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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 March 31, 1999
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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 ________________________
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 24,115,471 (as of April 30, 1999).
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
Page
----
Part I Financial Information
Consolidated Statements of Income...................... 1
Consolidated Balance Sheets............................ 2
Consolidated Statements of Cash Flows.................. 4
Consolidated Statements of Changes in Shareholders'
Equity................................................ 6
Consolidated Statements of Comprehensive Income........ 7
Notes to the Consolidated Financial Statements......... 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 11
Part II Other Information...................................... 15
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 1998
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(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
REVENUES
Equity in earnings of affiliates ..................... $ 811 $ 3,179
Manufacturing ........................................ 1,844 1,901
Interest:
Related parties ..................................... 104 618
Others .............................................. 221 246
Rental income ........................................ 1,878 1,757
Realized and unrealized gains on investments ......... 9,088 1,636
Other ................................................ 1,755 496
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Total revenues .................................. 15,701 9,833
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EXPENSES
Manufacturing ........................................ 2,278 1,987
Interest:
Related parties ..................................... 1,042 937
Others .............................................. 1,010 1,173
Rental property operating expenses ................... 872 854
Other ................................................ 1,576 1,216
------- -------
Total expenses .................................. 6,778 6,167
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Income before income taxes ........................... 8,923 3,666
Provision for income taxes ........................... 3,371 1,660
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NET INCOME ...................................... $ 5,552 $ 2,006
======= =======
Basic EPS
Earnings per Class A share .......................... $ .23 $ .08
======= =======
Shares used in calculation (in thousands) ........... 24,094 23,832
Diluted EPS
Earnings per Class A share .......................... $ .20 $ .07
======= =======
Shares used in calculation (in thousands) ........... 27,716 27,616
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
March 31, December 31,
ASSETS AS AT 1999 1998
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(Dollars in thousands) (Unaudited)
Cash and cash equivalents ............................ $ 11,900 $ 12,047
Deposits, notes and loans receivable ................. 26,166 27,816
Investments .......................................... 229,879 214,421
Investment held for sale(Note 5) ..................... 23,955 25,104
Real estate rental property, less accumulated
depreciation of $6,770 and $6,492 ................... 30,151 29,735
Property and equipment, less accumulated
depreciation of $2,767 and $2,608 ................... 3,254 3,227
Other assets ......................................... 15,415 16,896
-------- --------
TOTAL ASSETS ......................................... $340,720 $329,246
======== ========
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 March 31, December 31,
SHAREHOLDERS' EQUITY AS AT 1999 1998
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(Dollars in thousands) (Unaudited)
LIABILITIES
Notes and loans payable:
Related parties .......................................... $ 56,540 $ 57,557
Others ................................................... 40,698 40,636
Debentures ................................................. 27,752 32,817
Accounts and income taxes payable, accrued
expenses and minority interests ........................... 47,816 37,071
--------- ---------
Total liabilities .................................. 172,806 168,081
--------- ---------
SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock, $5 par value;
authorized 189,287 shares; issued and
outstanding 170,255 and 172,238 shares .................... 851 861
6-1/2% Cumulative Convertible Preferred Stock, $5 par value;
authorized 988,055 shares; issued and
outstanding 920,186 and 925,279 shares .................... 4,601 4,626
Class A Stock, $1 par value; authorized 60,000,000 shares;
issued 24,710,016 and 24,684,822 shares;
outstanding 24,104,616 and 24,079,422 shares .............. 24,710 24,685
Additional paid-in capital ................................. 57,839 57,829
Retained earnings .......................................... 96,167 90,615
Treasury Stock, 605,400 shares of Class A Stock,
at cost ................................................... (3,829) (3,829)
Accumulated other comprehensive loss ....................... (12,425) (13,622)
--------- ---------
Total shareholders' equity ......................... 167,914 161,165
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 340,720 $ 329,246
========= =========
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
THREE MONTHS ENDED MARCH 31, 1999 1998
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from operating activities:
Net income .......................................... $ 5,552 $ 2,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of affiliates ................... (811) (3,179)
Realized and unrealized gains on investments ....... (9,088) (1,636)
Depreciation expense ............................... 323 333
Amortization expense ............................... 347 346
Translation gain ................................... (137) (152)
(Increase) decrease in other assets ................. (640) 3,614
Increase (decrease) in accounts and income taxes
payable, accrued expenses and minority
interests .......................................... 3,151 (2,994)
Investments made in trading securities .............. (4,514) (2,157)
Proceeds from sale of trading securities ............ 1,235 3,447
Dividends received from affiliates .................. 2,243 3,144
--------- ---------
Net cash (used in) provided by operating
activities ........................................ (2,339) 2,772
--------- ---------
Cash flows from investing activities:
Deposits, notes and loans receivable collected ...... 6,107 14,809
Deposits, notes and loans receivable granted ........ (3,702) (22)
Investments made in affiliates and others ........... (1,863) (112,367)
Proceeds from sale of investments:
Others ............................................. 1,072 1,207
Deposit-sale of affiliate ........................... 7,581 --
Purchase of property and equipment .................. (28) (47)
Real estate rental property - capital
improvements ....................................... (486) (825)
--------- ---------
Net cash provided by (used in) investing
activities ........................................ 8,681 (97,245)
--------- ---------
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
THREE MONTHS ENDED MARCH 31, 1999 1998
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from financing activities:
Notes and loans payable received:
Related parties .................................... $ -- $ 35,710
Others ............................................. -- 32,088
Notes and loans payable repaid:
Related parties .................................... (1,281) (712)
Others ............................................. (48) (609)
Debentures repaid ................................... (5,764) (7,936)
Contribution to partnership by minority
interests .......................................... -- 9,765
-------- --------
Net cash (used in) provided by financing
activities ........................................ (7,093) 68,306
-------- --------
Effect of exchange rate changes on cash and
cash equivalents .................................... 604 (215)
-------- --------
Net (decrease) in cash and cash equivalents .......... (147) (26,382)
Cash and cash equivalents at beginning of
period .............................................. 12,047 45,457
-------- --------
Cash and cash equivalents at end of period ........... $ 11,900 $ 19,075
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties .................................... $ 395 $ 72
Others ............................................. 577 1,100
-------- --------
Total interest paid .............................. $ 972 $ 1,172
======== ========
Income taxes paid (refunded), net ................... $ 36 $ (665)
======== ========
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
THREE MONTHS ENDED MARCH 31, 1999 1998
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(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
4% PREFERRED STOCK
Balance, beginning of year ......................... $ 861 $ 898
Conversion of 1,983 and 1,440 shares into
Class A Stock ..................................... (10) (7)
-------- --------
Balance, end of period ............................. $ 851 $ 891
======== ========
6-1/2% PREFERRED STOCK
Balance, beginning of year ......................... $ 4,626 $ 4,842
Conversion of 5,093 and 9,881 shares into
Class A Stock ..................................... (25) (50)
-------- --------
Balance, end of period ............................. $ 4,601 $ 4,792
======== ========
CLASS A STOCK
Balance, beginning of year ......................... $ 24,685 $ 24,418
Issuance of shares upon conversion of
Preferred Stock ................................... 25 37
-------- --------
Balance, end of period ............................. $ 24,710 $ 24,455
======== ========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year ......................... $ 57,829 $ 57,491
Conversion of Preferred Stock ...................... 10 20
-------- --------
Balance, end of period ............................. $ 57,839 $ 57,511
======== ========
RETAINED EARNINGS
Balance, beginning of year ......................... $ 90,615 $ 88,775
Net income ......................................... 5,552 2,006
-------- --------
Balance, end of period ............................. $ 96,167 $ 90,781
======== ========
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of year: ........................ $(13,622) $(10,085)
Cumulative translation adjustments:
Balance, beginning of year ....................... (18,580) (10,085)
Foreign currency translation adjustment .......... 1,163 (973)
-------- --------
Balance, end of period ........................... (17,417) (11,058)
-------- --------
Unrealized gain on marketable securities:
Balance, beginning of year ....................... 4,958 --
Unrealized gain, net ............................. 1,745 1,441
Transfer to trading securities ................... (1,711) --
-------- --------
Balance, end of period ........................... 4,992 1,441
-------- --------
Balance, end of period ............................. $(12,425) $ (9,617)
======== ========
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
THREE MONTHS ENDED MARCH 31, 1999 1998
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(Dollars in thousands) (Unaudited) (Unaudited)
Net income ................................................. $ 5,552 $ 2,006
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Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments .................. 1,163 (973)
Unrealized gain on securities ............................. 1,745 1,441
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Other comprehensive income ................................ 2,908 468
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Comprehensive income ...................................... $ 8,460 $ 2,474
======= =======
Related tax (expense) benefit of other comprehensive income:
Foreign currency translation adjustments .................. $ (178) $ 141
Unrealized gain on securities ............................. $ (940) $ (776)
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, 1998 consolidated balance sheet presented herein was
derived from the audited December 31, 1998 consolidated financial
statements of the Company.
Reference should be made to the Company's consolidated financial
statements for the year ended December 31, 1998 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, 1998
consolidated financial statements for additional details of the Company's
consolidated financial condition, results of operations and cash flows.
The details in those notes have not changed except as a result of normal
transactions in the interim. Certain amounts in the 1998 consolidated
statement of cash flows have been reclassified to conform with the current
period's presentation. 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.
THREE MONTHS ENDED MARCH 31, 1999 1998
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(Dollars in thousands)
Revenues:
Finance ..................................... $ 10,919 $ 2,739
Real estate rental .......................... 1,878 1,757
Mattress manufacturing ...................... 1,844 1,901
Leisure-time ................................ 390 404
Intercompany adjustments .................... (141) (147)
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Total .................................. $ 14,890 $ 6,654
========= =========
Pretax Operating Income (Loss):
Finance ..................................... $ 7,868 $ (52)
Real estate rental .......................... 654 593
Mattress manufacturing ...................... (499) (136)
Leisure-time ................................ 93 59
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Total .................................. $ 8,116 $ 464
========= =========
Total Assets:
Finance ..................................... $ 276,771* $ 263,388*
Real estate rental .......................... 36,055 33,504
Mattress manufacturing ...................... 5,372 6,929
Leisure-time ................................ 36,436 36,953
Intercompany adjustments .................... (13,914) (9,880)
--------- ---------
Total .................................. $ 340,720 $ 330,894
========= =========
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.
The real estate rental segment consists of rental property owned in Israel
and the United States leased to related and unrelated parties. The
mattress manufacturing segment consists of Paradise Industries, Ltd.,
which is a leading manufacturer and distributor of mattresses and fold-out
beds in Israel whose customer base consists of independent stores as well
as hotel chains. The
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leisure-time segment consists primarily of Moriah Hotels Ltd. (hotel chain
in Israel, see Note 4 below), Coral World International Limited (marine
parks located around the world) and Country Club Kfar Saba (the company's
51%-owned subsidiary located in Israel).
*Includes an investment in MIRS of $111 million.
4. The following table summarizes securities that were outstanding as of
March 31, 1999 and 1998, but not included in the calculations of diluted
earnings per Class A share because such shares are antidilutive.
(Shares in thousands)
March 31,
---------------------
1999 1998
---- ----
Options and Rights 1,100 109*
Warrants -- 4,500*
* Expired on January 31, 1999.
5. On April 14, 1999, the Company sold its 46% equity interest in Moriah
Hotels Ltd. ("Moriah") to Koor Tourism Enterprises Ltd. and Sheraton
International Ltd. for $29.6 million. Prior to the sale, on April 12,
1999, the Company received a dividend from Moriah in the amount of $7.9
million. As a result of the aforementioned transaction, the Company will
record a gain on sale in the amount of approximately $13.5 million ($8.8
million, net of income taxes) in the June 30, 1999 consolidated financial
statements.
6. On May 11, 1999, the Company signed an agreement with Bank Hapoalim B.M.
("BHP") and two wholly-owned subsidiaries of BHP, which provides for the
following:
(a) The Company will acquire from BHP and its subsidiary all of
their holdings in Ampal - 5,874,281 shares of Class A Stock,
3,350 shares of 4% Preferred Stock and 122,536 shares of 6
1/2% Preferred Stock for $31.3 million.
(b) The Company will sell to BHP's subsidiary seven real estate
properties totaling 53,000 sq. ft., currently leased to and
occupied by BHP, for $14.7 million.
(c) Ampal's subsidiary will renew the lease agreement with BHP
with respect to a 4,400 sq. ft. branch in Bnei Brak, Israel
for ten years at an annual rental income of $346,000.
Upon completion of the transaction, Ampal's outstanding shares will
consist of 18,242,891 shares of Class A Stock, 166,180 shares of 4%
Preferred Stock and 794,673 shares of 6 1/2% Preferred Stock, based on
shares outstanding on May 10, 1999. Rebar Financial Corporation and the
public will hold 11,083,712 and 7,159,179 shares of Class A Stock,
representing 60.8% and 39.2% of Ampal's Class A Stock outstanding,
respectively.
Ampal will record a net gain of approximately $6 million on the sale of
the aforementioned real estate properties.
The above transactions are subject to the receipt of the approval of the
Related Party Transactions and Audit Committees, boards of directors and
shareholder approval of Ampal, its subsidiaries, and the relevant
committees of Bank Hapoalim and its subsidiaries, where applicable, as
well as the approval of the appropriate regulatory agencies in Israel.
Ampal's Related Party Transactions Committee has requested a fairness
opinion from Lehman Brothers concerning the aforementioned transactions.
Lehman Brothers has begun its evaluation.
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The transaction is expected to close after Ampal's annual meeting to be
held on June 29, 1999.
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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
Consolidated net income increased to $5.6 million for the three-month period
ended March 31, 1999, from $2 million for the same period in 1998. The increase
in net income is primarily attributable to greater unrealized gains on
investments and the dividend income from MIRS Communication Company Ltd.
("MIRS") in 1999, which were partially offset by the decrease in equity in
earnings of affiliates and the decrease in interest income.
Ampal-American Israel Corporation ("Ampal") and its subsidiaries (the "Company")
recorded $8.5 million of unrealized gains on investments which are classified as
trading securities in the three-month period ended March 31, 1999, as compared
to $.5 million in the same period in 1998. The unrealized gains recorded in 1999
are primarily attributable to the Company's investments in the shares of Bank
Leumi Le'Israel B.M. (pretax gain of $4 million) and Fundtech Ltd. ("Fundtech")
(pretax gain of $3.6 million). The Company's investment in Fundtech, which was
classified as an available-for-sale security at December 31, 1998, was
classified as a trading security at March 31, 1999, since the Company commenced
selling its shares in Fundtech. At March 31, 1999 and December 31, 1998, the
aggregate fair value of trading securities amounted to approximately $39.2
million and $26.3 million, respectively.
In the quarter ended March 31, 1999, the Company recorded $.6 million of gains
on sale of investments, which are primarily attributable to its investment in
Fundtech. In the quarter ended March 31, 1998, the Company recorded $1.1 million
of gains on sale of investments, which are attributable to its investments in
Mercury Interactive Corporation, Shikun U'Fituach le-Israel Ltd., and Fundtech
Ltd.
The increase in other income in the three months ended March 31, 1999, as
compared to the same period in 1998 is attributable to the dividend of $1.2
million ($.9 million, net of minority interest) declared by MIRS.
The Company recorded lower interest income in the three months ended March 31,
1999, as compared to the same period in 1998, as a result of utilizing its funds
for making investments in various companies.
Equity in earnings of affiliates decreased to $.8 million for the three months
ended March 31, 1999, from $3.2 million for the same period in 1998. The
decrease is primarily attributable to the decreased earnings of Ophir Holdings
Ltd. ("Ophir"), the Company's 42.5%-owned affiliate, which is a holding company
with interests in high technology and real estate companies. Ophir reported
lower earnings in 1999 primarily due to gains realized on the sale of several
commercial real estate properties and shares of Memco Software Ltd. ("Memco") in
1998, which were absent in 1999.
Granite Hacarmel Investments Ltd. ("Granite"), the Company's 20.3%-owned
affiliate, which is one of the largest distributors of refined petroleum
products in Israel, reported lower earnings in the first quarter of 1999 as a
result of higher interest expense, which is attributable to increased bank
borrowings.
Moriah Hotels Ltd. ("Moriah"), the Company's 46%-owned affiliate (See Subsequent
Events), which is one of the largest hotel chains in Israel, recorded higher
losses in the first quarter of 1999 primarily due to a decrease in occupancy
rates as a result of the decrease in tourism to Israel.
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Manufacturing revenues and expenses reflect the operations of Paradise
Industries Ltd., the Company's 85.1%-owned subsidiary, which is a manufacturer
and distributor of mattresses and fold-out beds in Israel. Manufacturing
expenses were lower in 1998 as a result of the additional expense reimbursement
by the insurance company in early 1998, for the fire that occurred in 1997.
The decrease in the effective income tax rate in 1999 as compared to 1998 is
mainly attributable to the decreased deferred tax provisions of certain Israeli
subsidiaries due to the utilization of available tax benefits.
Liquidity and Capital Resources
At March 31, 1999, cash and cash equivalents were $11.9 million as compared with
$12 million at December 31, 1998. The decrease in debentures is primarily
attributable to scheduled repayments. The increase in accounts payable is
attributable to the deposit received from Koor Tourism Enterprises Ltd. ("Koor")
and Sheraton International Ltd. ("Sheraton") with respect to the sale of Moriah.
During the first quarter of 1999, the Company made an additional investment of
$1.8 million in Granite and increased its equity interest from 19.1% to 20.3%.
OTHER DEVELOPMENTS
On March 29, 1999, Memco, in which Ophir had a 9.3% interest, merged with
Platinum Technology International Inc. ("Platinum"). Pursuant to this merger,
Ophir exchanged its 1,626,000 shares of Memco for 1,360,000 shares of Platinum.
On March 29, 1999, Platinum signed a merger agreement with Computer Associates
International, Inc. ("CA"). The merger was approved by the Board of Directors
of both companies, and is subject to approval by Platinum's shareholders.
CA agreed to acquire Platinum for $29.25 per share.
Subject to completion of the purchase of Platinum's shares by CA, Ophir is
expected to receive approximately $40 million and expects to record a net gain
on sale of approximately $22 million. As a result of the above transaction, the
Company will record equity in the above gain of approximately $9 million
($6 million after taxes).
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. This analysis presents
the hypothetical loss in earnings, cash flows and fair values of the financial
instruments which are held by the Company at March 31, 1999, and are sensitive
to the above market risks.
Interest Rate Risks
At March 31, 1999, the Company had financial assets totalling $36.6 million and
financial liabilities totalling $125 million, respectively. 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 March 31, 1999, the Company had fixed rate financial assets of $25.5 million
and variable rate financial assets of $11.1 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 $.4 million.
At March 31, 1999, the Company had fixed rate debt of $34.2 million and variable
rate debt of $90.8 million. A ten percent decrease in interest rates would
increase the unrealized fair value of the fixed rate debt by approximately $.6
million.
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The net decrease in earnings for the next year resulting from a ten percent
interest rate increase would be approximately $.5 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. On March 31, 1999, the Company
entered into a foreign exchange forward purchase contract for $10 million to
partially hedge this exposure. Holding other variables constant, if there were a
ten percent adverse change in foreign currency exchange rates, the Company's
earnings would decrease by $2.4 million and cumulative translation loss
(reflected in the Company's accumulated other comprehensive loss) would increase
by $.8 million.
Equity Price Risk
The Company's investments at March 31, 1999, included marketable securities
which are recorded at fair value of $39.2 million, including net unrealized
gains of $ 5.6 million. Those securities have exposure to price risk. The
estimated potential lossin fair value resulting from a hypothetical 10% decrease
in prices quoted by stock exchanges is approximately $3.9 million.
Year 2000 Compliance
The Company has completed the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue which is the result of computer programs having been written using two
digits instead of four to define a year. This issue affects computer systems
that have date sensitive programs that may recognize a date using "00" as 1900
rather than 2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail, resulting in business
interruption. The Company presently expects that with modifications to existing
systems and software and converting to new software, the Year 2000 issue will
not pose an operational problem and does not believe the cost of converting all
internal systems to be year 2000 compliant will be material to its financial
condition or results of operations. Costs related to the year 2000 issue are
being expensed as incurred. The Company expects to complete all of its year 2000
modifications by the end of 1999.
The year 2000 issue is expected to affect the systems of various entities with
which the Company interacts. However, there can be no assurance that the systems
of other companies on which the Company's systems rely will be timely converted,
or that a failure by another company's systems to be year 2000 compliant would
not have a material adverse effect on the Company.
Subsequent Events
On April 14, 1999, the Company sold its 46% equity interest in Moriah to Koor
and Sheraton for $29.6 million. Prior to the sale, on April 12, 1999, the
Company received a dividend from Moriah in the amount of $7.9 million. As a
result of the aforementioned transaction, the Company will record a gain on sale
in the amount of approximately $13.5 million ($8.8 million, net of income taxes)
in the June 30, 1999 consolidated financial statements.
On May 11, 1999, the Company signed an agreement with Bank Hapoalim B.M. ("BHP")
and two wholly-owned subsidiaries of BHP, which provides for the following:
(a) The Company will acquire from BHP and its subsidiary all of their
holdings in Ampal - 5,874,281 shares of Class A Stock, 3,350 shares
of 4% Preferred Stock and 122,536 shares of 6 1/2% Preferred Stock
for $31.3 million.
(b) The Company will sell to BHP's subsidiary seven real estate
properties totaling 53,000 sq. ft., currently leased to and occupied
by BHP, for $14.7 million.
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(c) Ampal's subsidiary will renew the lease agreement with BHP with
respect to a 4,400 sq. ft. branch in Bnei Brak, Israel for ten years
at an annual rental income of $346,000.
Upon completion of the transaction, Ampal's outstanding shares will consist of
18,242,891 shares of Class A Stock, 166,180 shares of 4% Preferred Stock and
794,673 shares of 6 1/2% Preferred Stock, based on shares outstanding on May 10,
1999. Rebar Financial Corporation and the public will hold 11,083,712 and
7,159,179 shares of Class A Stock, representing 60.8% and 39.2% of Ampal's Class
A Stock outstanding, respectively.
Ampal will record a net gain of approximately $6 million on the sale of the
aforementioned real estate properties.
The above transactions are subject to the receipt of the approval of the Related
Party Transactions and Audit Committees, boards of directors and shareholder
approval of Ampal, its subsidiaries, and the relevant committees of Bank
Hapoalim and its subsidiaries, where applicable, as well as the approval of the
appropriate regulatory agencies in Israel.
Ampal's Related Party Transactions Committee has requested a fairness opinion
from Lehman Brothers concerning the aforementioned transactions. Lehman Brothers
has begun its evaluation.
The transaction is expected to close after Ampal's annual meeting to be held on
June 29, 1999.
14
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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 - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - On May 11, 1999, the Company signed an agreement
with Bank Hapoalim B.M. ("BHP") and two wholly-owned subsidiaries of
BHP, which provides for the following: (i) the Company will acquire from
BHP and its subsidiary all of their holdings in Ampal - 5,874,281 shares
of Class A Stock, 3,350 shares of 4% Preferred Stock and 122,536 shares
of 6 1/2% Preferred Stock for $31.3 million; (ii) the Company will sell
to BHP's subsidiary seven real estate properties totaling 53,000 sq.
ft., currently leased to and occupied by BHP, for $14.7 million; and
(iii) Ampal's subsidiary will renew the lease agreement with BHP with
respect to a 4,400 sq. ft. branch in Bnei Brak, Israel for ten years at
an annual rental income of $346,000.
The above transactions are subject to the receipt of the approval of the
boards of directors and certain committees of each of the parties, the
approval of the shareholders of Ampal and the approval of the
appropriate regulatory agencies in Israel. See "Management's Discussion
And Analysis of Financial Condition And Results of Operations -
Subsequent Events".
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 9 - Form of Agreement, dated January 27, 1999, between Ampal
Israel Ltd., Amot Investments Ltd. and Gmul Investment Co. and Koor
Tourism Enterprises Ltd. and Sheraton International Ltd. (Translation).
Exhibit 10 - Form of Agreement, dated May 11, 1999, between Bank
Hapoalim B.M., Atad Investment Company Ltd. and Revadim (Nechasin) Ltd.
and Ampal-American Israel Corporation, Ampal Development (Israel) Ltd.,
Ampal Financial Services Ltd. and Ampal (Israel) Ltd. (Translation).
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. A Current Report on Form 8-K was filed by the
Registrant on April 27, 1999, which described an Item 2 Event, the
Disposition by Ampal (Israel) Ltd., a wholly-owned subsidiary of
Ampal-American Israel Corporation, of its 46% equity interest in Moriah
Hotels Ltd., to Koor Tourism Enterprises Ltd. and Sheraton International
Ltd.
15
18
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/ Yehoshua Gleitman
-------------------------------
Yehoshua Gleitman
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: May 14, 1999
16
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Exhibit Index
Exhibit No. Description
9 Form of Agreement, dated January 27, 1999,
between Ampal Israel Ltd., Amot
Investments Ltd. and Gmul Investment Co. and
Koor Tourism Enterprises Ltd. and Sheraton
International Ltd. (Translation)..........................
10 Form of Agreement, dated May 11, 1999,
between Bank Hapoalim B.M., Atad Investment
Company Ltd. and Revadim (Nechasin) Ltd.
and Ampal-American Israel Corporation,
Ampal Development (Israel) Ltd., Ampal
Financial Services Ltd. and Ampal
(Israel) Ltd. (Translation)...............................
11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock................................
27 Financial Data Schedule.
17