Page 1 of 21 pages.
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of June 2003
Electrochemical Industries (1952) Ltd.
--------------------------------------
(Translation of registrant's name into English)
Haifa Bay
Acre Industrial Area
P.O. Box 1929
Haifa, 31019 Israel
-------------------
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Yes X No
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
--- ---
The following item or items, which are filed herewith, were either filed by
or with respect to Electrochemical Industries (1952) Ltd. ("EIL") with the
Tel-Aviv Stock Exchange, or distributed by EIL to its security holders, on the
date or dates indicated.
Item Filing/Distribution Date
- ---------------------------------------------------- -----------------------
1. Financial Statement and Directors Report for the
three month period ending March 31, 2003 filed May 29, 2003
with the Tel-Aviv Stock Exchange
ITEM 1
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
ADJUSTED FOR THE CHANGES IN THE EXCHANGE RATE
OF THE U.S. DOLLAR AS OF MARCH 31, 2003
UNAUDITED
INDEX
PAGE
------
REVIEW REPORT OF UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 2-3
CONSOLIDATED BALANCE SHEETS 4-5
CONSOLIDATED STATEMENTS OF OPERATIONS 6
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 7
CONSOLIDATED STATEMENTS OF CASH FLOWS 8-9
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10-14
- - - - - - - - - - - - - - - -
-1-
[LOGO] ERNST & YOUNG o KOST FORER & GABBAY o Phone: 972-3-6232525
3 Aminadav St. Fax: 972-3-5622555
Tel-Aviv 67067, Israel
The Board of Directors
Electrochemical Industries (1952) Ltd.
- --------------------------------------
Re: Review report of unaudited interim consolidated financial statements
as of and for the three months ended March 31, 2003
--------------------------------------------------------------------
At your request, we have reviewed the accompanying interim consolidated
balance sheet of Electrochemical Industries (1952) Ltd. ("the Company") as of
March 31, 2003, and the related interim consolidated statements of income,
changes in equity and cash flows for the three months then ended. Our review was
made in accordance with the procedures prescribed by the Institute of Certified
Public Accountants in Israel, and included, inter-alia, reading the
aforementioned interim consolidated financial statements, reading the minutes of
meetings of the shareholders and the board of directors and its committees, and
making inquiries of certain officers responsible for financial and accounting
matters.
We were furnished with the reports of other auditors with respect to their
review of the interim financial statements of subsidiaries whose assets included
in consolidation as of March 31, 2003 constitute approximately 13% of total
consolidated assets, and whose revenues included in consolidation for the three
months then ended constitute approximately 28% of the total consolidated
revenues in the consolidated interim statement of income.
The foregoing procedures do not constitute an examination made in
accordance with generally accepted auditing standards, and are limited in scope.
Therefore, we do not express an opinion on the interim consolidated financial
statements.
In the course of our review, including the reading of the review reports of
the other auditors as aforesaid, nothing came to our attention that would
indicate that material changes to the interim consolidated financial statements
are required in order that they may be considered prepared in accordance with
generally accepted accounting principles in Israel. Furthermore, in our opinion,
the consolidated financial statements referred to above are prepared in
accordance with the Israeli Securities Regulations (Periodic and Immediate
Financial Statements), 1970.
We draw attention to the following:
1. The matter referred to in Note 1b. to the financial statements with respect
to the loss in the amount of about NIS 13 million suffered by the Company
in the reported period, which is in addition to the loss in the amount of
about NIS 70 million in the prior year and the working capital deficit as
of balance sheet date, in the amount of about NIS 181 million and with
respect to management's plans to improve the results of operations and
financial position. In management's opinion, by carrying out of its plans,
together with the continued improvement in the margins between the sale
prices and the prices for raw materials on the global PVC market, and with
the continued credit obtained from the parent company (I.C.C Industries
Inc.), a cash flow at the scope and timing required in order for the
Company to fulfill its commitments and current expenses will be made
possible.
-2-
[LOGO] ERNST & YOUNG
2. The matter referred to in Note 1c. to the financial statements with respect
to the covenants that were determined in agreements with lenders that the
Company is not fulfilling. As detailed in the Note, the Company is of the
opinion that the lenders will continue to not demand early repayment of the
liabilities in the foreseeable future. Additionally, in management's
estimation, the plan for the restructuring of the financial debts (see Note
1b.) will also include the adjustment of the financial ratios required of
the Company and other arrangements. Accordingly the company classified the
aforesaid loans as long-term debt.
3. The matter referred to in Note 1d. to the financial statements with respect
to the negotiations the Company and the subsidiary are holding with the
banks to defer the repayment of additional loans in the amount of NIS 29
million that were designated for repayment during the first quarter of 2004
and which are subject to certain conditions. In the opinion of management,
as occurred in the past, the Company will reach an agreement with the banks
and will fulfill the conditions that will be determined, and in accordance
with the classification of the aforesaid loans as long-term debt.
4. The matter referred to in Note 1e. in the financial statements with respect
to not complying with its commitments in regards to repayment of the
principal of Series 5 debentures in the amount of NIS 805 thousand and a
request to arrive at a new arrangement to deferred repayment of the
principal of Series 3, 4 and 5 debentures are in the amount of NIS 9
million.
/s/ Kost Forer & Gabbay
Haifa, Israel KOST FORER & GABBAY
May 29, 2003 A Member of Ernst & Young Global
-3-
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ADJUSTED FOR THE CHANGES IN THE EXCHANGE RATE OF THE U.S. DOLLAR
OF MARCH 31, 2003
MARCH 31,
-------------------- DECEMBER 31,
2003 2002 2002
------ ------ ------------
UNAUDITED AUDITED
-------------------- ------------
ADJUSTED NIS
--------------------------------------
IN THOUSANDS
--------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 1,275 6,965 1,378
Short-term investments 22,718 21,128 22,127
Trade receivables 100,920 90,586 104,286
Other accounts receivable 31,534 35,856 19,306
Inventory 98,807 74,823 80,100
Fixed assets designated for sale 1,312 - 1,312
------------ ------------ ------------
Total current assets 256,566 229,358 228,509
------------ ------------ ------------
LONG-TERM BALANCES 3,098 - 3,168
------------ ------------ ------------
FIXED ASSETS:
Cost 1,172,261 *1,103,577 *1,157,918
Less - accumulated depreciation 582,496 *557,176 *576,125
------------ ------------ ------------
589,765 546,401 581,793
------------ ------------ ------------
OTHER ASSETS, NET 32,809 *35,973 *32,491
------------ ------------ ------------
882,238 811,732 845,961
============ ============ ============
<FN>
* Reclassified
</FN>
The accompanying notes are an integral part of the financial statements.
-4-
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ADJUSTED FOR THE CHANGES IN THE EXCHANGE RATE OF THE U.S. DOLLAR
OF MARCH 31, 2003
MARCH 31,
-------------------- DECEMBER 31,
2003 2002 2002
------ ------ ------------
UNAUDITED AUDITED
-------------------- ------------
ADJUSTED NIS
--------------------------------------
IN THOUSANDS
--------------------------------------
CURRENT LIABILITIES:
Credit from banks and others 226,565 156,668 164,312
Trade payables 176,869 *143,492 178,392
Other accounts payable 34,435 *19,564 20,754
------------ ------------ ------------
Total current liabilities 437,869 319,724 363,458
------------ ------------ ------------
LONG-TERM DEBT:
Liabilities to banks and other long-term liabilities 258,994 294,480 322,840
Marketable debentures 18,036 20,248 13,925
Non-marketable convertible debentures 19,376 21,241 20,796
Loan from the parent company 125,808 58,489 89,185
Accrued severance pay, net 286 291 328
------------ ------------ ------------
422,500 394,749 447,074
------------ ------------ ------------
MINORITY INTEREST 103 1,560 89
------------ ------------ ------------
SHAREHOLDERS' EQUITY 21,766 *95,699 *35,340
------------ ------------ ------------
882,238 811,732 845,961
============ ============ ============
May 29, 2003 /s/ John J. Farber /s/ Amir Endvelt /s/ Oded Isborno
- ----------------------- ---------------------- ------------------------ ----------------------
Date of approval of the Dr. John J. Farber Amir Endvelt Oded Isborno
financial statements Chairman of the Managing Director and Vice-President Finance
Board of Directors Chief Executive Officer
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
-5-
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ADJUSTED FOR THE CHANGES IN THE EXCHANGE RATE OF THE U.S. DOLLAR
OF MARCH 31, 2003
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
-------------------- DECEMBER 31,
2003 2002 2002
------ ------ ------------
UNAUDITED AUDITED
-------------------- ------------
ADJUSTED NIS (EXCEPT LOSS PER SHARE DATA)
--------------------------------------
IN THOUSANDS
--------------------------------------
Sales 113,397 109,802 456,547
Cost Of sales 98,741 104,234 431,607
------------ ------------ ------------
Gross profit 14,656 5,568 24,940
Selling and marketing expenses 8,915 9,248 37,960
General and administrative expenses 5,915 5,184 20,403
------------ ------------ ------------
14,830 14,432 58,363
Operating loss (174) (8,864) (33,423)
Financial expenses, net (13,368) (1,870) (36,873)
Other income (expenses), net 272 (1,275) (2,901)
------------ ------------ ------------
Loss before taxes on income (13,270) (12,009) (73,197)
Taxes on income (290) 2,409 3,323
------------ ------------ ------------
Loss after taxes on income (13,560) (9,600) (69,874)
Minority interest in losses of subsidiaries (14) (107) (192)
------------ ------------ ------------
Loss for the period (13,574) (9,707) (70,066)
============ ============ ============
Primary loss per NIS 1 nominal value share (0.32) (0.23) (1.66)
============ ============ ============
The accompanying notes are an integral part of the financial statements.
-6-
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
ADJUSTED FOR THE CHANGES IN THE EXCHANGE RATE OF THE U.S. DOLLAR
OF MARCH 31, 2003
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
---------------------------------------------------------------
NET OF
TREASURY
ADDITIONAL SHARES HELD
SHARE PAID-IN ACCUMULATED BY THE
CAPITAL CAPITAL DEFICIT COMPANY TOTAL
----------- ----------- ----------- ----------- -----------
ADJUSTED NIS
---------------------------------------------------------------
IN THOUSANDS
---------------------------------------------------------------
Balance at beginning of period 175,901 70,492 (209,647) (1,406) 35,340
Loss for the period - - (13,574) - (13,574)
----------- ----------- ----------- ----------- -----------
Balance at end of period 175,901 70,492 (223,221) (1,406) 21,766
=========== =========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
---------------------------------------------------------------
NET OF
TREASURY
ADDITIONAL SHARES HELD
SHARE PAID-IN ACCUMULATED BY THE
CAPITAL CAPITAL DEFICIT COMPANY TOTAL
----------- ----------- ----------- ----------- -----------
ADJUSTED NIS
---------------------------------------------------------------
IN THOUSANDS
---------------------------------------------------------------
Balance at beginning of period 175,901 70,492 (139,581) *(1,406) 105,406
Loss for the period - - (9,707) - (9,707)
----------- ----------- ----------- ----------- -----------
Balance at end of period 175,901 70,492 (149,288) *(1,406) 95,699
=========== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 2002 (AUDITED)
---------------------------------------------------------------
NET OF
TREASURY
ADDITIONAL SHARES HELD
SHARE PAID-IN ACCUMULATED BY THE
CAPITAL CAPITAL DEFICIT COMPANY TOTAL
----------- ----------- ----------- ----------- -----------
ADJUSTED NIS
---------------------------------------------------------------
IN THOUSANDS
---------------------------------------------------------------
Balance at beginning of the year 175,901 70,492 (139,581) *(1,406) 105,406
Loss for the year - - (70,066) - (70,066)
----------- ----------- ----------- ----------- -----------
Balance at end of the year 175,901 70,492 (209,647) *(1,406) 35,340
=========== =========== =========== =========== ===========
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
-7-
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
ADJUSTED FOR THE CHANGES IN THE EXCHANGE RATE OF THE U.S. DOLLAR
OF MARCH 31, 2003
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
-------------------- DECEMBER 31,
2003 2002 2002
------ ------ ------------
UNAUDITED AUDITED
-------------------- ------------
ADJUSTED NIS
--------------------------------------
IN THOUSANDS
--------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period (13,574) (9,707) (70,066)
Adjustments to reconcile loss to net cash used
in operating activities (a) 3,660 7,387 59,445
------------ ------------ ------------
Net cash used in operating activities (9,914) (2,320) (10,621)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (3,477) (6,565) (34,984)
Payments for amortization expenses (10,747) (6,053) (40,257)
Investment grant received 328 492 774
Proceeds from sale of fixed assets 23 150 347
Proceeds from sale (purchase) of securities,
deposits and long-term liabilities, net (342) 6,811 4,809
------------ ------------ ------------
Net cash used in investing activities (14,215) (5,165) (69,311)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of long-term loans 27,250 17,712 110,473
Receipt of loans from parent company 19,887 - 42,426
Payment of long-term liabilities (45,332) (18,134) (71,547)
Short-term bank credit, net 22,221 9,824 (5,090)
------------ ------------ ------------
Net cash provided by financing activities 24,026 9,402 76,262
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (103) 1,917 (3,670)
Cash and cash equivalents at the beginning of the
period 1,378 5,048 5,048
------------ ------------ ------------
Cash and cash equivalents at the end of the period 1,275 6,965 1,378
============ ============ ============
The accompanying notes are an integral part of the financial statements.
-8-
ELECTROCHEMICAL INDUSTRIES (1952) LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
ADJUSTED FOR THE CHANGES IN THE EXCHANGE RATE OF THE U.S. DOLLAR
OF MARCH 31, 2003
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
-------------------- DECEMBER 31,
2003 2002 2002
------ ------ ------------
UNAUDITED AUDITED
-------------------- ------------
ADJUSTED NIS
--------------------------------------
IN THOUSANDS
--------------------------------------
(a) Adjustments to reconcile loss to net cash
used in operating activities:
Income and expenses not affecting cash flows:
Minority interest in subsidiaries, net 14 107 192
Depreciation and amortization 6,501 8,436 34,440
Deferred taxes, net 108 (2,653) (3,766)
Accrued severance pay, net (42) (1,439) (1,402)
Capital loss (gain) (14) (9) 9
Erosion in liabilities to companies and other
long-term liabilities 1,396 (2,816) 1,060
Changes in value of marketable securities, net (179) 830 1,055
Accrued interest on loan from parent company 1,323 542* 4,077
Changes in assets and liabilities:
Decrease (increase) in trade receivables: 3,366 (736) (7,912)
Decrease (increase) in other accounts receivable (13,240) (8,014) 6,365
Decrease (increase) in inventories (18,707) 12,149 11,558
Increase in trade receivables and other accounts
receivable 23,134 990* 13,769
------------ ------------ ------------
3,660 7,387 59,445
------------ ------------ ------------
(b) Significant non-cash activities:
Conversion of suppliers credit from parent
company 15,413 - -
============ ============ ============
Investment grant receivable 684 - 1,082
============ ============ ============
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
-9-
ELECTROCHEMICAL INDUSTRIES (1952)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1:- GENERAL
a. The Company and its operations:
Electrochemical Industries (1952) Ltd. is a company
registered in Israel that, together with its subsidiaries
("the Group"), operates in Israel and internationally. The
Company's shares and debentures are listed for trade on the
Tel-Aviv Stock Exchange and are also listed for trade on the
American Stock Exchange. On April 25, 2002, the Company
received notice from the Securities Exchange Commission
("SEC") that the Company's request to delist its shares from
trade was approved. The Company will continue to file
reports with its U.S. shareholders in accordance with SEC
directives, until additional conditions will be fulfilled
that will allow it to cease reporting.
The Group's principal activity is the production of raw
materials for the plastic industry (PVC), industrial
chemicals and follow-on products for which the major raw
material in their production is PVC. The Company's sales are
in Israel and abroad.
b. Since the Company has suffered losses in the amount of about
NIS 13 million in the reported period, which is in addition
to its loss in the amount of about NIS 70 million in the
prior year, and it has a working capital deficit as of
balance sheet date in the amount of about NIS 181 million,
the Company formulated a preliminary outline for the
improvement of its results of operations and financial
position, as detailed below:
1. The Company is acting to sell the real estate
properties it owns.
2. The parent company continues to increase the
credit to the Company, where up to the date of the
financial statement the balance amount of about
NIS 126 million.
3. The Company intends to negotiate with its
principal creditors, including I.C.C., the parent
company, with respect to the restructuring of its
financial debts and the improvement of its capital
structure, where among others:
a. The conversion of a substantial portion
of the Company's financial liabilities
to the controlling interest over its
capital through an allocation of shares
and/or the issuance of rights and/or by
any other means it shall select.
b. The finalizing of arrangements with the
holders of the marketable debentures,
the holders of the non-marketable
debentures and with other lenders that
will result in the improvement of its
debt structure.
c. The finalizing of arrangements with the
banks that have loaned funds to the
Company, the principal element of which
is the scheduling of the repayments of
the debt to long-term and extending
financial resources for the arrangements
in paragraph b, together with the
resources the principal controlling
interest, I.C.C., will extend.
10
ELECTROCHEMICAL INDUSTRIES (1952)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1:- GENERAL (CONT.)
In the opinion of management, the
carrying out of its plans, together with
an improvement in the margins between
the sale prices and the prices for raw
materials on the global PVC market, and
with the continued receipt of credit
from the parent company (I.C.C
Industries Inc.) will allow for a cash
flow at the scope and timing required in
order for the Company to meet its
commitments and current expenses.
c. As for certain loans, the Company has undertaken to comply
with the covenants that were determined and, among others,
compliance with certain data and financial ratios, such as
the amount of required shareholders' equity. In the case of
noncompliance with or deviation from the agreed upon
conditions, the banks will be entitled to demand the
immediate payment of any credit whatsoever that they
extended. On the date of the financial statements and on
previous periods the Company did not comply with its
financial covenants under its loan agreements with the banks
and therefore, over the years the Company has reached
temporary agreements with the banks concerning these
conditions. Further to the aforesaid, one of the banks
notified the Company that subject to the fulfillment of
certain conditions, it will not take advantage of it's right
to call for the immediate repayment of the credit in respect
to the nonfulfillment of the commitments to maintain the
financial covenants insofar as they relate to the financial
statements as of March 31, 2003, and solely that in respect
to the financial statements that will be published beginning
on June 30, 2003, the aforesaid commitments will be
fulfilled in their entirety. This approval is in condition
that the other two banks will give their approval as well.
The company is of the opinion that the other two banks will
soon give similar approvals, and that the banks will
continue to not demand early repayment of the liabilities in
the foreseeable future.
In addition, the Company is not meeting the financial ratios
that were determined in the agreements with the holders of
the debentures. The general meeting of the holders of these
non-marketable debentures that was held in 2002, among
others, ratified that the Company will not be required to
meet the financial ratios appearing in the original
agreements with the holders of the debentures during the
period until December 2003.
In management's estimation, the plan for the restructuring
of the financial debts (see Note 1b. above) will also
include the adjustment of the financial ratios required of
the Company, such that the banks and the holders of the
debentures shall continue to not demand the early repayment
of the loans. Accordingly, the company classified the
aforesaid loans as long-term debt.
d. In addition, the Company and the subsidiary reached an
agreement with the banks to defer the repayments of
additional loans amounting to NIS 29 million, that was
designated for repayment in the first quarter of 2004, which
is subject to certain conditions. In the opinion of
management, as occurred in the past, the Company will reach
an agreement with the banks and will fulfill the conditions
that will be determined, and in accordance with the
classification of the aforesaid loans as long-term debt.
11
ELECTROCHEMICAL INDUSTRIES (1952)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1:- GENERAL (CONT.)
e. On April 29, 2003, the Company announced that out of the
payment of the principle of the Series 5 debentures that was
to have been paid on March 30, 2003, that the Company will
pay the Holders of the debentures an amount of NIS 450
thousand on April 30, 2003, which comprises 35.72% of the
total par value that was supposed to have been paid on
March 30, 2003. This payment was effectively carried out on
April 30, 2003.
In addition, the Company committed in its announcement to
pay the balance of the principal in the amount of NIS 805
thousand on May 21, 2003.
On May 21, 2003, the Company announced that on June 19,
2003, three general meetings of the Holders of the Series 3,
4 and 5 debentures will be convened in order to arrive at a
new arrangement for the repayment of the principal of the
aforesaid debentures in the amount of about NIS 9 million,
since the payment in the amount of NIS 805 was not paid on
that date.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. The consolidated financial statements for the interim period
of three months ended March 31, 2003 have been prepared in
accordance with the same generally accepted accounting
principles applied in the annual financial statements and in
accordance with generally accepted accounting principles
concerning financial statements for interim periods.
Accordingly, the statements have been prepared on the basis
of the historical cost convention adjusted for the changes
in the exchange rate of the U.S. dollar.
The interim financial statements have been prepared on the
assumption that the reader also has the financial statements
for the last reported year.
b. The interim statements (including comparative figures) are
presented in NIS of March 2003.
The following are the changes in the Israeli CPI and in the
exchange rate of the U.S. dollar:
REPRESENTATIVE
EXCHANGE RATE
ISRAELI CPI OF U.S. $
-------------- ----------------
%
----------------------------------
For the three months ended March 31, 2002 0.8 0.4
For the three months ended March 31, 2001 2.4 5.7
For the year ended December 31, 2001 6.5 7.3
12
ELECTROCHEMICAL INDUSTRIES (1952)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. Implementation of new accounting standards and their impact
-----------------------------------------------------------
on the financial statements
---------------------------
During October 2001, the Israel Accounting Standards Board
published Accounting Standard No. 12 with respect to the
discontinuation of the adjustment of financial statements,
and Accounting Standard No. 13 with respect to the effect of
the changes in the exchange rates for foreign currencies. In
December 2002, Accounting Standard No. 17 was published with
respect to the deferral of the implementation of Accounting
Standards No. 12 and No. 13 until January 1, 2004.
In accordance with the provisions of Accounting Standard
No. 17, and the cancellation of Opinion No. 36 and the
coming into force of Standards Nos. 12 and 13 as of
January 1, 2004. Currently, the Company's adjusted financial
statements are adjusted for the changes in the exchange rate
of the U.S. dollar, which is in accordance with the
provisions of section 29 to Opinion No. 36. Section 29 of
this Opinion prescribes that it is possible to adjust the
financial statements according to the changes in the
exchange rate of a foreign currency when one of the two
following conditions is met: (a) the income, or its
principal part, is also received in foreign currency and
also the fixed assets, or the principal part of them, are
acquired in foreign currency; or (b) the company's
securities are listed for trade on a foreign stock market.
In accordance with the provisions of Accounting Standard
No. 13 that, as aforesaid will come into force as of
January 1, 2004, it will be possible to continue adjusting
the financial statements according to the changes in the
exchange rate of a foreign currency only if condition (a)
above is met, and this up until the date on with the Israel
Accounting Standards Board shall publish a new Standard
regarding this issue. In the event and condition (a) above
is not met, the adjustment of the Company's financial
statements for the changes in the exchange rate of the
U.S. dollar will be discontinued commencing January 1, 2004.
The adjusted amounts that will be included in the financial
statements as of December 31, 2003, will serve as the
starting point for the nominal financial reporting
commencing January 1, 2004.
The Company is in the process of examining if condition (a)
above is being met in order to examine if the publication of
Standards Nos. 12 and 13 will have implications for the
Company's financial statements. At this stage, the
evaluation of the Company's management is that Standards
Nos. 12 and 13 will not have implications for the Company's
financial statements.
During the reported period, the Company has initially
implemented Accounting Standard No. 14, "Financial Reporting
for Interim Periods" of the Israel Accounting Standards
Board. which deals with fiscal reporting for interim
periods. The comparative data for interim periods prior to
the date on which the Standard was applied (January 1, 2003)
were not restated since they are not materially different
from the provisions of Accounting Standard No. 14.
13
ELECTROCHEMICAL INDUSTRIES (1952)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3:- TRANSACTIONS WITH RELATED PARTIES
a. Transactions with interested party
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
--------------------------------- DECEMBER 31,
2003 2002 2002
--------------- --------------- -------------------
UNAUDITED AUDITED
--------------------------------- -------------------
ADJUSTED NIS (IN THOUSANDS)
-------------------------------------------------------
Sales 5,860 2,456 15,687
=============== =============== ===================
Purchases 19,684 8,131 58,577
=============== =============== ===================
Interest 1,323 542 4,078
=============== =============== ===================
Reimbursement and other payments 30 - 126
=============== =============== ===================
b. Transaction with related company
Sales 101 229 477
=============== =============== ===================
Rental fees 23 25 431
=============== =============== ===================
NOTE 4:- SUBSEQUENT EVENTS
On April 27, 2003, the Company announced that the controlling
interest, ICC, intends to carry out a tender offer for the Company's
entire share at a price of NIS 0.45 per share NIS 1.00 at par value.
As of the date of which the financial statements were approved, the
date for publishing the aforesaid tender offer has not yet been
determined.
14
DIRECTORS REPORT
FOR THE PERIOD JANUARY - MARCH 2003
1. THE FOLLOWING IS A SUMMARY OF THE CONSOLIDATED FINANCIAL RESULTS IN
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NIS MILLIONS:
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1-3/2003 1-3/2002 2002
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US$ Million In NIS Million
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Sales 24.2 113.4 109.8 456.5
Gross profit 3.1 14.7 5.6 24.9
Operating income (loss) 0 0.1 (10.1) (36.3)
Financing expenses (2.9) (13.4) ( 1.9) (36.9)
Income (loss) before tax (2.8) (13.3) (12.0) (73.2)
NET INCOME (LOSS) (2.9) (13.6) ( 9.7) (70.1)
THE FINANCIAL RESULTS FOR THE FIRST QUARTER OF 2003 WERE AFFECTED BY
THE FOLLOWING FACTORS:
a. PVC prices increased during the quarter in international markets,
reaching US$ 750 per ton in March 2002; however, prices of the
main raw materials (ethylene, EDC, fuel and electricity)
increased as well. The total effect of the two trends was an
improvement in margins which was expressed in an improvement in
gross and operating profits, compared to the equivalent period in
the previous year, and compared to the last quarter of 2002.
After the date of the financial statements, during April and May,
there was an erosion in PVC prices, mainly in Asia, but there
were also declines in the prices of some of the raw materials
(fuel and EDC). Ethylene contract price for the second quarter of
2003 remained as in the first quarter.
b. During the first quarter, the production volume in the Company's
facilities in Akko reached 80% of production capacity. This was
mainly due to unavailability of imported EDC and ethylene,
influenced by the security events in the area.
c. Financing expenses in the first quarter were higher, due to the
devaluation of the shekel at the end of the quarter and the
increase in financial liabilities.
2
d. During the period under review, the level of sales in the
downstream production companies - Palkar, Pipe UK and MT-2000
-was maintained due to the continuing adverse effect of the
recession in Israel and in global markets, and the increased
prices of raw materials used in the production of the downstream
products (PVC).
2. FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
The heavy losses posted in 2001 and 2002 and the continuing losses
during the period under review worsened the liquidity ratios, and
resulted in a working capital deficit and an erosion in shareholders'
equity. As mentioned in the Company's initial notice of April 27,
2003, a tender offer is to be published by the controlling shareholder
in the Company for the acquisition of all the Company's shares, at a
price of NIS 0.45 per share.
The Company is preparing a program to reorganize its financial debts
and to strengthen its shareholders' equity. The program will include
the following elements:
a. Conversion of most of the Company's financial debt to the
controlling shareholder to capital may be made by allotting
shares and/or rights, or may be accomplished in any other manner
that may be decided, subject to the tender offer succeeding.
(i.e. - the company becoming a private company). Regarding the
level of financing through the controlling shareholder, see the
following.
b. Entering into agreements with the holders of the bonds and with
other lenders which will lead to an improvement in the Company's
debt.
c. Entering into an agreement with the Company's creditor banks, the
main points being rescheduling the repayment of the long-term
debt and providing sources of finance for the arrangements
mentioned in section "b" above, together with sources of finance
that the main controlling shareholder in the Company - ICC - will
provide.
d. Completing the negotiations with the Israel Electric Corporation
and completing the sale of land of 160 dunam (40 acres) in the
area of the Company's plant in Akko, the proceeds of which will
be used as sources of funds in the above-mentioned financial
arrangements.
At the beginning of May, the company began negotiations with an
additional company regarding a sale of additional land of about
60 dunam in the area of the company's plant in Akko.
3
The Company's management is negotiating with all the relevant
parties to implement this program (mainly the banks and bond
holders). On the date of the financial statements, the program
has not been fully completed, and the negotiations have not yet
reached the stage of a binding arrangement with any of the
relevant parties.
During the period under review, the Company's cash flows were
supported by the following elements:
o The controlling shareholder, ICC, increased the level of its
credit to the Company by NIS 21.2 million (US$ 4.5 million)
and on March 31, 2003, this level reached NIS 125.8 million
(US$ 26.8 million). At the time of publishing the financial
statements, ICC had provided additional credit to the
Company of NIS 7 million (US$ 1.5 million).
o During the period under report, the Company received an
additional State loan of NIS 3 million; an additional NIS 3
million loan will be paid to the Company at the end of June
2003, subject to its meeting certain conditions.
o On January 21, 2003 the meeting of bondholders of series
3,4,5 approved the deferent of due dates of principal on the
total of 11.5 million NIS (US$ 2.5 million) which were due
on December 2002 and March 2003. Monthly repayments were
delayed, starting March 2003 to October 2003.
The company published a notice of an additional convening of a
general meeting of bondholders series 3,4,5, to be held on
June19,.2003 , in which the company shall request the bondholders
approval for making use of the deposits held by the trustee for
the repayment of the deferred principal, or alternatively,
deferring the repayments be three months.
The financing banks rolled over long-term credit that had fallen
due during the period under review of NIS 11 million
(US$ 2.7 million). On the date of the financial statements, the
Company was not in compliance with its financial covenants under
its loan agreements with the banks. One of the banks has given
its written approval stating that the company's incompliance with
its financial covenants as of the date of the financial
statements is not considered as a violation of the loan
agreements. (This approval is in condition that the other two
banks will give their approval as well). The company believes
that similar approvals will soon be given by the other two banks.
The Company estimates that negotiations with the banks will soon end
in the rescheduling of the repayment dates of EIF Trading's loan, so
that its repayment due date at the beginning of 2004 will be delayed.
The Company estimates that the financial support from the controlling
shareholder plus the adoption of the reorganization plan for the
financial debts and the sale of the land, will enable the Company to
meet its current liabilities.
4
3. EXPOSURE TO MARKET RISKS AND THE METHOD OF THEIR MANAGEMENT
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3.1. There is no change from the Directors Report for the period
January-December 2002.
3.2. Linkage basis report - there has been no significant change from
the Directors Report for the period January-December 2002.
4. THE COMPANY'S OPERATIONS - THE PLANT IN AKKO AND ITS SUBSIDIARIES
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FOR MARKETING PVC
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The Company's business and manufacturing operations in Israel are
carried out in the area of the manufacturing facilities and head
office in Akko. The marketing operations are carried out also through
marketing subsidiaries which are registered and operate abroad.
The following is a summary of the financial results of the plant in
Akko and the marketing subsidiaries, in NIS millions:
1-3/2003 1-3/2002 2002
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US$ Million In NIS Million
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Sales 21.2 99.1 93.0 391.0
Gross profit (loss) 2.8 13.2 3.8 16.9
Operating profit (loss) 0.8 3.8 (7.4) (25.5)
Financing expenses 2.7 12.7 2.2 30.6
Net income (loss) (1.9) (9.1) (7.4) (55.3)
The increase of the PVC prices during the period reviewed along with
increases in the prices of the main raw materials brought a
significant improvement in the gross and the operational margins.
The sharp evaluation of the NIS vs. the US$ and the evaluation of the
euro vs the US $ are the main reasons for the high financial expenses
during the period.
5. LEGAL PROCEEDINGS BETWEEN CARMEL OLEFINS LTD. (CAOL) AND THE COMPANY
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Referring to the aforesaid Directors Report for the period
January-December 2002, regarding the legal proceedings between CAOL
and the Company held in the superior court and the district courts in
Haifa and Tel Aviv, there has been no change except for setting dates
and other arrangements regarding the hearings.
/s/ John J. Farber /s/ Amir Endvelt
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DR. JOHN J. FARBER AMIR ENDVELT
CHAIRMAN OF THE BOARD CEO
May 29, 2003