1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-538
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AMPAL-AMERICAN ISRAEL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-0435685
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1177 Avenue of the Americas, New York, New York 10036
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 782-2100
----------------------------
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
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
--- ---
The number of shares outstanding of the issuer's Class A Stock, its only
authorized common stock, is 19,086,301 (as of July 31, 2000).
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
Page
----
Part I Financial Information
Consolidated Statements of Income
Six Months Ended June 30............................. 1
Three Months Ended June 30........................... 2
Consolidated Balance Sheets........................... 3
Consolidated Statements of Cash Flows................. 5
Consolidated Statements of Changes in Shareholders'
Equity............................................... 7
Consolidated Statements of Comprehensive Income....... 9
Notes to the Consolidated Financial Statements........ 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 12
Part II Other Information..................................... 16
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2000 1999
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
REVENUES
Equity in earnings of affiliates ........................... $ 16,056 $ 10,992
Interest:
Related parties............................................ 31 618
Others..................................................... 697 503
Real estate income.......................................... 4,421 3,851
Realized and unrealized gains on investments................ 6,609 26,566
Other....................................................... 3,506 2,312
-------- --------
Total revenues......................................... 31,320 44,842
-------- --------
EXPENSES
Interest:
Related parties............................................ 44 2,186
Other...................................................... 5,981 2,348
Real estate expenses........................................ 3,768 1,769
Loss from impairment of investments......................... 3,500 2,559
Minority interests.......................................... (518) (233)
Translation loss (gain)..................................... 737 (52)
Other....................................................... 3,950 3,575
-------- --------
Total expenses......................................... 17,462 12,152
-------- --------
Income from continuing operations before
income taxes............................................... 13,858 32,690
Provision for income taxes.................................. 5,461 11,676
-------- --------
Income from continuing operations........................... 8,397 21,014
-------- --------
Discontinued operations:
Loss from operations....................................... - (711)
-------- --------
Loss from discontinued operations........................... - (711)
-------- --------
NET INCOME............................................. $ 8,397 $ 20,303
======== ========
Basic EPS
Earnings per Class A share:
Earnings from continuing operations....................... $ .44 $ .87
Loss from discontinued operations......................... - (.03)
----- ------
Earnings per Class A share................................. $ .44 $ .84
====== ======
Shares used in calculation (in thousands).................. 18,747 24,105
Diluted EPS
Earnings per Class A share:
Earnings from continuing operations....................... $ .38 $ .76
Loss from discontinued operations......................... - ( .03)
----- ------
Earnings per Class A share................................. $ .38 $ .73
====== ======
Shares used in calculation (in thousands).................. 21,785 27,716
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2000 1999
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(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
REVENUES
Equity in earnings of affiliates ........................... $ 13,190 $ 10,181
Interest:
Related parties............................................ 5 514
Others..................................................... 349 282
Real estate income.......................................... 2,248 1,973
Realized and unrealized gains on investments................ 3,366 17,478
Other....................................................... 1,407 560
-------- --------
Total revenues......................................... 20,565 30,988
-------- --------
EXPENSES
Interest:
Related parties............................................ 44 1,190
Other...................................................... 3,444 1,360
Real estate expenses........................................ 2,038 897
Loss from impairment of investments......................... 2,000 2,500
Minority interests.......................................... (590) (310)
Translation (gain) loss..................................... (316) 85
Other....................................................... 1,928 1,924
-------- --------
Total expenses......................................... 8,548 7,646
-------- --------
Income from continuing operations before
income taxes............................................... 12,017 23,342
Provision for income taxes.................................. 4,782 8,305
-------- --------
Income from continuing operations........................... 7,235 15,037
--------- --------
Discontinued operations:
Loss from operations....................................... - (286)
-------- --------
Loss from discontinued operations........................... - (286)
-------- --------
NET INCOME............................................. $ 7,235 $ 14,751
======== ========
Basic EPS
Earnings per Class A share:
Earnings from continuing operations....................... $ .38 $ .62
Loss from discontinued operations......................... - (.01)
----- ------
Earnings per Class A share................................. $ .38 $ .61
====== ======
Shares used in calculation (in thousands).................. 18,981 24,117
Diluted EPS
Earnings per Class A share:
Earnings from continuing operations....................... $ .33 $ .54
Loss from discontinued operations......................... - (.01)
----- ------
Earnings per Class A share................................. $ .33 $ .53
====== ======
Shares used in calculation (in thousands).................. 21,916 27,716
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS AS AT 2000 1999
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(Dollars in thousands) (Unaudited)
Cash and cash equivalents................................... $ 6,641 $ 7,409
Deposits, notes and loans receivable........................ 16,073 22,336
Investments................................................. 330,950 273,174
Real estate property, less accumulated
depreciation of $8,168 and $7,463.......................... 83,699 72,809
Other assets................................................ 15,706 21,052
-------- --------
TOTAL ASSETS................................................ $453,069 $396,780
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND June 30, December 31,
SHAREHOLDERS' EQUITY AS AT 2000 1999
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(Dollars in thousands) (Unaudited)
LIABILITIES
Notes and loans payable:
Related parties........................................... $ 15,217 $ 14,564
Others.................................................... 149,233 131,296
Debentures.................................................. 23,204 28,659
Accounts and income taxes payable, accrued
expenses and minority interests............................ 85,523 65,427
-------- --------
Total liabilities................................... 273,177 239,946
-------- --------
SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock, $5 par value;
authorized 189,287 shares; issued 161,560 and 165,823
shares; outstanding 158,210 and 162,473 shares............ 808 829
6-1/2% Cumulative Convertible Preferred Stock, $5 par
value; authorized 988,055 shares; issued 759,942 and
891,763 shares; outstanding 637,406 and 769,227 shares..... 3,800 4,459
Class A Stock, $1 par value; authorized 60,000,000 shares;
issued 25,234,223 and 24,817,445 shares; outstanding
19,066,059 and 18,289,264 shares........................... 25,234 24,817
Additional paid-in capital.................................. 56,641 57,896
Retained earnings........................................... 126,759 118,362
Treasury stock, at cost..................................... (33,275) (35,552)
Accumulated other comprehensive loss........................ (75) (13,977)
-------- --------
Total shareholders' equity.......................... 179,892 156,834
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $453,069 $396,780
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 1999
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from operating activities:
Net income................................................. $ 8,397 $ 20,303
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of affiliates.......................... (16,056) (10,992)
Loss from discontinued operations......................... - 711
Realized and unrealized gains on investments.............. (6,609) (26,566)
Depreciation expense...................................... 859 539
Amortization expense...................................... 489 666
Loss from impairment of investments....................... 3,500 2,559
Translation loss (gain)................................... 737 (52)
Minority interests........................................ (518) (233)
Decrease (increase) in other assets....................... 3,312 (1,347)
Increase in accounts and income taxes
payable, accrued expenses and minority
interests................................................ 6,973 2,195
Investments made in trading securities..................... (15,965) (14,247)
Proceeds from sale of trading securities................... 14,763 9,845
Dividends received from affiliates......................... 3,507 10,120
--------- ---------
Net cash provided by (used in) operating
activities............................................... 3,389 (6,499)
--------- ---------
Cash flows from investing activities:
Deposits, notes and loans receivable collected............. 7,810 9,077
Deposits, notes and loans receivable granted............... (1,212) (3,951)
Investments made in:
Available-for-sale securities............................. (2,127) (24,147)
Affiliates and others..................................... (12,857) (2,973)
Proceeds from sale of investments:
Affiliate................................................. - 29,622
Others.................................................... 1,134 1,072
Return of capital by partnership........................... 722 -
Capital improvements....................................... (10,497) (787)
--------- ---------
Net cash (used in) provided by investing
activities............................................... (17,027) 7,913
--------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 1999
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from financing activities:
Notes and loans payable received:
Related parties........................................... $ - $ 14,466
Others.................................................... 28,470 -
Notes and loans payable repaid:
Related parties........................................... - (1,281)
Others.................................................... (10,363) (94)
Proceeds from exercise of stock options.................... 759 -
Debentures repaid.......................................... (6,402) (5,783)
-------- -------
Net cash provided by financing activities................. 12,464 7,308
-------- --------
Effect of exchange rate changes on cash and
cash equivalents........................................... 406 263
-------- --------
Net (decrease) increase in cash and cash
equivalents................................................ (768) 8,985
Cash and cash equivalents at beginning of
period..................................................... 7,409 12,047
-------- --------
Cash and cash equivalents at end of period.................. $ 6,641 $ 21,032
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties........................................... $ - $ 612
Others.................................................... 2,202 921
-------- --------
Total interest paid..................................... $ 2,202 $ 1,533
======== ========
Income taxes paid.......................................... $ 264 $ 10,037
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 1999
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(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
4% PREFERRED STOCK
Balance, beginning of year.................................. $ 829 $ 861
Conversion of 4,263 and 3,292 shares into
Class A Stock.............................................. (21) (16)
-------- --------
Balance, end of period...................................... $ 808 $ 845
======== ========
6-1/2% PREFERRED STOCK
Balance, beginning of year.................................. $ 4,459 $ 4,626
Conversion of 131,821 and 10,465 shares into
Class A Stock.............................................. (659) (52)
-------- --------
Balance, end of period...................................... $ 3,800 $ 4,574
======== ========
CLASS A STOCK
Balance, beginning of year.................................. $ 24,817 $ 24,685
Issuance of shares upon conversion of
Preferred Stock............................................ 417 48
-------- --------
Balance, end of period...................................... $ 25,234 $ 24,733
======== ========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year.................................. $ 57,896 $ 57,829
Conversion of Preferred Stock............................... 263 20
Issuance of shares upon exercise of
stock options.............................................. (1,518) -
-------- --------
Balance, end of period...................................... $ 56,641 $ 57,849
======== ========
RETAINED EARNINGS
Balance, beginning of year.................................. $118,362 $ 90,615
Net income.................................................. 8,397 20,303
-------- --------
Balance, end of period...................................... $126,759 $110,918
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 1999
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(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
TREASURY STOCK
4% PREFERRED STOCK
Balance, end of period.................................... $ (84) $ -
--------- --------
6-1/2% PREFERRED STOCK
Balance, end of period.................................... (1,853) -
--------- --------
CLASS A STOCK
Balance, beginning of year - 6,528,181
and 605,400 shares, at cost.............................. (33,615) (3,829)
Issuance of shares upon exercise of 360,017
stock options............................................ 2,277 -
--------- ---------
Balance, end of period - 6,168,164 and
605,400 shares, at cost.................................. (31,338) (3,829)
--------- ---------
Balance, end of period...................................... $ (33,275) $ (3,829)
========= =========
ACCUMULATED OTHER COMPREHENSIVE LOSS
Cumulative translation adjustments:
Balance, beginning of year................................ (17,676) (18,580)
Foreign currency translation adjustment................... 263 956
--------- --------
Balance, end of period.................................... (17,413) (17,624)
--------- --------
Unrealized gain on marketable securities:
Balance, beginning of year................................ 3,699 4,958
Unrealized gain (loss), net............................... 13,639 (208)
Sale of available-for-sale security....................... - (3,247)
Transfer to trading securities............................ - (1,711)
--------- --------
Balance, end of period.................................... 17,338 (208)
--------- --------
Balance, end of period...................................... $ (75) $(17,832)
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2000 1999
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(Dollars in thousands) (Unaudited) (Unaudited)
Net income.................................................. $ 8,397 $ 20,303
------- ---------
Other comprehensive income(loss), net of tax:
Foreign currency translation adjustments................... 263 956
Unrealized gain (loss) on securities....................... 13,639 (208)
-------- ---------
Other comprehensive income................................. 13,902 748
-------- ---------
Comprehensive income....................................... $ 22,299 $ 21,051
======== =========
Related tax (expense) of other comprehensive income:
Foreign currency translation adjustments................... $ (4) $ (153)
Unrealized gain (loss) on securities....................... $ (9,584) $ 112
The accompanying notes are an integral part of the consolidated financial
statements.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. As used in these financial statements, the term the "Company" refers to
Ampal-American Israel Corporation ("Ampal") and its consolidated
subsidiaries.
2. The December 31, 1999 consolidated balance sheet presented herein was
derived from the audited December 31, 1999 consolidated financial
statements of the Company.
Reference should be made to the Company's consolidated financial
statements for the year ended December 31, 1999 for a description of the
accounting policies, which have been continued without change. Also,
reference should be made to the notes to the Company's December 31, 1999
consolidated financial statements for additional details of the
Company's consolidated financial condition, results of operations and
cash flows. Certain amounts in the 1999 consolidated statements of
income and cash flows have been reclassified to conform with current
period's presentation. The details in those notes have not changed
except as a result of normal transactions in the interim. All
adjustments (of a normal recurring nature) which are, in the opinion of
management, necessary to a fair presentation of the results of the
interim period have been included.
3. Segment information presented below results primarily from operations in
Israel.
SIX MONTHS ENDED JUNE 30, 2000 1999
------------------------------------------------------------------------------------------
(Dollars in thousands)
Revenues:
--------
Finance ........................................... $ 10,273 $ 29,468
Real estate........................................ 4,421 3,851
Leisure-time....................................... 795 755
Intercompany adjustments........................... (225) (224)
------- --------
Total......................................... $ 15,264 $ 33,850
======== ========
Pretax Operating (Loss) Income:
------------------------------
Finance ........................................... $ (2,620) $ 19,963
Real estate........................................ (129) 1,410
Leisure-time....................................... 33 92
------- --------
Total......................................... $ (2,716) $ 21,465
======== ========
Total Assets:
------------
Finance ........................................... $361,145* $311,402*
Real estate........................................ 88,933 36,321
Leisure-time....................................... 13,766 12,894
Intercompany adjustments........................... (10,775) (10,360)
------- --------
Total......................................... $453,069 $350,257
======== ========
Corporate office expense is principally applicable to the financing
operation and has been charged to that segment above. Revenues and
pretax operating income above exclude equity in earnings of affiliates
and minority interests. Total assets exclude assets from discontinued
operations.
The real estate segment consists of rental property owned in Israel and
the United States leased to related and unrelated parties and of the
operations of Am-Hal Ltd. (in 2000 only), the Company's wholly-owned
subsidiary which owns and operates a chain of senior citizens facilities
located in Israel. The leisure-time segment consists primarily of Moriah
Hotels Ltd. (hotel chain in Israel, 1999 only), Coral World
International Limited (marine parks located
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around the world) and Country Club Kfar Saba (the company's 51%-owned
subsidiary located in Israel).
*Includes an investment in MIRS Communications Ltd. of $111 million.
4. The following table summarizes securities that were outstanding as of
June 30, 2000 and 1999, but not included in the calculations of diluted
earnings per Class A share because such shares are antidilutive.
(Shares in thousands) June 30,
---------------------
2000 1999
------ ------
Options and Rights 2,375 1,100
5. On April 18, 2000, the Company completed the sale of its indirect
holdings in Combox Ltd. ("Combox"), through its 42.5%-owned affiliate,
Ophir Holdings Ltd. ("Ophir"), to Terayon Communications Systems, Inc.
("Terayon"), a leading supplier of broadband network systems of Terayon.
Ophir exchanged its 19.7% interest in Combox for approximately 300,000
shares of Terayon, as adjusted for stock split of 2 shares for 1 share,
220,000 shares of which were sold short at June 30, 2000. Ophir acquired
Combox for approximately $2.3 million. During the second quarter of
2000, Ophir changed the classification of its investment in Terayon from
an available-for-sale security to a trading security. Ophir recorded an
unrealized gain in the amount of $13.6 million ($8.7 million net of
income taxes) in its June 30, 2000, statement of income.
6. On March 23, 2000, the Company's investee, BreezeCOM Ltd. ("BreezeCOM"),
a developer and manufacturer of wireless access products, completed an
initial public offering of 5 million shares in the United States and
raised $100 million (at $20 per share). The Company holds approximately
815,000 shares of BreezeCOM which were acquired for $1.1 million. At
June 30, 2000, the Company recorded unrealized gains on its investment
in BreezeCOM in the amounts of $7.7 million ($5 million net of income
taxes), with respect to the hedging of its position in BreezeCOM, and
$25.4 million ($16.2 million net of income taxes) in its consolidated
statement of income and in accumulated other comprehensive loss on its
consolidated balance sheet, respectively.
7. On August 2, 2000, the Company's investee, Floware Wireless Systems,
Ltd. ("Floware"), a developer of products that enable the transmission
of broadband wireless services, completed an initial public offering of
4.5 million shares in the United States and raised $58.5 million (at $13
per share). The Company holds 501,300 shares of Floware, which were
acquired for approximately $2 million. The market price of Floware's
shares as at the market close on August 10, 2000 was $16-7/8 per share.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Consolidated income from continuing operations decreased to $8.4 million for the
six-month period ended June 30, 2000, from $21 million for the same period in
1999. The decrease in income is primarily attributable to lower realized and
unrealized gains on investments, higher interest expense, increased loss from
impairment of investments, and a translation loss in 2000 as compared to a
translation gain in 1999. These decreases were partially offset by the increase
in the equity in earnings of affiliates and larger dividend income in 2000.
Ampal-American Israel Corporation ("Ampal") and its subsidiaries (the "Company")
recorded $4.3 million of unrealized gains on investments which are classified as
trading securities in the six-month period ended June 30, 2000, as compared to
$11 million in the same period in 1999. The unrealized gains recorded in 2000
are primarily attributable to the Company's investment in BreezeCOM Ltd.
("BreezeCOM") (see "Other Developments"), which were partially offset by the
unrealized losses on shares of Arel Communications Ltd.("Arel"), while in 1999,
the gains were attributable to the investments in the shares of Bank Leumi
le'Israel B.M. ("Leumi") and Fundtech Ltd. At June 30, 2000 and December 31,
1999, the aggregate fair value of trading securities amounted to approximately
$47.6 million and $40.4 million, respectively.
In the six months ended June 30, 2000, the Company recorded $2.3 million of
gains on the sale of various marketable securities. In the six months ended June
30, 1999, the Company recorded $15.6 million of gains on the sale of
investments, which were primarily attributable to the sale of its 46% equity
interest in Moriah Hotels Ltd. ("Moriah") to Koor Tourism Enterprises Ltd. and
Sheraton International Ltd. on April 14, 1999.
Equity in earnings of affiliates increased to $16.1 million for the six months
ended June 30, 2000, from $11 million for the same period in 1999. The increase
is primarily attributable to the increased earnings of the Company's 50%-owned
affiliate, Trinet Venture Capital Ltd. ("Trinet"), which recorded unrealized
gains on its investments in Smart Link Ltd., Netformx Ltd. ("Netformx") and
Sim-Player.com Ltd. Granite Hacarmel Investments Ltd., the Company's 20.2%-owned
affiliate, which is one of the largest distributors of refined petroleum
products, recorded higher earnings in 2000 primarily as a result of a gain on
sale of investees.
The increase in real estate income and expenses in the first half of 2000 as
compared to the same period in 1999 is attributable to the operations of Am-Hal
Ltd. ("Am-Hal"), the Company's wholly-owned subsidiary, which owns and operates
a chain of senior citizens facilities in Israel. The Company acquired an
additional 50% interest in Am-Hal on December 31, 1999. As a result, Am-Hal's
statement of income was consolidated with the Company's consolidated statement
of income in the first half of 2000, while in the same period in 1999, Am-Hal's
results were recorded in equity in earnings of affiliates.
The increase in other income in the six months ended June 30, 2000, as compared
to the same period in 1999, is attributable to dividend income on securities and
a larger dividend received from MIRS Communications Ltd.
The Company recorded higher interest expense in the first half of 2000, as
compared to the same period in 1999, as a result of increased borrowings in
connection with
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new investments made and the acquisition of the Company's shares from Bank
Hapoalim B.M. in July, 1999.
In the six-month period ended June 30, 2000, the Company recorded an additional
$3.5 million loss from impairment of its investment in M.D.F. Industries Ltd.
("M.D.F."), which continues to experience operational problems. In the same
period in 1999 the Company recorded a $2.5 million of losses on impairment of
its investments in M.D.F. ($1.5 million) and Unic View Ltd. ($1 million).
The Company recorded a translation loss of $.7 million in the six months ended
June 30, 2000, as compared to a translation gain of $.1 million in the same
period in 1999. The translation loss in 2000 is attributable to the foreign
exchange forward contracts executed by the Company, which were outstanding
during the first half of 2000.
The increase in the effective income tax rate in 2000 as compared to 1999 is
mainly attributable to the losses of certain Israeli subsidiaries for which no
tax benefits were available.
Three months ended June 30, 2000 compared to three months ended June 30, 1999:
Consolidated net income from continuing operations decreased to $7.2 million for
the three-month period ended June 30, 2000, from $15 million for the same period
in 1999. The decrease in net income is primarily attributable to the lower gains
on sale of investments, which were partially offset by the increase in the
equity in earnings of affiliates.
In the quarter ended June 30, 2000, the Company recorded $.3 million of gains on
sale of various marketable securities. In the quarter ended June 30, 1999, the
Company recorded $14.7 million of gains on sale of investments, $13.5 million of
which is attributable to the sale of its investment in Moriah.
The Company also recorded $3.1 million of unrealized gains on investments in the
three-month period ended June 30, 2000, as compared to $2.8 million of
unrealized gains on investments in the same period in 1999. (See "Discussion on
Results of Operations - Six months ended June 30, 2000 compared to six months
ended June 30, 1999).
Equity in earnings of affiliates increased to $13.2 million for the three months
ended June 30, 2000, from $10.2 million for the same period in 1999. The
increase is primarily attributable to the unrealized gains on investments
recorded by Trinet in the second quarter of 2000. (See "Discussion on Results of
Operations - Six months ended June 30, 2000 compared to six months ended June
30, 1999.")
The increase in other income in the second quarter of 2000, as compared to the
second quarter of the previous year, is attributable to the higher dividend
income on securities.
Interest expense increased in the quarter ended June 30, 2000 as compared to the
same period in 1999 for the same reasons as discussed in "Results of Operations
- - Six months ended June 30, 2000 compared to six months ended June 30, 1999."
Liquidity and Capital Resources
At June 30, 2000, cash and cash equivalents were $6.6 million as compared with
$7.4 million at December 31, 1999. The decrease in cash is primarily
attributable to the new investments made in the first half of 2000. The decrease
in deposits, notes and loans receivable and debentures is primarily attributable
to scheduled repayments. The decrease in other assets and the increase in
accounts payable is primarily attributable to the increase in the deferred tax
provision with respect to the unrealized gains on the available-for-sale
securities. The increase in notes and loans payable is attributable to the
increased borrowings with respect to the
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construction of the new senior citizens facility by Am-Hal, and in connection
with the new investments made by the Company.
During the first half of 2000, the Company made the following investments,
aggregating $20.3 million, notably: (1) a $6.2 million investment to acquire a
4.9% interest in Arel, a leading provider of interactive distance learning
systems; (2) an additional $2.75 million investment in Netformx (net equity
interest - 20.2%, including net indirect equity through Trinet), a developer of
network design tools; (3) a $2 million investment to acquire a 0.4% interest in
Sonic Foundry Inc., a developer of digital media and Internet software tools,
services and systems; (4) an additional $1.8 million investment in PowerDsine
Ltd. (total equity interest - 10.8%), a leading developer of power supply
devices for the telecommunications industry; (5) a $1.25 million investment to
acquire a 12.2% interest in RealM Technologies Ltd. (total equity interest -
18%, including net indirect equity through Ophir), a developer of a network of
servers, which will allow the introduction of the next generation of applicable
services, while maximizing performance and optimizing bandwidth usage;(6) a $1
million investment to acquire a 2.9% interest in BridgeWave Communications Inc.,
a developer of wireless solutions for cable companies; (7) a $1 million
investment in preferred stock of APA Optics Inc., a manufacturer of fiber optics
communications equipment; (8) a $1 million investment to acquire a 0.5% interest
in SeraNova, Inc., a provider of E-business services; (9) a $.75 million
investment to acquire a 20% interest in Xpert Integrated Systems Ltd., a
software and systems integrator specializing in systems security; (10) a $.5
million investment to acquire a 13% interest in Enbaya Inc., a developer and
marketer of a 3D browser that enables fast viewing, compression and streaming of
3D models, (11) an additional $.6 million investment to maintain its interest in
Shiron Satellite Communications, Ltd. (1996) (equity interest - 9%), a developer
and marketer of two-way multimedia satellite communication products; (12) a $.5
million investment to acquire a 10.8% interest in Oblicore Ltd., a provider of a
unique solution that enables businesses to track service performance relative to
service targets and allocate service resources to maximize their success; (13) a
$.5 million investment to acquire a 5.6% interest in Zactus Inc., a developer of
websites for musicians and (14) an additional $.4 million investment in
ShellCase Ltd., (total equity interest - 17.6%), a developer of the smallest
packages for semiconductor chips.
Other Developments
On April 18, 2000, the Company completed the sale of its indirect holdings in
Combox Ltd. ("Combox"), through Ophir, to Terayon Communications Systems, Inc.
("Terayon") a leading supplier of broadband network systems. Ophir exchanged its
19.7% interest in Combox for approximately 300,000 shares of Terayon, as
adjusted for stock split of 2 shares for 1 share, 220,000 shares were sold short
at June 30, 2000. Ophir acquired Combox for approximately $2.3 million. During
the second quarter of 2000, Ophir changed the classification of its investment
in Terayon from an available-for-sale security to a trading security. Ophir
recorded an unrealized gain in the amount of $13.6 million ($8.7 million net of
income taxes) in its June 30, 2000, statement of income.
On March 23, 2000, the Company's investee, BreezeCOM Ltd. ("BreezeCOM"), a
developer and manufacturer of wireless access products, completed an initial
public offering of 5 million shares in the United States and raised $100 million
(at $20 per share). The Company holds approximately 815,000 shares of BreezeCOM
which were acquired for $1.1 million. At June 30, 2000, the Company recorded
unrealized gains on its investment in BreezeCOM in the amounts of $7.7 million
($5 million net of income taxes), with respect to the hedging of its position in
BreezeCOM, and $25.4 million ($16.2 million net of income taxes) in its
consolidated statement of income and in accumulated other comprehensive loss on
its consolidated balance sheet, respectively.
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On August 2, 2000, the Company's investee, Floware Wireless Systems, Ltd.
("Floware"), a developer of products that enable the transmission of broadband
wireless services, completed an initial public offering of 4.5 million shares in
the United States and raised $58.5 million (at $13 per share). The Company holds
501,300 shares of Floware which were acquired for approximately $2 million. The
market price of Floware's shares as at the market close on August 10, 2000 was
$16-7/8 per share.
MARKET RISKS AND SENSITIVITY ANALYSIS
The Company is exposed to various market risks, including changes in interest
rates, foreign currency rates and equity price changes. The following analysis
presents the hypothetical loss in earnings, cash flows and fair values of the
financial instruments which were held by the Company at June 30, 2000, and are
sensitive to the above market risks.
Interest Rate Risks
At June 30, 2000, the Company had financial assets totalling $21.3 million and
financial liabilities totalling $187.7 million. For fixed rate financial
instruments, interest rate changes affect the fair market value but do not
impact earnings or cash flows. Conversely, for variable rate financial
instruments, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors held
constant.
At June 30, 2000, the Company had fixed rate financial assets of $16 million and
variable rate financial assets of $5.3 million. Holding other variables
constant, a ten percent increase in interest rates would decrease the unrealized
fair value of the fixed financial assets by approximately $.2 million.
At June 30, 2000, the Company had fixed rate debt of $46.1 million and variable
rate debt of $141.6 million. A ten percent decrease in interest rates would
increase the unrealized fair value of the fixed rate debt by approximately $.5
million.
The net decrease in earnings for the next year resulting from a ten percent
interest rate increase would be approximately $.9 million, holding other
variables constant.
Exchange Rate Sensitivity Analysis
The Company's exchange rate exposure on its financial instruments results from
its investments and ongoing operations in Israel. To partially hedge this
exposure, the Company enters into various foreign exchange forward purchase
contracts. At June 30, 2000, the open foreign exchange forward purchase
contracts totalled $15 million. Holding other variables constant, if there were
a ten percent adverse change in foreign currency exchange rates, the Company's
cumulative translation loss (reflected in accumulated other comprehensive loss)
would increase by $.6 million.
Equity Price Risk
The Company's investments at June 30, 2000 included marketable securities
(trading and available-for-sale) which are recorded at fair value of $90.7
million, including net unrealized gains of $32.4 million. Those securities have
exposure to price risk. The estimated potential loss in fair value resulting
from a hypothetical 10% decrease in prices quoted by stock exchanges is
approximately $9.1 million.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities and Use of Proceeds - Pursuant to a Letter
Agreement, dated as of March 1, 1997, among Ampal, Ampal Realty
Corporation, an indirect wholly-owned subsidiary of Ampal, and Emmes
Asset Management Corp. ("Emmes"), Ampal agreed to issue to Mr. Andrew
Davidoff, as custodian, 100 shares of Class A Stock for each of his
three children each year for the duration of the term of the letter
agreement. Emmes and Mr. Davidoff provide general asset management
and property advisory services with respect to the building located
at 800 Second Avenue. On July 7, 2000, Ampal issued 600 shares
(representing allocation for 1999 and 2000) to Mr. Davidoff, as
custodian. The issuance to Mr. Davidoff of such shares was exempted
from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) of such Act.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - On June 29,
2000, Ampal's shareholders held their annual meeting (the "Annual
Meeting"). At such meeting, the shareholders elected the following
individuals as directors by the following vote:
FOR AUTHORITY
WITHHELD
Michael Arnon 17,389,924 20,007
Benzion Benbassat 17,390,250 19,681
Yaacov Elinav 17,390,299 19,632
Kenneth L. Henderson 17,390,324 19,607
Hillel Peled 17,390,399 19,532
Daniel Steinmetz 17,377,215 32,716
Raz Steinmetz 17,377,225 32,706
Avi A. Vigder 17,390,399 19,532
Eliyahu Wagner 17,390,324 19,607
Also at the Annual Meeting, the shareholders approved the
Ampal-American Israel Corporation 2000 Incentive Plan (11,898,313
for; 612,408 against; 26,177 abstain).
Item 5. Other Information - After the conclusion of the Annual Meeting,
Ampal's Board of Directors elected the following individuals to serve
as officers for the upcoming year:
Chairman of the Board: Daniel Steinmetz
President and Chief
Executive Officer: Raz Steinmetz
Vice President -
Finance and Treasurer: Shlomo Meichor
Vice President -
Accounting and Controller: Alla Kanter
Vice President -
Legal and Secretary: Eli S. Goldberg
Assistant Controller: Harold Aronowitz
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Schedule Setting Forth Computation of Earnings Per Share
of Class A Stock.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMPAL-AMERICAN ISRAEL CORPORATION
By:/s/ Raz Steinmetz
-------------------------------------
Raz Steinmetz
President and
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Shlomo Meichor
-------------------------------------
Shlomo Meichor
Vice President - Finance
and Treasurer
(Principal Financial Officer)
By:/s/ Alla Kanter
-------------------------------------
Alla Kanter
Vice President - Accounting
and Controller
(Principal Accounting Officer)
Dated: August 14, 2000
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Exhibit Index
Exhibit No. Description
11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock................................ Page *
27 Financial Data Schedule.
* These exhibits were included in the copy of this report filed
with the Securities and Exchange Commission and are available
upon request from Ampal.
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