SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
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, 1997
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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 23,807,385 (as of October 31, 1997).
AMPAL-AMERICAN ISRAEL CORPORATION
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Index to Form 10-Q
PAGE
Part I Financial Information
Consolidated Statements of Income
Nine Months Ended September 30, 1997 and 1996......... 1
Three Months Ended September 30, 1997 and 1996........ 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, 1997 1996
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
REVENUES
Equity in earnings of affiliates .....................$ 17,504 $ 1,445
Manufacturing (Note 6) ............................... 8,450 7,773
Interest:
Related parties...................................... 5,991 8,253
Others............................................... 1,979 1,571
Rental income......................................... 5,480 8,729
Realized and unrealized gains on investments.......... 5,750 1,820
Other................................................. 1,559 1,540
-------- --------
Total revenues................................... 46,713 31,131
-------- --------
EXPENSES
Manufacturing (Note 6)................................ 9,229 8,823
Interest:
Related parties...................................... 1,942 3,021
Others............................................... 5,545 7,895
Rental property operating expenses.................... 2,256 4,291
Loss from impairment of investments................... 977 1,271
Other................................................. 6,203 5,335
-------- --------
Total expenses................................... 26,152 30,636
-------- --------
Income from continuing operations before
income taxes......................................... 20,561 495
Provision for income taxes............................ 8,663 1,508
-------- --------
Income (loss) from continuing operations............. 11,898 (1,013)
Loss from discontinued operations..................... - (2,635)
-------- --------
NET INCOME (LOSS)................................$ 11,898 $ (3,648)
======== ========
Earnings (loss) per Class A share (Note 4):
Earnings (loss) from continuing operations...... $ .43 $(.04)
Loss from discontinued operations.................... - (.09)
----- ----
Earnings (loss) per Class A share..................... $ .43 $(.13)
===== =====
Weighted average number of Class A and
equivalent shares outstanding (in thousands)......... 27,614 24,613
The accompanying notes are an integral part of the consolidated financial
statements.
1
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1997 1996
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(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)
REVENUES
Equity in earnings of affiliates.....................$ 8,293 $ 97
Manufacturing (Note 6)............................... 2,164 2,569
Interest:
Related parties..................................... 1,666 2,048
Others.............................................. 751 441
Rental income........................................ 1,773 3,003
Realized and unrealized gains (losses) on
investments......................................... 727 (311)
Other................................................ 522 596
-------- --------
Total revenues.................................. 15,896 8,443
-------- --------
EXPENSES
Manufacturing (Note 6)............................... 2,494 3,368
Interest:
Related parties..................................... 650 907
Others.............................................. 1,780 2,011
Rental property operating expenses................... 173 1,408
Loss from impairment of investment................... - 1,143
Other................................................ 2,042 2,021
-------- ------
Total expenses.................................. 7,139 10,858
-------- ------
Income (loss) from continuing operations before
income taxes........................................ 8,757 (2,415)
Provision for income taxes........................... 4,149 150
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Income (loss) from continuing operations............. 4,608 (2,565)
Loss from discontinued operations ................... - (60)
-------- --------
NET INCOME (LOSS)...............................$ 4,608 $ (2,625)
======== ========
Earnings (loss) per Class A share (Note 4) .......... $ .17 $ (.09)
===== ======
Weighted average number of Class A and
equivalent shares outstanding (in thousands)........ 27,616 24,613
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 1997 1996
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(Dollars in thousands) (Unaudited) (Note 2)
Cash and cash equivalents........................ $ 24,273 $ 20,633
Deposits, notes and loans receivable............... 59,407 57,041
Investments...................................... 128,313 123,084
Real estate rental property, less accumulated
depreciation of $5,710 and $6,215 (Note 3)...... 28,899 58,199
Property and equipment, less accumulated
depreciation of $2,565 and $4,041 ................ 3,605 5,571
Other assets....................................... 17,590 19,023
-------- --------
TOTAL ASSETS.......................................$262,087 $283,551
======== ========
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 1997 1996
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(Dollars in thousands) (Unaudited) (Note 2)
LIABILITIES Notes and loans payable:
Related parties..................................... $ 16,800 $ 34,005
Others.............................................. 5,854 10,538
Debentures............................................ 42,696 57,871
Accounts and income taxes payable, accrued
expenses and minority interests...................... 35,777 29,017
-------- --------
Total liabilities............................. 101,127 131,431
-------- --------
SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock,
$5 par value; authorized 189,287 and 650,000
shares; issued and outstanding 184,371 and
190,936 shares..................................... 922 955
6-1/2% Cumulative Convertible Preferred Stock,
$5 par value; authorized 988,055 and
4,282,850 shares; issued and outstanding 972,333
and 1,002,483 shares............................... 4,861 5,012
Class A Stock, $1 par value; authorized
60,000,000 shares; issued 24,382,695 and
24,256,420 shares; outstanding 23,777,295 and
23,651,020 shares.................................. 24,383 24,257
Additional paid-in capital............................ 57,483 57,410
Retained earnings..................................... 86,841 74,943
Treasury Stock, 605,400 shares of Class A Stock,
at cost.............................................. (3,829) (3,829)
Cumulative translation adjustments.................... (9,701) (6,530)
Unrealized loss on marketable securities.............. - (98)
-------- --------
Total shareholders' equity.................... 160,960 152,120
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $262,087 $283,551
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
4
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from operating activities:
Net income (loss)....................................$ 11,898 $ (3,648)
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of affiliates.................... (17,504) (1,445)
Loss from discontinued operations................... - 2,635
Realized and unrealized gains on investments........ (5,750) (1,820)
Depreciation expense................................ 1,232 1,526
Amortization expense................................ 1,379 2,882
Loss from impairment of investments................. 977 1,271
Minority interests.................................. (360) (379)
Decrease (increase) in other assets.................. 760 (1,996)
Increase (decrease) in accounts and income taxes
payable, accrued expenses and minority
interests........................................... 7,422 (1,284)
Investments made in trading securities............... (7,624) (1,610)
Proceeds from sale of trading securities............. 5,751 2,471
Dividends received from affiliates................... 7,921 -
------- -------
Net cash provided by (used in) operating
activities......................................... 6,102 (1,397)
------- -------
Cash flows from investing activities:
Deposits, notes and loans receivable collected....... 13,975 15,527
Deposits, notes and loans receivable granted......... (993) (3,453)
Investments made in:
Available-for-sale securities....................... - (228)
Affiliates and others............................... (7,449) (5,107)
Proceeds from sale of investments:
Available-for-sale securities....................... 1,537 -
Others.............................................. 16,768 5,362
Proceeds from sale of real estate rental
property............................................ 15,046 -
Purchase of property and equipment................... (843) (494)
Purchase of real estate rental property.............. (1,018) (895)
------- -------
Net cash provided by investing activities........... 37,023 10,712
------- -------
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, 1997 1996
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)
Cash flows from financing activities:
Notes and loans payable received:
Related parties......................................$ 1,244 $ 1,053
Others............................................... 590 5,535
Notes and loans payable repaid:
Related parties...................................... (18,701) (4,606)
Others............................................... (4,959) (1,573)
Debentures repaid..................................... (16,204) (16,237)
-------- --------
Net cash (used in) financing activities.............. (38,030) (15,828)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents...................................... (1,455) (1,781)
-------- --------
Net increase (decrease) in cash and cash
equivalents........................................... 3,640 (8,294)
Cash and cash equivalents at beginning of
period................................................ 20,633 25,734
-------- --------
Cash and cash equivalents at end of period.............$ 24,273 $ 17,440
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties......................................$ 968 $ 1,800
Others............................................... 2,933 3,073
-------- --------
Total interest paid................................$ 3,901 $ 4,873
======== ========
Income taxes paid.....................................$ 568 $ 2,844
======== ========
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, 1997 1996
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(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
4% PREFERRED STOCK
Balance, beginning of year............................$ 955 $ 995
Conversion of 6,565 and 3,507 shares into
Class A Stock........................................ (33) (17)
-------- --------
Balance, end of period................................$ 922 $ 978
======== ========
6-1/2% PREFERRED STOCK
Balance, beginning of year............................$ 5,012 $ 5,263
Conversion of 30,150 and 35,228 shares into
Class A Stock........................................ (151) (176)
-------- --------
Balance, end of period................................$ 4,861 $ 5,087
======== ========
CLASS A STOCK
Balance, beginning of year............................$ 24,257 $ 21,066
Issuance of shares upon conversion of
Preferred Stock...................................... 123 123
Issuance of additional shares......................... 3 -
-------- --------
Balance, end of period................................$ 24,383 $ 21,189
======== ========
COMMON STOCK
Balance, beginning of year....................... $ - $ 3,000
-------- --------
Balance, end of period........................... $ - $ 3,000
======== ========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year............................$ 57,410 $ 57,310
Conversion of Preferred Stock......................... 61 70
Issuance of additional shares......................... 12 -
-------- --------
Balance, end of period................................$ 57,483 $ 57,380
======== ========
RETAINED EARNINGS
Balance, beginning of year............................$ 74,943 $ 85,559
Net income (loss)..................................... 11,898 (3,648)
-------- --------
Balance, end of period................................$ 86,841 $ 81,911
======== ========
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year............................$ (6,530) $ (4,354)
Foreign currency translation adjustment............... (3,171) (1,749)
-------- --------
Balance, end of period................................$ (9,701) $ (6,103)
======== ========
UNREALIZED LOSS ON MARKETABLE SECURITIES
Balance, beginning of year............................$ (98) $ (595)
Unrealized gain, net.................................. 98 40
Transfer to trading securities........................ - 116
Write-off due to permanent impairment................. - 365
-------- --------
Balance, end of period................................$ - $ (74)
======== ========
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 "Company" refers to
Ampal-American Israel Corporation ("Ampal") and its consolidated
subsidiaries.
2. The December 31, 1996 consolidated balance sheet presented herein was
derived from the audited December 31, 1996 consolidated financial
statements of the Company.
Reference should be made to the Company's consolidated financial
statements for the year ended December 31, 1996 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,
1996 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
1996 consolidated 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 for a fair presentation of the results of the interim period
have been included.
3. On January 31, 1997, the Company sold to the Government of Israel (the
"Government") for $31 million a condominium unit in the 290,000
square-foot office building located at 800 Second Avenue, New York, New
York which is occupied by the Government. As a result of this
transaction, the Company recorded a loss of $1.1 million ($.6 million
net of taxes) in its December 31, 1996 financial statements.
4. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share. This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of
currently required Primary EPS with a presentation of Basic EPS. For
entities with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS on the face of the
Statement of Income. Under this new standard, Basic EPS is computed
based on the weighted average number of shares actually outstanding
during the period. Diluted EPS includes the effect of potential
dilution from the conversions of 6-1/2% and 4% Preferred Stocks to
Class A Stock. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, and earlier
application in the interim financial statements is not permitted. When
adopted, the Company will be required to restate its EPS data for all
prior periods presented.
Had the Company applied the principles of SFAS No. 128, earnings per
share data on a pro forma basis would be as follows:
Nine months ended September 30, 1997 1996
---- ----
Basic EPS:
Earnings (loss) from continuing operations.. $ .50 $ (.05)
Loss from discontinued operations........... - (.11)
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Earnings (loss) per Class A share........... $ .50 $ (.16)
======= =======
8
Nine months ended September 30, 1997 1996
---- ----
Diluted EPS:
Earnings (loss) from continuing operations.. $ .42 $ (.05)
Loss from discontinued operations........... - (.09)
------- -------
Earnings (loss) per Class A share........... $ .42 $ (.14)
======= =======
Shares used in calculation (in thousands):
Basic EPS................................... 23,722 23,524
Diluted EPS................................. 27,614 27,613
Three months ended September 30, 1997 1996
---- ----
Basic EPS:
Earnings (loss) per Class A share........... $ .19 $ (.12)
======= =======
Diluted EPS:
Earnings (loss) per Class A share........... $ .16 $ (.10)
======= =======
Shares used in calculation (in thousands):
Basic EPS................................... 23,767 23,566
Diluted EPS................................. 27,616 27,613
5. On May 8, 1997, the Company sold all of its direct holdings in Orlite
Industries (1959) Ltd. ("Orlite") and a wholly-owned subsidiary which
held a separate interest in Orlite to Investment Company of Bank
Hapoalim for an aggregate purchase price of $5.3 million plus interest.
The Company recorded a gain on sale of $.3 million in its June 30, 1997
consolidated financial statements.
6. On June 26, 1997, the main factory of the Company's 85%-owned
subsidiary, Paradise Industries Ltd. ("Paradise"), was heavily damaged
by a fire and has been closed since then. Paradise carries both fire
damage and business interruption insurance covering the factory.
Paradise was, however, able to resume its activities at the end of the
third quarter by assembling mattresses and sofa beds out of its
newly-built assembly plant rather than manufacturing them. Paradise
uses imported and domestically produced components in its assembly
process. Paradise expects to reach a settlement with its insurance
company by the end of the year. It is too early to determine the amount
of such settlement at this time, and there is no assurance that such
settlement will be reached.
9
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996:
Consolidated income from continuing operations increased to $11.9 million for
the nine-month period ended September 30, 1997, from a $1 million loss for the
same period in 1996. The increase resulted primarily from the increases in
equity in earnings of affiliates, realized and unrealized gains on investments,
and net interest income in 1997 as compared to net interest expense in 1996.
Equity in earnings of affiliates increased from $1.4 million for the nine months
ended September 30, 1996, to $17.5 million for the same period in 1997. The
increase is primarily attributable to the significantly improved 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, and
to increased earnings of Coral World International Ltd. ("CWI"), the Company's
50%-owned affiliate, which owns and operates marine parks in Eilat (Israel) and
Perth and Manly (Australia). The increase in Ophir's 1997 earnings resulted from
the realized and unrealized gains on its investment in Teledata Communications
Ltd. ("Teledata"), a gain on sale of office and commercial real estate located
in Petach Tikva, Israel and lower interest expense which resulted from
repayments of loans.
CWI reported earnings in 1997 as compared to losses it incurred in the
nine-month period ended September 30, 1996. The losses recorded by CWI in 1996
were primarily attributable to the company's investments in marine parks in
Nassau (Bahamas) and St. Thomas (U.S. Virgin Islands), which were sold in
September 1996 and April 1997, respectively.
The increases noted above were partially offset by the losses recorded by the
Company's 50%-owned affiliate, Trinet Venture Capital Ltd. ("Trinet"), a
high-technology venture capital fund which recorded unrealized losses on its
investments in the nine months ended September 30, 1997 as compared to
unrealized gains in the same period in 1996, and losses of Carmel Container
Systems Limited ("Carmel"), the Company's 20.7%-owned affiliate, which is a
manufacturer of paper-board packaging and related products. Carmel recorded
losses in the nine months ended September 30, 1997 as compared to earnings in
the same period in 1996 primarily because of a decrease in sales volume as a
result of the economic slowdown in Israel, a decrease in sales prices as a
result of escalating competition, an increase in costs associated with the
running-in of a new plant and the one-time expenses incurred with respect to the
closing of old plants.
In the nine months ended September 30, 1997, the Company recorded $4.2 million
of gains on sale of investments, $2.9 million of which is attributable to its
direct investment in Teledata, as compared to $1.7 million of gains on sale of
investments, including $.9 million with respect to Teledata, recorded in the
same period in 1996.
The Company also recorded $1.6 million of unrealized gains on investments which
are classified as trading securities as compared to $.1 million of unrealized
gains on investments in trading securities in the same period in 1996. At
September 30, 1997 and December 31, 1996, the aggregate fair value of trading
securities amounted to approximately $9 million and $4.7 million, respectively.
The Company recorded net interest income in the nine months ended September 30,
1997, as compared to net interest expense in the same period in 1996. The
increase in net
10
interest income is primarily attributable to debt reduction in connection with
the sale of a condominium unit in an office building ("800 Second Avenue")
located at 800 Second Avenue New York, New York. See Liquidity and Capital
Resources.
On June 26, 1997, the main factory of the Company's 85%-owned subsidiary,
Paradise Industries Ltd. ("Paradise"), was heavily damaged by a fire and has
been closed since then. Paradise carries both fire damage and business
interruption insurance covering the factory. Paradise was, however, able to
resume its activities at the end of the third quarter by assembling mattresses
and sofa beds out of its newly-built assembly plant rather than manufacturing
them. Paradise uses imported and domestically produced components in its
assembly process. Paradise expects to reach a settlement with its insurance
company by the end of the year. It is too early to determine the amount of such
settlement at this time, and there is no assurance that such settlement will be
reached.
In 1997, the Company recorded a $1 million loss from impairment of its
investment in a distribution software company. In the nine-month period ended
September 30, 1996 the Company recorded a $1.3 million loss from impairment of
its investment in M.D.F. Industries Ltd. ("M.D.F.").
The decreases in rental income and rental property operating expenses are
attributable to the sale of a condominium unit in 800 Second Avenue.
The change in the effective income tax rate in 1997 as compared to 1996 is
mainly attributable to the losses of certain Israeli subsidiaries in 1996 for
which no tax benefits were available.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996:
Consolidated income from continuing operations increased to $4.6 million for the
three-month period ended September 30, 1997, from a $2.6 million loss for the
same period in 1996. The increase in income resulted primarily from the
increases in equity in earnings of affiliates, realized and unrealized gains on
investments, the loss from impairment of the Company's investment in M.D.F.
recorded in the third quarter of 1996 and lower net interest expense in 1997 as
compared to the same period in 1996.
Equity in earnings of affiliates increased from $.1 million for the three months
ended September 30, 1996, to $8.3 million for the same period in 1997. The
increase is primarily attributable to the improved earnings of Ophir which
recorded realized and unrealized gains on its investment in Teledata and lower
interest expense.
In the quarter ended September 30, 1997, the Company recorded $.1 million of
gains on sale of investments, as compared to $.6 million of gains on sale of
investments which are primarily attributable to its direct investment in
Teledata recorded in the same period in 1996.
The Company also recorded $.6 million of unrealized gains on investments which
are classified as trading securities in the three-month period ended September
30, 1997, as compared to $.9 million of unrealized losses on investments in
trading securities in the same period in 1996.
The Company recorded lower net interest expense in the three months ended
September 30, 1997, as compared to the same period in 1996. See Discussion on
Results of Operations - Nine months ended September 30, 1997 compared to nine
months ended September 30, 1996.
The decreases in rental income and rental property operating expenses are
attributable to the sale of a condominium unit in 800 Second Avenue.
11
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and cash equivalents were approximately $24.3
million as compared with approximately $20.6 million at December 31, 1996. In
addition, Ampal had approximately $7.5 million of highly liquid interest bearing
securities included in the investments caption at September 30, 1997 as compared
with $14.5 million at December 31, 1996.
The significant factors which affected the Company's cash flow were as follows:
Scheduled debenture redemptions amounted to approximately $16 million. For the
balance of 1997, scheduled debenture redemptions aggregate approximately $1.1
million.
The Company received $14 million in repayment of deposits and notes and loans
receivable.
In September 1997, the Company received a $7.9 million dividend from Ophir
Holdings Ltd.
In 1997, the Company made several new investments in the high-technology field
aggregating $6.2 million, notably (1) a $1 million investment in UNIC View Ltd.,
a manufacturer and marketer of a liquid screen display projector for video,
large-screen television and computer projection systems and a developer of a new
projector engine for home use, (2) a $.75 million investment in FundTech Ltd., a
developer of software for worldwide banking institutions to facilitate fund
transfers, (3) a $1 million investment in NKO, Inc., a developer of low-cost
facsimile transmission services, (4) a $.4 million investment for approximately
12% of X-Acct Technologies Ltd., a developer of billing, auditing and accounting
software for TCP/IP networks which allows such networks to generate reports of
network transactions and services by treating them exactly like telephone calls,
(5) a $2 million investment in PowerDsine, a developer, manufacturer and
marketer of innovative modules and components for the telecommunications
industry and (6) a $.5 million investment for 24.99% of Ortek Ltd., a developer
and manufacturer of electro-optical devices and systems for the military and
civilian markets. Ortek is a subsidiary of ELOP Electro-Optical Industries Ltd.,
the industry leader in electro-optics in Israel.
On November 3, 1997, the Company invested $1.25 million to acquire approximately
12% of Shiron Satellite Communications (1996) Ltd., a developer of satellite
modems which achieve high data rates, designed to answer the requirements of
satellite data and voice applications such as rural telephone, video
conferencing and other applications. In addition, Shiron is developing a two-way
fast Internet access via satellite system. The Company has preliminarily agreed,
subject to execution of a formal agreement, to invest $2 million to acquire
approximately 10% of Shellcase Ltd., an Israeli company which has developed a
packaging process for computer chips. These packages are the smallest available
to the computer industry.
On January 31, 1997, the Company sold a condominium unit in 800 Second Avenue to
the Government of Israel (the "Government") for $31 million. At that time the
Government paid $15 million and gave the Company a note for the remaining $16
million which is payable on January 30, 1998. The decrease in real estate rental
property and notes and loans payable are primarily attributable to the
aforementioned sale.
As a result of the improvement in the Company's earnings in 1997 together with
its significant reduction of debt, the Company's debt to equity ratio has
decreased from .67 to 1 at December 31, 1996, to .41 to 1 at September 30, 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share. This statement establishes standards for computing and presenting
earnings per share
12
("EPS"), replacing the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of income. Under this new standard, Basic EPS is
computed based on the weighted average number of shares actually outstanding
during the period. Diluted EPS includes the effect of potential dilution from
the conversions of 6-1/2% and 4% Preferred Stocks to Class A Stock. SFAS No. 128
is effective for financial statements issued for periods ending after December
15, 1997, and earlier application is not permitted. When adopted, the Company
will be required to restate its EPS data for all prior periods presented. The
Company reflected the effect of adoption of SFAS No. 128, on a pro forma basis,
in Note 4 to its September 30, 1997 consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This
statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 with earlier application permitted. When
adopted, the Company will be required to reclassify financial statements for all
prior periods presented. The Company does not plan to adopt SFAS No. 130 prior
to the effective date.
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AMPAL-AMERICAN ISRAEL CORPORATION
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 - Pursuant to an agreement dated September 9,
1997 (with an effective date of January 1, 1997) between Mr. Raz
Steinmetz and Ampal Industries (Israel) Limited, a wholly-owned
subsidiary of Ampal, Mr. Steinmetz agreed to devote not less than
50% of his business time to Ampal-related matters. As
compensation, Mr. Steinmetz will receive $100,000 per annum plus
benefits. Mr. Steinmetz's agreement is attached hereto
as Exhibit 10. Mr. Steinmetz is a director of Ampal and Chairman
of Ampal's Executive Committee. He is also an executive officer
and director of Rebar Financial Corp., Ampal's principal
shareholder.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits:
Exhibit 3a - Amended and Restated Certificate of
Incorporation of Ampal dated May 28, 1997 (filed as
Exhibit 3a to Form 10-Q for the quarter ended June 30, 1997
and incorporated herein by reference. File No. 0-538)
Exhibit 3b - By-Laws of Ampal as amended on September 10, 1997..... Page 17
Exhibit 10 - Agreement dated September 9, 1997, between
Ampal Industries (Israel) Limited and Raz Steinmetz................. Page 45
Exhibit 11 - Schedule Setting Forth Computation
of Earnings Per Class A Share....................................... Page 47
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. No Reports on Form 8-K were filed between July 1, 1997 and September 30, 1997.
14
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/ 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, 1997
15
AMPAL-AMERICAN ISRAEL CORPORATION
Exhibit Index
Exhibit No. Description
3a Amended and Restated Certificate of
Incorporation of Ampal dated May 28, 1997
(filed as Exhibit 3b to Form 10-Q for the
quarter ended June 30, 1997 and incorporated
herein by reference. File No. 0-538)
3b By-Laws of Ampal as amended on September 10, 1997.... Page 17
10 Agreement dated September 9, 1997, between
Ampal Industries (Israel) Limited and Raz Steinmetz.. Page 45
11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock.......................... Page 47
27 Financial Data Schedule.
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