The indemnity undertaking is valid for 36 months from the closing date; however, where the ground for indemnification is in connection with ownership or proprietary rights specified in the representations of the Suny Group, the indemnity undertaking is unlimited in time. The indemnity undertaking will commence as of a cumulative amount of damages of NIS 500,000 up to a maximum indemnity amount of NIS 75 million.
In addition, for a period of twelve months commencing from the closing date, the Suny Group agreed to continue importing mobile cellular phones (and related products) on behalf of Scailex in connection with the Activity. In consideration of such import services, Scailex pays to the Suny Group handling and management fees in a sum representing the cost of the products to the Suny Group plus 1%.
For a description of the Services Agreements with Suny see “Item 7B. Related Party Transactions.”
In July 1998, Suny Telecom entered into a distribution agreement with Samsung (the “CDMA Agreement”) pursuant to which Suny Telecom was granted rights to market mobile cellular phones manufactured by Samsung, using CDMA technology. In August 2008, the CDMA Agreement was extended for a period of two additional years, ending on December 31, 2009.
The CDMA Agreement, as amended in December 2003, provided that in each year of activity, Suny Telecom must meet several sales targets as prescribed in the Agreement, including market share and purchase quotas of cellular phones.
Suny Telecom’s commitment to comply with the terms of the CDMA Agreement is conditional on Samsung’s compliance with various terms prescribed in the CDMA Agreement, including supply of several new CDMA telephone models to be approved by a cellular operator in Israel, fulfilling relevant timelines and creating a variety of products with such price profiles as prescribed in the CDMA Agreement.
Samsung may terminate the CDMA Agreement each year should Suny Telecom fail to meet the targets prescribed in the CDMA Agreement, provided that Samsung has fulfilled its obligations under the CDMA Agreement (as described above).
The CDMA Agreement includes provisions regarding the parties’ participation in expenses relating to the advertising and sales promotion of cellular phones in Israel, the purchase of accessories by Suny Telecom from Samsung, and principles concerning technical support and post-sales service.
| — | DISTRIBUTION AGREEMENT FOR CELLULAR PHONE DEVICES - GSM DATED FEBRUARY 27, 2008 |
In February 2001, Suny Telecom entered into a distribution agreement with Samsung (the “GSM Agreement”) pursuant to which Suny Telecom was granted rights to market mobile cellular phones manufactured by Samsung using GSM technology. In August 2008, the GSM Agreement was extended, effective from August 12, 2008, for a period of one additional year.
The GSM Agreement, as amended in September 2004, provided that in each year of activity, Suny Telecom must meet several sales targets as prescribed in the GSM Agreement, including targeted market shares and purchase quotas for purchase of cellular mobile phones.
Suny Telecom’s commitment to comply with the terms of the GSM Agreement is conditional on Samsung’s compliance with various terms prescribed in the GSM Agreement, including supply of several new GSM telephone models to be approved by cellular operators in Israel, fulfilling relevant timelines and creating a variety of products with such price profiles as prescribed in the GSM Agreement.
Samsung may terminate the agreement once a year should Suny Telecom fail to meet the targets prescribed in the GSM Agreement, provided Samsung has fulfilled its own obligations as provided in the GSM Agreement.
The GSM Agreement includes provisions regarding the parties’ participation in expenses relating to advertising and sales promotion of cellular phones in Israel, purchase of accessories by Suny Telecom from Samsung, and principles concerning technical support and after-sales service.
| — | THE PCH SALE AGREEMENT DATED APRIL 10, 2008 |
On June 30, 2008, Scailex sold to IPE, its controlling shareholder, all of Scailex’s shares (“PCH Shares”) in Petroleum Capital Holdings Ltd. (“PCH”), such shares constituting 100% of PCH’s issued share capital. As a result of our sale of PCH, we no longer had any interest in ORL. This sale was made pursuant to an agreement (the “PCH Sale Agreement”), dated April 10, 2008, between Scailex and IPE.
The main principles of the PCH Sale Agreement are as follows:
On the consummation date of the PCH Sale Agreement, Scailex transferred PCH’s Shares to IPE. In addition to the purchase of all of PCH’s Shares, IPE purchased capital notes from Scailex at the inclusive par value of NIS 1,028,320,561 (approximately $304.7 million), which are unlinked and interest free, which were issued by PCH in respect of funds injected into PCH by its shareholders (the “Capital Notes”), subject to partial payment, as specified in paragraph 6, below. IPE also received, by way of transfer and assignment, all of the rights and obligations of Scailex and PCH pursuant to and by virtue of an irrevocable deed of undertaking dated May 10, 2007 from the Israel Corporation Ltd. (“Israel Corporation’s Deed of Undertaking” and “Israel Corporation”, respectively). Israel Corporation’s Deed of Undertaking regulates the relations between Scailex, PCH and the Israel Corporation as shareholders of Oil Refineries Ltd. (“ORL”), pursuant whereto, Israel Corporation undertook to engage with Scailex and PCH, under certain conditions, in an agreement for the joint control of ORL.
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In consideration for the purchase of PCH’s Shares, the Capital Notes and the rights of Scailex and PCH pursuant to Israel Corporation’s Deed of Undertaking, in addition to the assignment and transfer to IPE of all of Scailex’s rights and obligations pursuant to the rental agreement under which Scailex is renting its offices in Herzliya Pituach (the “Rental Agreement” and the “Rented Premises” respectively) in the amount of approximately $0.86 million, IPE paid the sum of NIS 1,144,312,022 (approximately $338 million) to Scailex on the consummation date of the PCH Sale Agreement (the “Consideration”).
PCH’s Shares were sold to IPE as is, with the exception of certain representations, while each party undertook to indemnify the counter party in relation to inaccuracy or incompleteness of the representations given, an undertaking that shall expire on May 31, 2009. IPE further undertook to indemnify Scailex in respect of any damage or expense that might be caused to Scailex in relation to any matter pertaining to Israel Corporation’s Deed of Undertaking, and to the assignment thereof to IPE, this solely in respect of the period during which Scailex and PCH are jointly and severally liable pursuant to Israel Corporation’s Deed of Undertaking.
On the consummation date of the PCH Sale Agreement, the sole assets of PCH were shares of ORL, PCH’s rights by virtue of Israel Corporation’s Deed of Undertaking, and cash and cash equivalents at the sum equivalent to the sum of the Last Dividend and the profits thereof, and the sole liabilities of PCH were pursuant to the Capital Notes and Israel Corporation’s Deed of Undertaking.
The foregoing description of the PCH sale agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the agreement filed by us as Exhibit 4(a)(10) in Item 19 in our Annual Report on Form 20-F for year ended December 31, 2007, as filed on June 30, 2008.
| — | SHAREHOLDERS AGREEMENT BETWEEN THE COMPANY, PCH AND LINURA DATED DECEMBER 21, 2006, AS AMENDED |
On December 21, 2006, we entered into a shareholders agreement with (i) Linura Holding AG, or Linura, a Swiss company indirectly held by one of the largest global companies involved in natural resources, and (ii) Petroleum Capital Holdings Ltd., or PCH, a company owned 80.1% by us and 19.9% by Linura.
This agreement was terminated due to our purchase of Linura’s interest in PCH. The shareholders agreement governed the formation and operation of PCH as well as PCH’s participation in the privatization of ORL by way of the State of Israel’s initial public offering of the shares of ORL.
Under the shareholders agreement, we provided management and administrative services to PCH free of charge, excluding out-of-pocket expenses incurred for such services, which were to be reimbursed by PCH.
PCH Board of Directors and Decision-Making Process
Under the shareholders agreement, the board of directors of PCH was to consist of at least three and no more than seven members. So as long as Linura held 19.9% of the share capital of PCH, it was entitled to appoint one director. We were entitled to appoint the Chairman of the Board of the Directors. The Chairman did not have an additional vote.
For so long as Linura held at least 15% of the share capital of PCH, the following decisions were subject to both our and Linura’s approval as shareholders: (i) amendments to PCH’s articles of association; (ii) any merger, de-merger, reorganization, consolidation, acquisition, sale or grant of an exclusive license to substantially all of PCH’s assets; (iii) decisions regarding bankruptcy, liquidation of the business or reconciliation or any other settlement with creditors; and (iv) an application for the listing of shares or debt securities of PCH on any recognized stock exchange.
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In addition, under the terms of the agreement, for so long as Linura held at least 15% of the share capital of PCH, the board of directors’ decision to approve any of the foregoing, or to approve a transaction that is not within the normal course of business and/or a transaction in respect of the sale of all of PCH assets or a significant part thereof were subject to the approval of all members of the board of directors appointed by us and Linura.
In addition to the above decisions, for as long as Linura held at least 19.9% of PCH’s shares, the material terms of financing obtained by PCH until obtaining control over ORL were subject to the approval of all members of the board of directors appointed by us and Linura.
PCH Financing
As part of the shareholders agreement, we and Linura committed to provide shareholder loans to PCH in accordance with our pro rata shareholdings in PCH. If additional financing were requested by PCH, we and Linura may each have provided additional shareholder loans to PCH. The shareholders agreement also provided that PCH could not distribute dividends until all of the shareholder loans were repaid to PCH.
Restriction on Transfer of PCH Shares
Under the shareholders agreement, until the date of expiration of the first Put Option and the first Call Option (each as defined below), the parties were not permitted to transfer their holdings in PCH or any rights under the shareholders agreement, other than permitted transfers such as the transfer to subsidiaries. Following the restriction period, the parties were permitted to transfer shares in PCH subject to the right of first refusal and tag along rights described below.
The shareholders agreement further provided that neither we nor Linura may transfer our holdings in PCH at any time if the transfer violated the terms of PCH’s control permit for the ORL shares (if granted) under applicable Israeli Law or if the transfer would prevent PCH from obtaining such a control permit.
Under the shareholders agreement, we had a right of first refusal in the event that Linura desired to sell its PCH shares to a third party. Prior to accepting a third party’s offer, Linura must first have presented us with the details of the offer after which we would have had 30 days to match the third party’s offer.
The shareholders agreement also granted Linura a right of first opportunity in the event that we decided to sell our PCH shares to a third party. Prior to offering our PCH shares to a third party, we must first have presented the terms of the contemplated offer to Linura, which would have had 30 days to accept the proposed offer. If Linura refused to accept the contemplated offer, we would have had the right to force Linura to sell its shares in PCH to a third party on the same terms as the proposed offer.
The shareholders agreement also granted Linura the right to join the sale of our PCH shares to a third party, pro-rata to Linura’s holdings in PCH.
Transfers of ORL Shares
In the event that PCH elected to sell its entire holdings in ORL to a third party, the shareholders agreement provided that we and Linura would have had a right to purchase the ORL shares first, pro-rata to our holdings in PCH.
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First Put & Call Options
Under the terms of the agreement, if, within twelve (12) months from the date of the public offering of ORL shares PCH had not acquired control of ORL, Linura would have been able to force us to purchase all of Linura’s PCH shares. The purchase price of Linura’s PCH shares was equal to the amount of Linura’s capital investment in PCH, plus interest, minus dividends and returns of capital contributions.
If Linura failed to exercise the above option within thirty days from the date it would have become entitled to exercise such right, we would have had the right to purchase all of Linura’s PCH shares according to a pricing mechanism stipulated in the shareholders agreement.
Second Put & Call Options
On the first anniversary of the date of acquisition of the control of ORL, Linura would have been able to require Scailex to purchase all of Linura’s PCH shares at a purchase price equal to the amount of Linura’s capital investment in PCH, minus dividends and returns of capital contributions.
If Linura failed to exercise the above option within thirty (30) days following the first anniversary of the date of acquisition of control of ORL, we would have had the option to purchase all of Linura’s shares in PCH according to a pricing mechanism stipulated in the shareholders agreement.
ORL Undertaking
Under the shareholders agreement, the parties acknowledged that a party nominated by Linura would use its best efforts to offer ORL competitive terms on crude oil and petroleum products. For as long as Linura held 19.9% of the share capital of PCH, and subject to legal restrictions, we and Linura agreed to use our utmost efforts through PCH to increase the share of crude oil and/or petroleum products supplied by such nominated party to ORL and/or the purchase by the nominated party of any petroleum products designated for export by ORL, provided however, that the nominated company extended the most competitive offers to ORL and that ORL’s competitive status as a purchaser or supplier, as applicable, would not have been adversely affected.
Addendum to the Shareholders Agreement
On May 10, 2007, the parties to the shareholders agreement agreed that in the event that the shareholders agreement contradicts the definitive Control Agreement to be entered into by PCH, Scailex and Israel Corp., as set forth below, the Control Agreement shall prevail.
| — | THE SHARE PURCHASE AGREEMENT BETWEEN SCAILEX AND LINURA, DATED MARCH 26, 2008 |
On March 26, 2008, the Company completed the purchase of the minority 19.9% interest of Linura Holding AG’s (“Linura”) in PCH, and received, by way of assignment, the capital note that PCH had issued to Linura. The total consideration for the purchase was $57.2 million. With the purchase of Linura’s share in PCH, a 15.76% shareholder in ORL, PCH became a wholly owned subsidiary of the Company.
The main principles of the Share Purchase Agreement are as follows:
Linura agreed to sell Scailex its entire shareholdings in PCH and assign its Capital Note (as defined below) to Scailex, on an “AS IS” basis all in the framework of the Shareholders Agreement.
Scailex and Linura agreed on a purchase price of $57.2 million for 199 ordinary shares of PCH owned by Linura constituting 19.9% of the issued share capital of the Company, and the outstanding capital note dated August 9, 2007, issued by PCH in favor of Linura on the nominal amount of NIS 232,299,895.
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Linura represented and warranted that it was the sole lawful and beneficially owner of its shares and the capital note, and that such shares and capital note were free and clear of any options, first refusal rights, voting trust and other voting agreements, and of all liens, claims, charges, encumbrances and/or other third party rights of any kind whatsoever, save for Scailex’s rights under the Shareholders Agreement between Scailex, Linura, and PCH as described and referenced below.
Linura’s shares and the capital note were transferred and assigned to Scailex.
The foregoing description of the share purchase agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the agreement filed by us as Exhibit 4(a)(9) in Item 19 of our Annual Report on Form 20-F filed on June 30, 2008.
| — | MEMORANDUM OF UNDERSTANDING DATED FEBRUARY 18, 2007 (INCLUDING ADDENDUM THERETO DATED FEBRUARY19, 2007) AND DEED OF UNDERTAKING DATED MAY 10 2007, AMONG THE COMPANY, PCH AND THE ISRAEL CORP. |
Memorandum of Understanding
The Memorandum of Understanding described below was revoked on May 10, 2007.
On February 18, 2007, PCH and the Company (collectively the “Scailex Group”) entered into a binding Memorandum of Understanding (the “Memorandum of Understanding” or “MOU”) with Israel Corp. for the joint acquisition and control of ORL, pursuant to which Israel Corp. and Scailex Group agreed to submit a joint proposal for the purchase of shares of ORL as part of the public offering of shares of ORL by the State of Israel. The parties agreed that Israel Corp. would hold 80% of the shares of ORL to be acquired and the Scailex Group would hold the remaining 20% of such shares (the “Preliminary Stake Ratio”).
The parties agreed in the MOU that they would mutually determine the number and price of the ORL shares to be purchased and that, in the event of a dispute, each party would be entitled to act in its sole discretion and, in such an event, the Memorandum of Understanding would be revoked.
The Scailex Group was granted the option (“Call”) to increase its share in the acquisition from the Preliminary Stake Ratio to 45% of the shares to be purchased by the parties as part of the offering within 120 days from the date of either: (a) the receipt of mandatory regulatory approvals required to control ORL; or (b) nine months from the date of execution of the Memorandum of Understanding, whichever is earlier. The purchase price of a share acquired pursuant to the Call option was to be the average NIS cost of ORL shares in the relevant offering, linked to increases in the consumer price index, plus 5% annual interest, subject to standard adjustments.
The parties agreed that the terms and conditions of the MOU would apply to the purchase, either jointly or severally, of any additional shares of ORL after the public offering. Decisions with regard to the purchase of shares of ORL in the secondary market following completion of the offering, whether on the stock exchange or outside the stock exchange, including a public offering, would be mutually agreed upon.
Under the MOU, each of the parties was entitled to acquire additional shares of ORL, provided that it would offer the other party, within three (3) business days from the date of the acquisition, the opportunity to purchase a proportional share of the shares it purchased as if, on the same date the Call Option had been exercised (i.e., 55% to Israel Corp. and 45% to PCH,) at cost plus market interest until the date of actual payment. However, the terms of the MOU were not to apply to acquisitions of additional shares or securities of ORL by any of the parties that were to cause the shares subject to the MOU to exceed 45% of ORL’s issued share capital.
Appointment of Directors; Officers
Furthermore, as part of the MOU, the parties agreed to appoint directors to the board of directors of ORL, its committees and its subsidiaries, pro rata to each party’s holding, provided that the Scailex Group would be entitled to appoint at least one director to ORL’s board of directors or committees and provided that the Scailex Group and Israel Corp. are able to affect the appointment of two or more directors.
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The parties agreed that the manner of appointment and discharge of the executive officers of ORL would be set forth in the Control Agreement to be entered into by the parties at a future date. The parties also agreed that each party would nominate one external director.
Voting at the General Meeting
The MOU further provided that prior to any general meeting of ORL, the parties would convene a preliminary meeting to decide (pro rata to their holdings in ORL) on how they would vote and act at the general meeting, and the parties would proceed in accordance with their mutual decision.
Dividends
Under the MOU, the parties undertook to act pursuant to the provisions of all applicable laws so that ORL and its subsidiaries would adopt a dividend policy providing for the distribution of at least 75% of the annual profits that are deemed distributable.
Right of First Refusal
If the Scailex Group wishes to sell its shares in ORL to a third party, Israel Corp. would have the right of first refusal with respect of the shares offered for sale and would be entitled to purchase all the shares being offered for sale as follows: (1) during the first year from the signing of the MOU, at the average cost price of ORL shares acquired by the Scailex Group, with the value linked to increases in the CPI, plus interest at a rate of 5% annually, subject to the customary adjustments (the foregoing will not apply if the third party holds more than 45% of ORL’s issued share capital prior to the sale); and (2) after the end of one year from the signing of the MOU, or in the event that the third party holds more than 45% of ORL’s issued share capital prior to the sale, according to the price offered by the third party.
Tag Along
If Israel Corp. desires to sell its shares in ORL, in whole or in part, to a third party, the Scailex Group would be entitled to join the aforementioned sale in proportion to its holdings of the ORL shares to which the provisions of this MOU apply.
Rights of Parties in the Event of Exercise of the Call
If the Call were to be exercised, the parties would grant each other the right of first refusal with respect to the shares of ORL held by each party, and each party would have the right (tag along right) to join the other (provided the right of first refusal is not exercised) in the case of a sale of all or a portion of the holdings of the other party, to a third party, pro rata to such party’s respective holdings of the ORL shares to which the provisions of this MOU apply. If ORL shares are transferred to a third party, the acquiring party must become a party to the Memorandum of Understanding or the definitive agreement that follows the Memorandum of Understanding, and all provisions of the MOU or the definitive agreement shall applymutatis mutandis to the third party.
Minority Interests
The Scailex Group was granted customary minority rights, such as group veto rights with respect to certain decisions affecting ORL or its subsidiaries and affiliated companies, including: modifications to the articles of association, structural changes (mergers, reorganization, material acquisitions/sales, etc.), liquidations, stay of proceedings, the registration of securities or debt for trading, and transactions with interested parties. Israel Corp. undertook that, for so long as Israel Corp. and Scailex Group are in control of ORL, it would act in manner conducive to Scailex Group fulfilling its undertakings to Linura, subject to the provisions of any applicable law.
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Buy/Sell
At the end of twelve (12) months from the date of exercise of the Call, one party to the agreement would be entitled to offer to purchase all shares of the other party to which the provisions of the MOU apply at the price set in the offering, and the second party would be bound to either accept the offer or, alternatively, acquire all the shares of the offering party to which the provisions of the MOU apply at a price determined in the offer, all per the election of the second party.
Linura Supplier Undertaking
The parties agreed that so long as Linura holds at least 19.9% of the shares of PCH, and subject to any applicable legal or regulatory restrictions, the parties would use their best efforts to significantly increase the share in the supply of crude oil and petroleum products sold to ORL and/or any purchase of petroleum products designated by ORL for export, by the company nominated by Linura. The foregoing is contingent upon the nominated company extending the most competitive terms to ORL and ORL’s competitive status as a purchaser or supplier, as applicable, not being adversely affected.
Addendum to the MOU Dated February 19, 2007
On February 19, 2007, the parties signed an addendum to the MOU provided that the provisions of the Memorandum of Understanding and any amendment or addition thereto will be subject to any financial arrangement made or to be made between either of the parties and a bank or insurance company (the “Lien Holder”), that will finance the purchase of ORL shares and whose loan will be secured by a pledge of ORL shares.
Upon violation of the financial arrangement by one of the parties and notification by the Lien Holder that it intends to foreclose on all or a portion of the lien, the Lien Holder would be entitled to allow the second party to pay all the debts of the first party that were immediately payable and be entitled to receive all the rights of the Lien Holder to the ORL shares subject to the lien in the form of an irrevocable assignment.
The party that receives ORL shares in the form of the aforementioned irrevocable assignment would realize the lien subject to the provisions of the Memorandum of Understanding.
Joint Purchase of ORL Shares
Pursuant to the provisions of the MOU, the Scailex Group and Israel Corp. submitted a joint offer as part of the public offering. On February 20, 2007, the Company received notification that the joint offer was accepted and that PCH and Israel Corp. had been issued 920 million shares of ORL, which constitutes approximately 46% of the total share capital of ORL. In accordance with the terms of the MOU, out of the total number of shares of ORL purchased jointly by the Scailex Group and Israel Corp., PCH purchased 184 million ordinary shares (9.2% of the issued share capital of ORL), and Israel Corp. purchased 736 million shares (36.8% of the issued share capital). The shares in the offering were acquired based on a valuation of ORL of NIS 6.6 billion and a share value of NIS 3.30 per share.
During February and March 2007, PCH and Israel Corp. acquired an additional 107.24 million shares of ORL on the Tel Aviv Stock Exchange. As consideration for these additional shares, PCH paid a total amount of approximately NIS 142.8 million at an average price of approximately NIS 2.96 per share. As a result of the aforementioned purchases, Israel Corp. and Scailex (through PCH) held jointly, as of March 28, 2007, 53.6% of the issued share capital of ORL, with PCH holding 252.4 million shares, or 12.62% of the issued share capital, and Israel Corp. holding 819.5 million shares, or 40.98% of the issued share capital of ORL.
Notwithstanding the foregoing, the rights in the shares of ORL were limited, including the ability to exercise common control of ORL under a shareholder agreement, until the shareholders received the mandatory regulatory approvals in Israel, which included approval by the Israel Antirust Authority for the acquisition of 25% or more of the ORL share capital and receipt of a control permit for control of 24% or more of ORL from the Minister of Finance and the Prime Minister. The Scailex Group and Israel Corp. had received the necessary approval from the Israeli Antitrust Commissioner, but never received the control permit, due to issues relating to the control of PCH.
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Deed of Undertaking
The parties decided to revoke the MOU and the Addendum to the MOU on May 10, 2007 and entered into an irrevocable deed of undertaking (the “Deed of Undertaking”), which has since been terminated.
The Deed of Undertaking allowed the parties to file separately for a control permit for the acquisition of ORL. The parties entered into the Deed of Undertaking in order to expedite the acquisition of the control of ORL since Scailex, PCH and Israel Corp. believed that it was in the best interests of ORL to establish control by its new shareholders as soon as possible. The decision to apply separately stemmed from the fact that the parties assumed that Israel Corp., which until February 2007, formerly held 26% of ORL, would succeed in obtaining a control permit in a relatively short time. Furthermore, PCH experienced delays in receiving the control permit due to the fact that additional information was requested about Linura, which holds 19.9% of PCH. The revocation of the MOU enabled Israel Corp. to submit a separate application for the control permit for the acquired ORL shares from the Finance Minister and the Prime Minister.
The following is a summary of the main points of the Deed of Undertaking:
The parties agreed that if the Scailex Group received the mandatory regulatory approvals, including a control permit and a possible additional approval from the Israeli Antitrust Commissioner, on or before May 15, 2009, Israel Corp and the Scailex Group would have entered into the Control Agreement for the joint control of ORL, as described below.
The call option (the “Call Option”), which was to be granted to PCH pursuant to the Control Agreement (as described below), would have been exercisable until May 15, 2009 or until 120 days after the mandatory governmental approvals for the exercise of the ORL shares would have been obtained, whichever would have been earlier. Exercise of the Call Option would have enabled PCH to purchase and receive by way of transfer from Israel Corp. 230 million shares of ORL (the “Underlying Shares”), so that, subsequent to exercise of the Call Option, PCH would have held 45% of the 50.25% control core (the “Control Core Shares”) in ORL’s share capital, and Israel Corp. would have held 55% of the Control Core Shares in ORL’s share capital.
The price of the Underlying Shares would have been the cost price for purchasing the Control Core Shares in the sale offering, namely NIS 3.30 per share for a total of NIS 759 million, plus index linkage differentials and linked interest at the rate of 5% per annum, less any dividends distributed (if any), plus index linkage differentials and interest as aforesaid.
The sale and transfer of PCH’s shares of ORL to a third party or sale of the control of PCH or Scailex to a third party would have been subject to Israel Corp.‘s right of first refusal to purchase all shares of ORL or the relevant PCH securities in accordance with the provisions of the Control Agreement.
The right of PCH and Scailex to enter into the Control Agreement may be transferred to a third party in the event that: (i) PCH sold all of its shares in ORL to a third party (and Israel Corp. does not exercise its right of first refusal), or (ii) Scailex sold the control of PCH to a third party, and that third party obtains all the requisite approvals, including approval of the Israeli Antitrust Commissioner and a control permit, on or before May 15, 2009. In either such case, Israel Corp. will enter into the Control Agreement with the third party and all provisions thereof, including the Call Option, will apply. Until the Control Agreement came into effect, Israel Corp. was entitled to exercise its power of control in ORL (provided that it had received the required control permit) at its discretion and without any restrictions.
On the signing date of the Deed of Undertaking, PCH signed an irrevocable power of attorney empowering Israel Corp. to vote in its name and on its behalf at the general meetings of shareholders of ORL in respect of the 100 million shares of ORL that PCH owns. The power of attorney will expire when the Control Agreement is signed or six months after the date of the Deed of Undertaking, whichever is earlier.
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In May 2007, following the adoption of the Deed of Undertaking, PCH purchased, independent of Israel Corp., additional shares of ORL, bringing its total holdings to 13.39% of the share capital of ORL.
The Contemplated Definitive Agreement for Joint Control of ORL by Israel Corp. and Scailex Group (the “Control Agreement”)
Set forth below are the main points of the contemplated, definitive Control Agreement that was attached to the Deed of Undertaking and was to have been signed by Israel Corp. and by the Scailex Group upon receipt by the Scailex Group of all regulatory approvals required under applicable law, including a control permit to hold the shares of ORL and any additional approvals that may be required by the Antitrust Commissioner. The contemplated Control Agreement would have related only to approximately 50.25% of the issued and paid-up share capital of ORL and includes all bonus shares that would be distributed (if any) in respect of said shares and all shares to be purchased following an offering of said shares and which are and will be held by Israel Corp. and PCH. (the “Control Core Shares”). As indicated above, the Deed of Undertaking was terminated, and the Control Agreement was not signed.
Undertakings relating to the Transfer and/or Purchase of Securities
Freeze period
The agreement prescribes a freeze period of six months commencing as of the signing date of the Control Agreement, during which, neither party may transfer the Control Core Shares held by it, other than to a person or corporation, which controls or is controlled by the relevant party or is controlled by the controlling shareholders of the relevant party (an “Authorized Transferee”).
Transfer Restrictions
Commencing on the expiration of the freeze period described above, a party may not transfer and/or sell its Control Core Shares to a third party (other than an Authorized Transferee) unless: (i) the party sells and/or transfers all (but not a portion) of the Control Core Shares that it is holding; and (ii) the other party is entitled to (A) purchase all the Control Core Shares being offered for sale or transfer in accordance with the right of refusal rights described below (Scailex Group right of first refusal would have taken effect only as of the date of exercise by the Scailex Group of the Call Option described below) or (B) tag along in the sale transaction of the Control Core Shares in accordance with the tag along rights described below (Israel Corp. tag along right to take effect only as of the date of exercise by Scailex Group of the Call Option described below).
Purchase of Additional Shares
In the event that the parties decide by mutual consent to increase the number of Control Core Shares, they would then purchase additional Control Core Shares in proportion to their holdings of Control Core Shares at the time. If a party desires to purchase additional shares in ORL that would not be deemed to be Control Core Shares, the party would be free to act upon such shares at its discretion, so long as the conditions described below under “Right to Participate in the Purchase of Shares” are satisfied and so long as it notifies the other party in advance and votes such additional shares at General meetings of ORL in conjunction with all of the Control Shares that it possesses. Unless otherwise agreed upon by the parties, a party may not purchase additional shares if it would cause ORL to be de-listed from TASE or create an obligation to issue in full or in part a tender offer.
The right of first refusal
Following the freeze period, and subject to the provisions described above under “- Undertakings relating to the Transfer and/or Purchase of Securities – Transfer Restrictions,” if either party wishes to transfer the Control Core Shares that it holds, the other party would have the right of first refusal to purchase all (but not a portion) of the Control Core Shares that are offered for sale by the selling party under the same terms as are offered by the proposed buyer.
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The transfer of control in PCH and/or Scailex and/or the Israel Corp. (subject to certain conditions) would also constitute events that would entitle the other party to exercise its right of first refusal.
In the case of the change in control of PCH, Israel Corp. would have the right to purchase all the securities that are the subject of the change of control in PCH on the same terms as contemplated in the change in control transaction. In the event of a change in the control of Scailex or of the corporation controlling Scailex (other than IPE and the corporations that control it) to a third party at which time the Control Core Shares held by the Scailex Group constitute a “majority of the assets” of the entity undergoing a change in control, Israel Corp. would be entitled to purchase all (but not less than all) of the Control Core Shares then held by the Scailex Group at the average market price during the 60 trading days that preceded the notice of sale, plus a 15% premium. The Scailex Group would have had the right to purchase, at the average market price during the 60 trading days that preceded the notice of sale, plus a 15% premium, all (but not less than all) of the Control Core Shares then held by Israel Corp. in the case of a change in control of Israel Corp.
As indicated above, Scailex Group’s right of first refusal rights would only come into effect on the date on which the Scailex Group exercised the Call Option.
Tag-along right
Following the freeze period, and subject to the provisions described above under “- Undertakings relating to the Transfer and/or Purchase of Securities – Transfer Restrictions,” if either party wishes to transfer the Control Core Shares that it holds, then, provided that the right of first refusal was not exercised, the other party would have the right to join in the sale under the same terms as are offered by the proposed buyer. The other party would have the right to include in the sale the same proportion of its Control Core Shares as the selling party proposes to sell of its own Control Core Shares.
As indicated above, Israel Corp.‘s tag-along right would come into effect only on the date on which the Scailex Group would have exercised the Call Option.
Right to Participate in the Purchase of Shares
If one party acquires additional securities of ORL, it would be obligated to notify the other party of its purchase, specifying the terms of the purchase, and the other party would have the right to purchase shares from the purchasing party pro rata to the number of Control Core Shares held at that time by the purchasing party as opposed to the number of Control Core Shares held by the other party. For this purpose, PCH would be deemed to have exercised the call option right described below if the purchase transaction occurred during the option period. The price to be paid for these shares would be the same price at which they were purchased by the purchasing party plus a customary prime shekel interest rate.
Call option
Israel Corp. would have granted PCH a Call Option to obligate Israel Corp. to sell and transfer 230 million shares of ORL (the “Underlying Shares”) to PCH so that PCH would have held 45% of the Control Core Shares, and Israel Corp. would have held 55% of the Control Core Shares. The call option had to have been exercised with respect to all, but not a portion, of the Underlying Shares. The call option could have been exercised for a period of 120 days from the date of receipt of the mandatory control permit, but no later than May 15, 2009. The call option would expire at such time as PCH would hold less than 10% of ORL’s share capital. The purchase price for the Underlying Shares would be NIS 3.3 multiplied by the number of Underlying Share, plus increases in the Israeli consumer price index plus linked interest at the rate 5% per annum, compounded semi-annually, from the date Israel Corp. purchased the Underlying Shares less any dividends or bonus shares distributed in respect of the Underlying Shares.
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Pledge and Lien Restrictions on the Securities of ORL
A party to the Control Agreement may not pledge or place a lien on the Control Core Shares that it holds, unless such pledge or encumbrance is in favor of a reputable bank or insurance company or is made in order to secure debentures issued under a public offering or an offering to institutional investors; provided, however, that the exercise of such a pledge would be subject to first refusal rights of the other party, which must be exercised within ten days of receiving notice of such contemplated pledge.
Buy-Sell Mechanism
Following the expiration of the six-month freeze period described above and throughout the time the agreement is in effect, each party to the agreement would have the right, subject to the exercise of the Call Option, to (i) purchase all of the Control Core Shares held by the other party at that time, or to sell to the other party all of the Control Core Shares that it holds and (ii) terminate the agreement. The party desiring to activate this mechanism would deliver a notice to the other party that it is willing to either sell to the other party all of the Control Core Shares held by the notifying party at the price determined by the notifying party or to purchase all of the Control Core Shares held by the other party at the same price. The receiving party would then be required to select one of the alternatives, and the parties would complete the transaction chosen by the receiving party.
Appointment of directors
The parties to the Control Agreement would undertake therein to exercise their voting power in the following manner:
| | — | So long as the Call Option has not been exercised, ORL’s board of directors would consist of nine members (including two external directors), with Israel Corp. nominating five directors and PCH nominating two directors. Recommendation for nominations of the two external directors would be made by mutual agreement. |
| | — | From such time as the Call Option is exercised, ORL’s board of directors would consist of 11 members (including two external directors), with Israel Corp. nominating five directors and recommending one external director, and PCH nominating four directors and recommending one external director for nomination. |
In the event the ratio of Control Core Shares is changed, then the right of the parties to nominate directors would be adjusted to reflect their changed holdings. Subject to applicable law, the above ratios regarding each party’s representation on ORL’s board of directors would apply for all the Board Committees as well, except the audit committee, as well as for any subsidiary or affiliate of ORL. Subject to law, the chairman of the board of directors would be nominated by the Israel Corp. Subject to applicable law and the exercise of the Call Option, the CEO, auditors, accountants and legal advisors of ORL and its subsidiaries would be nominated by consent of the parties.
Voting at General Meetings
The Control Agreement provides that the parties would agree in advance how to vote in General Meetings on certain matters that could materially affect ORL, its subsidiaries or affiliates (so long as each party holds at least 10% of ORL’s issued share capital). These matters include: the decision to enter into new type of business; offering of shares or other securities by ORL or any subsidiary; amendments to the Articles of Association of ORL; mergers or reorganization of ORL or any subsidiary; extraordinary transactions; appointment of accountants; liquidation or a related stay of proceedings (similar to “Chapter 11” proceedings in the United States); or a material sale or purchase by ORL. In the absence of agreement on any of the above matters, such matter would be decided by an agreed adjudicator. In addition, the parties would act to amend ORL’s articles of association so that resolutions regarding the matters above would need to be approved by a General Meeting of ORL shareholders or would require approval by a supermajority of 75% of all directors present at the vote.
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Dividend policy
The parties to the Control Agreement would act, subject to any applicable laws, so that ORL and its subsidiaries would adopt a dividend policy according to which at least 75% of the annual distributable profit would be distributed each year.
Term of the agreement
The Control Agreement would terminate (a) in accordance with the relevant provisions in the agreement or (b) on the date on which one of the parties ceases to hold at least 10% of ORL’s share capital.
Scailex’s guarantee
Scailex would guarantee all of PCH’s obligations pursuant to the Control Agreement.
| — | RE-ORGANIZATION CONTRACT BETWEEN THE COMPANY AND SENIOR MANAGEMENT OF JEMTEX |
In August 2006, the Company entered into an agreement for the reorganization of Jemtex whereby the Company transferred the majority of its holdings in Jemtex to Jemtex’s two senior managers, Mr. Avraham Raby and Dr. Yehoshua Sheinman, for no consideration under certain terms. As a result of this transaction, the Company’s holdings in Jemtex declined from approximately 75% to approximately 15% (on a fully diluted basis). Under the terms of the reorganization agreement, the Company converted a sum of approximately $6.7 million, out of an aggregate amount of approximately $9.7 million provided by the Company to Jemtex by way of loans, into shares of Jemtex while the remaining amount of approximately $3.0 million was to be paid to the Company over a period of five to seven years, unless Jemtex paid the Company a sum of $1.0 million by January 4, 2007, whereupon the debt would be deemed to have been repaid in full.
The agreement further provided that until the repayment of the outstanding loan amount or the payment of $1.0 million by January 4, 2007, the Company would be protected against dilution and its holdings in Jemtex would remain 15% of Jemtex’s fully diluted capital. In addition, it was determined that so long as the outstanding loan amount stands at $3.0 million and has not been repaid, the Company would be allowed to invest a sum of up to $5.0 million dollars in Jemtex, based on a Company’s valuation of Jemtex of $20 million. The reorganization agreement also included undertakings by the senior management of Jemtex to continue their employment with Jemtex for up to five years. In the event that the senior managers’ employment is terminated, the agreement calls for 50% of their shares to be transferred to Jemtex and 50% to the Company.
On January 4, 2007, pursuant to an investment agreement Jemtex undertook with a third party investor, the Company was paid $1.0 million (plus interest), and in accordance with the terms of the reorganization agreement set forth above, the Company forgave the $3.0 million in outstanding loans and deemed this loan to be paid in full. With the introduction of the third party investor, a number of the provisions of the reorganization agreement were amended as follows: (i) the Company relinquished the veto rights granted to it by Jemtex’s articles of association; (ii) a term was added whereby, after the month of August 2009, the Company would retain its right to receive at least $3.0 million dollars from the assets available for distribution in the event of the liquidation of Jemtex or events deemed to be the liquidation of Jemtex (such as the sale of all or a majority of the shares or assets of Jemtex, etc.) by means of an agreement whereby the senior management of Jemtex would share equally with the Company the assets available for distribution in such an event; and the Company would be entitled to receive 50% of the shares of the senior management in the event that the senior managers employment was terminated, while the third-party investor would receive the remaining 50% of senior management shares; and (iii) the Company was granted an option to invest $3.0 million in shares of Jemtex (based on a Company valuation of Jemtex of $20 million) by August 2009.
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In light of the signing of the reorganization agreement with Jemtex and the Company’s reduced holdings in Jemtex, the Company ceased to consolidate the financial results of Jemtex in its financial statements and classified the activity of Jemtex as discontinued operations. For additional details see Note 1b(3) to the Company’s consolidate financial statements.
| — | AGREEMENT FOR SALE OF REAL TIME IMAGE LTD. |
In July 2005, IDX Information Corporation Systems acquired the activities of Real Time Image Ltd. (“Real Time Image”). Real Time Image was incorporated in Israel in 1997, and engaged at the date of the sale in the development of products enabling the transfer of medical documents on the Internet without compression. The Company, which at the time of the acquisition held approximately 14.9% of the issued share capital of Real Time Image, has received a sum of approximately $2.6 million from the sale as consideration and an additional sum of approximately $0.5 million was received in 2007.
| — | AGREEMENT FOR SALE OF XMPIE |
On November 9, 2006, Xerox Corporation acquired XMPie Inc., a private company incorporated in the State of Delaware, in which the Company had held a 2.3% interest. As of the date of this report, the Company has received as consideration a sum of approximately $1.3 million. An additional $0.2 million owed to the Company pursuant to the sale was being held in trust in accordance with the sale agreement, out of which $0.1 million was received by the Company in May 2008.
| — | MANAGEMENT AGREEMENT WITH GLOBECOM |
On April 30, 2007, the Company’s shareholders approved a management agreement with Globecom , a private company under the control of Mr. Eran Schwartz, the Chairman of the board of directors of Scailex. Under the agreement, Globecom, through Mr. Eran Schwartz is to provide management services to the Company. The agreement commenced July 2006, when Mr. Schwartz became Chairman of the Company’s board of directors and will remain in effect until six (6) months have elapsed after the date that one of the parties issues a termination notice to the other. The monthly aggregate cost to be paid by the Company for such services under the agreement is approximately $26,000, to be linked to the consumer price index. For a complete description of the Globecom management agreement see “Item 7B. Related Party Transactions.”
| — | SALE OF SCAILEX VISION’S BUSINESS |
We currently own approximately 77.1% of Scailex Vision’s outstanding share capital.
In August 2005, Scailex Vision entered into an asset purchase agreement with Hewlett-Packard, under which Hewlett-Packard agreed to acquire substantially all of the assets and business of Scailex Vision for $230 million (subject to net working capital adjustments) in cash and to assume substantially all of Scailex Vision’s liabilities related to the ongoing business. The sale was completed on November 1, 2005. At closing, $23.0 million of the proceeds was deposited in escrow for a period of 24 months to cover possible indemnification claims, $1.0 million was deposited for a period of 12 months to cover tax liabilities of the year 2005 (this escrow was released in November 2006), and an additional $27.0 million was utilized to repay Scailex Vision’s retained liabilities, mainly to Israeli banks. In April 2006, Hewlett-Packard paid Scailex Vision an additional approximately $6.6 million to account for the net working capital adjustment in the purchase price,i.e., in addition to the $230 million. Hewlett-Packard also transferred to Scailex Vision funds in an aggregate amount of $1.1 million that were retained by Scailex Vision’s subsidiaries following the closing.
Scailex Vision made representations and warranties in the asset purchase agreement for the benefit of Hewlett-Packard, which generally survive for a period of two years following the closing of the transaction or, for certain matters, the expiration of the applicable statute of limitations. Scailex Vision agreed to indemnify Hewlett-Packard against damages or losses arising from any breach of the representations and warranties, subject to certain limitations (including customary de minimis exceptions and caps) detailed in the asset purchase agreement. Scailex Vision also agreed to indemnify Hewlett-Packard against any damages or losses arising from any breach of a covenant or agreement made by it in the asset purchase agreement or from any liability of Scailex Vision that Scailex Vision retained under the terms of the asset purchase agreement. Scailex Vision is generally obligated to satisfy these indemnification obligations only out of amounts deposited in the escrow discussed above. Scailex Vision also agreed to certain ongoing covenants, including non-compete and non-solicitation restrictions on its operations.
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Hewlett-Packard filed an indemnity claim with the escrow agent in October 2006 seeking the release to it of $5.26 million from the escrow funds, claiming Scailex Vision was in breach of certain representations warranties in their purchase asset agreement. Scailex Vision rejected these claims, but there is no assurance that Scailex Vision will be successful in defending its position. On May 5, 2008, a settlement agreement was signed between Scailex Vision and HP, which settled the reciprocal claims between the parties with respect to the sum in escrow. Within the scope of a settlement agreement, HP and Scailex Vision agreed that, out of the inclusive total balance of the escrow funds: the sum of approximately $7.8 million is being released to Scailex Vision, the sum of approximately $7.4 million is being released to HP, while the balance, at the sum of approximately $0.6 million, shall be retained by the trustee to secure a particular claim in respect whereof HP is entitled to indemnification.
In connection with the transaction, we entered into incidental agreements with Hewlett-Packard, as follows:
| | — | We, Discount and Clal entered into an agreement, whereby, among other things, each of us agreed not to solicit certain employees of Scailex Vision for a period of 18 months following the closing and not to compete with Hewlett-Packard in the business of Scailex Vision for a period of 24 months following the closing; and |
| | — | We entered into a trademark license and domain name assignment agreement, whereby, among other things, we granted to Hewlett-Packard a license to our rights to the “Scitex” tradename and agreed, subject to shareholder approval, to change our corporate name. Our shareholders approved the change in our name in December 2005 and, accordingly, we changed our name from Scitex Corporation Ltd. to our present name. |
In February 2006, Scailex Vision distributed a cash dividend equivalent to the amount available for distribution following the conclusion of the transaction for the sale of assets to HP. The amount of the net accumulated dividend that was distributed amounted to approximately $135 million (of which $101 was received by the Company).
In February 2007, with the consent of the court, Scailex Vision reduced its share capital and distributed an additional dividend of $20 million to its shareholders (out of which $14.3 was received by the Company). Additionally, in June 2008, with the consent of the court, Scailex Vision reduced its share capital and distributed an additional dividend of $25 million to its shareholders (out of which $17.9 was received by the Company).
| — | ESCROW SETTLEMENT AGREEMENT, DATED MAY 5, 2008, BETWEEN SCAILEX CORPORATION LTD. AND HEWLETT-PACKARD COMPANY |
On May 5, 2008, a settlement agreement was signed between Scailex Vision and HP, which settles the reciprocal claims between the parties with respect to the sum in escrow. Within the scope of the settlement agreement, HP and Scailex Vision agreed that, out of the inclusive total balance of the escrow funds: the sum of approximately $7.8 million would be released to Scailex Vision, the sum of approximately $7.4 million would be released to HP, while the balance, at the sum of approximately $0.6 million, shall be retained by the trustee to secure a particular claim in respect of which HP is entitled to indemnification. Additionally, HP has agreed to pay to Scailex Vision 75% of any payment HP receives from the Mexican tax authorities in connection with any final judgment or settlement of the claims involving the escrow funds.
The foregoing description of the escrow settlement agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the agreement filed by us as Exhibit 4(a)(11) in Item 19 to our Annual Report of year ended December 31, 2007.
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On November 24, 2003, we entered into an asset purchase agreement with Kodak, whereby Kodak agreed to acquire substantially all of the assets and business of Scitex Digital Printing, Inc. (SDP), a wholly-owned US subsidiary of Scailex, for $250 million in cash and to assume substantially all of SDP’s liabilities related to the ongoing business. In addition, as part of the transaction, we retained $12 million of SDP’s cash balance at closing, producing total cash consideration for the transaction of $262 million.
We completed the sale on January 5, 2004. At closing, $15 million of the proceeds of the sale, which amount was released 20 business days after closing, was placed in a custody account to cover unknown federal tax liens. Furthermore, $10 million of the proceeds of the sale was placed in a custody account to cover possible indemnification claims, $5 million of which was released to Scailex’s account in January 2005 and the remaining $5 million of which was released in January 2006.
In July 2006, SDP was liquidated.
The foregoing description of the asset purchase agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the agreement incorporated herein by reference as Exhibit 4(a)(2) in Item 19 to our Annual Report of year ended December 31, 2007.
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 certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
The following is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes. Holders of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, federal, state or local taxes.
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
Subject to the limitations described herein, the following discussion describes certain material U.S. federal income tax considerations applicable to a U.S. holder (as defined below) regarding the acquisition, ownership and disposition of our ordinary shares. A U.S. holder means a holder of our ordinary shares who is:
| | — | an individual citizen or resident of the United States; |
| | — | a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or any political subdivision thereof; |
| | — | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| | — | in general, a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. |
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Unless otherwise specifically indicated, this discussion does not consider the United States tax consequences to a person that is not a U.S. holder (a “non-U.S. holder”) and considers only U.S. holders that will own our ordinary shares as capital assets. This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, referred to as the Code, current and proposed Treasury regulations promulgated under the Code, administrative pronouncements and judicial decisions, all as in effect today and all of which are subject to change, possibly with a retroactive effect, which change could materially affect the U.S. federal income tax considerations described herein. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s individual circumstances. In particular, this discussion does not address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to U.S. holders that are subject to special treatment, including, without limitation, U.S. holders who:
| | — | are broker-dealers or insurance companies; |
| | — | are tax-exempt organizations or retirement plans; |
| | — | are financial institutions or financial services entities; |
| | — | hold ordinary shares as part of a straddle, hedge or conversion transaction with other investments; |
| | — | have acquired their shares upon the exercise of employee stock options or otherwise as compensation; |
| | — | hold their shares through partnerships or other pass-through entities; |
| | — | own directly, indirectly or by attribution at least 10% of our voting power; or |
| | — | have a functional currency that is not the U.S. dollar. |
In addition, this discussion does not address any aspect of state, local or non-U.S. tax laws or the possible application of United States federal gift or estate tax.
U.S. holders should review the summary below under “Israeli Taxation” for a discussion of Israeli tax consequences and certain other tax consequences pursuant to the income tax treaty between the governments of Israel and the U.S., which may be applicable to them.
U.S. holders should consult their tax advisors with respect to the specific U.S. federal, state and local income tax consequences and any applicable non-U.S. tax consequences to them of purchasing, holding or disposing of the ordinary shares. U.S. holders are also urged to consult their tax advisors concerning whether they will be eligible for benefits under the income tax treaty between the governments of Israel and the U.S.
WE BELIEVE WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY UNDER U.S. FEDERAL INCOME TAX LAW
A non-U.S. company is a passive foreign investment company, or PFIC, if 75% or more of its gross income in a taxable year, including the pro rata share of the gross income of any company, U.S. or foreign, in which it is considered to own, directly or indirectly, 25% or more of the shares by value, is passive income. Alternatively, a company will be considered to be a PFIC if at least 50% of its assets in a taxable year, averaged over the year and ordinarily determined based on fair market value and including the pro rata share of the assets of any company in which we are considered to own, directly or indirectly, 25% or more of the shares by value, are held for the production of, or produce, passive income.
As a result of the sale of Scailex Vision’s business in November 2005, we believe we became a PFIC in 2006, and we believe that we were a PFIC in 2007, and we believe we are a PFIC in 2008 as well. U.S. holders who hold ordinary shares during a period when we are a PFIC will be subject to the rules described below, even if we cease to be a PFIC, subject to specified exceptions for U.S. holders who made a qualified electing fund (a “QEF”) election.
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If a U.S. holder does not make an election to treat us as a QEF as described below, excess distributions by us to a U.S. holder will be taxed in a special way. Excess distributions are amounts received by a U.S. holder on shares in a PFIC in any taxable year that exceed 125% of the average distributions received by the U.S. holder from the PFIC in the shorter of:
| | — | the three previous taxable years; or |
| | — | the U.S. holder's holding period for ordinary shares before the present taxable year. |
Excess distributions must be allocated ratably to each day that a U.S. holder has held shares in a PFIC. A U.S. holder would then be required to include amounts allocated to the current taxable year in its gross income as ordinary income for that year. Further, a U.S. holder would be required to pay tax on amounts allocated to each prior taxable year at the highest rate in effect for that year on ordinary income and the tax would be subject to an interest charge at the rate applicable to deficiencies for income tax.
The entire amount of gain that is realized by a U.S. holder upon the sale or other disposition of our ordinary shares will also be treated as an excess distribution and will be subject to tax as described above.
A U.S. holder’s tax basis in our ordinary shares that were inherited from a deceased person who was a U.S. holder would not receive a step-up to fair market value as of the date of the deceased’s death but would instead be equal to the deceased’s basis, if lower.
The special PFIC rules described above will not apply to a U.S. holder if the U.S. holder makes an election to treat us as a QEF in the first taxable year in which the U.S. holder owns ordinary shares or in which we are a PFIC, whichever is later, and if we comply with specified reporting requirements. Instead, a shareholder of a QEF is required for each taxable year in which we are a PFIC to include in income a pro rata share of the ordinary earnings of the QEF as ordinary income and a pro rata share of the net capital gain of the QEF as long-term capital gain, subject to a separate election to defer payment of taxes. If deferred, the taxes will be subject to an interest charge. We will supply U.S. holders with the information needed to report income and gain under a QEF election if we are classified as a PFIC. U.S. holders should consult their tax advisors about the availability and procedure for filing a retroactive QEF election or amended return.
The QEF election is made on a shareholder-by-shareholder basis. Once made, the election applies to all subsequent taxable years of the U.S. holder in which it holds our ordinary shares and for which we are a PFIC and can be revoked only with the consent of the Internal Revenue Service, or IRS. A shareholder makes a QEF election by attaching a completed IRS Form 8621, including the required election statement and the PFIC annual information statement, to a timely filed U.S. federal income tax return for the year of the election. The election statement also must be filed with the IRS Service Center in Philadelphia, Pennsylvania. In addition, an electing U.S. holder must act each year to maintain a QEF election by attaching a Form 8621 to the U.S. holder’s timely filed tax return and comply with any other requirements as specified by the IRS.
A U.S. holder of PFIC shares which are traded on a qualifying exchange could elect to mark the stock to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC shares and the U.S. holder’s adjusted tax basis in the PFIC shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election for prior taxable years. If the mark-to-market election were made, then the rules presented above would not apply for periods covered by the election. U.S. holders are urged to consult their tax advisors regarding the availability of the mark-to-market election with respect to our shares.
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If a QEF election or mark-to-market election is not made for the first taxable year in which the U.S. holder holds our ordinary shares or in which we are a PFIC, whichever is later, then special rules will apply and U.S. holders should consult their tax advisors regarding the application of those rules.
We intend to waive certain benefits that we are entitled to under the U.S.-Israel income tax treaty that would otherwise exempt us from the application of the U.S. accumulated earnings tax (the “AET”). Under the AET, we will generally be subject to a 15% tax on certain accumulated earnings if we accumulate earnings and profits “beyond the reasonable needs of the business” (as defined in the Code).
U.S. holders are urged to consult their tax advisors about the PFIC rules, including eligibility for and the manner and advisability of making, the QEF elections or the mark-to-market election.
NON-U.S. HOLDERS OF ORDINARY SHARES
Except as described in “Information Reporting and Backup Withholding” below, a non-U.S. holder of ordinary shares generally will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, ordinary shares, unless:
| | — | the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States; |
| | — | in the case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment; |
| | — | in the case of an individual, the item is attributable to a fixed place of business in the United States; |
| | — | the non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition and does not qualify for an exemption; or |
| | — | the non-U.S. holder is subject to tax under the provisions of U.S. tax law applicable to U.S. expatriates. |
INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividend payments with respect to ordinary shares and proceeds from the sale or other disposition of ordinary shares may be subject to information reporting to the IRS and possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. 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). Non-U.S. holders generally will not be subject to U.S. information reporting or backup withholding. However, such holders may be required to provide certification of non-U.S. status (generally on IRS Form W-8BEN) in connection with payments received in the U.S. or through certain U.S.-related financial intermediaries.
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.
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ISRAELI TAX CONSIDERATIONS
The following summary describes the current tax structure applicable to companies incorporated 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 accord with any future interpretation by the Israeli tax authorities or courts. The summary is not intended, and should not be construed, as legal or professional advice and does not exhaust all possible tax considerations. Accordingly, you should consult your tax advisor as to the particular tax consequences of an investment in our ordinary shares.
TAX REFORM IN ISRAEL
On January 1, 2003 a comprehensive tax reform took effect in Israel. Pursuant to the reform, resident companies are subject to Israeli tax on income accrued or derived in Israel or abroad. In addition, the concept of “controlled foreign corporation” (C.F.C) was introduced according to which a foreign company may become subject to Israeli taxes on certain income of a non-Israeli subsidiary if, among other things, the subsidiary’s primary source of income is passive income (such as interest, dividends, royalties, rental income or capital gains).
The tax reform also substantially changed the system of taxation of capital gains.
Capital gains tax is reduced to 25%, except with respect to capital gains from marketable securities, with transitional provisions for assets acquired prior to January 1, 2003. For further discussion see below “Capital Gains Tax”.
GENERAL CORPORATE TAX STRUCTURE
The corporate tax rate applicable in 2007 was 29%. This rate was reduced to 27% in 2008 and has been scheduled to be reduced to 26% in 2009 and 25% in 2010 and beyond (those rates are effectively reduced for income derived from an “Approved Enterprise” or “Privileged Enterprise” under the Law for Encouragement of Capital Investments – 1959).
TAXATION UNDER INFLATIONARY CONDITIONS
The Income Tax Law (Inflationary Adjustments) – 1985 (“Inflationary Adjustments Law”) is intended to neutralize the erosion of capital investments in business and to prevent tax benefits resulting from deduction of inflationary interest expenses. This law applies a supplementary set of inflationary adjustments to the normal taxable profits computed under regular historical cost principles.
Under the Inflationary Adjustments Law, results for tax purposes are measured in real terms, in accordance with the changes in the consumer price index. In addition, subject to certain limitations, depreciation of fixed assets and losses carried forward are adjusted for inflation on the basis of changes in the consumer price index.
The salient features of the Inflationary Adjustments Law can be described generally as follows:
| | — | A special tax adjustment for the preservation of equity, based on changes in the CPI, whereby certain corporate assets are classified broadly into fixed (inflation-resistant) assets and non-fixed assets. Where shareholders’ equity (as defined in the Inflationary Adjustment Law), exceeds the depreciated cost of fixed assets (as defined in the Inflationary Adjustment Law), a tax deduction which takes into account the effect of the annual rate of inflation on such excess is allowed (up to a ceiling of 70% of taxable income for companies in any single year, with the unused portion carried forward on a CPI-linked basis, without limit). If the depreciated cost of such fixed assets exceeds shareholders’ equity, then such excess, multiplied by the annual inflation rate, is added to taxable income. |
| | — | Subject to certain limitations, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase in the consumer price index (from the beginning of the 1982 fiscal year, and as of the 1985 fiscal year, with respect to equipment); and gains on the sale of certain traded securities are taxable. However, dealers in securities are subject to the regular tax rules applicable to business income in Israel. |
The Income Tax Law (Inflationary Adjustment Law), 1985 has been abolished from the tax year 2008, subject to transitional provisions.
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TAXATION OF OUR SHAREHOLDERS
Capital Gains
Capital gain tax is imposed on the disposal of capital assets by an Israeli resident, 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; and (iii) rights in a foreign corporation whose majority of assets is directly or indirectly, rights to assets located in Israel (with respect to the applicable portion of the capital gain). The Israeli Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. Real Gain is the excess of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli CPI between the date of purchase and the date of disposal.
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 a 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 August 10, 2005 to the provisions of Section 6 of the Inflationary Adjustment Law, will be taxed at the corporate tax rate (27% in 2008). The capital gain accrued at the sale of an asset purchased prior to January 1, 2003 will be subject to tax at a blended rate.
The marginal tax rate for individuals (up to 47% in 2008) and the regular corporate tax rate for corporations (27% in 2008) will be applied to the gain amount which bears the same ratio to the total gain realized as the ratio which the holding period commencing at the acquisition date and terminating on January 1, 2003 bears to the total holding period. The remainder of the gain realized will be subject to capital gains tax at the rates applicable to an asset purchased after January 1, 2003 (see aforementioned).
Individual and corporate shareholders 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 gains 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 does not 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 gains 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 controlled, either 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 during 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 is 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.
96
Generally, a detailed return, including a computation of the tax due, should be submitted to the Israeli Tax Authority, within 30 days of the completion of a transaction and advanced payment amounting to the tax liability arising from the capital gain is due. At the sale of traded securities, the aforementioned detailed return may not be submitted and the advanced payment should not be paid if all tax due was withheld at the source according to applicable provisions of the Israeli income tax ordinance and regulations promulgated thereunder.Capital gain is also reportable on the annual income tax return.
DIVIDENDS
A distribution of dividend from income attributed to an “Approved Enterprise” or a “Privileged Enterprise under the Law for Encouragement of Capital Investments – 1959 will generally 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(s), 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.
| F. | DIVIDENDS AND PAYING AGENTS. |
For information regarding dividend restrictions, see Item 10.B “Memorandum and Articles of Association – Dividend and Liquidation Rights.”
Brightman, Almagor, Zohar & Co., Certified Public Accountants, a Member Firm of Deloitte, Touche, and Tohmatsu, located at One Azrieli Center, Round Building, Tel Aviv, 67021, Israel, have audited our consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2007, as set forth in their report which is incorporated by reference into this Report.
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We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, applicable to “foreign private issuers” and, in accordance therewith, are obligated to file reports, including annual reports on Form 20-F, and other information with the SEC relating to our business, financial condition and other matters. You may examine such reports, exhibits and other information filed by us with the SEC, without charge, at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C., 20549. You may also receive copies of these materials by mail from the SEC’s Public Reference Branch at 100 F Street, N.E., Room 1580, Washington, D.C., 20549, at prescribed rates. For more information on the public reference rooms, call the SEC at 1-800-SEC-0330. The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy statements, information statements and other material that are filed through the SEC’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system. We began filing through the EDGAR system on November 6, 2002.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
Notwithstanding the foregoing, we solicit proxies and furnish proxy statements for all meetings of shareholders, a copy of which proxy statement is filed promptly thereafter with the SEC under the cover of a Current Report on Form 6-K. However, we do not distribute an annual report to our shareholders prior to our annual meeting of shareholders, as the generally accepted business practice in Israel, where we are incorporated, is not to distribute an annual report to shareholders. We post our Annual Report on Form 20-F on our web site (www.scailex.com) as soon as practicable following the filing of the Annual Report on Form 20-F with the SEC.
Not Applicable.
| ITEM 11. | | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Since approximately 80% of the Company’s assets are cash and cash equivalents invested mostly in short-term deposits in Israeli banks and short-term notes of the State of Israel, the major market risk for the Company is a reduction in interest rates in Israel and a depreciation in the Israeli shekel in the event we were to need foreign currency to acquire a business.
We do not actively hedge interest rate exposure or share prices or engage in other transactions intended to manage risks relating to interest rate and share price fluctuations. The interest income on our cash equivalents and short-term investments is sensitive to changes in the general level of market interest rates.
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PRESENTATION OF EXCHANGE RATE AND INTEREST RATE RISK
Because the Company’s operational currency is the US dollar, the table below details the balance sheet exposure to other currencies, primarily NIS, as of the periods indicated below (at fair value). Explanatory notes are provided below the table.
| U.S. Dollar
(in millions)
| Other
Currencies
(in millions)
|
|---|
| | | |
|---|
| | |
|---|
| | |
|---|
| | |
|---|
| as of June 30, 2008 | | | | 18.9 | | | 333.6 | |
| as of June 30, 2007 | | | | 99 | | | (8.9 | ) |
| as of December 31, 2007 | | | | (68.0 | ) | | 0.3 | |
| as of December 31, 2006 | | | | (17.3 | ) | | 2.0 | |
| — | The amounts shown in the table represent monetary assets less liabilities (net liabilities are represented in parentheses). |
See “Item 5. Operating And Financial Review And Prospects – Impact of Inflation and Exchange Rates”.
| ITEM 12. | | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
PART II
| ITEM 13. | | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable.
| ITEM 14. | | MATERIAL MODIFICATIONS IN THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Not applicable.
| ITEM 15. | | CONTROLS AND PROCEDURES |
Not applicable.
| ITEM 16A. | | AUDIT COMMITTEE FINANCIAL EXPERT |
Not applicable.
Not applicable.
| ITEM 16C. | | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Not applicable.
| ITEM 16D. | | EXEMPTIONS FROM THE LISTING STANDARDS FORAUDIT COMMITTEES. |
Not applicable.
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| ITEM 16E. | | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. |
Not applicable.
PART III
| ITEM 17. | | FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of this item.
| ITEM 18. | | FINANCIAL STATEMENTS |
Our audited financial statements for the year ended December 31, 2007, and the related audit report of our independent accountant, are incorporated herein by reference to our annual report on Form 20-F for the year ended December 31, 2007, which was filed with the Securities and Exchange Commission on June 30, 2008.
Scailex is filing as part of this Report the following:
Scailex Corporation Ltd. Financial Statements (Unaudited) as of June 30, 2008
Consolidated Balance Sheets as of June 30, 2008 and as of December 31, 2007
Consolidated Statements of Operations for the six-month periods ended June 30, 2008 and 2007
Condensed Consolidated Statements of Shareholders’ Equity for the six-month periods ended June 30, 2008 and 2007
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2008 and 2007
Notes to Consolidated Financial Statements as of June 30, 2008
Suny Telecom (1994) Ltd. Condensed Financial Statements (Unaudited) for the Six-Month Period ended June 30, 2008
Balance Sheet as of June 30, 2008 and as of December 31, 2007
Statement of Operations for the three and six-month periods ended June 30, 2008 and for the year ended December 31, 2007
Statement of Changes in Shareholders’ Equity for the three and six-month periods ended June 30, 2008 and for the year ended December 31, 2007
Statement of Cash Flows for the three and six-month periods ended June 30, 2008 and for the year ended December 31, 2007
Notes to the Condensed Interim Financial Statements as of June 30, 2008
Suny Telecom (1994) Ltd. Financial Statements for the Year ended December 31, 2007
Report of Certified Public Accountants
Balance Sheet as of December 31, 2007, 2006 and 2005
Statement of Operations for the three years ended December 31, 2007
Statement of Changes in Shareholders’ Equity for the three years ended December 31, 2007
Statement of Cash Flows for the three years ended December 31, 2007
Notes to the Financial Statements as of December 31, 2007
Din Dynamic Ltd. Condensed Financial Statements (Unaudited) for the Six-Month Period ended June 30, 2008
Balance Sheet as of June 30, 2008 and as of December 31, 2007
Statement of Operations for the three and six-month periods ended June 30, 2008 and for the year ended December 31, 2007
Statement of Changes in Shareholders’ Equity for the three and six-month periods ended June 30, 2008 and for the year ended December 31, 2007
Statement of Cash Flows for the three and six-month periods ended June 30, 2008 and for the year ended December 31, 2007
Notes to the Condensed Interim Financial Statements as of June 30, 2008
Din Dynamic Ltd. Financial Statements for the Year ended December 31, 2007
Report of Certified Public Accountants
Balance Sheet as of December 31, 2007, 2006 and 2005
Statement of Operations for the three years ended December 31, 2007
Statement of Changes in Shareholders’ Equity for the three years ended December 31, 2007
Statement of Cash Flows for the three years ended December 31, 2007
Notes to the Financial Statements as of December 31, 2007
Unaudited Pro Forma Condensed Combined Financial Statements for the Year ended December 31, 2007 and the Six Months Ended June 30, 2008
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2008
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2007 and six-month period ended June 30, 2008
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
100
| 1.1 | | Memorandum of Association of the Registrant. (1) |
| 1.2 | | Amended and Restated Articles of Association of the Registrant. (2) |
| 4(a)(1) | | Asset Purchase Agreement, dated November 24, 2003, between Eastman Kodak Company, the Registrant, Scitex Digital Printing, Inc. and Scitex Development Corp. (3) |
| 4(a)(2) | | Asset Purchase Agreement, dated August 11, 2005, between Hewlett-Packard Company and Scitex Vision Ltd. and the First Amendment thereto, dated November 1, 2005. (4) |
| 4(a)(3) | | Jemtex Reorganization Agreement, dated August 4, 2006, and amendments thereto dated September 2006 and January 4, 2007, between Scailex Corp. Ltd., Avi Raby and Yehoshua Sheinman. (5) |
| 4(a)(4) | | Shareholders Agreement, dated December 21, 2006, and amendments thereto dated February 2007 and May 10, 2007, between Scailex Corporation Ltd. and Linura Holdings AG (6) |
| 4(a)(5) | | Memorandum of Understanding dated February 18, 2007 and addendum dated February 19, 2007, between Petroleum Capital Holdings Ltd., Scailex Corporation Ltd. and Israel Corporation Ltd. (7) |
| 4(a)(6) | | Globecom Management Agreement, dated May 1, 2007, between Scailex Corporation Ltd. and Globecom Investments Ltd. (8) |
| 4(a)(7) | | Deed of Undertaking, dated May 10, 2007, between Petroleum Capital Holdings Ltd., Scailex Corporation Ltd. and Israel Corporation Ltd. (9) |
| 4(a)(9) | | Share Purchase Agreement, dated March 26, 2008, between Scailex Corporation Ltd. and Linura Holdings AG (10) |
| 4(a)(10) | | The PCH Sale Agreement, dated April 10, 2008, between Scailex Corporation Ltd. and Israel Petrochemicals Enterprise Ltd. (11) |
| 4(a)(11) | | Escrow Settlement Agreement, dated May 5, 2008, between Scailex Corporation Ltd. and Hewlett-Packard Company [Translation from Hebrew] (12) |
| 4(a)(12) | | Asset Purchase Agreement, dated September 29, 2008, between Suny Electronics Ltd., Suny Telecom Ltd., and Din Dynamic Ltd., on the one part, and Scailex Corporation Ltd., on the other part [Translation from Hebrew] |
| 4(a)(13) | | Service Agreement, dated September 29, 2008, between Scailex Corporation Ltd. and Suny Electronics Ltd. relating to services provided by Scailex [Translation from Hebrew] |
| 4(a)(14) | | Service Agreement, dated September 29, 2008, between Scailex Corporation Ltd. and Suny Electronics Ltd. relating to services provided by Suny [Translation from Hebrew] |
| 4(c)(1) | | Form of the Letter of Indemnification provided to office holders. (13) |
| 4(c)(2) | | The 2001 Stock Option Plan (as amended, 2003). (14) |
| 4(c)(3) | | The 2003 Share Option Plan. (15) |
| 4(d)(1) | | Services Agreement, dated November 1, 2001, between Clal and the Registrant (as amended, 2004). (16) |
| 4(d)(2) | | Services Agreement, dated March 1, 2004, between Discount Investment Corporation Ltd. and the Registrant. (17) |
| 8 | | List of Subsidiaries of the Registrant. |
| (1) | Incorporated by reference to Exhibit 1.1 to our Annual Report on Form 20-F for the year ended December 31, 2005, filed June 28, 2006. |
| (2) | Incorporated by reference to Exhibit 1.2 to our Annual Report on Form 20-F for the year ended December 31, 2005, filed June 28, 2006. |
101
| (3) | Incorporated by reference to Exhibit 4(a)(2) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2003, filed June 30, 2004. |
| (4) | Incorporated by reference to Exhibit 4(a)(5) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2003, filed June 28, 2006. |
| (5) | Incorporated by reference to Exhibit 4(a)(3) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 19, 2007. |
| (6) | Incorporated by reference to Exhibit 4(a)(4) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 19, 2007. |
| (7) | Incorporated by reference to Exhibit 4(a)(5) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 19, 2007. |
| (8) | Incorporated by reference to Exhibit 4(a)(6) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 19, 2007. |
| (9) | Incorporated by reference to Exhibit 4(a)(7) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 19, 2007. |
| (10) | Incorporated by reference to Exhibit 4(a)(9) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 30, 2008. |
| (11) | Incorporated by reference to Exhibit 4(a)(10) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2007, filed June 30, 2008. |
| (12) | Incorporated by reference to Exhibit 4(a)(11) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 30, 2008. |
| (13) | Incorporated by reference to Appendix B to our Proxy Statement filed under the cover of a Current Report on Form 6-K filed December 1, 2005. |
| (14) | Incorporated by reference to Exhibit (d)(4) to our Tender Offer Statement on Schedule TO filed May 14, 2004. |
| (15) | Incorporated by reference to Appendix B to our Proxy Statement filed under the cover of a Current Report on Form 6-K filed December 3, 2003. |
| (16) | Incorporated by reference to Exhibit 4(d)(1) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2003, filed June 30, 2004. |
| (17) | Incorporated by reference to Exhibit 4(d)(3) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2003, filed June 30, 2004. |
102
SCAILEX CORPORATION LTD.
FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
SCAILEX CORPORATION LTD.
FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
TABLE OF CONTENTS
F - 1
SCAILEX CORPORATION LTD.
CONSOLIDATED BALANCE SHEETS
| June 30
| December 31
|
|---|
| 2008
| 2007
|
|---|
| (Unaudited)
| (Audited)
|
|---|
| US dollars in thousands
|
|---|
| | | |
|---|
| A s s e t s | | | | | | | | |
| CURRENT ASSETS: | | |
| Cash and cash equivalents | | | | 14,416 | | | 111,360 | |
| Available-for-sale financial assets | | | | - | | | 308,411 | |
| Securities held-to-maturity | | | | 4,840 | | | 2,091 | |
| Receivable from related party | | | | 341,681 | | | - | |
| Other receivables | | | | 423 | | | 3,165 | |
| Current assets of discontinued operations | | | | 310 | | | 11,844 | |
|
| |
| |
| | | | | 361,670 | | | 436,871 | |
|
| |
| |
| | | |
| INVESTMENTS AND OTHER NON-CURRENT ASSETS: | | |
| Securities held-to-maturity | | | | 3,150 | | | 8,922 | |
| Funds in respect of employee rights upon retirement | | | | 180 | | | 139 | |
|
| |
| |
| | | | | 3,330 | | | 9,061 | |
|
| |
| |
| | | |
| FIXED ASSETS | | | | 22 | | | 696 | |
|
| |
| |
| | | |
| | | | | 365,022 | | | 446,628 | |
|
| |
| |
| | |
|---|
| | |
|---|
| | |
|---|
| | |
|---|
| | |
|---|
|
|
|
| Shachar Rachim | Yahel Shachar | Ilan Ben Dov |
| CFO | CEO | Chairman of the board of directors |
Date of approval for the financial statements by the board of the directors: August 5th, 2008
F - 2
SCAILEX CORPORATION LTD.
CONSOLIDATED BALANCE SHEETS
| June 30
| December 31
|
|---|
| 2008
| 2007
|
|---|
| (Unaudited)
| (Audited)
|
|---|
| US dollars in thousands
|
|---|
| | | |
|---|
| Liabilities and shareholders' equity | | | | | | | | |
| CURRENT LIABILITIES: | | |
| Creditors and accruals | | | | 1,620 | | | 1,459 | |
| Income taxes payable | | | | 258 | | | 1,155 | |
| Current liabilities related to discontinued operation | | | | 10,567 | | | 14,699 | |
|
| |
| |
| | | | | 12,445 | | | 17,313 | |
|
| |
| |
| | | |
| LONG-TERM LIABILITIES | | |
| Liability for employee rights upon retirement, net | | | | 237 | | | 189 | |
| Deferred income taxes | | | | - | | | 8,930 | |
| Capital note from minority shareholders in a subsidiary | | | | - | | | 57,926 | |
|
| |
| |
| | | | | 237 | | | 67,045 | |
|
| |
| |
| | | |
| MINORITY INTEREST | | | | 375 | | | 16,356 | |
|
| |
| |
| SHAREHOLDERS' EQUITY: | | |
| Share capital - ordinary shares of NIS 0.12 par value (authorized | | |
| - June 30, 2008 and December 31, 2007 - 60,000,000 shares; | | |
| issued and outstanding - June 30, 2008 and December 31, 2007 - | | |
| 43,579,388 shares) | | | | 6,209 | | | 6,209 | |
| Capital surplus | | | | 281,055 | | | 281,055 | |
| Accumulated other comprehensive income (loss) | | | | (70 | ) | | 44,609 | |
| Retained earnings | | | | 97,071 | | | 46,341 | |
| Treasury shares, at cost (June 30, 2008 and December 31, 2007 - | | |
| 5,401,025 shares) | | | | (32,300 | ) | | (32,300 | ) |
|
| |
| |
| | | |
| T o t a l shareholders' equity | | | | 351,965 | | | 345,914 | |
|
| |
| |
| | | |
| | | | | 365,022 | | | 446,628 | |
|
| |
| |
| | |
|---|
| | |
|---|
| | |
|---|
| | |
|---|
| | |
|---|
|
|
|
| Shachar Rachim | Yahel Shachar | Ilan Ben Dov |
| CFO | CEO | Chairman of the board of directors |
Date of approval for the financial statements by the board of the directors: August 5th, 2008
The accompanying notes are an integral part of the financial statements
F - 3
SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Period of six months ended
June 30,
|
|---|
| 2008
| 2007
|
|---|
| (Unaudited)
|
|---|
| US dollars in thousands
|
|---|
| | | |
|---|
| GENERAL AND ADMINISTRATIVE EXPENSES | | | | (2,545 | ) | | (1,325 | ) |
| FINANCIAL INCOME, net | | | | 1,244 | | | 5,685 | |
| OTHER INCOME, net | | | | 94,976 | | | 146 | |
|
| |
| |
| | | |
| INCOME BEFORE TAXES ON INCOME | | | | 93,675 | | | 4,506 | |
| | | |
| TAXES ON INCOME | | | | (270 | ) | | (26 | ) |
| MINORITY INTEREST IN LOSS OF A SUBSIDIARY | | | | 146 | | | 18 | |
|
| |
| |
| | | |
| NET INCOME FROM CONTINUING OPERATIONS | | | | 93,551 | | | 4,498 | |
| NET INCOME FROM DISCONTINUED OPERATIONS | | | | 2,128 | | | 420 | |
|
| |
| |
| | | |
| NET INCOME FOR THE PERIOD | | | | 95,679 | | | 4,918 | |
|
| |
| |
| | | |
| EARNING PER SHARE ("EPS") - BASIC: | | |
| Continuing operations | | | | 2.45 | | | 0.13 | |
| Discontinued operation | | | | 0.05 | | | 0.01 | |
|
| |
| |
| Basic earnings per share | | | | 2.50 | | | 0.14 | |
|
| |
| |
| | | |
| Average number of shares (in thousands) | | | | 38,213 | | | 38,200 | |
|
| |
| |
| | | |
| "EPS" - DILUTED: | | |
| Continuing operations | | | | 2.45 | | | 0.13 | |
| Discontinued operation | | | | 0.05 | | | 0.01 | |
|
| |
| |
| Diluted earning per share | | | | 2.50 | | | 0.14 | |
|
| |
| |
| | | |
| Average number of shares (in thousands) | | | | 38,213 | | | 38,200 | |
|
| |
| |
The accompanying notes are an integral part of these financial statement
F - 4
SCAILEX CORPORATION LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
| Share
capital
| Capital
surplus
| Accumulated other
comprehensive
income (loss)
| Retained
earnings /
Accumulate
deficit
| Treasury
Shares
| Total
|
|---|
| U.S. dollars in thousands
|
|---|
| | | | | | | |
|---|
| | | | | | |
|---|
| | | | | | |
|---|
| BALANCE AT JANUARY 1, 2008 (audited) | | | | 6,209 | | | 281,055 | | | 44,609 | | | 46,341 | | | (32,300 | ) | | 345,914 | |
| CHANGES DURING THE SIX MONTHS ENDED | | |
| JUNE 30, 2008(unaudited): | | |
| Net income for the period | | | | | | | | | | | | | 95,679 | | | | | | 95,679 | |
| Other comprehensive income (loss), in respect of | | |
| Available-for-sale securities | | | | | | | | | | (44,682 | ) | | | | | | | | (44,682 | ) |
| Held-to-maturity securities amortization | | | | | | | | | | 3 | | | | | | | | | 3 | |
| | | | | | | | | | |
| |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | (44,679 | ) |
| | | | | | | | | | |
| |
| Dividend distributed to the company's shareholders | | | | | | | | | | | | | (44,949 | ) | | | | | (44,949 | ) |
|
| |
| |
| |
| |
| |
| |
| BALANCE AT JUNE 30, 2008(unaudited) | | | | 6,209 | | | 281,055 | | | (70 | ) | | 97,071 | | | (32,300 | ) | | 351,965 | |
|
| |
| |
| |
| |
| |
| |
| | | |
| BALANCE AT JANUARY 1, 2007 (audited) | | | | 6,205 | | | 280,637 | | | (590 | ) | | 31,082 | | | (32,300 | ) | | 285,034 | |
| CHANGES DURING THE SIX MONTHS ENDED | | |
| JUNE 30, 2007(unaudited): | | |
| Income for the period | | | | | | | | | | | | | 4,918 | | | | | | 4,918 | |
| Other comprehensive income, in respect of: | | |
| Available-for-sale securities | | | | | | | | | | 2,279 | | | | | | | | | 2,279 | |
| Held-to-maturity securities amortization | | | | | | | | | | 108 | | | | | | | | | 108 | |
| | | | | | | | | | |
| |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | 2,387 | |
| | | | | | | | | | |
| |
| Exercise of options to ordinary shares | | | | 4 | | | 412 | | | | | | | | | | | | 416 | |
| Amortization of deferred stock compensation related to | | |
| options granted to employees | | | | | | | 6 | | | | | | | | | | | | 6 | |
|
| |
| |
| |
| |
| |
| |
| BALANCE AT JUNE 30, 2007 (unaudited) | | | | 6,209 | | | 281,055 | | | 1,797 | | | 36,000 | | | (32,300 | ) | | 292,761 | |
|
| |
| |
| |
| |
| |
| |
The accompanying notes are an integral part of these condensed financial statements.
F - 5
(Continued – 1)
SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six months ended
June 30
|
|---|
| 2008
| 2007
|
|---|
| (Unaudited)
|
|---|
| U.S. dollars in thousands
|
|---|
| | | |
|---|
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| Net income | | | | 95,679 | | | 4,918 | |
| Adjustments to reconcile net income from continuing operations | | |
| to net cash provided by operating activities: | | |
| Income and expenses not involving cash flows: | | |
| Minority interests in a subsidiary | | | | 146 | | | 170 | |
| Depreciation and amortization | | | | 30 | | | 1 | |
| Amortization of deferred stock compensation | | | | - | | | 6 | |
| Loss from sale of available-for-sale securities and bonds interest | | |
| income, net | | | | 27 | | | 332 | |
| Interest and foreign exchange differences on loans/capital note from | | |
| minority shareholders in a subsidiary | | | | 181 | | | - | |
| Capital gains | | | | (83,820 | ) | | - | |
| Accrued severance pay, net | | | | 7 | | | 3 | |
| Gain from other investment | | | | - | | | (134 | ) |
| Changes in operating asset and liability items: | | |
| Increase in other receivable | | | | (356 | ) | | (2,054 | ) |
| Decrease in accounts payable and accruals | | | | (1,010 | ) | | (201 | ) |
| Net cash provided by discontinued operations | | | | 8,432 | | | 5,617 | |
|
| |
| |
| Net cash provided by operating activities | | | | 19,316 | | | 8,658 | |
|
| |
| |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| Disposal of investment in consolidated subsidiary (Appendix) | | | | (10,980 | ) | | - | |
| Acquisition of available-for-sale marketable securities | | | | - | | | (205,761 | ) |
| Proceeds from sale of marketable securities | | | | 3,999 | | | 40,114 | |
| Purchase of fixed assets | | | | (75 | ) | | (179 | ) |
| Purchase of shares in a subsidiary | | | | (57,200 | ) | | - | |
|
| |
| |
| Net cash used in investing activities | | | | (64,256 | ) | | (165,826 | ) |
|
| |
| |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | |
| Proceeds from exercise of options to ordinary shares | | | | - | | | 416 | |
| Loans received in a subsidiary, net | | | | - | | | 41,034 | |
| Dividend distributed to the shareholders | | | | (44,949 | ) | | - | |
| Net cash used in discontinued operations | | | | (7,055 | ) | | (5,608 | ) |
|
| |
| |
| Net cash provided by (used in) financing activities | | | | (52,004 | ) | | 35,842 | |
|
| |
| |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | | | | (96,944 | ) | | (121,326 | ) |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | | 111,360 | | | 228,108 | |
|
| |
| |
| CASH AND CASH EQUIVALENTS AT END OF THE PERIOD | | | | 14,416 | | | 106,782 | |
|
| |
| |
The accompanying notes are an integral part of these condensed financial statements.
F - 6
SCAILEX CORPORATION LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
None cash activities:
| | 1. | The consideration from the sale of fixed assets in the six months ended June 30, 2008 in the amount of $856 thousands has not been received as of the balance sheet date. |
| | 2. | The consideration from the sale of holdings in a subsidiary in the six months ended June 30, 2008 in the amount of $340,825 thousands has not been received as of the balance sheet date. |
Appendix – Disposal of investment in consolidated subsidiary:
| | Period of six months ended
June 30
|
|---|
| | 2008
| 2007
|
|---|
| | US dollars in thousands
|
|---|
| | | |
|---|
| | | |
|---|
| The Composition: | | |
| Working capital (excluding cash and cash | | | | | | | | |
| equivalents) | | | | 238,207 | | | - | |
| Realized loss in respect of financial assets | | |
| available for sale | | | | 17,762 | | | - | |
| Capital gain from selling the subsidiary | | | | 73,876 | | | - | |
| Receivables in respect of the sale of the | | |
| subsidiary | | | | (340,825 | ) | | - | |
| |
| |
| |
| | | | | (10,980 | ) | | - | |
| |
| |
| |
F - 7
SCAILEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
Note 1 – General:
| | The interim statements of Scailex Corporation Ltd. (the Company) as of June 30, 2008 and for the six and three months period then ended (the interim statements) were drawn up in condensed form, in accordance with generally accepted accounting principles applicable to interim statements. The accounting principles applied in preparation of the interim statements are consistent with those applied in the annual financial statements. Nevertheless, the interim statements do not include all the information and explanations required for the annual financial statements. |
| | In management’s opinion, the interim financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information, in accordance with generally accepted accounting principles, for the reported periods. Results for interim periods are not necessarily indicative of the results to be expected for the entire year. |
Note 2 – Engagements and events during the period of the report:
| | Following are the main changes that occurred during the period of the report: |
| | A. | On April 10, 2008, after the approvals of the Company’s board of directors and audit committee were given, the Company engaged in an agreement with Israel Petrochemical Enterprises Ltd. (“Petrochemicals”), which at that time had been the Company’s parent company and controlling shareholder (by virtue of its holding of 50.06% of the Company’s share capital) for the sale of 100% of the issued share capital of the wholly owned subsidiary Petroleum Capital Holdings Ltd. (“PCH”) to Petrochemicals (“PCH Sale Agreement”). The transaction was approved during the extraordinary general assembly of the Company convened on May 29, 2008. |
| | On June 30, 2008, the PCH Sale Agreement was consummated, when the consideration for 100% of PCH’s share capital, for the capital notes that PCH had issued in respect of funds injected into it by its shareholders, and for the rights of the Company and of PCH pursuant to a letter of undertaking from the Israel Corporation Ltd. dated May 10, 2007, was affixed at the sum of about $340.8 million in cash. The said sum was paid to the Company in its entirety on July 1, 2008. |
F - 8
SCAILEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
| | On the transaction consummation date, PCH held some 15.76% of the issued share capital of Oil Refineries Ltd. (“ORL”); upon consummating the transaction and the sale of the PCH shares, the Company no longer indirectly holds shares of ORL, which, as stated, it had been holding through PCH. |
| | Following the consummation of the transaction, the Company recorded a capital gain during the second quarter at the sum of about $78.5 million. |
| | B. | Within the scope of the sale of the control over the Company, the Company’s rights pursuant to a lease under which it rented its offices in Herzliya were assigned, and all equipment and improvements in the leasehold were sold for the consideration of some $0.9 million. Following this sale, the Company recognized a nominal capital gain. After the balance-sheet date, on July 31, 2008, the Company relocated its offices to 48 Ben Tsiyon Galis Street, in Petach Tikva, Israel. |
| | C. | On April 10, 2008, Petrochemicals engaged in an agreement with Suny Electornics Ltd. (“Suny”), pursuant whereto Suny acquired all of Petrochemical’s holdings of the Company (50.06% of the Company’s issued share capital on that date), such that Petrochemicals ceased to be a shareholder of the Company, while Suny became the Company’s controlling shareholder. On June 30, 2008, this agreement was consummated, once all the suspending conditions and conditions precedent stipulated in this agreement and in the PCH Sale Agreement were fulfilled, including the concurrent execution of the PCH Sale Agreement. The consideration paid to Petrochemicals in respect of this acquisition was some $219.4 million. |
| | D. | On June 30, 2008, upon the signing of the agreements for the sale of PCH’s shares and for the acquisition of the control by Suny, the Company engaged in a run-off policy for directors and officeholders who held office in the Company and in its subsidiaries, including PCH. The Company purchased insurance effective for seven years, at the inclusive sum insured per event and for the period of $30 million, and for a premium at the sum of $0.54 million. |
| | E. | Following the change in control, as stated above in clause c., and following the appointment of Mr. Ilan Ben Dov as the new chairman of the board of directors, on July 1, 2008, Mr. Eran Schwartz resigned from his office as chairman of the Company’s board of directors, and ceased to provide the services of active chairman of the board to the Company that he had been providing through Globecom Ltd.. Pursuant to the agreements with Globecom Ltd., and in light of the circumstances under which Mr. Schwartz resigned from his office as chairman, Globecom became entitled to a six-month advance notice fee, which totalled some $0.2 million; this sum was paid to Globecom after the balance-sheet date and has already been recognized as an expense in the current financial statements. |
| | F. | During June 2008, after the approvals of the board of directors and general assembly of Scailex Vision (Tel Aviv) Ltd. (“Scailex Vision”) were given, and once the court approved the execution of the distribution, Scailex Vision distributed a dividend to its shareholders at the inclusive sum of $25 million. |
| | G. | On May 20, 2008, PCH received a dividend from ORL, which totaled some $11.2 million. This dividend was recognized as “other income” in the Statement of Operations for the second quarter of 2008. |
F - 9
SCAILEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
| | H. | On March 26, 2008, the Company purchased the entire stake of Linura Holdings A.G. (“Linura”) in Petroleum Capital Holdings Ltd. (“PCH”), a subsidiary of the Company (19.9%) for the consideration of a total of $57.2 million, and received by way of assignment the capital note that PCH had issued to Linura. The consideration was paid in a single payment. Upon consummation of the acquisition of Linura’s PCH shares, PCH became a wholly owned subsidiary of the Company, and the PCH shareholders’ agreement was nullified. The Company held 15.76% of the share capital of ORL through PCH until the sale of PCH on June 30, 2008. |
| | As a result of the consummation of the said purchase, the Company generated a capital gain at the sum of about $5.2 million during the first quarter of 2008. Furthermore, the company recorded additional sum of $4.6 million as comprehensive income in its equity. |
| | I. | Pursuant to the agreement from 2005 for the sale of the majority of the assets and operations of Scailex Vision to HP, $23 million (“the Sum in Escrow”) was deposited with a trustee to secure HP’s indemnification rights. On May 5, 2008, a settlement agreement was signed between Scailex Vision and HP, which concludes the reciprocal claims between the parties in relation to the Sum in Escrow. |
| | Within the scope of the settlement agreement, HP and Scailex Vision agreed that, out of the total balance of the funds remaining in escrow, the sum of about $7.8 million is being released to Scailex Vision, the sum of about $7.4 million is being released to HP, while the balance, at the sum of about $0.6 million, is to remain in escrow to secure a particular claim in respect whereof HP is entitled to indemnification. |
| | It was further agreed that Scailex Vision shall be entitled to receive additional sums from HP in the event that HP shall win the appeal that it filed against the tax authority in Mexico on the matter of tax assessments. Scailex Vision shall be entitled to receive 75% of any payment that HP receives in relation to that appeal, subject to the stipulation that the sum that HP shall transfer to the Company shall not exceed about $3.9 million (plus interest). Scailex Vision undertook to assume half of the litigation expenses in respect of the said appeal; it has no material exposure in respect of these expenses. |
| | As a result of the settlement agreement, the provisions relating to HP’s claims were updated, and Scailex Vision generated a profit of some $2.4 million; the Company’s share of this profit is about $1.7 million. |
| | J. | In May 2008, Scailex Vision and one of its wholly owned subsidiaries signed tax assessment agreements for the years 2006-2007. Following the closure of the assessments, Scailex Vision updated the tax provisions in its books, and, as a result, recorded a profit of some $1.5 million, which was allocated to discontinued operations, as well as a tax expense at the sum of about $0.3 million, which was allocated to current operations |
F - 10
SCAILEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(UNAUDITED)
Note 3 – Equity and reserves:
| | On April 10, 2008, the Company Board of Directors approved the distribution of a cash dividend at the sum of Approximately $45 million, after determining that the distribution meets the legal tests for a distribution, in conformance with the Companies Act, 5759 – 1999; the dividend was distributed in cash to the Company’s shareholders on May 22, 2008 and accordingly the retained earnings in the shareholders equity were reduced. |
Note 4 – Subsequent events:
| | A | On July 17, 2008, the Company’s board of directors approved a plan to itself purchase shares of the Company at the volume of up to 1 million ordinary shares of the Company (about 2.6% of the Company’s listed share capital). Within the scope of this plan, the Company’s management was authorized to purchase shares from time to time on the Tel-Aviv Stock Exchange or off the floor, at the inclusive monetary volume of up to $7.5 million during a period of 12 months as of the date of the board resolution. |
| | Till September 29, 2008, pursuant to the said plan, the Company transacted a purchase of 717,381 ordinary shares of the Company, constituting about 1.9% of the Company’s issued share capital (fully diluted), at the inclusive monetary volume of some $5.7 million. |
| | B | Subsequent to the consummation of the sale of PCH, and pursuant to the Company’s intention of investing the consideration in respect of the sale in New Israeli Shekel (“NIS”) channels, the Company re-examined its functional currency. As a result of this examination, the Company reached the conclusion that its functional currency is the NIS and not the U.S. dollar, since, in light of that stated above, the Company’s economic environment is influenced by the NIS. On July 17, 2008, the Company’s board of directors approved the change of the Company’s functional currency, in such manner that, as of the Company’s financial statements for the third quarter of 2008 (the quarter ending September 30, 2008), its financial statements shall be prepared and measured in NIS instead of in U.S. dollars. |
| | C | On September 29, 2008, the Company purchased all of the assets of the Suny Telecom and Dynamic businesses for the total sum of approximately $74.8 million. Suny Telecom is engaged in the business of importing mobile cellular phones into Israel, and Dynamic is engaged in the business of reselling mobile cellular phones and related parts and services on behalf of Cellcom Israel Ltd., a major Israeli cellular network operator |
| | Pursuant to the purchase agreement entered into between the Company and Suny, the Company acquired all assets and rights (tangible and intangible) of Suny Telecom and of Dynamic in the cellular end equipment and retail market segment (excluding the shares of Suny Electronics in the possession of Suny Telecom, cash, cash equivalents and other financial assets), and all the liabilities of Suny Telecom and Dynamic in such area, including liabilities arising from the agreements assigned to the Company as part of the transferred assets or relating to these agreements, and excluding the debt of the subsidiaries to Bank Leumi le-Israel Ltd.; short term credit, short term loans (on call) and long term loans; valued added tax balances payable and provisions for Income Tax (including Employees’ Income Tax and National Insurance) for the period up to the execution date of this agreement. |
F - 11
SUNY TELECOM (1994) LTD.
CONDENSEDFINANCIAL STATEMENTS
(UNAUDITED)
FOR THESIX-MONTHPERIOD
ENDEDJUNE30, 2008
SUNY TELECOM (1994) LTD.
B A L A N C E S H E E T
| | | | | | | | | | |
| | | | | As of
June 30 | | As of
December 31 | |
| | | | |
| |
| |
| | | | | 2 0 0 8 | | 2 0 0 7 | |
| | | | |
| |
| |
| | | | | N I S , 0 0 0 | |
| | | | |
| |
| | | | | Unaudited | | | |
| | | | | | | | | | |
A S S E T S | | | | | | | | | | |
| | | | | | | | | | |
Current assets | | | | | | | | | | |
Cash and cash equivalents | | | | | | 8,124 | | | 12,787 | |
Marketable securities | | | | | | 1,794 | | | 2,355 | |
Trade receivables | | | | | | 89,592 | | | 146,145 | |
Other receivables and debit balances | | | | | | 8,232 | | | 4,406 | |
Inventory | | | | | | 16,414 | | | 27,121 | |
| | | | |
|
| |
|
| |
Total current assets | | | | | | 124,156 | | | 192,814 | |
| | | | |
|
| |
|
| |
| | | | | | | | | | |
Non-current assets | | | | | | | | | | |
Investment in shares of the parent company | | | | | | 4,004 | | | 4,004 | |
Deferred taxes | | | | | | 206 | | | 175 | |
Funded liability in excess of accrued severance pay, net | | | | | | 706 | | | 2,290 | |
Deposits | | | | | | 444 | | | 252 | |
Fixed assets | | | | | | 1,001 | | | 647 | |
Other assets | | | | | | 120 | | | 21 | |
| | | | |
|
| |
|
| |
Total non-current assets | | | | | | 6,481 | | | 7,389 | |
| | | | |
|
| |
|
| |
| | | | | | 130,637 | | | 200,203 | |
| | | | |
|
| |
|
| |
| | | | | | | | | | |
| | | | | As of
June 30 | | As of
December 31 | |
| | | | |
| |
| |
| | | | | 2 0 0 8 | | 2 0 0 7 | |
| | | | |
| |
| |
| | | | | N I S , 0 0 0 | |
| | | | |
| |
| | | | | Unaudited | | | |
| | | | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | | | |
| | | | | | | | | | |
Current Liabilities | | | | | | | | | | |
Short-term credit and current maturities of long-term loans | | | | | | 85,000 | | | – | |
Suppliers and service-providers | | | | | | 37,283 | | | 79,495 | |
Payables and credit balances | | | | | | 8,794 | | | 22,496 | |
| | | | |
|
| |
|
| |
Total current liabilities | | | | | | 131,077 | | | 101,991 | |
| | | | |
|
| |
|
| |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Shareholder’s Equity (capital deficit) | | | | | | (440 | ) | | 98,212 | |
| | | | |
|
| |
|
| |
| | | | | | 130,637 | | | 200,203 | |
| | | | |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
| | | | |
| |
| |
|
| | Davidi Piamenta | | Ilan Ben-Dov |
Approval date of the financial statements: August 21, 2008. | | Chief Executive Officer | | Director |
3
SUNY TELECOM (1994) LTD.
S T A T E M E N T O F O P E R A T I O N S
| | | | | | | | | | |
| | For the six-
month period
ended June 30 | | For the three-
month period
ended June 30 | | For the year
ended
December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | | | | |
Revenue from sales and services | | | 205,917 | | | 90,993 | | | 416,004 | |
Cost of sales and services | | | 171,452 | | | 76,502 | | | 343,007 | |
| |
|
| |
|
| |
|
| |
Gross profit | | | 34,465 | | | 14,491 | | | 72,997 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Selling expenses | | | 6,511 | | | 3,702 | | | 15,582 | |
General and administrative expenses | | | 17,063 | | | 13,367 | | | 25,985 | |
| |
|
| |
|
| |
|
| |
| | | 23,574 | | | 17,069 | | | 41,567 | |
| |
|
| |
|
| |
|
| |
Operating income (loss), before financing income | | | 10,891 | | | (2,578 | ) | | 31,430 | |
| |
|
| |
|
| |
|
| |
Financing income | | | 6,077 | | | 2,992 | | | 10,827 | |
Financing expenses | | | (1,045 | ) | | (370 | ) | | (1,232 | ) |
| |
|
| |
|
| |
|
| |
| | | 5,032 | | | 2,622 | | | 9,595 | |
| |
|
| |
|
| |
|
| |
Income before other income (expenses), net | | | 15,923 | | | 44 | | | 41,025 | |
Other income (expenses), net | | | 809 | | | 9 | | | (1 | ) |
| |
|
| |
|
| |
|
| |
Income before taxes on income | | | 16,732 | | | 53 | | | 41,024 | |
Taxes on income | | | 1,230 | | | (1,530 | ) | | 7,830 | |
| |
|
| |
|
| |
|
| |
Net income for the period | | | 15,502 | | | 1,583 | | | 33,194 | |
| |
|
| |
|
| |
|
| |
|
Attributed to: | | | | | | | | | | |
Shareholders of the Company | | | 15,502 | | | 1,583 | | | 33,194 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
4
SUNY TELECOM (1994) LTD.
S T A T E M E N T O F C H A N G E S I N S H A R E H O L D E R S’ E Q U I T Y
| | | | | | | | | | | | | | | | | | | |
| | Share capital | | Capital
reserve | | Capital
reserve in
respect of
financial
assets for
sale | | Capital
reserve from
translation adjustments | | Retained
earnings | | Total equity | |
| |
| |
| |
| |
| |
| |
| |
| | N I S , 0 0 0 |
| |
|
| | For the six-month period ended June 30, 2008 |
| |
|
| | Unaudited |
| | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2008 | | | 1 | | | 737 | | | 23 | | | (10,323 | ) | | 107,774 | | | 98,212 | |
| | | | | | | | | | | | | | | | | | | |
Changes during the period ended June 30, 2008: | | | | | | | | | | | | | | | | | | | |
Cost of share-based payment, net | | | – | | | (70 | ) | | – | | | – | | | – | | | (70 | ) |
Gains from financial assets available for sale | | | – | | | – | | | (23 | ) | | – | | | – | | | (23 | ) |
Adjustments deriving from translation of financial statements, net | | | – | | | – | | | – | | | (14,061 | ) | | – | | | (14,061 | ) |
Distribution of a cash dividend, net | | | – | | | – | | | – | | | – | | | (100,000 | ) | | (100,000 | ) |
Income for the period | | | – | | | – | | | – | | | – | | | 15,502 | | | 15,502 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance as of June 30, 2008 | | | 1 | | | 667 | | | – | | | (24,384 | ) | | 23,276 | | | (440 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
5
SUNY TELECOM (1994) LTD.
S T A T E M E N T O F C H A N G E S I N S H A R E H O L D E R S’ E Q U I T Y ( c o n t i n u e d )
| | | | | | | | | | | | | | | | | | | |
| | Share capital | | Capital
reserve | | Capital
reserve in
respect of
financial
assets for
sale | | Capital
reserve
from
translation
adjustments | | Retained
earnings | | Total equity | |
| |
| |
| |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | For the three-month period ended June 30, 2008 | |
| |
| |
| | Unaudited | |
| | | | | | | | | | | | | | | | | | | |
Balance as of April 1, 2008 | | | 1 | | | 649 | | | (229 | ) | | (17,391 | ) | | 121,693 | | | 104,723 | |
|
Changes during the period ended June 30, 2008: | | | | | | | | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 18 | | | – | | | – | | | – | | | 18 | |
Gains from financial assets available for sale | | | – | | | – | | | 229 | | | – | | | – | | | 229 | |
Adjustments deriving from translation of financial statements, net | | | – | | | – | | | – | | | (6,993 | ) | | – | | | (6,993 | ) |
Distribution of a cash dividend, net | | | – | | | – | | | – | | | – | | | (100,000 | ) | | (100,000 | ) |
Income for the period | | | – | | | – | | | – | | | – | | | 1,583 | | | 1,583 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance as of June 30, 2008 | | | 1 | | | 667 | | | – | | | (24,384 | ) | | 23,276 | | | (440 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
6
SUNY TELECOM (1994) LTD.
S T A T E M E N T O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y ( c o n t i n u e d )
| | | | | | | | | | | | | | | | | | | |
| | Share capital | | Capital
reserve | | Capital
reserve in
respect of
financial
assets for
sale | | Capital
reserve
from
translation
adjustments | | Retained
earnings | | Total equity | |
| |
| |
| |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Year ended December 31, 2007 | |
| |
| |
| | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2007 | | | 1 | | | 478 | | | 129 | | | – | | | 92,580 | | | 93,188 | |
| | | | | | | | | | | | | | | | | | | |
Changes during the year ended December 31, 2007: | | | | | | | | | | | | | | | | | | | |
Cost of share-based payments | | | – | | | 259 | | | – | | | – | | | – | | | 259 | |
Gains from financial assets available for sale | | | – | | | – | | | (106 | ) | | – | | | – | | | (106 | ) |
Adjustments deriving from translation of financial statements, net | | | – | | | – | | | – | | | (10,323 | ) | | – | | | (10,323 | ) |
Distribution of a cash dividend, net | | | – | | | – | | | – | | | | | | (18,000 | ) | | (18,000 | ) |
Income for the year | | | – | | | – | | | – | | | – | | | 33,194 | | | 33,194 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2007 | | | 1 | | | 737 | | | 23 | | | (10,323 | ) | | 107,774 | | | 98,212 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
7
SUNY TELECOM (1994) LTD.
S T A T E M E N T O F C A S H F L O W S
| | | | | | | | | | |
| | For the six-month
period ended
June 30 | | For the three-
month period
ended June 30 | | For the year ended
December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | | | | |
Cash flows - operating activities (see Appendix A below) | | | 12,204 | | | 9,437 | | | 42,597 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Cash flows - investing activities | | | | | | | | | | |
|
Sale of marketable securities, net | | | – | | | – | | | 2,493 | |
Realization of (investment in) long-term deposits, net | | | (192 | ) | | (116 | ) | | 70 | |
Purchase of fixed assets | | | (42 | ) | | (17 | ) | | (110 | ) |
Proceeds from sale of fixed assets | | | 9 | | | 9 | | | – | |
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) investing activities | | | (225 | ) | | (124 | ) | | 2,453 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Cash flows - financing activities | | | | | | | | | | |
| | | | | | | | | | |
Distribution of a cash dividend | | | (100,000 | ) | | (100,000 | ) | | (18,000 | ) |
Receipt (repayment) of short-term credit, net | | | 85,000 | | | 85,000 | | | (16,608 | ) |
| |
|
| |
|
| |
|
| |
Net cash used in financing activities | | | (15,000 | ) | | (15,000 | ) | | (34,608 | ) |
| |
|
| |
|
| |
|
| |
Translation adjustments in respect of cash balances, net | | | (1,642 | ) | | (668 | ) | | (231 | ) |
| |
|
| |
|
| |
|
| |
Increase (decrease) in cash and cash equivalents | | | (4,663 | ) | | (6,355 | ) | | 10,211 | |
Cash and cash equivalents balance - beginning of period | | | 12,787 | | | 14,479 | | | 2,576 | |
| |
|
| |
|
| |
|
| |
Cash and cash equivalents balance - end of period | | | 8,124 | | | 8,124 | | | 12,787 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
8
SUNY TELECOM (1994) LTD.
A P P E N D I C E S T O T H E S T A T E M E N T O F C A S H F L O W S
A. Adjustments required to present the cash flows from operating activities
| | | | | | | | | | |
| | For the six-month
period ended
June 30 | | For the three-
month period
ended June 30 | | For the year ended
December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | | | | |
Income during the period | | | 15,502 | | | 1,583 | | | 33,194 | |
| | | | | | | | | | |
Expenses (revenues) not involving cash flows: | | | | | | | | | | |
Depreciation and amortization | | | 382 | | | 333 | | | 321 | |
Capital loss (gain), net | | | (9 | ) | | (9 | ) | | 1 | |
Gain and revaluation of marketable securities, net | | | 229 | | | 408 | | | (275 | ) |
Revaluation of long-term deposits | | | (33 | ) | | (13 | ) | | (29 | ) |
Revaluation of investment in shares of parent company | | | (454 | ) | | (184 | ) | | (348 | ) |
Increase (decrease) in accrued severance pay, net | | | 1,290 | | | 839 | | | (629 | ) |
Increase in deferred taxes | | | (33 | ) | | 18 | | | (19 | ) |
Cost of share-based payments in the Company, net | | | (70 | ) | | 18 | | | 259 | |
| |
|
| |
|
| |
|
| |
| | | 16,804 | | | 2,993 | | | 32,475 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Changes in asset and liability items: | | | | | | | | | | |
Decrease (increase) in trade receivables | | | 36,538 | | | 4,412 | | | (24,227 | ) |
Decrease (increase) in other receivables and debit balances | | | (5,563 | ) | | (5,091 | ) | | 3,148 | |
Decrease (increase) in inventory | | | 7,223 | | | 18,440 | | | (3,919 | ) |
Increase (decrease) in trade payables | | | (31,985 | ) | | (2,667 | ) | | 23,850 | |
Increase (decrease) in other payables and credit balances | | | (10,813 | ) | | (8,650 | ) | | 11,270 | |
| |
|
| |
|
| |
|
| |
| | | (4,600 | ) | | 6,444 | | | 10,122 | |
| |
|
| |
|
| |
|
| |
Net cash provided by operating activities | | | 12,204 | | | 9,437 | | | 42,597 | |
| |
|
| |
|
| |
|
| |
B. Non-cash transactions:
| |
1. | During the report period, fixed assets and other assets were purchased with supplier credit totaling NIS 8 thousand (2007 – NIS 24 thousand). |
| |
2. | During the report period, fixed assets and other assets were purchased from the parent company against a reduction of the balance of the parent company’s debt of NIS 1,157 thousand. |
The accompanying notes are an integral part of the condensed financial statements.
9
SUNY TELECOM (1994) LTD.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
| | |
| A. | Initial adoption of the International Financial Reporting Standards |
| | |
| | These financial statements have been prepared for the first time in conformity with the International Financial Reporting Standards (“IFRS”) in a condensed format as of June 30, 2008, and for the periods of six months and three months then ended (“the Interim Statements”). The comparative figures relating to the full year 2007 are also presented in conformity with IFRS. |
| | |
| | IFRS are standards and interpretations that have been adopted by the International Accounting Standards Board, and they include international financial reporting standards, international accounting standards (IAS), as well as interpretations prescribed by the International Financial Reporting Interpretations Committee (IFRIC) or by the committee that preceded it for interpretation of international accounting standards (SIC). |
| | |
| | The Company adopted IFRS for the first time as from January 1, 2008, and therefore, the transition date for reporting in conformity with IFRS is January 1, 2007. Prior to adopting the IFRS, the Company had prepared its financial statements in conformity with generally accepted accounting principles in Israel. The Company’s last annual financial statements in conformity with generally accepted accounting principles in Israel were prepared as of December 31, 2007, and for the year then ended. |
| | |
| B. | Format for preparing the Interim Statements |
| | |
| | The Interim Statements have been prepared in conformity with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34 (“Financial Reporting for Interim Periods”), as well as in conformity with the disclosure requirements of Section D of the Israeli Securities Regulations (Immediate and Periodic Reports), 1970. |
| | |
| | These Interim Statements should be read in the context of the annual financial statements, the notes of which contain detailed information not included in the Interim Statements.
The Interim Financial Statements do not include comparative figures relating to the period ended June 30, 2007, and earnings per share data were not presented. |
| | |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES |
| | |
| In accordance with the directives of the Israeli Securities Authority from May 2008, these Interim Statements include disclosure of the significant accounting principles applied in preparation of the Interim Statements in conformity with IFRS, at the scope equivalent to that required in the annual financial statements. |
| |
| Information is presented in Note 4 regarding the reconciliation between the reporting in previous periods according to the generally accepted accounting principles in Israel (“Israeli GAAP”) and reporting in the current Interim Statements according to IFRS. |
| |
| IFRS, which shall be in effect or may be adopted early when preparing the financial statements for the full year 2008, are subject to changes and to pronouncements during the course of the year. Therefore, they cannot be prescribed now with certainty. Accordingly, changes are possible in the accounting principles applied, as will be described in this note during annual financial statements preparation. |
| | |
| A. | Reporting basis in the financial statements |
| | |
| | The Company’s financial statements have been prepared on the basis of historic cost, with the exception of various assets and liabilities, which are presented according to their fair value, as specified below. |
| | |
| | Non-monetary assets in Israel (mainly fixed assets and other assets) and equity items were measured according to the historic cost adjusted for changes in the Consumer Price Index until December 31, 2003. |
10
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | | |
| B. | Functional and Presentation Currency |
| | | |
| | 1. | Functional Currency |
| | | |
| | | Items included in the Company’s financial statements are measured on the basis of the currency that reflects the economic environment in which the Company operates, and which influences the majority of its operations (“the Functional Currency”).
According to IFRS, the Company’s Functional Currency is the U.S. dollar. |
| | | |
| | 2. | Translation of transactions and balances |
| | | |
| | | Transactions in a currency other than the Functional Currency are translated into the Functional Currency on the basis of the exchange rates prevailing as of the transaction execution date. Exchange rate differentials deriving from settling these transactions and those deriving from translations of financial assets and liabilities amounts denominated in foreign currency on the basis of end-of-period rates, are recorded to the statements of operations. |
| | | |
| | 3. | Presentation Currency |
| | | |
| | | The Company presents its financial statements in New Israeli Shekels (“the Presentation Currency”), in conformity with the provisions of the Israeli Securities Regulations (Preparation of Annual Financial Statements), 1993. The Company’s operating results and financial position are translated into the Presentation Currency, as follows: |
| | | | |
| | | (1) | Assets and liabilities were translated according to the representative exchange rates promulgated by the Bank of Israel in effect on the balance-sheet date. |
| | | | |
| | | (2) | Revenues and expenses included in the statements of operations are translated according to the actual rate of exchange on the transaction’s execution date. |
| | | | |
| | | (3) | Translation differentials resulting from the said treatment are charged directly to equity under the item “reserve from translation of financial statements.” |
| | | |
| C. | Reclassification |
| | |
| | Certain items included in the comparative figures for prior periods in the financial statements have been reclassified, in order to faithfully reflect the classification of those items in the current financial statements. |
| | |
| D. | Estimates |
| | |
| | The preparation of the Financial Statements in conformity with generally accepted accounting principles requires the Management of the Company to make estimates, assessments and assumptions that affect the reported sums relating to assets and liabilities, and contingent assets and liabilities as of the date of the financial statements, as well as the revenue and expense data during the reported periods. The actual results could differ from those estimates and assessments. |
| | |
| E. | Cash and cash equivalents |
| | |
| | Cash and cash equivalents include cash balances or demand deposits. Bank overdrafts, which must be covered upon demand and which constitute an integral part of the group’s cash management, are included as a component of cash and cash equivalents for the purposes of reporting the cash flows only. |
11
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| F. | Financial assets available for sale |
| | |
| | Certain investments of the Company are classified as financial assets available for sale. After the initial recognition, these investments are measured according to fair value, when the changes therein, with the exception of impairment losses and gains or losses from changes in the exchange rates of items classified as available for sale, are charged directly to equity, net of the tax effect. When the investment is disposed of, the gains or losses that accrued in equity are recorded to operations. |
| | |
| G. | Provision for doubtful debts |
| | |
| | The provision for doubtful debts is calculated specifically in respect of those debts whose collection, in the opinion of the Company’s Management, is doubtful. |
| | |
| H. | Inventory |
| | |
| | Inventory is valued at the lower of cost, on a “first in – first out” basis, or net realization value. Net realization value is the estimated selling price during the ordinary course of business, less an estimate of completion costs and the costs required to execute the sale. |
| | |
| I. | Fixed assets |
| | | |
| | 1. | The assets are stated at cost. Improvements and renovations are capitalized to the cost of the assets, while current maintenance and repair expenses are expensed. |
| | | |
| | 2. | Depreciation is calculated according to the “straight line” method, over the estimated useful life of the assets.
The annual depreciation rates are: |
| |
| % |
|
|
| |
Instruments and equipment | 7-25 |
Office furniture and equipment | 7-15 |
Computers and peripheral equipment | 33 |
Leasehold improvements | 7 |
| | | |
| | 3. | The residual value and the useful life of each asset are examined, at the very least every year. The changes are accounted for prospectively, as a change in accounting estimate. The need for recording an impairment provision is also examined (see Par. K. below). |
| | |
| J. | Other assets |
| | |
| | Computer software and licenses are stated at cost. The assets are amortized at the annual rate of 33%, according to the expected period of economic benefit. |
| | |
| K. | Asset impairment |
| | |
| | The Company periodically examines the need for recording an impairment provision, in order to ensure that its assets, including fair value adjustments of other fixed assets, are not stated at sums exceeding their recoverable amounts, which is the higher of the net selling price and the present value of the estimated future cash flows expected to derive from the use and realization of the assets. A recognized loss is reversed only when changes occur in the estimates used to determine the recoverable amount of the asset. |
12
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| L. | Deferred taxes |
| | |
| | Deferred taxes are computed on temporary differences between the timing of the inclusion of amounts in the financial statements and when taken into account for tax purposes. The deferred tax balances are computed according to the tax rate expected to apply when these taxes are transferred to the statement of operations, based on information known when the financial statements are prepared.
Deferred tax assets are classified as non-current assets, even if their anticipated realization date is in the short-term. |
| | |
| M. | Share-based payment |
| | |
| | The cost of employee benefits that are settled with capital instruments, such as shares or options convertible into shares of the Company and/or of the parent company, are measured according to the fair value of the capital instruments on the grant date. An additional expense is recognized if a change occurs in the terms of the arrangement, which increases its overall fair value. The cost is charged to the Company’s operating results concurrent with a corresponding increase in its equity, over the vesting period. |
| | |
| N. | Accrued severance pay, net |
| | |
| | The Company’s compensation plan falls under the scope of a “defined benefit plan,” as defined in the Standards. Therefore, the severance pay liability deriving from the plan is measured on an actuarial basis and takes into account, inter alia, estimates of future pay hikes and the employee turnover rate. The measurement is based on discounting the anticipated future cash flows according to the interest rates of high-rated NIS corporate bonds, when the payment date approximates the liability period associated with the severance benefits. In addition, the funded severance pay is measured at fair value. |
| | |
| O. | Revenue recognition |
| | |
| | Revenues from product sales are included when the products are supplied, the date that the significant risks and rewards deriving from ownership are transferred to the buyer; the Company does not retain any ongoing managerial involvement that characterizes ownership and does not retain effective control of the goods sold; the amount of revenues and costs that were generated or could be generated by the transaction may be reliably measured and the economic benefits deriving from the transaction are expected to flow to the Company. |
| | |
| | Revenues from service fees are included over the service contract period. |
| | |
| P. | Product warranties |
| | |
| | The estimated warranties, which are estimated on the basis of past experience, are expensed during the period in which the sales revenue from these products was recorded. The average warranty period in respect of the products is about 12 months. |
| | |
| Q. | Presentation of transactions between a corporation and its controlling shareholder |
| | |
| | Assets and liabilities for which a transaction was executed with a controlling shareholder are measured at their fair value on the transaction date. The difference between the fair value and the actual consideration is recorded to equity. |
13
| | |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| R. | Disclosure related to new IFRS in the period prior to its application |
| | | |
| | 1. | IAS 23 (amended) – Credit Costs |
| | | |
| | | The amendment of this Standard eliminates the possibility of expensing credit costs and requires the reporting corporation to capitalize the associated credit costs directly to the acquisition and establishment or manufacturing costs of the asset.
The Amended Standard will apply as from the financial statements for the year beginning January 1, 2009. Early adoption is possible.
According to the Company’s assessments, this Amendment has no impact on its financial position, results of operations and cash flows. |
| | | |
| | 2. | IAS 1 (amended) – Financial Statement Presentation |
| | | |
| | | Pursuant to the Amendment of IAS 1, another, separate statement must also be presented – “Statement of Comprehensive Income,” which presents, aside from total net income taken from the statement of operations, all items charged directly to equity during the report period and not deriving from certain transactions with the shareholders (other comprehensive income), such as adjustments from the translation of financial statements; fair value adjustments to financial assets classified as available for sale, adjustments to a reserve for revaluation of fixed assets, etc., as well as the tax implications on these items, which are also charged directly to equity. Alternatively, the other comprehensive income items may be presented together with statement of operations items in a single statement called “statement of comprehensive income,” which is to be presented in lieu of the statement of operations. Only those items charged to equity, which derive from certain transactions with the shareholders (such as capital raised, dividend distributions, etc.) are to be presented in the statement of changes in shareholders’ equity, as well as the total line that is transferred from the statement of comprehensive income. |
| | | |
| | | The Amendment also prescribes that in instances of a change in the comparative figures as a result of a change in an accounting principle that is being retroactively applied, restatement or reclassification, a balance sheet must also be presented for the beginning of the period of the comparative figures for which the change was made. |
| | | |
| | | The Amendment of IAS 1 will apply to the annual financial statements for periods beginning January 1, 2009, with the comparative figures being restated. Early adoption is possible. |
| | | |
| | | The effect of the Amendment of IAS 1 will require the Company to provide the requisite disclosures in the financial statements. |
| | | |
| | 3. | IFRS 2 (Amended) – Share-based Payments |
| | | |
| | | Pursuant to the Amendment of IFRS 2 (“the Amended Standard”), definition of vesting terms shall only include service conditions and performance conditions, while settlement of a grant that includes conditions other than vesting terms, whether by the Company or by the other party, is to be accounted for as an acceleration of vesting and not as forfeiture. The Amendment is to be retroactively applied to financial statements for periods beginning January 1, 2009. Early adoption is possible. |
| | | |
| | | Vesting terms include service conditions, requiring the other party to complete a defined service period, while performance conditions require the meeting of specified performance targets. Conditions that are not within the scope of service or performance conditions shall be deemed conditions that are not vesting conditions, and therefore, must be taken into account in the fair value estimate of the instrument being granted. |
14
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| R. | Disclosure regarding new IFRS in a period prior to the application thereof (continued) |
| | | |
| | 3. | IFRS 2 (amended) – Share-based Payments (continued) |
| | | |
| | | The company examines the impact of the Amended Standard on its financial statements, but cannot, at this stage, estimate its results. |
| | | |
| | 4. | IAS 32 – Financial Instruments: Presentation, and IAS 1 – Financial Statement Presentation |
| | | |
| | | The Amendment of IAS 32 changes the definition of a financial liability, a financial asset and a capital instrument, and prescribes that certain financial instruments, realizable by its holder, are to be classified as capital instruments. |
| | | |
| | | The provisions of this Amendment shall apply for annual reporting periods beginning January 1, 2009. Early adoption is possible. At this stage, the Company Management cannot estimate the implication of application of the interpretation on its financial position and operating results. |
| | | |
| | 5. | Improvements in the 2008 International Financial Reporting Standards |
| | | |
| | | In May 2008, the IASB promulgated a series of improvements to the international financial reporting standards. |
| | | |
| | | Within the scope of the improvements, amendments were made to some of the standards, which revise the method of presentation, recognition and measurement of various items in the financial statements. |
| | | |
| | | In addition, various corrections were made to terms, which have a negligible effect, if any, on the financial statements. |
| | | |
| | | Most of the amendments will come into effect as of the annual reporting period beginning on or after January 1, 2009, with early adoption possible. Most of the amendments will be applied retroactively, by adjusting the comparative figures. |
| | | |
| | | According to the Company’s assessments, the impact of the amendments on the financial statements is not expected to be material. |
| | | |
| S. | Indexed balances and balances denominated in or linked to foreign currency |
| | | |
| | 1. | Balances denominated in or linked to foreign currency are included in the financial statements according to the representative exchange rates published by the Bank of Israel. Balances linked to the consumer price index (CPI) are included on the basis of the appropriate index for each linked asset or liability. |
| | | |
| | 2. | Following are data regarding the consumer price index and the representative rate of exchange of the U.S. dollar: |
| | | |
| | | | | | | |
End of the period | | Consumer Price
Index | | Exchange rate
of USD 1 | |
| |
| |
| |
| | Points (*) | | NIS | |
| |
| |
| |
| | | | | | | |
June 2008 | | | 116.3 | | | 3.35 | |
December 2007 | | | 113.6 | | | 3.85 | |
| | | | | | | |
Rate of change during the period of | | % | | % |
| |
| |
|
| | | | | | | |
Six months ended June 30, 2008 | | | 2.4 | | | (12.8) | |
Year ended December 31, 2007 | | | 3.4 | | | (9.0) | |
| | | |
| | | (*) According to the CPI published for the month ended on the balance-sheet date on the basis of: 2000 average = 100 points. |
15
| |
NOTE 3 – | INVESTMENT IN SHARES OF THE PARENT COMPANY |
| |
| Includes an investment in 2,741,728 shares of the parent company. The investment is presented at cost. The market value of the investment as of the balance-sheet date was some NIS 25,498 thousand (on December 31, 2007 – NIS 32,928 thousand). |
| |
NOTE 4 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING |
| | |
| A. | General |
| | |
| | As described in Note 1.A., these Interim Statements are the Company’s first Interim Financial Statements prepared in conformity with IFRS. The Company initially adopted IFRS in 2008, and therefore, the transition date for reporting in conformity with IFRS is January 1, 2007. The Company prepared an opening balance sheet as of the transition date, after which IFRS reporting will begin. |
| | |
| | Prior to adopting the IFRS, the Company prepared its financial statements according to generally accepted accounting principles in Israel (“Israel GAAP”). The first annual IFRS financial statements will be as of December 31, 2008 and for the year then ended. |
| | |
| | Accordingly, the Company is presenting the following adjustments between reporting in conformity with Israel GAAP and in conformity with IFRS as of January 1, 2007 (the transition date to IFRS reporting), as of December 31, 2007 and for the year then ended. |
| | |
| | In general, IFRS 1, regarding initial adoption of the IFRS, prescribes that application of IFRS in the opening balance sheet as of the transition date is to be performed retroactively. |
| | |
| B. | Details of the exceptions elected |
| | |
| | Following are details of the exceptions that the Company elected pursuant to IFRS 1, and for which the Company is not retroactively applying the transition to IFRS reporting: |
| | | |
| | (1) | Employee benefits |
| | | |
| | | The Company applies the "corridor" method to account for actuarial gains and losses, and invoked the exception whereby the balance of deferred actuarial gains and losses were recognized as of the transition date. |
| | | |
| | (2) | Accumulated translation differentials |
| | | |
| | | The Company charged a capital reserve for accumulated translation differentials to the retained earnings balance as of January 1, 2007. |
| | | |
| | (3) | Share-based payment transactions |
| | | |
| | | Share-based payments granted prior to November 7, 2002 or which vested by January 1, 2007 are not accounted for retroactively in conformity with the provisions of IFRS 2. |
16
| |
NOTE 4 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | |
| C. | Impact of the transition to the IFRS |
| | | |
| | 1.Balance-sheet adjustments |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | January 1, 2007 | | December 31, 2007 | |
| | | | |
| |
| |
| | | | Israeli GAAP | | Effect of
transition to
IFRS | | IFRS
standards | | Israeli GAAP | | Effect of
transition to
IFRS | | IFRS
standards | |
| | | |
| |
| |
| |
| |
| |
| |
| | | Note | | N I S , 0 0 0 | | N I S , 0 0 0 | |
| | | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | 2,576 | | | – | | | 2,576 | | | 12,787 | | | – | | | 12,787 | |
Marketable securities | | | | | | 5,180 | | | – | | | 5,180 | | | 2,355 | | | – | | | 2,355 | |
Trade receivables | | | | | | 134,491 | | | – | | | 134,491 | | | 146,145 | | | – | | | 146,145 | |
Other receivables and debit balances | | | 4 | | | 8,422 | | | (113 | ) | | 8,309 | | | 4,580 | | | (174 | ) | | 4,406 | |
Inventory | | | 6 | | | 26,056 | | | (567 | ) | | 25,489 | | | 27,930 | | | (809 | ) | | 27,121 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current assets | | | | | | 176,725 | | | (680 | ) | | 176,045 | | | 193,797 | | | (983 | ) | | 192,814 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | |
Noncurrent assets | | | | | | | | | | | | | | | | | | | | | | |
Investment in shares of the parent company | | | | | | 4,004 | | | – | | | 4,004 | | | 4,004 | | | – | | | 4,004 | |
Deferred taxes | | | 3,4 | | | – | | | 120 | | | 120 | | | – | | | 175 | | | 175 | |
Funded provision in excess of accrued severance pay, net | | | 2 | | | 1,538 | | | 261 | | | 1,799 | | | 1,857 | | | 433 | | | 2,290 | |
Deposits | | | | | | 322 | | | – | | | 322 | | | 252 | | | – | | | 252 | |
Fixed assets | | | 6 | | | 1,012 | | | (54 | ) | | 958 | | | 745 | | | (98 | ) | | 647 | |
Other assets | | | 6 | | | – | | | – | | | – | | | 22 | | | (1 | ) | | 21 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total non-current assets | | | | | | 6,876 | | | 327 | | | 7,203 | | | 6,880 | | | 509 | | | 7,389 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | | | | | 183,601 | | | (353 | ) | | 183,248 | | | 200,677 | | | (474 | ) | | 200,203 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
17
| |
NOTE 4 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | |
| C. | Impact of the transition to the IFRS (continued) |
| | | |
| | 1.Balance-sheet adjustments (continued) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | January 1, 2007 | | December 31, 2007 | |
| | | | |
| |
| |
| | | | | Israeli
GAAP | | Effect of
transition to
the IFRS | | IFRS
standards | | Israeli
GAAP | | Effect of
transition to
the IFRS | | IFRS
standards | |
| | | | |
| |
| |
| |
| |
| |
| |
| | Note | | N I S , 0 0 0 | | N I S , 0 0 0 | |
| | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | | | | | |
Short-term credit and current maturities of long-term loans | | | | | | 16,608 | | | – | | | 16,608 | | | – | | | – | | | – | |
Trade payables | | | | | | 61,120 | | | – | | | 61,120 | | | 79,495 | | | – | | | 79,495 | |
Other payables and credit balances | | | | | | 12,332 | | | – | | | 12,332 | | | 22,496 | | | – | | | 22,496 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current liabilities | | | | | | 90,060 | | | – | | | 90,060 | | | 101,991 | | | – | | | 101,991 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Shareholder's Equity (capital deficit) | | | | | | | | | | | | | | | | | | | | | | |
Share capital | | | | | | 1 | | | – | | | 1 | | | 1 | | | – | | | 1 | |
Capital reserve | | | 1 | | | 315 | | | 163 | | | 478 | | | 540 | | | 197 | | | 737 | |
Capital reserve in respect of financial assets available for sale | | | 3 | | | – | | | 129 | | | 129 | | | – | | | 23 | | | 23 | |
Capital reserve from translation of financial statements | | | 6 | | | – | | | – | | | – | | | – | | | (10,323 | ) | | (10,323 | ) |
Retained earnings | | | | | | 93,225 | | | (645 | ) | | 92,580 | | | 98,145 | | | 9,629 | | | 107,774 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total equity | | | | | | 93,541 | | | (353 | ) | | 93,188 | | | 98,686 | | | (474 | ) | | 98,212 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total liabilities and equity | | | | | | 183,601 | | | (353 | ) | | 183,248 | | | 200,677 | | | (474 | ) | | 200,203 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
18
| |
NOTE 4 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | |
| C. | Impact of the transition to the IFRS (continued) |
| | | |
| | 2. Statements of operations adjustments |
| | | | | | | | | | | | | |
| | | | For the year ended December 31, 2007 | |
| | | |
| |
| | | | Israeli GAAP | | Effect of
transition to
IFRS
standards | | IFRS
standards | |
| | | |
| |
| |
| |
| | Note | | N I S , 0 0 0 | |
| | | |
| |
| | | | | | | | | | | | | |
Revenue from sales and services | | | 6 | | | 409,890 | | | 6,114 | | | 416,004 | |
Cost of sales and services | | | 1,6 | | | 339,260 | | | 3,747 | | | 343,007 | |
| | | | |
|
| |
|
| |
|
| |
Gross profit | | | | | | 70,630 | | | 2,367 | | | 72,997 | |
| | | | |
|
| |
|
| |
|
| |
|
Selling expenses | | | 6 | | | 15,587 | | | (5 | ) | | 15,582 | |
General and administrative expenses | | | | | | 25,985 | | | – | | | 25,985 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 41,572 | | | (5 | ) | | 41,567 | |
| | | | |
|
| |
|
| |
|
| |
Operating income before financing | | | | | | 29,058 | | | 2,372 | | | 31,430 | |
Financing income | | | 2,5,6 | | | 1,651 | | | 9,176 | | | 10,827 | |
Financing expenses | | | 5 | | | – | | | (1,232 | ) | | (1,232 | ) |
| | | | |
|
| |
|
| |
|
| |
Income before other expenses | | | | | | 30,709 | | | 10,316 | | | 41,025 | |
Capital gain (loss), net | | | | | | (1 | ) | | – | | | (1 | ) |
| | | | |
|
| |
|
| |
|
| |
Income before taxes on income | | | | | | 30,708 | | | 10,316 | | | 41,024 | |
Taxes on income | | | 3 | | | 7,788 | | | 42 | | | 7,830 | |
| | | | |
|
| |
|
| |
|
| |
Net income | | | | | | 22,920 | | | 10,274 | | | 33,194 | |
| | | | |
|
| |
|
| |
|
| |
Attributed to: | | | | | | | | | | | | | |
Shareholders of the Company | | | | | | 22,920 | | | 10,274 | | | 33,194 | |
| | | | |
|
| |
|
| |
|
| |
19
| |
NOTE 4 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | |
| D. | Notes to balance sheet and statements of operations adjustments |
| | |
| | Material changes during the adoption of new accounting standards in Israel in 2007: |
| | | |
| | 1. | Share-based payments |
| | | |
| | | The Company has an option plan for employees which, according to the provisions of Accounting Standard No. 24 of the Israel Accounting Standard Board: “share-based payment”, falls within the scope of “share-based payments settled with capital instruments.” Standard 24 was applied, in accordance with its transitional provisions, for share-based payment transactions settled with capital instruments, which were executed after March 15, 2005, and which had not yet matured as of January 1, 2006. |
| | | |
| | | Upon the transition to reporting according to the international standard, as of January 1, 2007, and as specified in IFRS 1, the Company was also required to apply the provisions of IFRS 2 – “Share-based Payments” for grants of capital instruments executed prior to March 15, 2005, but subsequent to November 7, 2002, and which had not yet vested as of January 1, 2007. |
| | | |
| | 2. | Accrued severance pay, net |
| | | |
| | | According to Israeli GAAP, accrued severance pay was measured on the basis of the employee’s number of years of employment multiplied by his last monthly salary (one monthly salary for each year of employment) as of every balance-sheet date, and the funded severance pay accumulated against it was measured according to its redemption value as of every balance-sheet date, without taking into account discount rates, rates of salary hikes and future employee turnover rates. In addition, the liabilities for vacation pay and sick pay were calculated based on estimated utilization and redemption, respectively. |
| | | |
| | | All the severance pay liabilities are calculated in conformity with the international standard, according to the provisions of IAS 19 “Employee Benefits” (“IAS 19”). According to the provisions of IAS 19, the Company’s compensation plan falls within the scope of a “Defined Benefit Plan”. Therefore, the severance pay liability deriving from the plan is measured on an actuarial basis and takes into account, inter alia, estimates of future wage hikes and employee turnover rates. The measurement is based on the discounting of expected future cash flows, according to the interest rates of high-rated NIS corporate bonds, when the payment date approximates the liability period associated with the severance benefits. In addition, the funded severance pay is measured at fair value. |
| | | |
| | 3. | Investments in financial instruments |
| | | |
| | | According to Israeli GAAP, investments in securities were classified as long-term investments, which are stated on the basis of cost, after deducting an impairment provision that is not temporary in nature, or as current investments, which are presented according to their fair value, while changes therein are charged to operations. According to the IFRS, these investments are classified as financial assets available for sale and are measured according to fair value. The changes in the fair value are recorded to equity, net of the tax effect. |
20
| |
NOTE 4 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAEL GAAP AND IFRS REPORTING (continued) |
| | |
| D. | Notes to balance sheet and income or loss adjustments(continued) |
| | | |
| | 4. | Deferred taxes |
| | | |
| | | According to Israeli GAAP, deferred tax assets were classified as current assets or as non-current assets, according to the classification of the assets that generated the tax. According to the IFRS, deferred tax assets are classified as non-current assets, even if the realization date is forecasted in the short-term. |
| | | |
| | 5. | Financing income and expenses |
| | | |
| | | According to Israel GAAP, financing income and expenses, net, were presented in the statement of operations. According to the IFRS, these must be presented separately. |
| | | |
| | 6. | Functional and Presentation Currency |
| | | a. | Functional currency |
| | | | |
| | | | Items included in the Company’s financial statements are measured on the basis of the currency reflecting the economic environment in which the Company operates, and the currency influencing the majority of its operations (“the Functional Currency”). |
| | | | |
| | | | According to the IFRS, the Company’s Functional Currency is the U.S. dollar (“the Dollar”). |
| | | | |
| | | b. | Translation of transactions and balances |
| | | | |
| | | | Transactions in currencies other than the Functional Currency are translated into the Functional Currency on the basis of the exchange rates prevailing as of the transaction execution date. Exchange rate differentials, which derive from settling such transactions, and from translating sums of monetary assets and liabilities quoted in foreign currency on the basis of the year-end rates, are recorded to the statements of operations. |
| | | | |
| | | c. | Presentation currency |
| | | | |
| | | | The Company presents its financial statements, which are prepared in conformity with the IFRS, in new shekels (“the Presentation Currency”), in conformity with the provisions of the Securities Regulations (Preparation of Annual Financial Statements), 1993. The Company’s operating results and financial position are translated into the Presentation Currency, as follows: |
| | | |
| | (1) | Assets and liabilities were translated according to the representative exchange rates promulgated by the Bank of Israel in effect on the balance-sheet date. |
| | | |
| | (2) | Revenues and expenses included in the statements of operations are translated according to the actual rate of exchange on the transaction execution date. |
| | | |
| | (3) | Translation differentials created as a result of such accounting treatment are charged directly to equity under the item “capital reserve from translation of financial statements.” |
| |
NOTE 5 – | SUBSEQUENT EVENTS |
| |
| On August 6, 2008, the parent company announced that its Management was authorized to examine the possibility of selling the Company’s operations to the public company, Scailex Corporation Ltd. (“Scailex”), whose controlling shareholder is the parent company, and to enter into negotiations with Scailex in this regard. |
21
| |
NOTE 6 – | Differences between Israeli and US GAAP |
| | The Company’s financial statements are prepared in accordance with IFRS standards, which vary, in certain significant respects, from accounting principles generally accepted in the United States of America (“US GAAP”). Information relating to the nature and effect of such principal differences is presented below, together with explanations of certain adjustments made. |
| | |
| A. | Balance sheet adjustment |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of June 30, 2008 | | As of December 31, 2007 | |
| | | | |
| |
| |
| | | | | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | |
| | | | |
| |
| |
| |
| |
| |
| |
| | Note | | N I S , 0 0 0 | | N I S , 0 0 0 | |
| | | |
| |
| |
| | | | Unaudited | | | |
| | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | – | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | 8,124 | | | – | | | 8,124 | | | 12,787 | | | – | | | 12,787 | |
Marketable securities | | | | | | 1,794 | | | – | | | 1,794 | | | 2,355 | | | – | | | 2,355 | |
Trade receivables | | | | | | 89,592 | | | – | | | 89,592 | | | 146,145 | | | – | | | 146,145 | |
Other receivables and debit | | | 1 | | | 8,232 | | | 206 | | | 8,438 | | | 4,406 | | | 175 | | | 4,581 | |
Inventory | | | | | | 16,414 | | | – | | | 16,414 | | | 27,121 | | | – | | | 27,121 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current assets | | | | | | 124,156 | | | 206 | | | 124,362 | | | 192,814 | | | 175 | | | 192,989 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | |
Non-current assets | | | | | | | | | | | | | | | | | | | | | | |
Investment in shares of the parent | | | 2 | | | 4,004 | | | (4,004 | ) | | - | | | 4,004 | | | (4,004 | ) | | - | |
Deferred taxes | | | 1 | | | 206 | | | (206 | ) | | – | | | 175 | | | (175 | ) | | – | |
Funded liability in excess of accrued severance pay, net | | | 3 | | | 706 | | | (394 | ) | | 312 | | | 2,290 | | | (433 | ) | | 1,857 | |
Deposits | | | | | | 444 | | | – | | | 444 | | | 252 | | | – | | | 252 | |
Fixed assets | | | | | | 1,001 | | | 120 | | | 1,121 | | | 647 | | | 21 | | | 668 | |
Other assets | | | | | | 120 | | | (120 | ) | | – | | | 21 | | | (21 | ) | | – | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total non-current assets | | | | | | 6,481 | | | (4,604 | ) | | 1,877 | | | 7,389 | | | (4,612 | ) | | 2,777 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | | | | | 130,637 | | | (4,398 | ) | | 126,239 | | | 200,203 | | | (4,437 | ) | | 195,766 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
22
| |
NOTE 6 – | Differences between Israeli and US GAAP (continued) |
| | |
| A. | Balance sheet adjustment(continued) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of June 30, 2008 | | As of December 31, 2007 | |
| | | | |
| |
| |
| | | | | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | |
| | | | |
| |
| |
| |
| |
| |
| |
| | Note | | N I S , 0 0 0 | | N I S , 0 0 0 | |
| | | |
| |
| |
| | | | Unaudited | | | |
| | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | | | | | | | | | | | |
Short-term credit and current maturities of long-term loans | | | | | | 85,000 | | | – | | | 85,000 | | | – | | | – | | | – | |
Suppliers and service-providers | | | | | | 37,283 | | | – | | | 37,283 | | | 79,495 | | | – | | | 79,495 | |
Payables and credit balances | | | | | | 8,794 | | | – | | | 8,794 | | | 22,496 | | | – | | | 22,496 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current liabilities | | | | | | 131,077 | | | – | | | 131,077 | | | 101,991 | | | – | | | 101,991 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Shareholder's Equity (capital deficit) | | | | | | | | | | | | | | | | | | | | | | |
Share capital | | | | | | 1 | | | – | | | 1 | | | 1 | | | – | | | 1 | |
Capital reserve | | | 4 | | | 667 | | | 203 | | | 870 | | | 737 | | | 203 | | | 940 | |
Capital reserve for financial assets available for sale | | | | | | – | | | – | | | – | | | 23 | | | (23 | ) | | – | |
Capital reserve from translation of financial statements | | | 5 | | | (24,384 | ) | | (14,383 | ) | | (38,767 | ) | | (10,323 | ) | | (13,929 | ) | | (24,252 | ) |
Retained earnings | | | 3,4,5 | | | 23,276 | | | 12,859 | | | 36,135 | | | 107,774 | | | 12,843 | | | 120,617 | |
Investment in shares of the parent company | | | | | | - | | | (3,077 | ) | | (3,077 | ) | | - | | | (3,531 | ) | | (3,531 | ) |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total equity | | | | | | (440 | ) | | (4,398 | ) | | (4,838 | ) | | 98,212 | | | (4,437 | ) | | 93,775 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total liabilities and equity | | | | | | 130,637 | | | (4,398 | ) | | 126,239 | | | 200,203 | | | (4,437 | ) | | 195,766 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
23
| |
NOTE 6 – | Differences between Israeli and US GAAP (continued) |
| | |
| B. | Statement of operations reconciliation |
| | | | | | | | | | |
| | For the period
of six months
ended June 30 | | For the period
of three months
ended June 30 | | For the year
ended
December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | | | | |
Net income per statement of operations | | | 15,502 | | | 1,583 | | | 33,194 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Items that increase net income | | | | | | | | | | |
Change in accrued severance pay, net | | | 39 | | | 42 | | | – | |
Reversal of loss from marketable securities | | | – | | | 305 | | | – | |
Change in taxes on income | | | 7 | | | – | | | 42 | |
| |
|
| |
|
| |
|
| |
| | | 46 | | | 347 | | | 42 | |
| |
|
| |
|
| |
|
| |
Items that reduce net income | | | | | | | | | | |
Change in accrued severance | | | – | | | – | | | (172 | ) |
Change in taxes on income | | | – | | | (76 | ) | | – | |
Reversal of loss from marketable securities | | | (30 | ) | | – | | | (142 | ) |
| |
|
| |
|
| |
|
| |
| | | (30 | ) | | (76 | ) | | (314 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net income according to US GAAP | | | 15,518 | | | 1,854 | | | 32,922 | |
| |
|
| |
|
| |
|
| |
| | |
| C. | Statement of cash flows adjustment |
| | |
| | There are no material changes in the Company’s statement of cash flows, for the periods of six months and three months ended June 30, 2008 and for the year ended December 31, 2007, as presented in the financial statements and between the statement of cash flows required under US GAAP. |
24
| |
NOTE 6 – | Differences between Israeli and US GAAP (continued) |
| | |
| D. | Items for adjustment of balance sheets as of December 31, 2007, 2006 and 2005 or income or loss adjustments for the periods of six months and three months ended June 30, 2008 and for the year ended December 31, 2007: |
| | | |
| | 1. | Deferred taxes |
| | | |
| | | According to IFRS, deferred tax assets are classified as non-current assets, even if their realization date is expected to be within the short-term.
According to US GAAP, deferred tax assets were classified as current assets or non-current assets, according to the classification of the asset for which they were created. |
| | | |
| | 2. | Investment in shares of parent company |
| | | |
| | | The investment was recorded initially at cost in U.S. dollars. Translation differentials arising from translation to the Presentation Currency are charged to the capital reserve from translation of financial statements. This investment was classified, in accordance with US GAAP, and presented as a contra-equity account in the Company’s separate financial statements. |
| | | |
| | 3. | Accrued severance pay, net |
| | | |
| | | All accrued severance pay liabilities are calculated, in conformity with the international standard, according to IAS 19 “Employee Benefits” (“IAS 19”). In conformity with IAS 19, the Company’s severance pay plan meets the definition of a “Defined Benefit Plan” provided in IAS 19. Therefore, the accrued severance pay liability deriving from the plan is measured on an actuarial basis and takes into account, inter alia, estimates of future wage hikes and the rate of employee turnover. The measurement is done on the basis of discounted expected future cash flows, at the interest rates of high-rated shekel corporate bonds, with a maturity date approximating the liability period associated with severance pay. Likewise, the funded severance pay is measured at fair value. |
| | | |
| | | According to US GAAP, the accrued severance pay liability is charged, under similar circumstances, as accrued, when the terms that entitle the employee to receive payment upon termination (according to Israeli law – after one year of employment, at the latest), at whatever sum the employee will be entitled to receive upon severance.
|
| | 4. | Share-based payments |
| | | |
| | | The Company has employee option plans which, in conformity with IFRS 2 – “Share-based Payment”, meets the definition of “a share-based payment settled in capital instruments”.
In conformity with IFRS, the Company applied the provisions of IFRS 2 also for capital instruments granted before March 15, 2007 but after November 7, 2002, which were not vested as of January 1, 2007.
In conformity with US GAAP, the Company’s capital instruments that were not vested as of January 1, 2006, meet the definition of “a share-based payment settled in capital instruments”. |
| | | |
| | 5. | Investments in financial instruments |
| | | |
| | | In conformity with IFRS, investments in marketable securities are classified as financial assets available for sale and are measured at fair value. Changes in fair value are recorded to equity, net of the tax effect. |
| | | |
| | | In conformity with US GAAP, investments in marketable securities were classified as investments for trading purposes, according to a decision by Management, and are measured at fair value. Changes in value are recorded to the statement of operations. |
25
Suny Telecom (1994) Ltd.
FINANCIAL STATEMENTS
AS OF DECEMBER 31
2 0 0 7
| |
GOLDSTEIN SABO TEVET - Certified Public Accountants (Isr.) | 
|
|
|
A l r o v T o w e r , 4 6 R o t h s c h i l d B l v d . , T e l - A v i v , I S R A E L 6 6 8 8 3 . |
P h o n e: ( 9 7 2 ) ( 3 ) 5 6 6 5 0 0 6 . F a c s i m i le : ( 9 7 2 ) ( 3 ) 5 6 6 5 0 0 1 . W e b s i t e: w w w . g s t . c o . i l |
Auditors’ Report to the Shareholders of
Suny Telecom (1994) Ltd.
We have audited the accompanying balance sheets of Suny Telecom (1994) Ltd. (“the Company”) as of December 31, 2007, 2006 and 2005 and the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for each of the years then ended. These financial statements are the responsibility of the board of directors and management of the Company. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the company’s board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007, 2006 and 2005 and the results of operations, changes shareholders’ equity and cash flows for each of the years then ended, in conformity with generally accepted accounting principles in Israel.
As explained in Note 2.A, the financial statements are presented in reported amounts, in accordance with the Accounting Standards of the Israel Accounting Standards Board.
Accounting standards accepted in Israel vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such principal differences is presented in Note 24 to the financial statements.
| |
| Goldstein Sabo Tevet |
Tel Aviv, March 25, 2008 | Certified Public Accountants (Isr.) |
SUNY TELECOM (1994) LTD.
B A L A N C E S H E E T
| | | | | | | | | | | | | |
| | | | As of December 31 | |
| | | |
| |
| | Note | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | | |
| |
| |
| |
| | | | R e p o r t e d N I S , 0 0 0 | |
| | | |
| |
|
A S S E T S | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | |
Cash and cash equivalents | | | 3 | | | 12,787 | | | 2,576 | | | 12,876 | |
Marketable securities | | | 4 | | | 2,355 | | | 5,180 | | | 4,746 | |
Trade receivables | | | 5 | | | 146,145 | | | 134,491 | | | 175,888 | |
Other receivables and debit balances | | | 6 | | | 4,580 | | | 8,422 | | | 18,916 | |
Inventory | | | | | | 27,930 | | | 26,056 | | | 67,465 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 193,797 | | | 176,725 | | | 279,891 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Long-term investments and receivables | | | | | | | | | | | | | |
Investment in shares of parent company | | | 7 | | | 4,004 | | | 4,004 | | | 4,004 | |
Deposits | | | | | | 252 | | | 322 | | | 521 | |
Funded liability in excess of accrued severance pay | | | 8 | | | 1,857 | | | 1,538 | | | 819 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 6,113 | | | 5,864 | | | 5,344 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Fixed assets | | | 9 | | | 745 | | | 1,012 | | | 1,429 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Other assets | | | 10 | | | 22 | | | – | | | – | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 200,677 | | | 183,601 | | | 286,664 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | As of December 31 | |
| | | |
| |
| | Note | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | | |
| |
| |
| |
| | | | R e p o r t e d N I S , 0 0 0 | |
| | | |
| |
| | | | | |
Liabilities and Equity | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Current liabilities | | | 11 | | | – | | | 16,608 | | | 455 | |
Short-term credit | | | 12 | | | 79,495 | | | 61,120 | | | 90,888 | |
Trade payables | | | 13 | | | 22,496 | | | 12,332 | | | 107,915 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 101,991 | | | 90,060 | | | 199,258 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Commitments, liens and guarantees | | | 14, 23 | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Shareholders’ equity | | | | | | | | | | | | | |
Share capital | | | 15 | | | 1 | | | 1 | | | 1 | |
Capital reserves | | | | | | 540 | | | 315 | | | – | |
Retained earnings | | | | | | 98,145 | | | 93,225 | | | 87,405 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 98,686 | | | 93,541 | | | 87,406 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 200,677 | | | 183,601 | | | 286,664 | |
| | | | |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
| | | |
| /s/ Ilan Ben-Dov | | /s/ Shahar Landau |
|
| |
|
| Ilan Ben-Dov | | Shahar Landau |
| Director | | Director |
Approval date of financial statements: March 25, 2008
3
SUNY TELECOM (1994) LTD.
S T A T E M E N T O F O P E R A T I O N S
| | | | | | | | | | | | | |
| | | | For the year ended December 31 | |
| | | |
| |
| | | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | | |
| |
| |
| |
| | | | R e p o r t e d N I S , 0 0 0 | |
| | | |
| |
| | | | | | | | | | | | | |
Revenue from sales and services | | | 16 | | | 409,890 | | | 463,397 | | | 637,078 | |
Cost of sales and services | | | 17 | | | 339,260 | | | 367,976 | | | 494,596 | |
| | | | |
|
| |
|
| |
|
| |
Gross profit | | | | | | 70,630 | | | 95,421 | | | 142,482 | |
| | | | |
|
| |
|
| |
|
| |
Selling expenses | | | 18 | | | 15,587 | | | 20,563 | | | 24,101 | |
General and administrative expenses | | | 19 | | | 25,985 | | | 30,008 | | | 37,365 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 41,572 | | | 50,571 | | | 61,466 | |
| | | | |
|
| |
|
| |
|
| |
Operating income before financing | | | | | | 29,058 | | | 44,850 | | | 81,016 | |
Financing income, net | | | 20 | | | 1,651 | | | 371 | | | 35,317 | |
| | | | |
|
| |
|
| |
|
| |
Income before other expenses | | | | | | 30,709 | | | 45,221 | | | 116,333 | |
Capital gain (loss), net | | | | | | (1 | ) | | 111 | | | 90 | |
| | | | |
|
| |
|
| |
|
| |
Income before taxes on income | | | | | | 30,708 | | | 45,332 | | | 116,423 | |
Taxes on income | | | 21 | | | 7,788 | | | 14,512 | | | 27,076 | |
| | | | |
|
| |
|
| |
|
| |
Net income | | | | | | 22,920 | | | 30,820 | | | 89,347 | |
| | | | |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
4
SUNY TELECOM (1994) LTD.
Statement of Changes in Shareholders’ Equity
| | | | | | | | | | | | | |
| | Share capital | | Capital reserve | | Retained earnings | | Total | |
| |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | | | | |
Balance as of January 1, 2005 | | (*) | 1 | | | – | | | 148,058 | | | 148,059 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2005: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cash dividend distribution, net | | | – | | | – | | | (150,000 | ) | | (150,000 | ) |
Income for the year | | | – | | | – | | | 89,347 | | | 89,347 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2005 | | (*) | 1 | | | – | | | 87,405 | | | 87,406 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2006: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 315 | | | – | | | 315 | |
Cash dividend distribution, net | | | – | | | – | | | (25,000 | ) | | (25,000 | ) |
Income for the year | | | – | | | – | | | 30,820 | | | 30,820 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2006 | | (*) | 1 | | | 315 | | | 93,225 | | | 93,541 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2007: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 225 | | | – | | | 225 | |
Cash dividend distribution, net | | | – | | | – | | | (18,000 | ) | | (18,000 | ) |
Income for the year | | | – | | | – | | | 22,920 | | | 22,920 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2007 | | (*) | 1 | | | 540 | | | 98,145 | | | 98,686 | |
| |
|
| |
|
| |
|
| |
|
| |
(*) Rounded to the nearest NIS 1 thousands.
The accompanying notes are an integral part of the financial statements.
5
SUNY TELECOM (1994) LTD.
S T A T E M E N T O F C A S H F L O W S
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | |
Cash flows – operating activities | | | | | | | | | | |
| | | | | | | | | | |
Income for the year | | | 22,920 | | | 30,820 | | | 89,347 | |
Adjustments to present cash flows from operating activities (see Appendix A) | | | 19,446 | | | (31,752 | ) | | 41,100 | |
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) operating activities | | | 42,366 | | | (932 | ) | | 130,447 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Cash flows – investing activities | | | | | | | | | | |
| | | | | | | | | | |
Sale of marketable securities, net | | | 2,493 | | | – | | | 13,624 | |
Deposit in severance pay fund, net | | | – | | | (719 | ) | | (191 | ) |
Realization of long-term deposits, net | | | 70 | | | 199 | | | (111 | ) |
Purchase of fixed assets | | | (94 | ) | | (107 | ) | | (531 | ) |
Repayment of supplier credit for fixed assets | | | (16 | ) | | (5 | ) | | (16 | ) |
Proceeds from sale of fixed assets | | | – | | | 111 | | | 101 | |
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) investing activities | | | 2,453 | | | (521 | ) | | 12,876 | |
| |
|
| |
|
| |
|
| |
Cash flows – financing activities | | | | | | | | | | |
| | | | | | | | | | |
Receipt (repayment) of short-term credit, net | | | (16,608 | ) | | 16,153 | | | 386 | |
Cash dividend distribution | | | (18,000 | ) | | (25,000 | ) | | (150,000 | ) |
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) financing activities | | | (34,608 | ) | | (8,847 | ) | | (149,614 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 10,211 | | | (10,300 | ) | | (6,291 | ) |
Cash and cash equivalents balance – beginning of year | | | 2,576 | | | 12,876 | | | 19,167 | |
| |
|
| |
|
| |
|
| |
Cash and cash equivalents balance – end of year | | | 12,787 | | | 2,576 | | | 12,876 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
6
SUNY TELECOM (1994) LTD.
A P P E N D I C E S T O T H E S T A T E M E N T OF C A S H F L O W S
A. Adjustments required to present the cash flows from operating activities
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Expenses (revenues) not involving cash flows: | | | | | | | | | | |
Depreciation and amortization | | | 362 | | | 540 | | | 773 | |
Loss (gain) from revaluation of marketable securities, net | | | 332 | | | (434 | ) | | (993 | ) |
Decrease in accrued severance pay, net | | | (319 | ) | | – | | | – | |
Increase in deferred taxes | | | (61 | ) | | (42 | ) | | 52 | |
Capital loss (gain), net | | | 1 | | | (111 | ) | | (90 | ) |
Cost of share-based payment | | | 225 | | | 315 | | | – | |
| | | | | | | | | | |
Changes in asset and liability items: | | | | | | | | | | |
Decrease (increase) in trade receivables | | | (11,654 | ) | | 41,397 | | | (31,486 | ) |
Decrease in other receivables and debit balances | | | 3,903 | | | 10,536 | | | (8,359 | ) |
Decrease (increase) in inventory | | | (1,874 | ) | | 41,409 | | | (47,558 | ) |
Increase (decrease) in trade payables | | | 18,367 | | | (29,779 | ) | | 37,832 | |
Increase (decrease) in other payables and credit balances | | | 10,164 | | | (95,583 | ) | | 90,929 | |
| |
|
| |
|
| |
|
| |
| | | 19,446 | | | (31,752 | ) | | 41,100 | |
| |
|
| |
|
| |
|
| |
B. Non-cash transactions:
During the report year, other assets were purchased with supplier credit totaling NIS 24 thousand (2006 – fixed assets with credit of NIS 16 thousand; 2005 – fixed assets with credit of NIS 5 thousand).
The accompanying notes are an integral part of the condensed financial statements.
7
SUNY TELECOM (1994) LTD.
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007
| | | | |
Note 1 – | General |
| | | | |
| A. | The Company- | Suny Telecom (1994) Ltd., wholly-owned and controlled by Suny Electronics Ltd., a company whose shares are traded on the Tel Aviv Stock Exchange (“the parent company”), is engaged in the importing and marketing of cellular telephone handsets and cellular telephone accessories manufactured by Samsung Electronics Co. Ltd. (“Samsung”), and in providing service for these instruments. |
| | | |
| B. | Related party - | As defined in Opinion No. 29 of the Institute of Certified Public Accountants in Israel, including a related party as defined in the Israeli Securities Regulations (Preparation of Annual Financial Statements), 1993. |
| |
Note 2 – | Significant accounting policies |
| | | | |
| The significant accounting policies applied in preparation of the financial statements, in a manner consistent with the prior year, are: |
| | |
| A. | Financial statement reporting basis |
| | |
| | 1. | Until December 31, 2003. the Company prepared its financial statements on the basis of nominal cost adjusted for changes in the Consumer Price Index in Israel. The adjusted amounts that were included in the Company’s financial statements as of December 31, 2003 (“the transition date”) served as the starting point for financial reporting from this date henceforth. |
| | | |
| | | Condensed nominal financial statements of the Company, for tax purposes, are included in Note 22. |
| | | |
| | 2. | Financial statements in reported amounts |
| | | |
| | | The reported amounts, which relate to periods after the transition date, are comprised as follows: |
| | | |
| | | All amounts originating in the period after the transition date are included in the financial statements at nominal values. |
| | | |
| | | All amounts originating in the period before the transition date, including depreciation and amortization and changes in non-monetary items, are comprised of amounts adjusted only to the transition date, plus (or minus, as applicable) amounts in nominal values originating in changes after the transition date. |
| | | |
| | 3. | The amounts according to which the non-monetary assets and liabilities are stated in these financial statements do not necessarily represent realization value or updated economic value, but rather the reported amounts (or adjusted amounts, as applicable) of those assets, on the relevant dates. |
8
| | | |
Note 2 – | Significant accounting policies (cont.) |
| | |
| B. | Cash and cash equivalents |
| | |
| | Includes bank deposits with an original term to maturity of not more than three months. |
| | |
| C. | Marketable securities |
| | |
| | Marketable securities that constitute a current investment are stated at their market value. Changes in the value of these securities are included in the statement of operations, in the financing item. |
| | |
| D. | Provision for doubtful debts |
| | |
| | The provision for doubtful debts is calculated specifically for debts, the collection of which is doubtful in the opinion of the Company’s management. |
| | |
| E. | Inventory |
| | |
| | Inventory is valued at the lower of cost, on the basis of “first in – first out”, or market value. |
| | |
| F. | Investment in shares of parent company |
| | |
| | In accordance with the provisions of Opinion 57 of the Institute of Certified Public Accountants in Israel, the Company’s investment in the shares of a related party (the parent company) is deemed a reciprocal holding of securities. Therefore, this investment is stated at cost. |
| | |
| G. | Fixed assets |
| | | |
| | 1. | Assets are stated at cost. Improvements and renovations are capitalized to the cost of the assets, whereas current maintenance and repairs are expensed. |
| | | |
| | 2. | Depreciation is calculated by the straight-line method, over the estimated useful life of the assets. |
| | | |
| | | The annual depreciation rates are: |
| | | | |
| | | % | |
| | |
| |
Instruments and equipment | | | 7-25 | |
Office furniture and equipment | | | 7-15 | |
Computers and peripheral equipment | | | 33 | |
Vehicles | | | 15 | |
Leasehold improvements | | | 7 | |
| | | |
| | 3. | The residual value and the useful life of each asset are examined, at least at the end of every year. The changes are accounted for prospectively, as a change in accounting estimate. The need for recording an impairment provision is also examined (see Par. O. below). |
| | |
| H. | Other assets |
| | |
| | Computer software and licenses are stated at cost. The assets are amortized at an annual rate of 33%, according to the expected period of economic benefit. |
| | |
| I. | Deferred taxes |
| | |
| | Deferred taxes are calculated for temporary differences between the timing of amounts included in the adjusted financial statements and the amounts taken into account for tax purposes. Deferred tax balances are calculated according to the tax rate expected to be in effect when these taxes flow through to the statement of operations, based on information available at the time the financial statements are prepared. |
9
| | | |
Note 2 – | Significant accounting policies (cont.) |
| | | |
| J. | Share-based payment |
| | |
| | The cost of employee benefits settled in capital instruments, such as shares or options for shares of the Company and/or the parent company, is measured according to the fair value of the financial instruments on the grant date. Additional expense will be charged if a change will be made to the terms of the arrangement, which increases its total fair value. The cost is charged to the Company’s statement of operations concurrent with a corresponding increase in its shareholders’ equity, over the period in which the conditions of the service are fulfilled, a period ending on the date the employees are eligible for compensation (vesting period). |
| | |
| K. | Revenue recognition |
| | |
| | Revenues from product sales are included when the products are supplied, the date that the significant risks and rewards deriving from ownership are transferred to the buyer; the Company does not retain any ongoing managerial involvement that characterizes ownership and does not retain effective control of the goods sold; the amount of revenues and costs that were generated or could be generated by the transaction may be reliably measured, and the economic benefits deriving from the transaction are expected to flow to the Company. |
| | |
| | Revenues from service fees are included over the service contract period. |
| | |
| L. | Product warranty |
| | |
| | The estimated warranty expenses are expensed during the period in which the sales revenue from these products was recorded. The average warranty period in respect of the products is about 12 months. |
| | |
| M. | Estimates |
| | |
| | Within the framework of financial statement preparation, in conformity with generally accepted accounting principles, the Company’s management is required to use estimates and to make assessments and assumptions that impact the reported data relating to the assets and liabilities and to contingent assets and liabilities as of the date of the financial statements, and on the revenue and expense data during the reported periods. The actual results could differ from these estimates and assessments. |
| | |
| N. | Fair value of financial instruments |
| | |
| | The Company’s financial instruments are comprised of non-derivative assets and liabilities, which mainly include working capital items. |
| | |
| | Due to their nature, the fair value of the financial instruments included in working capital is generally the same or approximate their carrying value. |
| | |
| O. | Impairment of assets |
| | |
| | Periodically, the Company evaluates the need to record an impairment provision, in order to assure that its fixed assets and other assets. are not stated at an amount exceeding their “recoverable amount”, which is the higher of the net sales price and the present value of the estimated future cash flows expected to derive from the use and realization of the asset. A recognized impairment loss will be reversed only when changes have occurred in the estimates used to determine the asset’s recoverable amount. |
| | |
| P. | Reclassification |
| | |
| | Certain items included in the comparative figures for prior periods in the financial statements were reclassified, in order to faithfully reflect the classification of those items in the current financial statements. |
10
| | | |
Note 2 – | Significant accounting policies (cont.) |
| |
| Q. | Linked balances and foreign currency balances |
| | |
| | 1. | Balances denominated in or linked to foreign currency are included in the financial statements at the representative exchange rates. Balances linked to the Consumer Price Index (“CPI”) are included on the basis of the relevant CPI for each linked asset or liability. |
| | | |
| | 2. | Presented below are data on the CPI and representative exchange rate of the U.S. dollar: |
| | | | | | | |
| | Consumer Price Index (*) Points | | Exchange rate of $1 NIS | |
| |
| |
| |
| | | | | | | |
In month at end of period | | | | | | | |
December 2007 | | 113.6 | | | 3.85 | | |
December 2006 | | 109.9 | | | 4.23 | | |
December 2005 | | 110.0 | | | 4.60 | | |
| | | | | | | |
| | % | | % | |
| |
| |
| |
|
Rate of change during the year | | | | | |
Year ended December 31, 2007 | | 3.4 | | | (9.0 | ) | |
Year ended December 31, 2006 | | (0.1 | ) | | (8.1 | ) | |
Year ended December 31, 2005 | | 2.4 | | | 6.8 | | |
| | |
| (*) | According to CPI for month ended on balance sheet date, at the average basis of 2000=100 points. |
| | | |
| R. | Initial application of Accounting Standards |
| | | |
| | 1. | Beginning January 1, 2007, the Company has applied Accounting Standard No. 26 – Inventory (“the Standard”), of the Israel Accounting Standards Board (“ASB”), which provides the financial statement accounting treatment and measurement of inventory. |
| | | |
| | | The initial application of the Standard did not have a material effect on the financial statements. |
| | | |
| | 2. | Beginning January 1, 2007, the Company has applied Accounting Standard No. 27 of the ASB – Fixed Assets, and No. 28 – Amendment of Transitional Provisions of Accounting Standard 27 (“the Standards”), which provide the accounting treatment of fixed assets required in the financial statements. |
| | | |
| | | In view of the Company’s decision to apply the cost model, the initial application of the Standard did not have a material effect on the financial statements. |
| | | |
| | 3. | Beginning January 1, 2007, the Company has applied Accounting Standard No. 30 of ASB – Intangible Assets, which was published in March 2007 (“the Standard”). The Standard is based on International Accounting Standard No. 38, which provides the accounting treatment, recognition and measurement and disclosure requirements related to intangible assets that are not dealt with in another Standard. With its publication, Accounting Standard No. 20 (Amended) of ASB was cancelled. |
11
| | |
Note 2 – | Significant accounting policies (cont.) |
| |
| S. | Disclosure of the effect of new Accounting Standard in the period before application |
| | |
| | In July 2006, Accounting Standard No. 29 of the ASB (“the Standard”) was published regarding the adoption of International Financial Reporting Standards (“IFRS Standards”) in Israel. |
|
| |
| | IFRS Standards are standards and interpretations that were adopted by the International Accounting Standards Board, and they include international financial reporting standards (IFRS), international accounting standards (IAS), and interpretations prescribed by the International Financial Reporting Interpretations Committee (IFRIC) or the committee that preceded it for interpretation of international accounting standards (SIC). |
| | |
| | The Standard allows the Company to adopt the said provisions in its financial statements. If the Company elects to apply IFRS Standards, it will have to provide financial statement disclosure, inter alia, of the adjustments to shareholders’ equity or income or losses that were reported in the past for reporting periods for which their comparative periods are included in the financial statements, as a result of the transition from the existing standards to reporting according to IFRS Standards. |
| | |
| | The application of IFRS Standards could have a material effect on the Company’s assets and liabilities, and hence, also on the Company’s financial position and operating results, as they will be reflected in its financial statements. Adoption of the Standards requires the Company to evaluate the differences between the IFRS Standards and the accounting standards now practiced in Israel – which requires considerable time and resources. |
| | |
| | The Company intends to change to reporting according to IFRS Standards during 2008. The initial adoption of the IFRS Standards will be carried out while applying IFRS Standard 1 – Initial Adoption of IFRS Standards. |
12
| |
Note 3 – | Cash and cash equivalents |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
In Israeli currency | | | 3,031 | | | 545 | | | 3,956 | |
Linked to the U.S. dollar | | | 9,756 | | | 2,031 | | | 8,920 | |
| |
|
| |
|
| |
|
| |
| | | 12,787 | | | 2,576 | | | 12,876 | |
| |
|
| |
|
| |
|
| |
| |
Note 4 – | Marketable securities |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | |
Composition: | | | | | | | | | | |
Certificates of participation in mutual funds | | | 2,355 | | | 2,504 | | | 2,279 | |
Non-marketable bonds | | | – | | | 2,676 | | | 2,467 | |
| |
|
| |
|
| |
|
| |
| | | 2,355 | | | 5,180 | | | 4,746 | |
| |
|
| |
|
| |
|
| |
| |
Note 5 – | Trade receivables |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Open accounts | | | 146,016 | | | 133,440 | | | 175,121 | |
Post-dated checks and credit card vouchers receivable | | | 129 | | | 1,051 | | | 767 | |
| |
|
| |
|
| |
|
| |
| | | 146,145 | | | 134,491 | | | 175,888 | |
| |
|
| |
|
| |
|
| |
Includes major customers – partially linked to foreign currency | | | | | | | | | | |
Customer A | | | 109,612 | | | 82,714 | | | 64,853 | |
| |
|
| |
|
| |
|
| |
Customer B | | | 17,074 | | | 36,073 | | | 41,080 | |
| |
|
| |
|
| |
|
| |
Customer C | | | 19,037 | | | 14,309 | | | 50,844 | |
| |
|
| |
|
| |
|
| |
Net of provision for doubtful debts of | | | 6 | | | 39 | | | 35 | |
| |
|
| |
|
| |
|
| |
Includes related parties | | | – | | | – | | | 18,364 | |
| |
|
| |
|
| |
|
| |
13
| |
Note 6 – | Other receivables and debit balances |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Employees | | | 689 | | | 566 | | | 752 | |
Related parties | | | – | | | 6,536 | | | 2,387 | |
Government institutions | | | 3,385 | | | 927 | | | 15,620 | |
Prepaid expenses | | | 93 | | | 87 | | | 33 | |
Income receivable | | | – | | | 84 | | | – | |
Advances to suppliers | | | 239 | | | 109 | | | 53 | |
Deferred taxes | | | 174 | | | 113 | | | 71 | |
| |
|
| |
|
| |
|
| |
| | | 4,580 | | | 8,422 | | | 18,916 | |
| |
|
| |
|
| |
|
| |
| |
Note 7 – | Investment in shares of parent company |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | |
Composition: | | | | | | | | | | |
Cost | | | 4,004 | | | 4,004 | | | 4,004 | |
| |
|
| |
|
| |
|
| |
Market value | | | 32,928 | | | 46,801 | | | 48,529 | |
| |
|
| |
|
| |
|
| |
Number of shares, NIS 0.25 par value each | | | 2,741,728 | | | 2,741,728 | | | 2,741,728 | |
| |
|
| |
|
| |
|
| |
Percentage of issued capital | | | 8.39 | % | | 8.42 | % | | 8.42 | % |
| |
|
| |
|
| |
|
| |
| |
Note 8 – | Funded liability in excess of accrued severance pay |
| | | | | | | | | | | |
| | | As of December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
| | | | |
A. | Composition: | | | | | | | | | | |
| Funded liability | | | 6,190 | | | 5,789 | | | 5,295 | |
| Net of – accrued severance pay | | | 4,333 | | | 4,251 | | | 4,476 | |
| | |
|
| |
|
| |
|
| |
| | | | 1,857 | | | 1,538 | | | 819 | |
| | |
|
| |
|
| |
|
| |
| | |
| B. | The Company’s liabilities for the payment of accrued severance pay and retirement to its employees, calculated on the basis of their salary and their period of employment, are covered by premium payments for managers’ insurance and by the funded severance pay. The amounts accrued for the insurance policies were not included in the financial statements, since they are not under the Company’s control and management. |
| | |
| C. | The balance in the severance pay fund includes accrued earnings. A withdrawal from the severance pay fund is contingent on compliance with the provisions of the Severance Pay Law in Israel. |
14
Composition:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Instruments and equipment | | Furniture and office equipment | | Computers and peripheral equipment | | Vehicles | | Leasehold Improvements | | Total as of December 31 | |
| | | | | | |
| |
| | | | | | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cost (*) | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance – beginning of year | | | 6,110 | | | 768 | | | 2,000 | | | 18 | | | 13 | | | 8,909 | | | 9,194 | | | 9,367 | |
Additions for year | | | 28 | | | 7 | | | 59 | | | – | | | – | | | 94 | | | 123 | | | 536 | |
Disposals for year | | | 2,069 | | | 77 | | | 1,361 | | | 18 | | | – | | | 3,525 | | | 408 | | | 709 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | 4,069 | | | 698 | | | 698 | | | – | | | 13 | | | 5,478 | | | 8,909 | | | 9,194 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Accumulated depreciation | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance – beginning of year | | | 5,526 | | | 361 | | | 1,990 | | | 16 | | | 4 | | | 7,897 | | | 7,765 | | | 7,690 | |
Additions for year | | | 294 | | | 49 | | | 15 | | | 1 | | | 1 | | | 360 | | | 540 | | | 773 | |
Disposals for year | | | 2,069 | | | 77 | | | 1,361 | | | 17 | | | – | | | 3,524 | | | 408 | | | 698 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | 3,751 | | | 333 | | | 644 | | | – | | | 5 | | | 4,733 | | | 7,897 | | | 7,765 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net book value | | | 318 | | | 365 | | | 54 | | | – | | | 8 | | | 745 | | | 1,012 | | | 1,429 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(*) Includes cost of fully depreciated assets of | | | | | | | | | | | | | | | | 3,747 | | | 6,300 | | | 6,371 | |
| | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| | | As of December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
A. | Composition: | | | | | | | | | | |
| Cost of intangible assets | | | 24 | | | – | | | – | |
| Disposals | | | – | | | – | | | – | |
| | |
|
| |
|
| |
|
| |
| | | | 24 | | | – | | | – | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| Less – accumulated amortization | | | 2 | | | – | | | – | |
| Disposals | | | – | | | – | | | – | |
| | |
|
| |
|
| |
|
| |
| | | | 2 | | | – | | | – | |
| | |
|
| |
|
| |
|
| |
| | | | 22 | | | – | | | – | |
| | |
|
| |
|
| |
|
| |
15
| |
Note 11 – | Short-term credit |
| |
| 2006 - includes short-term bank credit bearing annual interest at the rate of 5.75%. |
| |
Note 12 – | Trade payables |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Open debts | | | 79,045 | | | 60,426 | | | 89,938 | |
Post-dated checks payable | | | 450 | | | 694 | | | 950 | |
| |
|
| |
|
| |
|
| |
| | | 79,495 | | | 61,120 | | | 90,888 | |
| |
|
| |
|
| |
|
| |
Includes major supplier overseas | | | 75,800 | | | 55,615 | | | 87,873 | |
| |
|
| |
|
| |
|
| |
| |
Note 13 – | Other payables and credit balances |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
Composition: | | | | | | | |
Employees and salary-related | | | 2,604 | | | 2,852 | | | 3,162 | |
Government institutions | | | 4,840 | | | 2,552 | | | 7,808 | |
Related parties | | | 10,894 | | | – | | | 90,318 | |
Provision for product warranty | | | 2,862 | | | 3,267 | | | 3,240 | |
Accrued expenses and sundry | | | 1,296 | | | 3,661 | | | 3,387 | |
| |
|
| |
|
| |
|
| |
| | | 22,496 | | | 12,332 | | | 107,915 | |
| |
|
| |
|
| |
|
| |
| | | |
Note 14 – | Commitments |
| |
A. | Agreements with related parties |
| | |
| Agreements were signed between the Company and related parties which arrange the business relations between them, the way transactions are effected and their financing. Company management believes that the allocation of expenses between the related parties, pursuant to these agreements, is proper. |
| | | |
B. | Exclusive distribution agreement for marketing Samsung products: |
| | |
| 1. | In July 1998, the Company entered into an agreement with Samsung (“the Samsung Agreement”), under which it was appointed the exclusive distributor in Israel and areas covered by Israeli operators, of cellular telephones using the CDMA technology manufactured by Samsung, intended for customers of Pelephone Communications Ltd. (“Pelephone”). The Samsung agreement is extended from time to time, for additional periods. |
| | | |
| | In December 2007, the Samsung Agreement was extended for an additional two years, beginning January 2008. |
16
| | |
Note 14 – | Commitments (continued) |
| | |
| 2. | In February 2001, the Company entered into additional agreements with Samsung (“the Additional Samsung Agreements”), under which it was appointed the exclusive distributor in Israel of cellular telephones using the GSM and TDMA technologies manufactured by Samsung. |
| | |
| | In October 2002, an agreement was signed extending the Company’s appointment as exclusive distributor of the cellular communication products using the GSM and TDMA technologies for a period of two years, until September 2004, subject to the conditions stipulated in the agreement. |
| | |
| | In September 2004, an agreement was signed extending the Company’s appointment as exclusive distributor of cellular communication products using the GSM technology for a two-year period, until September 2006, subject to the conditions stipulated in the agreement. |
| | |
| | In October 2006, the effective period of the agreement was extended for an additional year, commencing September 1, 2006. |
| | |
| | In October 2007, the effective period of the agreement was extended for an additional year, commencing September 1, 2007. |
| | |
| 3. | The Company markets the cellular telephones using different technologies for Pelephone, Cellcom Israel Ltd. and Partner Communications Ltd., which operate cellular communication networks in Israel. |
| | |
| 4. | Pursuant to the Samsung Agreement and the Additional Samsung Agreements, the Company has committed to provide repair services for Samsung-manufactured handsets that it sells, and to be responsible for making such repairs. |
|
Note 15 – | Share capital |
| | | | | | | |
| | As of December 31, 2007, 2006 and 2005 | |
| |
| |
| | Authorized capital | | Issued and paid-up capital | |
| |
|
|
| |
| | Number of shares | | N I S | |
| |
| |
| |
|
Ordinary shares, NIS 1 par value each | | | 23,800 | | (*) | 100 | |
| |
|
| |
|
| |
(*) Share capital is stated in the balance sheet rounded to the nearest NIS 1 thousand. | | | | | | | |
| |
Note 16 – | Revenues from sales and services |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Includes: | | | | | | | | | | |
Revenues from major customers: | | | | | | | | | | |
Customer A | | | 211,475 | | | 258,083 | | | 249,880 | |
| |
|
| |
|
| |
|
| |
Customer B | | | 102,963 | | | 104,118 | | | 172,461 | |
| |
|
| |
|
| |
|
| |
Customer C | | | 67,847 | | | 69,444 | | | 160,016 | |
| |
|
| |
|
| |
|
| |
Revenues from related company | | | 23,257 | | | 24,924 | | | 36,505 | |
| |
|
| |
|
| |
|
| |
17
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
|
Composition: | | | | | | | | | | |
Purchases (1) | | | 322,231 | | | 308,867 | | | 523,985 | |
Salaries and related expenses | | | 14,085 | | | 14,617 | | | 15,471 | |
Increase (decrease) in warranty provision | | | (404 | ) | | 26 | | | (1,203 | ) |
Other expenses (2) | | | 4,910 | | | 2,560 | | | 3,193 | |
Add (deduct) – decrease (increase) in inventory | | | (1,874 | ) | | 41,409 | | | (47,558 | ) |
| |
|
| |
|
| |
|
| |
| | | 338,948 | | | 367,479 | | | 493,888 | |
Depreciation, amortization and disposals | | | 312 | | | 497 | | | 708 | |
| |
|
| |
|
| |
|
| |
| | | 339,260 | | | 367,976 | | | 494,596 | |
| |
|
| |
|
| |
|
| |
(1) Includes purchases from major supplier | | | 283,247 | | | 268,057 | | | 457,486 | |
| |
|
| |
|
| |
|
| |
(2) Includes rental fees to related party | | | 1,620 | | | 1,620 | | | 1,627 | |
| |
|
| |
|
| |
|
| |
| |
Note 18 – | Selling expenses |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Salaries and related expenses | | | 5,185 | | | 5,953 | | | 6,302 | |
Advertising, marketing and commissions, net | | | 7,848 | | | 11,295 | | | 14,889 | |
Professional fees | | | 1,145 | | | 1,334 | | | 1,131 | |
Depreciation, amortization and disposals | | | 50 | | | 45 | | | 64 | |
Other | | | 1,359 | | | 1,936 | | | 1,715 | |
| |
|
| |
|
| |
|
| |
| | | 15,587 | | | 20,563 | | | 24,101 | |
| |
|
| |
|
| |
|
| |
| |
Note 19 – | General and administrative expenses |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | |
Composition: | | | | | | | | | | |
Salaries and related expenses | | | 641 | | | 901 | | | 2,169 | |
Office maintenance | | | 416 | | | 433 | | | 495 | |
Management fees to related party | | | 22,545 | | | 25,487 | | | 31,823 | |
Other | | | 2,383 | | | 3,187 | | | 2,878 | |
| |
|
| |
|
| |
|
| |
| | | 25,985 | | | 30,008 | | | 37,365 | |
| |
|
| |
|
| |
|
| |
18
| |
Note 20 – | Financing income, net |
| |
| Includes dividend received from the parent company of NIS 1,705 thousand (2006 – NIS 1,883 thousand, 2005 – NIS 32,556 thousand). |
| | | | | | | | | | | |
| | | For the year ended December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
| | | | |
A. | Composition: | | | | | | | | | | |
| Current taxes – provision | | | 7,849 | | | 14,554 | | | 27,024 | |
| Less – deferred taxes | | | (61 | ) | | (42 | ) | | 52 | |
| | |
|
| |
|
| |
|
| |
| | | | 7,788 | | | 14,512 | | | 27,076 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
B. | Reconciliation of theoretical tax to actual tax expenses: | | | | | | | | | | |
| | | | | | | | | | | |
| | | For the year ended December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
| | | | |
| Composition: | | | | | | | | | | |
| Income before taxes on income, as in Statement of Operations | | | 30,708 | | | 45,332 | | | 116,423 | |
| | |
|
| |
|
| |
|
| |
| Tax rate applicable to the Company | | | 29 | % | | 31 | % | | 34 | % |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| Theoretical tax calculated according to tax rate applicable to the Company | | | 8,905 | | | 14,053 | | | 39,584 | |
| Income for which deferred taxes were not created | | | – | | | (135 | ) | | – | |
| Adjustment for expenses that are not yet deductible/(currently deductible), net | | | 310 | | | 977 | | | (5 | ) |
| Adjustments for prior years | | | (326 | ) | | 510 | | | (241 | ) |
| Adjustment for capital gains, net | | | – | | | – | | | (31 | ) |
| Adjustment for tax-exempt income | | | (494 | ) | | (584 | ) | | (11,069 | ) |
| Adjustment for change in tax rate | | | (26 | ) | | 8 | | | – | |
| Adjustment for inflationary effect in Israel | | | (581 | ) | | (317 | ) | | (1,162 | ) |
| | |
|
| |
|
| |
|
| |
| Tax expenses, in Statement of Operations | | | 7,788 | | | 14,512 | | | 27,076 | |
| | |
|
| |
|
| |
|
| |
19
| | |
Note 21 – | Taxes on income (continued) |
| | |
| C. | The Company has been issued final tax assessments for the tax years through 2000. The tax assessment for year 2002 became final at the end of 2006. For the year 2003, an objection was filed to an assessment issued to the Company, in which it was found liable for tax in the principal amount of NIS 486 thousand. The Company assesses that the prospects for its acceptance – are good. |
| | |
| D. | Taxes under inflationary conditions |
| | |
| | According to Income Tax (Inflationary Adjustments) Law, 1985, results for tax purposes in Israel were measured on a “real” basis, adjusted to the changes in the CPI in Israel. The applicability of this law was limited, subsequent to the balance sheet date, in an Amendment to the Law, which was passed by the Knesset in February 2008. |
| | |
| | Accordingly, beginning from January 1, 2008, the results for tax purposes will be measured on a nominal basis, with certain adjustment deriving from the transitional provisions stipulated in the Amendment. |
| | |
| E. | Change in corporate tax rate |
| | |
| | On July 25, 2005, the Knesset passed an Amendment to the Income Tax Ordinance (No. 147) (Temporary Provision), 2005 (“the Amendment”). The Amendment provides a gradual reduction in the corporate tax rate in Israel, as follows: In 2008, a tax rate of 27% will apply (compared with a rate of 29% in 2007), in 2009 – 26% and from 2010 henceforth, a rate of 25% will apply. Moreover, it was provided that as from year 2010, a real capital gain will be subject to tax at a rate of 25%. |
| | |
| | The Company assesses that the Amendment does not have a material effect on the financial statements. |
20
| | |
Note 22 – | Condensed Company financial statements, in nominal values, for tax purposes |
| |
| A. | The Company includes historical nominal data for income tax purposes alone. These statements were prepared in accordance with generally accepted accounting principles on the basis of the historical cost convention, without taking into account the changes in the general purchasing power of the Israeli currency. |
| | |
| B. | Balance sheet |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Assets | | | | | | | | | | |
| | | | | | | | | | |
Current assets | | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents | | | 12,787 | | | 2,576 | | | 12,876 | |
Marketable securities | | | 2,355 | | | 5,180 | | | 4,746 | |
Trade receivables | | | 146,145 | | | 134,491 | | | 175,888 | |
|
Other receivables and debit balances | | | 4,580 | | | 8,422 | | | 18,916 | |
Inventory | | | 27,930 | | | 26,056 | | | 67,465 | |
| |
|
| |
|
| |
|
| |
| | | 193,797 | | | 176,725 | | | 279,891 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Long-term investments and receivables | | | | | | | | | | |
| | | | | | | | | | |
Investment in parent company’s shares | | | 3,630 | | | 3,630 | | | 3,630 | |
Deposits | | | 252 | | | 322 | | | 521 | |
Funded liability in excess of accrued severance pay | | | 1,857 | | | 1,538 | | | 819 | |
| |
|
| |
|
| |
|
| |
| | | 5,739 | | | 5,490 | | | 4,970 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Fixed assets | | | 731 | | | 995 | | | 1,412 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Other assets | | | 22 | | | – | | | – | |
| |
|
| |
|
| |
|
| |
| | | 200,289 | | | 183,210 | | | 286,273 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | | |
Liabilities and Equity | | | | | | | | | | |
| | | | | | | | | | |
Current liabilities | | | | | | | | | | |
| | | | | | | | | | |
Short-term credit | | | – | | | 16,608 | | | 455 | |
Trade payables | | | 79,495 | | | 61,120 | | | 90,888 | |
Other payables and credit balances | | | 22,496 | | | 12,332 | | | 107,915 | |
| |
|
| |
|
| |
|
| |
| | | 101,991 | | | 90,060 | | | 199,258 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Shareholders’ equity | | | | | | | | | | |
| | | | | | | | | | |
Share capital | | | 1 | | | 1 | | | 1 | |
Capital reserves | | | 540 | | | 315 | | | – | |
Retained earnings | | | 97,757 | | | 92,834 | | | 87,014 | |
| |
|
| |
|
| |
|
| |
| | | 98,298 | | | 93,150 | | | 87,015 | |
| |
|
| |
|
| |
|
| |
| | | 200,289 | | | 183,210 | | | 286,273 | |
| |
|
| |
|
| |
|
| |
21
| | |
Note 22 – | Condensed Company financial statements, in nominal values, for tax purposes (continued) |
| |
| C. | Statement of operations |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Revenues from sales and services | | | 409,890 | | | 463,397 | | | 637,078 | |
Cost of sales and services | | | 339,260 | | | 367,976 | | | 494,595 | |
| |
|
| |
|
| |
|
| |
Gross profit | | | 70,630 | | | 95,421 | | | 142,483 | |
| |
|
| |
|
| |
|
| |
Selling expenses | | | 15,584 | | | 20,563 | | | 24,098 | |
General and administrative expenses | | | 25,985 | | | 30,008 | | | 37,365 | |
| |
|
| |
|
| |
|
| |
| | | 41,569 | | | 50,571 | | | 61,463 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Operating income before financing income | | | 29,061 | | | 44,850 | | | 81,020 | |
Financing income, net | | | 1,651 | | | 371 | | | 35,317 | |
| |
|
| |
|
| |
|
| |
Income before other income | | | 30,712 | | | 45,221 | | | 116,337 | |
Capital gain (loss), net | | | (1 | ) | | 111 | | | 90 | |
| |
|
| |
|
| |
|
| |
Income before taxes on income | | | 30,711 | | | 45,332 | | | 116,427 | |
Taxes on income | | | 7,788 | | | 14,512 | | | 27,076 | |
| |
|
| |
|
| |
|
| |
Income for the year | | | 22,923 | | | 30,820 | | | 89,351 | |
| |
|
| |
|
| |
|
| |
| | |
| D. | Statement of changes in shareholders’ equity |
| | | | | | | | | | | | | |
| | Share capital | | Capital reserve | | Retained earnings | | Total | |
| |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | | |
Balance as of January 1, 2005 | | (*) | 1 | | | – | | | 147,663 | | | 147,664 | |
| | | | | | | | | | | | | |
Changes during the year ended
December 31, 2005: | | | | | | | | | | | | | |
Cash dividend distribution, net | | | – | | | – | | | (150,000 | ) | | (150,000 | ) |
Income for the year | | | – | | | – | | | 89,351 | | | 89,351 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2005 | | (*) | 1 | | | – | | | 87,014 | | | 87,015 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2007: | | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 315 | | | – | | | 315 | |
Cash dividend distribution, net | | | – | | | – | | | (25,000 | ) | | (25,000 | ) |
Income for the year | | | – | | | – | | | 30,820 | | | 30,820 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2007 | | (*) | 1 | | | 315 | | | 92,834 | | | 93,150 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2006: | | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 225 | | | – | | | 225 | |
Cash dividend distribution, net | | | – | | | – | | | (18,000 | ) | | (18,000 | ) |
Income for the year | | | – | | | – | | | 22,923 | | | 22,923 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2006 | | (*) | 1 | | | 540 | | | 97,757 | | | 98,298 | |
| |
|
| |
|
| |
|
| |
|
| |
(*) Rounded to the nearest NIS 1 thousand.
22
| | |
Note 23 – | Liens and guarantees |
| |
| A. | To secure the Company’s liabilities to banks, including letters of credit issued by the banks, the parent company registered liens on securities it holds. |
| | |
| B. | To secure contingent charges, the Company issued an Israeli CPI-linked bank guarantee totaling NIS 476 thousand in favor of the customs collector. |
| | |
| C. | The balance of the Company’s liabilities secured by the above liens, as of the date of the financial statements, totals NIS 75,800 thousand. |
23
| | |
Note 24 – | Differences between Israeli and US GAAP
The Company’s financial statements are prepared in accordance with accounting standards generally accepted in Israel (“Israeli GAAP”), which vary, in certain significant respects, from accounting principles generally accepted in the United States of America (“US GAAP”). Information relating to the nature and effect of such principal differences is presented below, together with explanations of certain adjustments made. |
| | |
| A. | Balance sheet adjustment |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, 2007 | | As of December 31, 2006 | |
| | | |
| |
| |
| | | | Israeli GAAP | | Effect of change to US GAAP | | US GAAP | | Israeli GAAP | | Effect of change to US GAAP | | US GAAP | |
| | | |
| |
| |
| |
| |
| |
| |
| | Note | | R e p o r t e d N I S , 0 0 0 | | R e p o r t e d N I S , 0 0 0 | |
| | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | 12,787 | | | – | | | 12,787 | | | 2,576 | | | – | | | 2,576 | |
Marketable securities | | | | | | 2,355 | | | – | | | 2,355 | | | 5,180 | | | – | | | 5,180 | |
Trade receivables | | | | | | 146,145 | | | – | | | 146,145 | | | 134,491 | | | – | | | 134,491 | |
Other receivables and debit balances | | | | | | 4,580 | | | 1 | | | 4,581 | | | 8,422 | | | – | | | 8,422 | |
Inventory | | | 1 | | | 27,930 | | | (809 | ) | | 27,121 | | | 26,056 | | | (567 | ) | | 25,489 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | 193,797 | | | (808 | ) | | 192,989 | | | 176,725 | | | (567 | ) | | 176,158 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | |
Long-term investments and receivables | | | | | | | | | | | | | | | | | | | | | | |
Investment in shares of parent company | | | 1,3 | | | 4,004 | | | (4,004 | ) | | - | | | 4,004 | | | (4,004 | ) | | - | |
Funded liability in excess of accrued severance pay | | | | | | 252 | | | – | | | 252 | | | 322 | | | – | | | 322 | |
Deposits | | | | | | 1,857 | | | – | | | 1,857 | | | 1,538 | | | – | | | 1,538 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | 6,113 | | | (4,004 | ) | | 2,109 | | | 5,864 | | | (4,004 | ) | | 1,860 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed assets | | | 1 | | | 745 | | | (77 | ) | | 668 | | | 1,012 | | | (54 | ) | | 958 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | |
Other assets | | | | | | 22 | | | (22 | ) | | – | | | – | | | – | | | – | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | | | | | 200,677 | | | (4,911 | ) | | 195,766 | | | 183,601 | | | (4,625 | ) | | 178,976 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
24
| | |
Note 24 – | Differences between Israeli and US GAAP (continued) |
| | |
| A. | Balance sheet adjustment (continued) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, 2007 | | As of December 31, 2006 | |
| | | |
| |
| |
| | | | Israeli GAAP | | Effect of change to US GAAP | | US GAAP | | Israeli GAAP | | Effect of change to US GAAP | | US GAAP | |
| | | |
| |
| |
| |
| |
| |
| |
| | Note | | R e p o r t e d N I S , 0 0 0 | | R e p o r t e d N I S , 0 0 0 | |
| | | |
| |
| |
Current liabilities | | | | | | | | | | | | | | | | | | | | | | |
Short-term credit and current maturities of long-term loans | | | | | | – | | | – | | | – | | | 16,608 | | | – | | | 16,608 | |
Trade payables | | | | | | 79,495 | | | – | | | 79,495 | | | 61,120 | | | – | | | 61,120 | |
Other payables and credit balances | | | | | | 22,496 | | | – | | | 22,496 | | | 12,332 | | | – | | | 12,332 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | 101,991 | | | – | | | 101,991 | | | 90,060 | | | – | | | 90,060 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | |
Share capital | | | | | | 1 | | | – | | | 1 | | | 1 | | | – | | | 1 | | | | |
Capital reserves | | | 2 | | | 540 | | | 400 | | | 940 | | | 315 | | | 366 | | | 681 | |
Capital reserve from translation of financial statements | | | 1 | | | – | | | (24,252 | ) | | (24,252 | ) | | – | | | (13,582 | ) | | (13,582 | ) |
Retained earnings | | | 1 | | | 98,145 | | | 22,472 | | | 120,617 | | | 93,225 | | | 12,470 | | | 105,695 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Investment in shares of parent company | | | | | | - | | | (3,531 | ) | | (3,531 | ) | | - | | | (3,879 | ) | | (3,879 | ) |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Shareholders’ equity | | | | | | 98,686 | | | (4,911 | ) | | 93,775 | | | 93,541 | | | (4,625 | ) | | 88,916 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total liabilities and equity | | | | | | 200,677 | | | (4,911 | ) | | 195,766 | | | 183,601 | | | (4,625 | ) | | 178,976 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
25
| | |
Note 24 – | Differences between Israeli and US GAAP (continued) |
| | |
| B. | Adjustment of income or loss |
| | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | |
| |
| |
| |
| | R e p o r t e d N I S t h o u s a n d s | |
| |
| |
| | | |
Net income per statement of operations | | | 22,920 | | | 30,820 | |
| |
|
| |
|
| |
| | | | | | | |
Items increasing net income | | | | | | | |
Effect of functional currency | | | 10,036 | | | 12,568 | |
| |
|
| |
|
| |
| | | 10,036 | | | 12,568 | |
| |
|
| |
|
| |
| | | | | | | |
Items reducing net income | | | | | | | |
Cost of share-based payment | | | (34 | ) | | (84 | ) |
| |
|
| |
|
| |
| | | (34 | ) | | (84 | ) |
| |
|
| |
|
| |
| | | | | | | |
Net income according to US GAAP | | | 32,922 | | | 43,304 | |
| |
|
| |
|
| |
| | |
| C. | Cash flow adjustments |
| | |
| | There are no material changes in the Company’s statement of cash flows for the years ended December 31, 2007 and 2006, between that presented in the financial statements and in the statement of cash flows required according to US GAAP. |
26
| | | | | |
Note 24 – | Differences between Israeli and US GAAP (continued) |
| |
| D. | Items for adjustment of balance sheet as of December 31, 2007 and 2006 or income or loss for the years then ended: |
| | |
| | 1. | Functional and presentation currency |
| | | | |
| | | a. | Functional Currency |
| | | | |
| | | | According to Israeli GAAP, the Company’s financial statements are denominated in the Israeli currency, and financial statement items are included on the basis of the Israeli shekel. According to US GAAP, items included in the Company’s financial statements are measured on the basis of the currency that reflects the economic environment in which the Company operates, and which influences the majority of its operations (“the Functional Currency”). |
| | | | |
| | | | According to these rules, the Company’s Functional Currency is the U.S. dollar (“the Dollar”). |
| | | | |
| | | b. | Translation of transactions and balances |
| | | | |
| | | | Transactions in a currency other than the Functional Currency are translated into the Functional Currency on the basis of the exchange rates prevailing as of the transaction execution date. Exchange rate differentials deriving from settling these transactions and deriving from translations of financial asset and liability amounts denominated in foreign currency on the basis of end-of-period rates are recorded to the statements of operations. |
| | | | |
| | | c. | Presentation Currency |
| | | | |
| | | | The Company presents its financial statements, even those in conformity with US GAAP, in New Israeli Shekels (“the Presentation Currency”). Operating results and financial position of the Company are translated into the Presentation Currency as follows: |
| | | | | |
| | | | (1) | Assets and liabilities were translated according to the representative exchange rates promulgated by the Bank of Israel in effect on the balance-sheet date. |
| | | | | |
| | | | (2) | Revenues and expenses included in the statements of operations are translated according to the actual representative exchange rate on the execution date of the transaction. |
| | | | | |
| | | | (3) | Translation differentials resulting from this accounting treatment is recorded directly to shareholders’ equity in “reserve from translation differentials”. |
|
| | 2. | Share-based payments |
| | According to Israeli GAAP, employee option plans which granted after March 15, 2005, meet the definition of “a share-based payment settled in capital instruments”. |
| | In conformity with US GAAP, the Company’s capital instruments that were not vested as of January 1, 2006, meet the definition of “a share-based payment settled in capital instruments”. |
27
| | | | | |
Note 24 – | Differences between Israeli and US GAAP (continued) |
| |
| D. | Items for adjustment of balance sheet as of December 31, 2007 and 2006 or income or loss for the years then ended (continued): |
| | |
| | 3. | Investment in the shares of the parent company |
| | | | |
| | The Company’s investment in the parents’ company shares was presented, according to Israeli GAAP, as a long term investment, based on the cost of the shares acquired. |
| | This investment should be reclassified, in accordance with US GAAP, and presented as a contra-equity account in the Company’s separate financial statements. |
28
DIN DYNAMIC LTD.
CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 2008
DIN DYNAMIC LTD.
BALANCE SHEET
| | | | | | | |
| | As of
June 30 | | As of
December 31 | |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | | |
| | | | | |
ASSETS | | | | | | | |
| | | | | |
Current Assets | | | | | | | |
Cash and cash equivalents | | | 489 | | | 486 | |
Trade receivables | | | 14,867 | | | 18,232 | |
Other receivables and debit balances | | | 4,840 | | | 5,461 | |
Inventory | | | 9,498 | | | 10,445 | |
| |
|
| |
|
| |
Total current assets | | | 29,694 | | | 34,624 | |
| |
|
| |
|
| |
Non-current Assets | | | | | | | |
Deferred taxes | | | 210 | | | 159 | |
Funded liability in excess of accrued severance pay, net | | | 392 | | | 1,476 | |
Deposits | | | 338 | | | 278 | |
Fixed assets | | | 4,623 | | | 4,528 | |
Other assets | | | 4,623 | | | 4,423 | |
| |
|
| |
|
| |
Total non-current assets | | | 10,186 | | | 10,864 | |
| |
|
| |
|
| |
| | | 39,880 | | | 45,488 | |
| |
|
| |
|
| |
| | | | | | | |
| | As of
June 30 | | As of
December 31 | |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | | |
| | | | | | | |
LIABILITIES AND EQUITY | | | | | | | |
|
Current Liabilities | | | | | | | |
| | | | | | | |
Short-term credit | | | 25,000 | | | – | |
Trade payables | | | 3,029 | | | 4,027 | |
Payables and credit balances | | | 6,384 | | | 6,802 | |
| |
|
| |
|
| |
Total current liabilities | | | 34,413 | | | 10,829 | |
| |
|
| |
|
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Shareholders' Equity | | | 5,467 | | | 34,659 | |
| |
|
| |
|
| |
| | | 39,880 | | | 45,488 | |
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
| | | |
| /s/ Ilan Ben-Dov | | /s/ Anat Shfecht |
|
| |
|
| Ilan Ben-Dov | | Anat Shfecht |
| Director | | C.E.O. |
|
Approval date of the financial statements: August 21, 2008. |
3
DIN DYNAMIC LTD.
STATEMENT OF OPERATIONS
| | | | | | | | | | |
| | For the six-month
period ended June 30 | | For the three-month
period ended June 30 | | For the year ended
December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | |
Revenue from sales and services | | | 68,077 | | | 34,436 | | | 138,180 | |
Cost of sales and services | | | 44,421 | | | 22,364 | | | 88,703 | |
| |
|
| |
|
| |
|
| |
Gross profit | | | 23,656 | | | 12,072 | | | 49,477 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Selling expenses | | | 15,706 | | | 8,336 | | | 30,406 | |
General and administrative expenses | | | 6,542 | | | 4,094 | | | 10,061 | |
| |
|
| |
|
| |
|
| |
| | | 22,248 | | | 12,430 | | | 40,467 | |
| |
|
| |
|
| |
|
| |
Operating income (loss), before financing income | | | 1,408 | | | (358 | ) | | 9,010 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Financing income | | | 76 | | | 61 | | | 574 | |
Financing expenses | | | (377 | ) | | 34 | | | (90 | ) |
| |
|
| |
|
| |
|
| |
| | | (301 | ) | | 95 | | | 484 | |
| |
|
| |
|
| |
|
| |
Income (loss) before taxes on income | | | 1,107 | | | (263 | ) | | 9,494 | |
Taxes on income | | | 277 | | | (79 | ) | | 2,420 | |
| |
|
| |
|
| |
|
| |
Net income (loss) for the period | | | 830 | | | (184 | ) | | 7,074 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Attributed to: | | | | | | | | | | |
Shareholders of the Company | | | 830 | | | (184 | ) | | 7,074 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
4
DIN DYNAMIC LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | |
| | Share capital | | Capital reserve | | Retained earnings | | Total equity | |
| |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | For the six-month period ended June 30, 2008 | |
| |
| |
| | Unaudited | |
| | | |
Balance as of January 1, 2008 | | | 1 | | | 175 | | | 34,483 | | | 34,659 | |
| | | | | | | | | | | | | |
Changes during the period ended June 30, 2008: | | | | | | | | | | | | | |
Cost of share-based payments | | | – | | | (22 | ) | | – | | | (22 | ) |
Dividend distribution | | | – | | | – | | | (30,000 | ) | | (30,000 | ) |
Income for the period | | | – | | | – | | | 830 | | | 830 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of June 30, 2008 | | | 1 | | | 153 | | | 5,313 | | | 5,467 | |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
| | Share capital | | Capital reserve | | Retained earnings | | Total equity | |
| |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | For the three-month period ended June 30, 2008 | |
| |
| |
| | Unaudited | |
| | | |
Balance as of April 1, 2008 | | | 1 | | | 151 | | | 35,497 | | | 35,649 | |
| | | | | | | | | | | | | |
Changes during the period ended June 30, 2008: | | | | | | | | | | | | | |
Cost of share-based payments | | | – | | | 2 | | | – | | | 2 | |
Dividend distribution | | | – | | | – | | | (30,000 | ) | | (30,000 | ) |
Loss for the period | | | – | | | – | | | (184 | ) | | (184 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of June 30, 2008 | | | 1 | | | 153 | | | 5,313 | | | 5,467 | |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
| | Share capital | | Capital reserve | | Retained earnings | | Total equity | |
| |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | For the year ended December 31, 2007 | |
| |
| |
| | | | | | | | | | | | | |
Balance as of January 1, 2007 | | | 1 | | | 144 | | | 27,409 | | | 27,554 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2007: | | | | | | | | | | | | | |
Cost of share-based payments | | | – | | | 31 | | | – | | | 31 | |
Income for the year | | | – | | | – | | | 7,074 | | | 7,074 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2007 | | | 1 | | | 175 | | | 34,483 | | | 34,659 | |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of the condensed financial statements.
5
DIN DYNAMIC LTD.
STATEMENT OF CASH FLOWS
| | | | | | | | | | |
| | For the six-month period ended June 30 | | For the three-month period ended June 30 | | For the year ended December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | | | | |
Cash flows - operating activities (see Appendix A below) | | | 5,888 | | | 5,376 | | | 6,867 | |
| |
|
| |
|
| |
|
| |
Cash flows - investing activities | | | | | | | | | | |
| | | | | | | | | | |
Realization of (investment in) long-term deposits, net | | | (60 | ) | | (50 | ) | | 9 | |
Purchase of fixed assets | | | (825 | ) | | (241 | ) | | (283 | ) |
Investment and purchase of other assets | | | – | | | – | | | (65 | ) |
| |
|
| |
|
| |
|
| |
Net cash used in investing activities | | | (885 | ) | | (291 | ) | | (339 | ) |
| |
|
| |
|
| |
|
| |
Cash flows - financing activities | | | | | | | | | | |
| | | | | | | | | | |
Receipt (repayment) of short-term credit, net | | | 25,000 | | | 25,000 | | | (6,526 | ) |
Dividend distribution | | | (30,000 | ) | | (30,000 | ) | | – | |
| |
|
| |
|
| |
|
| |
Net cash used in financing activities | | | (5,000 | ) | | (5,000 | ) | | (6,526 | ) |
| |
|
| |
|
| |
|
| |
Increase in cash and cash equivalents | | | 3 | | | 85 | | | 2 | |
Cash and cash equivalents balance - beginning of period | | | 486 | | | 404 | | | 484 | |
| |
|
| |
|
| |
|
| |
Cash and cash equivalents balance - end of period | | | 489 | | | 489 | | | 486 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the condensed financial statements.
6
DIN DYNAMIC LTD.
APPENDICES TO THE STATEMENT OF CASH FLOWS
A. Adjustments required in order to present the cash flows in the current operations
| | | | | | | | | | |
| | For the six-month period ended June 30 | | For the three-month period ended June 30 | | For the year ended December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | | | | |
Income (loss) during the period | | | 830 | | | (184 | ) | | 7,074 | |
| | | | | | | | | | |
Expenses (revenues) not involving cash flows: | | | | | | | | | | |
Depreciation and amortization | | | 762 | | | 516 | | | 957 | |
Increase (decrease) in accrued severance pay, net | | | 1,084 | | | 764 | | | (864 | ) |
Increase in deferred taxes | | | (51 | ) | | (6 | ) | | (3 | ) |
Cost of share-based payment in the Company, net | | | (22 | ) | | 2 | | | 31 | |
| |
|
| |
|
| |
|
| |
| | | 2,603 | | | 1,092 | | | 7,195 | |
| |
|
| |
|
| |
|
| |
Changes in asset and liability items: | | | | | | | | | | |
Decrease in trade receivables | | | 3,365 | | | 1,256 | | | 3,167 | |
Decrease (increase) in other receivables and debit balances | | | (33 | ) | | 3,079 | | | (4,358 | ) |
Decrease (increase) in inventory | | | 947 | | | (742 | ) | | 488 | |
Increase (decrease) in trade payables | | | (576 | ) | | 599 | | | 1,386 | |
Increase (decrease) in other payables and credit balances | | | (418 | ) | | 92 | | | (1,011 | ) |
| |
|
| |
|
| |
|
| |
| | | 3,285 | | | 4,284 | | | (328 | ) |
| |
|
| |
|
| |
|
| |
Net cash provided by operating activities | | | 5,888 | | | 5,376 | | | 6,867 | |
| |
|
| |
|
| |
|
| |
B. Non-cash transactions:
| |
1. | During the report period, fixed assets and other assets were purchased with supplier credit totalling NIS 162 thousand (2007 – NIS 584 thousand). |
| |
2. | During the report period, fixed assets and other assets were purchased from the parent company against a reduction of the balance of the parent company’s debt of NIS 654 thousand. |
The accompanying notes are an integral part of the condensed financial statements.
7
DIN DYNAMIC LTD.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
| | |
| A. | Initial adoption of the International Financial Reporting Standards |
| | |
| | These financial statements have been prepared for the first time in conformity with the International Financial Reporting Standards (“IFRS”) in a condensed format as of June 30, 2008, and for the periods of six months and three months then ended (“the Interim Statements”). The comparative figures relating to the full year 2007 are also presented in conformity with IFRS. |
| | |
| | IFRS are standards and interpretations that have been adopted by the International Accounting Standards Board, and they include international financial reporting standards, international accounting standards (IAS), as well as interpretations prescribed by the International Financial Reporting Interpretations Committee (IFRIC) or by the committee that preceded it for interpretation of international accounting standards (SIC). |
| | |
| | The Company adopted IFRS for the first time as from January 1, 2008, and therefore, the transition date for reporting in conformity with IFRS is January 1, 2007. Prior to adopting the IFRS, the Company had prepared its financial statements in conformity with generally accepted accounting principles in Israel. The Company’s last annual financial statements in conformity with generally accepted accounting principles in Israel were prepared as of December 31, 2007, and for the year then ended. |
| | |
| B. | Format for preparing the Interim Statements |
| | |
| | The Interim Statements have been prepared in conformity with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34 (“Financial Reporting for Interim Periods”), as well as in conformity with the disclosure requirements of Section D of the Israeli Securities Regulations (Immediate and Periodic Reports), 1970. |
| | |
| | These Interim Statements should be read in the context of the annual financial statements, the notes of which contain detailed information not included in the Interim Statements.
The Interim Financial Statements do not include comparative figures relating to the period ended June 30, 2007, and earnings per share data were not presented. |
| | |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES |
| |
| In accordance with the directives of the Israeli Securities Authority from May 2008, these Interim Statements include disclosure of the significant accounting principles applied in preparation of the Interim Statements in conformity with IFRS, at the scope equivalent to that required in the annual financial statements. |
| |
| Information is presented in Note 3 regarding the reconciliation between the reporting in previous periods according to the generally accepted accounting principles in Israel (“Israeli GAAP”) and reporting in the current Interim Statements according to IFRS. |
| |
| IFRS, which shall be in effect or may be adopted early when preparing the financial statements for the full year 2008, are subject to changes and to pronouncements during the course of the year. Therefore, they cannot be prescribed now with certainty. Accordingly, changes are possible in the accounting principles applied, as will be described in this note during annual financial statements preparation. |
| | |
| A. | Reporting basis in the financial statements |
| | |
| | The Company’s financial statements have been prepared on the basis of historic cost, with the exception of various assets and liabilities, which are presented according to their fair value, as specified below. |
| | |
| | Non-monetary assets in Israel (mainly fixed assets and other assets) and equity items were measured according to the historic cost adjusted for changes in the Consumer Price Index until December 31, 2003. |
8
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| B. | The Functional and Presentation Currency |
| | |
| 1. | Functional Currency |
| | |
| | Items included in the Company’s financial statements are measured on the basis of the currency that reflects the economic environment in which the Company operates, and which influences the majority of its operations (“the Functional Currency”). |
| | |
| | According to IFRS, the Company’s Functional Currency is the New Israeli Shekel (NIS). |
| | |
| 2. | Translation of transactions and balances |
| | |
| | Transactions in a currency other than the Functional Currency are translated into the Functional Currency on the basis of the exchange rates prevailing as of the transaction execution date. Exchange rate differentials deriving from settling these transactions, and those deriving from translations of financial assets and liabilities amounts denominated in foreign currency on the basis of end-of-period rates, are recorded to the statements of operations. |
| | |
| 3. | Presentation Currency |
| | |
| | The Company presents its financial statements in New Israeli Shekels (“the Presentation Currency”), in conformity with the provisions of the Israeli Securities Regulations (Preparation of Annual Financial Statements), 1993. |
| | |
| C. | Reclassification |
| | |
| | Certain items included in the comparative figures for prior periods in the financial statements have been reclassified, in order to faithfully reflect the classification of those items in the current financial statements. |
| | |
| D. | Estimates |
| | |
| | The preparation of the Financial Statements in conformity with generally accepted accounting principles requires the Management of the Company to make estimates, assessments and assumptions that affect the reported sums relating to assets and liabilities, and contingent assets and liabilities as of the date of the financial statements, as well as the revenue and expense data during the reported periods. The actual results could differ from those estimates and assessments. |
| | |
| E. | Cash and cash equivalents |
| | |
| | Cash and cash equivalents include cash balances or demand deposits. Bank overdrafts, which must be covered upon demand and which constitute an integral part of the group’s cash management, are included as a component of cash and cash equivalents for the purposes of reporting the cash flows only. |
| | |
| F. | Provision for doubtful debts |
| | |
| | The provision for doubtful debts is calculated specifically in respect of those debts whose collection, in the opinion of the Company’s Management, is doubtful. |
| | |
| G. | Inventory |
| | |
| | Inventory is valued at the lower of cost, on a “first in – first out” basis, or net realization value. Net realization value is the estimated selling price during the ordinary course of business, less an estimate of completion costs and the costs required to execute the sale. |
9
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| 1. | The assets are stated at cost. Improvements and renovations are capitalized to the cost of the assets, while current maintenance and repair expenses are expensed. |
| | |
| 2. | Depreciation is calculated according to the “straight line” method, over the estimated useful life of the assets. |
| | |
| | The annual depreciation rates are: |
| |
| % |
|
|
| |
Instruments and equipment | 7-25 |
Office furniture and equipment | 7-15 |
Computers and peripheral equipment | 33 |
Leasehold improvements | 7-10 |
| | |
| 3. | The residual value and the useful life of each asset are examined, at the very least every year. The changes are accounted for prospectively, as a change in accounting estimate. The need for recording an impairment provision is also examined (see Par. J. below). |
| | |
| 1. | Rental rights in stores as well as goodwill from the acquisition of operations are presented at cost. The rental rights are amortized at annual rates of 10%-12.5% per annum, according to the expected period of economic benefit. |
| | |
| 2. | Computer software and licenses are stated at cost. The assets are amortized at the annual rate of 33%, according to the expected period of economic benefit. |
| | |
| J. | Asset impairment |
| | |
| | The Company periodically examines the need for recording an impairment provision, in order to ensure that its assets, including fair value adjustments of other fixed assets, are not stated at sums exceeding their recoverable amounts, which is the higher of the net selling price and the present value of the estimated future cash flows expected to derive from the use and realization of the assets. A recognized loss is reversed only when changes occur in the estimates used to determine the recoverable amount of the asset. |
| | |
| K. | Deferred taxes |
| | |
| | Deferred taxes are computed on temporary differences between the timing of the inclusion of amounts in the financial statements and when taken into account for tax purposes. The deferred tax balances are computed according to the tax rate expected to apply when these taxes are transferred to the statement of operations, based on information known when the financial statements are prepared. |
10
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| L. | Share-based payments |
| | |
| | The cost of employee benefits that are settled with capital instruments, such as shares or options convertible into shares of the Company and/or of the parent company, are measured according to the fair value of the capital instruments on the grant date. An additional expense is recognized if a change occurs in the terms of the arrangement, which increases its overall fair value. The cost is charged to the Company’s operating results concurrent with a corresponding increase in its equity, over the vesting period. |
| | |
| M. | Accrued severance pay, net |
| | |
| | The Company’s compensation plan falls under the scope of a “defined benefit plan,” as defined in the Standards. Therefore, the severance pay liability deriving from the plan is measured on an actuarial basis and takes into account, inter alia, estimates of future pay hikes and the employee turnover rate. The measurement is based on discounting the anticipated future cash flows according to the interest rates of high-rated NIS corporate bonds, when the payment date approximates the liability period associated with the severance benefits. In addition, the funded severance pay is measured at fair value. |
| | |
| N. | Revenue recognition |
| | |
| | Revenues from product sales are included when the products are supplied, the date that the significant risks and rewards deriving from ownership are transferred to the buyer; the Company does not retain any ongoing managerial involvement that characterizes ownership and does not retain effective control of the goods sold; the amount of revenues and costs that were generated or could be generated by the transaction may be reliably measured, and the economic benefits deriving from the transaction are expected to flow to the Company. |
| | |
| | Revenues from service fees are included over the service contract period. |
| | |
| O. | Presentation of transactions between a corporation and its controlling shareholder |
| | |
| | Assets and liabilities for which a transaction was executed with a controlling shareholder are measured at their fair value on the transaction date. The difference between the fair value and the actual consideration is recorded to equity. |
| | |
| P. | Disclosure related to new IFRS in the period prior to its application |
| | |
| 1. | IAS 23 (amended) – Credit Costs |
| | |
| | The amendment of this Standard eliminates the possibility of expensing credit costs and requires the reporting corporation to capitalize the associated credit costs directly to the acquisition and establishment or manufacturing costs of the asset. |
| | |
| | The Amended Standard will apply as from the financial statements for the year beginning January 1, 2009. Early adoption is possible. |
| | |
| | According to the Company’s assessments, this Amendment has no impact on its financial position, results of operations and cash flows. |
11
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES (continued) |
| | |
| P. | Disclosure regarding new IFRS in a period prior to the application thereof (continued) |
| | |
| 2. | IAS 1 (amended) – Financial Statement Presentation |
| | |
| | Pursuant to the Amendment of IAS 1, another, separate statement must also be presented – “Statement of Comprehensive Income,” which presents, aside from total net income taken from the statement of operations, all items charged directly to equity during the report period and not deriving from certain transactions with the shareholders (other comprehensive income), such as adjustments from the translation of financial statements; fair value adjustments to financial assets classified as available for sale; adjustments to a reserve for revaluation of fixed assets, etc., as well as the tax implications on these items, which are also charged directly to equity. Alternatively, the other comprehensive income items may be presented together with statement of operations items in a single statement called “statement of comprehensive income,” which is to be presented in lieu of the statement of operations. Only those items charged to equity, which derive from certain transactions with the shareholders (such as capitalraised, dividend distributions, etc.) are to be presented in the statement of changes in shareholders’ equity, as well as the total line that is transferred from the statement of comprehensive income. |
| | |
| | The Amendment also prescribes that in instances of a change in the comparative figures as a result of a change in an accounting principle that is being retroactively applied, restatement or reclassification, a balance sheet must also be presented for the beginning of the period of the comparative figures for which the change was made. |
| | |
| | The Amendment of IAS 1 will apply to the annual financial statements for periods beginning January 1, 2009, with the comparative figures being restated. Early adoption is possible. |
| | |
| | The effect of the Amendment of IAS 1 will require the Company to provide the requisite disclosures in the financial statements. |
| | |
| 3. | IFRS 2 (amended) – share-based payments |
| | |
| | Pursuant to the Amendment of IFRS 2 (“the Amended Standard”), definition of vesting terms shall only include service conditions and performance conditions, while settlement of a grant that includes conditions other than vesting terms, whether by the Company or by the other party, is to be accounted for as an acceleration of vesting and not as forfeiture. The Amendment is to be retroactively applied to financial statements for periods beginning January 1, 2009. Early adoption is possible. |
| | |
| | Vesting terms include service conditions, requiring the other party to complete a defined service period, while performance conditions require the meeting of specified performance targets. Conditions that are not within the scope of service or performance conditions shall be deemed conditions that are not vesting conditions, and therefore, must be taken into account in the fair value estimate of the instrument being granted. |
| | |
| | The company examines the impact of the Amended Standard on its financial statements, but cannot, at this stage, assets its effects. |
12
| |
NOTE 2 – | SIGNIFICANT ACCOUNTING PRINCIPLES(continued) |
| | |
| P. | Disclosure regarding new IFRS in a period prior to the application thereof (continued) |
| | |
| 4. | IAS 32 – financial instruments: presentation, and IAS 1 – presentation of financial statements |
| | |
| | The Amendment of IAS 32 changes the definition of a financial liability, a financial asset and a capital instrument, and prescribes that certain financial instruments, realizable by its holder, are to be classified as capital instruments. |
| | |
| | The provisions of this Amendment shall apply for annual reporting periods beginning January 1, 2009. Early adoption is possible. At this stage, the Company Management cannot estimate the implication of application of the interpretation on its financial position and operating results. |
| | |
| 5. | Improvements in the 2008 International Financial Reporting Standards |
| | |
| | In May 2008, the IASB promulgated a series of improvements to the international financial reporting standards. |
| | |
| | Within the scope of the improvements, amendments were made to some of the standards, which revise the method of presentation, recognition and measurement of various items in the financial statements. |
| | |
| | In addition, various corrections were made to terms, which have a negligible effect, if any, on the financial statements. |
| | |
| | Most of the amendments will come into effect as of the annual reporting period beginning on or after January 1, 2009, with early adoption possible. Most of the amendments will be applied retroactively, by adjusting the comparative figures. |
| | |
| | According to the Company’s assessments, the impact of the amendments on the financial statements is not expected to be material. |
| | |
| Q. | Indexed balances and balances denominated in or linked to foreign currency |
| | |
| 1. | Balances denominated in or linked to foreign currency are included in the financial statements according to the representative exchange rates published by the Bank of Israel. Balances linked to the consumer price index (CPI) are included on the basis of the appropriate index for each linked asset or liability. |
| | |
| 2. | Following are data regarding the consumer price index and the representative rate of exchange of the U.S. dollar: |
| | | | | | | |
| | Consumer Price
Index | | Exchange rate
of USD 1 | |
| |
| |
| |
End of the period | | Points (*) | | NIS | |
| |
| |
| |
| | | | | | | |
June 2008 | | | 116.3 | | | 3.35 | |
December 2007 | | | 113.6 | | | 3.85 | |
| | | | | | | |
Rate of change during the period of | | % | | % |
| |
| |
|
| | | | | | | |
six months ended June 30, 2008 | | | 2.4 | | | (12.8 | ) |
year ended December 31, 2007 | | | 3.4 | | | (9.0 | ) |
| | |
| | (*) According to the CPI published for the month ended on the balance-sheet date on the basis of: 2000 average = 100 points. |
13
| |
NOTE 3 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING |
| | |
| | As described in Note 1.A., these Interim Statements are the Company’s first Interim Financial Statements prepared in conformity with IFRS. The Company initially adopted IFRS in 2008, and therefore, the transition date for reporting in conformity with IFRS is January 1, 2007. The Company prepared an opening balance sheet as of the transition date, after which IFRS reporting will begin. |
| | |
| | Prior to adopting the IFRS, the Company prepared its financial statements according to generally accepted accounting principles in Israel (“Israeli GAAP”). The first annual IFRS financial statements will be as of December 31, 2008 and for the year then ended. |
| | |
| | Accordingly, the Company is presenting the following adjustments between reporting in conformity with Israeli GAAP and in conformity with IFRS as of January 1, 2007 (the transition date to IFRS reporting), as of December 31, 2007 and for the year then ended. |
| | |
| | In general, IFRS 1, regarding initial adoption of the IFRS, prescribes that application of IFRS in the opening balance sheet as of the transition date is to be performed retroactively. |
| | |
| B. | Details of the exceptions elected |
| | |
| | Following are details of the exceptions that the Company elected pursuant to IFRS 1, and for which the Company is not retroactively applying the transition to IFRS reporting: |
| | |
| (1) | Business combinations |
| | |
| | The Company is applying the provisions of IFRS 3 only for business combinations occurring after January 1, 2007. |
| | |
| | Therefore, goodwill and excess cost created in businesse combinations (including business combinations under joint control) occurring prior to this date with respect to the acquisition of subsidiaries and investee companies and the acquisition of a minority interest, were not accounted for under IFRS 3, but rather were accounted for in conformity with Israeli GAAP. |
| | |
| (2) | Employee benefits |
| | |
| | The Company applies the "corridor" method to account for actuarial gains and losses, and invoked the exception whereby the balance of deferred actuarial gains and losses were recognized as of the transition date. |
| | |
| (3) | Share-based payment transactions |
| | |
| | Share-based payments granted prior to November 7, 2002 or which vested by January 1, 2007 are not accounted for retroactively in conformity with the provisions of IFRS 2. |
14
| |
NOTE 3 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | |
| C. | Impact of the transition to the IFRS |
| | |
| | 1. Balance-sheet adjustments |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | January 1, 2007 | | December 31, 2007 | |
| | | | |
| |
| |
| | | | Israeli GAAP | | Effect of
transition to
the IFRS | | IFRS
standards | | Israeli GAAP | | Effect of
transition to
the IFRS | | IFRS
standards | |
| | | |
| |
| |
| |
| |
| |
| |
| | Note | | N I S , 0 0 0 | | N I S , 0 0 0 | |
| | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | 484 | | | – | | | 484 | | | 486 | | | – | | | 486 | |
Trade receivables | | | | | | 21,399 | | | – | | | 21,399 | | | 18,232 | | | – | | | 18,232 | |
Other receivables and debit balances | | | 2 | | | 1,259 | | | (156 | ) | | 1,103 | | | 5,620 | | | (159 | ) | | 5,461 | |
Inventory | | | | | | 10,933 | | | – | | | 10,933 | | | 10,445 | | | – | | | 10,445 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current assets | | | | | | 34,075 | | | (156 | ) | | 33,919 | | | 34,783 | | | (159 | ) | | 34,624 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Non-current assets | | | | | | | | | | | | | | | | | | | | | | |
Deferred taxes | | | 2 | | | – | | | 156 | | | 156 | | | – | | | 159 | | | 159 | |
Funded provision in excess of accrued severance pay, net | | | 1 | | | 67 | | | 545 | | | 612 | | | 850 | | | 626 | | | 1,476 | |
Deposits | | | | | | 287 | | | – | | | 287 | | | 278 | | | – | | | 278 | |
Fixed assets | | | | | | 4,761 | | | – | | | 4,761 | | | 4,528 | | | – | | | 4,528 | |
Other assets | | | | | | 4,445 | | | – | | | 4,445 | | | 4,423 | | | – | | | 4,423 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total non-current assets | | | | | | 9,560 | | | 701 | | | 10,261 | | | 10,079 | | | 785 | | | 10,864 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | | | | | 43,635 | | | 545 | | | 44,180 | | | 44,862 | | | 626 | | | 45,488 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
15
| | |
NOTE 3 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | |
| C. | Impact of the transition to the IFRS (continued) |
| | |
| | 1. Balance-sheet adjustments (continued) |
| | | | | | | | | | | | | | | | | | | |
| | January 1, 2007 | | December 31, 2007 | |
| |
| |
| |
| | Israeli
GAAP | | Effect of transition to the IFRS | | IFRS
GAAP | | Israeli
standards | | Effect of transition to the IFRS | | IFRS
standards | |
| |
| |
| |
| |
| |
| |
| |
| Note | N I S , 0 0 0 | | N I S , 0 0 0 | |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | | |
Short-term credit and current maturities of long-term loans | | | 6,526 | | | – | | | 6,526 | | | – | | | – | | | – | |
Trade payables | | | 2,287 | | | – | | | 2,287 | | | 4,027 | | | – | | | 4,027 | |
Other payables and credit balances | | | 7,813 | | | – | | | 7,813 | | | 6,802 | | | – | | | 6,802 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current liabilities | | | 16,626 | | | – | | | 16,626 | | | 10,829 | | | – | | | 10,829 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Equity | | | | | | | | | | | | | | | | | | | |
Share capital | | | 1 | | | – | | | 1 | | | 1 | | | – | | | 1 | |
Capital reserve | | | 144 | | | – | | | 144 | | | 175 | | | – | | | 175 | |
Retained earnings | | | 26,864 | | | 545 | | | 27,409 | | | 33,857 | | | 626 | | | 34,483 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total equity | | | 27,009 | | | 545 | | | 27,554 | | | 34,033 | | | 626 | | | 34,659 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total liabilities and capital | | | 43,635 | | | 545 | | | 44,180 | | | 44,862 | | | 626 | | | 45,488 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
16
| | |
NOTE 3 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | |
| C. | Impact of the transition to the IFRS(continued) |
| | |
| | 2.Statements of Operations |
| | | | | | | | | | |
| | For the year ended December 31, 2007 | |
| |
| |
| | Israeli
GAAP | | Effect of
transition to
IFRS
standards | | IFRS
standards | |
| |
| |
| |
| |
| Note | N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Revenue from sales and services | | | 138,180 | | | – | | | 138,180 | |
Cost of sales and services | | | 88,703 | | | – | | | 88,703 | |
| |
|
| |
|
| |
|
| |
Gross profit | | | 49,477 | | | – | | | 49,477 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Selling expenses | | | 30,406 | | | – | | | 30,406 | |
General and administrative expenses | | | 10,061 | | | – | | | 10,061 | |
| |
|
| |
|
| |
|
| |
| | | 40,467 | | | – | | | 40,467 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Operating income before financing | | | 9,010 | | | – | | | 9,010 | |
Financing income | 1, 3 | | 403 | | | 171 | | | 574 | |
Financing expenses | 3 | | – | | | (90 | ) | | (90 | ) |
| |
|
| |
|
| |
|
| |
Income before taxes on income | | | 9,413 | | | 81 | | | 9,494 | |
Taxes on income | | | 2,420 | | | – | | | 2,420 | |
| |
|
| |
|
| |
|
| |
Net income | | | 6,993 | | | 81 | | | 7,074 | |
| |
|
| |
|
| |
|
| |
Attributed to: | | | | | | | | | | |
Shareholders of the Company | | | 6,993 | | | 81 | | | 7,074 | |
| |
|
| |
|
| |
|
| |
17
| | | |
NOTE 3 – | ADJUSTMENT BETWEEN REPORTING IN CONFORMITY WITH ISRAELI GAAP AND IFRS REPORTING (continued) |
| | | |
| D. | Notes to balance sheet and statement of operations adjustments |
| | | |
| | Material changes during the adoption of new accounting standards in Israel in 2007: |
| | | |
| | 1. | Accrued severance pay, net |
| | | |
| | | According to Israeli GAAP, accrued severance pay was measured on the basis of the employee’s number of years of employment multiplied by his last monthly salary (one monthly salary for each year of employment) as of every balance-sheet date, and the funded severance pay accumulated against it was measured according to its redemption value as of every balance-sheet date, without taking into account discount rates, rates of salary hikes and future employee turnover rates. In addition, the liabilities for vacation pay and sick pay were calculated based on estimated utilization and redemption, respectively. |
| | | |
| | | All the severance pay liabilities are calculated in conformity with the international standard, according to the provisions of IAS 19 “Employee Benefits” (“IAS 19”). According to the provisions of IAS 19, the Company’s compensation plan falls within the scope of a “Defined Benefit Plan”. Therefore, the severance pay liability deriving from the plan is measured on an actuarial basis and takes into account, inter alia, estimates of future wage hikes and employee turnover rates. The measurement is based on the discounting of expected future cash flows, according to the interest rates of high-rated NIS corporate bonds, when the payment date approximates the liability period associated with the severance benefits. In addition, the funded severance pay is measured at fair value |
| | | |
| | 2. | Deferred taxes |
| | | |
| | | According to Israeli GAAP, deferred tax assets were classified as current assets or as noncurrent assets, according to the classification of the assets that generated the tax. According to the IFRS, deferred tax assets are classified as non-current assets, even if the realization date is forecasted in the short-term. |
| | | |
| | 3. | Financing income and expenses |
| | | |
| | | According to Israeli GAAP, financing income and expenses, net, were presented in the statement of operations. |
| | | |
| | | According to the IFRS, these must be presented separately. |
| |
NOTE 4 – | SUBSEQUENT EVENTS |
| |
| On August 6, 2008, the parent company announced that its Management was authorized to examine the possibility of selling the Company’s operations to the public company, Scailex Corporation Ltd. (“Scailex”), whose controlling shareholder is the parent company, and to enter into negotiations with Scailex in this regard. |
18
| | |
NOTE 5 – | Differences between Israeli and US GAAP
The Company’s financial statements are prepared in accordance with IFRS standards, which vary, in certain significant respects, from accounting principles generally accepted in the United States of America (“US GAAP”). Information relating to the nature and effect of such principal differences is presented below, together with explanations of certain adjustments made. |
| | |
| A. | Balance sheet adjustment |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of June 30, 2008 | | As of December 31, 2007 | |
| | | | |
| |
| |
| | | | | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | |
| | | | |
| |
| |
| |
| |
| |
| |
| | | Note | | N I S , 0 0 0 | | N I S , 0 0 0 | |
| | | | |
| |
| |
| | | | | Unaudited | | | |
| | | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | 489 | | | – | | | 489 | | | 486 | | | – | | | 486 | |
Trade receivables | | | | | | 14,867 | | | – | | | 14,867 | | | 18,232 | | | – | | | 18,232 | |
Other receivables and debit balances | | | 1 | | | 4,840 | | | 210 | | | 5,050 | | | 5,461 | | | 159 | | | 5,620 | |
Inventory | | | | | | 9,498 | | | – | | | 9,498 | | | 10,445 | | | – | | | 10,445 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current assets | | | | | | 29,694 | | | 210 | | | 29,904 | | | 34,624 | | | 159 | | | 34,783 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Non-current assets | | | | | | | | | | | | | | | | | | | | | | |
Deferred taxes | | | 1 | | | 210 | | | (210 | ) | | – | | | 159 | | | (159 | ) | | – | |
Funded liability in excess of accrued severance pay, net | | | 2 | | | 392 | | | (326 | ) | | 66 | | | 1,476 | | | (626 | ) | | 850 | |
Deposits | | | | | | 338 | | | – | | | 338 | | | 278 | | | – | | | 278 | |
Fixed assets | | | | | | 4,623 | | | 355 | | | 4,978 | | | 4,528 | | | 151 | | | 4,679 | |
Other assets | | | | | | 4,623 | | | (181 | ) | | 4,442 | | | 4,423 | | | 23 | | | 4,446 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total non-current assets | | | | | | 10,186 | | | (362 | ) | | 9,824 | | | 10,864 | | | (611 | ) | | 10,253 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | | | | | 39,880 | | | (152 | ) | | 39,728 | | | 45,488 | | | (452 | ) | | 45,036 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
19
| | |
NOTE 5 – | Differences between Israeli and US GAAP (continued) |
| | |
| A. | Balance sheet adjustment (continued) |
| | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2008 | | As of December 31, 2007 | |
| |
| |
| |
| | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | | IFRS
Standards | | Effect of
change to
US GAAP | | US GAAP | |
| |
| |
| |
| |
| |
| |
| |
| Note | N I S , 0 0 0 | | N I S , 0 0 0 | |
| |
| |
| |
| | Unaudited | | | |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | | | | | | | | |
Short-term credit | | | 25,000 | | | – | | | 25,000 | | | – | | | – | | | – | |
Trade payables | | | 3,029 | | | – | | | 3,029 | | | 4,027 | | | – | | | 4,027 | |
Other payables and credit balances | | | 6,384 | | | – | | | 6,384 | | | 6,802 | | | – | | | 6,802 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total current liabilities | | | 34,413 | | | – | | | 34,413 | | | 10,829 | | | – | | | 10,829 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Equity | | | | | | | | | | | | | | | | | | | |
Share capital | | | 1 | | | – | | | 1 | | | 1 | | | – | | | 1 | |
Capital reserve | | | 153 | | | – | | | 153 | | | 175 | | | – | | | 175 | |
Retained earnings | | | 5,313 | | | (152 | ) | | 5,161 | | | 34,483 | | | (452 | ) | | 34,031 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total equity | | | 5,467 | | | (152 | ) | | 5,315 | | | 34,659 | | | (452 | ) | | 34,207 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total liabilities and equity | | | 39,880 | | | (152 | ) | | 39,728 | | | 45,488 | | | (452 | ) | | 45,036 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
20
| | |
NOTE 5 – | Differences between Israeli and US GAAP (continued) |
| | |
| B. | Statement of operations adjustment |
| | | | | | | | | | |
| | For the period of six months ended June 30 | | For the period of three months ended June 30 | | For the year ended
December 31 | |
| |
| |
| |
| |
| | 2 0 0 8 | | 2 0 0 8 | | 2 0 0 7 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | Unaudited | | Unaudited | | | |
| | | | | | | | | | |
Net income per statement of operations | | | 830 | | | (184 | ) | | 6,993 | |
| |
|
| |
|
| |
|
| |
|
Items that increase net income | | | | | | | | | | |
Change in accrued severance pay, net | | | 300 | | | 527 | | | – | |
| |
|
| |
|
| |
|
| |
| | | 300 | | | 527 | | | – | |
| |
|
| |
|
| |
|
| |
|
Items that reduce net income | | | – | | | – | | | – | |
| |
|
| |
|
| |
|
| |
| | | – | | | – | | | – | |
| |
|
| |
|
| |
|
| |
Net income according to US GAAP | | | 1,130 | | | 343 | | | 6,993 | |
| |
|
| |
|
| |
|
| |
| | |
| C. | Statement of cash flows adjustment |
| | |
| | There are no material changes in the Company’s statement of cash flows, for the periods of six months and three months ended June 30, 2008 and for the year ended December 31, 2007, as presented in the financial statements and between the statement of cash flows required under US GAAP. |
21
| | |
NOTE 5 – | Differences between Israeli and US GAAP (continued) |
| | |
| D. | Items for adjustment of balance sheets as of June 30, 2008 and December 31, 2007 or statement of operations adjustments for the periods of six months and three months ended June 30, 2008 and for the year ended December 31, 2007: |
| | | | |
| | | 1. | Deferred taxes |
| | | | |
| | | | According to IFRS, deferred tax assets are classified as non-current assets, even if their realization date is expected to be within the short-term. |
| | | | |
| | | | According to US GAAP, deferred tax assets were classified as current assets or non-current assets, according to the classification of the asset for which they were created. |
| | | | |
| | | 2. | Accrued severance pay, net |
| | | | |
| | | | All accrued severance pay liabilities are calculated, in conformity with the international standard, according to IAS 19 “Employee Benefits” (“IAS 19”). In conformity with IAS 19, the Company’s severance pay plan meets the definition of a “Defined Benefit Plan” provided in IAS 19. Therefore, the accrued severance pay liability deriving from the plan is measured on an actuarial basis and takes into account, inter alia, estimates of future wage hikes and the rate of employee turnover. The measurement is done on the basis of discounted expected future cash flows, at the interest rates of high-rated shekel corporate bonds, with a maturity date approximating the liability period associated with severance pay. Likewise, the funded severance pay is measured at fair value. |
| | | | |
| | | | According to US GAAP, the accrued severance pay liability is charged, under similar circumstances, as accrued, when the terms that entitle the employee to receive payment upon termination (according to Israeli law – after one year of employment, at the latest), at whatever sum the employee will be entitled to receive upon severance. |
22
DIN DYNAMIC Ltd.
Financial Statements
as of december 31
2 0 0 7
| |
GOLDSTEIN SABO TEVET - Certified Public Accountants (Isr.) | 
|
|
A l r o v T o w e r , 4 6 R o t h s c h i l d B l v d . , T e l - A v i v , I S R A E L 6 6 8 8 3 .
P h o n e : ( 9 7 2 ) ( 3 ) 5 6 6 5 0 0 6 . F a c s i m i l e : ( 9 7 2 ) ( 3 ) 5 6 6 5 0 0 1 .W e b s i t e : w w w . g s t . c o . i l |
Auditors’ Report to the Shareholders of
Din Dynamic Ltd.
We have audited the accompanying balance sheets of Din Dynamic Ltd. (“the Company”) as of December 31, 2007, 2006 and 2005 and the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for each of the years then ended. These financial statements are the responsibility of the board of directors and management of the Company. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the company’s board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007, 2006 and 2005 and the results of operations, changes shareholders’ equity and cash flows for each of the years then ended, in conformity with generally accepted accounting principles in Israel.
As explained in Note 2.A, the financial statements are presented in reported amounts, in accordance with the Accounting Standards of the Israel Accounting Standards Board.
Accounting standards accepted in Israel vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such principal differences is presented in Note 21 to the financial statements.
| | |
| | Goldstein Sabo Tevet |
| | Certified Public Accountants (Isr.) |
| | |
Tel Aviv, March 25, 2008. | | |
D i n D y n a m i c L t d .
B a l a n c e S h e e t
| | | | | | | | | | | | | |
| | | | | As of December 31 | |
| | | | |
| |
| | | Note | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | | | |
| |
| |
| |
| | | | | R e p o r t e d N I S , 0 0 0 | |
| | | | |
| |
| | | | | | | | | | | | | |
A s s e t s | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | |
Cash and cash equivalents | | | 3 | | | 486 | | | 484 | | | 1,065 | |
Trade receivables | | | 4 | | | 18,232 | | | 21,399 | | | 23,147 | |
Other receivables and debit balances | | | 5 | | | 5,620 | | | 1,259 | | | 2,927 | |
Inventory | | | | | | 10,445 | | | 10,933 | | | 11,811 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 34,783 | | | 34,075 | | | 38,950 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Long-term investments and receivables | | | | | | | | | | | | | |
Funded liability in excess of accrued severance pay | | | 6 | | | 850 | | | 67 | | | 322 | |
Deposits | | | 7 | | | 278 | | | 287 | | | 339 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 1,128 | | | 354 | | | 661 | |
| | | | |
|
| |
|
| |
|
| |
Fixed assets | | | 8 | | | 4,528 | | | 4,761 | | | 4,890 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
Other assets | | | 9 | | | 4,423 | | | 4,445 | | | 4,314 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 44,862 | | | 43,635 | | | 48,815 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | | As of December 31 | |
| | | | |
| |
| | | Note | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | | | |
| |
| |
| |
| | | | | R e p o r t e d N I S , 0 0 0 | |
| | | | |
| |
| | | | | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | |
Short-term credit | | | 10 | | | – | | | 6,526 | | | 53 | |
Trade payables | | | 11 | | | 4,027 | | | 2,287 | | | 23,153 | |
Other payables and credit balances | | | 12 | | | 6,802 | | | 7,813 | | | 5,285 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 10,829 | | | 16,626 | | | 28,491 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Commitments, liens and guarantees | | | 13,20 | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Shareholders’ equity | | | | | | | | | | | | | |
Share capital | | | 14 | | | 1 | | | 1 | | | 1 | |
Capital reserves | | | | | | 175 | | | 144 | | | – | |
Retained earnings | | | | | | 33,857 | | | 26,864 | | | 20,323 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 34,033 | | | 27,009 | | | 20,324 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 44,862 | | | 43,635 | | | 48,815 | |
| | | | |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
| | |
/s/ Shahar Landau | | /s/ Ilan Ben-Dov |
| |
|
Shahar Landau | | Ilan Ben-Dov |
Director | | Director |
Approval date of financial statements: March 25, 2008
3
Din Dynamic Ltd.
Statement of Operations
| | | | | | | | | | | | | |
| | | | | For the year ended December 31 | |
| | | | |
| |
| | | | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | | | |
| |
| |
| |
| | | Note | | R e p o r t e d N I S , 0 0 0 | |
| | | | |
| |
| | | | | | | | | | | | | |
Revenues from sales and services | | | | | | 138,180 | | | 141,099 | | | 109,698 | |
| | | | | | | | | | | | | |
Cost of sales and services | | | 15 | | | 88,703 | | | 90,609 | | | 71,233 | |
| | | | |
|
| |
|
| |
|
| |
Gross profit | | | | | | 49,477 | | | 50,490 | | | 38,465 | |
| | | | |
|
| |
|
| |
|
| |
Selling expenses | | | 16 | | | 30,406 | | | 30,896 | | | 24,119 | |
| | | | | | | | | | | | | |
General and administrative expenses | | | 17 | | | 10,061 | | | 10,362 | | | 8,244 | |
| | | | |
|
| |
|
| |
|
| |
| | | | | | 40,467 | | | 41,258 | | | 32,363 | |
| | | | |
|
| |
|
| |
|
| |
Operating income before financing income | | | | | | 9,010 | | | 9,232 | | | 6,102 | |
| | | | | | | | | | | | | |
Financing income, net | | | | | | 403 | | | 364 | | | 194 | |
| | | | |
|
| |
|
| |
|
| |
Operating income after financing income | | | | | | 9,413 | | | 9,596 | | | 6,296 | |
| | | | | | | | | | | | | |
Gain from realization of fixed assets | | | | | | – | | | 24 | | | 16 | |
| | | | |
|
| |
|
| |
|
| |
Income before taxes on income | | | | | | 9,413 | | | 9,620 | | | 6,312 | |
| | | | | | | | | | | | | |
Taxes on income | | | 18 | | | 2,420 | | | 3,079 | | | 2,280 | |
| | | | |
|
| |
|
| |
|
| |
Income for the year | | | | | | 6,993 | | | 6,541 | | | 4,032 | |
| | | | |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
4
Din Dynamic Ltd.
Statement of Changes in Shareholders’ Equity
| | | | | | | | | | | | | |
| | Share capital | | Capital
reserve | | Retained
earnings | | Total | |
| |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | | | | |
Balance as of January 1, 2005 | | | (*)1 | | | – | | | 16,291 | | | 16,292 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2005: | | | | | | | | | | | | | |
Income for the year | | | – | | | – | | | 4,032 | | | 4,032 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2005 | | | (*)1 | | | – | | | 20,323 | | | 20,324 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2006: | | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 144 | | | – | | | 144 | |
Income for the year | | | – | | | – | | | 6,541 | | | 6,541 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2006 | | | (*)1 | | | 144 | | | 26,864 | | | 27,009 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2007: | | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 31 | | | – | | | 31 | |
| | | | | | | | | | | | | |
Income for the year | | | – | | | – | | | 6,993 | | | 6,993 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2007 | | | (*)1 | | | 175 | | | 33,857 | | | 34,033 | |
| |
|
| |
|
| |
|
| |
|
| |
(*) Rounded to the nearest NIS 1 thousand.
The accompanying notes are an integral part of the financial statements.
5
Din Dynamic Ltd.
Statement of Cash Flows
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Cash flows – operating activities | | | | | | | | | | |
Income for the year | | | 6,993 | | | 6,541 | | | 4,032 | |
Adjustments to present cash flows from operating activities (see Appendix A) | | | (126 | ) | | (12,211 | ) | | 3,385 | |
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) operating activities | | | 6,867 | | | (5,670 | ) | | 7,417 | |
| |
|
| |
|
| |
|
| |
|
Cash flows – investing activities | | | | | | | | | | |
Withdrawal from (deposit in) severance pay fund, net | | | – | | | 255 | | | (220 | ) |
Realization (granting) of long-term deposits, net | | | 9 | | | 52 | | | (91 | ) |
Purchase of fixed assets | | | (53 | ) | | (505 | ) | | (2,361 | ) |
Proceeds from sale of fixed assets | | | – | | | 24 | | | 16 | |
Investment in other assets | | | (65 | ) | | (169 | ) | | (11 | ) |
Repayment of supplier credit for fixed assets | | | (230 | ) | | (1,041 | ) | | (55 | ) |
Acquisition of operation | | | – | | | – | | | (4,434 | ) |
| |
|
| |
|
| |
|
| |
Net cash used in investing activities | | | (339 | ) | | (1,384 | ) | | (7,156 | ) |
| |
|
| |
|
| |
|
| |
|
Cash flows – financing activities | | | | | | | | | | |
Receipt (repayment) of short-term credit, net | | | (6,526 | ) | | 6,473 | | | (202 | ) |
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) financing activities | | | (6,526 | ) | | 6,473 | | | (202 | ) |
| |
|
| |
|
| |
|
| |
Increase (decrease) in cash and cash equivalents | | | 2 | | | (581 | ) | | 59 | |
Cash and cash equivalents balance – beginning of year | | | 484 | | | 1,065 | | | 1,006 | |
| |
|
| |
|
| |
|
| |
Cash and cash equivalents balance – end of year | | | 486 | | | 484 | | | 1,065 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the financial statements.
6
Din Dynamic Ltd.
Appendices to Statement of Cash Flows
| |
A. | Adjustments to present cash flows from operating activities |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Revenues and expenses not involving cash flows: | | | | | | | | | | |
| | | | | | | | | | |
Depreciation and amortization | | | 957 | | | 902 | | | 851 | |
| | | | | | | | | | |
Decrease in accrued severance pay, net | | | (783 | ) | | – | | | – | |
| | | | | | | | | | |
Increase in deferred taxes | | | (3 | ) | | (41 | ) | | (14 | ) |
| | | | | | | | | | |
Capital gain, net | | | – | | | (24 | ) | | (16 | ) |
| | | | | | | | | | |
Cost of share-based payment | | | 31 | | | 144 | | | – | |
| | | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | | | |
| | | | | | | | | | |
Decrease in trade receivables | | | 3,167 | | | 1,748 | | | (11,479 | ) |
| | | | | | | | | | |
Decrease (increase) in other receivables and debit balances | | | (4,358 | ) | | 1,709 | | | (328 | ) |
| | | | | | | | | | |
Decrease in inventory | | | 488 | | | 878 | | | (6,539 | ) |
| | | | | | | | | | |
Increase (decrease) in trade payables | | | 1,386 | | | (20,055 | ) | | 19,788 | |
| | | | | | | | | | |
Increase (decrease) in other payables and credit balances | | | (1,011 | ) | | 2,528 | | | 1,122 | |
| |
|
| |
|
| |
|
| |
| | | (126 | ) | | (12,211 | ) | | 3,385 | |
| |
|
| |
|
| |
|
| |
| |
B. | Non-cash activities |
| |
| In the current year, fixed assets were purchased with supplier credit totaling NIS 584 thousand (2006 – NIS 230 thousand; 2005 – NIS 1,041 thousand). |
The accompanying notes are an integral part of the financial statements.
7
Din Dynamic Ltd.
Notes to the Financial Statements as of December 31, 2007
| | | |
| A. | The Company - | Din Dynamic Ltd., wholly-owned and controlled by Suny Electronics Ltd., a company whose shares are traded on the Tel Aviv Stock Exchange (“the parent company”), is engaged in the operation of a chain of stores, and in the importing, marketing and servicing of cellular telephone handsets intended for use on the communication network of Cellcom Israel Ltd. (“Cellcom”). |
| | | |
| B. | Related party - | As defined in Opinion No. 29 of the Institute of Certified Public Accountants in Israel, including a related party as defined in the Israeli Securities Regulations (Preparation of Annual Financial Statements), 1993. |
| |
Note 2 – | Significant accounting policies |
| |
| The significant accounting policies applied in preparation of the financial statements, in a manner consistent with the prior year, are: |
| | |
| A. | Financial statement reporting basis |
| | | |
| | 1. | Until December 31, 2003 the Company prepared its financial statements on the basis of nominal cost adjusted for changes in the Consumer Price Index in Israel. The adjusted amounts that were included in the Company’s financial statements as of December 31, 2003 (“the transition date”) served as the starting point for financial reporting from this date henceforth. |
| | | |
| | | Condensed nominal financial statements of the Company, for tax purposes, are included in Note 19. |
| | | |
| | 2. | Financial statements in reported amounts |
| | | |
| | | The reported amounts, which relate to periods after the transition date, are comprised as follows:
All amounts originating in the period after the transition date are included in the financial statements at nominal values. |
| | | |
| | | All amounts originating in the period before the transition date, including depreciation and amortization and changes in non-monetary items, are comprised of amounts adjusted only to the transition date, plus (or minus, as applicable) amounts in nominal values originating in changes after the transition date. |
| | | |
| | 3. | The amounts according to which the non-monetary assets and liabilities are stated in these financial statements do not necessarily represent realization value or updated economic value, but rather the reported amounts (or adjusted amounts, as applicable) of those assets, on the relevant dates. |
| | |
| B. | Cash and cash equivalents |
| | |
| | Includes bank deposits with an original term to maturity of not more than three months. |
8
| |
Note 2 – | Significant accounting policies (cont.) |
| | |
| C. | Provision for doubtful debts |
| | |
| | The provision for doubtful debts is calculated specifically for debts, the collection of which is doubtful in the opinion of the Company’s management. |
| | |
| D. | Inventory |
| | |
| | Inventory is valued at the lower of cost, on the basis of “first in – first out”, or market value. |
| | |
| E. | Fixed assets |
| | | |
| | 1. | Assets are stated at cost. Improvements and renovations are capitalized to the cost of the assets, whereas current maintenance and repairs are expensed. |
| | | |
| | 2. | Depreciation is calculated by the straight-line method, over the estimated useful life of the assets.
The annual depreciation rates are: |
| |
| % |
|
|
| |
Instruments and equipment | 7-25 |
Office furniture and equipment | 7-15 |
Computers and peripheral equipment | 33 |
Vehicles | 15 |
Leasehold improvements | 7-10 |
| | | |
| | 3. | The residual value and the useful life of each asset are examined at least at the end of every year. The changes are accounted for prospectively, as a change in accounting estimate. The need for recording an impairment provision is also examined (see Par. L. below). |
| | | |
| | 1. | Rental rights in stores, as well as goodwill from the acquisition of operation, are stated at cost. The rental rights are amortized at annual rates of 10%-12.5% per year, according to the expected period of economic benefit. |
| | | |
| | 2. | Computer software and licenses are stated at cost. The assets are amortized at an annual rate of 33%, according to the expected period of economic benefit. |
| | | |
| G. | Deferred taxes |
| | | |
| | Deferred taxes are calculated for temporary differences between the timing of amounts included in the adjusted financial statements and the amounts taken into account for tax purposes. Deferred tax balances are calculated according to the tax rate expected to be in effect when these taxes flow through to the statement of operations, based on information available at the time the financial statements are prepared. |
| | |
| H. | Share-based payment |
| | |
| | The cost of employee benefits settled in capital instruments, such as shares or options for shares of the Company and/or the parent company, is measured according to the fair value of the financial instruments on the grant date. Additional expense will be charged if a change will be made to the terms of the arrangement, which increases its total fair value. The cost is charged to the Company’s statement of operations concurrent with a corresponding increase in its shareholders’ equity, over the period in which the conditions of the service are fulfilled, a period ending on the date the employees are eligible for compensation (vesting period). |
9
| |
Note 2 – | Significant accounting policies (cont.) |
| | |
| I. | Revenue recognition |
| | |
| | Revenues from product sales are included when the products are supplied, the date that the significant risks and rewards deriving from ownership are transferred to the buyer; the Company does not retain any ongoing managerial involvement that characterizes ownership and does not retain effective control of the goods sold; the amount of revenues and costs that were generated or could be generated by the transaction may be reliably measured, and the economic benefits deriving from the transaction are expected to flow to the Company. |
| | |
| | Revenues from service fees are included over the service contract period. |
| | |
| J. | Estimates |
| | |
| | Within the framework of financial statement preparation, in conformity with generally accepted accounting principles, the Company’s management is required to use estimates and to make assessments and assumptions that impact the reported data relating to the assets and liabilities and to contingent assets and liabilities as of the date of the financial statements, and on the revenue and expense data during the reported periods. |
| | |
| | The actual results could differ from these estimates and assessments. |
| | |
| K. | Fair value of financial instruments |
| | |
| | The Company’s financial instruments are comprised of non-derivative assets and liabilities that mainly include working capital items.
Due to their nature, the fair value of the financial instruments included in working capital are generally the same or approximate their carrying value. |
| | |
| L. | Impairment of assets |
| | |
| | Periodically, the Company evaluates the need to record an impairment provision, in order to assure that its fixed assets, and other assets, are not stated at an amount exceeding their “recoverable amount”, which is the higher of the net sales price and the present value of the estimated future cash flows expected to derive from the use and realization of the asset. A recognized impairment loss will be reversed only when changes have occurred in the estimates used to determine the asset’s recoverable amount. |
| | |
| M. | Reclassification |
| | |
| | Certain items included in the comparative figures for prior periods in the financial statements were reclassified, in order to faithfully reflect the classification of those items in the current financial statements. |
10
| |
Note 2 – | Significant accounting policies (cont.) |
| | | |
| N. | Linked balances and foreign currency balances |
| | | |
| | 1. | Balances denominated in or linked to foreign currency are included in the financial statements at the representative exchange rates. Balances linked to the Consumer Price Index in Israel (“CPI”) are included on the basis of the relevant CPI for each linked asset or liability. |
| | | |
| | 2. | Presented below are data on the CPI and representative exchange rate of the U.S. dollar: |
| | | | | | | |
| | | Consumer | | Exchange rate |
| | | Price Index (*) | | of $1 |
| | |
| |
|
| | | Points | | NIS |
| | |
| |
|
| | | | | | | |
In month at end of period | | | | | | | |
December 2007 | | | 113.6 | | | 3.85 | |
December 2006 | | | 109.9 | | | 4.23 | |
December 2005 | | | 110.0 | | | 4.60 | |
| | | | | | | |
| | | % | | % |
| | |
| |
|
| | | | | | | |
Rate of change during the year | | | | | | | |
Year ended December 31, 2007 | | | 3.4 | | | (9.0 | ) |
Year ended December 31, 2006 | | | (0.1 | ) | | (8.1 | ) |
Year ended December 31, 2005 | | | 2.4 | | | 6.8 | |
| | | | | | | |
(*) According to CPI for month ended on balance sheet date, at average basis of 2000=100 points. |
| | | |
| O. | Initial application of Accounting Standards |
| | | |
| | 1. | Beginning January 1, 2007, the Company has applied Accounting Standard No. 26 – Inventory (“the Standard”), of the Israel Accounting Standards Board (“ASB”), which provides the financial statement accounting treatment and measurement of inventory. |
| | | |
| | | The initial application of the Standard did not have a material effect on the financial statements. |
| | | |
| | 2. | Beginning January 1, 2007, the Company has applied Accounting Standard No. 27 of the ASB – Fixed Assets, and No. 28 – Amendment of Transitional Provisions of Accounting Standard 27 (“the Standards”), which provide the accounting treatment of fixed assets required in the financial statements. |
| | | |
| | | In view of the Company’s decision to apply the cost model, the initial application of the Standard did not have a material effect on the financial statements. |
| | | |
| | 3. | Beginning January 1, 2007, the Company has applied Accounting Standard No. 30 of ASB – Intangible Assets, which was published in March 2007 (“the Standard”). The Standard is based on International Accounting Standard No. 38, which provides the accounting treatment, recognition and measurement and disclosure requirements related to intangible assets that are not dealt with in another Standard. With its publication, Accounting Standard No. 20 (Amended) of ASB was cancelled. |
| | | |
| | | As a result of the initial application of the Standard, the Company classified the cost and accumulated amortization of computer software and licenses from fixed assets to other assets, in the amount of NIS 162 thousand and of NIS 10 thousand, as of December 31, 2006 and 2005. |
11
| |
Note 2 – | Significant accounting policies(cont.) |
| | |
| O. | Initial application of Accounting Standards(cont.) |
| | |
| | Aside from the aforesaid, the initial application of the Standard did not have a material effect on the financial statements. |
| | |
| P. | Disclosure of the effect of new Accounting Standard in the period before application |
| | |
| | In July 2006, Accounting Standard No. 29 of the ASB (“the Standard”) was published regarding the adoption of International Financial Reporting Standards (“IFRS Standards”) in Israel. .. |
| | |
| | IFRS Standards are standards and interpretations that were adopted by the International Accounting Standards Board, and they include international financial reporting standards (IFRS), international accounting standards (IAS), and interpretations prescribed by the International Financial Reporting Interpretations Committee (IFRIC) or the committee that preceded it for interpretation of international accounting standards (SIC). |
| | |
| | The Standard allows the Company to adopt the said provisions in its financial statements. If the Company elects to apply IFRS Standards, it will have to provide financial statement disclosure, inter alia, of the adjustments to shareholders’ equity or income or losses that were reported in the past for reporting periods for which their comparative periods are included in the financial statements, as a result of the transition from the existing standards to reporting according to IFRS Standards. |
12
| |
Note 2 – | Significant accounting policies(cont.) |
| | |
| Q. | Disclosure of the effect of new Accounting Standard in the period before application(cont.) |
| | |
| | The application of IFRS Standards could have a material effect on the Company’s assets and liabilities, and hence, also on the Company’s financial position and operating results, as they will be reflected in its financial statements. Adoption of the Standards requires the Company to evaluate the differences between the IFRS Standards and the accounting standards now practiced in Israel – which requires considerable time and resources. |
| | |
| | The Company intends to change to reporting according to IFRS Standards during 2008. The initial adoption of the IFRS Standards will be carried out while applying IFRS Standard 1 – Initial Adoption of IFRS Standards. |
| |
Note 3 – | Cash and cash equivalents |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
In Israeli currency | | | 464 | | | 450 | | | 1,057 | |
Linked to the U.S. dollar | | | 22 | | | 34 | | | 8 | |
| |
|
| |
|
| |
|
| |
| | | 486 | | | 484 | | | 1,065 | |
| |
|
| |
|
| |
|
| |
| |
Note 4 – | Trade receivables |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Open accounts | | | 11,101 | | | 14,776 | | | 18,483 | |
Checks, credit card company vouchers and automatic debit orders | | | 7,131 | | | 6,623 | | | 4,664 | |
| |
|
| |
|
| |
|
| |
| | | 18,232 | | | 21,399 | | | 23,147 | |
| |
|
| |
|
| |
|
| |
Net of provision for doubtful debts | | | 59 | | | 37 | | | 37 | |
| |
|
| |
|
| |
|
| |
Of which – Cellcom, net | | | 10,139 | | | 13,556 | | | 18,253 | |
| |
|
| |
|
| |
|
| |
13
| |
Note 5 – | Other receivables and debit balances |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Government institutions | | | 813 | | | 714 | | | 2,257 | |
Deferred taxes | | | 159 | | | 156 | | | 115 | |
Related parties | | | 3,852 | | | – | | | – | |
Prepaid expenses and sundry | | | 796 | | | 389 | | | 555 | |
| |
|
| |
|
| |
|
| |
| | | 5,620 | | | 1,259 | | | 2,927 | |
| |
|
| |
|
| |
|
| |
| |
Note 6 – | Funded liability in excess of accrued severance pay |
| | | | | | | | | | | |
| | | As of December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
| | | | | | | | | | | |
A. | Composition: | | | | | | | | | | |
| Funded liability | | | 4,438 | | | 4,174 | | | 3,833 | |
| Net of – accrued severance pay | | | 3,588 | | | 4,107 | | | 3,511 | |
| | |
|
| |
|
| |
|
| |
| | | | 850 | | | 67 | | | 322 | |
| | |
|
| |
|
| |
|
| |
| | |
| B. | The Company’s liabilities for the payment of accrued severance pay and retirement to its employees, calculated on the basis of their last salary (regarding employees whose income is influenced by the Company’s revenues (mainly — marketing and sales personnel) calculated on the basis of their average monthly salary, during the twelve months’ period prior financial balance sheet date) and their period of employment, are covered by premium payments for managers’ insurance and by the funded severance pay. The amounts accrued for the insurance policies were not included in the financial statements, since they are not under the Company’s control and management. |
| | |
| C. | The balance in the severance pay fund includes accrued earnings. A withdrawal from the severance pay fund is contingent on compliance with the provisions of the Severance Pay Law in Israel. |
| |
| Includes deposits given by the Company to property owners to secure its liabilities, under the terms of rental contracts, in some of the stores it has opened. |
14
Composition:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Instruments
and
equipment | | Furniture
and office
equipment | | Computers and
peripheral
equipment | | | | | | | |
| | | | | | | | | Total as of December 31 | |
| | | | | | | Leasehold
improvements | |
| |
| | | | | Vehicles | | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cost (1) | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance – beginning of year | | | 2,103 | | | 3,474 | | | 3,562 | | | 138 | | | 4,255 | | | 13,532 | | | 12,888 | | | 9,559 | |
Additions for year | | | 28 | | | 88 | | | 125 | | | – | | | 396 | | | 637 | | | 735 | | | 3,402 | |
Disposals for year | | | (617 | ) | | (1,294 | ) | | (2,566 | ) | | (138 | ) | | (871 | ) | | (5,486 | ) | | (91 | ) | | (73 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | 1,514 | | | 2,268 | | | 1,121 | | | – | | | 3,780 | | | 8,683 | | | 13,532 | | | 12,888 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance – beginning of year | | | 1,547 | | | 1,907 | | | 3,157 | | | 138 | | | 2,022 | | | 8,771 | | | 7,998 | | | 7,423 | |
Additions for year | | | 120 | | | 157 | | | 223 | | | – | | | 370 | | | 870 | | | 864 | | | 648 | |
Disposals for year | | | (617 | ) | | (1,294 | ) | | (2,566 | ) | | (138 | ) | | (871 | ) | | (5,486 | ) | | (91 | ) | | (73 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | 1,050 | | | 770 | | | 814 | | | – | | | 1,521 | | | 4,155 | | | 8,771 | | | 7,998 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net book value | | | 464 | | | 1,498 | | | 307 | | | – | | | 2,259 | | | 4,528 | | | 4,761 | | | 4,890 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(1) Includes cost of fully depreciated assets of | | | | | | | | | | | | 1,241 | | | 6,382 | | | 6,301 | |
| | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
15
| | | | | | | | | | | | |
| | | As of December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
| | | | | | | | | | | |
A. | Composition: | | | | | | | | | | |
| Cost of intangible assets (1) | | | 276 | | | 211 | | | 42 | |
| Disposals | | | (31 | ) | | – | | | – | |
| | |
|
| |
|
| | |
| |
| | | | 245 | | | 211 | | | 42 | |
| | |
|
| |
|
| | |
| |
| Less – accumulated amortization | | | 125 | | | 49 | | | 32 | |
| Disposals | | | (31 | ) | | – | | | – | |
| | |
|
| |
|
| | |
| |
| | | | 94 | | | 49 | | | 32 | |
| | |
|
| |
|
| | |
|
| | | | 151 | | | 162 | | | 10 | |
| | | | | | | | | | | |
| Rental rights in stores, net of amortization (1) | | | 12 | | | 23 | | | 44 | |
| Goodwill on acquisition of operation (see B below) | | | 4,260 | | | 4,260 | | | 4,260 | |
| | |
|
| |
|
| | |
|
| | | | 4,423 | | | 4,445 | | | 4,314 | |
| | |
|
| |
|
| |
|
| |
| (1) Includes cost of fully amortized assets of | | | – | | | 31 | | | 31 | |
| | |
|
| |
|
| |
|
| |
| | |
| B. | Acquisition of the operation of See Communication |
| | |
| | In July 2005, the Company entered into an agreement with See Communication Shehuda Ltd. (“See”) and its major shareholder, to acquire the operations of See, a private company operating 14 points of retail marketing and sale of cellular communication products used by the Cellcom network. |
| | |
| | The agreement stipulated, inter alia, that in consideration for the acquired operations and assets, the Company will pay NIS 7 million to See. Part was allocated to fixed assets and the balance – to goodwill. |
| |
Note 10 – | Short-term credit |
| |
| Last year, includes short-term bank credit bearing annual interest at the rate of 5.75%. |
16
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Open debts (1) | | | 2,394 | | | 1,552 | | | 21,143 | |
Post-dated checks payable | | | 1,633 | | | 735 | | | 2,010 | |
| |
|
| |
|
| |
|
| |
| | | 4,027 | | | 2,287 | | | 23,153 | |
| |
|
| |
|
| |
|
| |
(1) Includes related company | | | 48 | | | 12 | | | 18,361 | |
| |
|
| |
|
| |
|
| |
| |
Note 12 – | Other payables and credit balances |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| |
| |
|
Composition: | | | | | | | | | | |
Employees and salary-related | | | 3,528 | | | 3,389 | | | 3,346 | |
Prepaid income | | | 2,956 | | | 2,863 | | | 826 | |
Related parties | | | – | | | – | | | 886 | |
Accrued expenses and sundry | | | 318 | | | 1,561 | | | 227 | |
| |
|
| |
|
| |
|
| |
| | | 6,802 | | | 7,813 | | | 5,285 | |
| |
|
| |
|
| |
|
| |
| | |
| A. | Distribution agreement (non-exclusive) with Cellcom |
| | |
| | The Company has undertaken, pursuant to an agreement between the parent company and Cellcom in a non-exclusive distribution agreement, to serve as an authorized distributor of the Cellcom products and services. Moreover, the parent company received approval from Cellcom to provide to its clients certain software and activation services, in the framework of its import and distribution business and cellular phones service contracts.
In April, 2005, the term of this contract was extended for a period of additional 4 years. |
| | |
| B. | Agreements with related parties |
| | |
| | Agreements were signed between the Company and related parties which arrange the business relations between them, the way transactions are effected and their financing. Company management believes that the allocation of expenses between the related parties, pursuant to these agreements, is proper. |
| | |
| C. | Store rental agreements |
| | |
| | The Company and the parent company have entered into agreements with third parties for the rental of properties serving as stores and counters (including: stores in Tel Aviv, in Segula and in shopping malls throughout Israel). |
| | |
| | The rental fees paid in the stores and shopping mall counters are determined according to a percentage of sales or a fixed sum linked to the Israeli CPI (or occasionally to the U.S. dollar), whichever is higher. |
| | |
| | The fixed monthly rental fees on all the above properties in December 2007 total NIS 524 thousand (December 2006 – NIS 510 thousand, December 2005 – NIS 500 thousand). |
17
| | | | | | | |
| | As of December 31, 2007, 2006
and 2005 | |
| |
| |
| | Authorized
capital | | Issued and
paid-up capital | |
| |
| |
| |
| | Number of
shares | | N I S | |
| |
|
|
| |
| | | | | | | |
Ordinary shares, NIS 1 par value each | | | 23,800 | | | (*) 100 | |
| |
|
| |
|
| |
| | | | | | | |
(*) Share capital is stated in the balance sheet rounded to the nearest NIS 1 thousand. | | | | | | | |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Purchases (1)(2) | | | 80,581 | | | 82,452 | | | 71,314 | |
Salaries and related expenses (1) | | | 5,533 | | | 5,180 | | | 4,360 | |
Other expenses (1) | | | 2,100 | | | 2,099 | | | 2,098 | |
Add (deduct) – decrease (increase) in inventory | | | 489 | | | 878 | | | (6,539 | ) |
| |
|
| |
|
| |
|
| |
| | | 88,703 | | | 90,609 | | | 71,233 | |
| |
|
| |
|
| |
|
| |
(1) Includes from related parties | | | 23,257 | | | 24,924 | | | 36,611 | |
| |
|
| |
|
| |
|
| |
(2) Includes from another major supplier | | | 46,427 | | | 46,592 | | | 25,001 | |
| |
|
| |
|
| |
|
| |
| |
Note 16 – | Selling expenses |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Salaries and related expenses | | | 17,130 | | | 17,071 | | | 14,028 | |
Store rental fees and maintenance | | | 9,102 | | | 9,354 | | | 7,180 | |
Advertising, marketing and commissions | | | 2,128 | | | 2,441 | | | 1,361 | |
Depreciation, amortization and disposals | | | 836 | | | 768 | | | 488 | |
Other | | | 1,210 | | | 1,262 | | | 1,062 | |
| |
|
| |
|
| |
|
| |
| | | 30,406 | | | 30,896 | | | 24,119 | |
| |
|
| |
|
| |
|
| |
18
| |
Note 17 – | General and administrative expenses |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Composition: | | | | | | | | | | |
Salaries and related | | | 4,004 | | | 3,675 | | | 2,917 | |
Office maintenance | | | 791 | | | 879 | | | 587 | |
Management fees to related party | | | 4,835 | | | 4,938 | | | 3,852 | |
Other | | | 431 | | | 870 | | | 888 | |
| |
|
| |
|
| |
|
| |
| | | 10,061 | | | 10,362 | | | 8,244 | |
| |
|
| |
|
| |
|
| |
(*) Includes expenses to related party | | | 537 | | | 432 | | | 388 | |
| |
|
| |
|
| |
|
| |
(*) Includes rental fees to related party of | | | 456 | | | 341 | | | 180 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| | | For the year ended December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
| | | | | | | | | | | |
A. | Composition: | | | | | | | | | | |
| Current taxes – provision | | | 2,423 | | | 3,120 | | | 2,294 | |
| Less – deferred taxes | | | (3 | ) | | (41 | ) | | (14 | ) |
| | |
|
| |
|
| |
|
| |
| | | | 2,420 | | | 3,079 | | | 2,280 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| | | For the year ended December 31 | |
| | |
| |
| | | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| | |
| |
| |
| |
| | | R e p o r t e d N I S , 0 0 0 | |
| | |
| |
| | | | | | | | | | | |
B. | Reconciliation of theoretical tax to actual tax | | | | | | | | | | |
| | | | | | | | | | | |
| Income before taxes on income, as in Statement of Operations | | | 9,413 | | | 9,620 | | | 6,312 | |
| | |
|
| |
|
| |
|
| |
| Tax rate applicable to the Company | | | 29 | % | | 31 | % | | 34 | % |
| | |
|
| |
|
| |
|
| |
| Theoretical tax calculated according to tax rate applicable to the Company | | | 2,729 | | | 2,982 | | | 2,146 | |
| Adjustment for expenses that are not yet deductible/(currently deductible), net | | | (31 | ) | | 134 | | | 21 | |
| Adjustment for capital losses (gains) | | | – | | | – | | | (5 | ) |
| Adjustments for prior years | | | (96 | ) | | 9 | | | 206 | |
| Adjustment for change in tax rate | | | 12 | | | 11 | | | – | |
| Adjustment for inflationary effect in Israel | | | (194 | ) | | (57 | ) | | (88 | ) |
| | |
|
| |
|
| |
|
| |
| Tax expenses, in Statement of Operations | | | 2,420 | | | 3,079 | | | 2,280 | |
| | |
|
| |
|
| |
|
| |
19
| |
Note 18 – | Taxes on income(cont.) |
| | |
| C. | The Company has been issued final tax assessments for the tax years through 2000. The tax assessment for year 2003 became final at the end of 2007. |
| | |
| D. | Taxes under inflationary conditions |
| | |
| | According to Income Tax (Inflationary Adjustments) Law, 1985, results for tax purposes in Israel were measured on a “real” basis, adjusted to the changes in the CPI in Israel. The applicability of this law was limited, subsequent to the balance sheet date, in an Amendment to the Law, which was passed by the Knesset in February 2008. |
| | |
| | Accordingly, beginning from January 1, 2008, the results for tax purposes will be measured on a nominal basis, with certain adjustment deriving from the transitional provisions stipulated in the Amendment. |
| | |
| E. | Change in corporate tax rate in Israel |
| | |
| | On July 25, 2005, the Knesset passed an Amendment to the Income Tax Ordinance (No. 147) (Temporary Provision), 2005 (“the Amendment”). The Amendment provides a gradual reduction in the corporate tax rate in Israel, as follows: In 2008, a tax rate of 27% will apply (compared with a rate of 29% in 2007), in 2009 – 26% and from 2010 henceforth, a rate of 25% will apply. Moreover, it was provided that as from year 2010, a real capital gain will be subject to tax at a rate of 25%. |
| | |
| | The Company assesses that the Amendment does not have a material effect on the financial statements. |
20
| |
Note 19 – | Condensed Company financial statements, in nominal values, for tax purposes |
| | |
| A. | The Company includes historical nominal data for income tax purposes alone. These statements were prepared in accordance with generally accepted accounting principles on the basis of the historical cost convention, without taking into account the changes in the general purchasing power of the Israeli currency. |
| | |
| B. | Balance sheet |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Assets | | | | | | | | | | |
| | | | | | | | | | |
Current assets | | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents | | | 486 | | | 484 | | | 1,065 | |
Trade receivables | | | 18,232 | | | 21,399 | | | 23,147 | |
Other receivables and debit balances | | | 5,620 | | | 1,259 | | | 2,927 | |
Inventory | | | 10,445 | | | 10,933 | | | 11,811 | |
| |
|
| |
|
| |
|
| |
| | | 34,783 | | | 34,075 | | | 38,950 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Long-term investments and receivables | | | | | | | | | | |
| | | | | | | | | | |
Funded liability in excess of accrued severance pay | | | 850 | | | 67 | | | 322 | |
Deposits | | | 278 | | | 287 | | | 338 | |
Partnership | | | – | | | – | | | 1 | |
| |
|
| |
|
| |
|
| |
| | | 1,128 | | | 354 | | | 661 | |
| |
|
| |
|
| |
|
| |
Fixed assets | | | 4,501 | | | 4,725 | | | 4,843 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Other assets | | | 4,423 | | | 4,445 | | | 4,314 | |
| |
|
| |
|
| |
|
| |
| | | 44,835 | | | 43,599 | | | 48,768 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | As of December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | |
| | | | | | | | | | |
Current liabilities | | | | | | | | | | |
| | | | | | | | | | |
Short-term credit | | | – | | | 6,526 | | | 53 | |
Trade payables | | | 4,027 | | | 2,287 | | | 23,153 | |
Other payables and credit balances | | | 6,802 | | | 7,813 | | | 5,285 | |
| |
|
| |
|
| |
|
| |
| | | 10,829 | | | 16,626 | | | 28,491 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Shareholders’ equity | | | | | | | | | | |
| | | | | | | | | | |
Share capital | | | 1 | | | 1 | | | 1 | |
Capital reserves | | | 175 | | | 144 | | | – | |
Retained earnings | | | 33,830 | | | 26,828 | | | 20,276 | |
| |
|
| |
|
| |
|
| |
| | | 34,006 | | | 26,973 | | | 20,277 | |
| |
|
| |
|
| |
|
| |
| | | 44,835 | | | 43,599 | | | 48,768 | |
| |
|
| |
|
| |
|
| |
21
| |
Note 19 – | Condensed Company financial statements, in nominal values, for tax purposes (cont.) |
| | |
| C. | Statement of operations |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | N I S , 0 0 0 | |
| |
| |
| | | | | | | | | | |
Revenues from sales and services | | | 138,180 | | | 141,099 | | | 109,698 | |
Cost of sales and services | | | 88,701 | | | 90,606 | | | 71,227 | |
| |
|
| |
|
| |
|
| |
Gross profit | | | 49,479 | | | 50,493 | | | 38,471 | |
| |
|
| |
|
| |
|
| |
Selling expenses | | | 30,399 | | | 30,887 | | | 24,108 | |
General and administrative expenses | | | 10,061 | | | 10,362 | | | 8,242 | |
| |
|
| |
|
| |
|
| |
| | | 40,460 | | | 41,249 | | | 32,350 | |
| |
|
| |
|
| |
|
| |
Operating income before financing income | | | 9,019 | | | 9,244 | | | 6,121 | |
Financing income, net | | | 403 | | | 364 | | | 194 | |
| |
|
| |
|
| |
|
| |
Operating income after financing income | | | 9,422 | | | 9,608 | | | 6,315 | |
Gain from realization of fixed assets | | | – | | | 23 | | | 16 | |
| |
|
| |
|
| |
|
| |
Income before taxes on income | | | 9,422 | | | 9,631 | | | 6,331 | |
Taxes on income | | | 2,420 | | | 3,079 | | | 2,280 | |
| |
|
| |
|
| |
|
| |
Income for the year | | | 7,002 | | | 6,552 | | | 4,051 | |
| |
|
| |
|
| |
|
| |
22
| |
Note 19 – | Condensed Company financial statements, in nominal values, for tax purposes (cont.) |
| | |
| D. | Statement of changes in shareholders’ equity |
| | | | | | | | | | | | | |
| | | Share capital | | Capital
reserve | | Retained
earnings | | Total | |
| | |
| |
| |
| |
| |
| | | N I S , 0 0 0 | |
| | |
| |
| | | | | | | | | | | | | |
Balance as of January 1, 2005 | | | (*)1 | | | – | | | 16,225 | | | 16,226 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2005: | | | | | | | | | | | | | |
Income for the year | | | – | | | – | | | 4,051 | | | 4,051 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2005 | | | (*)1 | | | – | | | 20,276 | | | 20,277 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2006: | | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 144 | | | – | | | 144 | |
Income for the year | | | – | | | – | | | 6,552 | | | 6,552 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2006 | | | (*)1 | | | 144 | | | 26,828 | | | 26,973 | |
| | | | | | | | | | | | | |
Changes during the year ended December 31, 2007: | | | | | | | | | | | | | |
Cost of share-based payment | | | – | | | 31 | | | – | | | 31 | |
Income for the year | | | – | | | – | | | 7,002 | | | 7,002 | |
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2007 | | | (*)1 | | | 175 | | | 33,830 | | | 34,006 | |
| |
|
| |
|
| |
|
| |
|
| |
(*) Rounded to the nearest NIS 1 thousand.
| |
Note 20 – | Liens and guarantees |
| | |
| A. | To secure the Company’s liabilities pursuant to the distribution agreement with Cellcom (see Note 13A above), the Company furnished Cellcom with CPI-linked bank guarantees totaling NIS 1,518 thousand. |
| | |
| B. | To secure the Company’s liabilities pursuant to store rental agreements it signed (see Note 13C above), the Company furnished property owners with CPI-linked bank guarantees totaling NIS 1,487 thousand. |
| | |
| C. | The balance of the Company’s liabilities secured by the above liens and guarantees, as of the date of the financial statements, totals NIS 299 thousand. |
23
| |
Note 21 – | Differences between Israeli and US GAAP
The Company’s financial statements are prepared in accordance with accounting standards generally accepted in Israel (“Israeli GAAP”), which vary, in certain significant respects, from accounting principles generally accepted in the United States of America (“US GAAP”). Information relating to the nature and effect of such principal differences is presented below, together with explanations of certain adjustments made. |
| | |
| A. | Balance sheet adjustment |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of December 31, 2007 | | As of December 31, 2006 | | As of December 31, 2005 | |
| | | | |
| |
| |
| |
| | | | | Israeli
GAAP | | Effect of
change to
US GAAP | | US GAAP | | Israeli
GAAP | | Effect of
change to
US GAAP | | US GAAP | | Israeli
GAAP | | Effect of
change to
US GAAP | | US GAAP | |
| | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | R e p o r t e d N I S , 0 0 0 | | R e p o r t e d N I S , 0 0 0 | | R e p o r t e d N I S , 0 0 0 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | 486 | | | – | | | 486 | | | 484 | | | – | | | 484 | | | 1,065 | | | – | | | 1,065 | |
Trade receivables | | | | | | 18,232 | | | – | | | 18,232 | | | 21,399 | | | – | | | 21 | | | 23,147 | | | – | | | 23,147 | |
|
Other receivables and debit balances | | | | | | 5,620 | | | – | | | 5,620 | | | 1,259 | | | – | | | 1,259 | | | 2,927 | | | – | | | 2,927 | |
Inventory | | | | | | 10,445 | | | – | | | 10,445 | | | 10,933 | | | – | | | 10,933 | | | 11,811 | | | – | | | 11,811 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | 34,783 | | | – | | | 34,783 | | | 34,075 | | | – | | | 34,075 | | | 38,950 | | | – | | | 38,950 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Long-term investments and receivables | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Funded liability in excess of accrued severance pay | | | | | | 850 | | | – | | | 850 | | | 67 | | | – | | | 67 | | | 322 | | | – | | | 322 | |
Deposits | | | | | | 278 | | | – | | | 278 | | | 287 | | | – | | | 287 | | | 339 | | | – | | | 339 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | 1,128 | | | – | | | 1,128 | | | 354 | | | – | | | 354 | | | 661 | | | – | | | 661 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Fixed assets | | | | | | 4,528 | | | 151 | | | 4,679 | | | 4,761 | | | 162 | | | 4,923 | | | 4,890 | | | 10 | | | 4,900 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other assets | | | | | | 4,423 | | | 23 | | | 4,446 | | | 4,445 | | | 12 | | | 4,457 | | | 4,314 | | | 164 | | | 4,478 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total assets | | | | | | 44,862 | | | 174 | | | 45,036 | | | 43,635 | | | 174 | | | 43,809 | | | 48,815 | | | 174 | | | 48,989 | |
| | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
24
| |
Note 21 – | Differences between Israeli and US GAAP (cont.) |
| | |
| A. | Balance sheet adjustment (cont.) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of December 31, 2007 | | As of December 31, 2006 | | As of December 31, 2005 | |
| | | | |
| |
| |
| |
| | | | | Israeli
GAAP | | Effect of
change to
US GAAP | | US GAAP | | Israeli
GAAP | | Effect of
change to
US GAAP | | US GAAP | | Israeli
GAAP | | Effect of
change to
US GAAP | | US GAAP | |
| | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | R e p o r t e d N I S , 0 0 0 | | R e p o r t e d N I S , 0 0 0 | | R e p o r t e d N I S , 0 0 0 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term credit | | | | | | – | | | – | | | – | | | 6,526 | | | – | | | 6,526 | | | 53 | | | – | | | 53 | |
Trade payables | | | | | | 4,027 | | | – | | | 4,027 | | | 2,287 | | | – | | | 2,287 | | | 23,153 | | | – | | | 23,153 | |
Other payables and credit balances | | | | | | 6,802 | | | – | | | 6,802 | | | 7,813 | | | – | | | 7,813 | | | 5,285 | | | – | | | 5,285 | |
| | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | | 10,829 | | | – | | | 10,829 | | | 16,626 | | | – | | | 16,626 | | | 28,491 | | | – | | | 28,491 | |
| | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share capital | | | | | | 1 | | | – | | | 1 | | | 1 | | | – | | | 1 | | | 1 | | | – | | | 1 | |
Capital reserves | | | | | | 175 | | | – | | | 175 | | | 144 | | | – | | | 144 | | | – | | | – | | | – | |
Retained earnings | | | | | | 33,857 | | | 174 | | | 34,031 | | | 26,864 | | | 174 | | | 27,038 | | | 20,323 | | | 174 | | | 20,497 | |
| | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Shareholders’ equity | | | | | | 34,033 | | | 174 | | | 34,207 | | | 27,009 | | | 174 | | | 27,183 | | | 20,324 | | | 174 | | | 20,498 | |
| | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Total liabilities and equity | | | | | | 44,862 | | | 174 | | | 45,036 | | | 43,635 | | | 174 | | | 43,809 | | | 48,815 | | | 174 | | | 48,989 | |
| | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
25
| |
Note 21 – | Differences between Israeli and US GAAP (cont.) |
| | |
| B. | Adjustment of income or loss |
| | | | | | | | | | |
| | For the year ended December 31 | |
| |
| |
| | 2 0 0 7 | | 2 0 0 6 | | 2 0 0 5 | |
| |
| |
| |
| |
| | R e p o r t e d N I S t h o u s a n d s | |
| |
| |
| | | | | | | | | | |
Net income per statement of operations | | | 6,993 | | | 6,541 | | | 4,032 | |
| |
|
| |
|
| |
|
| |
Items increasing net income | | | | | | | | | | |
Reversal of amortization of goodwill from acquisition of operations | | | – | | | – | | | 174 | |
| |
|
| |
|
| |
|
| |
| | | – | | | – | | | 174 | |
| |
|
| |
|
| |
|
| |
|
Items reducing net income | | | – | | | – | | | – | |
| |
|
| |
|
| |
|
| |
| | | – | | | – | | | – | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net income according to US GAAP | | | 6,993 | | | 6,541 | | | 4,206 | |
| |
|
| |
|
| |
|
| |
| | | |
| C. | Cash flow adjustments |
| | |
| | There are no material changes in the Company’s statement of cash flows for the years ended December 31, 2007, 2006 and 2005, between that presented in the financial statements and in the statement of cash flows required according to US GAAP. |
| | | |
| D. | Explanations of significant adjustments of balance sheets as of December 31, 2007, 2006 and 2005 or income or loss for the years then ended: |
| | | |
| | Other assets |
| | | |
| | | According to Israeli GAAP, until December 31, 2005, goodwill from the acquisition of operations is amortized by the straight-line method. Commencing January 2006, following the initial application of Accounting Standard No. 20 (Amended), the Company discontinued the systematic amortization of goodwill. |
| | | |
| | | According to US GAAP, intangible assets having an indefinite useful life will not be amortized on a regular basis, but will be subject to impairment tests. |
26
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited condensed combined pro forma financial statements for the year ended December 31, 2007 and the Six months ended June 30, 2008 and at June 30, 2008 reflect the historical results of Suny Communication and Dynamics. (“Suny”) and Scailex Corporation Ltd. (“Scailex”), adjusted to give effect to the merger.
We are providing this information to assist you in your analysis of the financial aspects of the merger. We derived this information from (i) the audited consolidated financial statements of Suny as of, and for the year ended, December 31, 2007, (ii) the unaudited consolidated financial statements of Suny as of, and for the Six months ended, June 30, 2008, (iii) the audited consolidated financial statements of Scailex as of, and for the year ended, December 31, 2007, and (iv) the unaudited consolidated financial statements of Suny as of, and for the six months ended, June 30, 2008. This information should be read together with the Suny consolidated financial statements and related notes included elsewhere in this Form 20-F and the Scailex consolidated financial statements and related notes incorporated from the Scailex annual report on Form 20-F filed on June 30, 2008.
The following unaudited pro forma condensed combined financial statements combine (i) the historical balance sheets of Scailex as of June 30, 2008 and Suny as of June 30, 2008 giving pro forma effect to the merger of Scailex and Suny as if it had occurred on June 30, 2008, (ii) the historical statements of Scailex for the year ended December 31, 2007 and Suny for the year ended December 31, 2007 giving pro forma effect to the merger of Scailex and Suny as if it had occurred on January 1, 2007 and (iii) the historical statements of operations of Scailex and Suny for the six months ended June 30, 2008 and June 30, 2008, respectively, giving pro forma effect to the merger of Scailex and Suny as if it had occurred on January 1, 2007 and carried forward through June 30, 2008.
The pro forma adjustments are preliminary, and the unaudited pro forma condensed combined financial statements are not necessarily indicative of the financial position or results of operations that may have actually occurred had the merger taken place on the dates noted, or the future financial position or operating results of Scailex or Suny. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. Under the purchase method of accounting, the total purchase price will be allocated to the net tangible and intangible assets acquired and liabilities assumed, based on various estimates of their respective fair values. Scailex will determine the estimated fair values of acquired assets and assumed liabilities with the assistance of third party valuation specialists in accordance with Statement of Financial Accounting Standard No. 141, Business Combinations (“SFAS No. 141”). The purchase price allocations set forth in the following unaudited pro forma condensed combined financial statements are based on preliminary valuation estimates of Suny’s tangible and intangible assets. The final valuations, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates and, as a result, the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected below. Any material change in the valuation estimates and related allocation of the purchase price would materially impact Scailex’s depreciation and amortization expenses, the unaudited pro forma condensed combined financial statements and Scailex’s results of operations after the merger.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2008
(in thousands)
| As of June 30, 2008
|
|---|
| Scailex
| Suny Communications
| Dynamics
| Acquisition
Adjustments
| Combined
|
|---|
| Unaudited
| Note 2:
| (unaudited)
|
|---|
| | | | | | | |
|---|
| | | | | | |
|---|
| A S S E T S | | | | | | | | | | | | | | | | | | | | |
| | | |
| CURRENT ASSETS | | |
| Cash and cash equivalents | | | $ | 14,416 | | | 2,425 | | | 146 | | | 261,511 | | | F | | | 278,498 | |
| Trade accounts receivable: | | |
| Related parties | | | | 341,681 | | | | | | | | | (341,681 | ) | | C | | | | |
| Customers | | | | | | | 26,742 | | | 4,439 | | | | | | | | | 31,181 | |
| Other receivables | | | | 423 | | | 2,519 | | | 1,507 | | | (3,659 | ) | | E | | | 790 | |
| Inventories | | | | | | | 4,900 | | | 2,835 | | | 1,954 | | | B | | | 9,689 | |
| HTM and AFS securities | | | | 4,840 | | | 536 | | | | | | (536 | ) | | E | | | 4,840 | |
| Other current assets | | | | 310 | | | | | | | | | | | | | | | 310 | |
|
| |
| |
| |
| | | |
| |
| Total current assets | | | | 361,670 | | | 37,122 | | | 8,927 | | | (82,411 | ) | | | | | 325,308 | |
|
| |
| |
| |
| | | |
| |
| LONG-TERM INVESTMENTS | | | | 3,330 | | | 226 | | | 121 | | | | | | | | | 3,677 | |
|
| |
| |
| |
| | | |
| |
| PROPERTY AND EQUIPMENT, NET | | | | 22 | | | 335 | | | 1,486 | | | | | | | | | 1,843 | |
|
| |
| |
| |
| | | |
| |
| FRANCHISE WITH SAMSUNG | | | | | | | | | | | | | 32,634 | | | B | | | 32,634 | |
| GOODWILL | | | | | | | | | | 1,326 | | | 14,989 | | | B | | | 16,315 | |
|
| |
| |
| |
| | | |
| |
| TOTAL ASSETS | | | $ | 365,022 | | | 37,683 | | | 11,860 | | $ | (34,788 | ) | | | | $ | 379,777 | |
|
| |
| |
| |
| | | |
| |
| | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | |
| | | |
| CURRENT LIABILITIES | | |
| Short term borrowings | | | | | | | 25,373 | | | 7,463 | | | (32,836 | ) | | E | | | | |
| Trade accounts payable | | | | 1,620 | | | 11,129 | | | 904 | | | | | | | | | 13,653 | |
| Other current liabilities | | | | 258 | | | 2,625 | | | 1,906 | | | (1,809 | ) | | E | | | 2,980 | |
| Current liabilities related to discontinued operations | | | | 10,567 | | | | | | | | | | | | | | | 10,567 | |
|
| |
| |
| |
| | | |
| |
| Total current liabilities | | | | 12,445 | | | 39,127 | | | 10,273 | | | (34,645 | ) | | | | | 27,200 | |
| | | |
| OTHER LONG-TERM LIABILITIES | | | | 237 | | | | | | | | | | | | | | | 237 | |
| | | |
| DEFERRED TAX LIABILITY | | |
| | | |
| MINORITY INTEREST | | | | 375 | | | | | | | | | | | | | | | 375 | |
|
| |
| |
| |
| | | |
| |
| Total liabilities | | | | 13,057 | | | 39,127 | | | 10,273 | | | (34,645 | ) | | | | | 27,812 | |
|
| |
| |
| |
| | | |
| |
| SHAREHOLDERS' EQUITY | | | | 351,965 | | | (1,444 | ) | | 1,587 | | | (143 | ) | | A,B,E | | | 351,965 | |
|
| |
| |
| |
| | | |
| |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | | $ | 365,022 | | | 37,683 | | | 11,860 | | $ | (34,788 | ) | | | | $ | 379,777 | |
|
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| |
| |
| | | |
| |
See notes to the unaudited pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2007
(in thousands, except per share data)
| Year ended ended December 31, 2007
|
|---|
| | | | | Acquisition
Adjustments
| | |
|---|
| Scailex
| Suny Communications
| Dynamics
| Note 2:
| Combined
|
|---|
| | | | | | | |
|---|
| REVENUES | | | $ | | | | 101,464 | | | 33,702 | | | (56,726 | ) | | H | | | 78,440 | |
| | | |
| COST OF SALES | | | | | | | 83,660 | | | 21,635 | | | (54,772 | ) | | G,H | | | 50,523 | |
|
| |
| |
| | | | | |
| |
| GROSS PROFFIT | | | | | | | 17,804 | | | 12,067 | | | (1,954 | ) | | | | | 27,917 | |
|
| |
| |
| |
| | | |
| |
| | | |
| OPERATING COSTS AND EXPENSES | | |
| | | |
| Selling and Marketing | | | | | | | 3,800 | | | 7,416 | | | | | | | | | 11,216 | |
| General and administrative | | | | 3,570 | | | 6,338 | | | 2,454 | | | | | | | | | 12,362 | |
| Amortization of intangible assets | | | | | | | | | | | | | 10,878 | | | D | | | 10,878 | |
|
| |
| |
| |
| | | |
| |
| | | |
| OPERATING PROFFIT | | | | (3,570 | ) | | 7,666 | | | 2,197 | | | 10,878 | | | | | | (6,539 | ) |
| | | |
| FINANCING INCOME (EXPENSE), NET | | | | 2,580 | | | 2,340 | | | 118 | | | | | | | | | 5,038 | |
| | | |
| OTHER INCOME (EXPENSE), NET | | | | 10,823 | | | | | | | | | | | | | | | 10,823 | |
|
| |
| |
| |
| | | |
| |
| | | |
| Net proffit before income tax | | | | 9,833 | | | 10,006 | | | 2,315 | | | 10,878 | | | | | | 9,322 | |
| | | |
| MINORITY INTEREST IN LOSS OF A SUBSIDIARY | | | | 3,979 | | | | | | | | | | | | | | | 3,979 | |
| | | |
| Income tax expense | | | | | | | (1,910 | ) | | (590 | ) | | | | | | | | (2,500 | ) |
|
| |
| |
| |
| | | |
| |
| | | |
| NET INCOME FROM CONTINUING OPERATIONS | | | | 13,812 | | | 8,096 | | | 1,725 | | | 10,878 | | | | | | 10,801 | |
|
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| |
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| | | |
| BASIC PROFFIT PER ORDINARY SHARE | | |
| | | |
| Continuing operations | | | $ | 0.36 | | | | | | | | | | | | | | $ | 0.28 | |
|
| | | | | | | | | |
| |
| | | |
| Weighted average number of ordinary | | |
| shares outstanding - in thousands | | | | 38,164 | | | | | | | | | | | | | | | 38,164 | |
|
| | | | | | | | | |
| |
| | | |
| See notes to consolidated financial statements. | | |
See notes to the unaudited pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Statement of Operations
Six Months Ended June 30, 2008
(in thousands, except share and per share data)
| Six months ended June 30, 2008
|
|---|
| | | | | Acquisition
Adjustments
| | |
|---|
| Scailex
| Suny Communications
| Dynamics
| Note 2:
| Combined
|
|---|
| | | | | | | |
|---|
| | | | | | |
|---|
| REVENUES | | | $ | | | | 59,686 | | | 19,732 | | | (3,083 | ) | | H | | | 76,335 | |
| | | |
| COST OF SALES | | | | | | | 49,696 | | | 12,876 | | | (3,083 | ) | | H | | | 59,489 | |
|
| |
| |
| | | | | |
| |
| | | |
| GROSS PROFFIT | | | | | | | 9,990 | | | 6,856 | | | | | | | | | 16,846 | |
|
| |
| |
| |
| | | |
| |
| | | |
| OPERATING COSTS AND EXPENSES | | |
| | | |
| Selling and Marketing | | | | | | | 1,876 | | | 4,552 | | | | | | | | | 6,428 | |
| General and administrative | | | | 2,545 | | | 4,946 | | | 1,896 | | | | | | | | | 9,387 | |
| Amortization of intangible assets | | | | | | | | | | | | | 5,439 | | | | | | 5,439 | |
|
| |
| |
| |
| | | |
| |
| | | |
| OPERATING INCOM (LOSS) | | | | (2,545 | ) | | 3,168 | | | 408 | | | (5,439 | ) | | | | | (4,408 | ) |
| | | |
| FINANCING INCOME ( EXPENSE), NET | | | | 1,244 | | | 1,450 | | | (87 | ) | | | | | | | | 2,607 | |
| | | |
| OTHER INCOME , NET | | | | 94,976 | | | 234 | | | | | | | | | | | | 95,210 | |
|
| |
| |
| |
| | | |
| |
| | | |
| Net Income before income tax | | | | 93,675 | | | 4,852 | | | 321 | | | (5,439 | ) | | | | | 93,409 | |
| | | |
| MINORITY INTEREST IN LOSS OF A SUBSIDIARY | | | | 146 | | | | | | | | | | | | | | | 146 | |
| | | |
| Income tax expense | | | | (270 | ) | | (354 | ) | | (80 | ) | | | | | | | | (705 | ) |
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| |
| |
| | | |
| |
| | | |
| NET INCOME FROM CONTINUING OPERATIONS | | | | 93,551 | | | 4,498 | | | 240 | | | (5,439 | ) | | | | | 92,850 | |
|
| |
| |
| |
| | | |
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| | | |
| BASIC EARNING PER ORDINARY SHARE | | |
| | | |
| Continuing operations | | | $ | 2.45 | | | | | | | | | | | | | | $ | 2.43 | |
| | | |
| Weighted average number of ordinary | | |
| shares outstanding - in thousands | | | | 38,213 | | | | | | | | | | | | | | | 38,213 | |
|
| | | | | | | | | |
| |
| | | |
| See notes to consolidated financial statements. | | |
See notes to the unaudited pro forma condensed combined financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
On September 29, 2008, Scailex signed a Merger Agreement with Suny Electronics (the parent company of Suny). The Agreement provides that, upon the terms and subject to the conditions set in the Agreement, Suny’s operations will be transferred to Scailex (the “Acquisition”). Upon the closing of the Acquisition, Scailex will transfer to Suny Electronics $76,300 (the purchase price) in consideration for the assets and liabilities of Suny.
For purposes of these unaudited pro forma condensed combined financial statements, Scailex has assumed the total consideration of the merger to be $77,599 thousands as follows:
| (in thousands)
|
|---|
| |
|---|
| |
|---|
| |
|---|
| |
|---|
| Merger consideration | | | $ | 76,300 | |
| Estimated fees and expenses of Scailex (a) | | | | 1,299 | |
|
| |
| Total | | | $ | 77,599 | |
|
| |
(a) Estimated fees and expenses include fees of consultants, legal fees and expenses, printing and mailing costs for this Form 20-F, SEC filing fees, financial advisor fees and expenses, financing fees and related expenses, and other miscellaneous expenses directly related to the merger and the transactions contemplated thereby.
NOTE 2 – PRO FORMA ADJUSTMENTS
| |
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| | | | | |
| Suny's historical stockholders' equity acquired as of June 30, 2008 | | | $ | 26,696 | |
| Estimated fees and expenses of Suny (1) | | | | (3,400 | ) |
|
| |
| Total | | | $ | 23,296 | |
|
| |
(1) Estimated fees and expenses include fees of consultants, legal fees and expenses, financial advisor fees and expenses, financing fees and related expenses, and other miscellaneous expenses directly related to the merger and the transactions contemplated thereby.
| B. | Preliminary purchase price allocation |
| | Under the purchase method of accounting, the total purchase price will be allocated to the net tangible and intangible assets acquired and liabilities assumed, based on various estimates of their respective fair values. Scailex determined, provisionally, the estimated fair values of certain assets and liabilities to be closed to their carrying values. The final purchase price allocation will be done with assistance of third party valuation specialists. Based on preliminary valuation estimates, the total purchase price will be allocated as follows: |
| As of June
30, 2008
| Additional
Value (1)
| Purchase
Price
Allocation
|
|---|
| (in thousands) |
|---|
| | | | |
|---|
| | | |
|---|
| | | |
|---|
| Inventories | | | $ | 7,735 | | $ | 1,954 | | $ | 9,689 | |
| Other tangible assets | | | | 33,716 | | | | | | 33,716 | |
| Franchise with Samsung | | | | | | | 32,634 | | | 32,634 | |
| Goodwill | | | | | | | 16,315 | | | 16,315 | |
| Liabilities assumed | | | | (14,755 | ) | | | | | (14,755 | ) |
| Expenses incurred by Suny | | | | (3,400 | ) | | | | | | |
|
| | | |
| |
| Total | | | | 23,296 | | | | | $ | 77,599 | |
|
| | | |
| |
| | The purchase price allocations set forth in these unaudited pro forma condensed combined financial statements are based on preliminary valuation estimates of Suny’s tangible and intangible assets which as described above. The Company allocated preliminarily, 2\3 of the excess cost over purchased tangible asset to the franchise contract with the major supplier of Suny (Samsung) and the rest was allocated to goodwill. Such preliminary allocation is due to the significance of the franchise to the operations of Suny. The final valuations, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates and, as a result, the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected herein. Any material change in the valuation estimates and related allocation of the purchase price would materially impact Scailex’s depreciation and amortization expenses, the unaudited pro forma condensed combined financial statements and Scailex’s results of operations after the merger. |
| C. | The related party receivable for the sale of PCH was paid on July 1st. For the purpose of this pro-forma it was assumed that such payment took place in June 30, 2008. |
| D. | The Franchise contract with Samsung was assumed to have definite useful live of 3 years. For the purpose of the pro forma result of operation for the year ended December 31, 2007 and six months period ended June 30, 2008 $10,871 and $5,436 of amortization was assumed. |
| E. | According to the agreement Scailex did not purchased certain assets and did not assumed certain liabilities as follows: |
| As of June 30,
2008
|
|---|
| (in thousands) |
|---|
| | |
|---|
| |
|---|
| |
|---|
| Historical shareholders Equity of Suny (both Suny Communication and Dynamics) | | | $ | 143 | |
| Liabilities not assumed (1) | | | | 34,645 | |
| Assets not acquired (2) | | | | (8,092 | ) |
|
| |
| Total | | | $ | 26,696 | |
|
| |
| (1) | Comprised of loans from Bank Leumi in the amount of $32,836 (NIS 110,000) and Other current liabilities in the amount of $1,809 mainly related to tax authorities. |
| (2) | Comprised of other receivables in the amount of $3,661 mainly related to VAT taxes, traded securities and cash balances in the amount of $3,107 ($2,571 cash and $536 traded securities) and goodwill in the amount of $1,326. |
| F. | The amount is comprised of: |
| As of June 30,
2008
|
|---|
| (in thousands) |
|---|
| |
|---|
| |
|---|
| |
|---|
| Cash not part of acquired assets | | | $ | (2,571 | ) |
| Receivable from related party that was assumed to be received as of June 30 | | |
| (See note C above) | | | | 341,681 | |
| Consideration paid by Scailex in connection with the merger (including merger | | |
| expenses) | | | | (77,599 | ) |
|
| |
| Total | | | $ | 261,511 | |
|
| |
| G. | Represents the additional cost of inventory due to purchase price allocation. |
| H. | Represents the cancellation of intercompany transactions between Suny Communication and Dynamics |
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 Report on its behalf.
| | SCAILEX CORPORATION LTD.
(Registrant)
By: /s/Shachar Rachim
——————————————
Shachar Rachim
Chief Financial Officer |
Date: October 3, 2008
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