Commission File No. 1-4212
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
---------------------------------
AMERICAN ISRAELI PAPER MILLS LTD.
(Exact name of Registrant as specified in
its charter and translation of Registrant's
name into English)
---------------------------------
Israel
(Jurisdiction of incorporation or organization)
P.O. Box 142, Hadera 38101, Israel
(Address of principal executive offices)
------------------------------
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Ordinary Shares, American Stock Exchange
par value NIS .01 per share
Securities registered or to be registered
pursuant to Section 12(g) of the Act:
None
(Title of Class) Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
None
(Title of Class)
---------------------------------
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period
covered by the annual report:
3,918,710 Ordinary Shares, par value NIS .01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes |X| No |_|.
Indicate by check mark which financial statement item the registrant has elected
to follow: Item 17 |_| Item 18 |X|
PART I
ITEM 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable to Annual Reports
ITEM 2
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable to Annual Reports
ITEM 3
KEY INFORMATION
A. Selected Financial Data
The following selected financial data is derived from the audited
consolidated financial statements of American Israeli Paper Mills Ltd. ("AIPM"
or the "Company"). The consolidated financial statements since 2000 were
influenced significantly by the following transactions:
(a) The finalization of the joint venture with Neusiedler AG (NAG), an
Austrian corporation, under which Neusiedler Hadera Paper (NHP), a company
engaged in the manufacture of printing and writing paper was formed, effective
January 1, 2000, and in which NAG holds 50.1% and AIPM holds 49.9% of the
shares. Consequently, as of that date, the results of NHP's operations are no
longer consolidated with the results of the Company. Since January 1, 2000,
AIPM's share in NHP's results is included in the Company's statement of income
under the item Company's share in profits of associated companies. In the
balance sheets, AIPM's share in the shareholders' equity of NHP, is included in
Investments in associated companies.
(b) On March 31, 2000, Kimberly-Clark Corporation (KC) exercised the
option that was granted to it in January 2000 and acquired from AIPM 0.2% of the
shares in Hogla-Kimberly Ltd. in return for $5 million, thereby increasing its
holdings in Hogla-Kimberly to 50.1%. Consequently, as of the second quarter of
2000, the results of Hogla-Kimberly are no longer consolidated with AIPM's
consolidated results and AIPM's share in the results of operations of
Hogla-Kimberly (49.9%) is included in the item Company's share in the profits of
associated companies. AIPM's share in the shareholders' equity of Hogla-Kimberly
is included in the balance sheets under Investments in associated companies.
1
The following table sets forth certain selected financial data with
respect to the Company presented in New Israeli Shekel (NIS):
FIVE FISCAL YEAR FINANCIAL SUMMARY(1)
-------------------------------------
ACCORDING TO ISRAELI GAAP
- -------------------------
(IN THOUSANDS OF ADJUSTED NIS) YEAR ENDED DECEMBER 31
- ----------------------------- ----------------------
INCOME STATEMENT DATA:
- ----------------------
2002 2001 *2000 *1999 *1998
---- ---- ---- ---- ----
Net Sales 493,036 508,109 806,930 1,801,867 1,699,899
Operating Income 39,434 22,204 68,380 169,662 133,804
Income Before Taxes on Income and
non-recurring gains 26,203 **27,724 **59,552 **167,546 **110,055
Taxes on Income (not including
non-recurring taxes) 14,211 **12,084 **18,006 **42,635 **31,307
Capital Gain on Issuance of Shares in
subsidiaries - net 21,728 18,948
Share in profits of Associated Companies
- - net 18,095 16,238 *38,980 *2,989 *2,128
Net income before non recurring gains 40,084 33,064 69,620 69,383 52,429
Net Income 40,523 37,263 91,349 75,855 71,377
- ----------
1 The financial statements of the Company are presented in New Israeli
Shekels adjusted to reflect the changes in the purchasing power of
Israeli currency (i.e., adjusted shekels). These adjustments were
determined on the basis of the changes in the U.S. Dollar/Israel Shekel
exchange rate (see page 5 and see Note 1 to Consolidated Financial
Statements).
* See above explanation of changes in the consolidated statements,
resulting in the de-consolidation of NHP (as of January 1, 2000) and of
Hogla-Kimberly (as of March 31, 2000).
** Reclassified.
2
ACCORDING TO ISRAELI GAAP
- -------------------------
(IN THOUSANDS OF ADJUSTED NIS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------
SELECTED BALANCE SHEET DATA: YEAR ENDED DECEMBER 31,
- ---------------------------- -----------------------
2002 2001 (2)2000 (2)1999 (2)1998
---- ---- ---- ---- ----
Total Assets 1,138,138 1,138,158 1,145,470 1,176,364 1,738,086
Working Capital 94,039 84,337 80,518 287,260 482,999
Investments in Associated Companies 396,091 408,033 (2)383,654 (2) 74,048 (2)70,482
Investment in Marketable Securities and
Fixed Term Bank Deposits 85,266 239,702
Property, Plant & Equipment (net) 352,475 336,607 337,369 583,748 521,508
Capital Expenditures 50,634 32,486 82,550 82,518 82,495
Long-term Debt 76,001 86,120 101,154 152,600 74,456
Share Capital & Capital Surplus 232,919 232,919 232,919 233,507 233,539
Shareholders' Equity 704,168 686,343 652,514 619,768 833,717
Per Share Data:
Shares Outstanding at End of Year 3,918,710 3,918,710 3,890,561 3,854,571 3,854,571
Net Income per NIS 1 Par value:
Primary 1,024 944 2,312 1,940 1,852
Fully Diluted 1,024 944 2,312 1,940 1,852
Dividend per share 5.73(3) (3) 14.92 75.18 29.54
- ----------
2 See above explanation of changes in the consolidated statements,
resulting in the de-consolidation of NHP (as of January 1, 2000) and of
Hogla-Kimberly (as of March 31, 2000).
3 Dividend for 2001, in the sum of NIS 5.77 per share ($1.21 per share)
was declared in March 2002 and paid in April 2002.
Dividend for 2002, in the sum of NIS 6.61 per share ($1.44 per share)
was declared in March 2003 and paid in April 2003.
3
ACCORDING TO U.S. GAAP
- ----------------------
(IN THOUSANDS OF RE-MEASURED NIS EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------
INCOME STATEMENT AND BALANCE SHEET DATA: 2002 2001 * 2000 *1999 *1998
- ---------------------------------------- ---- ---- ---- ---- ----
Sales 492,990 451,152 705,884 1,567,871 1,377,669
Operating Income 53,751 25,723 61,189 150,374 156,839
Net Income before non-recurring gains (losses) 54,639 49,876 61,353 56,050 116,488
Net Income 54,624 49,876 79,853 61,750 133,888
Total Assets 1,026,83 966,747 926,362 1,419,187 1,383,269
Working Capital 85,803 78,111 65,272 232,546 402,175
Investment in Marketable Securities and Fixed Term
Bank Deposits 72,738 204,483
Property, Plant & Equipment (net) 279,077 245,949 243,656 418,051 352,525
Long-term Debt 76,001 80,284 86,292 133,787 65,277
Shareholders' Equity 602,675 569,920 512,988 478,731 652,434
Per Share Data: (re-measured NIS)
- -------------
Shares Outstanding at End of Year 3,918,710 3,918,710 3,890,561 3,854,571 3,854,571
Net Income Per Share
Basic 13.94 12.75 20.52 16.02 34.73
Diluted 13.81 12.66 20.16 15.63 34.73
Dividend per share 45.77 4 12.84 64.82 25.94
For further information about the effect of application of U.S. GAAP, see Item
18.
- ----------
* See above explanation of changes in the consolidated statements,
resulting in the de-consolidation of NHP (as of January 1, 2000) and of
Hogla-Kimberly (as of March 31, 2000) and their becoming associated
companies.
4 Dividend for 2001, in the sum of NIS 5.77 per share ($1.21 per share)
was declared in March 2002 and paid in April 2002.
Dividend for 2002, in the sum of NIS 6.61 per share ($1.44 per share)
was declared in March 2003 and paid in April 2003.
4
EXCHANGE RATES
- --------------
The exchange rate between the NIS and U.S. dollar published by the Bank
of Israel was NIS 4.373 to the dollar on May 31, 2003. The exchange rate has
fluctuated during the six months of December 2002 through May 2003 from a high
of NIS 4.924 to the dollar to a low of NIS 4.373 to the dollar. The high and low
exchange rates between the NIS and the: U.S. dollar during the six months of
December 2002 through May 2003, as published by the Bank of Israel, were as
follows:
MONTH HIGH LOW
- ------ ---- ---
1 U.S. dollar = 1 U.S. dollar =
December 2002 4.791 NIS 4.632 NIS
January 2003 4.898 NIS 4.769 NIS
February 2003 4.924 NIS 4.810 NIS
March 2003 4.858 NIS 4.687 NIS
April 2003 4.671 NIS 4.521 NIS
May 2003 4.577 NIS 4.373 NIS
The average exchange rate between the NIS and U.S. dollar, using the
average of the exchange rates on the last day of each month during the period,
for each of the five most recent fiscal years was as follows:
PERIOD EXCHANGE RATE
- ------ -------------
January 1, 1998 - December 31, 1998 3.810 NIS/$1
January 1, 1999 - December 31, 1999 4.154 NIS/$1
January 1, 2000 - December 31, 2000 4.067 NIS/$1
January 1, 2001 - December 31, 2001 4.219 NIS/$1
January 1, 2002 - December 31, 2002 4.736 NIS/$1
FORWARD LOOKING STATEMENTS
- --------------------------
This Annual Report on Form 20-F contains "forward-looking" statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(collectively, the "Safe Harbor Provisions"). These are statements that are not
historical facts and include statements about our beliefs and expectations.
These statements contain potential risks and uncertainties and actual results
may differ significantly. Forward-looking statements are typically identified by
the words "believe", "expect", "intend", "estimate" and similar expressions.
Such statements appear in this Annual Report and include statements regarding
the intent, belief or current expectation of the Company or its directors or
officers. Actual results may differ materially from those projected, expressed
or implied in the forward-looking statements as a result of various factors
5
including, without limitation, the factors set forth below under the caption
"Risk Factors" (we refer to these factors as "Cautionary Statements"). Any
forward-looking statements contained in this Annual Report speak only as of the
date hereof, and we caution potential investors not to place undue reliance on
such statements. We undertake no obligation to update or revise any
forward-looking statements. All subsequent written or oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the Cautionary Statements.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASON FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
RISKS RELATING TO THE COMPANY'S OPERATIONS IN ISRAEL
----------------------------------------------------
SECURITY, ECONOMIC AND POLITICAL CONDITIONS IN ISRAEL MAY AFFECT THE RESULTS OF
- -------------------------------------------------------------------------------
THE COMPANY'S OPERATIONS
- ------------------------
We are incorporated under Israeli law and our principal offices are
located in Israel. Political, economic and security conditions in Israel
directly affect our operations. Since the establishment of the State of Israel
in 1948, various armed conflicts have taken place between Israel and its Arab
neighbors and a state of hostility, varying in degree and intensity, has led to
security and economic problems for Israel. Israel signed a peace treaty with
Egypt in 1979 and a peace treaty with Jordan in 1994. As of the date of this
annual report, Israel has not entered into any peace agreement with Syria or
Lebanon. Since 1993 several agreements have been signed between Israel and the
Palestinians, but a final agreement has not been achieved. Since October 2000,
there has been a marked increase in hostilities between Israel and the
Palestinians, which have adversely affected the peace process, placed the
Israeli economy under significant stress, and have negatively influenced
Israel's relationship with several Arab countries.
AN INCOME TAX REFORM IN ISRAEL MAY ADVERSELY AFFECT THE COMPANY'S SHAREHOLDERS
- ------------------------------------------------------------------------------
AND THE COMPANY
- ---------------
Effective as of January 2003, the Israeli Parliament has enacted a wide
ranging reform of the Israeli income tax system. These tax reforms have resulted
in significant changes to the Israeli tax system. (See "Item 10 - Additional
Information - Taxation - Reform of Taxes on Income in Israel".)
6
COMPETITION
- -----------
Most of the Group's products are exposed to competition with local and
imported products. The said competition might have influence over the selling
prices and the Group's market share in its different fields of operations,
especially in times of recession.
DEPENDENCY ON ENERGY PRICES
- ---------------------------
The Group's operations are highly dependent on energy usage and thereby
are highly effected by fuel prices. The Group's profit may be adversely effected
in case of high increase in fuel prices.
RISKS RELATING TO OUR OPERATIONS IN TURKEY
- ------------------------------------------
We are subject to various risks related to our operations in Turkey,
where Hogla-Kimberly operates through its subsidiary, Ovisan, resulting from the
economic instability in Turkey, and the high inflation rates. This economic
instability may effect the purchasing power in Turkey and together with the
volatility of the Turkish currency that may continue, might have a material
adverse effect on the operations of Ovisan.
For further information, see "Item 11 - Quantitative and Qualitative
Disclosure about Market Risk".
ITEM 4
INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was incorporated in Israel in 1951 under the laws of the
State of Israel, and, together with its subsidiaries and associated companies
(which together with the Company are referred to as the "Group") is Israel's
major manufacturer of paper and paper products.
The Company's principal executive offices are located at 1 Meizer St.,
Industrial Zone, P.O. Box 142, Hadera, Israel, Tel: (972-4) 634-9349, fax:
(972-4) 633-9740.
The need to meet future challenges caused the Company to reorganize its
operations into separate business units. Effective as of December 31, 1995, the
Company's machines used in the manufacture of packaging and printing and writing
paper were transferred to a wholly-owned subsidiary of the Company, and the
Company's machines used in the manufacturing of printing and writing papers were
sold in 2000 to NHP. The Company's machines used in the manufacture of household
papers were sold to Hogla-Kimberly.
The organizational structure of the Company and certain subsidiaries
thereof was changed as of January 1, 1999. This change was intended to result in
an operational separation between various activities, especially in the paper
and board divisions, to allow for better business focus, greater operating
efficiency and the formulation of business strategies that facilitate the
establishment of additional international strategic alliances.
Within the framework of the organizational changes, different fields of
operations were defined and separated, including printing and writing paper and
packaging paper. For each of them a separate management was assigned.
7
Over the last few years, the Group has created several new joint
ventures as follows:
1. In July 1992, the Group purchased 25% of the shares of Carmel
Container Systems Ltd. ("Carmel"), a leading Israeli designer, manufacturer and
marketer of paper and paperboard based packaging products. As of May 31, 2003,
the Group held 26.5% of the shares of Carmel. Other major shareholders in this
company are Rand Whitney Inc. (35%) and Ampal Ltd. (21.75%).
2. In 1996, KC acquired 49.9% of the shares of Hogla, a wholly-owned
subsidiary of the Company and a leading Israeli consumer products company, which
was then renamed Hogla-Kimberly Ltd. The partnership was intended to expand the
local production base in Israel, in order to serve both local and regional
demand, and to offer Hogla-Kimberly access to international markets. In March
1999, Hogla-Kimberly entered into an agreement to purchase Ovisan, a Turkish
manufacturer and marketer of diapers and paper products.
In January 2000, AIPM and KC entered into an agreement pursuant to
which AIPM granted KC an option to acquire from AIPM an additional 0.2% of the
Hogla-Kimberly equity. On March 31, 2000, KC exercised the option thereby
increasing its holdings in Hogla-Kimberly to 50.1%.
3. In February 2000, effective January 1, 2000, AIPM entered into a
joint venture agreement with NAG, pursuant to which NAG acquired 50.1% of AIPM's
printing and writing paper operations. The printing and writing paper operation
was separated from AIPM upon the completion of this transaction and was sold to
NHP, a subsidiary that was established for this purpose. In return for the
acquisition of 50.1% of the shares of the new company, NAG paid to NHP $10
million in cash and lent to NHP $10 million.
NAG is a member of Mondi Europe, a group of companies with many years
of experience in the paper industry, wide global deployment and annual
production capacity in excess of 3.5 million tons of various grades of paper and
pulp. The establishment of the joint venture is expected to result in a doubling
of the paper production capacity in Israel within the coming years, while
relying on the NAG marketing network for the export of 50,000 to 80,000 tons of
printing and writing paper annually.
4. Amnir Recycling Industries Ltd. (a wholly owned subsidiary of AIPM)
acquired in 1997 and 1998 20% and 10%, respectively, of Cycle-Tec Recycling
Technologies Ltd. (Cycle-Tec), a research and development company which develops
a process for manufacturing of a high strength / low cost composite material,
based on recycled post consumer plastic and paper treated with special chemical
additives, for a total of $150,000. In 1999, Amnir acquired additional shares of
Cycle-Tec for $80,000. In March 2000 and in July 2001, Amnir acquired additional
shares for $93,243 and $100,000, respectively. As of May 31, 2003, Amnir owned
30.18% of Cycle-Tec.
5. In July 1998, the Company signed an agreement with a strategic
partner, Compagnie Generale d'Entreprises Automobiles (CGEA), for the sale of
51% of the operations of Amnir Recycling Industries Ltd., a subsidiary of the
Company engaged in the field of solid waste management (waste disposal and
management of transfer stations and landfills) for a purchase price of $7.8
million. Since the completion of this transaction, this business is known as
Amnir Industries and Environmental Services Ltd. (Amnir Environment). CGEA is an
international French company which is part of the Vivendi group and one of the
world's leading companies in the field of environmental services. The agreement
does not apply to Amnir's operations in collecting and recycling paper and
plastic.
6. In March 2000, AIPM and CGEA, on the one hand, and Tamam Integrated
Recycling Industries Ltd. (T.M.M.) and its controlling shareholders, on the
other hand, entered into an agreement pursuant to which AIPM and CGEA acquired
through a joint company from T.M.M.'s controlling shareholders 62.5% of the
share
8
capital of T.M.M., a leading Israeli company in the solid waste management
field, for $15.85 million. Simultaneously therewith, 100% of Amnir Environment's
shares were transferred to T.M.M. in return for an allocation of 35.3% of the
shares of T.M.M to the shareholders of Amnir Environment. Following such
transaction, AIPM and CGEA own together, 75.74% of the shares of T.M.M. In
August and September 2000, T.M.M. acquired approximately 3% of its own share
capital. In December 2001, AIPM and CGEA acquired an additional 3% of T.M.M.'s
share capital through a joint company (Barthelemi Holdings Ltd.), resulting in
an increase in the ownership of shares of T.M.M. by AIPM and CGEA to 80.87%
CAPITAL EXPENDITURES AND DIVESTITURES
- -------------------------------------
2002: The investments in fixed assets totaled about NIS 50.6 million (about
- ---- $10.7 million).
The investments in 2002 included:
o The payment of approximately NIS 29 million ($6.1 million) in
connection with the extension of the lease for the Shafir
Compound, from the Tel Aviv Municipality, for an additional
period ending during 2059.
o The completion of the investment in the anaerobic installation
in Hadera, Israel as part of the Group's environmental
operations. The investment in 2002 totaled NIS 4.3 million
($0.8 million).
o Investments in the renovation of manufacturing and transport
equipment, totaling NIS 17.3 million ($3.8 million).
2001:
- ----
The investments in fixed assets in 2001 totaled about NIS 32.5 million
(about $6.9 million).
The investments in 2001 included:
o A beginning of an investment in an anaerobic plant in Hadera,
Israel as part of the Group's environmental operations. The
investment in 2001 totaled NIS 4.3 million ($0.9 million).
o Investments in renovation of equipment and in transportation,
totaling NIS 28.2 million ($6.0 million).
2000:
- ----
The investments in fixed assets amounted to about NIS 82.6 million
(about $17.4 million) in 2000.
The investments in 2000 included:
o Completion of the construction of the power plant at the
Hadera plant and its initial start up process (NIS 41.6
million ($8.8 million) were invested in 2000, out of the total
investment of about NIS 66 million ($14 million)). This
project was intended to enable the Company to raise its
self-generated amount of electricity to about 65% of
consumption.
o An investment in other equipment of about $4 NIS 19 million
($4 million).
o Other investments in logistics, transport equipment and
computerizing in an amount of about NIS 22 million ($4.6
million).
9
B. BUSINESS OVERVIEW
I. THE GROUP'S OPERATIONS AND PRINCIPAL ACTIVITIES
--------------------------------------------------
The Group, through its subsidiaries and main affiliated companies,
produces and markets a wide variety of paper types such as coated and uncoated
printing and writing paper, packaging and wrapping paper, paper for personal
care and household use and various grades of board.
The Group is also engaged in the conversion of household paper products
into consumer products such as bathroom tissue and paper towels, napkins and
facial tissue; the production and marketing of disposable baby diapers, adult
incontinence, absorbent products and feminine hygiene products; the production
and marketing of paperboard for the packaging industry; the production and
marketing of corrugated boxes; and the marketing of office supplies.
The collection and recycling of a variety of waste materials is also a
major Group activity, with waste paper used in the production of paper, board
and plastics and solid waste recycled for industrial and agricultural
applications.
In 1989, the Company was declared a monopoly in the field of paper
production and marketing in reels and sheets by Israel's Authority for
Restricted Trade Practices, but this declaration was partially revoked in 1998
with respect to printing and writing paper. Until January 2001, some of the
Group's products, such as printing and writing paper (in reels and sheets) were
under price control. In January 2001, these restrictions were cancelled.
The principal products produced and/or marketed by the Company and its
subsidiaries and associated companies are as follows:
o Grades of Paper and Board
-------------------------
Printing and writing paper, publication papers in reels, coated paper,
carbonless paper, recycled paper, photocopy paper for laser and inkjet,
copy-book paper, paper for continuous forms, paper for envelopes and direct
mailing and various grades of packaging paper and board.
o Packaging Products
------------------
Folding cartons
Corrugated containers and pallets
Solid board containers
o Household Products
------------------
Bathroom tissue, toilet crepe, towel rolls, facial tissue, pocket
handkerchiefs, napkins, tablecloths, sanitary towels, panty shields, tampons,
disposable baby diapers, training pants, baby wipes, disposable adult diapers,
incontinence pads, cups and plates.
10
o Industrial, Hospital and Food Service Products
----------------------------------------------
Toilet paper, towel rolls, C-fold towels, napkins, place mats,
coasters, bed sheets, wadding, paper toilet seat covers, disposable bed-pans and
urinals, sterilizing paper, bathroom tissue and paper towel dispensers,
dispensers for liquid hand soaps and room deodorizing dispensers for washrooms
and cleaners, detergents and cleaning complimentary products.
o Other Products
--------------
Aluminum food wraps, cling-film wraps, garbage bags, air purifiers for
lavatories, oven baking and cooking trays, office supplies, recycled ground and
palletized plastics used by the plastic products industry, compost for soil
conditioning and fertilizers for agriculture and landscape planting.
SALES AND MARKETING
- -------------------
The Group's paper grades are sold to publishers, major printers,
converters, and wholesalers partly owned by the Group, and independent and other
direct customers.
The Group's household products are marketed mainly through retail
marketing chains, stores and the institutional market.
The Group's marketing strategy has the following objectives:
(a) Maintaining its existing dominant share in the Israeli market of
paper grades and paper products produced by the Group and imported by it through
short delivery time and prompt service, while constantly improving the quality
of its products.
(b) Increasing cutsize paper exports of NHP significantly, through the
marketing network of NAG in Europe.
(c) Meeting the growing and changing requirements of the market by
adding new paper grades and improving the quality of existing grades to meet the
technological changes required by new printing equipment.
(d) Exploring new business opportunities and increasing the range of
its products.
The following table sets forth the consolidated sales in adjusted NIS
millions(**) by categories of the consolidated segments of operations:
11
PAPER
MANUFACTURING MARKETING OFFICE TOTAL AFTER
AND RECYCLING 1 SUPPLIES 2 ADJUSTMENTS ADJUSTMENTS
--------------- ---------------- ----------- -----------
2002 2001 2000 2002 2001 2000 2000 2002 2001 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
340.4 342.2 421.7 152.7 165.9 173.8 (18.8) 493.0 508.1 *806.9
===== ===== ===== ===== ===== ===== ====== ===== ===== ======
The above mentioned segments include the following activities:
1. Paper manufacturing and recycling - collecting and recycling of paper
waste; manufacturing and marketing of paper, mainly packaging paper,
which rely mainly on paper waste as raw materials.
2. Marketing office supplies - Marketing of office supplies and paper,
mainly to institutions.
* The sales in 2000 included the results of Hogla-Kimberly for the period
ended March 31, 2000 of NIS 230.2 million.
** The financial statements of the Company are presented in NIS adjusted
to reflect the changes in the purchasing power of Israeli currency
(i.e., adjusted NIS). These adjustments were determined on the basis of
the changes in the U.S. Dollar/NIS exchange rate (see Item 3 - "Key
Information - Selected Financial Data" and Note 1 to the Company's
Consolidated Financial Statements)
RAW MATERIALS
- -------------
The raw materials required for paper and board production are different
wood pulps, secondary fibers (i.e., waste paper) and various chemicals and
fillers. Pulp is imported primarily from major suppliers in Scandinavia, the
United States, Portugal, Austria, Germany, Brazil and South Africa on a regular
basis. The bulk of the pulp tonnage purchased is secured by revolving long-term
agreements renewed on a yearly basis. Most of the waste paper and the fillers
are acquired from Israeli sources.
Over 70% of the fibers required in paper production of the Group
(including printing and writing paper and household products) come from waste
paper, which in some paper grades, is used in lieu of relatively more expensive
pulp.
Since 1996, the Company has been using precipitated calcium carbonate
(PCC), a special pigment used for filling and coating paper in order to improve
quality. The PCC is manufactured in a plant constructed and operated by the
Company and Specialty Minerals Israel Ltd. (SMI), a wholly owned subsidiary of
Minerals Technologies Inc., a U.S. company.
The cost of paper production is affected by fluctuating raw material
prices and the cost of water and energy. In the last few years, the Company's
management invested considerable effort and money in modernizing its production
systems and improving quality control. At the same time, steps were taken to
reduce costs while improving product quality.
COMPETITION
- -----------
Most of the Group's products that are sold on the local market are
exposed to competition with local and imported products. The imported products
arrive in Israel exempt from import tariffs, especially from the EEC, EFTA and
the USA. The tariffs on imports of paper from other countries are in the range
of 0% -12%. The said competition has influence over the selling prices that the
Group can charge.
12
The main competitors of the Group in the different fields of operation
are Israeli companies, except for sales of baby diapers, in which the Group's
main competitor is Proctor & Gamble.
C. ORGANIZATIONAL STRUCTURE
Clal Industries and Investment Ltd. (Clal) owns 33.0% of the Company.
Discount Investment Corporation Ltd. (DIC) owns 18.6% of the Company. Clal and
DIC agreed to coordinate and pool their voting power in the Company. IDB
Development Corporation Ltd. owns 71.5% of DIC and 63.6% of Clal.
SIGNIFICANT SUBSIDIARIES AND ASSOCIATED COMPANIES
-------------------------------------------------
COUNTRY OF
NAME OF THE COMPANY OWNERSHIP AND VOTING INCORPORATION
------------------- -------------------- -------------
SUBSIDIARIES
- ------------
Amnir Recycling Industries Ltd. 100.00% Israel
Graffiti Office Supplies & Paper Marketing Ltd. 100.00% Israel
Attar Marketing Office Supplies Ltd. 100.00% Israel
American Israeli Paper Mills Paper Industry (1995) Ltd. 100.00% Israel
American Israeli Paper Mills Marketing (1992) Ltd. 100.00% Israel
ASSOCIATED COMPANIES
- --------------------
Hogla-Kimberly Ltd. 49.90% Israel
Hogla-Kimberly Marketing Ltd. 49.90% Israel
Shikma Ltd. 49.90% Israel
Ovisan Sihhi Bez Sanai Ve Ticavet A.S. 49.90% Turkey
Hogla-Kimberly Holdings A.S. 49.90% Turkey
Neusiedler Hadera Paper Ltd. 49.90% Israel
Neusiedler Hadera Paper Marketing (1999) Ltd. 49.90% Israel
Grafinir Paper Marketing Ltd. 49.90% Israel
Mitrani Paper Marketing 2000 (1998) Ltd. 49.90% Israel
Yavnir (1999) Ltd. 49.90% Israel
13
COUNTRY OF
NAME OF THE COMPANY OWNERSHIP AND VOTING INCORPORATION
------------------- -------------------- -------------
Barthelemi Holdings Ltd. 33.91% Israel
T.M.M. Integrated Recycling Industries Ltd. (direct and indirect) 39.20% Israel
Carmel Containers Systems Ltd. 26.25% Israel
C.D. Packaging Systems Limited (direct and indirect) 63.20%* Israel
D. PROPERTY, PLANTS AND EQUIPMENT
The Group's principal executive offices and manufacturing and warehouse
facilities are located on approximately 69 acres of land in Hadera, Israel,
which is 31 miles south of Haifa, a major seaport, and 28 miles north of Tel
Aviv. The Company owns 51 acres, and 18 acres are leased from the Israel Land
Administration, an agency of the State of Israel, under several leases. The
lease periods terminate during future years until 2023.
The Group's facilities in Hadera are housed in two-story plants and
several adjoining buildings. Approximately 1,200,000 square feet are utilized
for manufacturing, storage and sales and administrative offices. An additional
plant is located in renovated modern buildings on a 10 acre plot in Afula, a
city in northern Israel. The Molett plant is located in Nahariya, in northern
Israel, on approximately 6 acres. In September 2002, the Group signed an
agreement with the Tel Aviv Municipality for the extension of the lease period
of the real estate lease for a plant in Tel Aviv, that was shut down at the end
of 2002, until the year 2059, in return for the payment of $6.2 million by the
Group. The Group is investigating several options for using the land.
The Group also owns a warehouse containing 50,000 square feet situated
on three acres in the Tel Aviv area, and a two acre parcel in the industrial
zone of Bnei Brak, near Tel-Aviv, which is used for waste paper collection.
Hogla-Kimberly vacated during the year 2002 the warehouse in Tel Aviv it had
occupied and the warehouse was rented to a major food retail chain.
Hogla-Kimberly relocated its headquarters and logistic center to a new modern
site in Zrifin, near Tel-Aviv, covering an area of 40,000 sq.m., with 17,500
sq.m. of buildings.
The Group sold at the end of 2002 the land and buildings it owned in
the city of Ashdod, in southern Israel, and at the beginning of 2003 the Group
sold 8 of 10 apartments it owned in Hadera.
The Group rents plant and office facilities in Migdal Haemek and
Caesarea and additional warehouses and waste paper collection sites throughout
Israel.
The machinery, equipment and assets of the Company are free of any
mortgage, lien, pledge or other charge or security interest.
- ----------
* The holding in voting shares is 63.05%
14
The Group owns six paper machines that are used in the manufacture of
various grades of paper and board. Most of the paper production facilities of
the Company and its subsidiaries are located in Hadera where it operates five
machines with a combined production capacity of over 270,000 tons per year. Due
to the rising demand for tissue paper products in the Israeli market, the old
tissue machine located in Nahariya was replaced during 2002 with a new modern
tissue machine with a total investment of $20 million. The new tissue machine
started its operation at the end of 2002 and has a production capacity of 20,000
tons per year.
The Group also operates converting lines for personal care and
household paper products in Hadera and Nahariya.
The Group maintains facilities for collecting, sorting and baling waste
paper and board in various locations in Israel and a plant for the recycling of
urban waste in Afula. It also has a plant in Afula for the production of
disposable baby diapers, incontinence absorbent products and feminine hygiene
products, a plant in Migdal Haemek for the production of paperboard consumer
packages and a plant in Hadera for recycling plastic waste. The Group also
operates a second plant for handling and recycling urban waste in Petah Tikva,
near Tel-Aviv.
The Company established in 2000 a new co-generation power plant, based
on high-pressure steam available from steam drying employed in paper production,
for a total investment of $14 million. The operation of the power plant,
situated in Hadera, concluded two years of work, and the Group now enjoys an
independent power generation capacity of 18MW, with generation costs
considerably lower than the cost of electricity purchased from the Israel
Electricity Company. As part of this project, the infrastructure of the main
electricity supply system was renovated and improved, utilizing modern
technological innovations.
Environmental Regulation Matters
--------------------------------
Certain of the Group's manufacturing operations are subject to
environmental and pollution control laws in Israel. In order to comply with
these laws, the Group planned and acquired, during 2001, a new modern system for
the treatment of effluent using an anaerobic treatment process. This process was
installed in the Group's site in Hadera as a pre-treatment phase in the existing
system based on aerobic treatment, in order to improve the treated effluent
quality in compliance with environmental regulations.
The Company is investing money and efforts in environmental projects,
while placing emphasis on separating industrial effluent streams by type and
curtailing their volume. The effort includes educating the employees on
environmental matters.
The Group's achievements in the environmental protection during the
last few years were acknowledged at the end of 2002, when the paper mills at the
Hadera site won the Shield for Environmental Excellence in Industry Award
granted by the Israeli Ministry of the Environment.
15
ITEM 5
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------
The Company's discussion and analysis of the financial condition and
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in Israel (for information as to the reconciliation between U.S. and Israeli
GAAP, see Item 18). The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities.
The Company identified the most critical accounting principles upon
which its financial status depends. The Company determined the critical
principles by considering accounting policies that involve subjective decisions
or assessments.
The Company states its accounting policies in the notes to the
consolidated financial statements and at relevant sections in this discussion
and analysis.
This discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related notes included elsewhere
in this report.
The Company identified the following to be the most critical accounting
policies:
Inventories
- -----------
The inventory is valued at the lower of cost or market, where cost is
determined on the moving average basis. The Company writes down its inventory
for estimated obsolescence or unmarketable inventory based on analysis of
inventory aging, assumptions about future demand and market conditions. If
actual demand and/or market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
Allowance for doubtful accounts
- -------------------------------
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The Company provides an allowance for doubtful accounts as a percentage of all
specific debts doubtful of collection. The allowances are based on the
likelihood of recoverability of accounts receivable considering the aging of the
balances, our historical write-off experience, net of recoveries, change in
credit worthiness of the customers, and taking into account current collection
trends that are expected to continue. These estimated allowances are
periodically reviewed, analyzing the customers' payment history. Actual customer
collections could differ from the Company's estimates.
Contingencies and risks involving the business
- ----------------------------------------------
The Company is subject, from time to time, to various claims arising in
the ordinary course of operations. In determining whether liabilities should be
recorded for pending litigation claims, the Company assesses, based on advice of
its outside legal counsel, the allegations made and the likelihood that it will
successfully defend itself.
16
When the Company believes that it is probable that it will not prevail
in a particular matter, it then estimates the amount of the liability. The
evaluation of the probability of success of such claims and the determination of
whether there is a necessity to include provisions in respect thereof require
judgment by the Company's legal counsel and management.
Deferred income taxes
- ---------------------
Deferred taxes are determined utilizing the asset and liability method,
based on the differences between the amounts presented in the financial
statements and those taken into account for tax purposes, in accordance with the
related tax laws. Valuation allowances are included in respect of deferred tax
assets when it is more likely than not that on such assets will be realized. The
Company has considered future taxable income and tax planning strategies in
assessing the need for the valuation allowance. Management evaluates the
realizability of the deferred tax assets on a current basis. If it were
determined that the Company would be able to realize the deferred tax assets in
excess of its net recorded amount, an adjustment to deferred tax assets would
increase income.
Impairment in value of Long-Lived Assets (including fixed assets and
investments in associated companies)
- --------------------------------------------------------------------
The Company has previously adopted standard 121 of the Financial
Accounting Standards Board of the United States ("FASB") - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of -
prior to its amendment in 2002. Through December 31, 2002, in accordance with
the provisions of the aforementioned standard, the Company regularly reviewed,
in situations where an event had occurred or circumstances had changed, which
might indicate that an impairment had taken place of the long-lived assets used
by the Company, whether the undiscounted cash flows anticipated from those
assets, exceeded the amount at which those assets were included in the accounts.
The Company is required to apply Accounting Standard No. 15 of the Israeli
Accounting Standards Board (the "IASB"), as of January 1, 2003 (see Note 1p(1)
to the financial statements).
17
A. OPERATING RESULTS
The following is a summary of the period-to-period changes in the
principal items included in the Consolidated Statements of Income:
AMOUNT AND PERCENTAGE INCREASE (DECREASE)
-----------------------------------------
New Israeli Shekels (in thousands)(5)
-------------------------------------
YEAR ENDED 12/31/02 YEAR ENDED 12/31/01
------------------- -------------------
V. V.
YEAR ENDED 12/31/01 YEAR ENDED 12/31/00
------------------- -------------------
CHANGES % CHANGES %
------- ----- ------- ----
NIS NIS
--- ---
PRO-FORMA(6)
------------
Net sales (15,073) (3.0) (87,399) (14.7)
Cost of sales (21,692) (5.2) (64,252) (13.4)
------- ------ ------- -----
Gross profit 6,619 7.1 (23,147) (19.9)
Selling, administrative and general expenses (10,611) (15.0) (7,695) (9.8)
------- ------ ------- -----
Income from ordinary operations 17,230 77.6 (15,451) (41.0)
Financial income (expenses) - net (8,751) (158.5) *15,093 (157.7)
Other income (loss) (4,367) (368.8) (44,799)
------- ------ ------- -----
Income before taxes on income 4,112 14.2 (45,157) (61.0)
Taxes on income (2,709) 34.4 *24,766 (75.9)
------- ------ ------- -----
Income from operation of the Company and the
consolidated subsidiaries 1,403 6.7 (20,391) (49.2)
Share in profits of associated companies 1,857 11.4 (33,695) (67.5)
------- ------ ------- -----
Net income 3,260 8.0 (54,086) (59.2)
======= ====== ======= =====
- ----------
* Reclassified
As discussed above in Item 3, the consolidated financial statements
since the year 2000 were changed significantly following transactions that were
completed in 2000.
5 The financial statements of the Company are presented in New Israeli
Shekels adjusted to reflect the changes in the purchasing power of
Israeli currency (i.e., adjusted shekels). These adjustments were
determined on the basis of the changes in the U.S. Dollar/Israel Shekel
exchange rate (see page 5 and see Note 1 to Consolidated Financial
Statements)
6 The changes in 2001 V. 2000 are based on a pro-forma report for the
year 2000 - see explanation and report below. For information about the
reported amounts - see the statement of income in the attached
financial statements.
18
Commencing in 2000, the results of operation of Hogla-Kimberly (as of
March 31, 2000) are included as shares in profits of associated companies and
not in income from operations of the Company and its subsidiaries.
The following is a pro-forma report for 2000, excluding the operations
of Hogla-Kimberly from the consolidation to the share in profits of associated
companies.
2000
----
NIS IN THOUSANDS
----------------
595,507
Net sales
Cost of sales 479,455
-------
Gross profit 116,052
Selling, administrative and general expenses 78,398
-------
Income from ordinary operations 37,654
Financial expenses - net *(9,573)
Other income 45,983
------
Income before taxes on income 74,064
Taxes on income *32,649
-------
Income from operation of the Company and the
consolidated subsidiaries 41,415
Share in profits of associated companies 49,934
------
Net income 91,349
======
* Reclassified
The statements of income for the years ended December 31, 2002, 2001
and 2000 are presented in adjusted New Israeli Shekels as explained in Note 1 to
the Consolidated Financial Statements. The changes in purchasing power of New
Israeli Shekels were determined on the basis of changes in the U.S. dollar/New
Israeli Shekel exchange rate. All figures in the adjusted statements of income
are expressed in terms of December 31, 2002 shekels (1 U.S. $= NIS 4.737).
The number of New Israeli Shekels which were exchangeable for 1 U.S.
dollar increased (decreased) over the prior year by (2.7%), 9.3% and 7.3% in
2000, 2001 and 2002, respectively.
The adjusted NIS figures have been translated into U.S. dollars using
the representative exchange rate of the U.S. dollar on December 31, 2002 ($1 =
NIS 4.737).
The translated U.S. dollar figures should not be construed as a
representation that the Israeli currency amounts actually represent, or could be
converted into U.S. dollars.
See Note 2 to the financial statements and Item 18 for anticipated
effect of adoption of accounting pronouncements that have been issued but are
not yet required to be adopted.
19
2002 COMPARED TO 2001
- ---------------------
I. RESULTS OF OPERATIONS
The following are principal figures regarding the Company's operations.
For a detailed analysis, see paragraph III - "Analysis of Operations
and Profitability" below.
1. CONSOLIDATED DATA - THE COMPANY AND ITS SUBSIDIARIES
----------------------------------------------------
The consolidated sales amounted to NIS 493.0 million in 2002, as
compared with NIS 508.1 million in 2001 ($104.1 million, as compared with $107.3
million).
The operating income in 2002 amounted to NIS 39.4 million in 2002, as
compared with NIS 22.2 million in 2001 ($8.3 million, as compared with $4.7
million).
The earnings before taxes and before other income/expenses amounted to
NIS 36.2 million in 2002, as compared with NIS 27.7 million in 2001 ($7.6
million, as compared with $5.9 million).
2. NET INCOME AND EARNINGS PER SHARE
---------------------------------
Net income (before non-recurring income) totaled NIS 40.1 million in
2002, as compared with NIS 33.1 million in 2001 ($8.5 million, as compared with
$7.0 million).
Net income in 2002 included non-recurring income of NIS 0.4 million
($0.1 million), net, generated by the discontinuation of operations at Shafir
and Molett, from the sale of real estate in Ashdod, Israel (after deduction of
the applicable taxes) and from non-recurring tax revenues (see III.9, below).
Net income in 2002, including non-recurring income, totaled to NIS
40.5, as compared with NIS 37.3 million in 2001 ($8.6 million, as compared with
$7.9 million).
Earnings Per Share for 2002 totaled NIS 1,024 per NIS 1 par value
($2.16 per share), as compared with NIS 944 per NIS 1 par value ($1.99 per
share) for 2001.
The return on shareholders' equity, before non-recurring income,
amounted to 5.8% in 2002, as compared with 5.1% in 2001.
II. THE BUSINESS ENVIRONMENT AND THE INFLUENCE OF EXTERNAL FACTORS
--------------------------------------------------------------
The slowdown in Israel's economy grew more severe in 2002. The slowdown
in operations, effected by the global economic situation and by the
security-related events in Israel, was characterized by a decrease in domestic
demand, negative GDP growth and increased unemployment.
The accelerated devaluation of the NIS against the US dollar continued
with fluctuation throughout the year. At its peak, the US dollar exchange rate
reached a record of NIS 5 per dollar (13% devaluation since the end of 2001),
and its ascent was only curbed by the raising of interest rates by the Governor
of the Bank of Israel.
The accelerated devaluation during 2002 resulted in an increase in the
prices of imported inputs, but due to the economic situation in Israel, the
reduced demand and the increased competition, it was impossible to adjust the
20
selling prices as warranted by such devaluation. The sales turnover in dollar
terms was consequently eroded, despite the quantitative growth in sales in most
of the Group's operations, and the profitability was impaired.
In response to the foregoing economic situation, the Group initiated
efficiency measures that were intended to deal with the difficult economic
environment, while preserving AIPM's market shares and profitability of its
various operations, despite the said erosion and while focusing on its cost
base. These efficiency measures, which encompass all of the Group's different
operations, included personnel cutbacks, on both management and operational
levels, increased productivity and the creation of a lower cost base, resulting
in a greater ability to adjust to market conditions.
2002 was a year marked by stability in global pulp prices, following a
year with a sharp decline in prices. Pulp prices appeared to be rising in the
first quarter of 2003 (by approximately 10%) and this trend is expected to
continue in the second quarter of 2003 as well.
The inflation rate in 2002 amounted to 6.5%, as compared with an
inflation rate of 1.4% in 2001.
The NIS declined by 7.3% against the dollar in 2002, compared with a
decline of 9.3% in 2001.
III. ANALYSIS OF OPERATIONS AND PROFITABILITY
---------------------------------------
The analysis below is based on the consolidated data.
1. SALES
-----
The consolidated sales amounted to NIS 493.0 million in 2002, as
compared with NIS 508.1 million in 2001 (-3%); ($104.1 million, as compared with
$107.3 million).
The decrease in the sales turnover is primarily attributed to the
termination of some operations in 2002 (See III.9, below). The termination of
these operations resulted in a NIS 28.4 million (approximately $6 million)
decrease in the consolidated sales turnover.
An increase was recorded in 2002 in the volume sales of packaging paper
(fluting) in the domestic market, as compared to 2001. The growth in sales as a
result of such volume growth, was partially offset by the decrease in local
selling prices, resulting from the severe crisis impacting the packaging sector
(corrugators).
With the intention of running at full capacity, while preserving
manufacturing efficiency, lowering the cost base and keeping the inventory at
operational levels, the Packaging Papers and Recycling Division expanded its
export operations in 2002, thereby lowering the average per ton, while
increasing the Division's turnover.
The turnover of the office supplies sector declined due to lower demand
stemming from the economic situation and the erosion of prices in dollar terms.
2. COST OF SALES
-------------
The cost of sales amounted to NIS 393.5 million - or 79.8% of sales -
in 2002, as compared with NIS 415.2 million - or 81.7% of sales - in 2001 ($83.1
million, as compared with $87.7 million).
21
The gross profit amounted to NIS 99.5 million - or 20.2% of sales - in
2002, as compared with NIS 92.9 million - or 18.3% of sales - in 2001 ($21.0
million, as compared with $19.6 million).
The increase in the gross margin was due to the Group's continuing
efficiency measures and the acceleration of these measures due to the economic
situation in Israel.
The improved efficiency was achieved, among other things, by:
- Lower wage costs, primarily as a result of personnel cutbacks
and the impact of the devaluation (see below).
- Increased output of the packaging paper machine, thereby
lowering the cost per ton.
- Lower raw material utilization costs.
- Reduction of various operating expenses.
- Increased proportion of self-generated electricity (as opposed
to purchased electricity), following improvements in the
operation of the new power plant at the Hadera plant.
Some of the above savings were offset as a result of a 12.3% increase
in fuel oil prices, originating from the increase in fuel oil prices in 2002,
coupled with the transition to the use of low-sulfur fuel oil, in accordance
with the demands of the Israeli Ministry of the Environment.
The increase in fuel oil prices increased the cost of self-generated
electricity by approximately $1 million, compared with 2001.
LABOR WAGES
The labor wages reflected in the cost of sales, the selling expenses
and the general and administrative expenses, amounted to NIS 135.8 million in
2002, as compared with NIS 160.5 million in 2001, representing a decrease of
15.4% ($28.7 million as compared with $33.9 million).
The lower labor expenses originated both from the reduction in the
number of personnel as a result of the Group's efficiency measures (savings of
6.2%, excluding the shutting down of Shafir), as well as the erosion of the
wages in dollar terms, due to the sharp devaluation of the NIS during 2002.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
The selling, general and administrative expenses (including wages)
amounted to NIS 60.1 million in 2002 (12.2% of sales), as compared with NIS 70.7
million (13.9% of sales), in 2001 ($12.7 million, as compared with $14.9
million).
This decrease is primarily attributed to the lower labor expenses and
to the efficiency measures implemented by AIPM, as detailed above.
22
4. OPERATING INCOME
----------------
The operating income amounted to NIS 39.4 million in 2002 (8.0% of
sales), as compared with NIS 22.2 million in 2001 (4.4% of sales). ($8.3
million, as compared with $4.7 million).
5. FINANCIAL REVENUES (EXPENSES)
-----------------------------
Financial expenses of NIS 3.2 million were recorded in 2002, as
compared with financial revenues of NIS 5.5 million in 2001 ($0.7 million in
expenses, as compared with revenues of $1.2 million).
Most of AIPM's interest-bearing liabilities are denominated in NIS,
while some are linked to the CPI (see linkage base report, below).
Due to the increased devaluation in 2001 (which was considerably
greater than the increase in the CPI), the CPI-linked and NIS liabilities
eroded, thereby creating financial revenues for 2001. In 2002, the devaluation
was lower and only slightly surpassed the increase in the CPI, resulting in
financial expenses.
Furthermore, despite the fact that the average balance of short-term
credit in 2002 was similar to that in 2001, the average interest rate on the
credit was higher this year, due to the interest rate increases by the Bank of
Israel.
6. PROFITS BEFORE TAXES
--------------------
The earnings before taxes and before other income/expenses amounted to
NIS 36.2 million in 2002, as compared with NIS 27.7 million in 2001 ($7.6
million, as compared with $5.9 million).
7. TAXES ON INCOME
---------------
The taxes on income expenses, on account of the current operations,
totaled NIS 14.2 million in 2002, as compared with NIS 12.1 million in 2001
($3.0 million, as compared with $2.6 million).
The tax expenses grew in 2002 compared to 2001, primarily due to the
NIS 8.5 million increase in income before taxes ($1.8 million). The said
increase was partially offset by the larger real-term devaluation last year,
which resulted in the erosion of the hedging of shareholders' equity for tax
purposes in 2001, calculated according to changes in the Consumer Price Index,
resulting in increased tax expenses in the financial statements for 2001.
8. COMPANY'S SHARE IN EARNINGS OF ASSOCIATED COMPANIES
---------------------------------------------------
The companies whose earnings are reported under this item (according to
AIPM's share therein), include primarily: Hogla-Kimberly, NHP, Carmel and T.M.M.
(including Amnir Environmental Services).
AIPM's share in the earnings of associated companies amounted to NIS
18.1 million in 2002, as compared with NIS 16.2 million in 2001 and NIS 49.7
million in 2000 (pro-forma) ($3.8 million, as compared with $3.4 million and
$10.5 million, respectively). The decrease in earnings in relation to the year
2000 is primarily attributed to the decrease in the earnings of Hogla-Kimberly,
due to the economic recession and the fierce competition in its different
operations - primarily in disposable baby diapers. The improvement in NHP's
earnings, on the other hand, served to offset part of this influence.
23
The following are the detailed changes in the earnings of associated
companies in 2002 as compared to 2001:
The Company's share in NHP's earnings grew by approximately NIS 12.8
million ($2.7 million) in 2002, as compared with 2001. This growth was rendered
possible by the comprehensive efficiency program implemented by NHP, which
included the restructuring of operations and marketing, including a significant
growth in export sales. The manufacturing efficiency and machine output at NHP
grew considerably in 2002 as a result of the said measures and assisted NHP in
returning to profitability, despite the adverse market conditions.
The decrease in the Company's share in Hogla-Kimberly's earnings
amounted to NIS 9.5 million ($2.0 million). This decrease was attributed to an
increase in competition in the non-food household sector (in which
Hogla-Kimberly operates) during 2002, both from international brands - primarily
Procter & Gamble in the baby diapers sector - as well as from private labels of
the retail marketing chains. In response to the competition, Hogla-Kimberly is
implementing various marketing measures that are intended to enable it to
preserve its sales volumes, although while incurring a certain erosion in
selling prices and operating profitability.
The decrease in the Company's share in Carmel's earnings amounted to
NIS 1.4 million ($0.3 million). This decrease was attributed to the continuing
crisis , expressed by lower demand for packaging, due to the declining volumes
of operation in industry and agriculture, which resulted in a volume decrease in
demand for packaging and in lower prices. The decrease in sales adversely
affected the profitability of Carmel, despite the efficiency efforts and the
lower raw material costs. Carmel is continuing to implement additional
efficiency measures, which are expected to result in an increased level of
profitability.
The T.M.M.-Amnir operations continued to expand in 2002, while
recording a constant improvement in operational efficiency and in profitability.
IV. LIQUIDITY AND INVESTMENTS
-------------------------
1. CASH FLOWS
----------
Cash flows from operating activities amounted to NIS 59.8 million in
2002 (excluding dividend received from an associated company), as compared with
cash flows of NIS 20.9 million in 2001 ($12.6 million, as compared with $4.4
million). The improved cash flows were attributed primarily to annual
differences in operating working capital. The operating working capital grew by
NIS 31.8 million ($6.7 million) in 2001, as compared with a NIS 5.9 million
($1.2 million) decrease in operating working capital in 2002, originating
primarily from a decrease in inventories in 2002. The cash flows from operating
activities, including the said dividend, amounted to $17.6 million in 2002.
2. INVESTMENTS IN FIXED ASSETS
---------------------------
The investments in fixed assets totaled NIS 50.6 million in 2002, as
compared with NIS 32.5 million in 2001 ($10.7 million, as compared with $6.9
million).
The investments in 2002 included the payment of approximately NIS 29
million ($6.1 million) on account of the extension of the lease on the Shafir
Compound from the Tel Aviv Municipality, for an additional period, until 2059.
24
The investments also included the completion of the investment in the
anaerobic installation in Hadera, as part of the Group's environmental
operations, coupled with ongoing investments in the renovation of manufacturing
and transport equipment.
2001 COMPARED TO 2000
I. RESULTS OF OPERATIONS
---------------------
The following are principal figures regarding the Company's operations.
For a detailed analysis, see paragraph III - "Analysis of Operations and
Profitability" below.
1. CONSOLIDATED DATA - The Company and its subsidiaries.
-----------------
(Comparison figures appear on a pro forma basis, i.e.- to include
only the Company and its subsidiaries). The consolidated sales totaled NIS 508.1
million in 2001, compared with NIS 595.5 million in 2000 ($107.3 million,
compared with $125.7 million).
The operating profit totaled NIS 22.2 million in 2001, compared with
NIS 37.7 million in 2000 ($4.7 million, compared with $8.0 million).
The profit before taxes totaled NIS 27.7 million in 2001, compared with
NIS 28.1 million in 2000 ($5.9 million, compared with $5.9 million).
2. NET INCOME AND EARNINGS PER SHARE
---------------------------------
Net income (before non-recurring earnings) totaled NIS 33.1 million in
2001, compared with NIS 69.6 million in 2000 ($7.0 million, compared with $14.7
million). The decrease in net income was mostly attributed to the decline in the
Company's share in the earnings of associated companies (see III.8, below).
Net income in 2000 included NIS 21.8 million in non-recurring earnings
($4.6 million), as a result of the sale of control over Hogla-Kimberly and NHP
to the strategic partners.
The return on shareholders' equity, net of non-recurring gains,
amounted to 5.1% in 2001 compared with 11.2% in 2000.
II. THE BUSINESS ENVIRONMENT AND THE INFLUENCE OF EXTERNAL FACTORS
--------------------------------------------------------------
The slowdown in economic activity that began in late 2000, deteriorated
further in 2001 and impacted all the sectors of the Israeli economy. The
slowdown was expressed by a negative GDP growth of -0.5% (compared with a GDP
growth of 6.4% in 2000), as well as by considerable growth in unemployment and
lower investments.
The global economy was also characterized by a slowdown in economic
activity in 2001, with low growth rates. The slowdown grew even more severe in
the fourth quarter of 2001, following the September 11, 2001 events in the
United States.
The above factors all affected the Group's various operations in the
following manner:
o The slowdown in economic activity in Israel, coupled with
rising unemployment, resulted in a significant decrease in
demand for all of the Group's products. In addition, the
25
security events resulted in a significant decrease in demand
from the Palestinian market and in a considerable reduction in
incoming tourism, leading to lower activity and lower demand
in the hotel and restaurant sector. As stated above, this
affected all of the Group's products, and was felt most
prominently in the printing and writing paper and household
products sectors.
o The recession in the global economy, which came together with
the slump in the business cycle of the paper sector, resulted
in a supply of paper at dumping prices for the Israeli market
(due to its distance from the European and US markets). This
led to a sharp narrowing of the margins between the price of
paper and the cost of pulp, and was expressed primarily in the
printing and writing paper sector.
o The crisis in the agricultural sector as a result of a
shortage of water and the decrease in water prices, along with
a shortage of workers for field crops and for picking - all
led to a significant decline in the demand for cardboard
packaging and consequently, in a decrease in selling prices.
The impact of this crisis is also evident in the paper waste
collection operations, in the manufacture of packaging paper
and in the corrugating industry.
o The sharp decline in operations in the hi-tech industry - at
rates that exceed the decline in the business product and the
GDP - has significantly lowered the local demands of this
sector. Most of the influence was recorded in the special
packaging sector and office supplies.
o The economic crisis in Turkey, which resulted, among other
things, in a sharp devaluation of the Turkish lira in relation
to the US dollar (115% in the course of 2001), severely
impaired the purchasing power of the local population and was
also expressed in lower demand for disposable diapers and
household paper products. Most of the impact was recorded in
household products activity in Turkey, in which Ovisan
operates.
As a result of these conditions, the Group is sharply cutting its
expenses, in order to adjust to the lower demand and to the erosion of selling
prices. The cost cutting measures that were initiated in the last quarter of
2001 and continued into 2002 as well, include the scaling back of personnel - at
both management and operational levels - along with the lowering of senior
executive salaries and cost cuttings across all areas of operation.
The inflation rate in 2001 amounted to 1.4%, compared with an inflation
rate of 0% in 2000.
The NIS exchange rate fell by 9.3% against the US dollar in 2001,
compared with a revaluation of approximately 2.7% in 2000.
In late December 2001, along with the announcement that interest rates
in Israel were being cut by 2%, the shekel fell sharply against the dollar, by
4.4%.
III. ANALYSIS OF OPERATIONS AND PROFITABILITY
----------------------------------------
The analysis below is based on the consolidated data, while the
comparison figures appear on a pro forma basis (see I.2, above).
26
1. SALES
-----
Consolidated sales totaled NIS 508.1 million in 2001, compared with NIS
595.5 million in 2000 ($107.3 million, compared with $125.7 million).
The decrease in sales originated primarily from the global economic
crisis, coupled with the security situation in Israel, which resulted in lower
local demand.
The decrease in sales turnover reflects a quantitative decrease coupled
with an erosion of selling prices.
The quantitative decrease in sales in 2001, compared with 2000,
originated primarily from the following:
o Packaging papers- A 17% decrease in quantitative sales to the
local market, due to the crisis in the packaging sector. The
quantitative decrease was partially offset by the exporting of
fluting paper and paper waste (primarily in the fourth quarter
of 2001), albeit at prices that were lower than those in the
local market.
o Office supplies and stationery - A decrease of 5% originating
from lower demand for office supplies, especially in the
hi-tech sector.
2. COST OF SALES
-------------
The cost of sales amounted to NIS 415.2 million in 2001, representing
81.7% of sales, compared with NIS 479.5 million, or 80.5% of sales in 2000
($87.7 million, compared with $101.2 million).
The erosion in selling prices and the quantitative decrease (especially
in packaging paper), resulted in sales revenues that were approximately NIS 87.4
million lower in 2001 ($18.5 million, or 15%), compared with the preceding year.
The gross profit fell from NIS 116.1 million in 2000, or 19.5% of sales, to NIS
92.9 million, or 18.3% of sales, in 2001(from $24.5 million to $19.6 million).
Despite the said decrease in sales (and despite the fact that part of
the cost of sales is fixed), the gross margin fell relatively little due to the
continuing efficiency efforts of the Group's operations and the acceleration of
such efforts as a result of the economic situation. The efficiency efforts
resulted in a lowering of labor expenses by 6.2% - following personnel cutbacks
- - coupled with the lowering of raw material costs and a decrease in various
manufacturing expenses.
Additional savings were realized as a result of the greater proportion
of self-generated electricity (instead of the purchase of electricity), as a
result of the operation of the new turbine at the Hadera plant commencing in
late 2000.
At the same time, a decrease was recorded in energy prices, originating
from the lowering of fuel oil prices by an average of 17% in relation to 2000,
which also contributed to reducing the erosion in gross profit in 2001.
27
LABOR EXPENSES
--------------
Labor expenses in the cost of sales, in selling expenses and in general
and administrative expenses, amounted to NIS 160.5 million in 2001, compared
with NIS 168.2 million in 2000, (a decrease of 4.5%) ($33.9 million compared
with $35.5 million).
The decrease in labor expenses originated both from the said cutbacks
in personnel as a result of the Group's efficiency measures, coupled with the
erosion of labor expenses in dollar terms, as a result of the sharp devaluation
in 2001, despite the fact that labor expenses in 2001 included payments on
account of the personnel cutbacks.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses (including wages) amounted
to NIS 70.7 million, or 13.9% of sales, in 2001, compared with NIS 78.4 million,
or 13.2% of sales, in 2000 ($14.9 million, compared with $16.6 million).
This decrease was primarily attributed to lower labor expenses and to
the efficiency measures implemented by the Company, as detailed above.
4. OPERATING PROFIT
----------------
Operating profit totaled NIS 22.2 million, or 4.4% of sales, in 2001,
compared with NIS 37.7 million, or 6.3% of sales, in 2000 ($4.7 million,
compared with $8.0 million).
Despite the sharp drop in sales and in the consolidated operating
profit, the Company managed to maintain the level of sales and operating income
that was recorded in 1999, despite the difficult conditions in the business
environment, as detailed above.
5. FINANCIAL REVENUES (EXPENSES)
-----------------------------
Financial revenues of NIS 5.5 million were recorded in 2001, compared
with financial expenses of NIS 9.6 million in 2000 ($1.9 million in revenues,
compared with $2.2 million in expenses).
The real term devaluation in 2001 served to erode the Company's
index-linked liability on account of its notes and created real-term financial
revenues thereon, compared with financial expenses following the real-term
revaluation in 2000.
The average balance of short-term credit grew from NIS 103.7 million
($21.9 million) in 2000, to NIS 138.8 million ($29.3 million) in 2001.
Nevertheless, the real-term financial expenses were significantly lower in 2001
as a result of the lowering of interest rates in 2001 and of the devaluation,
which resulted in the erosion of the short-term credit balances (which are
denominated in NIS, for the most part).
6. INCOME BEFORE TAXES
-------------------
The income before taxes totaled NIS 27.7 million in 2001, compared with
NIS 28.1 million in 2000 ($5.9 million, compared with $5.9 million).
28
7. TAXES ON INCOME
---------------
Expenses for taxes on income totaled NIS 7.9 million in 2001, compared
with NIS 8.4 million in 2000 ($1.7 million compared with $1.8 million).
The change in tax expenses in 2001, compared with 2000, was due to the
following factors:
o The real-term devaluation in 2001, compared with the real-term
revaluation in 2000, resulted in the erosion of the protection
of capital for tax purposes, that is calculated according to
changes in the Consumer Price Index, and resulted in a higher
tax rate in the Statement of Income for 2001.
o A tax benefit was recorded in 2001 on account of the exercise
of options by employees (pursuant to the directives of Section
102 of the Israeli Income Tax Ordinance).
8. COMPANY'S SHARE IN EARNINGS OF ASSOCIATED COMPANIES
---------------------------------------------------
The Company's share in earnings of associated companies amounted to NIS
17.4 million in 2001, compared with NIS 50.0 million in 2000 ($3.7 million,
compared with $10.5 million).
The companies whose earnings are reported under this item (in
proportion to AIPM's share therein) include primarily: Hogla-Kimberly, NHP
(printing and writing paper). Carmel and T.M.M. (including Amnir Environmental
Services). In order to facilitate a comparison on a uniform basis, last year's
data appear on a pro forma basis (see above).
The NIS 32.6 million ($6.9 million) decrease in the Company's share in
earnings of associated companies originated primarily from the results of
operations of NHP, Hogla-Kimberly and Carmel.
The decrease in the Company's share in NHP's earnings amounted to NIS
11.0 million ($2.3 million) and was caused by the loss that was recorded,
primarily in the first quarter of 2001, compared with the earnings recorded
2000. Despite the difficult market conditions, NHP returned to operating
profitability since the second quarter of 2001, while also recording a net
income in the last quarter of 2001. This change was made possible by the
implementation of efficiency and reorganization measures, in operations and in
marketing.
The decrease in the Company's share in Hogla-Kimberly's earnings
amounted to NIS 20.3 million ($4.3 million) and was caused partially by Ovisan,
the Turkish subsidiary, whose results were adversely affected by the economic
crisis in the Turkish economy. The crisis in Turkey, which was characterized by
a considerable currency devaluation (approximately 115% in 2001), resulted in
higher financial expenses in Ovisan's dollar-denominated financial statements,
reflecting the erosion of the net monetary balances.
Moreover, in the non-food household sector (in which Hogla-Kimberly
operates), the competition against international brands and against the private
labels of the retail marketing chains escalated in 2001. In addition, the
security events in Israel resulted in a decrease in demand from the Palestinian
market and from the hotel and restaurant sector. In response to the competition,
Hogla-Kimberly is implementing various marketing measures.
The decrease in the Company's share in Carmel's earnings amounted to
NIS 2.0 million ($0.4 million) in 2001, compared with 2000. The decrease
resulted from lower demand for packaging, due to the crisis in the industrial
and agricultural sectors, which was reflected in a quantitative sales decrease
and eroded prices. The decrease in sales adversely affected the profitability of
Carmel, despite efficiency efforts and lower raw material costs. The
29
comprehensive efficiency measures, along with the marketing redeployment that
was initiated by Carmel, were intended to enable the Carmel to return to a
reasonable level of profitability.
VI. LIQUIDITY AND INVESTMENTS
-------------------------
1. CASH FLOW
---------
The cash flow from operating activities amounted to NIS 20.9 million in
2001, compared with NIS 87.6 million in 2000 (pro forma) ($4.4 million, compared
with $18.5 million).
The difference in the cash flow from operating activities originated
from changes in the operating working capital. In 2000, the operating working
capital included - at the beginning of the year - trade receivable balances
(debt) connected to the fine paper operations, which was not transferred to NHP
in the course of its establishment together with the strategic partner NAG. This
debt was collected by the Company in the course of the year 2000 and resulted in
the lowering of operating working capital that year.
2. INVESTMENTS IN FIXED ASSETS
---------------------------
The investments in fixed assets amounted to NIS 32.5 million in 2001,
compared with NIS 79.5 million in 2000 (pro forma) ($6.9 million, compared with
$16.8 million). These investments included, among other things, an investment in
the anaerobic plant in Hadera, as part of the Group's environmental program, as
well as current investments in the renovation of plants and in transportation.
3. FINANCING
---------
The Company financed the investments in fixed assets (NIS 32.5 million)
in 2001 and the repayment of long-term loans and redemption of notes (NIS 8.4
million) with net cash from operating activities (NIS 20.9 million) and the
balance was financed by short term borrowing from banks amounting to NIS 19.4
million.
B. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company anticipates that its existing credit lines are sufficient
for financing its working capital needs. The Company uses its cash flow from
operating activities to finance its investments and for repayment of loans and
dividend distributions to its shareholders.
Based on the Company's balance sheet, the Company believes that it is
unlikely that there will be any difficulties to obtain credit, whether short
term debts or long-term debts, to finance anticipated investments.
The Company uses loans from local financial institutions, mostly banks,
to finance its activities. As of December 31, 2002, these loans consisted of the
following:
1. Short-term credit from banks - see Note 10c to the financial
statements.
2. Long-term loans from banks and other liabilities - see Note 4a
and 4c to the financial statements.
3. Notes - see Note 4b to the financial statements.
30
For information regarding financial instruments used for hedging
purposes and market risks - see Item 11, "Quantitative and Qualitative
Disclosure about Market Risk".
The Group may incur additional tax liabilities in the event of
inter-company dividend distributions, derived from "approved enterprises"
profits. The said dividend distribution from investee companies is in the amount
of up to approximately NIS 80 million (of which the Company's share of the
additional tax is NIS 14 million, if this dividend is distributed). No account
was taken of the additional tax, since AIPM has the ability and the intention
that such earnings are to be reinvested and that no dividend would be declared
which would involve additional tax liability to the Group in the foreseeable
future.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
----------------------------------------------------
There are no significant investments in research and development
activities.
D. TREND INFORMATION
-----------------
For trend information, see "The Business Environment and the Influence
of External Factors" above.
31
ITEM 6
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
NAME YEAR OF
DIRECTORS: DIRECTOR SINCE BIRTH POSITION
- ------------------------------------------------------------------------------------------------------------------
Michael Dorsman 1999 1965 Director
Aviezer (Gezi) Kaplan 2001 1948 Director
Jacob Laskow 1999 1954 Director until June 8, 2003.
Miri Lent-Sharir 2000 1956 Director
Leon Recanati 1988 1948 Director
Amos Mar-Haim 1984 1938 Director
Shmuel Rotem 1979 1926 Vice Chairman
Meir Shannie 2001 1945 Director
Yaacov Yerushalmi 1998 1942 Chairman of the Board since January 1999, CEO of
the Company from June 1990 until April 2003.
- ------------------------------------------------------------------------------------------------------------------
The business experience of each of the directors is as follows:
Mr. Michael Dorsman is a businessman, Chairman of the Board and CEO of
D.B.P.L. Public Investments Ltd. and Papaya Investments Ltd. and Chairman of the
Board of Nutrition Plus Israel (1998) Ltd. Mr. Dorsman holds 11.6% of the
Company's shares directly.
Mr. Aviezer (Gezi) Kaplan is the CEO and a director of Tivall (1993)
Ltd., Deputy Managing Director of Osem Group, Chairman of the Boards of Sabra
Salad Food Industries (1985) Ltd., Ostiv Ltd. and Of Tov Products (2001) Ltd.,
and a director of Beit-Hashita Assis Food Industries Limited Partnership. He
serves as an external director of the Company.
Mr. Jacob Laskow was Vice President of Discount Investments Ltd. until
June 5, 2003 and Chairman or Vice-Chairman of various companies in the Discount
Investments Group.
Ms. Miri Lent-Sharir is a businesswoman and an external director of the
Company. Until November 2000, she was Assistant to the General Manager for
Special Projects of Housing and Construction Holding Ltd. Until August 1998, she
was the Deputy General Manager of Ampal American Israel Corporation and a
director of companies in the Ampal Group.
32
Mr. Amos Mar-Haim is Chairman of the Board of Atara Investments Company
Ltd., Migdal Underwriting and Investment Banking Ltd., director of Al-Rov
(Israel) Ltd., Polgat Ltd., Tango Ltd., Rogozin Industries Ltd., Keter Ltd.,
Israel (10) Ltd. and Yissum Research and Development Co. Ltd., and Chairman of
the Association of Public Companies. Until May 1999 he was Vice Chairman of
Israel Company, Chairman of Zim Israel Navigation Co., Vice Chairman of Israel
Chemicals Ltd., and Vice Chairman of Oil Refineries Ltd.
Mr. Leon Recanati was until May 2003 Chairman of the Board of Clal
Industries and Investments Ltd., Chairman of the Board of Discount Investments
Corporation Ltd., CEO (until February 2003) and Chairman of IDB Holding
Corporation Ltd. and Chairman of IDB Development Ltd. He is Chairman of
Development & Construction Ltd. and director of The Israeli Investment and
Finance Corporation Ltd., Israel Financial Holdings Ltd., El-Yam Ships Ltd. and
several family and private companies. Until the middle of 2000, he also acted as
the Chairman of Clal (Israel) Ltd.
Mr. Shmuel Rotem is Deputy Chairman of the Company's Board and a
director of Rotem Industries Ltd., Haogen Plast and Rambam Hospital, and an
external director of Electrochemical Industries Ltd.
Mr. Meir Shannie was General Manager of Clal Industries and Investments
until June 9, 2003, and a director of various companies in the Clal Group. He is
a director of Elite Industries Ltd. and several other private companies and was
formerly the Chairman of the Board of Directors of Direct Insurance Company.
Mr. Yaacov Yerushalmi is Chairman of the Board and was the CEO of the
Company until April 2003. In addition, he is the Chairman or Vice-Chairman of
subsidiaries and associated companies of the Group.
SENIOR MANAGEMENT (AS OF MAY 31, 2003)
- -------------------------------------------------------------------------------------------------------------------------
NAME YEAR OF BIRTH POSITION AND BUSINESS EXPERIENCE FOR PAST FIVE YEARS
---- ------------- ----------------------------------------------------
Yaacov Yerushalmi 1942 Chief Executive Officer from June 1990 until April 2003, and the Chairman
of the Board since January 1999.
Avi Patir 1948 Chief Executive Officer since April 2003, Prior thereto, he was the
Chief Executive Officer of Barak Ltd.
Israel Eldar 1945 Corporate Controller and responsible for risks and business interruption
management. A director of subsidiaries and affiliated companies of the
Company.
Ofra Gorni 1953 Business Development Manager and a director of subsidiaries and
affiliated companies of the Company.
33
NAME YEAR OF BIRTH POSITION AND BUSINESS EXPERIENCE FOR PAST FIVE YEARS
---- ------------- ----------------------------------------------------
Lea Katz 1950 Legal counsel and Corporate Secretary since August 2000.
Gabi Kenan 1944 Deputy General Manager. A director of subsidiaries and affiliated
companies of the Company.
Senior Officer of the Company since March 1998. Prior thereto, he was
the General Manager of Solar Systems Ltd. and S.D.C. Ltd.
Pinhas Rimon 1940 General manager of Packaging Paper and Recycling Division. A director of
subsidiaries and affiliated companies of the Company.
Gideon Liberman 1950 General Manager of Development and Infrastructure Division
- -------------------------------------------------------------------------------------------------------------------------
SENIOR MANAGEMENT IN SUBSIDIARIES AND AFFILIATED COMPANIES (AS OF MAY 31, 2003)
- --------------------------------------------------------------------------------
NAME POSITION IN THE COMPANY
---- -----------------------
Avi Brener General Manager, Hogla-Kimberly Ltd.
Avner Solel General Manager, Neusiedler Hadera Paper Ltd.
Doron Katzir General Manager, Graffiti Office Supplies & Paper Marketing Ltd.
Rafi Alon General Manager, T.M.M. Integrated Recycling Industries Ltd.
Doron Kempler General Manager, Carmel Container Systems Ltd.
- --------------------------------------------------------------------------------
34
B. COMPENSATION
------------
The aggregate amount of remuneration paid to all directors and senior
officers of the Company as a group for services provided by them to the Company
during 2002 was approximately NIS 7,108,000 (approximately $1,500,000). The
aggregate amount set aside for pension, retirement or similar benefits for
directors and officers as a group for services provided by them to the Company
during 2002 was approximately NIS 697,000 (approximately $147,000).
The total
---------
Remuneration paid by the Company in 2002 to Mr. Yerushalmi, the
Company's CEO (until April 2003) and Chairman of the Board, for services
provided by him to the Company during 2002, was NIS 2,163,000 (approximately
$457,000). His retirement settlement was not yet approved by the Shareholders
Meeting.
On May 7, 2001, the Company's Board of Directors adopted an incentive
plan, which was subsequently approved by the Company's shareholders, to
remunerate the Company's Chairman of the Board of Directors. According to the
plan, such remuneration will be equal to the increase in the value of 50,000
ordinary shares of the Company in the period from May 7, 2001 (share price - NIS
194.37) to May 7, 2008. The remuneration will be spread over the period
commencing two years from the resolution of the Board of Directors, until the
seventh anniversary of such resolution.
The remuneration of the directors (including the external directors)
for 2002 was approved at the 2002 general meeting of shareholders. Pursuant to
regulations under the Israeli Companies Law, each external director of the
Company must receive the same annual compensation, which must be between NIS
28,561 and NIS 46,407, plus an additional fee for each meeting attended which
must be between NIS 1,005 and NIS 1,785. The Board approved in 2000 that the
remuneration of each director, including the external directors, be fixed at NIS
39,000 plus an additional NIS 1,500 for each meeting attended. The same amounts
were approved by the Board in 2001. In 2002, the Board of Directors resolved
that the remuneration of each director will be NIS 35,000 plus NIS 1,350 for
each meeting attended (a decrease of 10% compared to 2001), subject to the
approval of the Company's shareholders. In 2003 the Board of Directors resolved
that the remuneration of each director will be the same as in the years 2000 and
2001, namely, NIS 39,000 plus an additional NIS 1,500 for each meeting attended.
C. BOARD PRACTICES
---------------
The directors of the Company, except for the external directors, retire
from office at the Annual General Meeting of Shareholders and are eligible for
re-appointment at such Annual General Meeting.
Notwithstanding the aforesaid, if no directors were appointed at any
Annual General Meeting, the directors appointed at the previous Annual General
Meeting shall continue in office. Directors, except for the external directors,
may be removed from office earlier by a resolution at an Annual General Meeting
of Shareholders.
The current directors of the Company were appointed at the Company's
latest Annual General Meeting in 2002.
The Articles of Association of the Company provide that any director
may, by written notice, appoint any person who is approved by the directors to
be an alternate director and to act in his place and to vote at any meeting at
which he is not personally present. The alternate director is entitled to notice
35
of Board meetings and he will be remunerated out of the remuneration of the
director appointing him. The alternate director shall vacate his office if and
when the director appointing him vacates his office as director, or removes him
from office by written notice.
There are no services contracts which give the current directors of the
Company any benefits upon termination of appointment, except for Mr. Yaacov
Yerushalmi, whose terms of employment are submitted for approval at the Annual
General Meeting of Shareholders and according to Israeli law.
EXTERNAL DIRECTORS
Under the Israeli Companies Law, which became effective on February 1,
2000, the Company (as a public company) is required to have at least two
external directors as members of its Board of Directors. An external director
may not have any financial or other substantial connection with the Company and
must be appointed at the Annual General Meeting of Shareholders. The external
directors are elected for a three-year term of office that may be extended for
another three years. External directors who were elected before February 1, 2000
may serve five years.
AUDIT COMMITTEE
Under the Israeli Companies Law, members of the Audit Committee are to
be elected from members of the Board of the Company by the Board. The Audit
Committee will be comprised of at least three directors, including all of the
external directors, but excluding: (i) the chairman of the board of directors;
(ii) any director employed by the Company or who provides services to the
Company on a regular basis; or (iii) a controlling shareholder of the Company or
his relative.
The role of the Audit Committee is: (i) to examine flaws in the
business management of the Company in consultation with its auditors and to
suggest appropriate courses of action and (ii) to decide whether to approve
actions or transactions which under the Israeli Companies Law require the
approval of the Audit Committee (transaction with a related party, etc.) The
Company does not currently have a Nominating Committee nor a Compensation
Committee.
The Company's Audit Committee members are: Amos Mar-Haim, Chairman,
Miri Lent-Sharir, Shmuel Rotem and Aviezer (Gezi) Kaplan.
D. EMPLOYEES
---------
As of April 30, 2003, the Company and its subsidiaries had 727
employees and the Group (including associated companies) had 3,027 employees, of
whom 854 were engaged in the household paper activities, 291 were engaged in the
printing and writing paper activities, 797 were engaged in the recycling
activities, 568 were engaged in the corrugated board containers activities, 167
were engaged in the office supplies activities, 281 worked at the paper mills in
Hadera and Tel Aviv and for other related subsidiaries and 69 were management
and clerical personnel at the Company's headquarters in Hadera.
Some of the employees are subject to the terms of employment of
collective bargaining agreements. The parties to such collective bargaining
agreement are the Company and the employees, through the union.
36
E. SHARE OWNERSHIP
---------------
In January 1998, the Company's Board of Directors approved a stock
option plan, pursuant to which options for ordinary shares were allocated to
senior officers of the Company and its subsidiaries, including 32,000 options to
the CEO, in three annual installments. The plan was approved at the Company's
Annual General Meeting of Shareholders in February 1998.
In 1998, 52,833 options were granted to senior officers under this
plan. In 1999, 51,335 options were granted under this plan and in 2000 51,335
options were granted. For further information regarding the 1998 plan, see Note
6 of the Notes to the Consolidated Financial Statements.
A total of 35,990 shares were issued in March 2000, as a result of the
exercise of 51,335 options from the first installment, which were allocated to
employees within the framework of the 1998 stock option plan. In March 2001,
28,149 shares were issued as a result of the exercise of 46,002 stock options
which were allocated to them within the framework of the 1998 stock option plan.
Until June 11, 2003, an additional 20,006 shares were issued as a result of the
exercise of 40,831 stock options which were allocated to employees within the
framework of the 1998 stock option plan.
In April 2001, the Board of Directors of the Company adopted a new
stock option plan under which options to purchase a total of 194,300 shares may
be granted to senior officers of the Company and certain other companies in the
Group. All of the options were granted in July 2001. Each option is exercisable
to purchase one ordinary share of NIS 0.01 par value of the Company. The options
vest in four yearly installments. The vesting period of the first installment is
two years, commencing on the date of grant, and the next three installments vest
on the third, fourth and fifth anniversary of the grant date. Each installment
is exercisable for two years from the vesting date of such installment. For
further information regarding the 2001 plan, see Note 6 of the Notes to the
Consolidated Financial Statements.
In August 2001, the Company's Board of Directors approved a stock
option plan for employees of the Company and its subsidiaries. Under this plan,
up to 125,000 options may be granted without consideration. Each option is
exercisable to purchase one ordinary share of NIS 0.01 par value of the Company.
In November 2001, 81,455 options were granted under the 2001 employee plan. For
further information regarding the 2001 employee plan, see Note 6 of the Notes to
the Consolidated Financial Statements.
37
ITEM 7
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
------------------
The following table sets forth, as of May 31, 2003, the number of
Ordinary Shares of the Company owned beneficially by (i) all those persons who,
to the Company's knowledge, were the beneficial owners of more than 5% of such
outstanding shares, and (ii) all officers and directors of the Company as a
group:
- ------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS: AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS
PRINCIPAL SHAREHOLDERS: DIRECTLY OR INDIRECTLY(7) OUTSTANDING
- ---------------------- ------------------------- ---------------
Clal Industries Ltd. ("Clal"), 3 Azrieli Center, the Triangle
Building, Tel Aviv, Israel 1,292,769(8) 32.82%
Discount Investment Corporation Ltd. ("DIC"), 3 Azrieli Center,
the Triangle Building, Tel Aviv, Israel 730,565(8) 18.55%
Michael Dorsman, 20 Shlonski St., Tel Aviv, Israel
All officers and directors as a group 455,150(9) 11.55%
- ------------------------------------------------------------------------------------------------------------------
- ----------
7 Beneficial ownership is based on shared voting and dispositive power
over the securities listed in the table.
8 IDB Holding Corporation Ltd. ("IDBH") is the parent of IDB Development
Corporation Ltd. ("IDBD"), which, in turn, is the parent of DIC and
Clal. IDBH, IDBD and DIC are public companies traded on the Tel Aviv
Stock Exchange.
On May 19, 2003, private companies controlled by Oudi Recanati, Leon Y.
Recanati, Judith Yovel Recanati and Elaine Recanati completed a sale of
all of the shares of IDBH held by them, constituting approximately
51.7% of the outstanding share capital of IDBH, to a group comprised
of: (i) Ganden Investments I.D.B. Ltd. ("Ganden"), a private Israeli
company controlled by Nochi Dankner and his sister, Shelly
Dankner-Bergman, which, following this transaction, holds 31.02% of the
equity of and voting power in IDBH; (ii) Manor Investments-IDB Ltd.
("Manor"), a private Israeli company controlled by Ruth Manor, which,
following this transaction, holds 10.34% of the equity of and voting
power in IDBH; and (iii) Avraham Livnat Investments (2002) Ltd.
("Livnat"), a private Israeli company controlled by Avraham Livnat,
which, following this transaction, holds 10.34% of the equity of and
voting power in IDBH. Ganden, Manor and Livnat, owning in the aggregate
approximately 51.7% of the equity of and voting power in IDBH, entered
into a Shareholders Agreement relating, among other things, to their
joint control of IDBH, the term of which is until May 19, 2023.
Nochi Dankner is Chairman of IDBH, IDBD, Clal and DIC. Shelly
Dankner-Bergman, Isaac Manor (the husband of Ruth Manor), Dori Manor
(the son of Isaac and Ruth Manor) and Zvi Livnat (the son of Avraham
Livnat) are directors of each of IDBH, IDBD and DIC.
9 The officers d and directors of the Company other than Michael Dorsman
own, in the aggregate, less than 1% of the Company's outstanding
ordinary shares.
38
On February 5, 1980, Clal entered into a Voting Agreement with DIC,
pursuant to which Clal and DIC agreed to coordinate and pool their voting power
in the Company in order to appoint an equal number of each party's nominees to
the Board of Directors of the Company and in order to elect designees on their
behalf to the central board committees of the Company. The parties have also
agreed to vote en bloc in at general meetings of the Company on the subject of
dividend distributions. Finally, in the event that any party to the agreement
decides to dispose of its Ordinary Shares, the agreement grants the other
parties thereto a first refusal option with respect to such shares. The term of
the agreement is for ten years, subject to extensions for additional ten year
periods. This agreement has been extended through the year 2010.
Based on the foregoing and on the shareholdings and other relationships
set forth in the preceding table and the footnotes thereto, Clal, DIC,
Development, IDBH and Nochi Dankner, Shelly Dankner-Bergman, Isaac, Ruth and
Dori Manor, and Avraham and Zvi Livnat may be deemed to constitute a group in
control of the Company.
The Company estimates that as of May 31, 2003, 8.97% of its outstanding
ordinary shares were held in the United States by 2,396 record holders.
All ordinary shares of the Company have equal voting rights.
B. RELATED PARTY TRANSACTIONS
--------------------------
The information is included in the Company's attached Consolidated
Financial Statements: For loans to associated companies, see Note 2 to the
attached financial statements. For a capital note to an associated company, see
Note 4c to the attached financial statements. For transactions and balances with
related parties, see Note 12 to the attached financial statements.
For further information see also Note 9e to the financial statements.
C. INTERESTS OF EXPERTS AND COUNSEL
--------------------------------
Not applicable to annual reports.
ITEM 8
FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
-------------------------------------------------------
See the financial statements included in Item 18.
B. SIGNIFICANT CHANGES
-------------------
None.
39
ITEM 9
THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
-------------------------
The Company's ordinary shares are listed on the American Stock
Exchange. The trading symbol for the ordinary shares is AIP. The ordinary shares
are also listed on the Tel Aviv Stock Exchange.
The following table sets forth the high and low sale prices of the
Company's ordinary shares on the American Stock Exchange and the Tel Aviv Stock
Exchange for the periods indicated:
Last full five fiscal years
AMERICAN STOCK EXCHANGE TEL AVIV STOCK EXCHANGE
----------------------- --------------------------------------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
$ NIS $ (10)
- --- -
CALENDAR YEAR
- -------------
2002 40.50 25.10 178.00 116.10 40.10 24.90
2001 64.25 30.00 267.50 130.30 64.80 29.82
2000 83.5 55.31 347.00 224.90 86.10 54.96
1999 65.5 31.13 282.00 139.70 66.71 34.37
1998 45.0 28.75 162.80 117.50 44.40 32.85
- ----------
(10) Share prices have been translated from New Israeli Shekels (NIS) to
U.S. Dollars at the representative rate of exchange, as reported by the
Bank of Israel, on the dates when such high or low prices in NIS were
recorded.
40
Quarters during last two full fiscal years and first quarter of 2003:
AMERICAN STOCK EXCHANGE TEL AVIV STOCK EXCHANGE
2003 QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------- ---- --- ---- --- ---- ---
$ NIS $(10)
- --- ----
March 31 35.50 29.22 165.20 153,00 35.25 31.49
2002 QUARTERS ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------- ---- --- ---- --- ---- ---
$ NIS $(10)
- --- ----
March 31 40.50 32.00 178.00 149.30 40.10 32.00
June 30 32.10 26.30 149.20 125.20 31.30 25.60
September 30 28.60 25.10 133.60 116.10 28.60 24.90
December 31 33.30 26.50 155.20 125.30 33.50 26.30
2001 QUARTERS ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------- ---- --- ---- --- ---- ---
$ NIS $(10)
- --- ----
March 31 64.25 51.00 267.50 208.50 64.80 49.44
June 30 54.30 45.50 230.00 185.20 55.48 44.44
September 30 46.00 31.00 194.50 133.60 46.59 30.67
December 31 40.50 30.00 180.80 130.30 41.23 29.82
41
Last full six months prior to filing of this report:
AMERICAN STOCK EXCHANGE TEL AVIV STOCK EXCHANGE
2003 QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------- ---- --- ---- --- ---- ---
$ NIS $(10)
= === ====
May 45.40 37.36 192.00 170.40 43.56 37.23
April 37.50 35.30 173.30 163.30 37.69 35.66
March 35.50 31.50 165.00 153.00 35.25 31.49
February 31.40 30.80 153.70 148.60 31.62 30.48
January 31.50 29.22 152.20 143.60 31.52 30.01
December 2002 33.30 29.62 155.20 139.00 33.51 29.39
B. PLAN OF DISTRIBUTION
--------------------
Not applicable to Annual Reports.
C. MARKETS
-------
The Company's shares are traded on both the Tel-Aviv Stock Exchange and
American Stock Exchange.
D. SELLING SHAREHOLDERS
--------------------
Not applicable to Annual Reports.
E. DILUTION
--------
Not applicable to Annual Reports.
F. EXPENSES OF THE ISSUE
---------------------
Not applicable to Annual Reports.
42
ITEM 10
ADDITIONAL INFORMATION
A. SHARE CAPITAL
-------------
Not applicable to Annual Reports.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
--------------------------------------
The Company was registered under Israeli law on February 10, 1951 and
its registration number with the Israeli registrar of companies is 52-001838-3.
On June 20, 2001, the Company's shareholders approved a new version of
the Articles of Association ("Articles").
Objects of the Company
- ----------------------
As indicated in Article 5 of the Company's Articles, the Company may,
at any time, engage in any branch or kind of business in which it is, expressly
or by implication, authorized to engage in accordance with the Articles. The
Company may also cease to engage in such businesses, whether or not it has
commenced to engage in such branch or kind of business.
Director's Personal Interest
- ----------------------------
The Israeli Companies Law requires that a director and an officer of a
company disclose to the company any personal interest that he may have and all
related material information, in connection with any existing or proposed
transaction by the company. The disclosure is required to be made promptly and
in any event no later than the date of meeting of the board of directors in
which the transaction is first discussed.
If the transaction is an extraordinary transaction, the procedure of
approval is as described below. Under Israeli law, an extraordinary transaction
is a transaction other than in the ordinary course of business, otherwise than
on market terms or that is likely to have a material impact on the company's
profitability, assets or liabilities.
Subject to the restrictions of the Israeli Companies Law, a director is
entitled to participate in the deliberations and vote with regard to the
approval of transactions in which he has a personal interest. A director is not
entitled to participate and vote with regard to the approval of an extraordinary
transaction in which he has a personal interest, the approval of indemnity,
exemption or insurance of the directors or the approval of the directors'
compensation. If a majority of the directors have a personal interest in a
certain decision, they may participate and vote but the issue must be approved
also by the audit committee and by the shareholders. If the controlling
shareholder has a personal interest in an extraordinary transaction, the issue
must be approved also by the audit committee and the shareholders.
43
Any power of the Company which has not been conferred by law or by the
Articles to any other body, may be exercised by the Board. The management of the
Company is vested in the Board.
The Board shall formulate the policies of the Company and shall
supervise the performance of the office and actions of the General Manager,
including inter alia examination of the financial position of the Company and
determination of the credit framework which the Company may receive. Without
derogating from any power vested in the Board in accordance with the Articles,
the Board may, from time to time, at its discretion, decide upon the issuance of
a series of debentures, including capital notes or undertakings, including
debentures, capital notes or undertakings which can be converted into shares,
and also the terms thereof, and mortgage of the property of the Company, in
whole or in part, at present or in future, by floating or fixed charge.
Debentures, capital notes, undertakings or other securities, as aforesaid, may
be issued either at a discount or at a premium or in any other manner, whether
with deferred rights or special rights and/or preferred rights and/or other
rights, all the aforesaid as the Board may, at its discretion, determine.
Except for special cases as detailed in the Articles and subject to the
provisions of the Israeli Companies Law, the Board may delegate its powers to
the General Manager, to an officer of the Company or to any other person or to
the Board committees. Delegation of the powers of the Board may be with regard
to a specific matter or for a particular period, at the discretion of the Board.
There are no limitation requirements regarding age affecting directors'
ability to serve as directors of the Company. The directors need not be
shareholders of the Company in order to qualify as directors.
The Shares -Rights and Restrictions
- -----------------------------------
All of the Company's shares are ordinary shares. Every ordinary share
in the capital of the Company is of equal rights, for all intents and purposes,
to every other ordinary share, including the right to dividends, to bonus shares
and to participation in the surplus assets of the Company upon liquidation,
proportionately to the par value of each share, without taking into
consideration any premium paid in respect thereof, all the aforesaid subject to
the provisions of the Articles.
Each of the ordinary shares entitles the holder thereof to participate
at and to one vote at Annual General Meetings of the Company. As described in
Item 6.C, all directors, except external directors, stand for election each year
at the Annual General Meeting.
Subject to the provisions of the Israeli Companies Law, the Board may
resolve upon the distribution of a dividend. When deciding on the distribution
of a dividend, the Board may decide that the dividend shall be paid, in whole or
in part, in cash or by way of the distribution of assets in specie, including
securities or bonus shares, or in any other manner at the discretion of the
Board.
Dividends on the Company's ordinary shares may be paid only out of
retained earnings, as defined in the Israeli Companies Law, as of the end of the
most recent fiscal year or profits accrued over a period of two years, whichever
is higher.
The Company may, by resolution adopted at an Annual General Meeting by
an ordinary majority, decrease the capital of the Company and of any reserve
fund from redemption of capital. For the execution of any resolution as
aforesaid, the Board may, at its discretion, resolve any issues, which may arise
in connection therewith.
44
In case of winding up of the Company, the liquidator may determine the
proper value of the assets available for distribution and determine how the
distribution among the shareholders will be carried out.
The liability of the shareholders is limited to the payment of par
value of their ordinary shares.
Under the Israeli Companies Law, each and every shareholder has a duty
to act in good faith in exercising his rights and fulfilling his obligations
toward the Company and other shareholders and to refrain from abusing his power
in the Company, such as in voting at the General Meeting of shareholders on the
following matters: any amendment to the Articles; an increase of authorized
share capital; a merger; or an approval of certain actions and transactions
which require shareholder approval.
In addition, each and every shareholder has the general duty to refrain
from depriving other shareholders of their rights.
Furthermore, any controlling shareholder, any shareholder who knows
that it possesses the power to determine the outcome of a shareholder vote and
any shareholder that, pursuant to the provisions of the Articles, has the power
to appoint or to prevent the appointment of an officer in the Company or any
other power toward he Company is under a duty to act in fairness toward the
Company. The Israeli Companies Law does not describe the substance of this duty
of fairness. These various shareholder duties may restrict the ability of a
shareholder to act in what the shareholder perceives to be its own best
interests.
Modification of Rights of Shares
- --------------------------------
If the share capital is divided into different classes, the Company may
by resolution adopted at a General Meeting by a special majority (except if the
terms of the issuance of the shares of such class otherwise provide) annul,
convert, expand, supplement, restrict, amend or otherwise modify the rights of a
class of shares of the Company, provided that the consent, in writing, of all
the shareholders of such class thereto shall be received or that the resolution
shall have been approved by a General Meeting of the shareholders of such class
by special majority, or in the event that it was otherwise provided in the terms
of the issuance of a particular class of the shares of the Company, as may have
been provided in the terms of issuance of such class, provided that the quorum
at the class meeting shall be the presence, in person or by proxy, at the
opening of the meeting of at least two shareholders who own at least twenty five
percent (25%) of the number of the issued shares of such class.
The rights conferred upon the shareholders or owners of a class of
shares, whether issued with ordinary rights or with preference rights or with
other special rights, shall not be deemed to have been converted, restricted,
prejudiced or altered in any other manner by the creation or issuance of
additional shares of any class, whether of the same degree or in a degree
different or preferable to them, nor shall they be deemed to have been
converted, restricted, prejudiced or altered in any other manner by a change of
the rights linked to any other class of shares, all the aforesaid unless
otherwise expressly provided in the terms of the issuance of such shares.
Shareholders Meeting
- --------------------
The Company shall hold an Annual General Meeting each year not later
than fifteen months after the previous Annual Meeting, at such time and place as
may be determined by the Board. Any other General Meeting is referred to as a
"Special Meeting".
45
A notice of a General Meeting shall be published in at least two widely
distributed daily newspapers published in Hebrew. The notice shall be published
at least fourteen days prior to the convocation of the meeting. In addition the
Company provides a notice of the meeting and related proxy statement in English
to the holders of its Ordinary Shares listed on the records of the Company's
registrar and stock transfer agent in the United States.
Apart from the notices as to the General Meeting as above, according to
its articles and the Israeli Companies Law the Company is not required to give
any notice as to the General Meeting, either to the registered shareholders or
to shareholders who are not registered, subject to provisions of the Companies
Law and/or any other applicable law. The notice as to a General Meeting is
required to detail the place, the day and the hour at which the meeting will be
held and to include the agenda as well as a summary of the proposed resolutions
and any other details required by law.
The board of directors of the Company shall convene a Special Meeting
as may be decided by the Board, and shall also convene a special meeting at the
demand of any two directors or one quarter of the directors in office or one or
more shareholders who hold at least five percent of the issued capital and one
percent of the voting rights, or one or more shareholders who hold at least five
percent of the voting rights.
If the Board receives a demand for the convocation of a Special Meeting
as aforesaid, the Board shall within twenty one days of receipt of the demand
convene the meeting for a date fixed in the notice as to the Special Meeting,
provided that the date for convocation shall not be later than thirty five days
from the date of publication of the notice, all the aforesaid subject to the
provisions of the Companies Law.
In the resolution of the Board to convene a meeting, the Board may, at
its discretion and subject to the provisions of the law, fix the manner in which
the items on the agenda will be determined and notice given to the shareholders
entitled to participate at the meeting.
No business shall be transacted at any General Meeting unless a quorum
is present at the time the meeting proceeds to business. A quorum shall be
constituted when two shareholders, holding collectively at least twenty five
percent of the voting rights, are present in person or by proxy within half an
hour from the time appointed for commencement of the meeting, unless otherwise
determined in the Articles.
If a quorum is not present within half an hour, the meeting shall stand
adjourned for seven days, to the same day of the week at the same time and
place, without need for notification to the shareholders, or to such other day,
time and place as the Board may by notice to the shareholders appoint.
If a quorum is not present as aforesaid at the adjourned meeting, the
meeting shall be postponed.
Voting and Adopting Resolutions at General Meetings
- ---------------------------------------------------
A shareholder who wishes to vote at a General Meeting shall prove to
the Company his ownership of his shares. The Board may issue directives and
procedures relating to the proof of ownership of shares of the Company.
A shareholder is entitled to vote at a General Meeting or class
meeting, in person or by proxy. A voting proxy need not be a shareholder of the
Company.
46
The above shall also apply to any person entitled to shares, provided
that at least forty eight hours before the time for the meeting or the adjourned
meeting, as the case may be, at which he proposes to vote, he shall satisfy the
Board of his right to vote such shares unless the Company shall have previously
recognized his right to vote the shares at such meeting.
The instrument appointing a proxy (hereinafter "Proxy Appointment")
shall be in writing signed by the principal, or if the principal is a
corporation the proxy appointment shall be in writing and signed by authorized
signatories of the corporation;. The Board is entitled to demand that prior to
the holding of the meeting, there shall be produced to the Company a
confirmation in writing of the authority of signatories to bind the corporation
to the satisfaction of the Board. The Board may also issue provisions and
procedures relating to such matters.
The Proxy Appointment or an office copy to the satisfaction of the
Board shall be deposited at the registered office or at such other place or
places, in or outside of Israel, as may from time to time be determined by the
Board, either generally or in respect of a specific meeting, at least forty
eight hours prior to the commencement of the meeting or the adjourned meeting,
as the case may be, at which the proxy proposes to vote on the strength of such
Proxy Appointment.
A voting proxy is entitled to participate in the proceedings at the
General Meeting and to be elected as chairman of the meeting in the same manner
as the appointing shareholder, unless the Proxy Appointment otherwise provides.
The Proxy Appointment shall be in form usual in Israel or any other form which
may be approved by the Board.
Each ordinary share entitles the holder thereof to participate at a
General Meeting of the Company and to one vote at a poll.
Right of Non-Israeli Shareholders to Vote
- -----------------------------------------
There is no limitation on the right of non-resident or foreign owners
of any class of the Company's securities to hold or to vote according to the
rights vested in such securities.
Change of Control
- -----------------
Under the Articles, the approval of merger as provided in the Israeli
Companies Law, is subject to a simple majority at the General Meeting or class
meeting, as the case may be, all the aforesaid subject to the applicable
provisions of any law. It is also subject to the approval of the boards of the
merging companies.
For purposes of shareholders' approval, unless a court rules otherwise,
the merger will not be deemed approved if a majority of the shares held by
shareholders, other than the shareholders who are also shareholders in the other
merging company whose shares are held by the other merging company, or by any
person who holds 25% or more of the shares or the right to appoint 25% or more
of the directors in the other merging company, vote against the merger. Upon the
request of a creditor of either party to the proposed merger, a court may delay
or prevent the merger if it concludes that there exists a reasonable concern
that as a result of the merger, the surviving company will be unable to satisfy
the obligations of any of the parties to the merger. In addition, a merger may
not be completed unless at least 70 days have passed from the time that a
proposal of the merger has been filed with the Israeli Registrar of Companies.
47
The Israeli Companies Law also provides that an acquisition of shares
of a public company must be made by means of a tender offer if as a result of
the acquisition the purchaser would become a 25% shareholder of the company and
there is no existing 25% or more shareholder in the company. If there is no
existing 50% or greater shareholder in the company, the Companies Law provides
that an acquisition of shares of a public company must be made by means of a
tender offer if as a result of the acquisition the purchaser would become a 45%
shareholder of the company.
If following any acquisition of shares, the acquirer will hold 90% or
more of the company's shares, the acquisition may not be made other than through
a tender offer to acquire all of the shares of such class. If more than 95% of
the outstanding shares are tendered in the tender offer, all the shares that the
acquirer offered to purchase will be sold to it. However, the remaining minority
shareholders may seek to alter the consideration by court order.
Under the Israeli Securities Act 5728-1968, any major shareholder who
is the beneficial owner of more then 5% of the Company's equity capital or
voting securities is required to report this fact to the Israeli Securities
Authority.
C. MATERIAL CONTRACTS
------------------
During the two years preceding the date of this annual report, the
Company did not enter into any material contract.
D. EXCHANGE CONTROLS
-----------------
Foreign Exchange Regulations
----------------------------
There are no Israeli governmental laws, decrees or regulations that
restrict or that affect the export or import of capital, including but not
limited to, foreign exchange controls on remittance of dividends on the ordinary
shares or on the conduct of the Group's operations, except as otherwise set
forth in the paragraph below regarding taxation.
E. TAXATION
--------
Investors are advised to consult their tax advisors with respect to the
tax consequences of their purchases, ownership and sales of Ordinary Shares,
including the consequences under applicable state and local law and federal
estate and gift tax law, and the application of foreign laws or the effect of
nonresident status on United States taxation. This tax summary does not address
all of the tax consequences to the investors of purchasing, owning or disposing
of the Ordinary Shares.
48
Income Taxes on Dividends Distributed by the Company to Non-Israeli Residents
- -----------------------------------------------------------------------------
Subject to the provisions of applicable tax treaties, dividend
distributions from regular profits by the Company to a non-resident shareholder
are subject to withholding tax of 25%. The portion of dividends paid out of
profits earned by an Approved Enterprise of the Company is subject to
withholding tax at the rate of 15%.
The same rates generally apply under the Israeli-U.S. Tax Treaty.
However, when a U.S. tax resident corporation is the recipient of the dividend,
the rate on a dividend out of regular (non-Approved Enterprise) profits may be
reduced to 12.5% under the treaty, where the following conditions are met:
(a) the recipient corporation owns at least 10% of the outstanding voting
rights of the Company for all of the period preceding the dividend
during the Company's current and prior taxable year; and
(b) generally not more than 25% of the gross income of the paying
corporation for its prior tax year consists of certain interest and
dividend income.
Otherwise, the usual rates apply.
United States individual citizens and residents and U.S. corporations
generally will be required to include in their gross income the full amount of
dividends received from the Company with respect to the Ordinary Shares owned by
them, including the amount withheld as Israeli income tax. Subject to the
limitations and conditions provided in the Internal Revenue Code of 1986, as
amended (the "Code"), such persons may be eligible to claim a credit for such
withheld amounts against their United States federal income tax liability. As an
alternative, the persons enumerated above (provided such persons, in the case of
individual taxpayers, itemize their deductions) may elect to deduct such
withheld tax from their gross income in determining taxable income (subject to
applicable limitations on the deductions claimed by individuals). However, such
a credit or deduction may be limited for U.S. alternative minimum tax purposes,
depending on the taxpayer's specific circumstances.
Dividend payments on the Ordinary Shares will not be eligible for a
dividends received deduction generally allowed to United States corporations
under the Code.
Capital Gains and Income Taxes Applicable to Non-Israeli Shareholders
- ---------------------------------------------------------------------
Israeli law generally imposes a capital gains tax on the sale of
securities and any other capital assets. The basic tax rate applicable to
corporations is currently 36%. The maximum tax rate for individuals is 50%.
These rates are subject to the provisions of any applicable bilateral double
taxation treaty.
Effective January 1, 2003, the capital gains tax rate imposed upon sale
of capital assets acquired after that date has been reduced to 25%; capital
gains accrued from assets acquired before that date are subject to a blended tax
rate based on the relative Periods of time before and after that date that the
asset was held.
49
In addition, if the ordinary shares are traded on the Tel Aviv Stock
Exchange (or listed on a stock exchange recognized by the Israeli Ministry of
Finance), gains on the sale of ordinary shares held by non-Israeli tax resident
investors will generally be exempt from Israeli capital gains tax.
Notwithstanding the foregoing, dealers in securities in Israel are taxed at
regular tax rates applicable to business income.
The U.S. Israeli Tax Treaty exempts U.S. residents who hold an interest
of less than 10% in an Israeli company, and who held an interest of less than
10% during the 12 months prior to a sale of their shares, from Israeli capital
gains tax in connection with such sale. Certain other tax treaties to which
Israel is a party also grant exemptions from Israeli capital gains taxes.
F. DIVIDENDS AND PAYING AGENTS
---------------------------
Not applicable to Annual Reports.
G. STATEMENT BY EXPERT
-------------------
Not applicable to Annual Reports.
H. DOCUMENTS ON DISPLAY
--------------------
A copy of each document (or a translation thereof to the extent not in
English) concerning the Company that is referred to in this Annual Report on
Form 20-F, is available for public view at our principal executive offices at
American Israeli Paper Mills Ltd., 1 Meizer Street Industrial Zone, Hadera
38100, Israel. Copies of this Annual Report and the exhibits hereto may be
inspected and copied at the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20549 and at the SEC's regional office at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the materials may be
obtained from the Public Reference Room of the SEC at 450 Fifth Street, NW,
Washington, D.C. 20549 at prescribed rates. The public may obtain information on
the operation of the SEC's Public Reference Room by calling the SEC in the
United States at 1-800-SEC-0330.
50
ITEM 11
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Due to its operations, AIPM is exposed to market risks, consisting
primarily of changes in interest rates - on both short and long-term loans,
changes in exchange rates (primarily NIS/$) and changes in raw material prices,
which are denominated primarily in foreign currency. These changes possess an
influence on AIPM's results.
AIPM's Board of Directors determines the policy according to which
financial instruments are employed and defines the objectives to be attained,
primarily on account of the exposure derived from the Group's linkage balance
sheets on account of the surplus of financial assets denominated in NIS.
Such exposure, to the extent that it exists, may create a loss in the
dollar-denominated financial statements of the Group companies. Pursuant to the
Board of Directors' decision, the maximum exposure of the surplus assets
denominated in NIS as detailed above, on account of which no hedging will be
made, is equal to NIS 57 million ($12 million). Due to the fact that as of
December 31, 2002, AIPM possessed a surplus of shekel liabilities (as opposed to
the aforesaid surplus assets), no hedging was necessary.
AIPM conducts calculations of exposure every month and examines the
compliance with the policy determined by the Board of Directors.
Furthermore, limited use is made of derivative financial instruments,
which AIPM employs for hedging the cash flows in dollars, originating from the
existing assets and liabilities.
Such transactions are conducted primarily through currency options and
forward transactions opposite Israeli banking institutions. AIPM therefore
believes that the inherent credit risk of these transactions is immaterial. As
of December 31, 2002, AIPM was not involved in any forward transactions.
Credit Risks
- ------------
Most of the Group's sales are made in Israel to a large number of
customers and the exposure to customer-related credit risks is consequently
generally limited. The Group regularly analyzes - through credit committees that
operate within the various companies - the quality of the customers, their
credit limits and the relevant collateral required, as the case may be.
The financial statements include provisions for doubtful debts, based
on the existing risks on the date of the statements.
The cash, cash equivalents and fixed-term deposits are primarily
deposited with large Israeli banking institutions or foreign banks controlled by
the said institutions.
AIPM possesses CPI-linked long-term loans (bonds and loans) in the
total sum of NIS 48.3 million ($10.2 million), with the interest thereupon being
no higher than the market interest rate. In the event that the inflation rate
should rise and be considerably higher than the rate of devaluation of the
shekel against the dollar, this could lead to a loss being recorded in AIPM's
financial statements as a result of a surplus of CPI-linked liabilities.
51
See also Note 13 to the Consolidated Financial Statements for 2002,
regarding financial instruments and risk management.
Derivative Financial Instruments
- --------------------------------
The Company has only limited involvement with derivative financial
instruments. The Company uses these instruments as hedges. The Company utilizes
derivatives, mainly forward exchange contracts and currency options, to protect
its dollar cash flows in respect of existing assets and liabilities or
commitments that are to be affected by changes in exchange rates or in the
Israeli CPI. As the counter-parties to these derivatives are Israeli banks, the
Company considers the inherent credit risks remote. As of December 31, 2002,
there were no balances regarding transactions in derivative financial
instruments.
Fair Value of Financial Instruments
- -----------------------------------
The fair value of financial instruments included in working capital of
the Group is usually identical or close to their carrying value. The fair value
of long-term bank loans and other liabilities also approximates the carrying
value, since they bear interest at rates close to the prevailing market rates
except for as follows:
The fair value of long-term loans and capital notes, included under
investments in associated companies, aggregating adjusted NIS 61,864,000 and of
a capital note to an associated company in the amount of adjusted NIS
32,770,000. Their value cannot be reliably determined prior to determining their
repayment dates.
52
Quantitative Information Regarding Market Risk
- ----------------------------------------------
The following are the balance-sheet components by linkage bases at
December 31, 2002:
- ------------------------------------------------------------------------------------------------------------------------------
LINKED TO IN, OR LINKED TO, NON- TOTAL
THE ISRAELI FOREIGN CURRENCY MONETARY
(IN NIS MILLIONS) UNLINKED CPI (MAINLY THE $) ITEMS
----------------- -------- --- -------------- -----
ASSETS
CASH AND CASH EQUIVALENTS 2.8 3.1 5.9
RECEIVABLES - NET OF CURRENT MATURITIES 207.3 52.9 15.4 275.6
INVENTORIES 97.9 97.9
INVESTMENTS IN ASSOCIATED COMPANIES -
INCLUDING CURRENT MATURITIES 5.0 9.5 47.4 343.7 405.6
FIXED ASSETS - NET 352.5 352.5
DEFERRED CHARGES, NET OF
ACCUMULATED AMORTIZATION 0.6 0.6
TOTAL ASSETS 215.1 9.5 103.4 810.1 1,138.1
LIABILITIES
LOANS FROM BANKS 85.6 1.2 26.9 113.7
ACCOUNTS PAYABLES AND ACCRUALS 171.5 3.4 174.9
DEFERRED INCOME TAXES 63.0 63.0
NOTES 47.1 47.1
OTHER LIABILITIES 32.8 2.4 35.2
SHAREHOLDERS' EQUITY 704.2 704.2
TOTAL LIABILITIES AND EQUITY 289.9 48.3 32.7 767.2 1,138.1
EXCESS OF MONETARY ASSETS (LIABILITIES)
AS OF DECEMBER 31, 2002 (74.8) (38.8) 70.7 42.9 --
- ------------------------------------------------------------------------------------------------------------------------------
53
ITEM 12
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable to Annual Reports
ITEM 13
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
NONE
ITEM 14
MATERIAL MODIFICATIONS TO THE RIGHTS OF
SECURITY HOLDERS AND USE OF PROCEEDS
NONE
ITEM 15
CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
periodic filings with the SEC is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including the Company's Chief Executive Officer (CEO - the Company's senior
executive officer) and Chief Financial Officer (CFO - the Company's senior
financial officer), as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. Furthermore, management necessarily was required to
use its judgment in evaluating the cost to benefit relationship of possible
disclosure controls and procedures. Within 90 days prior to the date of this
report, the Company performed an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. The
evaluation was performed with the participation of senior management of each
business segment and key corporate functions, and under the supervision of the
CEO and CFO. Based on the evaluation, the Company's management, including the
CEO and CFO, concluded that the Company's disclosure controls and procedures
were effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
after the date the Company completed the evaluation.
54
PART III
ITEM 18
FINANCIAL STATEMENTS
AMERICAN ISRAELI PAPER MILLS LIMITED
2002 CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
AUDITORS' REPORT 2
CONSOLIDATED FINANCIAL STATEMENTS -
IN ADJUSTED NEW ISRAELI SHEKELS (NIS):
Balance sheets 3-4
Statements of income 5
Statements of changes in shareholders' equity 6
Statements of cash flows 7-9
Notes to financial statements 10-41
SCHEDULE - DETAILS OF SUBSIDIARIES AND
ASSOCIATED COMPANIES 42
--------------
------------------------------
--------------
AUDITORS' REPORT
To the shareholders of
AMERICAN ISRAELI PAPER MILLS LIMITED
We have audited the consolidated balance sheets of American Israeli Paper Mills
Limited (hereafter - the Company) and its subsidiaries as of December 31, 2002
and 2001 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's board of directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We did not audit the financial statements of certain subsidiaries, whose
turnover included in consolidation constitutes approximately 25% of total
consolidated turnover for the year ended December 31, 2000. Also, we did not
audit the financial statements of certain associated companies, the Company's
interest in which as reflected in the balance sheets as of December 31, 2002 and
2001 is adjusted NIS 308.5 million and adjusted NIS 321.5 million, respectively,
and the Company's share in excess of profits over losses of which is a net
amount of adjusted NIS 11.0 million, adjusted NIS 20.5 million and adjusted NIS
30.1 million for the years ended December 31, 2002, 2001 and 2000, respectively.
The financial statements of those companies were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for those companies, is based solely on the reports of the
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the United States, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 1973. 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 and the reports of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company and its subsidiaries as of
December 31, 2002 and 2001 and the consolidated results of operations, changes
in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted ("GAAP") in Israel. Furthermore, in our opinion, the financial
statements referred to above have been prepared in accordance with the Israeli
Securities (Preparation of Annual Financial Statements) Regulations, 1993.
As explained in note 1b, the financial statements referred to above are
presented in values adjusted based on the changes in the exchange rate of the
U.S. dollar, in accordance with the pronouncements of the Institute of Certified
Public Accountants in Israel.
Kesselman & Kesselman
Tel-Aviv, Israel
March 12, 2003
Kesselman & Kesselman is a member of PricewaterhouseCoopers International Ltd.
AUDITORS' REPORT TO THE SHAREHOLDERS
OF
TMM INTEGRATED RECYCLING INDUSTRIES LTD.
We have audited the accompanying balance sheet of TMM INTEGRATED RECYCLING
INDUSTRIES LTD. ("the Company") and the consolidated balance sheet of the
Company and its subsidiaries as of December 31, 2002, together with the related
statements of operations, changes in shareholders' equity, and cash flows -
Company and consolidated - for the year ended December 31, 2002. These financial
statements are the responsibility of the Company's Board of Directors and
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
The financial statements as of December 31, 2001 and for each of the two years
in the period then ended were audited by other auditors whose report dated March
4, 2002, expressed an unqualified opinion in those financial statements.
We did not audit the financial statements of subsidiaries whose assets
constitute approximately 8.4% of consolidated total assets as of December 31,
2002 and whose revenues constitute approximately 11.0% of total consolidated
revenues for the year then ended. Those financial statements were audited by
other auditors whose reports were furnished to us, and our opinion, insofar as
it relates to the amounts included for those companies, was based solely on the
reports of such other auditors.
We conducted our audit in accordance with generally accepted auditing standards
in Israel, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance), 1973. 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 Board of Directors and management, as well as evaluating
the overall financial statement presentation. We believe that our audit and the
reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position - of the Company and on a consolidated basis - as of
December 31, 2002, and the results of operations, changes in shareholders'
equity, and cash flows - of the Company and on a consolidated basis - for the
year then ended, in conformity with generally accepted accounting principles in
Israel.
As described in Note 2A, the financial statements referred to above are
presented in values adjusted for the changes in the general purchasing power of
the Israeli currency, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel.
LUBOSHITZ KASIERER
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
Tel-Aviv, February 26, 2003
Tel Aviv, February 26, 2003
TMM Integrated Recycling Industries Ltd.
Tel Aviv
Dear Sir/Madam
We have audited the attached "U.S. GAAP Adjustments Report" of TMM Integrated
Recycling Industries Ltd. for the year ended December 31, 2002 ("the report").
The report is the responsibility of the Company's management. Our responsibility
is to express an opinion on the report based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Israel. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the report is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the report. An audit also includes assessing the accounting
principles used and significant estimates made by the Board of Directors and
management, as well as evaluating the overall report presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the report referred to above presents fairly, in all material
respects, the data included therein, on the basis described therein.
Yours sincerely,
LUBOSHITZ KASIERER
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
AUDITORS' REPORT TO THE SHAREHOLDERS
OF
BARTHELEMI HOLDINGS LTD.
We have audited the accompanying balance sheet of BARTHELEMI HOLDINGS LTD. ("the
Company") as of December 31, 2002, and the related statements of operations and
changes in shareholders' equity for the year then ended. These financial
statements are the responsibility of the Company's Board of Directors and
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements as of December 31, 2001
and for the year then ended were audited by other auditors whose report dated
March 4, 2002 expressed a qualified opinion due to the non-inclusion of
consolidated financial statements.
We conducted our audit in accordance with generally accepted auditing standards
in the United States and in Israel, including those prescribed under the
Auditors' Regulations (Auditor's Mode of Performance), 1973. 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 Board of
Directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
Consolidated financial statements of the Company and its subsidiaries have not
been included in the accompanying financial statements.
In our opinion, except for the matter described above, the financial statements
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2002, and the results of its
operations and changes in shareholders' equity for the year then ended, in
conformity with generally accepted accounting principles in Israel.
As described in Note 2A, the financial statements referred to above are
presented in values adjusted for the changes in the general purchasing power of
the Israeli currency, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel.
LUBOSHITZ KASIERER
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
Tel-Aviv, March 10, 2003
Tel Aviv, March 10, 2003
Barthelemi Holdings Ltd.
10 Dovnov Street
Tel Aviv
Dear Sir/Madam
We have audited the attached "U.S. GAAP Adjustments Report" of Barthelemi
Holdings Ltd. for the year ended December 31, 2002 ("the report"). The report is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the report based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Israel. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the report is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the report. An audit also includes assessing the accounting
principles used and significant estimates made by the Board of Directors and
management, as well as evaluating the overall report presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the report referred to above presents fairly, in all material
respects, the data included therein, on the basis described therein.
Yours sincerely,
LUBOSHITZ KASIERER
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF
CARMEL CONTAINER SYSTEMS LTD.
We have audited the accompanying consolidated balance sheets of Carmel
Container Systems Ltd. ("the Company") and its subsidiaries as of December 31,
2001 and 2002, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We did not audit the financial statements of certain subsidiaries, whose
assets included in the consolidation constitute approximately 20% and 10% of
total consolidated assets as of December 31, 2001 and 2002, respectively, and
whose revenues included in the consolidation constitute approximately 30%, 29%
and 9% of total consolidated revenues for each of the three years ended December
31, 2000, 2001 and 2002, respectively. The financial statements of those
companies were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to amounts included for those
companies is based on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Israel, including those prescribed by the
Israeli Auditors' Regulations (Auditor's Mode of Performance), 1973. 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
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2001 and 2002, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in Israel, which differ in certain respects from those followed in the United
States (see Note 21 to the consolidated financial statements).
As explained in Note 2, the consolidated financial statements referred to
above have been prepared on the basis of historical cost adjusted to reflect the
changes in the general purchasing power of the Israeli currency, in accordance
with pronouncements of the Institute of Certified Public Accountants in Israel.
Tel-Aviv, Israel KOST FORER & GABBAY
March 4, 2003 A Member of Ernst & Young Global
ERNST & YOUNG KOST FORER & GABBAY Phone: 972-3-6232525
3 Aminadav St. Fax: 972-3-5622555
Tel-Aviv 67067, Israel
Messrs. American Israel Paper Mills Ltd.
- ----------------------------------------
Re: Consolidated financial statements of Carmel Container
Systems Ltd. ("the Company") translated into U.S. dollars
---------------------------------------------------------
As you know, the Company publishes for the public in the United States
consolidated financial statements in NIS adjusted to the changes in the Consumer
Price Index, in accordance with pronouncements of the Institute of Certified
Public Accountants in Israel. These primary annual consolidated financial
statements of the Company as of December 31, 2001 and 2002, which were audited
by us, and on which we expressed our opinion, have been furnished to you. The
primary annual consolidated financial statements differ in certain respects from
these followed in the United States (see note 21 to the primary financial
statements)
We have audited the accompanying nominal NIS consolidated balance sheets of
the Company and its subsidiaries as of December 31, 2001 and 2002, and the
related nominal NIS consolidated statements of operations and changes in equity
(which include comprehensive income) for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's board of directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We did not audit the financial statements of certain subsidiaries, whose
assets included in consolidation constitute approximately 19% and 9% of total
consolidated assets as of December 31, 2001 and 2002, respectively, and whose
revenues included in consolidation constitute approximately 30%, 29% and 9% of
total consolidated revenues for each of the years ended December 31, 2000, 2001
and 2002, respectively. The financial statements of those companies were audited
by other auditors, whose reports have been furnished to us, and our opinion,
insofar as it relates to amounts included for those companies, is based on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards, in the United States and in Israel, including those prescribed by the
Israeli Auditors' Regulations (Auditor's Mode of Performance), 1973. 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 and the reports of
other auditors provide a reasonable basis for our opinion.
The nominal NIS consolidated financial statements, referred to above, have
been prepared on the basis of nominal NIS historical cost. Disclosure of the
effect of the changes in the general purchasing power of the Israeli currency on
the consolidated financial statements, as stated in the pronouncements of the
Institute of Certified Public Accountants in Israel, has not been included in
the financial statements referred to above.
Full financial statement disclosures and statements of cash flows that are
required by generally accepted accounting principles in Israel have not been
presented and therefore, the nominal NIS consolidated financial statements
referred to above are to be read in conjunction with the primary annual audited
consolidated financial statements of the Company, as of December 31, 2002, and
their accompanying Notes.
In our opinion, based on our audits and the reports of the other auditors,
except for the effects of the matters discussed in the preceding paragraphs, the
nominal NIS consolidated financial statements referred to above present fairly,
in all material respects, the nominal NIS consolidated financial position of the
Company and its subsidiaries as of December 31, 2001 and 2002, and the related
nominal NIS consolidated statements of operations, changes in equity (which
include comprehensive income) for each of the three years in the period ended
December 31, 2002, in conformity with generally accepted accounting principles
in Israel which differ in certain respect from those followed in the United
states as described in Note 21 to the primary annual consolidated financial
statements.
Also, these nominal NIS consolidated financial statements have been
translated into U.S. dollars, on the basis described in Note 3, and, in our
opinion, the translation of the aforementioned nominal figures into U.S. dollars
was made in accordance with the principles set forth in SFAS 52. At your request
the cumulative translation adjustments are presented as other comprehensive
loss.
Tel-Aviv, Israel KOST FORER & GABBAY
March 4, 2003 A Member of Ernst & Young Global
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
DECEMBER 31
-----------
NOTE 2002 2001
---- ---- ----
IN THOUSANDS
------------
A S S E T S 9
CURRENT ASSETS: 8
Cash and cash equivalents 1n 5,906 3,846
Accounts receivable: 10a
Trade 142,506 126,210
Other 142,673 135,046
Inventories 10b 97,893 127,732
-------- --------
T o t a l current assets 388,978 392,834
-------- --------
INVESTMENTS IN ASSOCIATED COMPANIES 2;8 396,091 408,033
-------- --------
FIXED ASSETS: 3
Cost 1,006,640 981,369
L e s s - accumulated depreciation 654,165 644,762
-------- --------
352,475 336,607
-------- --------
DEFERRED CHARGES,
net of accumulated amortization 1h 594 684
-------- --------
T o t a l assets 1,138,138 1,138,158
======== ========
/S/ YAKI YERUSHALMI
----------------------------------------------------------------------
YAKI YERUSHALMI
CHAIRMAN OF THE BOARD OF DIRECTORS AND GENERAL MANAGER
/S/ SHMUEL ROTEM
-----------------------------------------------------------------------
SHMUEL ROTEM
DIRECTOR
Date of approval of the financial statements: March 12, 2003.
2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
DECEMBER 31
-----------
NOTE 2002 2001
---- ---- ----
IN THOUSANDS
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: 8
Credit from banks 10c 113,272 121,465
Current maturities of long-term notes 4b 6,722 6,757
Accounts payable and accruals:
Trade 107,370 95,276
Other 10d 67,575 84,999
-------- -------
T o t a l current liabilities 294,939 308,497
-------- -------
LONG-TERM LIABILITIES:
Deferred income taxes 7g 63,030 57,199
Loans and other liabilities
(net of current maturities): 4;8
Loans from banks 384 1,141
Notes 40,421 47,400
Other liabilities 35,196 37,578
-------- -------
T o t a l long-term liabilities 139,031 143,318
-------- --------
COMMITMENTS 9
-------- --------
T o t a l liabilities 433,970 451,815
-------- --------
SHAREHOLDERS' EQUITY: 6
Share capital (ordinary shares of NIS 0.01 par
value: authorized - 20,000,000 shares; issued and
paid: December 31, 2002 and 2001 - 3,918,710
Shares) 135,496 135,496
Capital surplus 97,423 97,423
Currency adjustments in respect of financial statements
of associated companies (3,767) (3,435)
Retained earnings 475,016 456,859
-------- --------
704,168 686,343
-------- --------
T o t a l liabilities and shareholders' equity 1,138,138 1,138,158
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
IN ADJUSTED NEW ISRAELI SHEKELS
NOTE 2002 2001 *2000
---- ---- ---- -----
IN THOUSANDS
------------
SALES - net 10e;14 493,036 508,109 806,930
COST OF SALES 10f 393,511 415,203 614,877
-------- -------- --------
GROSS PROFIT 99,525 92,906 192,053
-------- -------- --------
SELLING, MARKETING, ADMINISTRATIVE
AND GENERAL EXPENSES: 10g
Selling and marketing 31,552 34,527 73,274
Administrative and general 28,539 36,175 50,400
-------- -------- --------
60,091 70,702 123,674
-------- -------- --------
INCOME FROM ORDINARY OPERATIONS 39,434 22,204 68,379
FINANCIAL INCOME (EXPENSES) - net 10i (3,231) **5,520 **(8,822)
OTHER INCOME (EXPENSES) :
Loss on termination of activities and disposal of
assets 10h (3,183)
Gain on decrease in holding of an activity consolidated
in the past, due to share issuance to a third party 2d 23,142
Gain on sale of part of the investment in companies
consolidated in the past 2e 22,838
Gain on issuance of shares of an associated company to a
third party 1,184
-------- -------- --------
INCOME BEFORE TAXES ON INCOME 33,020 28,908 105,537
TAXES ON INCOME 7 10,592 **7,883 **42,259
-------- -------- --------
INCOME FROM OPERATIONS OF THE
COMPANY AND ITS SUBSIDIARIES 22,428 21,025 63,278
SHARE IN PROFITS OF ASSOCIATED
COMPANIES - net 2 18,095 16,238 38,980
MINORITY INTEREST IN PROFITS OF
SUBSIDIARIES (10,909)
-------- -------- --------
NET INCOME FOR THE YEAR 40,523 37,263 91,349
======== ======== ========
ADJUSTED NIS
------------
NET INCOME PER NIS 1 OF PAR VALUE
OF SHARES 10; 11 1,024 944 2,312
======== ======== ======
* In 2000, the results of operations of Hogla-Kimberly Ltd. are included
until March 31, 2000 (see note 2e).
** Reclassified.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
AMERICAN ISRAELI PAPER MILLS LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN ADJUSTED NEW ISRAELI SHEKELS
CURRENCY
ADJUSTMENTS
RESPECT TO
FINANCIAL
CAPITAL STATEMENTS OF RETAINED
SHARE CAPITAL SURPLUS ASSOCIATED COMPANIES EARNINGS TOTAL
------------- ------------ -------------------- -------- -----
IN THOUSANDS
-----------------------------------------------------------------------------
BALANCE AT JANUARY 1, 2000 135,496 98,012 386,260 619,768
CHANGES IN 2000:
Net income 91,349 91,349
Dividend paid (58,013) (58,013)
Exercise of employee options into shares * *
Increase in value of capital note issued to a
subsidiary - in respect of minority share (589) (589)
======= ====== ====== ======= =======
BALANCE AT DECEMBER 31, 2000 135,496 97,423 419,596 652,515
CHANGES IN 2001:
Net income 37,263 37,263
Exercise of employee options into shares * *
Currency adjustments in respect of financial
statements of associated companies (3,435) (3,435)
======= ====== ====== ======= =======
BALANCE AT DECEMBER 31, 2001 135,496 97,423 (3,435) 456,859 686,343
CHANGES IN 2002:
Net income 40,523 40,523
Dividend paid (22,366) (22,366)
Currency adjustments in respect of financial
statements of associated companies (332) (332)
======= ====== ====== ======= =======
BALANCE AT DECEMBER 31, 2002 135,496 97,423 (3,767) 475,016 704,168
======= ====== ====== ======= =======
* Represents an amount less than adjusted NIS 1,000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
(Continued) - 1
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
2002 2001 2000(D)
---- ---- -------
IN THOUSANDS
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year 40,523 37,263 91,349
Adjustments to reconcile net income to
net cash provided by operating activities (a) 42,964 (16,370) 24,183
-------- -------- --------
Net cash provided by operating activities 83,487 20,893 115,532
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (50,634) (32,486) (82,550)
Associated companies:
Acquisition of shares and granting of loans (3,572) (4,399) (30,928)
Collection of long-term loans 2,665 1,757
Proceeds from sale of fixed assets 10,524 1,553 2,581
Proceeds from sale of an activity to an associated company (b) 142,110
Reduction in cash due to deconsolidation of subsidiaries (c) (65,480)
-------- -------- --------
Net cash used in investing activities (43,682) (32,667) (32,510)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term loans from banks and others (1,123) (1,156) (1,374)
Redemption of notes (6,447) (7,243) (7,139)
Dividend paid (22,366) (58,013)
Short-term credit from banks - net (7,809) 19,423 (131,562)
-------- -------- --------
Net cash provided by (used in) financing activities (37,745) 11,024 (198,088)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,060 (750) (115,066)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,846 4,596 119,662
-------- -------- --------
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF YEAR 5,906 3,846 4,596
======== ======== ========
6
(Continued) - 2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
2002 2001 2000(D)
---- ---- -------
IN THOUSANDS
----------------------------------------
(A) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Income and expenses not involving cash flows:
Minority interest in profits of subsidiaries 10,909
Share in profits of associated companies (18,095) (16,238) (38,980)
Dividend received from associated company 23,638 23,638
Depreciation and amortization 29,001 31,763 36,077
Deferred income taxes - net 4,006 7,883 5,500
Capital losses (gains) on:
Sale of fixed assets (148) 24 (223)
Loss on termination of activities and disposal of assets - net 1,455
Gain on issuance of shares in an associated company to a
third party - net (1,184) (5,746)
Gain on sale of part of the investment in company
consolidated in the past - net (15,982)
Linkage and exchange differences on (erosion of)
principal of long-term loans from banks and others - net (18) (189) 96
Linkage differences on (erosion of) principal of Notes (567) (4,218) 1,883
Erosion of (linkage differences on) principal of
long-term loans to associated companies 165 817 (138)
Linkage differences on a long-term capital note granted to
an associated company (2,382) (3,262) (308)
------- ------- -------
37,055 15,396 16,726
------- ------- -------
Changes in operating asset and liability items:
Decrease (increase) in trade receivables (16,296) 26,071 138,210
Decrease (increase) in other receivables 3,672 (130) (71,188)
Decrease (increase) in inventories 23,863 (4,660) (13,609)
Increase (decrease) in trade payables 12,094 (34,223) (19,812)
Decrease in other payables and accruals (17,424) (18,824) (26,144)
------- ------- -------
5,909 (31,766) 7,457
------- ------- -------
42,964 (16,370) 24,183
======= ======= =======
(B) PROCEEDS FROM SALE OF ACTIVITIES TO AN ASSOCIATED COMPANY, SEE ALSO
NOTES 2D: Assets and liabilities of the activities sold at date of sale:
Working capital (excluding cash and cash equivalents) - net 115,774
Fixed assets - net 113,944
Deferred income taxes - net (26,149)
Capital gain on issuance of shares in an associated
company to a third party - net 5,746
Investment in associated companies:
Investment in associated companies - net (22,483)
Long-term loans - net (44,722)
-------
142,110
=======
7
(Concluded) - 3
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
2002 2001 2000(D)
---- ---- -------
IN THOUSANDS
---------------------------------------------
(C) REDUCTION IN CASH DUE TO DECONSOLIDATION OF SUBSIDIARIES,
SEE ALSO NOTE 2E:
Assets and liabilities of former subsidiaries at date of sale:
Working capital (excluding cash and cash equivalents) 99,071
Fixed-term deposits 85,266
Fixed assets - net 179,962
Goodwill, net of accumulated amortization 42,813
Long-term liabilities (85,266)
Minority interest (211,835)
Deferred income taxes - net (22,971)
Gain on sale of part of the investment in companies
consolidated in the past -net 15,982
Investment in associated companies:
Investment in associated companies - net (207,060)
Capital note from an associated company 38,558
-------
(65,480)
=======
(D) In 2000, includes the operations of Holga-Kimberly Ltd,
until March 31, 2000 - see note 2e
SUPPLEMENTARY CASH FLOW INFORMATION - cash paid during the year for:
Income taxes 28,895 9,520 12,240
====== ======= =======
Interest 10,643 11,379 8,370
====== ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies, applied on a consistent basis, are
as follows:
A. GENERAL:
1) Activities of the Group
American Israeli Paper Mills Limited (hereafter - the
Company) and its subsidiaries and associated companies
(hereafter - the Group) are mainly engaged in the
production and sale of paper and paper products,
including paper recycling activities and handling solid
waste. Certain companies are engaged in the marketing of
office supplies and in the sale of products produced by
others (some of which are not paper or paper products).
Most of the Group's sales are made to the local market
(Israel). As to information by operating segments, see
note 14.
2) Use of estimates in the preparation of financial
statements
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported
amounts of revenues and expenses during the reporting
years. Actual results could differ from those estimates.
3) Definitions:
Subsidiaries - companies in which the Company has control
and the financial statements of which are included in
consolidation.
Associated companies - companies (which are not
subsidiaries) in which the Company holds 20% or more of
the voting rights and rights to profits. The investments
in these companies are accounted for by the equity
method.
Interested parties - as defined in the Israeli Securities
(Preparation of Annual Financial Statements) Regulations,
1993.
B. ADJUSTED FINANCIAL STATEMENTS:
1) The Company and its subsidiaries maintain their accounts
in nominal new Israeli shekels ("NIS") and in U.S.
dollars ("dollars"). All the figures in the financial
statements are presented in values adjusted for the
changes in the exchange rate of the dollar (rather than
the changes in the Israeli consumer price index;
hereafter - Israeli CPI), as permitted by Opinion 36 of
Institute of Certifies Public Accountants in Israel
(hereafter - the Israeli Institute), for companies whose
securities are traded on a foreign stock exchange; the
Company's shares are traded on the American Stock
Exchange ("AMEX").
9
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
The adjusted NIS data are the product of the data in
dollar terms multiplied by the representative exchange
rate of the dollar at December 31, 2002 - $1 = NIS 4.737
(see also note 8b).
2) Non-monetary balance sheet items (mainly fixed assets,
inventories and deferred charges, and shareholders'
equity items derived from cash flow from shareholders)
have been adjusted on the basis of the changes in the
exchange rate of the dollar since the related
transactions were carried out. The income statement
components relating to these non-monetary balance sheet
items have been adjusted on the same basis as the related
balance sheet items.
Investments in some of the associated companies (the
activities of which are an integral part of the Company's
activities) and the Company's share in their operating
results have been determined based on their financial
statements, which are adjusted on the basis of changes in
the exchange rate of the dollar. As to associated
companies the financial statements of which are adjusted
on the basis of the changes in the Israeli CPI, see (4)
below.
The components of the statements of income (except
financing) relating to transactions carried out in the
reported year - sales, purchases, labor costs, etc. -
have been adjusted on the basis of the exchange rates in
effect on transaction dates.
Financial income and expenses represent such income and
expenses in real terms and the erosion of balances of
monetary items during the year.
3) The amounts of non-monetary items do not necessarily
represent realizable value or any other economic value,
but only their original historical values adjusted on
basis of the changes in the exchange rate of the dollar.
In these financial statements, the term "cost" signifies
cost in adjusted NIS.
4) Associated companies whose financial statements are
adjusted on the basis of the changes in the Israeli CPI.
For purposes of inclusion on the equity basis, the
amounts included in the financial statements of the above
associated companies operating independently were treated
as follows:
Balance sheet items at the end of the year and the
results of operations for the year reflect the amounts
presented in the financial statements of such companies.
Balance sheet items at the beginning of the year and
changes in shareholders' equity items during the year
were adjusted on the basis of the changes in the exchange
rate of the dollar at the beginning of the year or at the
date of each change, respectively, through the end of the
year. Any differences resulting from the treatment
described above were carried to the adjusted
shareholders' equity under a separate item ("currency
adjustments in respect of financial statements of
associated companies").
10
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
C. PRINCIPLES OF CONSOLIDATION:
1) The consolidated financial statements include the
accounts of the Company and its subsidiaries. A list of
the main subsidiaries is presented in a schedule to the
financial statements.
2) Intercompany transactions and balances, as well as
intercompany profits on sales which have not been
realized outside the Group, have been eliminated.
D. INVENTORIES
Raw materials and supplies, finished goods, purchased products
and maintenance and sundry stores are valued at the lower of
cost or market (net of processing costs and after deduction of
a provision for obsolescence, where appropriate), cost is
determined on the moving average basis.
E. INVESTMENTS IN ASSOCIATED COMPANIES:
1) The investments in these companies are accounted for by
the equity method. Profits on intercompany sales, not yet
realized outside the Group, have been eliminated.
2) The excess of cost of the investment in associated
companies over the equity in net assets at time of
acquisition ("excess of cost of investment") or the
excess of equity in net assets of associated companies at
time of acquisition over the cost of their acquisition
("negative excess of cost of investment") represent the
amount not attributed to specific assets and liabilities.
The excess of cost of investment and the negative excess
of cost of investment are presented at their net amount
and are amortized in equal annual installments over a
period of up to 10 years, commencing in the specific year
of each individual acquisition.
F. FIXED ASSETS:
1) Fixed assets are stated at cost, net of related
investment grants.
2) Fixed assets of own manufacture are stated at cost, based
on the direct costs with the addition of an appropriate
portion of related production costs.
3) Borrowing costs in respect of credit applied to finance
the construction of the fixed assets - during the period
until construction is completed - are charged to cost of
such assets.
11
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
4) The assets are depreciated by the straight-line method on
basis of their estimated useful life.
Depreciation periods are as follows:
YEARS
-----------------------
Buildings 10-50 (mainly 33)
Machinery and equipment 7-20 (mainly 10 and 20)
Vehicles 5-7 (mainly 7)
Office equipment and furniture
(including computers) 3-17 (mainly 4)
G. IMPAIRMENT IN VALUE OF LONG-LIVED ASSETS
The company formerly adopted standard 121 of the Financial
Accounting Standards Board of the United States ("FASB") -
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", which related - prior to
its amendment in 2002 - to fixed assets and intangibles,
including goodwill related to those assets (hereafter -
long-lived assets). Through December 31, 2002, in accordance
with the provisions of the aforementioned standard, the
Company regularly reviewed, in situations where an event had
occurred or circumstances had changed, which might indicate
that an impairment had taken place of the long-lived assets
used by the Company, whether the undiscounted cash flows
anticipated from those assets, exceeded the amount at which
those assets were included in the accounts. As to the
transition to applying Accounting Standard No. 15 of the
Israeli Accounting Standards Board ("the IASB"), as from
January 1, 2003, and the effect thereof on the Company, see
p(1) below.
H. DEFERRED CHARGES
The item represents note issuance costs, which are amortized
over the period at the end of which the holders may demand
redemption (see note 4b).
I. DEFERRED INCOME TAXES:
1) Deferred taxes are computed according to the liability
method, on the basis of differences between the amounts
presented in these statements and those taken into
account for tax purposes. As to the main factors in
respect of which deferred taxes have been included - see
note 7g. The amount of deferred taxes presented in the
income statements reflects changes in the deferred tax
balances during the reported years.
2) Taxes which would apply in the event of disposal of
investments in subsidiaries and associated companies have
not been taken into account in computing the deferred
taxes, as it is the Company's policy to hold these
investments, not to realize them.
12
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
3) The Group may incur additional tax liability in the event
of intercompany dividend distribution derived from
"approved enterprises" profits. No account was taken of
this additional tax, since it is the Group's policy not
to cause distribution of dividend which would involve
additional tax liability to the Group in the foreseeable
future.
J. REVENUE RECOGNITION
Revenue from sale of products to the local market is
recognized upon shipment (which represents the point at which
the title transfers). Revenue from sale of products for export
is recognized as the products are delivered to the customer in
the target country.
K. ADVERTISING EXPENSES
Advertising expenses are charged to income as incurred (as to
the amount of the expenses, see note 10g).
L. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance is determined mainly in respect of specific
debts doubtful of collection (see note 13b).
M. DERIVATIVE FINANCIAL INSTRUMENTS
Gains or losses on hedges of existing assets or liabilities
are recognized in income commensurate with the results from
those assets and liabilities.
N. CASH EQUIVALENTS
The Group considers all highly liquid investments, which
include short-term bank deposits that are not restricted as to
withdrawal or use, the period to maturity of which did not
exceed three months at time of deposit, to be cash
equivalents.
O. NET INCOME PER NIS 1 OF PAR VALUE OF SHARES
Net income per NIS 1 of par value of shares is computed in
accordance with Opinion 55 of the Israeli Institute; as to the
data used in the per share computation - see note 11.
13
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
P. RECENTLY ISSUED PRONOUNCEMENTS:
1) In February 2003, Accounting Standard No. 15 of the IASB
- "Impairment of Assets", became effective. This standard
which is based on International Accounting standard No.
36. requires a periodic assessment - at each balance
sheet date - to evaluate the need for a provision for the
impairment of the company's non-monetary assets - fixed
assets and identifiable intangibles, including goodwill,
as well as investments in associated companies. As
promulgated by the standard, its provisions are to
applied as of January 1, 2003.
Pursuant to the provisions of the standard, if any events
have occurred or changes in circumstances have taken
place, which might indicate that there has been an
impairment of one or more of the above assets, the
company is required to evaluate whether the carrying
value of the investment in the asset is recoverable from
the cash flows anticipated from that asset, and, if
necessary, to record an impairment provision up to the
amount needed to adjust its carrying amount to its
recoverable amount. The impairment loss is carried
directly to income.
The recoverable amount of an asset is determined as being
the higher of the asset's net selling price and its value
in use to the company. The asset's value in use is
determined according to the present value of anticipated
cash flows from the continued use of the asset, including
those expected at the time of its future retirement and
disposal.
The Company is making the necessary preparations in order
to apply this standard commencing with its first interim
financial statements in 2003, and is currently reviewing
the expected implications, if any, on its financial
statements.
The Company formerly applied the provisions of the U.S.
standard dealing with this issue - see g above - that
required an impairment loss to be recognized, only in the
event that the undiscounted cash flows from the asset
were less than its carrying value. The Company does not
expect the transition to the abovementioned standards to
have a material effect on its consolidated financial
statements.
2) In October 2001, the IASB issued Israel Accounting
Standard No. 12 - "Discontinuance of Adjusting Financial
Statements for inflation" - which provided for the
discontinuance of adjusted financial statements, as of
January 1, 2003. In December 2002, Accounting Standard
No. 17 was issued that postponed the date from which
Accounting Standard No. 12 is to be applied until January
1, 2004. The adjusted amounts as of December 31, 2003
will be the base for the nominal-historical financial
reporting as of January 1, 2004.
The implementation of Standard No. 12 will mainly affect
the financing expenses item.
Upon implementation of Standard No. 12, Clarifications
Nos. 8 and 9 to Opinion 36 of the Israeli Institute will
be canceled and will be replaced, with effect from
January 1, 2004, by Israel Accounting Standard No. 13,
which was issued at the same time as Standard No. 12.
Most of the provisions of Standard No. 13 correspond to
the provisions that appeared in the abovementioned
clarifications.
14
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES:
A. The Company has a number of investments in associated
companies, which are held either directly or through its
associated companies. The financial statements of significant
associated companies (Neusiedler Hadera Paper Ltd. and
Hogla-Kimberly Ltd.) are attached to these financial
statements.
B. COMPOSED AS FOLLOWS:
DECEMBER 31
-----------------------
2002 2001
---- ----
ADJUSTED NIS
IN THOUSANDS
--------------------
Cost:
Shares 58,675 58,675
Excess of cost of investment - net 2,257 2,257
L e s s - accumulated amortization (3,649) (3,943)
Share in gain on issuance of shares of an associated
company to a third party 43,531 43,531
Currency adjustments (3,767) (3,435)
Share in profits accumulated since acquisition - net 246,654 252,490
------- -------
343,701 349,575
Long-term loans and capital notes
(net of current maturities)* 52,390 58,458
------- -------
396,091 408,033
======= =======
* Classified by linkage terms, the total amounts of the
loans and capital notes are as follows:
DECEMBER 31
-----------
2002 2001
---- ----
ADJUSTED NIS
IN THOUSANDS
-----------------------
Linked to the dollar 47,370 47,370
Linked to the Israeli CPI 9,507 7,874
Unlinked capital note 4,987 3,214
------ ------
61,864 58,458
L e s s - current maturities 9,474
------ ------
52,390 58,458
====== ======
These loans and capital notes do not bear interest.
As of December 31, 2002, the repayment dates of the balance of
the long-term loans and capital notes have not yet been
determined, excluding adjusted NIS 9,474,000 to be repaid in
2003.
15
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (CONTINUED):
C. THE CHANGES IN THE INVESTMENTS DURING 2002 ARE AS FOLLOWS:
ADJUSTED NIS
IN THOUSANDS
Balance at beginning of year 408,033
-------
Changes during the year:
Share in profits of associated companies - net 18,095
Dividend received from an associated company (23,638)
Currency adjustments (332)
Increase in balance of long-term loans and capital notes - net 3,407
-------
Balance at end of year 405,565
L e s s - current maturities 9,474
-------
396,091
=======
D. NEUSIEDLER HADERA PAPER LTD. (hereafter - N.H.P):
N.H.P. is held to the extent of 49.9% by the Company and also
by Neusiedler AG (hereafter - Neusiedler), according to an
agreement with Neusiedler, dated November 21, 1999. According
to the aforementioned agreement, N.H.P. purchased the Group's
activities in the field of printing and writing paper, and
issued to Neusiedler 50.1% of its shares. As part of the said
agreement, Neusiedler was granted an option (commencing 3
years from the signing of the agreement) to sell to the
Company its holdings in N.H.P., at a price which is 20% lower
than the value (as defined in the agreement). The
understanding between the parties is that the option would
only be exercised under continued extraordinary circumstances
that preclude the operation of N.H.P. in Israel. The Company
believes that the likelihood of such circumstances is very
remote.
E. HOGLA-KIMBERLY LTD. (hereafter - Hogla-Kimberly):
1) On March 31, 2000, Kimberly Clark Corporation (hereafter
- KC) exercised the option it was given, paying adjusted
NIS 24 million and increasing its shareholding in
Hogla-Kimberly to 50.1% thereby taking over
Hogla-Kimberly. Consequently, as from March 31, 2000,
Hogla Kimberly's accounts are no longer included in the
Company's consolidated financial statements, and the
Company's investment therein is accounted for by the
equity method.
2) Following are data of Hogla-Kimberly included in the
consolidated statements of income for the following
period:
PERIOD FROM
JANUARY 1, 2000
TO MARCH 31, 2000
-----------------
ADJUSTED NIS
IN THOUSANDS
------------
Sales - net 230,214
========
Net income 10,952
========
16
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
F. INVESTMENT IN CARMEL CONTAINER SYSTEMS LIMITED (HEREAFTER -
CARMEL)
The investment in shares includes, as of December 31, 2002 and
2001, adjusted NIS 31,065,000 and adjusted NIS 33,230,000,
respectively, investment in Carmel, which is held to the
extent of 26.25%. Carmel's shares are traded in the United
States on the "AMEX" Stock Exchange. The market value of the
Company's holding in these shares as of December 31, 2002 and
2001 is adjusted NIS 10,445,000 and adjusted NIS 15,339,000,
respectively.
The financial statements of Carmel are drawn up on the basis
of historical cost, adjusted for the changes in the general
purchasing power of Israeli currency measured on the basis of
the Israeli CPI. For purposes of inclusion in these financial
statements, Carmel's financial statements were adjusted on the
basis of the changes in the exchange rate of the dollar.
The Company's management has examined the possibility that
impairment, which is not temporary in nature, had occurred in
the value of its investment in Carmel, due to its low market
value, and concluded, based on the fact that the trade in
Carmel's shares is very weak, and on a valuation of Carmel
that the Company received, and based on a signed transaction
agreement dated after December 31, 2002 (see below), that the
low market value of these shares as of December 31, 2002, does
not reflect their economic value.
On January 1, 2003, agreements were signed for a merger
transaction between Carmel and Best Carton Ltd. (a company
engaged in the packaging sector, hereafter - "Best Carton").
The stages of the transaction is as follows:
1) Prior to the merger, Carmel shall acquire from a
shareholder, Ampal Enterprises Ltd., via Tri-Wall Ltd. (a
wholly-owned subsidiary of Carmel), 21.8% of its share
capital, and in consideration shall make a cash payment
of adjusted NIS 16.7 million.
2) Carmel shall acquire from best Carton's shareholders
their holdings in Best Carton, and in consideration shall
issue 27.9% of Carmel's share capital, representing
Carmel's value at adjusted NIS 152,500,000.
The consummation of each stage of the transaction is
pending the occurrence of the other stage.
The above transaction has been approved by the boards of
directors of the companies that are parties in the
agreements.
Furthermore, the agreements are subject to the approval
of the Anti-Trust Commissioner, in Israel.
The Company's management believes, based on the
aforementioned valuation and based on the value reflected
in the aforementioned transaction, that the investment
should not be written down.
17
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
G. INVESTMENT IN T.M.M INTEGRATED RECYCLING INDUSTRIES LTD.
(hereafter - T.M.M.)
In 2000, the Company and Compagnie Generale D'Entreprises
Automobiles (hereafter - CGEA), an international French group
in the field of environmental services - through a jointly
held company (Barthelemi Holdings Ltd., in which the Company
holds 33.9% interest; hereafter - Barthelemi) - acquired
shares of T.M.M. from its controlling shareholders.
In addition, T.M.M was merged with Amnir Industries and
Environmental Services Ltd. (in which the Company and CGEA
held 49% and 51%, respectively; hereafter - Amnir Environment)
in such a manner that Amnir Environment became a wholly-owned
subsidiary of T.M.M.
As of December 31, 2002, the Company's share in T.M.M.
(directly and through Barthelemi) aggregates 39.2%.
The excess of equity in net assets of T.M.M. at time of
acquisition of T.M.M. shares, over the cost of investment
therein - adjusted NIS 1,710,000 - was not attributed to
specific assets. This amount is amortized over a period of ten
years.
The amount invested in shares includes adjusted NIS 16,840,000
(December 31, 2001 - adjusted NIS 16,584,000), which was
directly invested in T.M.M. (17.8%), the shares of which are
traded on the Tel Aviv Stock Exchange; the market value of
these shares aggregates adjusted NIS 7,897 as of December 31,
2002 (December 31, 2001 - adjusted NIS 12,102,000).
The Company's management examined the value of its Investment
in T.M.M for impairment which is not temporary in nature.
Based on a valuation of T.M.M, which suggests that the
economic value of the Company's share in T.M.M. exceeds the
amount of the investment recorded in its accounts, the
Company's management concluded that the investment should not
be written down.
H. After December 31, 2002, an associated company declared the
distribution of a dividend. The Company's share in the
dividend declared - adjusted NIS 17,728,000 - is not included
yet in these financial statements, and will be reported in
2003.
18
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS:
A. COMPOSITION OF ASSETS, GROUPED BY MAJOR CLASSIFICATIONS, AND
CHANGES THEREIN DURING 2002, ARE AS FOLLOWS:
COST ACCUMULATED DEPRECIATION
----------------------------------------- -----------------------------------------
DEPRECIATED BALANCE
BALANCE AT CHANGES DURING CHANGES DURING -------------------
BEGINNING THE YEAR BALANCE BALANCE AT THE YEAR BALANCE AT DECEMBER 31
--------- -------- AT END BEGINNING -------- AT END -----------
OF YEAR ADDITIONS RETIREMENTS OF YEAR OF YEAR ADDITIONS RETIREMENTS OF YEAR 2002 2001
------- --------------------- ------- ------- --------- ----------- ------- ---- ----
ADJUSTED NIS IN THOUSANDS
Land and buildings on it *171,787 31,261 5,947 197,101 *107,525 3,860 2,388 108,997 88,104 *64,262
Machinery and equipment *673,185 37,223 14,246 696,162 *461,587 18,612 12,686 467,513 228,649 *211,598
Vehicles *35,632 2,909 2,733 35,808 *24,168 2,886 2,170 24,884 10,924 *11,464
Office equipment and
furniture (including
computers) *69,658 2,211 2,437 69,432 *51,482 3,553 2,264 52,771 16,661 *18,176
Payments on account of
acquisition of machinery
and equipment *31,107 (22,970) 8,137 8,137 *31,107
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
981,369 50,634 25,363 1,006,640 644,762 28,911 19,508 654,165 352,475 336,607
======= ======= ======= ======== ======= ======= ======= ======= ======= =======
* Reclassified.
19
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS (CONTINUED):
B.
DECEMBER 31
-----------
2002 2001
---- ----
ADJUSTED NIS
IN THOUSANDS
------------
The item is net of investment grants in respect
of investments in "approved enterprises"
(see notes 7a and 9a):
Cost 530 1,961
====== =======
Accumulated depreciation 496 1,927
====== =======
C. The Group's real estate is partly owned and partly leased - to
the extent of adjusted NIS 48.1 million, in respect of which
lease fees of approximately adjusted NIS 27.9 million have
been capitalized. The leasehold rights are for 49 year periods
ending in the years 2008 to 2059, with options to extend for
an additional 49 years.
D. As to pledges on assets - see note 9a.
E. The item includes adjusted NIS 1,090,000 borrowing costs
capitalized in cost of machinery and equipment as of December
31, 2002.
NOTE 4 - LONG-TERM LOANS AND OTHER LONG-TERM LIABILITIES:
A. LOANS FROM BANKS:
As follows:
DECEMBER 31
-----------
2002 2001
---- ----
ADJUSTED NIS
IN THOUSANDS
------------
Linked to the dollar 378
Linked to the Israeli CPI* 1,142 1,905
------- -------
1,142 2,283
L e s s - current maturities 758 1,142
------- -------
**384 1,141
======= =======
* The weighted average annual interest rate as of December
31, 2002 is 4.9%.
** The loan matures in 2004.
20
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - LONG-TERM LOANS AND OTHER LONG-TERM LIABILITIES (continued):
B. NOTES
The item represents notes issued under a private placement to
institutional investors in May 1992, as follows:
DECEMBER 31
2002 2001
ADJUSTED NIS
IN THOUSANDS
Balance 47,143 54,157
L e s s - current maturities 6,722 6,757
------- -------
40,421 47,400
======= =======
The balance of the notes as of December 31, 2002 is redeemable
in seven installments, due in June of each of the years
2003-2009, each installment amounting to 6.66% of the par
original value of the notes. The unpaid balance of the notes
bears annual interest of 3.8%, payable each June, in respect
of the period ending on the day preceding the date of payment.
The notes - principal and interest - are linked to the Israeli
CPI of February 1992.
C. OTHER LIABILITIES:
DECEMBER 31
-----------
2002 2001
---- ----
ADJUSTED NIS IN THOUSANDS
-------------------------
Capital note to an associated company (1) 32,770 35,152
Other liability (2) 2,426 2,426
-------- -------
35,196 37,578
======== =======
(1) The capital note is unlinked and interest free. No
repayment date has been fixed, but the associated company
does not intend to demand the repayment of the capital
note before January 1, 2004.
(2) The loan was received from a supplier in 2000, to finance
acquisition of machinery and equipment in the amount of
adjusted NIS 2,606,000. The loan is linked to the dollar.
The Company is currently negotiating the repayment date
of this liability. The Company believes that the
repayment is not probable before January 1, 2004.
21
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - EMPLOYEE RIGHTS UPON RETIREMENT:
A. Israeli labor laws and agreements require the companies in the
Group to pay severance pay to employees dismissed or leaving
their employ under certain circumstances, computed on the
basis of the number of years of service and, generally, the
latest pay rate (one month's pay for each year of service) or
a pension upon retirement.
To cover the liability for employee rights upon retirement,
pursuant to labor agreements in force and based on salary
components which, in management's opinion, create entitlement
to severance pay, deposits are made by the Company and its
subsidiaries with various provident funds (including pension
funds) or insurance policies for the benefit of employees.
The severance pay and pension liability and the amounts funded
as above are not reflected in the financial statements, as the
pension and severance pay risks have been irrevocably
transferred to the pension funds and the insurance companies,
as allowed by the Severance Pay Law.
B. The expenses relating to employee rights upon retirement,
which reflect the amounts that were deposited, during the
reported years, with provident funds, pension funds and
various insurance policies, are adjusted NIS 6,259,000,
adjusted NIS 6,831,000 and adjusted NIS 10,767,000 in 2002,
2001, and 2000, respectively.
NOTE 6 - SHAREHOLDERS' EQUITY:
A. SHARE CAPITAL
Composed of - as of December 31, 2002 and 2001 - ordinary
registered shares of NIS 0.01 par value, as follows:
AUTHORIZED ISSUED AND PAID
Number of shares 20,000,000 3,918,710
========= ========
Amount in NIS 200,000 39,187
========= ========
The shares are traded on stock exchanges in Tel-Aviv and in
the U.S. The quoted prices per share, as of December 31, 2002
are NIS 146.6 and $ 30.4 (NIS 144), respectively.
B. EMPLOYEE STOCK OPTION PLANS:
1) The 1998 plan for senior officers in the Group
On January 11, 1998, the board of directors approved a
stock option plan for senior officers in the Group ("the
1998 plan for senior officers"). Under this plan, 167,000
options were allotted without consideration (including
32,000 options to an employee who is an interested
party). Each option is exercisable to purchase one
ordinary share of NIS 0.01 par value of the Company. The
options were granted in three annual batches. The 1998
plan for senior officers in the Group was approved by the
shareholders' meeting in February 1998.
22
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (CONTINUED):
B. EMPLOYEE STOCK OPTION PLANS (continued):
In 2000, 1999 and 1998, 51,330, 51,335 and 52,833 options,
respectively, were granted under the 1998 plan for senior
officers (including 10,667 options in 2000 and 1999 and 10,666
options in 1998, to an employee who is an interested party).
All together, 155,498 options were granted.
The exercise price of the options granted as above, was fixed
at adjusted NIS 134.38. This price represents the average
price of the Company's shares quoted on the Tel-Aviv Stock
Exchange during thirty trading days prior to the date of the
board of directors' approval, less 10%. As stipulated by the
1998 plan for senior officers, the exercise price has been
adjusted, following a dividend distribution, and is adjusted
NIS 99.67. This exercise price is linked to the dollar.
The quoted price of the Company's shares, close to the time of
the board of directors' resolution to grant the options, was
nominal NIS 138.5.
The fair value of each option - computed on the basis of the
Black-Scholes option-pricing model - as prescribed by the
regulations of the Tel-Aviv Stock Exchange - was adjusted NIS
78.47 on the date of the approval of the 1998 plan for senior
officers.
Each batch can be exercised for three years commencing two
years from the date of grant.
Notwithstanding the above, the number of shares resulting from
exercise of the options and the actual exercise price will be
fixed as follows: When an exercise request is received from an
option holder, a computation will be made of the difference
between the quoted price of the Company's shares at the
beginning of that trading day and the exercise price; that
difference is to be multiplied by the number of shares
expected to be issued upon exercise of the option (referred to
hereafter as "the benefit"). The number of shares the Company
will actually issue to the option holder will be the number of
shares the market value of which is equal to the amount of the
benefit computed as above. In consideration for the shares,
the option holder will pay their par value only.
The ordinary shares issued upon exercise of the options will
confer upon their holders the same rights as all other
ordinary shares, upon issuance.
In 2001 and 2000, 46,002 and 51,335 options, respectively,
were exercised under the 1998 plan for senior officers in the
Group. 28,149 and 35,990 shares of NIS 0.01 were issued
following the exercise, respectively. The balance of options
granted and not yet exercised, is 58,161.
The above plan is carried out according to the principles set
out in Section 102 of the Income Tax Ordinance, which
stipulates, inter-alia, the terms for recognition of the
expense to the Company and for determining the employees'
capital gains tax liability in respect of the profits
attributed thereto as benefits arising from the above plan.
23
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (CONTINUED):
B. EMPLOYEE STOCK OPTION PLANS (continued):
2) The 2001 plan for senior officers in the Group
On April 2, 2001, the Company's board of directors
approved a stock option plan for senior officers in the
Group (hereafter - the 2001 plan for senior officers).
Under this plan, 194,300 options were allotted on July 5,
2001 without consideration. Each option is exercisable to
purchase one ordinary share of NIS 0.01 par value of the
Company. The options will be exercisable in four equal
annual batches. The blocking period of the first batch is
two years, commencing on the date of grant. The blocking
period of the second batch is three years from the date
of grant, and so forth. Each batch is exercisable during
two years from the end of the blocking period.
The exercise price of the options granted as above was
set at NIS 217.00, linked to the CPI, on the basis of the
CPI as of April 2, 2001. This price represents the
average price of the Company's shares quoted on the
Tel-Aviv Stock Exchange during thirty trading days prior
to the date of the board of directors' approval, less
10%. As stipulated by the 2001 plan for senior officers,
the exercise price is to be adjusted, following dividend
distributions. According to the abovementioned
conditions, the exercise price as of December 31, 2002 is
adjusted NIS 230.61 for the first batch, adjusted NIS
120.80 for the second batch and adjusted NIS 131.84 for
the third and four batches.
The quoted price of the Company's shares on the Tel Aviv
Stock Exchange close to the time of the board of
directors' resolution to grant the options, was NIS
204.00. Prior to the granting of the options, the price
was NIS 185.8.
The fair value of each option - computed on the basis of
the Black-Scholes option-pricing model - as prescribed by
the regulations of the Tel-Aviv Stock Exchange - was
approximately adjusted NIS 61.33 on the date of grant.
Notwithstanding the above, the number of shares resulting
from exercise of the options and the actual exercise
price will be determined as follows: when an exercise
request is received from an option holder, a computation
will be made of the difference between the quoted price
of the Company's shares at the beginning of that trading
day and the exercise price; that difference is to be
multiplied by the number of shares expected to be issued
upon exercise of the option (referred to hereafter as
"the benefit"). The number of shares the Company will
actually issue to the option holder will be the number of
shares the market value of which is equal to the amount
of the benefit computed as above. In consideration for
the shares, the option holder will pay their par value
only.
The ordinary shares issued upon exercise of the options
will confer upon their holders the same rights as all
other ordinary shares, upon issuance.
The above plan is carried out according to the principles
set out in Section 102 of the Income Tax Ordinance, which
stipulates, inter-alia, the terms for recognition of the
expense to the Company and for determining the employees'
capital gains tax liability in respect of the profits
attributed thereto as benefits arising from the above
plan.
24
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (CONTINUED):
B. EMPLOYEE STOCK OPTION PLANS (continued):
3) The 2001 employee plan
On August 29, 2001, the Company's board of directors
approved a stock option plan for employees in the Group,
according to a specification (hereafter - the 2001
employee plan). Under this plan, up to 125,000 options
will be allotted without consideration. Each option is
exercisable to purchase one ordinary share of NIS 0.01
par value of the Company. The blocking period of the
options is two years from the date of grant. Each option
is exercisable during three years from the end of the
blocking period.
On November 4, 2001, 81,455 options were granted under
the 2001 employee plan.
The exercise price of all the options granted as above
was set at NIS 160.99, linked to the CPI, on the basis of
the CPI as of August 29, 2001. This price represents the
average price of the Company's shares quoted on the
Tel-Aviv Stock Exchange during thirty trading days prior
to the date of the board of directors' approval, less
10%. As stipulated by the 2001 employee plan, the
exercise price has been adjusted, following a dividend
distribution and is adjusted NIS 165.73.
The quoted price of the Company's shares on the Tel Aviv
Stock Exchange close to the time of the board of
directors' resolution to grant the options, was NIS
171.20. Prior to the granting of the options, the price
was NIS 138.80.
The fair value of each option - computed on the basis of
the Black-Scholes option-pricing model - as prescribed by
the regulations of the Tel-Aviv Stock Exchange - was
approximately adjusted NIS 69.35 on the date of grant.
Notwithstanding the above, the number of shares resulting
from exercise of the options and the actual exercise
price will be fixed as follows: when an exercise request
is received from an option holder, a computation will be
made of the difference between the quoted price of the
Company's shares at the beginning of that trading day and
the exercise price; that difference is to be multiplied
by the number of shares expected to be issued on exercise
of the option (referred to hereafter as "the benefit").
The number of shares the Company will actually issue to
the option holder will be the number of shares the market
value of which is equal to the amount of the benefit
computed as above. In consideration for the shares, the
option holder will pay their par value only.
The ordinary shares issued upon exercise of the options
will confer upon their holders the same rights as all
other ordinary shares, upon issuance.
The above plan is carried out according to the principles
set out in Section 102 of the Income Tax Ordinance, which
stipulates, inter-alia, the terms for recognition of the
expense to the Company and for determining the employees'
capital gains tax liability in respect of the profits
attributed thereto as benefits arising from the above
plan.
25
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME:
A. TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL
INVESTMENTS, 1959 (hereafter - the law)
Under the law, by virtue of the "approved enterprise" status
granted to certain of their production facilities, certain
subsidiaries are entitled to various tax benefits (mainly
reduced tax rates).
During the period of benefits - mainly 7 years commencing in
the first year in which the companies earn taxable income from
the approved enterprises, provided the maximum period to which
it is restricted by law has not elapsed - reduced tax rates or
exemption from tax applies, as follows:
1) Corporate tax rate of 25%, instead of the regular tax
rate (see d. hereafter).
2) Tax exemption on income from certain approved enterprises
in respect of which the companies have elected the
"alternative benefits" (involving waiver of government
guaranteed loans); the length of the exemption period is
4 years, after which the income from these enterprises is
taxable at the rate of 25% for 3 years.
The part of the taxable income which is entitled to the
tax benefits is determined on the basis of the ratio of
the turnover attributed to the "approved enterprise" to
the total turnover of these companies, taking into
account the ratio of the "approved enterprise" assets to
total assets of these companies. The turnover that is
attributed to the "approved enterprise" is generally
computed on the basis of the ratio of the increase in
turnover to the "basic" turnover stipulated in the
instrument of approval.
The periods of benefits in respect of the "approved
enterprises" of the Group expire by the end of 2003.
The entitlement to the above benefits is conditional upon
the companies' fulfilling the conditions stipulated by
the law, regulations published thereunder and the
instruments of approval for the specific investments in
"approved enterprises". In the event of failure to comply
with these conditions, the benefits may be cancelled and
the companies may be required to refund the amount of the
benefits, in whole or in part, with the addition of
linkage differences to the CPI and interest.
B. MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME TAX
(INFLATIONARY ADJUSTMENTS) LAW, 1985 (hereafter - the
inflationary adjustments law)
Under the inflationary adjustments law, results for tax
purposes are measured in real terms, having regard to the
changes in the Israeli CPI. The Israeli companies in the Group
are taxed under this law.
As stated in note 1b, the financial statements are drawn up in
NIS adjusted on the basis of the changes in the exchange rate
of the dollar. The difference between the increase in the
Israeli CPI and the change in the exchange rate of the dollar
- on an annual and cumulative basis - creates differences
between the taxable income and the income reflected in the
financial statements.
26
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
C. THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXATION), 1969
The Company and certain subsidiaries are "industrial
companies" as defined by this law. As such they are entitled
to claim, and have in fact claimed, depreciation at
accelerated rates on equipment used in industrial activity as
stipulated by regulations published under the inflationary
adjustments law.
Under this law, the Company files consolidated tax returns
with certain subsidiaries.
D. TAX RATES APPLICABLE TO INCOME NOT DERIVED FROM "APPROVED
ENTERPRISES"
Income not eligible for approved enterprise benefits mentioned
in a. above is taxed at the regular rate - 36%.
E. REFORM OF THE ISRAELI TAX SYSTEM
In 2002, Amendment to the Income Tax Ordinance (No. 132), 2002
(hereafter - the tax reform law) was published. The tax reform
law comprehensively reforms certain parts of the Israeli tax
system. The tax reform law comes into effect on January 1,
2003, although certain provisions therein will only be applied
from later dates.
In accordance with the provisions of the tax reform law, as
from January 1, 2003, capital gains will be taxed at a reduced
rate of 25%, instead of the regular rate of 36% at which they
were taxed until the aforementioned date; with regard to the
sale of assets acquired prior to January 1, 2003, the reduced
tax rate will be applicable only for the gain allocated to
capital gains earned after the implementation of that law,
which will be calculated as prescribed by the tax reform law.
Furthermore, the tax reform law stipulates that carryforward
capital losses may be utilized against capital gains without
any time restriction (the time limitation for the utilization
has been removed in respect of capital losses which arose in
the tax year 1996 and thereafter).
The implementation of the tax reform law is not expected to
have a material effect on the Company's tax liability.
F. CARRYFORWARD TAX LOSSES
Carryforward tax losses of the Company and certain
subsidiaries are adjusted NIS 13,195,000 and adjusted NIS
19,207,000 as of December 31, 2002 and 2001, respectively.
Under the inflationary adjustments law, the carryforward
losses are linked to the Israeli CPI, and there is no time
limit regarding utilization.
27
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
G. DEFERRED INCOME TAXES
The composition of the deferred taxes, and the changes therein
during 2002 and 2001, are as follows:
AMONG AS A
CURRENT NON-CURRENT
ASSETS (1) LIABILITY (2) TOTAL
---------- ------------- -----
ADJUSTED NIS IN THOUSANDS
-------------------------
Balance at January 1, 2001 (9,351) 48,649 39,298
Changes in 2001 -
amounts carried to income (667) 8,550 7,883
------ ------ ------
Balance at December 31, 2001 (10,018) 57,199 47,181
Changes in 2002 -
amounts carried to income (1,825) 5,831 4,006
------ ------ ------
Balance at December 31, 2002 (11,843) 63,030 51,187
====== ====== ======
(1) In respect of inventories and provisions for doubtful
accounts, vacation and recreation pay and carryforward
tax losses.
(2) Mainly in respect of depreciable fixed assets.
The deferred taxes are computed at the rates of 35% or
36%.
H. TAXES ON INCOME INCLUDED IN THE INCOME STATEMENTS:
1) As follows:
2002 2001 2000
---- ---- ----
ADJUSTED NIS IN THOUSANDS
-------------------------
For the reported year:
Current:
Israel 5,086 *35,372
Outside Israel 1,387
------ -------
5,086 36,759
------ -------
Deferred, see g. above:
Israel 4,006 *7,883 5,495
Outside Israel 5
------ ------ -------
4,006 7,883 5,500
------ ------ -------
9,092 *7,883 *42,259
For prior years - current 1,500
------ ------ -------
10,592 *7,883 *42,259
====== ====== =======
* Reclassified.
28
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
2) Following is a reconciliation of the "theoretical" tax
expense, assuming all income is taxed at the regular
rate, as stated in d. above, and the actual tax expense:
2002 2001 2000
---------------------- ---------------------- ---------------------
ADJUSTED ADJUSTED ADJUSTED
NIS IN NIS IN NIS IN
% THOUSANDS % THOUSANDS % THOUSANDS
- --------- - --------- - ---------
Income before taxes on income, as reported
in the statements of income 100.0 33,020 100.0 28,908 100.0 104,661
======= ======= ======= ======= ====== =======
Theoretical tax on the above amount 36.0 11,887 36.0 10,407 36.0 37,678
Tax benefits arising from reduced tax rate
for approved enterprises (1.0) (330) (1.2) (354) (3.6) (3,810)
------- ------- ------- ------- ------ -------
35.0 11,557 34.8 10,053 32.4 33,868
Increase in taxes resulting from computation
of deferred taxes at a rate which is
different from the theoretical rate 0.9 249 3.8 3,963
Tax deduction in respect of options
exercised by employees according to
section 102 of the Israeli
Income Tax Ordinance (6.2) (2,037) (14.5) (4,202)
Other - net (1.3) (428) 6.1 *1,783 4.2 *4,428
------- ------- ------- ------- ------- -------
Taxes on income for the reported year 27.5 9,092 27.3 *7,883 40.4 *42,259
======= ======= ======= ======= ======= =======
* Reclassified.
I. TAX ASSESSMENTS
The Company and most of its subsidiaries have received final
tax assessments through the year ended December 31, 2000.
29
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES:
A. AS FOLLOWS:
DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------------- --------------------------------
IN, OR IN, OR
LINKED TO, LINKED TO,
FOREIGN FOREIGN
CURRENCY LINKED CURRENCY LINKED
(MAINLY TO THE (MAINLY TO THE
DOLLAR) ISRAELI CPI UNLINKED DOLLAR) ISRAELI CPI UNLINKED
------- ----------- -------- ------- ----------- --------
ADJUSTED NIS IN THOUSANDS ADJUSTED NIS IN THOUSANDS
------------------------- -------------------------
Assets:
Current assets:
Cash and cash equivalents 3,064 2,842 3,045 801
Receivables 52,860 207,295 40,089 206,466
Investments in associated companies -
long-term
loans (including current maturities) 47,370 9,507 4,987 47,370 7,874 3,214
------- ------- ------- ------- ------- -------
103,294 9,507 215,124 90,504 7,874 210,481
======== ======== ======== ======== ======== ========
Liabilities:
Current liabilities:
Short-term credit from banks 26,906 85,608 23,685 96,638
Accounts payables and accruals 3,443 171,502 8,613 171,662
Long-term liabilities (including
current maturities):
Loans from banks 1,142 378 1,905
Notes 47,143 54,157
Other liabilities 2,426 32,770 2,426 35,152
-------- -------- -------- -------- -------- --------
32,775 48,285 289,880 35,102 56,062 303,452
======== ======== ======== ======== ======== ========
As to exposures relating to fluctuations in foreign currency
exchange rates and the use of derivatives for hedging purposes
- see note 13a.
30
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES (CONTINUED):
B. DATA REGARDING THE EXCHANGE RATE AND THE ISRAELI CPI:
EXCHANGE RATE OF
ONE DOLLAR CPI*
---------- -------
NIS POINTS
At end of year:
2002 4.737 182.0
2001 4.416 170.9
2000 4.041 168.5
1999 4.153 168.5
Change in the year:
2002 7.3% 6.5%
2001 9.3% 1.4%
2000 (2.7%) -,-
* Based on the index for the month ending on each balance sheet date, on the
basis of 1993 average = 100.
NOTE 9 - COMMITMENTS AND LIABILITIES SECURED BY PLEDGES:
A. IN RESPECT OF INVESTMENT GRANTS
Under the Law for the Encouragement of Capital Investments,
1959, certain subsidiaries and an associated company, have
received investment grants from the State of Israel. In the
event of failure to comply with the terms attached to the
receipt of the grants, the companies may be required to refund
the amount of the grants, in whole or in part, with linkage
differences and interest from the date of receipt.
The abovementioned subsidiaries have registered floating
charges on all their assets in favor of the State of Israel as
security for compliance with the terms of the investment
grants received. In respect of the grant received by the
associated company, the Company has provided a guarantee, with
another associated company, for the repayment of the grant. As
of December 31, 2002, the guarantee amount to adjusted NIS
1,601,000.
B. IN RESPECT OF GRANT FROM "THE FUND FOR PREPARATION FOR
EXPOSURE"
In 1996, an associated company received a grant amounting to
adjusted NIS 2,236,000 from the Fund for Preparation for
Exposure of the Ministry of Industry and Trade. With respect
to this grant, the Company has provided a bank guarantee
amounting to adjusted NIS 2,058,000 in favor of the State of
Israel.
C. The Company has provided guarantees amounting to adjusted NIS
2,368,000 in favor of an associated company, in connection
with the latter's participation in the Drom Yehuda tender for
recycling of waste. If the associated company does not win the
tender, the guarantee will become null and void.
D. A subsidiary has provided a guarantee amounting to adjusted
NIS 1,298,000, on behalf of an associated company, in respect
of a loan from a bank, received by the company.
31
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMITMENTS AND LIABILITIES SECURED BY PLEDGES (CONTINUED):
E. On May 7, 2001, the Company's board of directors resolved to
carry out a plan, which was approved by the shareholders'
meeting, to remunerate the Company's chairman of the board of
directors and general manager. According to the plan, a
remuneration will be granted, equal to the increase in the
value of 50,000 shares of the Company in the period from May
7, 2001 (share price - NIS 194.37) to May 7, 2008. The
remuneration will be spread over the period commencing two
years from the resolution of the board of directors, until the
end of seven years from said resolution. As of December 31,
2002, no liability was created in respect of the above plan.
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
BALANCE SHEETS:
DECEMBER 31
--------------------
2002 2001
---- ----
ADJUSTED NIS
IN THOUSANDS
------------
A. RECEIVABLES:
1) Trade:
Open accounts 129,732 114,702
Checks collectible 12,774 11,508
-------- -------
142,506 126,210
======== =======
The item is:
Net of allowance for doubtful accounts 13,794 12,481
======== =======
Includes associated companies 21,487 20,745
======== =======
2) Other:
Employees and employee institutions 2,527 2,863
Associated companies ( 2002 - including current
maturities) 103,899 107,756
Prepaid expenses 3,707 4,683
Advances to suppliers 7,804 4,904
Deferred income taxes, see note 7g 11,843 10,018
Tax authorities 6,745
Interest receivable 21 23
Sundry 6,127 4,799
-------- -------
142,673 135,046
======== =======
B. INVENTORIES:
For industrial activities:
Finished goods 14,244 33,834
Raw materials and supplies 11,236 21,266
-------- -------
25,480 55,100
For commercial activities - purchased products 22,511 24,404
-------- -------
47,991 79,504
Maintenance and sundry stores 49,902 48,228
-------- -------
97,893 127,732
======== =======
32
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (CONTINUED):
C. CREDIT FROM BANKS:
1) As follows:
DECEMBER 31
-----------
2002 2001
---- ----
ADJUSTED NIS
IN THOUSANDS
------------
Short-term credit 112,514 120,323
Current maturities of long-term loans, see note 4a 758 1,142
-------- -------
113,272 121,465
======== =======
2) Classified by currency of repayment, linkage terms and
interest rates, the amounts of short-term credit from
banks are as follows:
WEIGHTED AVERAGE
INTEREST RATE
AT DECEMBER 31, DECEMBER 31
--------------- -----------
2002 2002 2001
---- ---- ----
ADJUSTED NIS
% IN THOUSANDS
- ------------
Unlinked 9.63 85,608 96,638
In dollars 2.19 26,906 23,685
-------- -------
112,514 120,323
======== =======
33
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (CONTINUED):
D. ACCOUNTS PAYABLE AND ACCRUALS - OTHER:
DECEMBER 31
-----------
2002 2001
ADJUSTED NIS
IN THOUSANDS
------------
Payroll and related expenses 33,132 *34,757
Institutions 12,245 *12,723
Income taxes payable *11,977
Customs and value added tax authorities 1,365 7,743
Associated company 507 559
Accrued interest 1,031 1,102
Sundry 19,295 16,138
-------- -------
67,575 84,999
======== =======
STATEMENTS OF INCOME:
2002 2001 **2000
---- ---- ------
ADJUSTED NIS IN THOUSANDS
E. SALES - net (1):
Industrial activities(2) 336,023 338,320 539,768
Commercial activities 157,013 169,789 267,162
-------- -------- --------
493,036 508,109 806,930
======== ======== ========
(1) Including sales to associated companies 113,437 123,693 119,929
======== ======== ========
(2) Including export sales 43,968 28,173 23,812
======== ======== ========
F. COST OF SALES:
Industrial activities:
Materials consumed 66,689 74,930 134,922
Payroll and related expenses 85,353 100,814 125,810
Depreciation 22,914 24,672 26,271
Other manufacturing costs 84,123 96,633 142,864
Decrease (increase) in inventory of
finished goods 13,614 (7,593) (2,070)
-------- -------- --------
272,693 289,456 427,797
Commercial activities - cost of products sold 120,818 125,747 187,080
-------- -------- --------
393,511 415,203 614,877
======== ======== ========
Including purchases from associated
Companies 31,828 34,655 40,573
======== ======== ========
* Reclassified.
** In 2000, includes the operations of Hogla-Kimberly Ltd., until
March 31, 2000 - see note 2e.
34
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (CONTINUED):
G. SELLING, MARKETING, ADMINISTRATIVE AND GENERAL EXPENSES:
2002 2001 *2000
---- ---- -----
ADJUSTED NIS IN THOUSANDS
-------------------------
Selling and marketing:
Payroll and related expenses 15,894 18,374 29,358
Packaging and shipping 6,154 6,320 11,918
Advertising 943 12,113
Commissions 1,736 976 4,392
Depreciation 1,795 1,525 943
Other 5,973 6,389 14,550
-------- -------- --------
31,552 34,527 73,274
======== ======== ========
Administrative and general:
Payroll and related expenses 34,537 41,285 41,851
Office supplies, rent and maintenance 1,893 2,733 3,779
Professional fees 1,093 1,270 1,991
Depreciation 4,202 5,263 6,292
Doubtful accounts and bad debts 1,937 829 1,412
Other 10,978 9,552 20,050
-------- -------- --------
54,640 60,932 75,375
L e s s - rent and participation from
associated companies 26,101 24,757 24,975
-------- -------- --------
28,539 36,175 50,400
======== ======== ========
* In 2000, includes the operations of Hogla-Kimberly Ltd., until
March 31, 2000 - see note 2e.
35
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (CONTINUED):
H. LOSS FROM TERMINATION OF ACTIVITIES AND DISPOSAL OF ASSETS
In 2002, the Company terminated operations at some of its
sites, as follows:
1) At the Molett site in Nahariya, the operation of the old
household paper machine was terminated, following the
introduction of a new tissue machine by Hogla-Kimberly
Ltd., an associated company. Within the framework of
this, the old paper machine was sold to a third party
(overseas).
2) In order to comply with the Ministry of Environment
requirements, operations of the old paper machines at the
Shafir site in Tel-Aviv were terminated. The termination
included dismissal of employees, sale of maintenance
stores, sale of the machines to a third party (overseas)
and other related costs (including closing inventories).
3) The Company sold real estate that it owned in Ashdod.
The results of the restricting due to the termination of
the operations are as follows:
2002
ADJUSTED NIS
IN THOUSANDS
Severance payments (2,525)
Other expenses, net of sale proceeds (4,841)
Gain on sale of real estate in Ashdod 4,183
------
(3,183)
======
2002 2001 **2000
---- ---- ------
ADJUSTED NIS IN THOUSANDS
-------------------------
I. FINANCIAL INCOME (EXPENSES) - NET*:
EXPENSES:
In respect of long-term loans 445
In respect of notes - including amortization
Of deferred charges 1,397 4,675
Erosion of operating monetary balances,
net of related hedges 2,474 ***1,625
In respect of short-term balances - net
(In 2002 -net of borrowing costs capitalized
to cost of fixed assets) 1,629 9,607
-------- -------- --------
5,500 ***1,625 14,727
-------- -------- --------
INCOME:
In respect of long-term loans - net 2,269 2,478
In respect of notes - including amortization
of deferred charges 2,047
In respect of increase in value of operating
monetary balances, net of related hedges ***5,905
In respect of short-term balances - net 2,620
-------- -------- --------
2,269 ***7,145 ***5,905
-------- -------- --------
(3,231) ***5,520 ***(8,822)
======== ======== ========
* Including income in respect of loans to
associated companies 2,387 2,445 445
======== ======== ========
** In 2000, includes the operations of Hogla-Kimberly, until March 31, 2000 - see note 2e.
*** Reclassified.
36
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - NET INCOME PER NIS 1 OF PAR VALUE OF SHARES:
A. Par value of shares used in computation of per share data is
as follows:
NIS
Year ended December 31:
2002 39,557
=======
2001 39,474
=======
2000 39,514
=======
B. In the reported years, plans for granting stock options to
employees in the Group were taken into account in computing
per share data, having regard to the quoted price of the
Company's share at the end of each year.
NOTE 12 - INTERESTED PARTIES - TRANSACTIONS AND BALANCES:
A. TRANSACTIONS:
1) Income (expenses):
2002 2001 2000
---- ---- ----
ADJUSTED NIS IN THOUSANDS
-------------------------
Sales 38,976 38,369 81,567
======== ======== ========
Costs and expenses (6,532) (15,548) (11,630)
======== ======== ========
The amounts presented above represent transactions that the Company carried out
in the ordinary course of business with interested parties (companies which are
held by the Company's principal shareholder), at terms and prices similar to
those applicable to non-affiliated customers and suppliers.
2) Benefits to interested parties:
2002 2001 2000
---- ---- ----
Payroll to an interested
party employed by the
Company - adjusted NIS
in thousands *2,163 1,838 **3,876
======== ======== ========
Remuneration of directors
who are not employed
by the Company - adjusted
NIS in thousands 351 516 560
======== ======== ========
Number of people to whom
the benefits relate 9 11 10
======== ======== ========
* Subject to the general meeting's approval.
** In 2000, the amount includes special bonus in respect of
the establishment of strategic partnerships.
37
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - INTERESTED PARTIES - TRANSACTIONS AND BALANCES (CONTINUED):
3) Under the 1998 plan for senior officers (see note 6b(1)),
throughout 1998-2000, 32,000 options have been allotted
to an interested party who is an employee. As stated in
note 6b(1), the theoretical fair value of each option was
adjusted NIS 78.47 as of the date of approval of the plan
in 1998.
4) In 2001 and 2000, an interested party employed by the
Company exercised 5,334 and 10,666 options, respectively,
granted to him under the 1998 plan for senior officers,
into 3,263 and 7,476 shares, respectively, of NIS 0.01
par value each, upon payment of their par value.
5) As to the remuneration plan of the Company's chairman of
the board of directors and general manager - see note 9e.
B. BALANCES WITH INTERESTED PARTIES:
DECEMBER 31
-----------
2002 2001
---- ----
ADJUSTED NIS
IN THOUSANDS
------------
Accounts receivable - commercial activity* 9,673 6,613
======= =======
Accounts payables and accruals - commercial activity 95 383
======= =======
* There were no significant changes in the balance during
the year.
NOTE 13 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
A. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative
financial instruments. The Company uses these instruments as
hedges. The Company utilizes derivatives, mainly forward
exchange contracts and currency options, to protect its dollar
cash flows in respect of existing assets and liabilities. As
the counterparties to these derivatives are Israeli banks, the
Company considers the inherent credit risks remote. As at
December 31, 2002 and 2001, there are not any balances
regarding transactions in derivative financial instruments.
B. CREDIT RISKS
The Group's cash and cash equivalents as of December 31, 2002
are deposited mainly with major Israeli banks or with foreign
banks controlled by those Israeli banks. The Group's believes
the credit risks in respect of these balances to be remote.
Most of the Group's sales are made in Israel, to a large
number of customers. The exposure to credit risks relating to
trade receivables is limited due to the relatively large
number of customers. The Group performs ongoing credit
evaluations of its customers to determine the required amount
of allowance for doubtful accounts. An appropriate allowance
for doubtful accounts is included in the financial statements.
38
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED):
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the financial instruments included in
working capital of the Group is usually identical or close to
their carrying value. The fair value of long-term bank loans
and other liabilities also approximates the carrying value,
since they bear interest at rates close to the prevailing
market rates, except as described below.
The Company does not disclose the fair value of long-term
loans and capital notes, included under investments in
associated companies, aggregating adjusted NIS 61,864,000 (see
note 2a) and of a capital note to an associated company in the
amount of adjusted NIS 32,770,000 (see note 4c(1)), since
their value cannot be reliably determined so long as they have
no repayment dates.
NOTE 14 - SEGMENT INFORMATION:
A. DATA ON SEGMENT ACTIVITY
In 2002, 2001 and 2000, the Company and its subsidiaries has
been operating in the following main segments:
1) Manufacturing and marketing of paper and paper products
(packaging and household paper) including collecting and
recycling of paper waste. The manufacturing of paper
relies mainly on paper waste as raw materials.
2) Marketing of office supplies and paper, mainly to
institutions.
Most of the Company's sales are to the local market (Israel).
39
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 15 - SEGMENT INFORMATION (CONTINUED):
Data on segment activity:
ADJUSTMENTS
TO
PAPER AND RECYCLING MARKETING OF OFFICE SUPPLIES CONSOLIDATED T O T A L
------------------- ---------------------------- ------------ ---------
2002 2001 2000 2002 2001 2000 2000 2002 2001 2000(1)
---- ---- ---- ---- ---- ---- ---- ---- ---- -------
ADJUSTED NIS IN THOUSANDS
Sales - net(2) 340,358 342,239 421,683 152,678 165,870 173,824 (18,791) 493,036 508,109 806,930
======== ======= ======= ======== ======= ======= ======== ======== ======== =======
Income (loss) from ordinary
operations 40,552 23,416 35,551 (1,118) (1,212) 2,104 39,434 22,204 68,379
======== ======= ======= ======== ======= =======
Financial income (expenses), net (3,231) *5,520 *(8,822)
Other income (expenses) (3,183) 1,184 45,980
-------- -------- -------
Income before taxes on income 33,020 *28,908 105,537
========= ========= =======
Segment assets (at end of year) 522,307 517,234 530,426 70,567 73,315 82,295 592,874 590,549
Unallocated assets (at end of
year) (3) 545,264 547,609
-------- --------
Consolidated total assets
(at end of year) 1,138,138 1,138,158
========= =========
Segment liabilities
(at end of year) 71,748 62,779 93,290 35,622 32,497 36,210 107,370 95,276
Unallocated liabilities
(at end of year) 326,600 356,539
-------- -------
Consolidated total liabilities
(at end of year) 433,970 451,815
========= =========
Depreciation and amortization 26,419 29,281 27,901 2,582 2,482 2,364 29,001 31,763 36,077
======== ======= ======= ======== ======= ======= ========= ========= ======
(1) The amounts presented for 2000 include the results of
Hogla-Kimberly for the period ended March 31, 2000, as
follows:
Sales to external customers 230,214
=======
Income from ordinary operations 30,724
=======
Depreciation and amortization 5,812
=======
(2) Represents sales to external customers.
(3) Including investments in associated companies.
* Reclassified.
---------------
------------------------------
---------------
40
SCHEDULE
AMERICAN ISRAELI PAPER MILLS LIMITED
Details of Subsidiaries and Associated Companies
At December 31, 2002
PERCENTAGE OF DIRECT AND
INDIRECT HOLDING IN SHARES
CONFERRING EQUITY AND
VOTING RIGHTS
--------------------------
%
-
MAIN SUBSIDIARIES:
Amnir Recycling Industries Limited 100.00
Graffiti Office Supplies and Paper Marketing Ltd. 100.00
Attar Marketing Office Supplies Ltd. 100.00
American Israeli Paper Mills Paper Industry (1995) Ltd. 100.00
MAIN ASSOCIATED COMPANIES:
Hogla-Kimberly Ltd. 49.90
Subsidiaries of Hogla-Kimberly Ltd.:
Hogla-Kimberly Marketing Limited 49.90
Molett Marketing Limited 49.90
Shikma Ltd. 49.90
Ovisan Sihhi Bez Sanai Ve Ticavet A.S. 49.90
Hogla-Kimberly Holdings A.S. 49.90
H-K Overseas (Holland) B.V. 49.90
Neusiedler Hadera Paper Ltd. 49.90
Subsidiaries of Neusiedler Hadera Paper Ltd.:
Grafinir Paper Marketing Ltd. 49.90
Yavnir (1999) Ltd. 49.90
Neusiedler Hadera Paper Marketing (1999) Ltd. 49.90
Mitrani Paper Marketing 2000 (1998) Ltd. 49.90
Carmel Container Systems Limited 26.25
C.D. Packaging Systems Limited* 63.20
Barthelemi Holdings Ltd. 33.91
T.M.M. Integrated Recycling Industries Ltd.** 39.20
* C.D. Packaging Systems Limited is partly held through Carmel
Container Systems Limited (an associated company); the holding
in voting shares of C.D. Packaging Systems Limited is 63.05%.
** T.M.M Integrated Recycling Industries Ltd. is partly held
directly and partly through Barthelemi Holdings Ltd.
41
NEUSIEDLER HADERA PAPER LTD
(An Israeli Corporation)
2002 ANNUAL REPORT
TABLE OF CONTENTS
PAGE
AUDITORS' REPORT 2
FINANCIAL STATEMENTS - OF THE COMPANY AND
CONSOLIDATED - IN ADJUSTED NEW ISRAELI SHEKELS (NIS):
Balance sheets 3-4
Statements of income (loss) 5
Statements of changes in shareholders' equity 6
Statements of cash flows 7-10
Notes to financial statements 11-37
APPENDIX - DETAILS OF INVESTEE COMPANIES 38
---------------
-------------------------
---------------
AUDITORS' REPORT
To the shareholders of
NEUSIEDLER HADERA PAPER LTD
We have audited the financial statements of Neusiedler Hadera Paper Ltd.
(hereafter - the Company) and the consolidated financial statements of the
Company and its subsidiaries: balance sheets as of December 31, 2002 and 2001
and the related statements of income (loss), changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the Company's board of
directors and management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We did not audit the financial statements of the associated company for the year
2000 (see note 3). The 2000 financial statements of this company were audited by
other independent auditors, whose report has been furnished to us, and our
opinion on the 2000 financial statements, insofar as it relates to amounts
included for that company, is based on the report of the other independent
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the United States, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 1973. 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 and the report of the other independent
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other independent
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position - of the Company and consolidated - as
of December 31, 2002 and 2001 and the results of operations, the changes in
shareholders' equity and the cash flows - of the Company and consolidated - for
each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in Israel. Furthermore, in our
opinion, the financial statements referred to above are prepared in accordance
with the Israeli Securities (Preparation of Annual Financial Statements)
Regulations, 1993.
As explained in note 1b, the financial statements referred to above are
presented in values adjusted for the changes in the exchange rate of the U.S.
dollar, in accordance with pronouncements of the Institute of Certified Public
Accountants in Israel.
Kesselman & Kesselman
Tel-Aviv, Israel
March 12, 2003
Kesselman & Kesselman is a member of PricewaterhouseCoopers International Ltd.
NEUSIEDLER HADERA PAPER LTD
(An Israeli Corporation)
BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
------------ -----------
DECEMBER 31 DECEMBER 31
----------- -----------
NOTE 2002 2001 2002 2001
---- ---- ---- ---- ----
IN THOUSANDS
------------------------------------------------------
A S S E T S
CURRENT ASSETS: 9
Cash and cash equivalents 1l 53,102 30,582 49,359 27,882
Accounts receivable: 11a
Trade 167,666 166,914 3,041 385
American Israeli Paper Mills Limited
and its subsidiaries - net 1a(3) 76,327 31,724
Subsidiaries 9,536 45,746
Other 13,842 *15,151 14,853 *15,404
Inventories 11b 86,213 100,287 69,875 76,089
-------- -------- -------- --------
T o t a l current assets 320,823 312,934 222,991 197,230
-------- -------- -------- --------
INVESTMENT IN INVESTEE
COMPANIES 3 8,119 7,691
-------- --------
FIXED ASSETS: 4
Cost 135,019 119,297 128,515 111,975
L e s s - accumulated depreciation 19,464 12,364 16,887 10,305
-------- -------- -------- --------
115,555 106,933 111,628 101,670
-------- -------- -------- --------
GOODWILL, net of accumulated amortization 3(b) 5,462 6,139
-------- -------- -------- --------
T o t a l assets 441,840 426,006 342,738 306,591
======== ======== ======== ========
* Reclassified.
Date of approval of the financial statements: March 12, 2003
/S/ GUNTHER HASSLER
-------------------
GUNTHER HASSLER
CHAIRMAN OF THE BOARD OF DIRECTORS
/S/ YAKI YERUSHALMI
-------------------
YAKI YERUSHALMI
VICE CHAIRMAN OF THE BOARD OF DIRECTORS
2
NEUSIEDLER HADERA PAPER LTD
(An Israeli Corporation)
BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
------------------- -------------------
DECEMBER 31 DECEMBER 31
----------- -----------
NOTE 2002 2001 2002 2001
---- ---- ---- ---- ----
IN THOUSANDS
--------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: 9
Credit from banks 11c 15,869 12,373 15,850 7,868
Current maturities of long-term
capital note 6 18,948 18,948
Accounts payable and accruals: 11d
Trade - open accounts 82,917 76,380 48,432 46,576
American Israeli Paper Mills Limited
and its subsidiaries - net 1a(3) 59,156 79,492
Other 21,563 17,711 13,915 9,272
-------- ------- ------- -------
T o t a l current liabilities 198,453 185,956 97,145 63,716
-------- ------- ------- -------
LONG-TERM LIABILITIES:
Bank loans 5a 77,710 93,697 77,710 93,697
Capital notes from shareholders (net of
current maturities) 6 75,792 94,740 75,792 94,740
Deferred income taxes 8e 21,155 *279 21,174 *2,388
Excess of losses of subsidiaries
over the investments therein 3 2,225 770
Liability for employee rights upon
Retirement 7 142 137 104 83
-------- ------- -------- -------
T o t a l long-term liabilities 174,799 188,853 177,005 191,678
-------- ------- ------- -------
COMMITMENTS 10
-------- ------- ------- -------
T o t a l liabilities 373,252 374,809 274,150 255,394
-------- ------- ------- -------
SHAREHOLDERS' EQUITY:
Share capital (ordinary shares of NIS 1 par
value: authorized - 38,000 shares;
issued and paid - 1,000 shares) 1 1 1 1
Capital surplus 46,895 46,895 46,895 46,895
Retained earnings 21,692 4,301 21,692 4,301
-------- ------- ------- -------
68,588 51,197 68,588 51,197
-------- ------- ------- -------
T o t a l liabilities and
shareholders' equity 441,840 426,006 342,738 306,591
======== ======= ======= =======
* Reclassified.
HE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF INCOME (LOSS)
IN ADJUSTED NEW ISRAELI SHEKELS (except share data)
CONSOLIDATED THE COMPANY
-------------------------------- --------------------------------
NOTE 2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ---- ----
IN THOUSANDS (EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------
SALES - net 11e 622,665 603,159 616,896 455,865 430,700 447,097
COST OF SALES 11f 541,424 556,906 558,607 399,897 410,294 404,089
-------- ------- ------- -------- -------- -------
GROSS PROFIT 81,241 46,253 58,289 55,968 20,406 43,008
-------- ------- ------- -------- -------- -------
SELLING, MARKETING,
ADMINISTRATIVE AND
GENERAL EXPENSES: 11g
Selling and marketing 34,547 33,618 24,656 17,527 17,144 11,204
Administrative and general 11,165 10,462 8,520 4,689 4,621 4,678
-------- ------- ------- -------- -------- -------
45,712 44,080 33,176 22,216 21,765 15,882
-------- ------- ------- -------- -------- -------
INCOME (LOSS) FROM ORDINARY
OPERATIONS 35,529 2,173 25,113 33,752 (1,359) 27,126
FINANCIAL EXPENSES - net 11h 5,661 14,185 4,037 4,748 12,564 4,732
-------- ------- ------- -------- -------- -------
INCOME (LOSS) BEFORE TAXES
ON INCOME 29,868 (12,012) 21,076 29,004 (13,923) 22,394
TAXES ON INCOME (TAX
BENEFIT) 8 12,477 (3,539) 7,038 10,601 (3,569) 7,437
-------- ------- ------- -------- -------- -------
INCOME (LOSS) AFTER TAXES
ON INCOME 17,391 (8,473) 14,038 18,403 (10,354) 14,957
SHARE IN PROFITS (LOSSES) OF
INVESTEE COMPANIES, net 3 (399) (865) (1,012) 1,482 (1,784)
-------- ------- ------- -------- -------- -------
NET INCOME (LOSS) FOR THE
YEAR 17,391 (8,872) 13,173 17,391 (8,872) 13,173
======== ======= ======= ======== ======== =======
ADJUSTED NIS
NET INCOME PER NIS 1 OF PAR VALUE
OF SHARES 1m 17,391 (8,872) 13,173 17,391 (8,872) 13,173
======== ======= ======= ======== ======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN ADJUSTED NEW ISRAELI SHEKELS
SHARE CAPITAL
----------------------- CAPITAL RETAINED
AMOUNT SURPLUS EARNINGS TOTAL
NUMBER OF ------ ------- -------- -----
SHARES IN THOUSANDS
------ -------------------------------------------------------
CHANGES DURING 2000:
Issuance of share capital 1,000 1 *46,895 46,896
Net income 13,173 13,173
------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 2000 1,000 1 46,895 13,173 60,069
CHANGES DURING 2001 -
loss (8,872) (8,872)
------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 2001 1,000 1 46,895 4,301 51,197
CHANGES DURING 2002 -
net income 17,391 17,391
------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 2002 1,000 1 46,895 21,692 68,588
======= ======= ======== ======== ========
* Net of adjusted NIS 473,700 - issuance expenses.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
(Continued) - 1
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
------------------------------- ------------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
IN THOUSANDS (EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) for the year 17,391 (8,872) 13,173 17,391 (8,872) 13,173
Adjustments to reconcile net income
(loss) to net cash provided
by (used in) operating activities (a) 34,248 59,904 (48,480) 28,959 56,002 (51,244)
------- ------- -------- -------- ------- -------
Net cash provided by (used in) operating
activities 51,639 51,032 (35,307) 46,350 47,130 (38,071)
------- ------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of operations (b) (142,111) (142,111)
Acquisition of a subsidiary consolidated
for the first time (c) (2,388) (2,388)
Purchase of fixed assets (17,638) (13,788) (23,612) (17,399) (12,672) (22,685)
Proceeds from sale of fixed assets 865 109 181 386 21
Subsidiaries' acquisition of shares (2)
------- ------- -------- -------- ------- -------
Net cash used in investing activities (16,773) (16,067) (165,542) (17,013) (15,039) (164,798)
------- ------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of share capital, net of issuance
costs 46,896 46,896
Long-term bank loans received 104,394 104,394
Long-term shareholders' loans received 47,370 47,370
Discharge of long-term loans (7,860) (7,860)
Short-term credit from banks - net (4,486) (5,687) 3,493 (5,026) 5,026
------- ------- -------- -------- ------- -------
Net cash provided by (used in) financing
activities (12,346) (5,687) 202,153 (7,860) (5,026) 203,686
------- ------- -------- -------- ------- -------
INCREASE IN CASH AND CASH
EQUIVALENTS 22,520 29,278 1,304 21,477 27,065 817
BALANCE OF CASH AND CASH
EQUIVALENTS AT THE
BEGINNING OF YEAR 30,582 1,304 27,882 817
------- ------- -------- -------- ------- -------
BALANCE OF CASH AND CASH
EQUIVALENTS AT END OF YEAR 53,102 30,582 1,304 49,359 27,882 817
======= ======= ======== ======== ======= =======
6
(Continued) - 2
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CASH FLOWS
IN ADJUSTED ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
------------------------------ -------------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
IN THOUSANDS (EXCEPT PER SHARE DATA)
------------------------------------------------------------------------
(A) ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Income and expenses not
involving cash flows:
Share in losses (profits) of
investee companies, net 399 865 1,012 (1,482) 1,784
Depreciation and amortization 8,737 7,032 5,330 7,014 5,578 4,729
Deferred income taxes - net 12,422 (2,746) 6,032 10,701 (2,782) 6,649
Liability for employee
rights upon retirement 5 (6) 21 (5)
Capital losses (gains) on
sale of fixed assets - net 91 204 (29) 41 (9)
Erosion of long-term bank loans (145) (2,313) (516) (145) (2,313) (516)
Erosion of (linkage differences
on) long-term loans to
investee company 121 (76) 15 195 (76)
------- ------- ------- -------- ------- ------
21,110 2,691 11,606 18,659 (818) 12,570
------- ------- ------- -------- ------- ------
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable:
Trade (752) 24,528 (95,632) (2,656) 179 8,631
American Israeli Paper Mills
Limited and its
subsidiaries - net (44,603) (31,724)
Subsidiaries 36,210 112,788 (159,917)
Other 9,763 (1,815) 711 8,636 (2,394) (4,642)
Decrease (increase) in inventories 14,074 66,101 (54,892) 6,214 45,640 (46,282)
Increase (decrease) in accounts
payable and accruals:
Trade 6,537 (4,276) 26,251 1,856 6,605 18,109
American Israeli Paper Mills
Limited and its
subsidiaries - net (20,336) (19,990) 79,647 (70,734) 70,734
Other 3,852 (7,335) (16,171) 4,643 (3,540) 49,553
------- ------- ------- -------- ------- ------
13,138 57,213 (60,086) 10,300 56,820 (63,814)
------- ------- ------- -------- ------- ------
34,248 59,904 (48,480) 28,959 56,002 (51,244)
======= ======= ======= ======== ======= ======
7
(Continued) - 3
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CASH FLOWS
IN ADJUSTED ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
------------ -----------
2000
-------------------------
IN THOUSANDS
-------------------------
(B) ACQUISITION OF OPERATIONS, SEE NOTE 2 -
assets and liabilities acquired
at acquisition date:
Working capital (excluding cash and
cash equivalents) - net (103,132) (107,631)
Investment in an associated company (3,567) (3,567)
Fixed assets (80,529) (76,632)
Liability for employee rights
upon retirement 88 88
Deferred income taxes - net (2,341) (1,739)
------- --------
(189,481) (189,481)
Less - amounts unpaid, see supplementary
information (1) below 47,370 47,370
------- --------
(142,111) (142,111)
======= ========
CONSOLIDATED
AND THE COMPANY
2001
IN THOUSANDS
---------------
(C) ACQUISITION OF A SUBSIDIARY CONSOLIDATED FOR THE FIRST TIME:
Fair value of assets and liabilities acquired, at acquisition date:
Working capital deficiency (excluding cash and cash equivalents) - net 4,205
Fixed assets (1,328)
Liability for employee rights upon retirement 55
Deferred income taxes - net (2,318)
Investment in the associated company at acquisition date* 2,258
Goodwill arising on acquisition** (6,643)
-------
(3,771)
Less - amount recorded against debit balance of the former shareholder,
see supplementary information (3) below 1,383
-------
(2,388)
=======
* See note 3a(3).
** Including goodwill balance at acquisition date.
8
(Concluded) - 4
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CASH FLOWS
IN ADJUSTED ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
-------------------------------- ----------------------------------
2002 2001 2000 2002 2001 2000
IN THOUSANDS
SUPPLEMENTAL DISCLOSURES:
Interest paid 3,875 5,045 2,989 3,861 5,045 2,989
====== ======= ======= ======= ====== =======
Income taxes paid - net 177 720 4,206 555 4,035
====== ======= ======= ====== =======
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING
CASH FLOWS:
1) The acquisition of operations described in (b) above, was partly (adjusted
NIS 47,370) financed by a long-term shareholders' loan. This amount is not
included among investing and financing activities in 2000.
2) In July 2001, the long-term shareholders' loans were converted into
capital notes. This conversion is not reflected among financing
activities.
3) On April 1, 2001 the Company increased its holdings in the associated
company, from 33.3% to 100%. Part of the consideration - adjusted NIS
1,383,000 - which was recorded against debit balance of the former
shareholder (which is included among the current account of subsidiaries
as of December 31, 2001), is not reflected among investing activities.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies, applied on a consistent basis, are
as follows:
A. GENERAL:
1) Incorporation and operations
Neusiedler Hadera Paper Ltd. (hereafter - the Company)
was incorporated and commenced operations on January 1,
2000. As to acquisition of operations, see note 2. The
Company and its subsidiaries (see (3) below), which are
detailed in the appendix to the financial statements, are
engaged in the production and sale of paper and paper
products - mainly in Israel, see also note 14.
As to agreements with AIPM (see (3) below), see note
12a(2).
2) Use of estimates in the preparation of financial
statements
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at
balance sheet date and the reported amounts of revenues
and expenses during the reported year. Actual results
could differ from those estimates.
3) Definitions:
The ultimate parent company - Anglo American Plc.
Subsidiaries - companies in which the Company has control
as defined in Opinion 57 of the Institute of Certified
Public Accountants in Israel (hereafter - the Israeli
Institute), the financial statements of which are
included in consolidation.
The Group - the Company and its subsidiaries.
The associated company - Miterani Paper Marketing 2000
(1998) Ltd., see also note 3a(3).
Investee companies - subsidiaries and the associated
company.
Shareholders - Neusiedler AG and American Israeli Paper
Mills Limited (hereafter - AIPM) which hold 50.1% and
49.9% of the Company's share capital, respectively.
Interested parties - as defined in the Israeli Securities
(Preparation of Annual Financial Statements) Regulations,
1993.
Affiliated company - a company in which AIPM holds,
directly or indirectly, 20% - 50% of the voting rights
and rights to profits.
Goodwill - the difference between the cost of investment
in an investee company and the Company's share in the
fair value of its net underlying assets on date of
acquisition.
10
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
B. ADJUSTED FINANCIAL STATEMENTS:
1) The Company and its subsidiaries maintain their accounts
in nominal new Israeli shekels ("NIS") and in U.S.
dollars ("dollars"). All figures in the financial
statements are presented in NIS adjusted for the changes
in the exchange rate of the dollar (rather than the
changes in the Israeli consumer price index; hereafter -
Israeli CPI), since the financial statements of AIPM are
adjusted on the same basis.
The adjusted NIS data are the product of the data in
dollar terms, multiplied by the representative exchange
rate of the dollar at December 31, 2002 - $1 = NIS 4.737
(see also note 9b).
Condensed nominal Israeli currency data of the Company
are presented in note 15.
2) Non-monetary balance sheet items have been adjusted on
the basis of the changes in the exchange rate of the
dollar since the related transactions were carried out.
The income statement components relating to these
non-monetary balance sheet items have been adjusted on
the same basis as the related balance sheet items.
The investment in the associated company is accounted for
by the equity method and the Company's share in its
operating results has been determined based on its
financial statements, adjusted on the basis of the
changes in the exchange rate of the dollar. Income
statement components (except financing) relating to
transactions carried out in the reported year - sales,
purchases, labour costs, etc. - have been adjusted on the
basis of the exchange rates in effect on transaction
dates.
Financial income and expenses represent such income and
expenses in real terms and the erosion of balances of
monetary items during the year.
3) The amounts of non-monetary items do not necessarily
represent realization value or any other economic value,
but only their original historical values adjusted on the
basis of the changes in the exchange rate of the dollar.
In these financial statements, the term "cost" signifies
cost in adjusted Israeli currency.
4) As for discontinuance of adjusting financial statements
commencing 2004, see also n hereafter.
C. PRINCIPLES OF CONSOLIDATION:
1) The consolidated financial statements include the
accounts of the Company and its subsidiaries. A list of
the subsidiaries is presented in the appendix to the
financial statements.
2) Intercompany transactions and balances, as well as
intercompany profits on sales which have not been
realized outside the Group, have been eliminated.
3) As to goodwill, see e(2) below.
11
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
D. INVENTORIES
Raw materials and supplies, finished goods and goods in
process, and purchased products are valued at the lower of
cost or market (net of processing costs, where appropriate),
net deduction of a provision for obsolescence; cost is
determined on the moving average basis.
E. INVESTMENTS IN INVESTEE COMPANIES:
1) The investments in these companies (in the financial
statements of the Company) are accounted for by the
equity method.
2) Goodwill is amortized in equal annual installments, over
a period of 10 years, commencing in the year of
acquisition.
F. FIXED ASSETS:
1) Fixed assets are stated at cost, see also note 2.
2) The assets are depreciated by the straight-line method on
basis of their estimated useful life.
Depreciation periods are as follows:
YEARS
-----
Machinery and equipment 7-20 (mainly 10 and 20)
Vehicles 5-7 (mainly 7)
Office furniture and equipment
(including computers) 3-17 (mainly 4)
Leasehold improvements are amortized by the straight-line
method over the expected term of the lease, which is
shorter than the estimated useful life of the
improvements.
G. DEFERRED INCOME TAXES:
1) Deferred taxes are computed on the basis of liability
method in respect of differences between the amounts
presented in these statements and those taken into
account for tax purposes. As to the main factors in
respect of which deferred taxes have been included - see
note 8e.
The amount of deferred taxes presented in the income
statements reflects changes in the above balances during
the reported years, see also note 8e.
2) Taxes which would apply in the event of disposal of
investments in the investee companies have not been taken
into account in computing the deferred taxes, as it is
the Company's policy to hold these investments, not to
realize them.
12
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
H. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is determined mainly for
specific debts doubtful of collection.
I. REVENUE RECOGNITION
Revenue from sale of products is recognized upon shipment
(date of transfer of ownership).
J. DERIVATIVES
Gains and losses on derivatives that are hedging existing
assets or liabilities are recognized in income commensurate
with the results from those assets and liabilities.
Gains and losses related to derivatives that are hedging firm
commitments are deferred, and ultimately recognized in income
as part of the measurement of the results of the underlying
hedged transactions.
K. IMPAIRMENT IN VALUE OF LONG-LIVED ASSETS
The company formerly adopted SFAS 121 of the Financial
Accounting Standards Board of the United States ("FASB") -
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", which related - prior to
its amendment in 2002 - to fixed assets and intangibles,
including goodwill related to those assets (hereafter -
"long-lived assets"). Through December 31, 2002, in accordance
with the provisions of the aforementioned standard, the
company regularly reviewed, in situations where an event had
occurred or circumstances had changed, which might indicate
that an impairment had taken place of the long-lived assets
used by the company, whether the undiscounted cash flows
anticipated from those assets, exceeded the amount at which
those assets were included in the accounts; when the
aforementioned cash flows did not cover the amount at which
the asset was presented in the accounts, it was written down
to its fair value, with the resulting impairment loss being
reflected in the statement of income. As to the transition to
applying Accounting Standard No. 15 of the Israeli Accounting
Standards Board, as from January 1, 2003, and the affect
thereof on the company, see n hereafter.
L. CASH EQUIVALENTS
The Group considers all highly liquid investments, which
include short-term bank deposits (up to three months from date
of deposit) that are not restricted as to withdrawal or use,
to be cash equivalents.
M. NET INCOME PER NIS 1 OF PAR VALUE OF SHARES
Net income per NIS 1 of par value of shares is computed in
accordance with Opinion 55 of the Israeli Institute.
The par value of shares used in computation of per share data
is NIS 1,000.
13
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
N. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
1) In February 2003, Accounting Standard No. 15 of the
Israeli Accounting Standards Board ("the IASB") -
"Impairment of Assets", became effective. This standard
which is based on International Accounting standard No.
36. requires a periodic assessment - at each balance
sheet date - to evaluate the need for a provision for the
impairment of the company's non-monetary assets - fixed
assets and identifiable intangibles, including goodwill,
as well as investments in associated companies. As
promulgated by the standard, its provisions are to
applied as of January 1, 2003. Pursuant to the provisions
of the standard, if any events have occurred or changes
in circumstances have taken place, which might indicate
that there has been an impairment of one or more of the
above assets, the company is required to evaluate whether
the carrying value of the investment in the asset is
recoverable from the cash flows anticipated from that
asset, and, if necessary, to record an impairment
provision up to the amount needed to adjust its carrying
amount to its recoverable amount. The impairment loss is
carried directly to income.
The recoverable amount of an asset is determined as being
the greater of the asset's net selling price and its
value in use to the company. The asset's value in use is
determined according to the present value of anticipated
cash flows from the continued use of the asset, including
those expected at the time of its future retirement and
disposal.
The company is making the necessary preparations in order
to apply this standard commencing with its first interim
financial statements in 2003, and is currently reviewing
the expected implications, if any, on its financial
statements.
The company formerly applied the provisions of the U.S.
standard dealing with this issue - seek. above - that
required an impairment loss to be recognized, only in the
event that the undiscounted cash flows from the asset
were less than its carrying value. As a result of the
transition to the Israeli standard, as above.
The Company does not expect the adoption of Accounting
Standard No. 15 to have a material effect on its
consolidated financial statements.
2) In October 2001, the IASB issued Israel Accounting
Standard No. 12 - "Discontinuance of Adjusting Financial
Statements for inflation", which provided for the
discontinuance of adjusted financial statements, as of
January 1, 2003. In December 2002, Accounting Standard
No. 17 was issued that postponed the date from which
Accounting Standard No. 12 is to be applied until January
1, 2004. The adjusted amounts as of December 31, 2003
will be the base for the nominal-historical financial
reporting in the following periods.
The implementation of Standard No. 12 will mainly effect
the financing expenses item.
Upon implementation of Standard No. 12, Clarifications
Nos. 8 and 9 to Opinion 36 of the Institute of Certified
Public Accountants in Israel will be canceled and will be
replaced with effect from January 1, 2004 by Israel
Accounting Standard No. 13, which was issued at the same
time as Standard No. 12. Most of the provisions of
Standard No. 13 correspond to the provisions, which
appeared in the above-mentioned clarifications.
14
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 - ACQUISITION OF OPERATIONS IN 2000
Pursuant to an agreement between AIPM and Neusiedler AG, in 2000
the Company and its subsidiaries purchased the activities (assets,
liabilities, operations, employees, employee rights and
commitments) relating to the field of printing and writing paper,
previously performed by several subsidiaries of AIPM. The cost of
assets and liabilities purchased as above, was determined based on
the amounts presented in the above subsidiaries' financial
statements at purchase date.
In these financial statements, the cost of fixed assets purchased
as above, represents the depreciated balance of the relevant fixed
assets, as included in the above subsidiaries' financial statements
at purchase date.
NOTE 3 - INVESTMENTS IN INVESTEE COMPANIES:
A. COMPOSED AS FOLLOWS:
THE COMPANY
DECEMBER 31
2002 2001
ADJUSTED NIS IN THOUSANDS
Shares*:
Cost (1) 4,693 4,693
Share in accumulated losses,
see also b. below (1,314) (302)
------ -------
3,379 4,391
Long-term loan granted (2) 2,515 2,530
------ -------
5,894 6,921
====== =======
* See also b. below.
The investment is presented in the
balance sheets as follows:
Among investments 8,119 7,691
Among long-term liabilities (2,225) (770)
------- -------
5,894 6,921
======= =======
(1) See also note 2.
(2) The loan is linked to the Israeli CPI and are interest
free. Repayment date has not yet been fixed.
(3) On April 1, 2001, the Company increased its holdings in
the associated company and reached control and ownership
of 100%.
15
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
ARTICLE I
NOTE 3 - INVESTMENTS IN INVESTEE COMPANIES (CONTINUED):
B. The difference between the amount of the investments in shares
of the investee companies and their equity at balance sheet
dates is composed as follows:
THE COMPANY
-------------------------------------------------
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------------ ----------------------
ORIGINAL DEPRECIATED ORIGINAL DEPRECIATED
AMOUNT BALANCE AMOUNT BALANCE
------ ------- ------ -------
ADJUSTED NIS IN THOUSANDS
-------------------------------------------------
Amount attributed to
deferred taxes:
In respect of
carryforward
tax losses *1,281 1,195
Other 234 225
Goodwill 6,743 5,462 6,743 6,139
------- ------- ------- -------
6,743 5,462 8,258 7,559
======= ======= ======= =======
* Excluding adjusted NIS 803,000 - taken into account in 2000.
C. The changes in the investments during 2002 are as follows:
THE COMPANY
ADJUSTED NIS
IN THOUSANDS
Balance at beginning of year 6,921
Changes during the year:
Share in undistributed losses, net (1,012)
Erosion of long-term loans (15)
-------
Balance at end of year 5,894
=======
16
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 - FIXED ASSETS
Composition of assets, grouped by major classifications, and
changes therein during 2002, are as follows:
COST ACCUMULATED DEPRECIATION
----------------------------------------- ------------------------------------------
CHANGES DURING CHANGES DURING
THE YEAR THE YEAR DEPRECIATED BALANCE
---------------- ----------------- -------------------
BALANCE AT CONSOLI- BALANCE AT BALANCE AT DECEMBER 31
BEGINNING RETIRE- DATED END BEGINNING RETIRE- END OF -------------------
OF YEAR ADDITIONS MNETS OF YEAR OF YEAR ADDITIONS MENTS YEAR 2002 2001
------- --------- ----- ------- ------- --------- ----- ---- ---- ----
CONSOLIDATED:
Machinery and equipment 103,546 18,313 981 120,878 9,964 6,800 475 16,289 104,589 93,582
Vehicles 3,287 267 935 2,619 1,211 587 485 1,313 1,306 2,076
Office furniture
and equipment
(including computers) 2,366 258 2,624 477 261 738 1,886 1,889
Leasehold improvements 3,889 79 3,968 712 412 1,124 2,844 3,177
Payments on account of
acquisition of
machinery
and equipment 6,209 (1,279) 4,930 4,930 6,209
-------- ------ -------- -------- -------- -------- -------- -------- -------- --------
119,297 17,638 1,916 135,019 12,364 8,060 960 19,464 115,555 106,933
======== ====== ======== ======== ======== ======== ======== ======== ======== ========
THE COMPANY:
Machinery and equipment 101,628 18,273 767 119,134 9,475 6,568 397 15,646 103,488 92,153
Vehicles 180 92 88 54 22 35 41 47 126
Office furniture
and equipment
(including computers) 1,349 232 1,581 217 143 360 1221 1,132
Leasehold improvements 2,807 2,807 559 281 840 1,967 2,248
Payments on account of
acquisition of
machinery
and equipment 6,011 (1,106) 4,905 4,905 6,011
-------- ------- -------- -------- -------- ------- -------- -------- -------- --------
111,975 17,399 859 128,515 10,305 7,014 432 16,887 111,628 101,670
======== ======= ======== ======== ======== ======= ======== ======== ======== ========
17
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5 - LONG-TERM LOANS:
A. BANK LOANS:
WEIGHTED CONSOLIDATED AND
AVERAGE THE COMPANY
INTEREST RATES DECEMBER 31
-------------- -----------------------
2002 2001
---- ----
ADJUSTED NIS
% IN THOUSANDS
- -----------------------
1) Composed as follows:
Linked to the dollar 3.53 68,340 74,915
Linked to the Israeli CPI 6.55 25,220 26,650
------- -------
93,560 101,565
Less - current maturities 15,850 7,868
------- -------
77,710 93,697
======= =======
2) The non-current portion of
the loans matures as
follows:
Second year 16,028 15,862
Third year 16,220 16,042
Fourth year 16,424 16,236
Fifth year 11,906 16,442
Sixth year and thereafter 17,132 29,115
------- -------
77,710 93,697
======= =======
3) As to a "negative pledge agreement" signed by the
Company, see note 10c.
B. SHAREHOLDERS' LOANS:
1) As of December 31, 2000, the loans were dollar-linked and
beared 2.5% annual interest.
2) In July 2001, the loans were converted into capital
notes, see note 6.
NOTE 6 - CAPITAL NOTES
The capital notes - from shareholders, see also note 5b - are
dollar-linked and bear no interest. Repayment date have not been
fixed.
The Company's board of directors decided to pay the shareholders,
during 2003, an amount of NIS 18,948,000 in respect of capital
notes.
18
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT:
A. Israeli labor laws and agreements require the payment of
severance pay to employees dismissed or retiring in certain
other circumstances, computed on the basis of the number of
years of service and, generally, the latest pay rate (one
month's pay for each year of service) or of a pension upon
retirement.
To cover the liability for employee rights upon retirement,
pursuant to labor agreements currently in force and based on
salary components which, in management's opinion, create
entitlement to severance pay, deposits are made with various
provident funds (including pension funds) or insurance
policies in the name of the employees.
The severance pay and pension liabilities and the amounts
funded as above are not reflected in the financial statements,
as the significant pension and severance pay risks have been
irrevocably transferred to the pension funds and the insurance
companies, as allowed by the Severance Pay Law.
The liability presented in the balance sheets represents the
severance pay liability in respect of temporary employees.
B. The expenses relating to employee rights upon retirement,
which reflect the amounts that were deposited with provident
funds, pension funds and various insurance policies in respect
of permanent employees, and severance payments made in respect
of temporary employees, together amount to adjusted NIS
2,547,000, adjusted NIS 2,701,000 and adjusted NIS 2,561,000
in 2002, 2001 and 2000 respectively.
NOTE 8 - TAXES ON INCOME:
A. MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME TAX
(INFLATIONARY ADJUSTMENTS) LAW, 1985 (hereafter - the
inflationary adjustments law)
Under the inflationary adjustments law, results for tax
purposes are measured in real terms, having regard to the
changes in the Israeli CPI. The companies in the Group are
taxed under this law.
B. THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXATION), 1969
The Company is an "industrial company" as defined by this law.
As such, it is entitled to claim, and has in fact claimed,
depreciation at accelerated rates on equipment used in
industrial activity as stipulated by regulations published
under the inflationary adjustments law.
19
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - TAXES ON INCOME (continued):
C. REFORM OF THE ISRAELI TAX SYSTEM
In 2002, Amendment to the Income Tax Ordinance (No. 132), 2002
(hereafter - the tax reform law) was published. The tax reform
law comprehensively reforms certain parts of the Israeli tax
system. The tax reform law comes into effect on January 1,
2003, although certain provisions therein will only be applied
from later dates. In accordance with the provisions of the tax
reform law, as from January 1, 2003, capital gains will be
taxed at a reduced rate of 25%, instead of the regular rate of
36% at which they were taxed until the aforementioned date;
with regard to the sale of assets acquired prior to January 1,
2003, the reduced tax rate will be applicable only for the
gain allocated to capital gains earned after the
implementation of that law, which will be calculated, as
prescribed by the tax reform law. Furthermore, the tax reform
law stipulates, that carryforward capital losses, may be
utilized against capital gains, without any time restriction
(the time limitation for the utilization has been removed in
respect of capital losses which arose in the tax year 1996 and
thereafter). The tax reform law also includes an arrangement
to allow the set off of capital losses from the sale of
overseas assets against capital gains in Israel.
D CARRYFORWARD TAX LOSSES
As of December 31, 2002, carryforward tax losses of the Group
and the Company are adjusted NIS 42,228,000. Under the
inflationary adjustments law, the carryforward losses are
linked to the Israeli CPI.
20
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - TAXES ON INCOME (continued):
E. DEFERRED INCOME TAXES:
1) Composition of the deferred taxes, and the changes
therein during 2002 and 2001, are as follows:
PROVISIONS FOR
EMPLOYEE RIGHTS
------------------------
IN
VACATION ALLOWANCE RESPECT
& FOR OF CARRY
DEPRECIABLEFIXED SEVEREANCE RECREATION DOUBTFUL FORWARD
ASSETS INVENTORIES PAY PAY ACCOUNTS TAX LOSSES TOTAL
---------------- ----------- ---------- ---------- -------- ---------- -----
ADJUSTED NIS IN THOUSANDS
---------------------------------------------------------------------------------------
CONSOLIDATED:
Balance at December 31, 2000 (7,281) 630 31 2,038 891 (3,691)
Changes in 2001:
Amounts carried to income (13,141) (2,122) (2) (336) 342 18,005 2,746
Addition of deferred taxes in
respect of a company
consolidated for the
first time 19 62 153 2,084 2,318
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2001 (20,422) (1,492) 48 1,764 1,386 20,089 1,373
Changes in 2002 -
amounts carried to income (8,885) 1,378 4 (245) 213 (4,887) (12,422)
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2002 (29,307) (114) 52 1,519 1,599 15,202 (11,049)
======= ======= ======= ======= ======= ======= =======
21
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - TAXES ON INCOME (continued):
E. DEFERRED INCOME TAXES (continued):
PROVISIONS FOR EMPLOYEE RIGHTS
------------------------------
IN RESPECT OF
DEPRECIABLEFIXED SEVERANCE VACATION & CARRY-FORWARD
ASSETS INVENTORIES PAY RECREATION PAY TAX LOSSES TOTAL
---------------- ----------- --------- -------------- ---------- -----
ADJUSTED NIS IN THOUSANDS
----------------------------------------------------------------------------------------
THE COMPANY:
Balance at December 31, 2000 (7,281) 568 31 1,773 (4,909)
Changes in 2001 -
amounts carried to income (13,141) (1,772) (2) (308) 18,005 2,782
------- ------- ------- ------- ------- -------
Balance at December 31, 2001 (20,422) (1,204) 29 1,465 18,005 (2,127)
Changes in 2002 -
amounts carried to income (8,885) 1,162 8 (183) (2,803) (10,701)
------- ------- ------- ------- ------- -------
Balance at December 31, 2002 (29,307) (42) 37 1,282 15,202 (12,828)
======= ======= ======= ======= ======= =======
The deferred taxes are computed at the rate of 36%.
22
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - TAXES ON INCOME (continued):
E. DEFERRED INCOME TAXES (continued):
2) Deferred taxes are presented in the balance sheets, as
follows:
CONSOLIDATED THE COMPANY
-------------------------------------------- ------------------------------------------
AMONG AS A AMONG AS A
CURRENT NON-CURRENT CURRENT NON-CURRENT
ASSETS (1) LIABILITY (2) TOTAL ASSETS (1) LIABILITY (2) TOTAL
-------------- -------------- ------------ ------------- -------------- -----------
ADJUSTED NIS IN THOUSANDS ADJUSTED NIS IN THOUSANDS
-------------------------------------------- ------------------------------------------
Balance at December 31, 2000 3,558 (7,249) (3,691) 2,341 (7,250) (4,909)
Changes in 2001 *(1,906) *6,970 5,064 *(2,080) *4,862 2,782
------ ------ ------ ------ ------ ------
Balance at December 31, 2001 1,652 (279) 1,373 261 (2,388) (2,127)
Changes in 2002 8,454 (20,876) (12,422) 8,085 (18,786) (10,701)
------ ------ ------ ------ ------ ------
Balance at December 31, 2002 10,106 (21,155) (11,049) 8,346 (21,174) (12,828)
====== ====== ====== ====== ====== ======
* Reclassified.
(1) In respect of inventories, allowance for doubtful
accounts, carryforward tax losses, vacation and
recreation pay.
(2) In respect of depreciable fixed assets, severance pay and
carryforward tax losses.
(3) The deferred taxes are computed at the rate of 36%.
23
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - TAXES ON INCOME (continued):
F. TAXES ON INCOME INCLUDED IN THE STATEMENTS OF INCOME (LOSS):
1) As follows:
CONSOLIDATED THE COMPANY
---------------------------- ----------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
----------------------------------------------------------------
For the reported year:
Current 55 1,006 (100) 788
Deferred, see d.
above 11,056 (1,904) 6,032 10,701 (1,940) 6,649
------- ------- ------- ------ ------- ------
11,111 (1,904) 7,038 10,601 (1,940) 7,437
For previous years:
Current (793) (787)
Deferred 1,366 (842) (842)
------- ------- ------- ------ ------- ------
12,477 (3,539) 7,038 10,601 (3,569) 7,437
======= ======= ======= ====== ======= ======
24
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - TAXES ON INCOME (continued):
F. TAXES ON INCOME INCLUDED IN THE STATEMENTS OF INCOME (LOSS)
(continued):
2) Following is a reconciliation of the theoretical tax
amount, assuming all income (loss) is taxed at the
regular rate, and the actual tax amount:
CONSOLIDATED THE COMPANY
-------------------------------------------------- -----------------------------------------------
2002 2001 2000 2002 2001 2000
-------------- -------------- ------------- ------------- ------------ ------------
ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED
NIS NIS NIS NIS NIS NIS
IN IN IN IN IN IN
% THOUSANDS % THOUSANDS % THOUSANDS % THOUSANDS % THOUSANDS % THOUSANDS
- --------- - --------- - --------- - --------- - --------- - ---------
Income (loss) before
taxes on income, as
reported in the
statements of
income (loss) 100.0 29,868 (100.0) (12,012) 100.0 21,076 100.0 29,004 (100.0) (13,923) 100.0 22,394
====== ======= ====== ======= ===== ===== ==== ====== ====== ======= ===== ======
Theoretical tax
tax benefit)
on the above amount 36.0 10,752 (36.0) (4,324) 36.0 7,587 36.0 10,441 (36.0) (5,013) 36.0 8,061
Changes in taxes
resulting from:
Differences between
Israeli CPI adjusted
tax returnsand
dollar-adjusted
financial statements -
net (see a. above) 0.7 201 20.0 2,394 (4.5) (949) 0.3 85 22.0 3,001 (3.8) (852)
Disallowable deductions 1.2 262 0.7 168
Other - net 0.5 158 0.1 26 0.7 138 0.2 75 0.1 72 0.3 60
------ ------- ------ ------- ----- ----- ---- ------ ------ ------- ----- ------
Taxes on income
(tax benefit) for
the reported year 37.2 11,111 (15.9) (1,904) 33.4 7,038 36.5 10,601 (13.9) (1,940) 33.2 7,437
====== ======= ====== ======= ===== ===== ==== ====== ====== ======= ===== ======
G. TAX ASSESSMENTS
The Company and its subsidiaries have not been
assessed for purposes since incorporation.
25
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 9 - LINKAGE TERMS OF MONETARY BALANCES:
A. AS FOLLOWS:
C O N S O L I D A T E D T H E C O M P A N Y
--------------------------------------- ------------------------------------
D E C E M B E R 3 1 , 2 0 0 2 D E C E M B E R 3 1 , 2 0 0 2
--------------------------------------- ------------------------------------
IN, OR IN, OR
LINKED LINKED
TO, FOREIGN LINKED TO, FOREIGN LINKED
CURRENCY TO THE CURRENCY TO THE
MAINLY THE ISRAELI MAINLY THE ISRAELI
DOLLAR CPI UNLINKED DOLLAR CPI UNLINKED
---------- ------- -------- ----------- ------- --------
ADJUSTED NIS IN THOUSANDS ADJUSTED NIS IN THOUSANDS
Assets:
Current assets:
Cash and cash equivalents 34,329 18,773 30,899 18,460
Accounts receivable:
Trade 39,582 128,084 3,041
American Israeli Paper Mills Limited and its
subsidiaries - net 76,327
Subsidiaries 9,536
Other 1,549 1,154 1,208 4,541
Long-term loan to subsidiary 2,515
------- ------- ------- ------- -------
75,460 148,011 32,107 2,515 111,905
======= ======= ======= ======= =======
Liabilities:
Current liabilities:
Credit from banks 19 Accounts payable
and accruals:
Trade 60,558 22,359 34,230 14,202
American Israeli Paper Mills Limited and its
subsidiaries - net 59,156
Other 1,421 14,699 1,421 12,494
Long-term liabilities:
Bank loans (including current maturities) 68,340 25,220 68,340 25,220
Capital notes from shareholders
(including current maturities) 94,740 94,740
------- ------- ------- ------- ------- -------
225,059 25,220 96,233 198,731 25,220 26,696
======= ======= ======= ======= ======= =======
As to derivative financial instruments, see note 13.
26
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 9 - LINKAGE TERMS OF MONETARY BALANCES (CONTINUED):
B. DATA REGARDING THE EXCHANGE RATE AND THE ISRAELI CPI:
EXCHANGE RATE OF
ONE DOLLAR CPI*
---------- ----
At end of year:
2002 NIS 4.437 182.01 points
2001 NIS 4.416 170.91 points
2000 NIS 4.041 168.53 points
1999 NIS 4.153 168.53 points
Increase (decrease) during the year:
2002 7.3% 6.5%
2001 9.3% 1.4%
2000 (2.7 )% -,-
* Based on the index for the month ending on each balance sheet date, on the
basis of the 1993 average = 100.
NOTE 10 - COMMITMENTS:
A. The subsidiaries entered into operating lease agreements for
the buildings they use. The agreements are for periods ending
through 2008. The projected annual rental payments for the
next five years, based on rates in effect as of December 31,
2002, approximate adjusted NIS 7,820,000.
B. As to a lease agreement relating to the Company, see note
12a(2).
C. To secure bank loans and credits (the balance of which at
December 31, 2002 is adjusted NIS 93,560,000), the Company
signed a "negative pledge agreement," under which it is
committed not to pledge its assets (of all kinds), excluding
fixed pledges relating to assets financed by others.
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
BALANCE SHEETS:
A. ACCOUNTS RECEIVABLE:
CONSOLIDATED THE COMPANY
DECEMBER 31 DECEMBER 31
----------- -----------
2002 2001 2002 2001
---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
--------------------------------------------
1) Trade:
Composed as follows:
Open accounts 128,815 133,428 3,041 385
Cheques receivable 38,851 33,486
------- -------- ------- -------
167,666 166,914 3,041 385
======= ======== ======= =======
The item includes (is net of):
Neusiedler AG, see note 1a(3) 36,996 40,430
======= ========
Affiliated company 3,041 385 3,041 385
======= ======== ======= =======
Allowance for doubtful accounts (4,442) (3,850)
======= ========
27
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
DECEMBER 31 DECEMBER 31
----------- -----------
2002 2001 2002 2001
---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
------------------------------------------
2) Other:
Institutions 775 4,779 393 4,473
Customs and value added tax
(VAT) authorities* 3,997 4,177
Prepaid expenses 545 5,036 270 3,532
Advances to suppliers 488 1,620 488 1,615
Amounts accrued in respect of
forward transactions, see
note 13c 546 408 546 408
Deferred income taxes, see note 8e 10,106 **1,652 8,346 **261
Sundry 1,382 1,656 813 938
------- ------- ------- -------
13,842 15,151 14,853 15,404
======= ======= ======= =======
* Consolidated VAT returns are filed by the Group.
** Reclassified.
B. INVENTORIES:
For industrial activities:
Finished goods and goods in process 41,449 59,260 39,549 52,215
Raw materials and supplies 30,326 23,874 30,326 23,874
------- ------- ------- -------
71,775 83,134 69,875 76,089
For commercial activities - purchased products 14,438 17,153
------- ------- ------- -------
86,213 100,287 69,875 76,089
======= ======= ======= =======
The item is net of provision for obsolescence 1,487 2,894 1,018 1,729
======= ======= ======= =======
C. CREDIT FROM BANKS
Composed as follows:
Short-term credit 19 4,505
Current maturities of long-term loans, see note 5a 15,850 7,868 15,850 7,868
------- ------- ------- -------
15,869 12,373 15,850 7,868
======= ======= ======= =======
Unutilized credit lines 94,940 94,840 94,740 94,740
======= ======= ======= =======
In 2002 and 2001, the Company and its subsidiaries entered into an agreement for
a bank credit facility, pursuant to which the Company and its subsidiaries may,
from time to time, borrow an aggregate principal amount of up to adjusted NIS
94,940,000. Under the terms of the agreement, the credit facility has no time
limit.
* The credit is unlinked and bears 9.5% annual interest as of December 31, 2002.
28
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
D. ACCOUNTS PAYABLE AND ACCRUALS:
1) Trade:
CONSOLIDATED THE COMPANY
------------ -----------
DECEMBER 31 DECEMBER 31,
----------- ------------
2002 2001 2002 2001
---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
--------------------------------------------------
The item includes:
Neusiedler AG, see
note 1a (3) 1,625 2,718 602 1,204
======= ======== ======= =======
Affiliated company 4,265 4,525
======= ========
2) Other:
Payroll and related expenses 1,724 920 1,667 694
Provision for vacation and recreation pay 4,216 4,896 3,563 4,067
Customs and value added tax (VAT)
authorities* 1,090 756
Interest payable 3,695 2,336 3,695 2,336
Advances from customers 5,443 6,594
Neusiedler AG, see note 1a (3) 2,056 218 2,056 218
Sundry 3,339 1,991 2,934 1,957
------- -------- ------- -------
21,563 17,711 13,915 9,272
======= ======== ======= =======
* Consolidated VAT returns are filed by the Group.
STATEMENTS OF INCOME (LOSS):
CONSOLIDATED THE COMPANY
---------------------------- ----------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
--------------------------------------------------------------------
E. SALES - net (1):
Industrial activities (2) 458,874 439,229 434,971 455,865 430,700 447,097
Commercial activities 163,791 163,930 181,925
------- ------- ------- ------- ------- -------
622,665 603,159 616,896 455,865 430,700 447,097
======= ======= ======= ======= ======= =======
(1) Including sales to:
Investee companies 15,135 40,497 455,865 430,700 447,097
======= ======= ======= ======= =======
Shareholders and its
subsidiaries 167,418 129,287 62,931
======= ======= =======
Affiliated company 900 1,383 1,671
======= ======= =======
(2) Including export, see
note 14 161,462 136,364 59,555
======= ======= =======
29
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
----------------------------- ------------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
--------------------------------------------------------------------
F. COST OF SALES :
Industrial activities:
Materials consumed 271,596 274,044 311,140 271,596 274,044 311,140
Payroll and related
expenses 34,845 38,407 41,103 34,845 38,407 41,103
Energy costs 39,526 37,142 39,326 39,526 37,142 39,326
Depreciation 6,992 5,551 4,699 6,992 5,551 4,699
Other manufacturing
costs and expenses
(including rent) 35,830 39,798 43,353 34,272 38,132 41,772
Decrease (increase) in
inventories of finished
goods and goods in process
(2000 - as from acquisition
of operations date, see
note 2) 20,526 *33,230 (35,187) 12,666 *17,018 (33,951)
------- ------- ------- -------- ------- ------
409,315 428,172 404,434 399,897 410,294 404,089
Commercial activities -
cost of products
sold 132,109 128,734 154,173
------- ------- ------- -------- ------- ------
541,424 556,906 558,607 399,897 410,294 404,089
======= ======= ======= ======== ======= ======
* After deduction of adjusted NIS 9,330,000 - amounts refunded from insurance
companies.
30
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
---------------------------- ---------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
---------------------------------------------------------------
G. SELLING, MARKETING,
ADMINISTRATIVE AND
GENERAL EXPENSES:
Selling and marketing:
Payroll and related
expenses 12,534 13,837 13,709 5,874 5,418 6,631
Packaging and
shipping 15,945 12,666 4,637 10,189 10,625 3,325
Office and warehouse
rent and
maintenance 2,387 3,120 3,022
Equipment and vehicle
maintenance 1,544 2,269 1,739 341 373 388
Advertising 166 265 511 125 157 407
Commissions 190 322 355 190 322 355
Subsistence,
entertainment and
and travel 336 166 336 166
Depreciation 952 853 566 22 27 30
Other 493 120 117 450 56 68
------- ------- ------- ------- ------ -----
34,547 33,618 24,656 17,527 17,144 11,204
======= ======= ======= ======= ====== =====
Administrative and
general:
Payroll and related
expenses 3,581 4,155 3,624 2,260 2,297 2,577
Office supplies, rent
and maintenance 2,530 1,994 1,525 687 681 630
Professional fees and
management fee 2,409 2,368 1,856 1,676 1,633 1,406
Depreciation and
amortization 793 628 65
Doubtful accounts and
bad debts 1,596 1,033 1,351
Other 256 284 99 66 10 65
------- ------- ------- ------- ------ -----
11,165 10,462 8,520 4,689 4,621 4,678
======= ======= ======= ======= ====== =====
31
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 11 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
---------------------------- ---------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
---------------------------------------------------------------
G. FINANCIAL INCOME (EXPENSES)
- NET:
Expenses:
In respect of long-term
loans net of hedges 4,552 6,243 3,974 4,552 6,243 3,974
In respect of related
parties 2,245 621 7,688 3,401
Erosion of operating
monetary balances 5,258 9,332 1,828 1,464
In respect of interest and
exchange differences
on customers
balances' - net 1,241 947
In respect of short-term
balances - net 1,355 2,795 815 2,297
Other 292 182 201 176
------- ------- ------- ------- ------- ------
(11,051) (18,169) (11,024) (6,637) (14,947) (9,848)
------- ------- ------- ------- ------- ------
Income:
In respect of increase in
value of cash
balances relating to
operating activity 2,383 606
In respect of interested
parties 4,026 3,984
Hedges 545 4,510 545 4,510
In respect of interest and
exchange differences
on customers
balances' - net 2,477
In respect of short-term
balances - net 512 1,028
Other 307 316
------- ------- ------- ------- ------- ------
5,390 3,984 6,987 1,889 2,383 5,116
------- ------- ------- ------- ------- ------
(5,661) (14,185) (4,037) (4,748) (12,564) (4,732)
======= ======= ======= ======= ======= ======
32
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 12 - "INTERESTED PARTIES" - TRANSACTIONS AND BALANCES:
A. TRANSACTIONS - EXPENSES (INCOME):
1) As follows:
CONSOLIDATED THE COMPANY
---------------------------------- --------------------------------
2002 2001 2000 2002 2001 2000
ADJUSTED NIS IN THOUSANDS
---------------------------------------------------------------------------
Sales (168,320) (130,670) (64,603)
======= ======= =======
Costs and expenses 77,616 85,536 92,769 71,628 79,392 88,611
======= ======= ======= ====== ======= ======
Financial - net (4,026) (3,984) 2,245 (322) 3,425 3,600
======= ======= ======= ====== ======= ======
2) The Company leases its premises from AIPM and uses
services (including electricity, water, maintenance and
professional services) rendered under agreements which
are renewed every year. The expenses in respect of the
above agreements are presented in (1) above.
3) As to acquisition of operations in 2000, see note 2.
4) The transactions as above represent transactions carried
out in the ordinary course of business, at terms and
prices as with non-affiliated customers and suppliers.
B. BALANCES WITH INTERESTED PARTIES:
CONSOLIDATED THE COMPANY
DECEMBER 31 DECEMBER 31
----------- -----------
2002 2001 2002 2001
---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
------------------------------------------------
Current assets - accounts
receivable 40,037 40,815 79,368 32,109
======= ======= ======= =======
Current liabilities - accounts
payable and accruals 67,694 *88,137 3,250 *2,606
======= ======= ======= =======
Capital notes and current maturities
of long-term capital notes 94,740 94,740 94,740 94,740
======= ======= ======= =======
* Reclassified.
33
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 13 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
A. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative
financial instruments. The Company uses these instruments as
hedges. The Company utilizes derivatives, mainly forward
exchange contracts to protect its dollar cash flows in respect
of existing assets and liabilities.
B. CREDIT RISKS
The Group's cash and cash equivalents are deposited mainly
with major Israeli banks. Most of the Group's sales are made
in Israel and Europe, to a large number of customers. The
exposure to credit risks relating to trade receivables is
limited due to the relatively large number of customers. The
Group performs ongoing credit evaluations of its debtors and
requires collaterals when appropriate. An appropriate
allowance for doubtful accounts is included in the financial
statements.
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Group consist mainly of
non-derivative assets and liabilities (which include working
capital items, long-term loans to investee companies,
long-term loans received and capital notes) and of some
derivatives (see a. above). In view of their nature, the fair
value of the financial instruments included in working capital
of the Group is usually identical or close to their carrying
value. The fair value of the long-term loans also approximates
the carrying value, since they bear interest at rates close to
the prevailing market rates. The Company does not disclose the
fair value of capital notes from shareholders, included under
current liabilities and long-term liabilities aggregating
adjusted NIS 94,740 in thousands (see note 6), since their
value cannot be reliably determined prior to determining their
repayment dates.
The fair value and the carrying value of derivatives at
December 31, 2002 and 2001 is approximately adjusted NIS
546,000 and adjusted NIS 408,000, respectively, and generally
reflects the estimated amounts that the Group would receive or
pay to terminate the contracts at the reporting dates.
NOTE 14 - BUSINESS AND GEOGRAPHICAL SEGMENTS
Following are data regarding the distribution of the Group's
consolidated sales by geographical market, regardless of where the
goods were produced:
2002 2001 2000
ADJUSTED NIS
---------------------------------------------
IN THOUSANDS
Europe 139,996 118,998 47,232
Israel 461,203 466,795 557,341
Other 21,466 17,366 12,323
-------- -------- --------
622,665 603,159 616,896
======= ======= =======
34
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 15 - NOMINAL DATA OF THE COMPANY:
A. BALANCE SHEET DATA:
NOMINAL NIS
IN THOUSANDS
-----------------------------
DECEMBER 31
-----------------------------
2002 2001
---- ----
A S S E T S
Current assets:
Cash and cash equivalents 49,359 25,993
Accounts receivable:
Trade 3,041 359
American Israeli Paper Mills Limited and its
subsidiaries - net 76,327 29,574
Subsidiaries 9,536 42,646
Other 6,454 14,113
Inventories 69,751 68,185
-------- --------
214,468 180,870
-------- --------
Investments in investee companies 7,252 6,052
-------- --------
Fixed assets:
Cost 114,341 98,001
L e s s - accumulated depreciation 14,853 9,009
-------- --------
99,488 88,992
-------- --------
321,208 275,914
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Credit from banks 15,850 7,335
Current maturities of long-term capital loans 18,948
Accounts payable and accruals:
Trade 48,432 43,420
Other 13,915 8,644
-------- --------
97,145 59,399
-------- --------
Long-term liabilities:
Bank loans 77,710 87,348
Capital notes from shareholders (net of
current maturities) 75,792 88,320
Excess of losses of subsidiaries over the
investments therein 4,325 2,884
Liability for employee rights upon retirement 104 77
-------- --------
157,931 178,629
-------- --------
T o t a l liabilities 255,076 238,028
-------- --------
Shareholders' equity, see c. below:
Share capital 1 1
Capital surplus 41,125 41,125
Retained earnings (accumulated deficit) 25,006 (3,240)
-------- --------
66,132 37,886
-------- --------
321,208 275,914
======== ========
35
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 15 - NOMINAL DATA OF THE COMPANY (continued):
B. OPERATING RESULTS DATA:
NOMINAL NIS
IN THOUSANDS
----------------------------------------------
2002 2001 2000
---- ---- ----
Sales - net 452,986 382,166 384,585
Cost of sales 390,336 360,306 348,519
------- -------- --------
Gross profit 62,650 21,860 36,066
------- -------- --------
Selling, marketing, administrative and general expenses:
Selling and marketing 17,423 15,216 9,647
Administrative and general 4,639 4,120 4,028
------- -------- --------
22,062 19,336 13,675
------- -------- --------
Income from ordinary operations 40,588 2,524 22,391
Financial expenses - net 11,957 22,130 1,075
------- -------- --------
Income (loss) before taxes on income 28,631 (19,606) 21,316
Taxes on income (tax benefit), see d. below (669) 2,280
------- -------- --------
Income (loss) after taxes on income 28,631 (18,937) 19,036
Share in losses of investee companies, net 385 559 2,780
------- -------- --------
Net income (loss) for the year - nominal 28,246 (19,496) 16,256
======= ======== ========
C. CHANGES IN SHAREHOLDERS' EQUITY:
NOMINAL NIS IN THOUSANDS
------------------------
SHARE CAPITAL ACCUMULTED
CAPITAL SURPLUS DEFICIT TOTAL
------- ------- ------- -----
Changes during 2000:
Issuance of share capital 1 *41,125 41,126
Net income 16,256 16,256
-------- -------- -------- --------
Balance at December 31, 2000 1 41,125 16,256 57,382
Changes during 2001 -
loss (19,496) (19,496)
-------- -------- -------- --------
Balance at December 31, 2001 1 41,125 (3,240) 37,886
Changes during 2002 -
net income 28,246 28,246
-------- -------- -------- --------
Balance at December 31, 2002 1 41,125 25,006 66,132
======== ======== ======== ========
* Net of NIS 405,000 - issuance expenses.
D. For practical reasons, no deferred taxes are created in the
nominal accounts. The taxes on income reflected in the 2000
nominal income statement (see b. above) include write-off of
nominal deferred tax balances transferred in connection with
the acquisition of operations described in note 2.
36
APPENDIX
NEUSIEDLER HADERA PAPER LTD.
DETAILS OF INVESTEE COMPANIES
AT DECEMBER 31, 2002
PERCENTAGE OF
HOLDING
IN SHARES CONFERRING
PROFIT AND
VOTING RIGHTS
---------------------------
%
-
SUBSIDIARIES:
Grafinir Paper Marketing Ltd. 100.00
Yavnir (1999) Ltd. 100.00
Neusiedler Hadera Paper Marketing (1999) Ltd. 100.00
Miterani Paper Marketing 2000 (1998) Ltd., see also note 3a(3) 100.00
37
HOGLA-KIMBERLY LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2002
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7-27
Independent Auditors' Report to the
Shareholders of Hogla-Kimberly Ltd.
We have audited the accompanying balance sheet of HOGLA-KIMBERLY LTD. ("the
Company") as of December 31, 2002, and the consolidated balance sheet as of that
date, and the related statements of operations, changes in shareholders' equity
and cash flows - of the Company and on a consolidated basis - for the year then
ended. These financial statements are the responsibility of the Company's Board
of Directors and management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of the
Company and on a consolidated basis as of December 31, 2001 and for each of the
two years in the period then ended were audited by other auditors whose report,
dated March 4, 2002, expressed an unqualified opinion on those financial
statements.
We conducted our audit in accordance with generally accepted auditing standards
in the United States and in Israel, including those prescribed by the Israeli
Auditors' Regulations (Mode of Performance), 1973. 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 Board of Directors and
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 and on a
consolidated basis - as of December 31, 2002, and the results of operations,
changes in shareholders' equity and cash flows - of the Company and on a
consolidated basis - for the year ended December 31, 2002, in accordance with
generally accepted accounting principles in Israel. In addition, in our opinion,
the financial statements have been prepared in accordance with the Israeli
Securities Regulations (Preparation of Annual Financial Statements), 1993.
As explained in Note 2A, the financial statements have been prepared on the
basis of historical cost adjusted for changes in the exchange rate of the U.S.
dollar in relation to the NIS, in accordance with pronouncements of the
Institute of Certified Public Accountants in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
the financial position and results of operations as of the dates and for the
years presented to the extent summarized in Note 25.
Brightman Almagor & Co.
Certified Public Accountants
A Member of Deloitte Touche Tohmatsu
Tel Aviv, March 6, 2003
HOGLA-KIMBERLY LTD.
BALANCE SHEETS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
DECEMBER 31, DECEMBER 31,
NOTE 2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
Current Assets
Cash and cash equivalents 3 23,074 29,142(*) 11,718 9,554
Short-term bank deposit - 61,735(*) - -
Current maturities of long-term bank deposits 7 9,947 27,001 9,947 27,001
Trade receivables 4 197,494 181,824 44,542 134,847(*)
Other receivables 5 11,439 17,581 7,268 5,324
Inventories 6 93,493 75,793 45,749 34,492
------- ------- ------- -------
335,447 393,076 119,224 211,218
------- ------- ------- -------
Long-Term Investments
Long-term deposits 7 84,319 76,739 8,527 947
Capital note from shareholder 8 32,770 35,152 32,770 35,152
Investments in Subsidiaries 9 - - 171,587 170,407(*)
------- ------- ------- -------
117,089 111,891 212,884 206,506
------- ------- ------- -------
Fixed Assets 10
Cost 502,090 418,298 398,097 315,347
Less - accumulated depreciation 209,242 199,000 164,036 152,112
------- ------- ------- -------
292,848 219,298 234,061 163,235
------- ------- ------- -------
Other Assets - Goodwill 9B 34,444 37,437 - -
------- ------- ------- -------
779,828 761,702 566,169 580,959
======= ======= ======= =======
Current Liabilities
Current maturities of long-term bank loans 13 27,001 27,001 - -
Trade payables 11 138,063 97,525 103,384 87,466
Other payables and accrued expenses 12 35,162 50,174 23,418 32,889
Dividend declared - 47,370 - 47,370
------- ------- ------- -------
200,226 222,070 126,802 167,725
------- ------- ------- -------
Long-Term Liabilities
Long-term bank loans 13 89,056 76,739 - -
Deferred taxes 22 21,250 20,975 17,948 16,381
------- ------- ------- -------
110,306 97,714 17,948 16,381
------- ------- ------- -------
Commitments and Contingent Liabilities 15
Minority Interest 47,877 45,065 - -
------- ------- ------- -------
Shareholders' Equity
Share capital 16 31,141 31,141 31,141 31,141
Capital reserves 169,618 169,618 169,618 169,618
Retained earnings 185,132 196,094 185,132 196,094
Dividend declared
after balance sheet date 35,528 - 35,528 -
------- ------- ------- -------
421,419 396,853 421,419 396,853
------- ------- ------- -------
779,828 761,702 566,169 580,959
======= ======= ======= =======
(*) Reclassified.
T. DAVIS Y. YERUSHALMI A. BRENNER
Chairman of the Board of Directors Vice-Chairman of the Board of Directors Managing Director
Approval date of the financial statements: March 6, 2003.
The accompanying notes are an integral part of the financial statements.
2
HOGLA-KIMBERLY LTD.
STATEMENTS OF OPERATIONS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
Note 2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
Net sales 17 829,217 888,405 905,494 308,778 358,178(*) 405,844(*)
Cost of sales 18 600,117 604,887 596,740 252,152 263,505(*) 284,496(*)
------- ------- ------- ------- ---------- ----------
Gross profit 229,100 283,518 308,754 56,626 94,673 121,348
Selling expenses 19 139,337 147,102 154,608 5,812 5,790(*) 9,146(*)
General and
administrative expenses 20 27,140 30,859 29,013 5,807 6,677 7,485
------- ------- ------- ------- ---------- ----------
Operating profit 62,623 105,557 125,133 45,007 82,206 104,717
Financing income (expenses), net 21 (14,525) (18,844) 4,070 (5,003) 319 3,367
Other income (expenses), net 84 (595) 535 772 439 894
------- ------- ------- ------- ---------- ----------
Income before income taxes 48,182 86,118 129,738 40,776 82,964 108,978
Income taxes 22 20,804 39,459 42,488 17,390 30,698 34,261
------- ------- ------- ------- ---------- ----------
Income after income taxes 27,378 46,659 87,250 23,386 52,266 74,717
Equity in net earnings (losses)
of Subsidiaries - - - 1,180 (7,263) 8,594
Minority interest in
earnings of Subsidiary (2,812) (1,656) (3,939) - - -
------- ------- ------- ------- ---------- ----------
Net income for the year 24,566 45,003 83,311 24,566 45,003 83,311
======= ====== ====== ====== ========== ==========
EARNINGS PER SHARE (IN NIS) 2.97 5.45 10.08 2.97 5.45 10.08
======= ====== ====== ====== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN COMPUTATION 8,263,473 8,263,473 8,263,473 8,263,473 8,263,473 8,263,473
======= ====== ====== ====== ========== ==========
(*) Reclassified.
The accompanying notes are an integral part of the financial statements.
3
HOGLA-KIMBERLY LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
DIVIDEND
DECLARED
AFTER
SHARE CAPITAL RETAINED BALANCE SHEET
CAPITAL RESERVES EARNINGS DATE TOTAL
NIS in thousands
BALANCE - JANUARY 1, 2000 31,141 168,438 162,520 - 362,099
CHANGES DURING 2000:
Erosion of capital note of
former parent company 1,180 1,180
Dividend paid (47,370) (47,370)
Net income for the year 83,311 83,311
------ ------- ------- ------ -------
BALANCE - DECEMBER 31, 2000 31,141 169,618 198,461 - 399,220
CHANGES DURING 2001:
Dividend declared
after balance-sheet date (47,370) (47,370)
Net income for the year 45,003 45,003
------ ------- ------- ------ -------
BALANCE - DECEMBER 31, 2001 31,141 169,618 196,094 - 396,853
CHANGES DURING 2002:
Dividend declared
after balance-sheet date (35,528) 35,528 -
Net income for the year 24,566 24,566
------ ------- ------- ------ -------
BALANCE - DECEMBER 31, 2002 31,141 169,618 185,132 35,528 421,419
====== ======= ======= ====== =======
The accompanying notes are an integral part of the financial statements.
4
HOGLA-KIMBERLY LTD.
STATEMENTS OF CASH FLOWS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
CASH FLOWS - OPERATING ACTIVITIES
Net income 24,566 45,003 83,311 24,566 45,003 83,311
Adjustments to reconcile net income
to net cash provided by operating
activities (Appendix A) 15,496 20,184 1,557 87,120 17,403 (*) 3,638
-------- --------- -------- -------- ------------ ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 40,062 65,187 84,868 111,686 62,406 86,949
-------- --------- -------- -------- ------------ ---------
CASH FLOWS - INVESTING ACTIVITIES
Investment in short-term bank deposit - (61,735)(*) - - - -
Withdrawal of short-term bank deposit 61,735 - - - - -
Investment in long-term bank deposits - (14,685) (3,789) - (14,685) (3,789)
Withdrawal of long-term bank deposits 9,474 - - 9,474 - -
Acquisition of fixed assets (82,779) (51,631) (25,837) (71,801) (44,914) (16,753)
Proceeds from sale of fixed assets 493 1,429 1,780 175 1,033 1,643
-------- --------- -------- -------- ------------ ---------
NET CASH USED IN INVESTING ACTIVITIES (11,077) (126,622) (27,846) (62,152) (58,566) (*) (18,899)
-------- --------- -------- -------- ------------ ---------
CASH FLOWS - FINANCING ACTIVITIES
Dividend paid (47,370) - (71,004) (47,370) - (71,004)
Long-term loans received 12,317 14,685 3,789 - - -
Short-term bank credit, net - - (23,723) - - (23,723)
-------- --------- -------- -------- ------------ ---------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (35,053) 14,685 (90,938) (47,370) - (94,727)
-------- --------- -------- -------- ------------ ---------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (6,068) (46,750) (33,916) 2,164 3,840 (26,677)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 29,142 75,892 109,808 9,554 5,714 32,391
-------- --------- -------- -------- ------------ ---------
CASH AND CASH EQUIVALENTS - END OF YEAR 23,074 29,142(*) 75,892 11,718 9,554 5,714
======= ========= ======== ======== ============ ========
(*) Reclassified.
The accompanying notes are an integral part of the financial statements.
5
HOGLA-KIMBERLY LTD.
APPENDICES TO STATEMENTS OF CASH FLOWS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
A. ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
INCOME AND EXPENSES
NOT INVOLVING CASH FLOWS:
Minority interest in
earnings of Subsidiary 2,812 1,656 3,939 - - -
Equity in net losses
(earnings) of Subsidiaries - - - (1,180) 7,263 (8,594)
Depreciation and amortization 23,892 23,000 23,582 13,082 12,065 13,195
Deferred taxes, net 1,160 3,276 2,517 1,132 2,713 1,281
Loss (gain) from sale of fixed assets 88 (403) (561) (31) (416) (896)
Exchange rate differences
derived from capital note 2,382 3,262 143 2,382 3,262 143
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in trade receivables (15,589) (2,192) (5,596) (492) 482 (689)(*)
Decrease (increase) in other receivables 5,257 (7,632) 4,135 (1,509) (2,269) 1,259
Decrease (increase) in inventories (17,700) 10,739 (11,142) (11,257) 14,666 (7,722)
Increase (decrease) in trade payables 19,843 (1,143) (38,306) 16,762 (8,692) (9,577)(*)
Net change in balances with
related parties 8,363 3,690 6,188 77,702 14,715(*) (3,305)(*)
Increase (decrease) in other
payables and accrued expenses (15,012) (14,069) 16,658 (9,471) (26,386) 18,543
------- -------- -------- -------- -------- -----------
15,496 20,184 1,557 87,120 17,403 3,638
======= ======= ======== ======== ========= ===========
B. NON-CASH ACTIVITIES
Dividend declared 47,370 47,370
======= ========
Acquisition of fixed assets on credit 14,828 2,577 14,828 2,577
======== ======== ========= ========
(*) Reclassified.
The accompanying notes are an integral part of the financial statements.
6
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. DESCRIPTION
Hogla Kimberly Ltd. ("the Company") and its Subsidiaries are engaged principally
in the production and marketing of paper and hygienic products. The Company's
results of operations are affected by transactions with shareholders and
affiliated companies (see Note 23).
The Company is presently owned by Kimberly Clark Corp. ("KC" or the "Parent
Company") (50.1%) and American-Israeli Paper Mills Ltd. ("AIPM") (49.9%). Prior
to that, AIPM was the controlling shareholder (50.1%). In March 2000, KC
exercised an option to purchase 0.2% of the Company's equity from AIPM.
B. DEFINITIONS:
THE COMPANY - Hogla-Kimberly Ltd.
THE GROUP - the Company and its Subsidiaries, a list of which is provided in
Note 9D.
SUBSIDIARIES - companies in which the Company exercises over 50% ownership and
control, directly or indirectly, and whose financial statements are fully
consolidated with those of the Company.
RELATED PARTIES - as defined by Opinion No. 29 of the Institute of Certified
Public Accountants in Israel.
INTERESTED PARTIES - as defined in the Israeli Securities Regulations
(Presentation of Financial Statements), 1993.
CONTROLLING SHAREHOLDER - as defined in the Israeli Securities Regulations
(Presentation of Transactions between a Corporation and its Controlling
Shareholder in the Financial Statements), 1996.
NIS - New Israeli Shekel.
CPI - the Israeli consumer price index.
DOLLAR - the U.S. dollar.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
7
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following are the principal accounting policies applied in the preparation
of the financial statements in a manner consistent with previous years:
A. ADJUSTED FINANCIAL STATEMENTS
(1) GENERAL
In accordance with pronouncements of the Institute of Certified Public
Accountants in Israel, the financial statements, including comparative figures
for previous years, are presented on the basis of nominal historical cost
adjusted for changes in the exchange rate of the U.S. dollar in relation to the
NIS.
The adjusted amounts of non-monetary items presented in the financial statements
reflect their cost adjusted for changes in the exchange rate of the U.S. dollar
vis-a-vis the NIS, and do not necessarily reflect realization or current
economic value of these items.
The term "cost" in these financial statements refers to adjusted cost, unless
otherwise indicated. The term "NIS" refers to adjusted NIS, unless otherwise
stated.
The Company's condensed financial statements in nominal values, on the basis of
which the adjusted financial statements were prepared, are presented in Note 26.
(2) PRINCIPLES OF ADJUSTMENT
a. BALANCE SHEET ITEMS
Non-monetary items (items whose balances reflect historical value at acquisition
or upon establishment) have been adjusted in accordance with the changes in the
exchange rate of the U.S. dollar from the date of acquisition/establishment
through December 31, 2002.
Investments in Subsidiaries and minority interest were determined based on the
dollar adjusted financial statements of those companies.
Monetary items (items whose balance sheet amounts represent current or
realization value at the balance sheet date) are presented in the December 31,
2002 balance sheet at their nominal value as of that date.
b. STATEMENT OF OPERATIONS ITEMS
Income and expenses reflecting transactions, other than financial income and
expenses, were adjusted for changes in the exchange rate of the U.S. dollar from
the date of the transaction to the balance sheet date. Income and expenses
arising from non-monetary items (mainly depreciation, amortization, deferred
taxes and changes in inventory) were adjusted in a manner corresponding to the
adjustment of the related balance sheet items.
Financing expenses, net reflect income and expenses in real terms and include
exchange rate differences derived from monetary items.
The Company's share and the minority interest in the results of Subsidiaries
were determined based on the dollar adjusted financial statements of those
companies.
8
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
ADJUSTED FINANCIAL STATEMENTS (cont.)
(2) PRINCIPLES OF ADJUSTMENT (cont.)
c. ADJUSTMENT AND TRANSLATION OF FOREIGN SUBSIDIARIES FINANCIAL STATEMENTS
The financial statements of Subsidiaries operating abroad, which act as an
extension of the Group, are prepared in U.S. dollars and translated into NIS
based on the exchange rate of the U.S. dollar on the balance sheet date.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include full consolidation of
Subsidiaries. Material inter-company balances and transactions of and between
Subsidiaries have been fully eliminated.
The data included in the consolidated financial statements is based on audited
financial statements of the Subsidiaries included therein.
The excess cost of an investment in a Subsidiary in Turkey over the net book
value upon acquisition of that Subsidiary is allocated to fixed assets and is
amortized at the rate applicable to those assets, or upon their realization. The
unallocated excess cost reflects goodwill, which is presented in the balance
sheet as "other assets" and amortized by the straight-line method over 15 years
due to the unique economic conditions relating to that Subsidiary and the
expected economic benefit period from its acquisition.
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits, available for immediate
withdrawal, as well as unrestricted short-term deposits with maturities of less
than three months from the date of deposit.
D. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is determined for specific accounts whose
collectibility, in management estimation, is uncertain.
E. INVENTORIES
Inventories are presented at the lower of cost or market, with cost determined
as follows:
Finished products - Based on actual production cost.
Raw, auxiliary
materials and other - Based on "First in, first out" method.
9
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F. INVESTMENTS IN SUBSIDIARIES
Investments in Subsidiaries are presented using the equity method based on their
audited financial statements. In relation to excess cost of investment in
Subsidiary in Turkey, see B above.
G. FIXED ASSETS
Fixed assets are presented at cost less accumulated depreciation. Depreciation
is calculated using the straight-line method at rates considered adequate to
depreciate the assets over their estimated useful lives. Amortization of
leasehold improvements is computed over the term of the lease, including any
option period, where the Company intends to exercise such option.
The annual depreciation and amortization rates are: %
Buildings 2.5
Machinery and equipment 5-10
Motor vehicles 15-20
Office furniture and equipment 10-33
Management reviews long-lived assets on a periodic basis, as well as when such a
review is required based upon relevant circumstances, to determine whether
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable, based on estimated future cash flows. If an asset
is considered to be impaired, an impairment charge is recognized for the amount
by which the carrying amount of the asset exceeds its fair value based on
discounted expected cash flows.
H. OTHER ASSETS - GOODWILL
Goodwill derived from the acquisition of Subsidiary in Turkey is amortized based
on the straight line method over 15 years (see also B above).
I. DEFERRED INCOME TAXES
The Group records deferred taxes in respect of temporary differences between the
carrying values of assets and liabilities in the financial statements and their
values for tax purposes, including depreciation differences on leased property
and fixed assets. The Group records deferred-tax assets in respect of the noted
temporary difference as well as carry-forward tax benefits so long as it may
reasonably be assumed that those assets will be realized in the foreseeable
future. The deferred taxes are computed by the tax rates expected to be in
effect at realization, as they are known at the balance sheet date.
The computation of deferred taxes has not taken into account taxes that would
have been applicable in case of future realization of investments in
Subsidiaries, since the Group does not contemplate such realization in the near
future. Moreover, the computation also excludes deferred taxes in respect of
dividends distribution within the Group for cases in which such dividend
distributions by Subsidiaries are expected to be tax-exempt.
10
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
J. DIVIDENDS
Dividends proposed or declared subsequent to the balance-sheet date, but prior
to the financial statements approval date, are presented as a separate liability
component of shareholders' equity.
K. REVENUE RECOGNITION
Revenues are recognized upon shipment, when title has been transferred and
collectibility is reasonably assured.
Revenues are net of sales incentives, primarily: bonuses granted to chains as a
percentage of their purchases (target bonus); volume discounts; and coupons
distributed to customers entitling price discounts.
An accrual for estimated returns and sales incentives, computed primarily on the
basis of historical experience, is recorded at the time revenues are recognized.
L. EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average of paid up
capital shares during the year.
M. EXCHANGE RATES AND LINKAGE BASIS
(1) Balances in foreign currency or linked thereto are included in the financial
statements based on the representative exchange rates, as published by the Bank
of Israel, that were prevailing at the balance sheet date.
(2) Following are the changes in the representative exchange rate of the U.S.
dollar vis-a-vis the NIS and the Turkish Lira, and in the Israeli Consumer Price
Index ("CPI"):
REPRESENTATIVE TURKISH LIRA EXCHANGE
EXCHANGE RATE WITH THE U.S. CPI
RATE OF THE DOLLAR DOLLAR "IN RESPECT
(NIS PER $1) (TL'000 PER $1) OF"
AS OF: (IN POINTS)
December 31, 2002 4.737 1,640 182.02
December 31, 2001 4.416 1,447 170.91
December 31, 2000 4.041 672 168.53
INCREASE (DECREASE)
DURING THE YEAR ENDED: % % %
- - -
December 31, 2002 7.3 13.3 6.5
December 31, 2001 9.3 115.3 1.4
December 31, 2000 (2.7) 24.4 -
(3) Exchange-rate differences are charged to operations as incurred.
11
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
N. RECLASSIFICATION
Certain amounts in prior years' financial statements have been reclassified in
order to conform to the 2002 presentation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
O. NEW ACCOUNTING STANDARDS
(1) CESSATION OF FINANCIAL STATEMENTS ADJUSTMENT
AND EFFECT OF CHANGES IN EXCHANGE RATES
In October 2001, the Israeli Accounting Standards Board issued Standard No. 12,
"Cessation of Financial Statement Adjustment". According to this Standard, the
adjustment of financial statements for inflation will cease commencing January
1, 2003. Through December 31, 2002 the Group will continue to prepare
dollar-linked financial statements, in accordance with Opinion No. 36 of the
Institute of Certified Public Accountants in Israel. The adjusted amounts
presented in the December 31, 2002 balance sheet will serve as the opening,
nominal balances as of January 1, 2003.
In October 2001, the Israeli Accounting Standards Board issued Standard No. 13,
"Effect of Changes in Foreign Currency Exchange Rates". This Standard addresses
the translation of transactions denominated in foreign currency, as well as the
translation of financial statements of a foreign operation, for inclusion in the
financial statements of the reporting company. Standard No. 13 will become
effective for reporting periods commencing December 31, 2002. While the Company
is currently examining Standards No. 12 and 13, it cannot evaluate, at this
stage, the impact they will have on its financial position and results of
operations.
In December 2002, the Israeli Accounting Standards Board issued Standard No. 17
that deals with the deferral of the date for cessation of the adjustment of
financial statements and with the deferral of the effective date of Accounting
Standard No. 13, (Effect of Changes in Foreign Currency Exchange Rates). Under
Standard No. 17, the date for transition to nominal financial reporting under
Standard No. 12 and for implementation of Standard No. 13 was delayed for one
year, for reporting periods beginning on January 1, 2004.
(2) FINANCIAL REPORTING FOR INTERIM PERIODS
In August 2002, the Israeli Accounting Standards Board issued Standard No. 14
"Interim Financial Reporting". This Standard outlines the minimum content of
interim financial statements, including the required disclosure in the notes,
and details the accounting principles of recognition and measurement to be
applied in interim financial reporting. This accounting Standard replaces
Accounting Opinion No. 43 of the Institute of Certified Public Accountants in
Israel that deals with interim financial statements. The provisions of this
Standard will be effective for interim periods commencing on January 1, 2003 or
thereafter.
While the Group is currently evaluating the impact of the adoption of this new
Standard will have on its financial position and results of operations, it does
not expect such impact to be material.
12
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
O. NEW ACCOUNTING STANDARDS (cont.)
(3) IMPAIRMENT OF ASSETS
In January 2003, the Israeli Accounting Standards Board issued Standard No. 15,
"Impairment of Assets". This Standard addresses the accounting treatment and
presentation of impairment of assets, which establishes procedures to be
implemented in order to ensure that assets are not presented in amounts
exceeding their recoverable value. An asset's recoverable value is the higher of
the asset's net selling price and the asset's value in use, the latter being
equal to the asset's discounted expected cash flows. Initial application of the
Standard will generally be on a prospective basis. Standard No. 15 is effective
for financial statements for reporting periods commencing January 1, 2003 and
thereafter, with early application encouraged. While the Company is currently
evaluating the impact of the adoption of Standard No. 15 on its financial
position and results of operations, it does not expect such impact to be
material.
NOTE 3 - CASH AND CASH EQUIVALENTS
Consolidated COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
In NIS 646 488 645 429
In foreign currencies (primarily the
U.S. dollar) 22,428 28,654(*) 11,073 9,125
23,074 29,142 11,718 9,554
(*) Reclassified.
NOTE 4 - TRADE RECEIVABLES
Consolidated COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
COMPOSITION:
Domestic
Open accounts 144,446 144,690 - -
Checks receivable 32,266 24,906 - 81
Related parties 388 276 36,122 126,939(*)
177,100 169,872 36,122 127,020
Foreign
Open accounts 24,897 18,255 842 300
Related parties 776 807 7,634 7,614(*)
202,773 188,934 44,598 134,934
Less - allowance for doubtful accounts 5,279 7,110 56 87
197,494 181,824 44,542 134,847
The Company's products are marketed principally by its Subsidiaries.
(*) Reclassified.
13
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - OTHER RECEIVABLES
Consolidated COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
Deferred taxes (Note 22D) 4,311 5,196 2,207 1,772
Prepaid expenses 3,269 2,980 1,485 941
Income receivable 312 2,037 312 763
Advances to suppliers 905 2,629 905 483
Value added taxes - - 1,170 -
Income tax advances, net 1,326 2,933 - -
Loans to supplier and employees 1,165 1,284 990 980
Other 151 522 199 385
11,439 17,581 7,268 5,324
NOTE 6 - INVENTORIES
Consolidated COMPANY
December 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
Raw and auxiliary materials (*) 39,709 22,911 24,262 15,798
Finished goods 41,698 45,331 10,585 11,877
Spare parts and other 12,086 7,551 10,902 6,817
93,493 75,793 45,749 34,492
(*) Includes inventory in transit 7,120 5,495
NOTE 7 - LONG-TERM DEPOSITS
Annual
interest Consolidated COMPANY
rate December 31,
% (*) 2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
A. COMPOSITION
Linked to the U.S. dollar 1.97-2.64 94,266 103,740 18,474 27,948
Less - current maturities 9,947 27,001 9,947 27,001
84,319 76,739 8,527 947
(*) As of December 31, 2002.
14
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEPOSITS (CONT.)
B. The balance of the long-term deposits as of December 31, 2002 is repayable as
follows:
NIS IN
THOUSANDS
2003 - current maturities 9,947
2004 8,527
Thereafter - see D below 75,792
94,266
C. The deposits are held as collateral for long-term loans received by
Subsidiaries (see Note 15C).
D. The deposit is linked to the U.S. dollar and bears interest at a rate of
1.97% as of December 31, 2002. The deposit is subject to re-deposit every two
years, and is held in a bank abroad, as collateral for a loan received by a
Subsidiary.
NOTE 8 - CAPITAL NOTE FROM SHAREHOLDER
The capital note from AIPM, denominated in NIS, is not linked and does not bear
interest. Repayment date will be mutually agreed upon. The erosion or increase
in value of the capital note was charged to capital reserves until March 31,
2000 (the date on which AIPM ceased to be the controlling shareholder).
NOTE 9 - INVESTMENTS IN SUBSIDIARIES
COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1
NIS in thousands
A. COMPOSITION
Cost of shares 1,052 1,052 (*)
Equity in post-acquisition earnings 165,986 164,806
Capital notes (**) 4,549 4,549
171,587 170,407
(*) Reclassified.
(**) The non-interest bearing Capital notes, denominated in U.S. dollar, are
considered part of the Company's investments in the Subsidiaries. Repayment
dates have not yet been determined. For purpose of the adjusted financial
statements (see Note 2A), the capital notes are treated as a non-monetary item.
15
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INVESTMENTS IN SUBSIDIARIES (CONT.)
CONSOLIDATED
DECEMBER 31,
2 0 0 2 2 0 0 1
NIS in thousands
B. GOODWILL:
Cost 44,927 44,927
Less - accumulated amortization 10,483 7,490
34,444 37,437
C. INVESTMENT IN OVISAN
As of December 31, 2002, the Group's investment in the Turkish Subsidiary
amounted to NIS 59,748 thousand (including goodwill in the net amount of NIS
34,444 thousand).
D. CONSOLIDATED SUBSIDIARIES
The consolidated financial statements as of December 31, 2002, include the
financial statements of the following Subsidiaries:
OWNERSHIP AND CONTROL
AS OF
DECEMBER 31, 2002
%
Rakefet Marketing and Trade Services Ltd. ("Rakefet") 79.7 (*)
Subsidiaries of Rakefet:
Hogla-Kimberly Marketing Ltd. ("Marketing") 99.5 (**)
Shikma Ltd. ("Shikma") 99.0 (**)
Mollet Marketing Ltd. ("Mollet") 100.0
H-K Overseas (Holland) B.V. ("H-K") 100.0
Subsidiaries of H-K:
Ovisan Sihhi Bez Sanai ve Ticaret Anonim Sirketi ("Ovisan") 100.0
Hogla-Kimberly Holding Anonim Sirketi 100.0
(*) The remaining ownership and control of Rakefet are held by AIPM group
(10.1%) and by KC (10.2%).
(**) The remaining ownership and control of Marketing and Shikma are held by the
Company.
16
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - FIXED ASSETS
OFFICE
MACHINERY FURNITURE
LEASEHOLD AND MOTOR AND
CONSOLIDATED BUILDINGS (**) IMPROVEMENTS EQUIPMENT VEHICLES EQUIPMENT TOTAL
NIS in thousands
COST:
Balance - January 1, 2002 57,685(*) (*)14,457 312,249(*) 22,686(*) 11,221(*) 418,298
Changes during 2002:
Additions 1,450 19 88,407 2,013 3,141 95,030
Dispositions - (4,855) (2,930) (1,800) (1,653) (11,238)
Balance - December 31, 2002 59,135 9,621 397,726 22,899 12,709 502,090
ACCUMULATED DEPRECIATION:
Balance - January 1, 2002 15,090(*) (*) 8,830 151,274 (*) 13,974(*) 9,832(*) 199,000
Changes during 2002:
Additions 1,036 770 14,854 3,467 772 20,899
Dispositions - (4,495) (3,030) (1,592) (1,540) (10,657)
Balance - December 31, 2002 16,126 5,105 163,098 15,849 9,064 209,242
NET BOOK VALUE:
December 31, 2002 43,009 4,516 234,628 7,050 3,645 292,848
December 31, 2001 42,595(*) (*) 5,627 (*)160,975 (*) 8,712 (*) 1,389 219,298
COMPANY
COST:
Balance - January 1, 2002 27,251 (*) (*) 6,305 273,742 (*) 4,870(*) 3,179 (*) 315,347
Changes during 2002:
Additions 19 70 83,708 47 208 84,052
Dispositions - - (237) (928) (137) (1,302)
Balance - December 31, 2002 27,270 6,375 357,213 3,989 3,250 398,097
ACCUMULATED DEPRECIATION:
Balance - January 1, 2002 12,271(*) 3,614(*) 129,605(*) 4,396(*) 2,226(*) 152,112
Changes during 2002:
Additions 507 192 11,639 313 431 13,082
Dispositions - - (142) (931) (85) (1,158)
Balance - December 31, 2002 12,778 3,806 141,102 3,778 2,572 164,036
NET BOOK VALUE:
December 31, 2002 14,492 2,569 216,111 211 678 234,061
December 31, 2001 14,980(*) 2,691(*) 144,137(*) 474(*) 953 (*) 163,235
(*) Reclassified.
(**) Buildings include industrial buildings on land leased by the Company from
AIPM (until 2003).
17
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - TRADE PAYABLES
CONSOLIDATED COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
In Israeli currency
Open accounts 71,698 54,699 32,625 16,565
Related parties 11,726 11,939 50,096 62,803
In foreign currency
Open accounts 28,676 13,581 17,258 4,305
Related parties 25,963 17,306 3,405 3,793
138,063 97,525 103,384 87,466
NOTE 12 - OTHER PAYABLES AND ACCRUED EXPENSES
CONSOLIDATED COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
Accrued income taxes,
net of advances 9,781 20,739 10,620 21,345
Accrued payroll and related expenses 21,555 20,382 12,671 11,285
Value Added Tax 592 3,855 - -
Advances from customers 1,743 1,920 32 -
Other 1,491 3,278 95 259
35,162 50,174 23,418 32,889
NOTE 13 - LONG-TERM BANK LOANS
ANNUAL AVERAGE CONSOLIDATED
INTEREST RATE DECEMBER 31,
% (*) 2 0 0 2 2 0 0 1
NIS in thousands
A. COMPOSITION
In U.S. dollar (**) 2.48 116,057 103,740
Less - current maturities 27,001 27,001
89,056 76,739
(*) As of December 31, 2002.
(**) As of December 31, 2002, NIS 21,790 thousand bear interest of Libor plus
1.55%.
B. MATURITIES NIS in thousands
2003 - current maturities 27,001
2004 13,264
Thereafter - see C below 75,792
116,057
C. Subject to renewal every two years - see Note 7D.
D. Liens - see Note 15C.
18
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - SEVERANCE PAY
Obligations of the Group for severance pay to its employees are covered by
current payments to pension and severance funds. Accumulated amounts in the
pension and severance funds are not under the control or administration of the
Group, and accordingly, neither those amounts nor the corresponding accruals are
reflected in the financial statements.
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
A. COMMITMENTS
(1) The Group is obligated to pay royalties to a shareholder - see Note 23B.
(2) The Company and its Subsidiaries lease certain of their facilities under
operating leases for varying periods with renewal options. Future minimum lease
rentals as of December 31, 2002 are as follows:
Consolidated Company
NIS in thousands
2003 13,744 5,569
2004 6,554 -
2005 6,554 -
2006 6,554 -
2007 and thereafter 36,046 -
69,452 5,569
B. CONTINGENT LIABILITIES
(1) The Company is contingently liable in respect of a guarantee securing bank
loans provided to a Subsidiary, the balance of which as of December 31, 2002
amounted to NIS 21,790 thousand.
(2) As part of their normal course of business, the Subsidiaries provided third
parties with bank guarantees for contract performance, the balance of which as
of December 31, 2002 amounted to NIS 4,513 thousand.
C. LIENS
As a collateral for long-term loans given to Subsidiaries, the Group recorded a
lien on its bank deposits, in the amount of NIS 94,266 thousand as of December
31, 2002.
NOTE 16 - SHARE CAPITAL
A. As of December 31, 2002 and 2001, share capital is composed of ordinary
shares of NIS 1.00 par value each. Authorized - 11,000,000 shares; issued and
paid up - 8,263,473 shares.
B. Holders of ordinary shares are entitled to participate equally in the payment
of cash dividends and bonus share (stock dividend) distributions and, in the
event of the liquidation of the Company, in the distribution of assets after
satisfaction of liabilities to creditors. Each ordinary share is entitled to one
vote on all matters to be voted on by shareholders.
19
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - SHARE CAPITAL (CONT.)
C. Subsequent to the balance-sheet date, the Company's Board of Directors
decided upon distribution of NIS 35,528 thousand as a dividend, which represents
4.3 NIS per share.
NOTE 17 - NET SALES
CONSOLIDATED
YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0
% % %
A. SALES TO MAJOR CUSTOMERS
Customer A 11.1 11.9 11.9
Customer B 11.8 12.0 11.9
CONSOLIDATED
YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands
B. SALES FROM COMMERCIAL OPERATIONS 336,815 345,379 330,202
C. FOREIGN SALES (PRINCIPALLY TURKEY) 86,739 91,296 (*) 81,012 (*)
(*) The amounts for 2001 and 2000 were represented to conform to the 2002 presentation.
NOTE 18 - COST OF SALES
Consolidated COMPANY
Year ended December 31, Year ended December 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
Purchases (**) 460,140 477,899 465,896 132,905 141,634 (*) 164,177(*)
Salaries and related expenses 60,577 62,038 65,701 50,181 53,675 57,516
Manufacturing expenses 60,399 55,434 61,879 55,417 51,558 56,852
Depreciation 15,368 13,807 14,020 12,357 11,617 11,921
596,484 609,178 607,496 250,860 258,484 290,466
Change in finished goods
Inventory 3,633 (4,291) (10,756) 1,292 5,021 (5,970)
600,117 604,887 596,740 252,152 263,505 284,496
(*) Reclassified.
(**) The purchases of the Company are related to manufacturing operations.
Consolidated purchases in excess of Company purchases relate principally to
commercial operations.
20
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 19 - SELLING EXPENSES
CONSOLIDATED COMPANY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
Salaries and related expenses 48,147 51,818 54,369 17 805 291
Maintenance and transportation
expenses 26,321 24,845 31,128 4,184 2,924 2,726
Advertising and sales promotion 41,746 44,716(*) 45,107(*) 50 (*) 182 3,464 (*)
Commissions to distributors 2,171 3,943 3,822 490 680 629
Royalties to a shareholder 13,219 13,153 10,643 728 607 581
Depreciation 4,530 5,130 5,547 343 592 1,455
Other 3,203 3,497(*) 3,992(*) - - -
139,337 147,102 154,608 5,812 5,790 9,146
(*) Reclassified.
NOTE 20 - GENERAL AND ADMINISTRATIVE EXPENSES
CONSOLIDATED COMPANY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
Salaries and related expenses 9,335 11,965 9,697 2,621 2,601 2,279
Administrative and computer
services 6,718 7,983 6,521 1,286 1,770 1,891
Services provided by
Shareholder 1,256 1,277 1,893 796 885 946
Office maintenance 3,234 3,203 3,273 247 275 295
Depreciation 636 812 830 4 4 2
Amortization 2,993 2,993 (*) 2,993 (*) - - -
Other 2,968 2,626 (*) 3,806 (*) 853 1,142 2,072
27,140 30,859 29,013 5,807 6,677 7,485
(*) Reclassified.
NOTE 21 - FINANCING INCOME (EXPENSES), NET
CONSOLIDATED COMPANY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
Long-term loans (3,022) (5,215) (6,068) - - (663)
Exchange rate differences
derived from capital note (2,382) (3,262) (143) (2,382) (3,262) (143)
Long-term and short-term deposits 1,952 9,199 10,128 33 1,563 1,691
21
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - INCOME TAXES
The Company and its Israeli Subsidiaries are subject to the Income Tax Law
(Inflationary Adjustments), 1985. Non-Israeli Subsidiaries are subject to income
tax provisions of their home country. The Company is an industrial company in
conformity with the Law for the Encouragement of Industry (Taxes), 1965. The
principal benefit that the Company is entitled to under this law is accelerated
depreciation rates, and reduced tax rates.
During 2002, the Company's program for the establishment of a new facility for
manufacturing paper was granted Approved Enterprise status in accordance with
the Law for the Encouragement of Capital Investments, 1959 under "alternative
benefits" track. The approval program is for total investments of approximately
NIS 80 million. According to the terms of the program, income derived from the
Approved Enterprise will be tax-exempt for a period of 10 years commencing in
the year in which the program is substantially completed. Distribution of
dividends from tax exempt profits of the Approved Enterprise will be subject to
income tax at a rate equal to the income tax rate of the Approved Enterprise had
the Company not elected the alternative benefits track. As of the approval date
of the financial statements, the Company completed the investments relating to
the new facility and is in its initial and pre-operating stage.
CONSOLIDATED COMPANY
Year ended December 31, Year ended December 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
B. COMPOSITION
Current taxes 20,449 36,941 39,971 17,063 28,581 32,980
Taxes in respect of
prior years (805) (758) - (805) (596) -
Deferred taxes 1,160 3,276 2,517 1,132 2,713 1,281
20,804 39,459 42,488 17,390 30,698 34,261
C. Reconciliation of the statutory tax rate to the effective tax rate:
CONSOLIDATED COMPANY
Year ended December 31, Year ended December 31,
2 0 0 2 2 0 0 1 (*) 2 0 0 0 (*) 2 0 0 2 2 0 0 1 (*) 2 0 0 0 (*)
NIS in thousands NIS in thousands
Income before income
taxes 48,182 86,118 129,738 40,776 82,964 108,978
Tax computed by
statutory tax rate (36%) 17,346 31,002 46,706 14,679 29,867 39,232
Tax increments (savings)
due to:
Reduced rate for approved
enterprise (1,511) (3,118) (4,425) (1,511) (3,118) (4,425)
Non-deductible expenses 773 1,769 2,616 268 283 -
Differences arising from
basis of measurement (**) 4,200 8,058 (2,431) 4,043 2,829 202
Income taxes for prior years (805) (758) - (805) (596) -
Other differences, net 801 2,506 22 716 1,433 (748)
20,804 39,459 42,488 17,390 30,698 34,261
(*) Reclassified.
(**) U.S. dollar for financial reporting purposes and Consumer Price Index
for tax purposes.
22
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - INCOME TAXES (CONT.)
D. DEFERRED INCOME TAXES
CONSOLIDATED COMPANY
Year ended December 31, Year ended December 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
Balance as of beginning
of year 15,779 12,503 9,986 14,609 11,896 10,615
Changes during the year 1,160 3,276 2,517 1,132 2,713 1,281
Balance as of end of
year 16,939 15,779 12,503 15,741 14,609 11,896
CONSOLIDATED COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
DEFERRED TAXES ARE PRESENTED IN THE
BALANCE SHEETS AS FOLLOWS:
Long-term liabilities (in respect of 21,250 20,975 17,948 16,381
depreciable assets
Other receivables and prepayments
(in respect of temporary
differences) - Note 5 (4,311) (5,196) (2,207) (1,772)
16,939 15,779 15,741 14,609
Deferred taxes are computed at rates between 32% and 36%.
E. The Company and its Israeli Subsidiaries possess final tax assessments through 1997.
NOTE 23 - RELATED PARTIES AND INTERESTED PARTIES
A. BALANCES WITH RELATED PARTIES
CONSOLIDATED COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 2 2 0 0 1
NIS in thousands NIS in thousands
Trade receivables (*) 1,164 1,083 262 343
Capital note - shareholder 32,770 35,152 32,770 35,152
Capital note - Subsidiaries - - 4,549 4,549
Trade payables (*) 37,689 29,245 17,270 18,860
(*) Company - excludes Subsidiaries
23
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 23 - RELATED PARTIES AND INTERESTED PARTIES (CONT.)
B. Transactions with Related Parties and Subsidiaries
CONSOLIDATED COMPANY
Year ended December 31, Year ended December 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands NIS in thousands
Sales to related parties 19,089 24,909 26,038 16,493 23,488 19,786
Sales to Subsidiaries - - - 288,411 327,413 379,590
Cost of sales 243,051 224,017 266,495 68,933 55,895 127,055
Royalties 13,219 13,153 10,643 728 607 581
Other selling expenses (*) 2,610 3,870 3,245 488 682 634
General and administrative
Expenses (*) 7,983 9,125 7,531 2,344 2,655 2,832
Financing income, net (*) 2,246 2,530 601 1,494 1,372 3,211
(*) Company - excludes Subsidiaries
(**) The sales to and purchases from related parties are in the ordinary course
of business at market prices and customary credit terms.
24
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 24 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS
A. Credit Risk
The revenues of the Company's principal Subsidiaries are derived from two major
customers and a large number of smaller customers. Management regularly monitors
the balance of trade receivables and the financial statements include an
allowance for doubtful accounts based on management's estimation. Taking the
aforementioned into consideration, the exposure to credit risk from trade
receivables is immaterial.
Cash and cash equivalents and long-term deposits (including amounts in foreign
currency) are deposited with major banks in Israel and abroad. Therefore, it is
not expected that such banks will fail to meet their obligations.
B. FOREIGN CURRENCY EXPOSURE
As of December 31, 2002, the Company's assets exceeded its liabilities in or
linked to non-dollar currencies (principally the NIS) by approximately NIS 84.5
million.
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments (cash, receivables, trade and other
payables) did not materially differ from their fair value, unless stated
otherwise.
NOTE 25 - RECONCILIATION TO US GAAP
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles applicable in Israel
(Israeli GAAP). The following describes the effects on the Company's financial
statements had the Company prepared its financial statements in accordance with
accounting principles generally accepted in the United States of America (US
GAAP).
A. BALANCE SHEETS
AS OF DECEMBER 31, 2002:
According to Israeli GAAP, goodwill is to be amortized over the
expected estimated economic life of the asset acquired, while according to US
GAAP (SFAS 142), commencing January 2002 goodwill is no longer amortized but
rather is reviewed annually (or more frequently if impairment indicators arise)
for impairment. Following are the corresponding balance-sheet items presented
according to US GAAP with regard to the goodwill associated with the acquisition
of Ovisan (see Note 9B):
25
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 25 - RECONCILIATION TO US GAAP
A. BALANCE SHEETS (CONT'D)
As As per
reported Adjustment US GAAP
NIS in thousands
Other assets - Goodwill 34,444 2,993 37,437
Shareholders' equity 421,419 2,993 424,412
AS OF DECEMBER 31, 2001:
The balance sheet as of December 31, 2001, includes a dividend payable
in the amount of NIS 47,370 thousand which was declared subsequent to December
31, 2001. In accordance with US GAAP, the dividend declaration should not have
been recorded as a liability at December 31, 2001.
As As per
reported Adjustment US GAAP
NIS in thousands
CURRENT LIABILITIES 222,070 (47,370) 174,700
SHAREHOLDERS' EQUITY 396,853 47,370 444,223
AS NOTED IN NOTE 2J, COMMENCING DECEMBER 31, 2002, THE ISRAELI GAAP
WERE CHANGED TO CONFORM WITH THE US GAAP.
B. STATEMENTS OF OPERATIONS
Consolidated and Company
Year ended December 31,
2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands
Net income under Israeli GAAP 24,566 45,003 83,311
Effect of material differences between
Israeli GAAP and US GAAP:
Change in basis of measurement
from adjusted NIS to nominal NIS 20,902 21,203 3,268
Amortization of goodwill 2,993 - -
Deferred taxes (1,099) (522) (2,275)
Net income under US GAAP 47,362 65,684 84,304
26
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 25 - RECONCILIATION TO US GAAP (CONT.)
C. CHANGES IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP
NIS IN THOUSANDS
Shareholders' equity under US GAAP as of January 1, 2002 397,109
Dividend (46,697)
Translation adjustments 4,857
Net income for the year under US GAAP 47,362
Shareholders' equity under US GAAP as of December 31, 2002 402,631
NOTE 26 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES
A. BALANCE SHEETS
COMPANY
DECEMBER 31,
2 0 0 2 2 0 0 1
NIS in thousands
CURRENT ASSETS
Cash and cash equivalents 11,718 8,907
Current maturities of long term deposits 9,947 25,171
Trade receivables 44,542 125,711(*)
Other receivables 5,085 3,283
Inventories 45,749 32,155
117,041 195,227
LONG-TERM INVESTMENTS
Long-term deposit 8,527 883
Capital note from shareholder 32,770 32,770
Investments in Subsidiaries 159,658 150,777 (*)
--------- --------
200,955 184,430
FIXED ASSETS, NET 200,933 124,070
518,929 503,727
CURRENT LIABILITIES
Trade payables 103,384 81,540
Other payables and accrued expenses 23,418 30,660
Dividend declared - 44,160
126,802 156,360
SHAREHOLDERS' EQUITY 392,127 347,367
518,929 503,727
27
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 26 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES (CONT.)
B. STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0
NIS in thousands
Net sales 308,566 318,000 (*) 348,377 (*)
Cost of sales 245,936 229,517(*) 243,451 (*)
--------- ------- -------
Gross profit 62,630 88,483 104,926
Selling expenses 6,038 5,151 (*) 7,755 (*)
General and administrative expenses 5,762 6,035 6,385
Operating profit 50,830 77,297 90,786
Financing income, net 3,676 8,283 3,774
Other income, net 254 515 919
Income before income taxes 54,760 86,095 95,479
Income taxes 16,344 25,154 28,100
Income after income taxes 38,416 60,941 67,379
Equity in net earnings
of Subsidiaries 8,881 1,080 6,938
Net income for the year 47,297 62,021 74,317
(*) Reclassified.
28
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 26 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES (CONT.)
C. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
DIVIDEND DECLARED
SHARE CAPITAL RETAINED AFTER BALANCE
capital reserves earnings SHEET DATE TOTAL
NIS IN THOUSANDS
BALANCE - JANUARY 1, 2000 8,263 132,127 155,704 296,094
CHANGES DURING 2000:
Dividend paid (40,905) (40,905)
Net income for the year 74,317 74,317
----- ------- ------- ------ -------
BALANCE - DECEMBER 31, 2000 8,263 132,127 189,116 - 329,506
CHANGES DURING 2001:
Dividend declared (44,160) (44,160)
Net income for the year 62,021 62,021
----- ------- ------- ------ -------
BALANCE - DECEMBER 31, 2001 8,263 132,127 206,977 - 347,367
CHANGES DURING 2002:
Dividend declared after
balance-sheet date (35,528) 35,528 -
Erosion of prior year
declared dividend (2,537) (2,537)
Net income for the year 47,297 47,297
----- ------- ------- ------ -------
BALANCE - DECEMBER 31, 2002 8,263 132,127 216,209 35,528 392,127
29
REPORT OF INDEPENDENT AUDITORS ON RECONCILIATION
OF ISRAELI GAAP TO U.S. GAAP
To the Shareholders of
American Israeli Paper Mills Ltd.
In connection with our audits of the consolidated balance sheets of American
Israeli Paper Mills Ltd. ("the Company") as of December 31, 2002 and 2001, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31, 2002
(the "Financial Statements"), which are incorporated in this Form 20-F, we have
also audited the information included in the Reconciliation of Israeli GAAP to
U.S. GAAP listed under Item 18 herein. Those financial statements and the
Reconciliation are the responsibility of the Company's Board of directors and
management. Our responsibility is to express an opinion on the financial
statements and the Reconciliation based on our audit.
We did not audit the U.S.GAAP financial data of certain associated companies in
which the Company's share in excess of profits over losses of which is a net
amount of remeasured NIS 28.9 million in 2002 and remeasured NIS 31.4 million in
2001. The financial data of those companies were audited by other independent
auditors whose reports have been furnished to us, and our opinion, insofar as it
related to amounts included for those companies, is based solely on the reports
of the other independent auditors.
We conducted our audit in accordance with auditing standards generally accepted
in Israel and U.S. which include examining, on a test basis, evidence supporting
the amounts and disclosures in the attached report, in order to obtain
reasonable assurance that there is no material misstatement, whether due to
error or to intentional misrepresentation, and to provide us with a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of the other independent
auditors, the information set forth under Item 18 present fairly, in all
material respects, in relation to the Financial Statements taken as a whole the
financial position and the operating results of the Company in conformity with
accounting principles generally accepted in the United States.
Tel-Aviv, Israel Kesselman & Kesselman
March 12, 2003 Certified Public Accountants (Isr.)
The Company prepares its financial statements in accordance with
Israeli GAAP. Israeli GAAP and U.S. GAAP vary in certain significant respects,
as described below:
A. THE FUNCTIONAL CURRENCY OF THE COMPANY
--------------------------------------
Through December 31, 1993, the financial statements of the Company,
presented in NIS values adjusted for the changes in the general purchasing power
of the Israeli currency based on the changes in the exchange rate of the dollar
(see note 1b to the financial statements), were also used for the purposes of
reporting in conformity with U.S. GAAP applicable to entities operating in
hyper-inflationary economic environments, as prescribed by Statement No. 52 of
the Financial Accounting Standards Board of the United States (FASB). Since the
inflation rate in Israel has decreased considerably, the Company decided that,
commencing in 1994, it would implement the rules relating to economies no longer
considered hyper-inflationary, for reporting purposes, in accordance with U.S.
GAAP.
Under those rules:
1) The functional currency of the Company (the currency in which
most income is derived and most expenses are incurred) is the
New Israeli Shekel (NIS);
2) The opening balances for 1994 are the balances presented in
the Company's balance sheet at December 31, 1993;
3) Transactions performed from January 1, 1994 are presented on
the basis of their original amounts in Israeli currency.
The term "Re-measured NIS" signifies the currency used for FASB 52
purposes, as described above.
As to the effect of application of these rules - see (h) below.
B. DEFERRED INCOME TAXES
---------------------
Under Israeli GAAP, no deferred taxes are provided for in respect of
certain long-lived (more than 20 years) assets, such as buildings and land.
Under U.S. GAAP, in accordance with the provisions of FAS 109, income taxes are
to be provided for with respect to any assets that have a different basis for
financial reporting and income tax purposes.
In addition, for U.S. GAAP purposes deferred taxes are to be provided
for with respect to unremitted earnings of investee companies. Under Israeli
GAAP due to the Company's policy to hold its investments in investee companies,
and not to realize them, these temporary differences are considered differences
permanent in duration for which deferred taxes are not provided for.
Through 1999, as long as the main investments of the Company were
subsidiaries which were controlled by the Company, the Company did not provide
for deferred taxes also for U.S. GAAP reporting purposes, since those
differences were deemed to be not taxable due to the tax free inter-company
dividend distribution law in Israel and tax planning on its behalf, accordingly.
56
As from 2000, due to changes in certain of the Company's investments
from subsidiaries to investee companies, deferred taxes were provided for any
portion that arose from investee companies sources other than pre-1993
undistributed earnings (taking into account the Company's tax strategy).
As to the effect of application of this treatment, see (h) below.
C. EMPLOYEE STOCK OPTION PLANS
---------------------------
Under Israeli GAAP, no compensation expenses are recorded in respect of
employee stock options.
Under U.S. GAAP, the Company accounts for employee stock based
compensation in accordance with Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations. In accordance with FAS 123 - "Accounting for Stock-Based
Compensation" ("FAS 123"), the Company discloses pro forma data assuming the
Company had accounted for employee stock option grants using the fair
value-based method defined in FAS 123.
The difference between the price of the shares at each balance sheet
date and the exercise price of such options should be charged to income over the
vesting period and should be adjusted in subsequent periods up to the
measurement date (exercise or expiration date). The amount of the difference
should be correspondingly presented as capital surplus.
The data for each employee stock option plan as of the measurement
date, in accordance with APB 25, is as follows:
1) The 1998 plan for senior officers in the group
The fair value of each option at the date of grant, computed by the
Black-Scholes formula, was adjusted NIS 78.47 ($16.56). The assumptions used in
this calculation are: dividend of $1.50 per share a year; expected volatility of
34.9%; risk-free U.S. dollar interest rate of 6% and expected average life of 5
years.
2) The 2001 plan for senior officers in the group
The fair value of each option at the date of grant, computed by the
Black-Scholes formula, was adjusted NIS 61.33 ($12.95). The assumptions used in
this calculation are: dividend yield of 0%; expected volatility of 30.5%;
risk-free interest rate (linked to the Israeli CPI) of 4.5% and expected average
life of 5.5 years.
3) The 2001 employee plan
The fair value of each option at the date of grant, computed by the
Black-Scholes formula, was adjusted NIS 69.35 ($14.64). The assumptions used in
this calculation are: dividend yield of 0%; expected volatility of 30.5%;
risk-free interest rate (linked to the Israeli CPI) of 4.5% and expected average
life of 5 years.
57
PRO-FORMA DISCLOSURE
- --------------------
Had compensation cost for the employee stock options plans, been
determined based on the fair value at the grant date, consistent with the method
of FAS 123, the Company's net income and earnings per share would have been
changed to the pro - forma amounts indicated below:
YEAR ENDED DECEMBER 31
----------------------
2002 2001 2000
---- ---- ----
IN THOUSANDS, EXCEPT FOR PER SHARE DATA
Net income, as reported under U.S. GAAP 54,624 49,876 79,853
Add (deduct):
stock based employee compensation
expense (income), included in reported
net income, net of related tax effect (1,066) (3,792) 4,371
Deduct:
stock based employee compensation
expense determined under fair value
method for all awards, net of related tax
effects (4,801) (1,522) (63)
------- ------- ----
Pro forma net income 48,757 44,562 84,161
------ ------ ------
Earnings per share:
Basic - as reported 13.94 12.75 20.52
Basic - pro forma 12.44 11.39 21.63
Diluted - as reported 13.89 12.66 20.16
Diluted - pro forma 12.40 11.31 21.25
The quoted price of the Company's ordinary shares on December 31, 2002
was NIS 146.6 ($30.4).
A summary of the status of the Company's plans as of December 31, 2002,
2001 and 2000, and changes during the years ended on those dates, is presented
below:
58
2002 2001 2000
--------------------------- ------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
NUMBER NIS NUMBER NIS NUMBER NIS
------ --- ------ --- ------ ---
Options outstanding at
beginning of year 333,916 184.52 104,163 85.02 155,498 95.15
Changes during the year:
Granted - below market value 275,755 200.46
Exercised (46,002) 87.82 (51,335) 90.95
Forfeited
------ ------ ------ ------ ----- ------
Options outstanding at end of year 333,916 147.27 333,916 184.52 104,163 85.02
======= ======= =======
Options exercisable at
year-end 58,161 99.67 *58,161 92.91 1,498 85.02
======= ======= =====
Weighted average fair value of
options granted during the year NIS 59.38
=====
* The amount includes certain fully vested options that their blocking
period is until March 2002.
59
The following table summarizes information about options outstanding at
December 31, 2002.
OPTIONS OUTSTANDING
---------------------------------------------------------------- NUMBER OF
NUMBER OPTIONS
RANGE OF OUTSTANDING AT AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING DECEMBER 31,
PRICES 2002 CONTRACTUAL LIFE 2002
-------- ------------------- ---------------- -----------------
NIS YEARS
--- -----
99.67 58,161 2.1 58,161
230.61 48,575 2.5
120.80 48,575 3.5
131.84* 97,150* 5.0
165.73 81,455 3.8
------ --- ------
333,916 3.6 58,161
======= ======
* Represents 2 batches of 48,575 options each. The exercise price of
these batches will be ultimately determined in July 2003 and July 2004,
respectively (see Note 6b(2) to the financial statements). If the
exercise price of these batches was determined in December 31, 2002 ,it
would have been NIS 131.84.
D. STATEMENTS OF INCOME PRESENTATION
---------------------------------
Under Israeli GAAP, the Company included, in the statements of income
for the year ended December 31, 2002, under "other income (expenses)", loss from
closure of facilities and disposal of assets and closing inventories.
Under U.S. GAAP, the loss from inventories should be classified as part
of cost of sales and loss from closure of facilities and disposal of assets
should be classified as part of operating income.
These adjustments were included in the reconciliation to the U.S. GAAP
(see operating income under U.S. GAAP in Item 3 above).
E. EARNINGS PER SHARE ("EPS")
---------------------------
Israeli GAAP relating to computation of EPS is described in note 10 to
the financial statements.
The EPS computation according to U.S. GAAP presented below is in
accordance with FAS 128.
As applicable to the company, the main difference between the two
methods of EPS computation is that shares to be issued upon exercise of employee
stock options (under SAR plans) are taken into account in the computation of
basic EPS in Israel, whereas in the United States, in computing basic EPS, only
the weighted average number of company shares actually outstanding in the
reported period is taken into account, and shares to be issued upon exercise of
options are included in the computation of diluted EPS. Another difference is
the U.S. requirement for separate presentation - in the income statements - of
basic and diluted EPS as long as they are not identical, while, in Israel, such
separate presentation is only required if the difference between basic and
diluted EPS is in excess of 5%.
60
As to the effect of application of U.S. GAAP, see (h) below.
Following are data relating to the weighted average number of shares
for the purpose of computing basic and diluted earnings per share under U.S.
GAAP:
2002 2001 2000
---- ---- ----
Weighted average number of shares used in the 3,918,710 3,911,673 3,890,561
computation of basic earnings per share
Net additional shares from the assumed exercise of
employee stock options 14,570 28,713 69,863
========= ========= =========
Weighted average number of shares used in the
computation of diluted earnings per share 3,933,280 3,940,385 3,960,424
========= ========= =========
F. IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
For U.S. GAAP purposes, the Company adopted in 2002 FAS 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144
requires that long-lived assets, in order to be held and used by an entity, must
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. Under FAS 144, if
the sum of the expected future cash flows (undiscounted and without interest
charges) of the long-lived assets is less than the carrying amount of such
assets, an impairment loss would be recognized, and the assets are written down
to their estimated fair values.
The adoption of FAS 144 did not have any impact on the financial
position and results of operations of the Company.
G. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
------------------------------------------------------------
Under Israeli GAAP, the Company accounts for its derivative instruments
as hedging instruments.
Under U.S. GAAP, as of January 1, 2001, the Company applied FAS 133
"Accounting for Derivative Instruments and Hedging Activities", as amended by
FAS 137 and FAS 138. Under the provisions of FAS 133, the Company's derivative
instruments do not qualify for hedge accounting.
Under U.S. GAAP, FAS 133, as amended, establishes accounting and
reporting standards for derivative, including certain derivatives embedded in
other contracts, and for hedging activities. Under FAS 133, all derivatives are
recognized on the balance sheet at their fair value.
Since the Company has only limited involvement with derivative
financial instruments, the implementation of FAS 133 has insignificant effect on
the Company's financial statements.
61
H. THE EFFECT OF APPLYING U.S. GAAP ON THE CONSOLIDATED FINANCIAL
STATEMENTS IS AS FOLLOWS:
1) Consolidated balance sheet figures:
DECEMBER 31
-----------
2 0 02 2001
------ ----
Adjusted NIS Re-measured NIS Adjusted NIS Re-measured NIS
------------ --------------- ------------ ---------------
IN THOUSANDS
---------------------------------------------------------------------------
AS REPORTED UNDER AS REPORTED UNDER
ISRAELI GAAP UNDER U.S. GAAP ISRAELI GAAP UNDER U.S. GAAP
Inventories 97,893 76,817 127,732 97,870
====== ====== ======= ======
Investment in associated companies 396,091 373,878 408,033 361,452
======= ======= ======= =======
Fixed assets - net 352,475 279,080 336,607 254,949
======= ======= ======= =======
Deferred taxes - net (51,187) (37,526) (47,181) (15,763)
======== ======== ======== =========
Shareholders' equity (11) (704,168) (602,675) (686,343) (569,920)
========= ========= ========= =========
- ----------
11 In 2002 the Company distributed dividends in the amount of NIS
22,626,000.
62
2) Consolidated statement of income figures:
YEAR ENDED DECEMBER 31
----------------------
2002 2001 2000
---- ---- ----
IN THOUSANDS
--------------------------------------------
(EXCEPT PER SHARE DATA)
Net income, as reported according to Israeli GAAP 40,523 37,263 91,349
Effect of treatment of the following items in accordance with U.S. GAAP:
Functional currency (12) 30,191 2,035 (12,306)
Deferred income taxes - net (17,156) 6,786 5,181
Applying APB 25 in respect of employee stock options:
Gross amount 1,667 5,925 (6,830)
Deferred taxes (601) (2,133) 2,459
------ ------ ------
Net income under U.S. GAAP 54,624 49,876 79,853
====== ====== ======
Earnings per share:
Under Israeli GAAP - net income per NIS 1 of par value of shares - Primary (13) 1,024 944 2,312
===== ==== =====
Under U.S. GAAP - per share:
Basic 13.94 12.75 20.52
===== ===== =====
Diluted 13.89 12.66 20.16
===== ===== =====
3) Shareholders' equity:
DECEMBER 31
-----------
2002 2001
---- ----
IN THOUSANDS
------------
Shareholders' equity according to Israeli GAAP (704,168) (686,343)
Effect of treatment of the following items in accordance with US GAAP:
Functional currency 112,029 144,644
Deferred income taxes (10,464) (28,221)
-------- --------
Shareholders' equity under US GAAP (602,675) (569,920)
========= =========
- ----------
12 In 2001 and 2000 including exchange rate differences from the end of
each of those years, to December 31, 2002.
13 Each NIS 1 par value is composed of 100 ordinary shares of NIS 0.01 par
value.
63
I. STATEMENT OF CASH FLOWS
-----------------------
The Company presents its cash flow information, under Israeli GAAP net
of the effects of inflation.
The information to be included under US GAAP for the years ended
December 31, 2000, 2001 and 2002 is presented below:
2002 2001 2000
---- ---- ----
ADJUSTED NIS
(IN THOUSANDS)
---------------------------------------
Net cash provided by (used in) operating activities 81,587 16,279 117,171
Net cash used in investing activities (43,682) (32,667) (32,510)
Net cash provided by (used in) financing activities (47,901) (1,756) (196,667)
Effect of inflation on cash and cash equivalent 12,056 17,394 (3,060)
------- ------ -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,060 (750) (115,066)
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,846 4,596 119,662
------- ------ -------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR 5,906 3,846 4,596
======= ====== =======
J. REPORTING COMPREHENSIVE INCOME
------------------------------
In addition to net income, comprehensive income includes translation of
foreign currency financial statements of an investee company, as follows:
YEAR ENDED DECEMBER 31
----------------------
2002 2001
---- ----
RE-MEASURED NIS
IN THOUSANDS
-----------------------------
Net income under U.S. GAAP 54,624 49,876
Differences from translation of foreign currency
financial statements of an investee company 2,424 2,425
------ ------
Comprehensive income 57,048 52,301
====== ======
64
K. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT IN THE UNITED STATES:
--------------------------------------------------------------
1) FAS 143
In July 2001, the FASB issued FAS 143, "Accounting for Asset Retirement
Obligations" ("FAS 143") . FAS 143 prescribes the accounting for retirement
obligations associated with tangible long-lived assets, including the timing of
liability recognition and initial measurement of the liability. FAS 143 requires
that an asset retirement cost should be capitalized as part of the cost of the
related long-lived asset and subsequently allocated to expense using a
systematic and rational method. FAS 143 is effective for fiscal years beginning
after June 15, 2002 (January 1, 2003 in the case of the Company).
The Company does not expect the adoption of this standard to have a
material effect on its consolidated financial statements.
2) FAS 145
In April 2002, the FASB issued FAS No. 145, "Revision of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Connections" ("FAS 145"). Among other amendments and rescissions, FAS 145
eliminates the requirement that gains and losses from the extinguishments of
debt be aggregated and, if material, classified as an extraordinary item, net of
the related income tax effect, unless such gains and losses meet the criteria in
paragraph 20 of APB No. 30, "Reporting the Results of Operation - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions". FAS 145 is partially effective
for transactions occurring after May 15, 2002 and partially effective for fiscal
years beginning after May 15, 2002.
The Company does not expect the adoption of this FAS to have any effect
on its consolidated financial statements.
3) FAS 146
In June 2002, the FASB issued FAS No. 146 "Accounting for Costs
Associated with Exit or Disposal activities" ("FAS 146"). FAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF 94-3 "Liability Recognition for Certain Employee
Termination Benefits and other Costs to Exit an Activity (including Certain
Costs Incurred in a restructuring)". FAS 146 required that a liability for a
cost associated with an exit or disposal activity to be recognized when the
liability is incurred. Under EITF 94-3, a liability for an exit cost as
generally defined in EITF 94-3 was recognized at the date of the commitment to
an exit plan. FAS 146 states that a commitment to a plan, by itself, does not
create an obligation that meets the definition of a liability. Therefore, FAS
146 eliminates the definition and requirements for recognition of exit costs in
EITF 94-3.
It also establishes that fair value is the objective for initial
measurement of the liability.
FAS 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002.
The Company does not expect the adoption of this standard to have a
material effect on its consolidated financial statements.
65
4) FIN 45
In November 2002, the FASB issued FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires the
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. It also
elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued and
to be made in regard of product warranties. As to the Company, no additional
disclosure required by this statement for the financial statements for 2002 was
relevant. The initial recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002.
The Company does not expect the adoption of FIN 45 to have a material
effect on its consolidated financial statements.
5) FIN 46
In January 2003, the FASB issued FASB Interpretation No. 46
"Consolidation of Variable Interest Entities" (FIN 46). Under this FIN entities
are separated into two populations: (1) those for which voting interests are
used to determine consolidation (this is the most common situation) and (2)
those for which variable interests are used to determine consolidation. The FIN
explains how to identify Variable Interest Entities (VIE) and how to determine
when a business enterprise should include the assets, liabilities, no
controlling interests, and results of activities of a VIE in its consolidated
financial statements.
The FIN is effective as follows: for variable interests in variable
interest entities created after January 31, 2003 the FIN shall apply
immediately, for variable interests in variable interest entities created before
that date, the FIN shall apply - for public entities - as of the beginning of
the first interim or annual reporting period beginning after June 15, 2003.
The Company has no investment in VIE, thus it expects the adoption of
this FIN to have no effect on its consolidated financial statements.
66
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders of
American Israeli Paper Mills Limited
Our audits of the consolidated financial statements of American Israeli Paper
Mills Limited. referred to in our report dated March 12, 2003 also included an
audit of Schedule - Valuation and Qualifying Accounts for each of the three
years in the period ended December 31, 2002 (the "Schedule"). In our opinion,
the Schedule presents fairly in all material respects, the information set forth
therein when read in conjunction with related consolidated financial statements.
Tel-Aviv, Israel Kesselman & Kesselman
March 12, 2003 Certified Public Accountants (Isr.)
SCHEDULE - VALUATION AND QUALIFYING ACCOUNTS
--------------------------------------------
THREE YEARS ENDED DECEMBER 31,2002
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(Adjusted NIS In thousands)
---------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
Additions (reductions)
Balance at (reductions) due to Balance at
beginning charged to consolidation/ end of
of period expenses Deductions deconsolidation period
Allowance for doubtful accounts:
Year ended December 31, 2002 12,481 1,331 (18) 13,794
====== ===== ==== ======
Year ended December 31, 2001 14,022 99 (1,640) 12,481
====== ===== ==== ======
Year ended December 31, 2000 24,451 8,055 (393) (18,091) 14,022
====== ===== ==== ======= ======
ITEM 19
EXHIBITS
(a) The following financial statements and supporting documents are
filed with this report:
(i) Consolidated Audited Financial Statements of the Company for the
year ended December 31, 2002 (including reports of Luboshitz Kasierer, an
affiliate of Ernst & Young, for TMM Integrated Recycling Industries Ltd. and
Barthelemi Holdings Ltd. and of Kost, Forer and Gabbay, an affiliate of Ernst &
Young, for Carmel Container Systems Ltd.
(ii) Financial statements of Neusiedler Hadera Paper Ltd. for the year
ended December 31, 2002.
67
(iii) Financial statements of Hogla-Kimberly Ltd. for the year ended
December 31, 2002.
(iv) Report of Kesselman & Kesselman, an affiliate of
PricewaterhouseCoopers, re Schedule on Valuation and Qualifying Accounts and
Schedule.
(v) Report of Kesselman & Kesselman, an affiliate of
PricewaterhouseCoopers, on reconciliation to U.S. GAAP.
(b) Exhibits:
1.1* Memorandum of Association
1.2** Articles of Association
3.1*** Voting Agreement dated February 5, 1980 by and among Clal
Industries Ltd., PEC Israel Economic Corporation and Discount
Bank Investment Corporation Ltd.
8.1 List of subsidiaries
10.1 Certification of the Chief Executive Officer of the Registrant
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.2 Certification of Chief Financial Officer of the Registrant
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Previously filed as an exhibit to the Company's Annual Report on Form
20-F for the year ended December 31, 1987, file No. 1-4212, and
incorporated by reference herein.
** Previously filed as an exhibit to the Company's Annual Report on Form
20-F for the year ended December 31, 2000, file No. 1-4212, filed with
the SEC in June 2001 and incorporated by reference herein.
*** Incorporated by reference to the exhibit number 3.1 in the Company's
form 20-F for the year ended December 31, 1987.
68
SIGNATURES
The Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN ISRAELI PAPER MILLS LIMITED
By: /s/ Lea Katz
-----------------------------
Name: Lea Katz
Title: Corporate Secretary
Dated: June 23, 2003
69
CERTIFICATION
-------------
I, Avi Patir, certify that:
1. I have reviewed this annual report on Form 20-F of American Israeli
Paper Mills Ltd.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: June 23, 2003 /s/ Avi Patir
---------------------------
Avi Patir
Chief Executive Officer
70
CERTIFICATION
-------------
I, Israel Eldar, certify that:
1. I have reviewed this annual report on Form 20-F of American Israeli
paper Mills Ltd.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: June 23, 2003 /s/ Israel Eldar
---------------------------
Israel Eldar
Chief Financial Officer
71
EXHIBIT INDEX
-------------
1.1* Memorandum of Association
1.2** Articles of Association
3.1*** Voting Agreement dated February 5, 1980 by and among Clal
Industries Ltd., PEC Israel Economic Corporation and Discount
Bank Investment Corporation Ltd.
8.1 List of subsidiaries
10.1 Certification of the Chief Executive Officer of the Registrant
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.2 Certification of Chief Financial Officer of the Registrant
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Previously filed as an exhibit to the Company's Annual Report on Form
20-F for the year ended December 31, 1987, file No. 1-4212, and
incorporated by reference herein.
** Previously filed as an exhibit to the Company's Annual Report on Form
20-F for the year ended December 31, 2000, file No. 1-4212, filed with
the SEC in June 2001 and incorporated by reference herein.
*** Incorporated by reference to the exhibit number 3.1 in the Company's
form 20-F for the year ended December 31, 1987.
72