Exhibit 99.2
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLDIATED STATEMENT OF FINANCIAL POSITION
31 MARCH 2018
31 March | 31 December 2017 | |||||||||||
2018 | 2017 | |||||||||||
(Unaudited) | (Audited) | |||||||||||
U.S. dollars in thousands | ||||||||||||
Assets | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | 161,359 | 116,261 | 118,214 | |||||||||
Accounts receivable: | ||||||||||||
Trade | 273,004 | 220,551 | 248,043 | |||||||||
Other | 24,666 | 37,523 | 23,647 | |||||||||
Prepaid expenses and advances to suppliers | 28,827 | 19,165 | 21,265 | |||||||||
Inventory | 348,798 | 275,175 | 308,891 | |||||||||
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836,654 | 668,675 | 720,060 | ||||||||||
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NON-CURRENT ASSETS: | ||||||||||||
Property, plant and equipment | 376,403 | 275,997 | 312,876 | |||||||||
Intangible assets | 1,020,101 | 672,732 | 829,226 | |||||||||
Investment in associates and available for sale assets | 27,446 | 24,321 | 77,541 | |||||||||
Deferred income tax assets | 5,630 | 3,677 | 3,886 | |||||||||
Others | 6,393 | 2,773 | 3,599 | |||||||||
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1,435,973 | 979,500 | 1,227,128 | ||||||||||
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Total assets | 2,272,627 | 1,648,175 | 1,947,188 | |||||||||
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Dr. John Farber | ) | |
Chairman of the Board | ) | |
Ori Yehudai | ) | |
President and CEO | ) | |
Alon Granot | ) | |
Executive Vice | ||
President and CFO | ) |
Date of approval of the interim financial information by the board of directors: May 28, 2018
F-1
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLDIATED STATEMENT OF FINANCIAL POSITION
31 MARCH 2018
31 March | 31 December 2017 | |||||||||||
2018 | 2017 | |||||||||||
(Unaudited) | (Audited) | |||||||||||
U.S. dollars in thousands | ||||||||||||
Liabilities and equity | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Short-term bank credit and loans and current maturities of long-term loans | 389,290 | 215,823 | 372,135 | |||||||||
Accounts payable: | ||||||||||||
Trade | 104,988 | 94,009 | 98,813 | |||||||||
Other | 156,152 | 108,195 | 140,560 | |||||||||
Leases | 8,295 | — | — | |||||||||
Dividend payable | 8,471 | 7,164 | — | |||||||||
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667,196 | 425,191 | 611,508 | ||||||||||
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NON-CURRENT LIABILITIES: | ||||||||||||
Long-term loans, net of current maturities | 452,004 | 353,429 | 262,151 | |||||||||
Retirement benefit obligations, net | 35,024 | 35,966 | 34,006 | |||||||||
Deferred income tax liabilities | 67,062 | 50,846 | 58,306 | |||||||||
Leases | 26,496 | — | — | |||||||||
Liability for shareholders of subsidiaries and other | 105,962 | 71,214 | 102,304 | |||||||||
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686,548 | 511,455 | 456,767 | ||||||||||
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TOTAL LIABILITIES | 1,353,744 | 936,646 | 1,068,275 | |||||||||
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EQUITY: | ||||||||||||
Equity attributable to owners of the parent: | ||||||||||||
Ordinary shares | 17,093 | 17,027 | 17,086 | |||||||||
Other capital surplus | 115,794 | 116,817 | 120,288 | |||||||||
Translation differences | (34,423 | ) | (91,193 | ) | (45,187 | ) | ||||||
Retained earnings | 819,827 | 663,977 | 783,029 | |||||||||
Less—cost of company shares held by the company | (3,833 | ) | (3,791 | ) | (3,409 | ) | ||||||
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NON-CONTROLLING INTERESTS | 4,425 | 8,692 | 7,106 | |||||||||
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TOTAL EQUITY | 918,883 | 711,529 | 878,913 | |||||||||
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TOTAL EQUITY AND LIABILITIES | 2,272,627 | 1,648,175 | 1,947,188 | |||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-2
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2018
3 months ended 31 March | Year ended 31 December 2017 | |||||||||||
2018 | 2017 | |||||||||||
(Unaudited) | (Audited) | |||||||||||
U.S. dollars in thousands, | ||||||||||||
except for income per share data | ||||||||||||
SALES | 384,805 | 302,531 | 1,362,396 | |||||||||
COST OF SALES | 229,067 | 186,817 | 837,271 | |||||||||
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GROSS PROFIT | 155,738 | 115,714 | 525,125 | |||||||||
Selling, marketing, research and development expenses—net | 67,407 | 49,163 | 220,014 | |||||||||
General and administrative expenses | 26,901 | 21,883 | 92,155 | |||||||||
Other expenses (income)—net | (349 | ) | (280 | ) | 3,392 | |||||||
Group’s share of earnings of companies accounted for at equity | 690 | 399 | 1,402 | |||||||||
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INCOME FROM OPERATIONS | 62,469 | 45,347 | 210,966 | |||||||||
FINANCIAL EXPENSES—net | 5,965 | 2,173 | 24,606 | |||||||||
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INCOME BEFORE TAXES ON INCOME | 56,504 | 43,174 | 186,360 | |||||||||
INCOME TAX | 10,823 | 9,439 | 34,797 | |||||||||
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NET INCOME FOR THE PERIOD | 45,681 | 33,735 | 151,563 | |||||||||
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PROFIT ATTRIBUTED TO: | ||||||||||||
Owners of the parent company | 45,269 | 33,273 | 149,679 | |||||||||
Non-controlling interest | 412 | 462 | 1,884 | |||||||||
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45,681 | 33,735 | 151,563 | ||||||||||
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EARNINGS PER SHARE: | ||||||||||||
Basic | 0.76 | 0.56 | 2.52 | |||||||||
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Fully diluted | 0.75 | 0.56 | 2.51 | |||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-3
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2018
3 months ended 31 March | Year ended 31 December 2017 | |||||||||||
2018 | 2017 | |||||||||||
(Unaudited) | (Audited) | |||||||||||
U.S. dollars in thousands | ||||||||||||
INCOME FOR THE PERIOD | 45,681 | 33,735 | 151,563 | |||||||||
Other Comprehensive Income: | ||||||||||||
Items that will not be reclassified subsequently to profit or loss— | ||||||||||||
Remeasurement of net defined benefit liability | — | — | 2,716 | |||||||||
ITEMS THAT COULD BE RECLASSIFIED | ||||||||||||
SUBSEQUENTLY TO PROFIT OR LOSS: | ||||||||||||
Gain from available-for-sale financial assets | — | 953 | — | |||||||||
Transfer of available-for-sale financial assets to profit and loss | — | — | (41 | ) | ||||||||
Translation differences | 10,905 | 17,929 | 64,428 | |||||||||
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Total comprehensive income for the Period | 56,586 | 52,617 | 218,666 | |||||||||
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ATTRIBUTABLE TO: | ||||||||||||
Owners of the parent | 56,033 | 52,076 | 216,210 | |||||||||
Non-controlling interest | 553 | 541 | 2,456 | |||||||||
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TOTAL INCOME | 56,586 | 52,617 | 218,666 | |||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-4
(Continued)—1
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2018
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT | ||||||||||||||||||||||||||||||||
Ordinary shares | Other Capital Surplus | Translation differences | Retained earnings | Cost of Company shares held by the company | Total Attributed to Owners of Parent company | Total Attributed to Non-controlling Interest | Total | |||||||||||||||||||||||||
U.S. dollars in thousands | ||||||||||||||||||||||||||||||||
BALANCE AT 1 JANUARY 2018 (audited) | 17,086 | 120,288 | (45,187 | ) | 738,029 | (3,409 | ) | 871,807 | 7,106 | 878,913 | ||||||||||||||||||||||
CHANGES DURING THE 3 MONTHS ENDED 31 MARCH 2018 (unaudited): | ||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Income for the period | — | — | — | 45,269 | — | 45,269 | 412 | 45,681 | ||||||||||||||||||||||||
Other comprehensive income for the period | — | — | 10,764 | — | — | 10,764 | 141 | 10,905 | ||||||||||||||||||||||||
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Total comprehensive income for the period | — | — | 10,764 | 45,269 | — | 56,033 | 553 | 56,586 | ||||||||||||||||||||||||
Plans for allotment of company shares to employees of subsidiary: | ||||||||||||||||||||||||||||||||
Acquisition of the Company shares by the company | — | — | — | — | (661 | ) | (661 | ) | — | (661 | ) | |||||||||||||||||||||
Receipts in respect of allotment of Company shares to employees | — | (158 | ) | — | — | 237 | 79 | — | 79 | |||||||||||||||||||||||
Allotment of shares and options to senior employees: | ||||||||||||||||||||||||||||||||
Recognition of compensation related to employee stock and options grants | — | 425 | — | — | — | 425 | — | 425 | ||||||||||||||||||||||||
Changes of ownership rights in subsidiary | — | (5,585 | ) | — | — | — | (5,585 | ) | (3,234 | ) | (8,819 | ) | ||||||||||||||||||||
Proceeds from issuance of shares to senior employees | 7 | 824 | — | — | — | 831 | — | 831 | ||||||||||||||||||||||||
Dividend | — | — | — | (8,471 | ) | — | (8,471 | ) | — | (8,471 | ) | |||||||||||||||||||||
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7 | (4,494 | ) | — | (8,471 | ) | (424 | ) | (13,382 | ) | (3,234 | ) | (16,616 | ) | |||||||||||||||||||
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BALANCE AT 31 MARCH 2018 (unaudited) | 17,093 | 115,794 | (34,423 | ) | 819,827 | (3,833 | ) | 914,458 | 4,425 | 918,883 | ||||||||||||||||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-5
(Continued)—2
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT | ||||||||||||||||||||||||||||||||
Ordinary shares | Other Capital Surplus | Translation differences | Retained earnings | Cost of Company shares held by the company | Total Attributed to Owners of Parent company | Total Attributed to Non-controlling Interest | Total | |||||||||||||||||||||||||
U.S. dollars in thousands | ||||||||||||||||||||||||||||||||
BALANCE AT 1 JANUARY 2017 (audited) | 16,997 | 114,396 | (109,043 | ) | 637,868 | (3,765 | ) | 656,453 | 8,151 | 664,604 | ||||||||||||||||||||||
CHANGES DURING THE 3 MONTHS ENDED 31 MARCH 2017 (unaudited): | ||||||||||||||||||||||||||||||||
Comprehensive income : | ||||||||||||||||||||||||||||||||
Income for the period | — | — | — | 33,273 | — | 33,273 | 462 | 33,735 | ||||||||||||||||||||||||
Other comprehensive income for the period | — | 953 | 17,850 | — | — | 18,803 | 79 | 18,882 | ||||||||||||||||||||||||
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Total comprehensive income for the period | — | — | 17,850 | 33,273 | — | 52,076 | 541 | 52,617 | ||||||||||||||||||||||||
Plans for allotment of company shares to employees of subsidiary: | ||||||||||||||||||||||||||||||||
Acquisition of the Company shares by the company | — | — | — | — | (707 | ) | (707 | ) | — | (707 | ) | |||||||||||||||||||||
Receipts in respect of allotment of Company shares to employees | — | (454 | ) | — | — | 681 | 227 | — | 227 | |||||||||||||||||||||||
Allotment of shares and options to senior employees: | ||||||||||||||||||||||||||||||||
Recognition of compensation related to employee stock and options grants | — | 455 | — | — | — | 455 | — | 455 | ||||||||||||||||||||||||
Proceeds from issuance of shares to senior employees | 30 | 1,467 | — | — | — | 1,497 | — | 1,497 | ||||||||||||||||||||||||
Dividend | — | — | — | (7,164 | ) | — | (7,164 | ) | — | (7,164 | ) | |||||||||||||||||||||
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30 | 1,468 | — | (7,164 | ) | (26 | ) | (5,692 | ) | — | (5,692 | ) | |||||||||||||||||||||
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BALANCE AT 31 MARCH 2017 (unaudited) | 17,027 | 116,817 | (91,193 | ) | 663,977 | (3,791 | ) | 702,837 | 8,692 | 711,529 | ||||||||||||||||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-6
(Concluded)—3
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT | ||||||||||||||||||||||||||||||||
Ordinary shares | Other capital surplus | Translation differences | Retained earnings | Cost of company shares held by the company | Total attributed to Owners parent company | Non- controlling interest | Total | |||||||||||||||||||||||||
BALANCE AT 1 JANUARY 2017 | 16,997 | 114,396 | (109,043 | ) | 637,868 | (3,765 | ) | 656,453 | 8,151 | 664,604 | ||||||||||||||||||||||
CHANGES DURING THE YEAR ENDED 31 DECEBMBER 2017: | ||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Income for the year | — | — | — | 149,679 | — | 149,679 | 1,884 | 151,563 | ||||||||||||||||||||||||
Other comprehensive income | — | (41 | ) | 63,856 | 2,716 | — | 66,531 | 572 | 67,103 | |||||||||||||||||||||||
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Total comprehensive income for the year | — | (41 | ) | 63,856 | 152,395 | — | 216,210 | 2,456 | 218,666 | |||||||||||||||||||||||
Plan for allotment of Company shares to employees of subsidiary: | ||||||||||||||||||||||||||||||||
Acquisition of the Company shares by the Company | — | — | — | — | (1,528 | ) | (1,528 | ) | — | (1,528 | ) | |||||||||||||||||||||
Receipts in respect of allotment of Company shares to employees | — | (1,256 | ) | — | — | 1,884 | 628 | — | 628 | |||||||||||||||||||||||
Allotment of shares and options to senior employees- Recognition of compensation related to employee stock and option grants | — | 1,838 | — | — | — | 1,838 | — | 1,838 | ||||||||||||||||||||||||
Proceeds from issuance of shares to senior employees | 89 | 4,296 | — | — | — | 4,385 | — | 4,385 | ||||||||||||||||||||||||
Changes of ownership rights in subsidiary | — | 1,055 | — | — | — | 1,055 | (3,450 | ) | (2,395 | ) | ||||||||||||||||||||||
Dividend paid to the non-controlling interests in subsidiary | — | — | — | — | — | — | (51 | ) | (51 | ) | ||||||||||||||||||||||
Dividend paid | — | — | — | (7,234 | ) | — | (7,234 | ) | — | (7,234 | ) | |||||||||||||||||||||
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89 | 5,933 | — | (7,234 | ) | 356 | (856 | ) | (3,501 | ) | (4,357 | ) | |||||||||||||||||||||
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BALANCE AT 31 DECEMBER 2017 | 17,086 | 120,288 | (45,187 | ) | 783,029 | (3,409 | ) | 871,807 | 7,106 | 878,913 | ||||||||||||||||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-7
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2018
3 months ended 31 March | Year ended 31 December 2017 | |||||||||||
2018 | 2017 | |||||||||||
U.S. dollars in thousands | ||||||||||||
(Unaudited) | (Audited) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Cash generated from operations (see appendix) | 47,632 | 47,355 | 223,210 | |||||||||
Income tax paid—net | (12,214 | ) | (4,821 | ) | (35,681 | ) | ||||||
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Net cash provided by operating activities | 35,418 | 42,534 | 187,529 | |||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of property, plant and equipment | (9,362 | ) | (6,872 | ) | (34,394 | ) | ||||||
Purchase of intangibles | (708 | ) | (599 | ) | (2,890 | ) | ||||||
Interest received | 197 | 230 | 1,294 | |||||||||
Acquisition of subsidiaries—net of cash acquired | (183,525 | ) | (19,455 | ) | (109,265 | ) | ||||||
Prepayments due to acquisition of subsidiaries | (2,586 | ) | — | — | ||||||||
Purchase of available for sale securities | — | (4,337 | ) | (40,169 | ) | |||||||
Proceeds from sale of property and other assets | 12,010 | 58 | 454 | |||||||||
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Net cash used in investing activities | (183,974 | ) | (30,975 | ) | (184,970 | ) | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Dividend paid to the non-controlling interests in subsidiary | — | — | (51 | ) | ||||||||
Receipts from senior employees in respect of allotment of shares | 831 | 1,497 | 4,385 | |||||||||
Interest paid | (3,774 | ) | (1,683 | ) | (8,929 | ) | ||||||
Receipt of long-term bank loans Repayment of Put option to shareholders in subsidiary | | 256,601 — |
| | 54,392 (40,226 | ) | | 133,373 (42,227 | ) | |||
Acquisition of non-controlling interests in subsidiary | — | — | (2,395 | ) | ||||||||
Repayment of long-term bank and financial institutions loans | (40,477 | ) | (42,414 | ) | (172,909 | ) | ||||||
Receipt (repayment) of short-term bank loans and credit—net | (21,211 | ) | 17,360 | 88,455 | ||||||||
Operating Lease payments | (2,404 | ) | — | — | ||||||||
Acquisition of the Company shares by the Company—net of receipts in respect of the Shares | (582 | ) | (480 | ) | (900 | ) | ||||||
Dividend paid | — | — | (7,234 | ) | ||||||||
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Net cash provided (used) by financing activities | 188,984 | (11,554 | ) | (8,432 | ) | |||||||
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INCREASE IN CASH, CASH EQUIVALENTS | 40,428 | 5 | (5,873 | ) | ||||||||
Balance of cash and cash equivalents and bank credit at beginning of year and bank credit | 118,214 | 113,528 | 113,528 | |||||||||
Profits (losses) from exchange differences on cash and cash equivalents | 2,717 | 2,728 | 10,559 | |||||||||
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BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD | 161,359 | 116,261 | 118,214 | |||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-8
FRUTAROM INDUSTRIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2018
APPENDIX TO CONDENSED CONSOLIDATED STATEMENT CASH FLOWS
3 months ended 31 March | Year ended 31 December 2017 | |||||||||||
2018 | 2017 | |||||||||||
U.S. dollars in thousands | ||||||||||||
(Unaudited) | (Audited) | |||||||||||
Cash generated from operations: | ||||||||||||
Income before tax | 56,504 | 43,174 | 186,360 | |||||||||
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Adjustments required to reflect the cash flows from operating activities: | ||||||||||||
Depreciation and amortization | 17,552 | 9,939 | 46,797 | |||||||||
Recognition of compensation related to employee stock and options grants | 425 | 455 | 1,838 | |||||||||
Liability for employee rights upon retirement—net | 201 | 300 | (641 | ) | ||||||||
Loss (gain) from sale and write-off of fixed assets and other assets Dividend received from companies accounted for at equity | | (195 — | )
| | 277 2,250 |
| | 1,934 2,250 |
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Group’s share of losses (earnings) of companies accounted for at equity, net | (690 | ) | (399 | ) | (1,402 | ) | ||||||
Erosion of long term loans | (130 | ) | 700 | (1,247 | ) | |||||||
Interest paid—net | 3,577 | 1,453 | 7,635 | |||||||||
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20,740 | 14,975 | 57,164 | ||||||||||
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Changes in operating asset and liability items: | ||||||||||||
Increase in accounts receivable: | ||||||||||||
Trade | (8,689 | ) | (14,328 | ) | (16,804 | ) | ||||||
Other | (2,107 | ) | 2,014 | 9,263 | ||||||||
Increase in other long-term receivables | (89 | ) | (144 | ) | (1,223 | ) | ||||||
Increase (decrease) in accounts payable: | ||||||||||||
Trade | (5,475 | ) | 8,680 | 2,036 | ||||||||
Other | (1,634 | ) | 1,833 | 3,385 | ||||||||
Increase (decrease) in other long-term payables | (2,550 | ) | 34 | 1,815 | ||||||||
Increase in inventories | (9,068 | ) | (8,883 | ) | (18,786 | ) | ||||||
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| |||||||
(29,612 | ) | (10,794 | ) | (20,314 | ) | |||||||
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| |||||||
Net Cash flows from operating activities | 47,632 | 47,355 | 223,210 | |||||||||
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The accompanying notes are an integral part of these condensed financial statements.
F-9
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 1—GENERAL:
Frutarom Industries Ltd. is a global company, founded in 1933. The Company operates through the consolidated company (hereafter—Frutarom Ltd.) and the companies under its control (hereafter—the Group). The Group has two main operations: the Flavours activity and the Fine Ingredients activity, which are considered as core business by management.
In addition, the Company imports and markets raw materials produced by others as part of its services and strive to provide complete solutions for customers. This activity is presented as part of trade and marketing operations.
The Group develops, manufactures, markets and sells flavours and fine ingredients used by producers of food and beverage, pharma-nutraceutical, flavours and fragrances, and personal care and cosmetics products as well as other products.
NOTE 2—BASIS OF PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
a. | The interim condensed consolidated financial information of the group as of 31 March , 2018 and for the 3 month period ended on that date (hereinafter—the interim financial information) was prepared in accordance with International Accounting Standard No. 34—“Interim Financial Reporting” (hereafter—“IAS 34”). The interim financial information should be read in conjunction with the annual financial statements as of 31 December, 2017 and for the year ended on that date and with the notes thereto, which were all prepared in accordance with International Financial Reporting Standards (hereafter—“IFRS”). The interim financial information is reviewed and is not audited. |
b. | Estimates— |
The preparation of interim financial statements requires management to exercise its judgment; it also requires the use of accounting estimates and assumptions that affect the application of the group’s accounting policy and the amounts of reported assets, liabilities, income and expenses. Actual results may differ from those estimates.
In preparation of these condensed consolidated interim financial statements, the significant judgments that were exercised by the management in applying the group’s accounting policy and the key sources of estimation uncertainty were similar to those applied in the consolidated annual financial statements for the year ended December 31, 2017.
NOTE 3—PRINCIPAL ACCOUNTING POLICIES:
a. | The significant accounting policies and computation methods used in preparing the interim financial information are consistent with those used in preparing the 2017 annual financial statements, except for section b to this note and to the following: |
Income tax in interim periods is recognized based on management’s best estimate of the weighted average annual income tax rate expected.
F-10
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 3—PRINCIPAL ACCOUNTING POLICIES (continued):
b. | In conjunction with Note 2 to the audited financial statements for the year ended December 31, 2017, the Company has elected to early adopt IFRS 16, commencing January 1, 2018. |
1. | The main impact of adopting the standard early is the elimination of existing requirement on lessees to classify leases as operating lease (off-balance sheet) or finance lease, and they are now required to use a single accounting model for all leases, similarly to how finance leases are currently accounted for. Accordingly, before first-time adoption, under IAS 17 (the previous standard for leases), the Group classified leases where it served as lessee as operating, because it did not have substantially all risks and rewards incidental to ownership of the asset. |
In agreements where the Group is the lessor, it applies IFRS 16 using a single accounting model under which it recognizes a right-of-use asset and a lease liability upon inception of the lease contract. It does so for all leases in which the Group has right to control the use of identified assets for a period of time in exchange for consideration. Accordingly, the Group recognizes depreciation and depreciation charges on the right-of-use asset and tests the need for recognizing impairment of the right-of-use asset in compliance with IAS 36 “Impairment of Assets”, and also recognizes finance expenses in relation to a lease liability. Therefore, beginning on first-time adoption, rent expenses relating to properties rented under operating leases, which were presented within administrative and general expenses in the income statement, are now presented as assets that are depreciated through depreciation and depreciation assets.
The Group adopted the standard using the cumulative effect method, without restatement of comparative information.
Regarding all leases, the Group applied the transitional provisions such that it initially recognized a liability at the commencement day at an amount equal to the present value of the lease payments during the lease, discounted using the effective interest rate as of that date, and concurrently recognized a right-of-use asset at an amount identical to the liability. As a result, the standard had no impact on equity and retained earnings of the Group as of initial application.
As part of initial application, the Group elected to adopt the following practical expedients, as permitted by the standard:
a. | Use a single discount rate for a portfolio of leases with similar characteristics; |
b. | Not to separate lease and non-lease components of a contract and account for all components as a single lease; |
c. | Exclude initial direct costs from the measurement of the right-of-use asset as of initial application; |
d. | Use hindsight, such as determining the lease term if the contract contains options to extend or terminate the leaser; |
F-11
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 3—PRINCIPAL ACCOUNTING POLICIES (continued):
2. | The new significant accounting policy for agreements in which the Group is the lessee as applied beginning on January 1, 2018 following initial application of the standard: |
(1) | Leased assets and lease liabilities |
Contracts conveying the Group a right to control an identified asset for a period of time in exchange for consideration, are accounted for as leases. Upon initial recognition, the Group recognizes a liability for the present value of the minimum future lease payments (those payments do not include variable lease payments that are not index-dependent or change in any interest rate or change in exchange rate) and concurrently, the Group recognizes a right-of-use asset at the amount of the liability, adjusted by the amount of any previously recognized prepaid or accrued lease payments plus direct costs incurred in the lease. Since the interest rate implicit in a lease is not readily determined, the effective interest rate of the Group is used (the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment). Subsequent initial recognition, an asset is accounted for using the cost model, and is depreciated over the earlier of the term of the lease or the useful life of the assets.
(2) | Lease term |
The term of a lease is determined as the non-cancellable period for which a lessee has the right to use an underlying asset, together with both periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
(3) | Depreciation of a right-of-use asset |
Subsequent to the inception of the lease, a right-of-use asset is measured using the cost method, less accumulated depreciation and accumulated impairment losses, and is adjusted for remeasurements of the lease liability. Depreciation is measured using the straight-line method over the useful life or contractual lease term, whichever ends earlier.
3. | On the date of initial application of IFRS 16, the Group recognized right-of-use assets and lease liabilities at $ 37,195 thousands. |
4. | The following tables present a summary of the impact on the consolidated condensed interim statement of financial position as of March 31, 2018 and the consolidated condensed interim income statement and consolidated condensed interim statement of cash flows for the three-month period then ended, |
F-12
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 3—PRINCIPAL ACCOUNTING POLICIES (continued):
assuming that the previous accounting policy of the Group for leases would have continued in that period. |
a. | The impact on the consolidated condensed interim statement of financial position as of March 31, 2018: |
Under previous policy | The change | Under IFRS 16 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
$ in thousands | ||||||||||||
Non-current assets: | ||||||||||||
Property, plant and equipment (net) | 341,612 | 34,791 | 376,403 | |||||||||
Current liabilities: | ||||||||||||
Liabilities for lease payment | — | (8,295 | ) | (8,295 | ) | |||||||
Non-current liabilities: | ||||||||||||
Liabilities for lease payment | — | (26,496 | ) | (26,496 | ) |
b. | The impact on the consolidated condensed interim income statement for the three-month period ended March 31, 2018: |
Under previous policy | The change | Under IFRS 16 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
$ in thousands | ||||||||||||
Operating expenses | 78,811 | (2,404 | ) | 76,407 | ||||||||
Depreciation and amortization charges | 15,148 | 2,404 | 17,552 | |||||||||
Operating income | 62,469 | — | 62,469 |
c. | The impact on the consolidated condensed interim statement of cash flows for the three-month period ended March 31, 2018: |
Under previous policy | The change | Under IFRS 16 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
$ in thousands | ||||||||||||
Net cash provided by operating activity | 33,014 | 2,404 | 35,418 | |||||||||
Net cash provided by financing activity | 191,388 | (2,404 | ) | 188,984 |
NOTE 4—BUSINESS COMBINATIONS
a. | Acquisition of Enzymotec |
On January 11, 2018, Frutarom completed the acquisition of 100% of the share capital of Enzymotec Ltd., an Israeli public company whose shares were traded on NASDAQ (under the symbol ENZY) (“Enzymotec”) that upon the completion of the merger ceased from being a public company and became, an
F-13
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 4—BUSINESS COMBINATIONS (continued):
indirectly fully-owned subsidiary of Frutarom. The overall consideration that was paid by Frutarom for 100% of Enzymotec’s shares, stands at approx. $ 287 million (including cost of vested options [RSU’s]). On May 14, 2018, Frutarom received approval from the tax authorities in Israel to merge Enzymotec into Frutarom, and the company is taking action to merge the companies; the merger will be completed over the following months.
In order to finance the merger transaction with Enzymotec, the company entered into loan agreements with banking corporations for the extending of loans totaling USD 235 million. According to the agreements, the loans bear interest of Libor plus 1.52% per year and shall be repaid in up to 5 years by quarterly amounts. Half of the loan will be repaid after 12 months from receiving the loan by 16 quarterly installments and the rest will be repaid in the end of the period.
Enzymotec, which was founded in 1998, develops, produces and markets nutritional ingredients and medical foods based on cutting-edge, proprietary technologies Enzymotec has developed a unique technology for processing lipids (organic compounds which includes fat) that are an important nutritional element, supporting various biological functions. Enzymotec’s proprietary technology enables extraction of lipids from natural sources, separation and analysis of lipid molecules, and use enzymes to synthesize lipid molecules familiar to the human body. Enzymotec utilizes an innovative toolset that allows it to efficiently transform lipids from natural raw materials into those that have unique structural and functional characteristics, essential to the human body. Enzymotec, with approx. 149 employees, mainly in Israel and the United States, including 20 in R&D, has an advanced GMP certified factory in Migdal HaEmek, Israel which includes an R&D center, laboratories, a production plant and offices.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities which were acquired based on their fair value at the time of the acquisition. The intangible assets which were recognized include: product formulas, customer relations and goodwill. The product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively. The determination of the fair value of the assets and liabilities is subject to a final appraisal of the allocation of the purchase prices to the fair value of the assets and liabilities; this appraisal has not yet been completed as of the date of approval of these financial statements.
F-14
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 4—BUSINESS COMBINATIONS (continued):
Set forth below are the assets and liabilities of Enzymotec at date of acquisition:
Fair value | ||||
U.S. dollars In thousands | ||||
Current assets: | ||||
Cash and cash equivalents | 76,291 | |||
Trade | 12,426 | |||
Inventory | 25,247 | |||
Others | 2,093 | |||
Non-current assets: | ||||
Property, plant and equipment | 23,019 | |||
Intangible assets | 176,167 | |||
Other long-term assets | 95 | |||
Investments | 2,664 | |||
Current liabilities : | ||||
Trade payables | (8,753 | ) | ||
Other payables | (19,370 | ) | ||
Non-current liabilities: | ||||
Deferred taxes | (2,562 | ) | ||
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| |||
287,317 | ||||
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|
From the date it was consolidated with the financial statements of the Company through March 31, 2018, the acquired operations have yielded revenues of $ 29,585 thousands and net profit of $ 5,052 thousands (net of acquisition costs).
b. | Acquisition of IBR |
On February 1, 2018, Frutarom purchased 100% of the share capital of the Israeli company I.B.R—Israeli Biotechnology Research Ltd. (“IBR”) in exchange for approx. $ 21 million. The transaction was completed upon signing and financed through bank debt.
Established in 1995, IBR researches, develops, manufactures and markets innovative and proprietary natural active ingredients for the cosmetics and dietary supplements industries, mainly for cellular anti-aging, skin protection from UV rays and air pollution, skin whitening and pigmentation prevention. IBR has R&D labs and a production facility in the town of Yavne, Israel and it employs approx. 30 employees. IBR’s activity has been added to Frutarom’s existing activities in the fields of algae-growth and active ingredients extraction, for skin care and protection.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities which were acquired based on their fair value at the time of the acquisition. The intangible assets which were recognized include: product formulas, customer relations and goodwill. The product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively. The determination of the fair value of the assets and liabilities is subject to a final appraisal of the allocation of the purchase prices to the
F-15
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 4—BUSINESS COMBINATIONS (continued):
fair value of the assets and liabilities; this appraisal has not yet been completed as of the date of approval of these financial statements.
Set forth below are the assets and liabilities of IBR at date of acquisition:
Fair value | ||||
U.S. dollars In thousands | ||||
Current assets: | ||||
Cash and cash equivalents | 471 | |||
Trade | 715 | |||
Inventory | 2,316 | |||
Others | 582 | |||
Non-current assets: | ||||
Property, plant and equipment | 799 | |||
Intangible assets | 17,631 | |||
Other long-term assets | 24 | |||
Current liabilities : | ||||
Trade payables | (97 | ) | ||
Other payables | (1,019 | ) | ||
Non-current liabilities: | ||||
Deferred taxes | (422 | ) | ||
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21,000 | ||||
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From the date it was consolidated with the financial statements of the Company through March 31, 2018, the acquired operations have yielded revenues of $ 903 thousands and net profit of $ 128 thousands (net of acquisition costs).
c. | Acquisition of Mighty |
On October 18, 2017 Frutarom signed an agreement for the purchase of 60% of the shares of the Thai company The Mighty CO. LTD. (including the activity of Maharaj Food Co. Ltd. and Mighty International Co. Ltd., and hereinafter collectively: “Mighty”) for approx. $ 12 million (approx. THB 393 million) (not including debt). All, according to value of approx. $ 20 million (net of debt) (approx. THB 655 million).
In the framework of the transaction Frutarom initially acquired 49% of Mighty and, subject to a number of conditions precedent and regulatory approvals in Thailand, will raise its holdings to 60%. The transaction includes a mechanism for future consideration subject to Mighty’s future performance and an option for the purchase of the balance of holdings in Mighty in two stages in periods beginning three years and five years from the date the transaction is completed, at a price based on Mighty’s future business performance.
In February 2018, the conditions of the first part were met, hence the Company holds, as of the date of this report 49% of the share capital of Mighty. According to the Company expectation, raising the holdings to 60% will be completed in several months. The transaction will be financed through bank debt and by the Company own means.
F-16
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 4—BUSINESS COMBINATIONS (continued):
d. | Acquisition of Bremil |
On December 20, 2017 Frutarom signed an agreement for the purchase of 51% of the shares of the Brazilian company Bremil Indústria De Produtos Alimenticios Ltda. (“Bremil”), in exchange for approx. US$30 million (approx. BRL 111 million). (including estimated asset adjustments to the date of completion). The transaction includes a mechanism for future consideration based on Bremil’s future business performance in 2017 and 2018. The purchase agreement includes an option for the purchase of the balance of shares of Bremil to take effect starting five years from the date of the transaction’s completion at a price based on Bremil’s business performance during that period. The transaction is expected to be completed in the coming few days and will be financed through bank debt.
e. | Acquisition of Meroar |
On March 13, 2018, Frutarom signed an agreement for the purchase of 70% of the shares capital of the Argentinian company Meroar S.A. and Meroaromas S.A. (“Meroar”) in exchange of approx. $11.2 million. The purchase agreement includes an option for the purchase of the balance of shares of Meroar to take effect starting three years from the date of the transaction’s completion at a price based on Meroar’s business performance during that period.
f. | On a proforma basis—assuming that the companies acquired in 2017 has been consolidated as from 1.1.2017 and the companies acquired in 2018 had been consolidated in the corresponding period in 2017—the Q1 2017 sale would have amounted to approx. $334.1 million. This figure is based on unaudited data provided by the owners of the acquired activities in accordance with the pre-acquisition accounting policies of the acquired activities. |
NOTE 5—DIVIDEND
On March 19, 2018 the Company’s Board of Directors announced the distribution of dividend in the amount of NIS 0.50 per share, the dividend was paid to the shareholders on 7 of May, 2018 in the total amount of approx. $8,471 thousands.
NOTE 6—SEGMENT REPORTING
For management purposes, the Group is organized on a worldwide basis into two major operating activities: Flavour and Fine Ingredients. Another operating activity is Trade and Marketing.
Results of operation of the segments are being measured based on operating profit.
F-17
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 6—SEGMENT REPORTING (continued):
Segment data provided to the President and the CEO in respect of the reported segments is as follows:
Flavors operations | Fine Ingredients Operations | Trade and Marketing operations | Eliminations | Total Consolidated | ||||||||||||||||
U.S. dollars in thousands | ||||||||||||||||||||
3 months ended 31 March 2018(unaudited): | ||||||||||||||||||||
Revenues | 281,480 | 86,709 | 19,107 | (2,491 | ) | 384,805 | ||||||||||||||
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Segment results | 46,339 | 16,120 | 10 | — | 62,469 | |||||||||||||||
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3 months ended 31 March 2017(unaudited): | ||||||||||||||||||||
Revenues | 219,352 | 66,753 | 19,045 | (2,619 | ) | 302,531 | ||||||||||||||
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Segment results | 35,949 | 8,938 | 502 | (42 | ) | 45,347 | ||||||||||||||
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Year ended 31 December 2017 (audited): | ||||||||||||||||||||
Revenues | 1,025,359 | 260,122 | 90,962 | (14,047 | ) | 1,362,396 | ||||||||||||||
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Segment results | 177,680 | 31,638 | 1,664 | (16 | ) | 210,966 | ||||||||||||||
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The reconciliation of the reported profits and total profits before taxes for the reported periods is described below:
3 months ended 31 March | Year ended 31 December 2017 | |||||||||||
2018 | 2017 | |||||||||||
(Unaudited) | (Audited) | |||||||||||
U.S. dollars in thousands | ||||||||||||
Reported segment profits | 62,469 | 45,347 | 210,966 | |||||||||
Financing expenses | 5,965 | 2,173 | 24,606 | |||||||||
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Profit before taxes on income | 56,504 | 43,174 | 186,360 | |||||||||
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NOTE 7—SUBSEQUENT EVENTS
Signing the merger agreement with International Flavor and Fragrances (“IFF”)
On May 7, 2018, a merger agreement (the “Merger Agreement”) with IFF, an international public company whose securities are listed for trading on the New York Stock Exchange (the “Purchaser”) and Icon Newco Ltd., a private company incorporated under the laws of the State of Israel that is wholly-owned by the Purchaser (“Merger Sub”).
Under the Merger Agreement, a reverse triangular merger (the “Merger”) shall take place, pursuant to which, upon closing, the Merger Sub shall be merged with and into Frutarom (as a result of the merger, Frutarom will turn into a subsidiary (100%) of the purchaser), such that for each Ordinary Share, par value NIS 1.00, of the Company immediately prior to the consummation of the Merger, the Purchaser shall (a) pay a cash amount of US$71.19; and (b) issue 0.249 shares of the Purchaser’s common stock.
F-18
FRUTAROM INDUSTRIES LTD.
EXPLANATORY NOTES TO THE CONDENSED CONSOLDIATED FINANCIAL INFORMATION
31 MARCH 2018
(UNAUDITED)
NOTE 7—SUBSEQUENT EVENTS (continued):
The Merger Consideration reflects a Company valuation of approximately US$6.37 billion, on a fully-diluted basis, and an enterprise value (taking into account estimated amount of the Company’s net debt) of approximately US$7.1 billion.
F-19