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 September 30, 1996
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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 2-5061
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 each of the issuer's classes of common
stock is Common - 3,000,000; Class A - 20,595,938 (as of October 31, 1996).
AMPAL-AMERICAN ISRAEL CORPORATION
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Index to Form 10-Q
Page
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Part I Financial Information
Consolidated Statements of Income
Nine Months Ended September 30........................ 1
Three Months Ended September 30....................... 2
Consolidated Balance Sheets............................ 3
Consolidated Statements of Cash Flows.................. 5
Consolidated Statements of Changes in Shareholders'
Equity................................................ 7
Notes to the Consolidated Financial Statements......... 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 10
Part II Other Information...................................... 14
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995
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(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
REVENUES
Equity in earnings of affiliates (Note 3) .......... $ 174 $ 6,859
Manufacturing ...................................... 7,773 7,840
Interest:
Related parties ................................... 8,253 7,442
Others ............................................ 1,571 2,507
Rental income ...................................... 8,729 4,864
Realized and unrealized gains on investments ....... 1,820 3,030
Other .............................................. 1,540 1,507
-------- --------
Total revenues ................................ 29,860 34,049
-------- --------
EXPENSES
Manufacturing ...................................... 8,823 7,157
Interest:
Related parties ................................... 3,021 2,094
Others ............................................ 7,895 7,309
Rental property operating expenses ................. 4,291 1,599
Other .............................................. 5,335 5,430
-------- --------
Total expenses ................................ 29,365 23,589
-------- --------
Income from continuing operations before income
taxes ............................................. 495 10,460
Income taxes ....................................... 1,508 5,260
-------- --------
(Loss) income from continuing operations ........... (1,013) 5,200
-------- --------
Discontinued operations (Note 5):
Loss from operations .............................. (3,610) (2,128)
Loss on disposition of $3,121, net of
applicable tax benefit of $4,096 ................. 975 --
-------- --------
Loss from discontinued operations .................. (2,635) (2,128)
-------- --------
NET (LOSS) INCOME ............................. $ (3,648) $ 3,072
======== ========
(Loss) earnings per Class A share:
(Loss) earnings from continuing operations ........ $ (.04) $ .19
Loss from discontinued operations ................. (.09) (.08)
-------- --------
(Loss) earnings per Class A share .................. $ (.13) $ .11
======== ========
Weighted average number of Class A and
equivalent shares outstanding (in thousands) ...... 24,613 25,076
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1996 1995
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(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
REVENUES
Equity in (losses) earnings of affiliates (Note
3) ............................................... $ (1,046) $ 1,239
Manufacturing ...................................... 2,569 2,595
Interest:
Related parties ................................... 2,048 2,751
Others ............................................ 441 673
Rental income ...................................... 3,003 3,119
Realized and unrealized (losses) gains on
investments ....................................... (311) 1,313
Other .............................................. 596 538
-------- --------
Total revenues ................................ 7,300 12,228
-------- --------
EXPENSES
Manufacturing ...................................... 3,368 2,401
Interest:
Related parties ................................... 907 1,129
Others ............................................ 2,011 2,465
Rental property operating expenses ................. 1,408 1,355
Other .............................................. 2,021 1,846
-------- --------
Total expenses ................................ 9,715 9,196
-------- --------
(Loss) income from continuing operations before
income taxes ...................................... (2,415) 3,032
Income taxes ....................................... 150 1,364
-------- --------
(Loss) income from continuing operations ........... (2,565) 1,668
-------- --------
Discontinued operations (Note 5):
Loss from operations .............................. -- (1,183)
Loss on disposition of $2,714, net of
applicable tax benefit of $2,654 ................. (60) --
-------- --------
Loss from discontinued operations .................. (60) (1,183)
-------- --------
NET (LOSS) INCOME ............................. $ (2,625) $ 485
======== ========
(Loss) earnings per Class A share:
(Loss) earnings from continuing operations ........ $ (.09) $ .06
Loss from discontinued operations ................. -- (.04)
-------- --------
(Loss) earnings per Class A share .................. $ (.09) $ .02
======== ========
Weighted average number of Class A and
equivalent shares outstanding (in thousands) ...... 24,613 24,875
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
ASSETS AS AT 1996 1995
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(Dollars in thousands) (Unaudited) (Note 2)
Cash and cash equivalents .......................... $ 10,285 $ 15,976
Deposits, notes and loans receivable ............... 62,795 73,935
Investments (Note 3) ............................... 140,493 142,583
Real estate rental property, less accumulated
depreciation of $5,904 and $4,994 (Note 6) ........ 58,587 57,289
Property and equipment, less accumulated
depreciation of $4,155 and $3,731 ................. 5,649 6,097
Other assets ....................................... 20,435 13,636
Net assets of discontinued operations (Note 5) ..... -- 2,578
-------- --------
TOTAL ASSETS........................................ $298,244 $312,094
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SEPTEMBER 30, DECEMBER 31,
SHAREHOLDERS' EQUITY AS AT 1996 1995
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(Dollars in thousands) (Unaudited) (Note 2)
LIABILITIES
Notes and loans payable:
Related parties .................................. $ 33,903 $ 37,326
Others ........................................... 8,160 4,177
Debentures ......................................... 62,883 74,378
Accounts and income taxes payable, accrued
expenses and minority interests ................... 33,759 31,798
-------- --------
Total liabilities .......................... 138,705 147,679
-------- --------
SHAREHOLDERS' EQUITY (Note 4)
4% Cumulative, Participating, Convertible
Preferred Stock, $5 par value; authorized
650,000 shares; issued and outstanding
195,523 and 199,030 shares ........................ 978 995
6-1/2% Cumulative, Convertible Preferred Stock,
$5 par value; authorized 4,282,850 shares;
issued and outstanding 1,017,441 and 1,052,599
shares ............................................ 5,087 5,263
Class A Stock, $1 par value; authorized
60,000,000 shares; issued 21,188,611 and
21,065,392 shares; outstanding 20,583,211
and 20,459,992 shares ............................. 21,189 21,066
Common Stock, $1 par value; authorized, issued
and outstanding 3,000,000 shares .................. 3,000 3,000
Additional paid-in capital ......................... 57,380 57,310
Retained earnings .................................. 81,911 85,559
Treasury Stock, 605,400 shares of Class A Stock,
at cost ........................................... (3,829) (3,829)
Cumulative translation adjustments ................. (6,103) (4,354)
Unrealized loss on marketable securities ........... (74) (595)
-------- --------
Total shareholders' equity ................. 159,539 164,415
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $298,244 $312,094
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from operating activities:
Net(loss) income .................................. $ (3,648) $ 3,072
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of affiliates ................. (174) (6,859)
Loss from discontinued operations ................ 2,635 2,128
Realized and unrealized gains on investments ..... (1,820) (3,030)
Depreciation expense ............................. 1,526 1,146
Amortization expense ............................. 2,882 3,415
Minority interests ............................... (379) (195)
(Increase) in other assets ........................ (1,996) (887)
(Decrease) increase in accounts and income
taxes payable, accrued expenses and minority
interests ........................................ (1,284) 2,897
Investments made in trading securities ............ (1,610) (5,606)
Proceeds from sale of trading securities .......... 2,471 12,029
Dividends received from affiliates ................ -- 3,029
-------- --------
Net cash (used in) provided by operating
activities ...................................... (1,397) 11,139
-------- --------
Cash flows from investing activities:
Deposits, notes and loans receivable collected .... 15,527 22,063
Deposits, notes and loans receivable granted ...... (3,453) (3,082)
Investments made in:
Available-for-sale securities .................... (228) (1,339)
Affiliates and others ............................ (5,107) (32,405)
Proceeds from sale of investments:
Affiliates and others ............................ 7,965 50,969
Purchase of property and equipment ................ (494) (378)
Purchase of real estate rental property ........... (895) (45,270)
-------- --------
Net cash provided by (used in) investing
activities ...................................... 13,315 (9,442)
-------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from financing activities:
Notes and loans payable received:
Related parties .................................. $ 1,053 $ 30,167
Others ........................................... 5,535 1,056
Notes and loans payable repaid:
Related parties .................................. (4,606) (3,858)
Others ........................................... (1,573) (420)
Debentures repaid ................................. (16,237) (9,398)
Proceeds from issuance of shares to minority
interests ........................................ -- 50
Purchase of treasury shares ....................... -- (3,046)
-------- --------
Net cash (used in) provided by financing
activities ...................................... (15,828) 14,551
Effect of exchange rate changes on cash and
cash equivalents .................................. (1,781) (742)
-------- --------
Net (decrease) increase in cash and cash
equivalents ....................................... (5,691) 15,506
Cash and cash equivalents at beginning of
period ............................................ 15,976 38,568
-------- --------
Cash and cash equivalents at end of period ......... $ 10,285 $ 54,074
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties .................................. $ 1,800 $ 912
Others ........................................... 3,073 2,988
-------- --------
Total interest paid ............................ $ 4,873 $ 3,900
======== ========
Income taxes paid ................................. $ 2,844 $ 2,399
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995
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(Dollars in thousands) (Unaudited) (Unaudited)
4% PREFERRED STOCK
Balance, beginning of year ......................... $ 995 $ 1,033
Conversion of 3,507 and 5,542 shares into
Class A Stock ..................................... (17) (28)
-------- --------
Balance, end of period ............................. $ 978 $ 1,005
======== ========
6-1/2% PREFERRED STOCK
Balance, beginning of year ......................... $ 5,263 $ 5,575
Conversion of 35,228 and 36,498 shares into
Class A Stock ..................................... (176) (183)
-------- --------
Balance, end of period ............................. $ 5,087 $ 5,392
======== ========
CLASS A STOCK
Balance, beginning of year ......................... $ 21,066 $ 20,841
Issuance of shares upon conversion of
Preferred Stock ................................... 123 137
-------- --------
Balance, end of period ............................. $ 21,189 $ 20,978
======== ========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year ......................... $ 57,310 $ 57,185
Conversion of Preferred Stock ...................... 70 74
-------- --------
Balance, end of period ............................. $ 57,380 $ 57,259
======== ========
RETAINED EARNINGS
Balance, beginning of year ......................... $ 85,559 $ 89,007
Net (loss) income .................................. (3,648) 3,072
Dividends declared:
4% Preferred Stock - $.20 per share .............. -- (40)
6-1/2% Preferred Stock - $.325 per share ......... -- (351)
-------- --------
Balance, end of period ............................. $ 81,911 $ 91,688
======== ========
TREASURY STOCK
Balance, beginning of year ......................... $ (3,829) $ --
Purchase of 465,900 shares of Class A Stock,
at cost ........................................... -- (3,046)
-------- --------
Balance, end of period ............................. $ (3,829) $ (3,046)
======== ========
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year ......................... $ (4,354) $ (2,636)
Foreign currency translation adjustment ............ (1,749) 217
-------- --------
Balance, end of period ............................. $ (6,103) $ (2,419)
======== ========
UNREALIZED (LOSS) ON MARKETABLE SECURITIES
Balance, beginning of year ......................... $ (595) $ (511)
Unrealized gain, net ............................... 40 467
Transfer to trading securities ..................... 116 --
Write-off due to permanent impairment .............. 365 --
-------- --------
Balance, end of period ............................. $ (74) $ (44)
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
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, 1995 consolidated balance sheet presented herein was
derived from the audited December 31, 1995 consolidated financial
statements of the Company.
Reference should be made to the Company's consolidated financial statements
for the year ended December 31, 1995 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, 1995 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 other than those that are discussed in Note 5. Certain amounts
in the 1995 financial statements 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. In May 1996, a wholly-owned subsidiary of Coral World International Limited
("CWI"), the Company's 50%-owned affiliate, entered into a contract to sell
its marine park in Nassau (Bahamas) to an unrelated party for $3.75 million
and CWI recorded a loss on sale of approximately $4 million (the Company's
share is $2 million, $1.3 million net of taxes). In addition, in May 1996,
CWI's management made a decision to sell its marine park in St. Thomas
(U.S. Virgin Islands), and CWI recorded a loss of approximately $2 million
(the Company's share is $1 million, $.7 million net of taxes) to adjust the
carrying value of its investment to net realizable value. In recognition of
these events the Company reflected these losses as of March 31, 1996. On
September 27, 1996, CWI closed the sale of the marine park in Nassau
(Bahamas) and recorded additional expenses in connection with the sale of
approximately $1 million (the Company's share is $.5 million, $.3 million
net of taxes) in the three-month period ended September 30, 1996.
4. On June 6, 1996, Bank Hapoalim B.M. ("Hapoalim") completed the sale of
5,742,351 shares of Ampal Class A Stock (equal to 27.9% of the outstanding
Class A Stock as of that date, not assuming conversion of Hapoalim's
Preferred Stock) at a price of $7.87 per share to Rebar Financial Corp.
("Rebar"), a company controlled by the Steinmetz family. This sale of
shares was made within the framework of the reduction of the non-banking
holdings of Hapoalim according to the Banking (Licensing) Law in effect in
Israel, which requires Hapoalim to sell non-banking holdings in excess of
25% by the end of 1996. Hapoalim continues to beneficially hold 4,758,640
shares, assuming conversion of its Preferred Stock (equal to 22.7% of the
outstanding Class A Stock as of September 30, 1996, assuming conversion of
Hapoalim's Preferred Stock) and 100% of the Common Stock, which has
superior voting rights. As of September 30, 1996, Rebar held 5,862,351
shares of Ampal Class A Stock (equal to 28.5% of the outstanding shares of
Class A Stock, not assuming conversion of Hapoalim's Preferred Stock).
Hapoalim also agreed to sell to Rebar either an additional 1,500,001 shares
of Class A Stock or 1,500,001 shares of Common Stock. Upon completion of
the sale, Hapoalim will hold no more than the percentage required by
Israeli law.
Ampal previously announced that Hapoalim has advised Ampal of its desire to
enter into a transaction with Ampal to equalize the rights of Ampal's
Common Stock to those of its Class A Stock.
-8-
5. Discontinued Operations - On October 11, 1996 the Company agreed to sell
all of its equity interest in its food processing subsidiary, Pri Ha'emek
(Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek") to Agrifarm International
Limited ("Agrifarm"), a British company. This agreement is subject to
receipt of regulatory approvals in Israel, approvals of the Boards of
Directors of the parties and a right of first refusal in favor of another
shareholder of Pri Ha'emek to complete the transaction on the same terms as
Agrifarm. Accordingly, the results of Pri Ha'emek, whose financial
statements were previously consolidated with the Company's financial
statements through June 30, 1996, have been presented as discontinued
operations for all periods presented in the consolidated financial
statements. In connection with the sale, the Company recorded $2,714,000 of
additional expenses and a tax benefit of $2,654,000 in the three-month
period ended September 30, 1996. For the nine-month period ended September
30, 1996, the Company recorded a tax benefit of approximately $4.1 million,
which was based on a total loss of its investment in Pri Ha'emek in the
amount of $9.7 million.
6. On September 25, 1996 the Company's 94%-owned real estate subsidiary, which
is the owner of an office building located at 800 Second Avenue, New York
City, entered into a nonbinding letter of intent with the Government of
Israel regarding the sale to the Government of the portion of the building
currently occupied by the Government for a price of approximately $31
million. The building was purchased by the Company's subsidiary in June
1995 for approximately $45 million. The Government currently occupies
slightly less than 50 percent of the building.
The transaction is subject to conditions, including approval of relevant
Israel Government bodies and execution of a binding agreement. The letter
of intent contemplates that the agreement will be signed in November 1996,
with a closing to take place in December 1996.
7. Subsequent Event - On October 17, 1996 the Company's indirect affiliate,
MEMCO Software Ltd. ("MEMCO"), a provider of enterprise security solutions,
conducted its initial public offering of 3,870,000 Ordinary Shares
(including 450,000 over-allotment shares) at $15.00 per share. MEMCO sold
3,450,000 of these shares and received net proceeds of approximately $46
million, and existing shareholders sold 420,000 shares. The Company will
record a fourth quarter gain of approximately $1.6 million, after taxes,
with respect to the offering.
Prior to the offering, the Company's 42.5%-owned affiliate, Ophir Holdings
Ltd. ("Ophir"), owned a 17.9% interest in MEMCO, which it purchased for
$2.5 million. Ophir sold Ordinary Shares in the offering, reducing its
ownership interest to 13.1%. Ophir continues to hold 2,026,388 shares of
MEMCO.
-9-
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (See discussion on Discontinued Operations elsewhere in
Management's Discussion and Analysis)
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995:
Consolidated income from continuing operations decreased from $5.2 million for
the nine-month period ended September 30, 1995 to a loss of $1 million for the
same period in 1996. The decrease in income in 1996 resulted primarily from
decreases in equity in earnings of affiliates, lower unrealized gains on
investments, losses incurred by the Company's manufacturing subsidiary and
higher interest expense. These decreases were partially offset by an increase in
net rental income.
Equity in earnings of affiliates decreased from $6.8 million for the nine months
ended September 30, 1995 to $.2 million for the same period in 1996. The
decrease is primarily attributable to losses recorded by the Company's 50%-owned
affiliate, Coral World International Limited ("CWI"). In May 1996, CWI's
wholly-owned subsidiary in Nassau (Bahamas) entered into a contract to sell its
marine park to an unrelated party for $3.75 million and CWI recorded a loss on
sale of approximately $4 million (the Company's share is $2 million, $1.3
million net of taxes). CWI's management also made a decision to sell its marine
park in St. Thomas, and CWI recorded a loss of approximately $2 million (the
Company's share is $1 million, $.7 million net of taxes) to adjust the carrying
value of its investment to net realizable value. In recognition of these events
the Company reflected these losses as of March 31, 1996. On September 27, 1996
CWI closed the sale of the marine park in Nassau (Bahamas) and recorded
additional expenses in connection with the sale of approximately $1 million (the
Company's share is $.5 million, $.3 million net of taxes) in the three-month
period ended September 30, 1996.
M.D.F. Industries Ltd. ("M.D.F."), the Company's 50%-owned affiliate, which has
established a plant in Israel for the production of medium density fiber boards,
and which completed its running-in period on June 30, 1996, incurred significant
losses in the quarter ended September 30, 1996. The losses are primarily
attributable to the excess of cost of sales per production unit over the selling
price. M.D.F.'s sales prices were affected by the decrease in the world prices
of all wood-connected products, and to the establishment of nearly 30 new plants
for the production of medium density fiber boards throughout the world.
Moriah Hotels Ltd. ("Moriah"), the Company's 46%-owned affiliate, which is one
of the largest hotel chains in Israel, recorded losses in 1996 primarily because
its Tel Aviv hotel was closed for renovations for part of the period. Moriah
also experienced decreases in occupancy rates and room rates which resulted from
the decrease in tourism to Israel in 1996. The Tel Aviv hotel, which has
undergone a $13 million renovation, partially reopened in May 1996, and its
renovations are expected to be completed in the fourth quarter of 1996.
The Company's 42.5%-owned affiliate, Ophir Holdings Ltd. ("Ophir"), incurred
losses in 1996 because of the decrease in realized and unrealized gains recorded
on its investments as well as increased interest expense on its CPI-linked bank
borrowings, due to the higher rate of increase in the Consumer Price Index
("CPI") in Israel in 1996.
The decreases noted above were partially offset by the increased earnings
recorded by the Company's 50%-owned affiliate, Trinet Venture Capital Ltd.
("Trinet"), a venture capital fund, which recorded unrealized gains on its
investments in Logal Software
-10-
and Educational Systems Ltd. ("Logal") and Imagenet Ltd. ("Imagenet"). Logal,
which markets computerized educational systems for learning sciences in high
schools and colleges, completed a $13 million public offering in March 1996 in
the United States. Imagenet, which develops and markets computer aided network
engineering software products, completed a $2 million private placement for 20%
of the company in June 1996. In addition, the earnings of the Company's
affiliate, Teledata Communication Ltd. ("Teledata"), improved as a result of
increased sales, mainly because of its more successful marketing efforts.
Manufacturing revenues and expenses reflect the operations of Paradise
Mattresses (1992) Ltd. ("Paradise"), the Company's 85.1%-owned subsidiary, which
is a leading manufacturer and distributor of mattresses and fold-out beds in
Israel. Paradise recorded losses in 1996, primarily in the third quarter,
because of increased advertising and promotional expenses in connection with a
new marketing program.
Interest expense increased in 1996 mainly because of debt incurred in connection
with the purchase of an office building ("800 Second Avenue") located at 800
Second Avenue, New York, New York, in June 1995.
The increases in rental income and rental property expenses are attributable to
the operations of 800 Second Avenue.
The Company recorded $.1 million and $1.3 million of unrealized gains on
marketable securities and $1.7 million of gains on sale of investments in the
nine-month periods ended September 30, 1996 and 1995, respectively. The gains
recorded in 1996 were mainly attributable to the Company's investments in
Teledata and M-Systems Flash Disk Pioneers Ltd. ("M-Systems"), whereas the gains
recorded in 1995 were mainly attributed to the Company's investment in Mercury
Interactive Corporation. Unrealized gains in 1996 were offset by the unrealized
loss recorded on the Company's investment in Idan Software Industries I.S.I.,
Ltd. ("Idan") in the quarter ended September 30, 1996.
The increase in the effective income tax rate in 1996 is mainly attributable to
the losses of certain Israeli subsidiaries and affiliates from which no tax
benefits are available.
Three months ended September 30, 1996 compared to three months ended September
30, 1995:
Consolidated income from continuing operations decreased from $1.7 million for
the three-month period ended September 30, 1995 to a loss of $2.6 million for
the same period in 1996. The decrease in 1996 resulted primarily from decreases
in equity in earnings of affiliates, losses incurred by Paradise and unrealized
losses on investments in 1996 as compared to unrealized gains in 1995.
Equity in earnings of affiliates decreased from $1.2 million for the three
months ended September 30, 1995 to equity in losses of $1 million for the same
period in 1996. The decrease is primarily attributable to the losses incurred by
M.D.F. and Moriah, and additional losses recorded by CWI in connection with the
sale of its marine park in Nassau (Bahamas). These decreases were partially
offset by increased earnings of Ophir, which recorded a gain on sale of part of
its investment in Teledata. See discussion on Results of Operations - Nine
months ended September 30, 1996 compared to nine months ended September 30,
1995.
Paradise recorded losses in the third quarter of 1996 for the same reasons as
discussed in Results of Operations - Nine months ended September 30, 1996
compared to nine months ended September 30, 1995.
The Company recorded $.9 million of unrealized losses and $.7 million of
unrealized gains on investments and $.6 million of gains on sale of investments
in the three-month periods ended September 30, 1996 and 1995, respectively. The
unrealized losses recorded in the three-month period ended September 30, 1996
were mainly attributable
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to the Company's investments in Idan and M-Systems, whereas the realized gains
for the same period were attributable to the Company's investment in Teledata.
The unrealized and realized gains recorded in the three-month period ended
September 30, 1995 were mainly attributable to the Company's investment in
Mercury Interactive Corporation.
The increase in the effective income tax rate in the quarter ended September 30,
1996 as compared to the same period ended September 30, 1995 is attributable to
the same reasons as discussed in Results of Operations - Nine months ended
September 30, 1996 compared to nine months ended September 30, 1995.
Discontinued Operations
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), the Company's
58.5%-owned food processing subsidiary, which initiated a recovery plan at the
end of 1995, recorded further losses in 1996. Its food processing revenues
decreased in 1996 as a result of decreased sales volume in the domestic market.
Food processing expenses increased in 1996 due to the increases in labor costs
and costs of raw materials, which are linked to the increases in the CPI,
decreased labor productivity and a reduction of discounts from suppliers.
Therefore, on October 11, 1996, the Company agreed to sell all of its equity
interest in Pri Ha'emek to Agrifarm International Limited ("Agrifarm"), a
British company. This agreement is subject to receipt of regulatory approvals in
Israel, approvals of the Boards of Directors of the parties and a right of first
refusal in favor of another shareholder of Pri Ha'emek to complete the
transaction on the same terms as Agrifarm. Accordingly, the results of Pri
Ha'emek, whose financial statements were previously consolidated with the
Company's financial statements through June 30, 1996, have been presented as
discontinued operations for all periods presented in the consolidated financial
statements. In connection with the sale, the Company recorded $2,714,000 of
additional expenses and a tax benefit of $2,654,000 in the three month period
ended September 30, 1996. For the nine-month period ended September 30, 1996,
the Company recorded a tax benefit of approximately $4.1 million, which was
based on a total loss of its investment in Pri Ha'emek in the amount of $9.7
million.
Liquidity and Capital Resources
At September 30, 1996, cash and cash equivalents were $10.3 million as compared
with $16 million at December 31, 1995. In addition, Ampal had approximately $30
million of highly liquid interest-bearing securities included in the investments
caption at September 30, 1996 as compared with $34 million at December 31, 1995.
The decrease in cash and cash equivalents and short-term investments is
primarily related to the scheduled redemptions of debentures, additional
investments, including $1.5 million invested in Geotek Communications, Inc., an
international wireless telecommunications company, and loans advanced to Pri
Ha'emek in the amount of $1.6 million.
Deposits, notes and loans receivable, and debentures decreased as a result of
scheduled repayments.
Other Events
(a) On June 6, 1996 Bank Hapoalim B.M. ("Hapoalim") completed the sale of
5,742,351 shares of Ampal Class A Stock (equal to 27.9% of the outstanding Class
A Stock as of that date, not assuming conversion of Hapoalim's Preferred Stock)
at a price of $7.87 per share to Rebar Financial Corp. ("Rebar"), a company
controlled by the Steinmetz family. This sale of shares was made within the
framework of the reduction of the non-banking holdings of Hapoalim according to
the Banking (Licensing) Law in effect in Israel, which requires Hapoalim to sell
non-banking holdings in excess of 25% by the end of 1996. Hapoalim continues to
beneficially
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hold 4,758,640 shares, assuming conversion of its Preferred Stock (equal to
22.7% of the outstanding Class A Stock as of September 30, 1996, assuming
conversion of Hapoalim's Preferred Stock) and 100% of the Common Stock, which
has superior voting rights. As of September 30, 1996, Rebar held 5,862,351
shares of Ampal Class A Stock (equal to 28.5% of the outstanding shares of Class
A Stock, not assuming conversion of Hapoalim's Preferred Stock). Hapoalim also
agreed to sell to Rebar either an additional 1,500,001 shares of Class A Stock
or 1,500,001 shares of Common Stock. Upon completion of the sale, Hapoalim will
hold no more than the percentage required by Israeli law.
Ampal previously announced that Hapoalim has advised Ampal of its desire to
enter into a transaction with Ampal to equalize the rights of Ampal's Common
Stock to those of its Class A Stock.
(b) On September 25, 1996 the Company's 94%-owned real estate subsidiary, which
is the owner of 800 Second Avenue, in New York City, entered into a nonbinding
letter of intent with the Government of Israel regarding the sale to the
Government of the portion of the building currently occupied by the Government
for a price of approximately $31 million. The building was purchased by the
Company's subsidiary in June 1995 for approximately $45 million. The Government
currently occupies slightly less than 50 percent of the building.
The transaction is subject to conditions, including approval of relevant
Israel Government bodies and execution of a binding agreement. The letter of
intent contemplates that the agreement will be signed in November 1996, with a
closing to take place in December 1996.
Subsequent Event
On October 17, 1996 the Company's indirect affiliate, MEMCO Software Ltd.
("MEMCO"), a provider of enterprise security solutions, conducted its initial
public offering of 3,870,000 Ordinary Shares(including 450,000 over-allotment
shares) at $15.00 per share. MEMCO sold 3,450,000 of these shares and received
net proceeds of approximately $46 million, and existing shareholders sold
420,000 shares. The Company will record a fourth quarter gain of approximately
$1.6 million, after taxes, with respect to the offering.
Prior to the offering, the Company's 42.5%-owned affiliate, Ophir, owned a 17.9%
interest in MEMCO, which it purchased for $2.5 million. Ophir sold Ordinary
Shares in the offering, reducing its ownership interest to 13.1%. Ophir
continues to hold 2,026,388 shares of MEMCO.
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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders
On October 3, 1996, at the Annual Meeting of Shareholders of Registrant,
the following persons were elected as directors by the following vote:
(i) CLASS A FOR AUTHORITY WITHHELD
------- --- ------------------
H.B. Henshel 16,316,952 97,720
I. Hochberg 16,316,698 97,974
H. Kronish 16,316,039 98,633
E. Sommer 16,317,348 97,324
(ii) COMMON/CLASS A FOR AUTHORITY WITHHELD
-------------- --- ------------------
A. Abend 32,659,467 169,877
M. Arnon 32,731,863 97,481
S.I. Batkin 32,731,263 98,081
Y. Elinav 32,725,520 103,824
L. Lefkowitz 32,725,583 103,761
H. Peled 32,731,520 97,824
S. Ravid 32,731,362 97,982
S. Recht 32,731,870 97,474
M.W. Sonnenfeldt 32,725,520 103,824
R. Steinmetz 32,734,020 95,324
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits:
Exhibit 10 - Material Contracts - English translation of a Share
Purchase Contract, dated October 11, 1996, between Ampal Industries,
Inc. and Agrifarm International Ltd., regarding the sale of shares of
Pri Ha'emek (Canned and Frozen Food) 88 Ltd................ Page E-1*
Exhibit 11 - Schedule Setting Forth Computation
of Earnings Per Class A Share...............................Page 15
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K - None.
* Refers to separately bound exhibit volume.
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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/ Lawrence Lefkowitz
-----------------------------------
Lawrence Lefkowitz
President
(Principal Executive Officer)
By:/s/ Alan L. Schaffer
------------------------------------
Alan L. Schaffer
Vice President - Finance
and Treasurer
(Principal Financial Officer)
By:/s/ Alla Kanter
------------------------------------
Alla Kanter
Vice President - Accounting
and Controller
(Principal Accounting Officer)
Dated: November 14, 1996
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