies as follows: |
| | | | | | | | | | | | | |
| | Weighted average
interest rate | | | | | | | |
| |
| | | | | | | |
| | December 31, | | December 31, | |
| |
| |
| |
| | 2006 | | 2007 | | 2006 | | 2007 | |
| |
| |
| |
| |
| |
| | % | | | | | | | |
| |
| | | | | | | |
|
Banks: | | | | | | | | | | | | | |
Dollar | | | 5.4 | | | - | | $ | 28 | | $ | - | |
Euro | | | 4.7 | | | 5.0 | | | 13,335 | | | 15,312 | |
NIS | | | 4.7 | | | 4.4 | | | 1,358 | | | 734 | |
| | | | | | | |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | | | | | | 14,721 | | | 16,046 | |
| | | | | | | |
|
| |
|
| |
Minority shareholders in subsidiaries: | | | | | | | | | | | | | |
Dollar *) | | | 5.2 | | | 5.2 | | | 84 | | | 50 | |
Euro *) | | | 4.9 | | | 4.9 | | | 5,023 | | | 5,909 | |
| | | | | | | |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | | | | | | 5,107 | | | 5,959 | |
| | | | | | | |
|
| |
|
| |
Others: | | | | | | | | | | | | | |
Dollar | | | 5.0 | | | 2.7 | | | 145 | | | 263 | |
Euro | | | - | | | - | | | 759 | | | 490 | |
| | | | | | | |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | | | | | | 904 | | | 753 | |
| | | | | | | |
|
| |
|
| |
| | | | | | | | | | | | | |
Total long-term loans | | | | | | | | | 20,732 | | | 22,758 | |
Less - current maturities | | | | | | | | | 2,737 | | | 5,267 | |
| | | | | | | |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | | | | | $ | 17,995 | | $ | 17,491 | |
| | | | | | | |
|
| |
|
| |
| | |
| *) | No repayment date was set for the loans from minority shareholders in subsidiaries. These loans are not due in the 12 months following December 31, 2007. |
F-32
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 12:- | LONG-TERM LOANS (Cont.) |
| | |
| b. | Long-term loans mature as follows (excluding loans from minority shareholders: |
| | | | |
2008 (current maturities) | | | 5,267 | |
2009 | | | 5,528 | |
2010 | | | 2,002 | |
2011 and thereafter | | | 4,002 | |
| |
|
| |
| | | | |
| | $ | 16,799 | |
| |
|
| |
| | |
| c. | Financial covenants |
| | |
| | As security for various bank liabilities, Shamir’s subsidiaries undertook to comply with certain minimal financial ratios. |
Capital leases mature as follows:
| | | | |
2008 (current maturities) | | $ | 2,422 | |
2009 | | | 1,937 | |
2010 | | | 956 | |
2011 and thereafter | | | 1,410 | |
| |
|
| |
| | | | |
Total | | $ | 6,725 | |
| |
|
| |
For the leased assets that are included as part of “Properties, plant and equipment, net.” (See Note 7)
| |
NOTE 14:- | COMMITMENTS AND CONTINGENT LIABILITIES |
| | |
| a. | Legal proceedings: |
| | |
| | From time to time, Shamir may be involved in lawsuits, claims, investigations or other legal or arbitral proceedings that arise in the ordinary course of our business. These proceedings may include general commercial disputes and claims regarding intellectual property or labor disputes with former employees. Shamir is involved in one dispute concerning allegations of breach of third parties’ patents, as described below. |
F-33
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
| |
NOTE 14:- | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
| | |
| | In September 2003, Shamir received a notice from a large lens manufacturer regarding a claim of patent infringement relating to lens produced using Shamir software. Shamir has denied any such infringement, and numerous discussions between the companies (and counsel) ensued in order to resolve the matter without resorting to litigation. |
| | |
| | In January 2008, Shamir received a notice from a shareholder of one of its subsidiaries claiming unlawful use of the subsidiaries’ intellectual property and unjust enrichment. Shamir denied any such infringement, and numerous discussions between the parties (and counsel) ensued in order to resolve the matter without resorting to litigation. Shamir currently cannot predict the development or ultimate outcome of the discussions with regard to these claims. |
| | |
| b. | Operating lease commitments: |
| | |
| | The land and certain of Shamir’s facilities are leased under operating lease agreements. Future minimum lease commitments under non-cancelable operating leases for the specified periods ending after December 31, 2007 are as follows: |
| | | | |
2008 | | $ | 1,811 | |
2009 | | | 1,714 | |
2010 | | | 1,693 | |
2011 | | | 1,673 | |
2012 | | | 1,678 | |
Thereafter | | | 10,364 | |
| |
|
| |
| | | | |
| | $ | 18,933 | |
| |
|
| |
| | |
| | Lease expenses for the years ended December 31, 2005, 2006 and 2007 were approximately $572, $1,082 and $1,294, respectively. |
| | |
| c. | Pledges and guarantees: |
| | |
| 1. | In order to secure Government grants received by the Company and one of its Israeli subsidiaries, Eyal Optical Industries (1998) Ltd. (“Eyal”), under the “Approved Enterprise” programs pursuant to the Law for the Encouragement of Capital Investments, 1959, the Company and Eyal granted pledges in favor of the State of Israel on all of its assets, by floating charges in an unlimited amount (see also Note 15d). |
| | |
| 2. | AS a security for the fulfillment of its liabilities, Eyal granted unlimited charges in favor of the banks, on all of its assets. Additionally, other subsidiaries of the Company pledged their land and buildings in an aggregate amount of approximately $5,223 to secure commitments to banks. |
| | |
| 3. | In order to secure Government subsidies received by a subsidiary, the subsidiary gave the State of Israel a bank guarantee in the amount of approximately $120. |
F-34
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| | |
| a. | Up until December 31, 2004, the Company was not assessed for tax purposes and its business results were passed through to its shareholders. As a result, the Company’s tax expenses were not included in the statements of income. Commencing January 1, 2005, the Company became a taxable entity as a result of the change in its legal status from an ACS to an Israeli limited Company which occurred in March 2005 (see also Note 1a). |
| | |
| b. | Measurement of taxable income: |
| | |
| | Results for tax purposes of Israeli entities are measured and reflected in real terms in accordance with the change in the Israeli Consumer Price Index (“CPI”) or changes in the exchange rate of the NIS against the dollar for a “foreign investors” company. The Company has elected to measure its results for tax purposes on the basis of the changes in the exchange rate of NIS against the dollar. As of the year 2007, the Company’s subsidiaries Eyal and Shamir Special Optical Products Ltd. (“SSOP”) also elected to measure their results for tax purposes on the basis of the changes in the exchange rate of NIS against the U.S. dollar. |
| | |
| c. | Tax benefits under Israel’s Law for the Encouragement of Industry (Taxation), 1969: |
| | |
| | The Company, Eyal and SSOP are “industrial companies”, as defined in the abovementioned law and, as such, are entitled to certain tax benefits, including the right to deduct public issuance expenses and accelerated depreciation rates for tax purposes and the option to file a consolidated tax return with related Israeli industrial corporations that satisfy conditions described in the law. |
| | |
| d. | Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 (“the Law”): |
| | |
| | The Law empowers the Israeli Investment Center to grant Approved Enterprise status to capital investments in production facilities that meet certain relevant criteria (“Approved Enterprise”). In general, such capital investments will receive Approved Enterprise status if the enterprise is expected to contribute to the development of the productive capacity of the economy, absorption of immigrants, creation of employment opportunities, or improvement in the balance of payments. |
| | |
| | The tax benefits derived from any such Approved Enterprise relate only to taxable income attributable to the specific program of investment to which the status was granted. To the extent that Shamir or any of its subsidiaries has been granted Approved Enterprise status and operates under more than one approval, or that their capital investments are only partly approved, the effective corporate tax rate will be the result of a weighted combination of the various rates applicable. |
F-35
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 15:- | TAXES ON INCOME (Cont.) |
| |
| As of December 31, 2007, the Company has three existing programs that have been granted status as “Approved Enterprises” under the Law. According to the Law, Shamir is entitled to investment grants (up to 30% of investment cost) and also to a tax benefit, which grants Shamir a tax exemption for a period of two years and a reduced tax rate based on the level of foreign ownership for a period of five to eight years. Income derived from the first, second, and third programs was tax-exempt for a period of two years, commencing in 1999, 2001, and 2005, respectively, and is taxed at the reduced corporate tax rate of 10%-25% for an additional period of five to eight years (based on the percentage of foreign ownership in each tax year). |
| |
| Shamir’s income from sources other than “Approved Enterprises” during the benefits period will be taxable at the regular corporate tax rate. |
| |
| A portion of the facilities of the Company’s subsidiary Eyal has also been granted status as an “Approved Enterprise” under two programs. For these programs, Eyal has elected the alternative benefits track, waiving grants in return for tax exemptions. Income derived from the first and second programs was tax-exempt for a period of two years, commencing 2004 and 2006, respectively, and after that period will be taxed at the reduced corporate tax rate of 10%-25% (based on the percentage of foreign ownership in each tax year) for an additional period of five to eight years. |
| |
| Eyal’s income from sources other than the “Approved Enterprises” during the benefits period is taxable at the regular corporate tax rate. |
| |
| The benefits are contingent upon compliance with the terms of the letter of approval and the Law. As of December 31, 2007, management believes that both Shamir and Eyal meet all conditions of the approvals. |
| |
| The period of tax benefits detailed above is subject to limits of the earlier of 12 years from the commencement of production or 14 years from receiving the approval. |
| |
| The Law also entitles Shamir and Eyal to claim accelerated depreciation on equipment used by an “Approved Enterprise”. |
| |
| On April 1, 2005, an amendment to the Investment Law came into effect (“the Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Beneficiary Enterprise, such as provisions generally requiring that at least 25% of the Beneficiary Enterprise’s income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits. |
F-36
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 15:- | TAXES ON INCOME (Cont.) |
| | |
| | However, the Investment Law provides that terms and benefits included in any letter of approval already granted will remain subject to the provisions of the law as they were on the date of such approval. |
| | |
| | The polycarbonate and the production of finished lenses facilities of the Company’s subsidiary SSOP received a pre-ruling from the tax authorities in Israel, according to which the Company was declared as a “Privileged Enterprise” (establishment), so that all of its income from the abovementioned facilities will be exempted from tax for a period of 10 years beginning with the year in which the Company first had taxable income. As of December 31, 2007, SSOP has not begun to enjoy the tax benefits due to its accumulated losses. In addition, during the fiscal year 2007, a portion of Eyals’ activities have been acting under the status of a Privileged Enterprise under the amendment to the Investment Law. As stated above, Eyals’ status as a Privileged Enterprise is subject to the approval of the Israeli Tax Authorities. |
| | |
| | In the event of a distribution of dividends from tax-exempt income, a reduced tax rate (currently – 25%) in respect of the amount distributed would have to be paid. As of December 31, 2007, retained earnings included approximately $9,470 in tax-exempt profits earned by the Company’s “Approved Enterprises” and “Privileged Enterprise”. |
| | |
| | The Company has decided not to declare dividends out of such tax-exempt income. Accordingly, no deferred income taxes have been provided on income attributable to the Company’s “Approved Enterprise” and “Privileged Enterprise”. |
| | |
| e. | Net operating losses carryforward: |
| | |
| | As of December 31, 2007, Shamir had carry forward tax losses in certain tax jurisdictions, most of which are derived from subsidiaries in the U.K., Turkey and France, totaling approximately $ 19,170, out of which an amount of $14,953 can be carried forward indefinitely. The remainder of the balance can be carried forward for a period up to five years. |
| | |
| f. | Changes in tax rates in Israel: |
| | |
| | The regular corporate tax rate in Israel in 2007 was 29%. The corporate tax rate is to be gradually reduced as follows: in 2008 - 27%, in 2009 - 26% and in 2010 and onward - 25% |
F-37
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 15:- | TAXES ON INCOME (Cont.) |
| | |
| g | Deferred tax assets (liabilities): |
| | |
| | Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Components of Shamir’s deferred tax assets and liabilities are as follows: |
| | | | | | | |
| | December 31, | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
| | | | | | | |
Deferred tax assets: | | | | | | | |
Unrealized gains and others | | $ | 1,351 | | $ | 1,183 | |
Operating losses carry forward | | | 4,309 | | | 5,343 | |
| |
|
| |
|
| |
| | | | | | | |
Total deferred tax assets before valuation allowance | | | 5,660 | | | 6,526 | |
Valuation allowance **) | | | (812 | ) | | (2,735 | ) |
| |
|
| |
|
| |
| | | | | | | |
Total deferred tax assets *) | | | 4,848 | | | 3,791 | |
| |
|
| |
|
| |
| | | | | | | |
Deferred tax liabilities: | | | | | | | |
Property and equipment | | | (664 | ) | | (802 | ) |
Other intangible assets | | | (623 | ) | | (584 | ) |
| |
|
| |
|
| |
| | | | | | | |
Total deferred tax liabilities ***) | | | (1,287 | ) | | (1,386 | ) |
| |
|
| |
|
| |
| | | | | | | |
Net deferred tax assets | | $ | 3,561 | | $ | 2,405 | |
| |
|
| |
|
| |
| | |
| *) | Deferred tax assets of $ 2,418 and $ 1,794 have been included in other accounts receivable and prepaid expenses and $ 2,430 and $ 1,997 have been included in other assets, as of December 31, 2006 and 2007, respectively (see Note 4 and Note 8a). |
| **) | Including valuation allowance in the amount of $ 367 that is attributed to operating losses at Shamir Or before the acquisition date. Any subsequent reduction of this valuation allowance and the recognition of the associated tax benefit will be applied to reduced goodwill. |
| ***) | Deferred tax liabilities of $ 0 and $ 28 have been included in other accrued expenses and other liabilities, as of December 31, 2006 and 2007, respectively. |
| | |
| The Company has provided valuation allowances in respect of certain deferred tax assets resulting from tax loss carryforwards and other reserves and allowances due to uncertainty concerning realization of these deferred tax assets. |
F-38
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 15:- | TAXES ON INCOME (Cont.) |
| | |
| h. | A reconciliation of Shamir’s effective tax rate to the statutory tax rate in Israel is as follows: |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | | | | | | | | | |
Income before taxes on income | | $ | 12,497 | | $ | 6,927 | | $ | 11,659 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Statutory tax rate in Israel | | | 34 | % | | 31 | % | | 29 | % |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Increase (decrease) in tax expenses resulting from: | | | | | | | | | | |
“Approved Enterprise” benefits | | | (6.9 | )% | | (7.5 | )% | | (9.1 | )% |
Tax expenses related to change of tax status | | | 3.3 | % | | - | | | - | |
Net operating losses and temporary differences which are tax exempt or for which valuation allowance was created | | | - | | | 4.3 | % | | 10.1 | % |
Subsidiaries with a different tax rate | | | 2.9 | % | | 1.2 | % | | 3.2 | % |
Change in valuation allowance in respect of prior years | | | - | | | - | | | 9.6 | % |
Taxes in respect of prior years | | | 1.2 | % | | - | | | (2.4 | )% |
Others | | | 1.5 | % | | 2.2 | % | | 2.6 | % |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Effective tax rate | | | 36.0 | % | | 31.2 | % | | 43.0 | % |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Basic and diluted net earnings per share amounts of the benefit resulting from the “Approved Enterprise” status | | $ | 0.05 | | $ | 0.06 | | $ | 0.06 | |
| |
|
| |
|
| |
|
| |
| | |
| i. | Income (loss) before taxes on income is comprised as follows: |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | | | | | | | | | |
Domestic | | $ | 11,943 | | $ | 11,101 | | $ | 10,799 | |
Foreign | | | 554 | | | (4,174 | ) | | 860 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | $ | 12,497 | | $ | 6,927 | | $ | 11,659 | |
| |
|
| |
|
| |
|
| |
F-39
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 15:- | TAXES ON INCOME (Cont.) |
| | |
| j. | Taxes on income are comprised as follows: |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | | | | | | | | | |
Current taxes | | $ | 4,274 | | $ | 4,166 | | $ | 3,550 | |
Change in valuation allowance in respect of prior years | | | - | | | - | | | 1,128 | |
Taxes in respect of prior years | | | 145 | | | - | | | (287 | ) |
Deferred tax expenses related to change of tax status | | | 414 | | | - | | | - | |
Deferred tax benefit | | | (329 | ) | | (1,987 | ) | | 622 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | $ | 4,504 | | $ | 2,179 | | $ | 5,013 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Domestic | | $ | 3,861 | | $ | 3,062 | | $ | 2,266 | |
Foreign | | | 643 | | | (883 | ) | | 2,747 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | $ | 4,504 | | $ | 2,179 | | $ | 5,013 | |
| |
|
| |
|
| |
|
| |
| | |
| k. | Uncertain tax positions: |
| |
| A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows: |
| | | | |
Balance at January 1, 2007 | | $ | 489 | |
Increases in tax positions for prior years | | | 64 | |
Decreases in tax positions for prior years | | | (29 | ) |
Increases in tax positions for current year | | | 321 | |
| |
|
| |
| | | | |
Balance at December 31, 2007 *) | | $ | 845 | |
| |
|
| |
| | | |
| | *) | Out of the above unrecognized tax benefits an amount of $845 would result in a reduction of the company’s effective tax rate, if recognized. The unrecognized tax benefits included an immaterial accrued interest as of December 31, 2007. |
| | | |
| l. | Tax jurisdictions examination years: |
| | | |
| | Shamir files income tax returns in multiple tax jurisdictions. The major tax jurisdictions are in the U.S.A., Germany and Israel. The tax years that remain subject to examination by the Israeli, German and the U.S.A. tax authorities are 2004, 2003 and 2004 respectively |
F-40
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 16:- | SHAREHOLDERS’ EQUITY |
| | |
| a. | General: |
| | |
| | All share and per share data included in these financial statements for all periods presented have been retroactively adjusted to reflect the reorganization of the Company’s equity approved on March 6, 2005, according to which each share of the Company was converted into 120.48 Ordinary shares of the reorganized corporation. |
| | |
| b. | Share rights: |
| | |
| | Ordinary shares of the Company confer upon their holders the right to receive notice to participate and vote in the general meetings of the Company and the right to receive dividends when declared. |
| | |
| c. | Issuance of shares: |
| | |
| | On March 16, 2005, the Company issued 3,400,000 shares of NIS 0.01 par value in a net consideration of approximately $ 42,275 (excluding the tax benefit of $ 1,453), as part of its IPO on the NASDAQ. |
| | |
| | On March 16, 2005, upon the IPO, the Put option that was granted as part of Eyal acquisition expired, and the Company reclassified 502,400 putable shares from temporary equity into shareholders’ equity. In addition, the Company classified the balance of its undistributed earnings as of March 16, 2005 (the date of IPO) in the amount of $ 5,512 into additional paid-in capital in accordance with SAB Topic 4.B. |
| | |
| d. | Share option plan: |
| | |
| | In 2003 and on February 1, 2006, Shamir adopted employee share option plans (“the 2003 Option Plan” and “the 2005 General Share and Incentive Plan”, respectively). Under the 2003 Option Plan, employees and officers of Shamir may be granted options to acquire shares. The number of options to acquire Ordinary shares and the related exercise price are determined by the Board of Directors of Shamir and its compensation committee. Grants of options to directors require the approval of Shamir’s shareholders according to the Israeli Companies Law. The 2005 General Share and Incentive Plan was approved and adopted by Shamir’s Board of Directors on February 1, 2006. The 2005 General Share and Incentive Plan provides that 25% of the shares shall vest one year after the date of grant, and the remaining 75% shall vest on a monthly basis, with 1/36 of the remaining shares vesting each month commencing at the end of the first anniversary of the date of grant. According to the 2005 General Share and Incentive Plan, during 2006 the Company could grant 350,000 options to purchase Shamir’s shares and in each following year, the option pool shall increase by an additional 280,000 options. Unless otherwise stated in the relevant award agreement, awards, to the extent not previously exercised, shall terminate forthwith upon the earlier of: (i) the date set forth in the award agreement; and (ii) the expiration of the relevant period in the case of voluntarily liquidation or dissolution of Shamir, or in the events set forth in the 2005 General Share and Incentive Plan; and (iii) the lapse of seven years from the date of grant. The options granted pursuant to the 2003 Option Plan are exercisable for a period of 10 years following the grant date and were fully vested at the grant date. The options that were granted prior to the adoption of the 2005 General Share and Incentive Plan during 2004 and 2005 will vest in four trenches of 25% per year. |
F-41
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 16:- | SHAREHOLDERS’ EQUITY (Cont.) |
| |
| The options outstanding as of December 31, 2007, have been separated into exercise price categories as follows: |
| | | | | | | | | | | |
Ranges of
exercise price | | Options
outstanding
as of
December 31,
2007 | | Weighted
average
remaining
contractual
life | | Weighted
average
exercise
price | | Options
exercisable
as of
December 31,
2007 | | Weighted
average
exercise
price of
exercisable
options | |
| |
| |
| |
| |
| |
| |
$ | | | | (Years) | | $ | | | | $ | |
| | | |
| |
| | | |
| |
| | | | | | | | | | | |
2.46 | | 167,105 | | 5.75 | | 2.46 | | 167,105 | | 2.46 | |
8.59 - 9.99 | | 575,480 | | 4.87 | | 9.66 | | 227,334 | | 9.79 | |
10.30 – 12.43 | | 821,121 | | 3.81 | | 11.22 | | 421,448 | | 11.06 | |
14.00 | | 94,160 | | 4.59 | | 14.00 | | 47,080 | | 14.00 | |
| |
| | | | | |
| | | |
| | | | | | | | | | | |
| | 1,657,866 | | 4.42 | | 9.95 | | 862,967 | | 9.22 | |
| |
| | | | | |
| | | |
| | |
| e. | Modification of options: |
| | |
| | On July 1, 2006, Shamir’s former Chief Finance Officer has resigned from his position in Shamir. As of the resignation date, 33,486 of his options, which were unvested and were not expected to be vested as of the resignation date, were cancelled. The vesting period of the remaining 66,974 options was accelerated such that they were all fully vested as of July 1, 2006. The contractual term of the remaining options was extended until July 31, 2008. As a result, Shamir recorded additional compensation cost in the amount of $ 80 in 2006. |
| | |
| | In May 2006, Shamir granted, 70,000 options to consultants, exercisable for a period of 7 years pursuant to the terms of the 2005 General Share and Incentive Plan. In April 2007, the consultants became employees of Shamir. They were granted 70,000 options as employees replacing these options granted to them as consultants, with the same terms. |
| | |
| f. | SII share option plan: |
| | |
| | On June 8, 2005, the Company’s subsidiary SII, granted 90 options to acquire SII’s shares to certain of its officers. Weighted average exercise price of $ 10,888, vesting- 60% at grant date and 40% on January 1, 2006. The options contractual life was 10 years from the grant date. On December 29, 2005 the option grant was cancelled. Compensation expenses related to SII’s option plan were $ 308 in the year ended December 31, 2005. |
| | |
| g. | Dividend: |
| | |
| | On June 27, 2007, Shamir declared a dividend of $ 4,000 ($0.244 per share), which was paid in July 2007. |
F-42
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 17:- | TRANSACTIONS WITH RELATED PARTIES |
| | |
| a. | Manpower agreement with Kibbutz Shamir (“the Kibbutz”): |
| | |
| | On February 9, 2005, the Company entered into a manpower agreement with the Kibbutz, which replaced a similar agreement from 1999. |
| | |
| | On July 19, 2007, the Company entered into a new working service agreement with the Kibbutz which replaced all former engagements. The terms of the new working service agreement are substantially similar to the terms of the agreement from February 2005. The agreement sets the reimbursement rights of the Company for any liabilities that may arise under an imputed employer-employee relationship between the Company and the members of the Kibbutz who provide the services. |
| | |
| | On January 18, 2007, the Kibbutz granted an approval to the Company’s subsidiaries, SSOP and Eyal, to employ directly (i.e. not through the working service agreement) local members of the Kibbutz. |
| | |
| | Manpower service fees amounted to $ 1,347, $ 1,317 and $ 1,241 for the years ended December 31, 2005, 2006 and 2007, respectively |
| | |
| b. | Services from the Kibbutz: |
| | |
| | The Company executed a service agreement with the Kibbutz, pursuant to which the Kibbutz provides the Company with services that include catering, security, laundry, switchboard and communications, maintenance, landscaping and trash removal, and payment of local authority taxes. On February 9, 2005, the Company entered into a new agreement with the Kibbutz. Under the new agreement, the fees to be paid will be substantially similar to the amounts paid under the prior agreement. |
| | |
| | On March 8, 2007, the Company’s shareholders approved a new service agreement between the Kibbutz and SSOP for the period commencing upon the acceptance of the new facility that was built in the Kibbutz for SSOP and ending on February 9, 2010. The facility was delivered to SSOP on November 1, 2007. Pursuant to the terms of such agreement, the Kibbutz provides administrative and maintenance services to SSOP to maintain its facility. SSOP pays the Kibbutz a monthly fee of NIS 25,000 linked to the Consumer Price Index. In the event that the actual cost of services in any year is higher or lower by 30% or more compared to the service fee paid in the preceding calendar year, not taking into account extraordinary expenses not in the ordinary course of business, the service fee for the following year will be adjusted accordingly. The term of the service agreement will be extended automatically for additional periods of five (5) years each unless either of the parties terminates the service agreement by giving a 12-months’ advance notice prior to the scheduled expiration date. The service fee will be adjusted at the end of the initial term of the service agreement and then every five (5) years, assuming that the service agreement is extended, based on the actual cost of services in the year preceding the adjustment date. |
F-43
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 17:- | TRANSACTIONS WITH RELATED PARTIES (Cont.) |
| | |
| | On July 19, 2007, following the approval of the Company’s shareholders at their special shareholders meeting, the Company entered into a new additional arrangement with the Kibbutz. Under the new arrangement between the Company and the Kibbutz, the Company and its subsidiaries will be entitled to purchase additional services not covered by the current service agreements, as detailed above. The consideration for a single transaction will be no greater than $7 (plus VAT, if required by law), and the aggregate consideration for services purchased by the Company and its subsidiaries during any calendar year will be no greater than $300 (plus VAT, if required by law). |
| | |
| | Shamir paid fees to the Kibbutz pursuant to the service agreement and for other services amounting to $ 335, $ 338 and $ 379 for the years ended December 31, 2005, 2006 and 2007, respectively. |
| | |
| c. | Lease and sub-lease agreement with the Kibbutz: |
| | |
| | The Company’s offices, manufacturing, and research and development facilities are located on the premises of the Kibbutz. The facilities are subleased from the Kibbutz, which has a long-term lease on the property from the Israel Lands Administration (the “ILA”). On January 5, 1999, the Company and the Kibbutz signed a sublease agreement, pursuant to which the Kibbutz subleased to the Company the facilities for a period of 20 years beginning on January 1, 1999. On February 9, 2005, the Company entered into an amendment to the sub-lease agreement. The term of the amended agreement was extended from 20 years to 24 years and 22 months. Rental payments under the amended agreement are the same as under the prior agreement. The facilities are subleased from the Kibbutz, which has a long term lease on the property from the ILA. The ILA may cancel the lease under certain circumstances, including if the Kibbutz commences proceedings to disband or liquidate or in the event that the Kibbutz ceases to be a “kibbutz”. |
| | |
| | On June 4, 2006, the Company signed a memorandum of understanding with Shalag Industries Ltd. (“Shalag”), a subsidiary of the Kibbutz, pursuant to which the Company rented 120 square meters for SSOP. This memorandum of understanding provided offices for the same rental amounts as the sublease agreement with the Kibbutz, as described above. On December 15, 2007, the Company terminated the memorandum of understanding with Shalag. |
F-44
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 17:- | TRANSACTIONS WITH RELATED PARTIES (Cont.) |
| | |
| | On March 8, 2007, the Company’s shareholders at their special shareholders meeting resolved that in lieu of such lease, the Company and the Kibbutz enter into a lease agreement pursuant to which the Company will lease the new facility of SSOP until November 30, 2023 commencing on the earlier of the: (i) date of occupancy, or (ii) date of the completion of the construction. On November 1, 2007, the facility was delivered to SSOP by the Kibbutz. The Company is entitled to terminate the lease at any time; provided, however, that the Company has located an alternate tenant and the Kibbutz has given its consent, which consent would not be reasonably withheld. The parcel of land underlying the facility is included in the long-term lease between the Kibbutz and the ILA, pursuant to which the Kibbutz may, with the consent of the ILA, sublease the parcel to a corporation under its control. The consent of the ILA for the lease, though, has not been obtained. In addition, the ILA may, from time to time, change its regulations governing such lease agreement, and these changes could affect the terms of the lease, and may trigger the termination of the lease. Under the lease, the Kibbutz is responsible for any expense resulting from actions of the ILA. The annual rental fees pursuant to the lease are paid quarterly and in amounts equal to 10% of the actual construction cost of the facility, excluding VAT and grants of the Investment Center, as certified by the board of directors of SSOP, but in no event more than $500 per annum. |
| | |
| | Rental payments amounted to $ 292, $ 301 and $ 326 for the years ended December 31, 2005, 2006 and 2007, respectively. |
| | |
| d. | Loan to the Kibbutz: |
| | |
| | In accordance with the Company’s sublease agreement with the Kibbutz dated January 5, 1999 (as amended on February 9, 2005), the Company granted a loan of approximately $ 370 to the Kibbutz in several installments in 2004 in order to fund the construction of an extension to the Company’s premises in the Kibbutz. The loan is to be repaid in equal quarterly installments over a period of four (4) years commencing on March 31, 2005, through deductions of the rental fees the Company pays to the Kibbutz. The loan bears interest at 1.5% per year. |
| | |
| | At the Company’s shareholders special general meeting of August 8, 2005, the Company’s shareholders approved a loan to the Kibbutz in an amount no greater than $ 4,400, which bears annual interest at a variable rate equal to annual LIBOR plus 1.5%. The loan provided the Kibbutz with funds for the construction of a building on the Kibbutz’s territory for the use of Shamir. At the Company’s shareholders special general meeting of March 8, 2007, the Company’s shareholders approved the termination of the loan. As of March 31, 2007, the loan was fully repaid. |
F-45
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (expect share and per share data) |
| |
NOTE 17:- | TRANSACTIONS WITH RELATED PARTIES (Cont.) |
| | |
| e. | Transactions with related parties: |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | | |
Revenues | | $ | - | | $ | 1,109 | | $ | 1,615 | |
| |
|
| |
|
| |
|
| |
| | | |
Cost of revenues | | | 970 | | | 1,022 | | | 886 | |
| |
|
| |
|
| |
|
| |
| | | |
Research and development | | | 126 | | | 130 | | | 171 | |
| |
|
| |
|
| |
|
| |
| | | |
Selling and marketing | | | 235 | | | 184 | | | 245 | |
| |
|
| |
|
| |
|
| |
| | | |
General and administrative | | | 642 | | | 621 | | | 839 | |
| |
|
| |
|
| |
|
| |
| | | |
Financial and other income, net | | | (8 | ) | | (50 | ) | | (41 | ) |
| |
|
| |
|
| |
|
| |
| | |
| f. | Balances with related parties: |
| | | | | | | |
| | December 31 | |
| |
| |
| | 2006 | | 2007 | |
| |
| |
| |
| | | | | | | |
Trade receivables | | $ | 829 | | $ | 475 | |
| |
|
| |
|
| |
Other accounts receivable and prepaid expenses (Note 4) | | | 93 | | | 90 | |
| |
|
| |
|
| |
Loan to related party | | | 1,297 | | | - | |
| |
|
| |
|
| |
Trade payables | | | - | | | 75 | |
| |
|
| |
|
| |
Accrued expenses and other liabilities (Note 11) | | | 390 | | | 230 | |
| |
|
| |
|
| |
| |
NOTE 18:- | MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION |
| | |
| a. | Shamir manages its business on the basis of one reportable segment. The data is presented in accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information”. Total revenues are attributed to geographic areas based on the location of end customers. |
| | |
| | The following presents total revenues and long-lived assets for the years ended December 31, 2005, 2006 and 2007 and as of December 31, 2005, 2006 and 2007, respectively: |
| | | | | | | | | | | | | | | | | | | |
| | 2005 | | 2006 | | 2007 | |
| |
| |
| |
| |
| | Total
revenues | | Long-lived
assets | | Total
revenues | | Long-lived
assets | | Total
revenues | | Long-lived
assets | |
| |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | |
Israel | | $ | 787 | | $ | 11,293 | | $ | 853 | | $ | 13,886 | | $ | 1,892 | | $ | 20,530 | |
United States | | | 26,047 | | | 4,668 | | | 30,077 | | | 5,007 | | | 36,681 | | | 5,163 | |
Europe | | | 46,404 | | | 13,887 | | | 50,747 | | | 19,016 | | | 63,230 | | | 23,914 | |
Asia | | | 4,099 | | | - | | | 9,560 | | | - | | | 12,695 | | | - | |
Others | | | 3,027 | | | - | | | 6,043 | | | 568 | | | 5,921 | | | 520 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | |
| | $ | 80,364 | | $ | 29,848 | | $ | 97,280 | | $ | 38,477 | | $ | 120,419 | | $ | 50,127 | |
| |
|
| |
|
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F-46
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SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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U.S. dollars in thousands (expect share and per share data) |
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NOTE 18:- | MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION (Cont.) |
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| b. | Product lines: |
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| | Total revenues from external customers divided on the basis of Shamir’s product lines are as follows: |
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| | Year ended December 31, | |
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| | 2005 | | 2006 | | 2007 | |
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Lenses | | $ | 72,520 | | $ | 90,387 | | $ | 113,945 | |
Design services | | | 7,844 | | | 6,893 | | | 6,474 | |
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| | $ | 80,364 | | $ | 97,280 | | $ | 120,419 | |
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| c. | Major customer data as a percentage of total revenues: |
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NOTE 19:- | SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA |
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| | Year ended December 31, |
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| | 2005 | | 2006 | | 2007 | |
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| a. | Financial and other income (expenses), net | | | | | | | | | | |
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Financial expenses: | | | | | | | | | | |
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Interest in respect of long-term loans | | $ | (431 | ) | $ | (805 | ) | $ | (1,319 | ) |
Interest in respect of short-term loans | | | (355 | ) | | (816 | ) | | (818 | ) |
Other | | | (393 | ) | | (631 | ) | | (445 | ) |
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| | | (1,179 | ) | | (2,252 | ) | | (2,582 | ) |
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Financial income: | | | | | | | | | | |
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Income in respect of loans to related parties | | | 25 | | | 48 | | | 55 | |
Income in respect of cash and cash equivalents, marketable securities and other short-term investments | | | 1,053 | | | 1,577 | | | 1,359 | |
Changes in derivatives fair value | | | 251 | | | 60 | | | 539 | |
Foreign currency translation, net | | | 100 | | | 163 | | | 383 | |
Other | | | 18 | | | 412 | | | 177 | |
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| | | 1,447 | | | 2,260 | | | 2,513 | |
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Other income (expenses) | | | 133 | | | (167 | ) | | (170 | ) |
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Financial and other income (expenses), net | | $ | 401 | | $ | (159 | ) | $ | (239 | ) |
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F-47
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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U.S. dollars in thousands (expect share and per share data) |
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NOTE 19:- | SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA (Cont.) |
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| b. | Net earnings per share: |
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| | The following table sets forth the computation of basic and diluted net earnings per share: |
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| | | | Year ended December 31, | |
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| | | | 2005 | | 2006 | | 2007 | |
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| | Numerator for basic and diluted net earnings per share - | | | | | | | | | | |
| | Net income available to shareholders | | $ | 8,105 | | $ | 6,460 | | $ | 8,201 | |
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| 2. | Denominator (in thousands): | | | | | | | | | | |
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| | Denominator for basic net earnings per share - | | | | | | | | | | |
| | Weighted average shares - shareholders’ equity | | | 15,360 | | | 16,257 | | | 16,339 | |
| | Weighted average shares - temporary equity | | | 89 | | | - | | | - | |
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| | Weighted average number of shares | | | 15,449 | | | 16,257 | | | 16,339 | |
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| | Effect of dilutive securities: | | | | | | | | | | |
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| | Add - Employee stock options | | | 420 | | | 291 | | | 213 | |
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| | | | | 420 | | | 291 | | | 213 | |
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| | Denominator for diluted net earnings per share - adjusted weighted average shares | | | 15,869 | | | 16,548 | | | 16,552 | |
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F-48
|
SHAMIR OPTICAL INDUSTRY LTD. AND ITS SUBSIDIARIES |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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U.S. dollars in thousands (expect share and per share data) |
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NOTE 19:- | SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA (Cont.) |
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| c. | Inventory provision: |
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| | The change in the inventory provision for slow-moving inventory and discontinued products for the years ended December 31, 2005, 2006 and 2007, are as follows: |
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| | Year ended December 31, | |
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| | 2005 | | 2006 | | 2007 | |
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Balance at the beginning of the year | | $ | 1,159 | | $ | 1,036 | | $ | 990 | |
Inventory provision | | | 9 | | | (17 | ) | | 238 | |
Inventory written-off | | | (49 | ) | | (90 | ) | | (180 | ) |
Foreign currency translation adjustment | | | (83 | ) | | 61 | | | 67 | |
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Balance at the end of the year | | $ | 1,036 | | $ | 990 | | $ | 1,115 | |
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| d. | Allowance for doubtful accounts: |
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| | The changes in the allowance for doubtful accounts for the years ended December 31, 2005, 2006 and 2007 are as follows: |
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| | Year ended December 31, | |
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| | 2005 | | 2006 | | 2007 | |
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Balance at the beginning of the year | | $ | 533 | | $ | 474 | | $ | 1,053 | |
Doubtful accounts provision | | | 261 | | | 553 | | | 1,096 | |
Bad-debts written-off | | | (245 | ) | | (20 | ) | | (167 | ) |
Foreign currency translation adjustment | | | (75 | ) | | 46 | | | 158 | |
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Balance at the end of the year | | $ | 474 | | $ | 1,053 | | $ | 2,140 | |
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NOTE 20:- | SUBSEQUENT EVENTS |
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| a. | During the first quarter of 2008, one of the banks informed a Shamir subsidiary that it wishes to re-negotiate the terms of the short-term credit and long-term loans that were granted by that bank to the subsidiary. In May 13, 2008, the subsidiary and the bank executed an amendment to the repayment terms of the credit and loans following which it shall be fully repaid up to April 1, 2009. |
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| b. | On January 14, 2008, the Company declared a dividend of $ 4,000 ($0.244 per share), which was paid in February 2008. |
F-49
SIGNATURES
The registrant 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.
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| SHAMIR OPTICAL INDUSTRY LTD. |
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| By: /s/ Eyal Hayardeny |
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| Eyal Hayardeny |
| Chief Executive Officer |
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| By: /s/ Yagen Moshe |
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| Yagen Moshe |
| Chief Financial Officer |
Date: June 26, 2008
EXHIBIT INDEX
| 1.1 | | Articles of Association of Shamir (incorporated by reference to Exhibit 3.1 to our registration statement on Form S-8 (File 333-137628), filed with the SEC on September 28, 2006) |
| 4.1 | | Lease Agreement dated December 1, 2003, between Kibbutz Eyal and Eyal Optical Industries (1995) Ltd. (incorporated by reference to Exhibit 10.1 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.2 | | Working Service Agreement dated February 9, 2005, between Shamir and Kibbutz Shamir (incorporated by reference to Exhibit 10.2 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.3 | | Service Agreement dated February 9, 2005, between Shamir and Kibbutz Shamir (incorporated by reference to Exhibit 10.3 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.4 | | Lease Agreement dated December 27, 1990, between Kibbutz Shamir and the Israel Lands Administration (incorporated by reference to Exhibit 10.4 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.5 | | Sublease Agreement dated January 1999 between Shamir and Kibbutz Shamir, including amendment (incorporated by reference to Exhibit 10.5 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.6 | | Loan Agreement between Shamir and Kibbutz Shamir (incorporated by reference to Exhibit 10.6 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.7 | | Shareholders' Agreement dated February 9, 2005,among the shareholders of Shamir (incorporated by reference to Exhibit 10.7 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.8 | | Registration Rights Agreement dated February 7, 2005, between Shamir and certain of its shareholders (incorporated by reference to Exhibit 10.8 to our registration statement on Form F-1 (File 333-122736), filed with the SEC on February 11, 2005) |
| 4.9 | | Lease Agreement dated March 8, 2007, between Shamir and Kibbutz Shamir (English translation) (incorporated by reference to Exhibit 4.9 to our annual report on Form 20-F (File 000-51183), filed with the SEC on June 26, 2007). |
| 4.10 | | Service Agreement dated March 8, 2007, between Shamir Special Optical Products Ltd. and Kibbutz Shamir (English translation) (incorporated by reference to Exhibit 4.10 to our annual report on Form 20-F (File 000-51183), filed with the SEC on June 26, 2007). |
| 4.11 | | Israeli Plan For The Allotment of Shares/Options For 2003 (English translation) (incorporated by reference to Exhibit 99.1 to our registration statement on Form S-8 (File No. 333-137628), filed with the SEC on September 28, 2006) |
| 4.12 | | Summary of Stock Option Grant dated June 5, 2000 (incorporated by reference to Exhibit 99.2 to our registration statement on Form S-8 (File 333-137628), filed with the SEC on September 28, 2006) |
| 4.13 | | 2005 General Share and Incentive Plan (incorporated by reference to Exhibit 99.3 to our registration statement on Form S-8 (File 333-137628), filed with the SEC on September 28, 2006) |
| 4.14 | | Working Service Agreement dated July 19, 2007, between Shamir and Kibbutz Shamir (English translation) |
| 8.1 | | Table of subsidiaries of Shamir |
| 11.1 | | Code of Ethics of Shamir (incorporated by reference to Exhibit 11 to our annual report on Form 20-F filed with the SEC on June 28, 2005) |
| 12.1 | | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 12.2 | | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 13.1 | | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 15.1 | | Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global |
