SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the Month of March 2005
_______________________
AMERICAN ISRAELI PAPER MILLS LTD.
(Translation of Registrant's Name into English)
P.O. Box 142, Hadera, Israel
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
|X| Form 20-F |_| Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): |_|
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): |_|
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
|_| Yes |X| No
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-______________
Attached hereto as Exhibit 1 and incorporated herein by reference is
the Registrant's press release dated March 10, 2005 with respect to the
Registrant's results of operations for the year ended December 31, 2004.
Attached hereto as Exhibit 2 and incorporated herein by reference is
the Registrant's Management Discussion with respect to the Registrant's results
of operations for the year ended December 31, 2004.
Attached hereto as Exhibit 3 and incorporated herein by reference are
the Registrant's unaudited condensed consolidated financial statements for the
year ended December 31, 2004.
Attached hereto as Exhibit 4 and incorporated herein by reference is
the Interim Report of Mondi Business Paper Hadera Ltd. with respect to the year
ended December 31, 2004.
Attached hereto as Exhibit 5 and incorporated herein by reference are
the unaudited condensed interim consolidated financial statements of
Hogla-Kimberly Ltd. and subsidiaries with respect to the year ended December 31,
2004.
SIGNATURE
---------
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.
AMERICAN ISRAELI PAPER MILLS LTD.
(Registrant)
By: /s/ Lea Katz
-----------------------------------
Name: Lea Katz
Title: Corporate Secretary
Dated: March 10, 2005.
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
1. Press release dated March 10, 2005.
2. Registrant's management discussion.
3. Registrant's unaudited condensed consolidated
financial statements.
4. Interim report of Mondi Business Paper Hadera
Ltd.
5. Unaudited condensed interim consolidated financial
statements of Hogla-Kimberly Ltd. and subsidiaries.
EXHIBIT 1
NEWS
Client: AMERICAN ISRAELI
PAPER MILLS LTD.
Agency Contact: PHILIP Y. SARDOFF
For Release: IMMEDIATE
American Israeli Paper Mills Ltd.
Reports Financial Results of Fiscal Year Ended December 31, 2004
Hadera, Israel, March 10, 2005 - American Israeli Paper Mills Ltd. (ASE:AIP)
(the "Company" or "AIPM") today reported financial results for the year ended
December 31,2004.
Pursuant to the directives of Standard No.12 of the Accounting Israeli Standards
Board ("Standard 12"), the Company began to report in nominal New Israeli
Shekels (NIS) as of January 1, 2004. In the past, the Company's reports were in
NIS, adjusted to changes in the exchange rate of the US dollar against the NIS.
The comparison figures with the corresponding periods of 2002 and 2003 are the
dollar figures, as reported in the past, multiplied by the exchange rate of the
US dollar as of December 31, 2003, the day of the transition to NIS-based
reporting pursuant to Standard 12 ($1 = NIS 4.379).
Since the Company's share in the earnings of associated companies constitutes a
material component in the Company's statement of income (primarily on account of
its share in the earnings of Mondi Business Paper Hadera (Mondi Hadera) and
Hogla-Kimberly (H-K) that were consolidated in the past, until the transfer of
control over these companies to the international strategic partners), the
Company also presents the aggregate data which include the results of all the
companies in the AIPM Group (including the associated companies whose results
appear in the financial statements under "earnings from associated companies"),
net of intercompany sales and irrespective of the percentage of holding.
Aggregate group sales in 2004 totaled NIS 2,626.2 million compared with NIS
2,357.1 million in 2003.
Aggregate operating profit in 2004 totaled NIS 143.5 million compared with NIS
162.8 million in 2003.
The consolidated data below does not include the results of operations of Mondi
Hadera, H-K, Carmel Container Systems and TMM Integrated Recycling industries,
which are included in the Company's share in results of associated companies.
Consolidated sales in 2004 totaled NIS 482.9 million compared with NIS 465.1 in
2003.
The Gross margin - as a proportion of sales - reached 22.1% during 2004, similar
to 2003. The Company managed to maintain the consolidated gross margin, despite
the rise in raw material prices (paper waste by 13%), energy prices (4%), and
water (5%). This was accomplished through growth in sales, higher sales prices
and the continued efficiency process in all sectors of operation.
Operating profit in 2004 totaled NIS 53.9 million compared with NIS 46.6 million
in 2003.
Profit after taxes and before the Company's share in the profits of associated
companies in the reported period amounted to NIS 37.7 million compared with NIS
24.5 million in 2003.
Net profit in 2004 totaled NIS 62.7 million, as compared with NIS 60.0 million
in 2003. Net profit in 2004 includes non recurring profits, which amounted to
NIS 14.4 million tax benefit in respect of the effects of the reduction of the
corporate tax rate (from 36% to 30% by 2007) on the deferred tax reserve (at the
Company, and our share in associated companies) along with a tax benefit on
account of the exercise of options by employees. Net profit in 2003 included
approximately NIS 2.7 million in net non-recurring capital gains and tax benefit
on account of the exercise of options by employees.
Earnings per share (EPS)in 2004 totaled NIS 15.44 compared with NIS 14.94 in
2003.
The inflation rate in 2004 was 1.2% as compared with negative inflation rate of
-1.9% last year.
The exchange rate of the NIS was revaluated against the U.S. dollar in 2004 by
approximately 1.6% as compared with a revaluation of 7.6% last year.
Mr. Yaacov Yerushalmi, Chairman of the Company's Board of Directors, said that a
turnaround took place in the Israeli economy since the beginning of 2004, as
growth recovered and the economy rebounded, following a severe recession that
lasted several years. The recovery was expressed by positive growth rates
(approximately 4% in 2004, up from 1.3% in 2003), higher demand and a more
optimistic outlook in the markets. Israel has also experienced a certain calm in
the security situation lately, which may positively affect the economy, although
this calm is not yet reflected in the financial statements.
The Company is exposed to competition in all its areas of operation, both from
locally-produced goods and from imports. The level of competition is constantly
escalating. Despite this competition, the Group is successfully preserving the
profitability of its Israeli operations, while recording continued growth in the
volume of operations.
The Company's share in the earnings of associated companies amounted to NIS 25.1
million in the reported year (including NIS 4.4 million as our share in a
non-recurring benefit recorded in respect of the change in the corporate tax
rate on the deferred earnings of the companies), as compared with NIS 35.5
million last year.
2
The following principal changes were recorded in the Company's share in the
earnings of associated companies (this year - not including the aforementioned
tax benefit), in relation to last year:
- The Company's share in the net income of Mondi Hadera (49.9%)
decreased by NIS 3.0 million. Most of the change in the earnings is
associated with a decrease in operating profit over the two years, which
originated primarily from lower margins in exports to Europe, coupled with
elevated financial expenses this year as a result of the repayment of
shareholder loans over the past two years, that led to an increase in Mondi
Hadera's debt balance.
- The Company's share in the net earnings of H-K Israel (49.9%)
increased by approximately NIS 1.2 million, primarily due to the ongoing
improvement in operating profit at H-K Israel, as compared with last year.
This improvement was achieved primarily as a result of better prices and
quantitative growth, coupled with the continuing efficiency measures, both
in logistics and in production, and particularly as a result of the
expanded production of Huggies diapers in Afula. The said increase was
offset by lower financial revenues this year as compared with last year,
due to the transition to reporting according to Standard 12 and the effects
of revaluation differentials on the NIS in relation to the USD, on H-K's
linkage balance sheet.
- The Company's share in the net loss of Ovisan (Turkey) (49.9%)
amounted to NIS 15.4 million in the reported year. Ovisan made considerable
efforts to increase its volume of operations in the Turkish market during
the past year, while tapping into Unilever's nationwide distribution
network, which includes a wide logistic network that covers all of Turkey
in wide national spread, as a necessary condition for the preparations for
the continued development of Ovisan and the creation of a platform for
introducing the Kimberly-Clark Group's international brands. In this
capacity, a significant quantitative increase was recorded this year in the
Ovisan sales - both to the domestic market and to export (up about 40%
quantitatively) - accompanied by a significant increase in selling and
advertising expenses. The Ovisan loss during the reported year was caused
as a result of the said change in the Ovisan distribution and sales
network, coupled with escalating competition in the Turkish market due to
the arrival of additional competitors into the sector, which resulted in
lower prices and a need to adjust the value of inventories to the market
prices on the balance sheet date. The difficulties that were created in the
assimilation of the new reporting system, which accompanied the change in
the distribution system, resulted in delays in receiving the data and in
difficulties in providing an immediate response to changing market
conditions and in reducing the losses, as mentioned above.
- The Company's share in the net profits of the Carmel Group (26.25%)
increased by NIS 3.6 million, due to the continuing improvement in the
operating profit. The improvement is attributed to the comprehensive
efficiency measures being initiated by the company, coupled with the growth
in the volume of operations.
- The Company's share in the TMM earnings (41.6%) increased by NIS 1.3
million. The improvement originates from a significant
3
decrease in the company's elevated financial expenses during the reported
year, in relation to last year. Among other factors, this is attributed to
a decrease in the interest rate over the two periods, coupled with
financial revenues from local municipalities (with which an agreement was
reached) due to considerable arrears in their payments. TMM managed to
preserve its operating margin during the reported year, despite the
considerable increase in transportation costs, due to the significant
increase in diesel prices (up by an average of 40% since last year), which
was not compensated by selling prices since most of the company's
agreements are linked to the consumer price index which rose during 2004 by
only 1.2%.
A total of 28,379 shares were issued during the reported year (0.7% dilution),
as a result of the exercise of 64,140 option warrants as part of the Company's
employee stock option plans.
In August, the Company declared a dividend payment for 2004, in the amount of
approximately NIS 100 million (NIS 25.12 per share). The dividend was paid in
September 2004.
This report contains various forward-looking statements based upon the Board of
Directors' present expectations and estimates regarding the operations of the
Group and its business environment. The Company does not guarantee that the
future results of operations will coincide with the forward-looking statements
and these may in fact differ considerably from the present forecasts as a result
of factors that may change in the future, such as changes in costs and market
conditions, failure to achieve projected goals, failure to achieve anticipated
efficiencies and other factors which lie outside the control of the Company. The
Company undertakes no obligation for publicly updating the said forward-looking
statements, regardless of whether these updates originate from new information,
future events or any other reason.
4
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF RESULTS
(AUDITED)
NIS IN THOUSANDS(1)
except per share amounts
2004 2003
==== ====
Net sales 482,854 465,092
Net earnings 62,732(2) 60,047(2)
Earnings per share 1,544(2) 1,494(2)
(1) New Israeli Shekel amounts are reported according to Accounting Standard
No. 12 of the Israeli Accounting Standard Board (hereafter - Standard No.
12) - "Discontinuance of Adjusting Financial Statements for Inflation". The
reported NIS under Standard No. 12 are nominal NIS, for transactions made
after January 1, 2004. The amounts of 2003 have been adjusted to reflect
changes in the rate of exchange between the U.S. dollar and the New Israeli
Shekel until the end of December 2003 (date of transition to Standard No.
12).
The representative exchange rate at December 31,2004 was NIS 4.308=$1.00
and the representative exchange rate at December 31,2003 was NIS
4.379=$1.00.
(2) The net earnings in 2004 include NIS 14.4 million, tax benefit (including
the company's share in the tax benefit of the associated companies) - see
above.
The net earnings in 2003 include NIS 2.7 million, net capital gain and tax
benefit - See above.
(sec-pres-21109)
5
EXHIBIT 2
March 10, 2005
MANAGEMENT DISCUSSION
We are honored to present the consolidated financial statements of the American
Israeli Paper Mills Ltd. Group ("AIPM") for the year 2004.
A. A SUMMARIZED DESCRIPTION OF THE GROUP AND ITS BUSINESS ENVIRONMENT
------------------------------------------------------------------
1. GENERAL
-------
AIPM deals in the manufacture and sale of paper, in the recycling of
paper waste and in the marketing of office supplies - through
subsidiaries. AIPM also holds interests in associated companies that
deal in the manufacture and marketing of printing and writing paper,
in the manufacture and marketing of household paper products, hygiene
products, disposable diapers and complementary kitchen products,
corrugated board containers, packaging for consumer goods and the
handling of solid waste.
The company's securities are traded on the Tel Aviv Stock Exchange and
on the American Stock Exchange (AMEX).
2. THE BUSINESS ENVIRONMENT
------------------------
A turnaround took place in the Israeli economy since the beginning of
2004, as growth recovered and the economy rebounded, following a
severe recession that lasted several years. The recovery was expressed
by positive growth rates (approx. 4% in 2004, up from 1.3% in 2003),
higher demand and a more optimistic outlook in the markets. Israel has
also experienced a certain calm in the security situation lately,
which may positively affect the economy, although this calm is not yet
reflected in the financial statements.
AIPM is exposed to competition in all its areas of operation, both
from locally-produced goods and from imports. The level of competition
is constantly escalating.
Despite this competition, the Group is successfully preserving the
profitability of its Israeli operations, while recording continued
growth in the volume of operations.
AIPM is preparing for the conversion of its energy-generation system
to natural gas, once the transportation infrastructure of natural gas
to Hadera is completed. This conversion is expected to enable savings
in production costs, while further improving environmental compliance.
2
AIPM made the transition to reporting in nominal New Israeli Shekels
(NIS) in 2004, pursuant to the directives of Standard 12 of the
Financial Accounting Standards Board in Israel. In the past AIPM's
reports were in NIS, adjusted to changes in the exchange rate of the
US dollar against the NIS. The comparison figures with the years 2003
and 2002 are the dollar figures, as reported in the past, multiplied
by the exchange rate of the US dollar as at December 31, 2003, the day
of the transition to NIS-based reporting pursuant to Standard 12 ($1 =
NIS 4.379).
The exchange rate of the NIS in relation to the USD was revaluated by
1.6% during the reported year (2004), as compared with a revaluation
of 7.6% last year (2003).
The inflation rate during the reported year amounted to 1.2%, as
compared with a negative inflation rate of -1.9% last year.
B. RESULTS OF OPERATIONS
---------------------
1. AGGREGATE DATA
--------------
Since AIPM's share in the earnings of associated companies constitutes
a material component in the company's statement of income (primarily
on account of its share in the earnings of Mondi Business Paper Hadera
Ltd. (hereinafter: "Mondi Hadera", formerly - Neusiedler Hadera Paper
Ltd. and Hogla-Kimberly Ltd. that were consolidated in the past, until
the transfer of control over these companies to the international
strategic partners), the aggregate data is being presented and
includes the results of all the companies in AIPM (including the
associated companies whose results appear in the financial statements
under "earnings from associated companies") and net of intercompany
sales, without considering the rate of holding therein.
The aggregate sales amounted to NIS 2,626.2 million during the
reported year, as compared with NIS 2,357.1 million last year.
The aggregate operating profit totaled NIS 143.5 million during the
reported year, as compared with NIS 162.8 million last year.
2. CONSOLIDATED DATA
-----------------
Excluding the results of operation of Mondi Hadera, Hogla-Kimberly,
Carmel and TMM - which appear in AIPM's share in the earnings of
associated companies.
The sales amounted to NIS 482.9 million during the reported year, as
compared with NIS 465.1 million last year.
The operating profit this year amounted to NIS 53.9 million, as
compared with NIS 46.6 million last year.
3
The profit after taxes and before AIPM's share in the earnings of
associated companies for the reported year, amounted to NIS 37.7
million, as compared with NIS 24.5 million last year.
3. NET PROFIT AND EARNINGS PER SHARE
---------------------------------
The net profit amounted to NIS 62.7 million during the reported year,
as compared with NIS 60.0 million last year. The net profit during the
reported year includes extraordinary earnings on account of a NIS 14.4
million tax benefit, originating from the influence of the lowering of
the corporate tax rate on the reserve for deferred taxes at AIPM and
at its associated companies (from 36% to 30% by 2007), along with a
tax benefit on account of the exercise of options by employees. The
net profit last year included NIS 2.7 million in non-recurring capital
gains and in a tax benefit on account of the exercise of options by
employees.
The Earnings Per Share in 2004 amounted to NIS 1,544 per NIS 1 par
value ($3.58 per share), as compared with NIS 1,494 per NIS 1 par
value ($3.41 per share) in 2003.
The return on shareholders' equity amounted to 10.2% in 2004, as
compared with 9.2% in 2003.
C. ANALYSIS OF OPERATIONS AND PROFITABILITY
----------------------------------------
The analysis set forth below is based on the consolidated data.
1. SALES
-----
The consolidated sales amounted to NIS 482.9 million during the
reported year, as compared with NIS 465.1 million last year.
The growth in sales is attributed to a quantitative increase in
packaging paper and in the sale of paper waste to external entities,
coupled with an improvement in the prices of fluting and paper waste
and a change in the sales mix. On the other hand, the decrease in
Graffiti sales served to offset part of this growth.
2. COST OF SALES
-------------
The cost of sales amounted to NIS 375.9 million during the reported
year, as compared with NIS 362.2 million last year.
4
The gross margin - as a proportion of sales - reached 22.1% during the
reported year and is similar to last year.
AIPM managed to maintain a gross margin similar to last year, despite
the rise in raw material prices (paper waste by 13%), energy prices
(4%), and water (5%). This was accomplished through growth in sales,
higher sales prices and the continued efficiency process in all
sectors of operation.
LABOR WAGES
Wages as part of the cost of sales and in the selling, general and
administrative expenses amounted to NIS 142.4 million in the reported
year, as compared with NIS 137.0 million last year.
However, since the figures last year were reported in accordance with
the US dollar and due to the influence of changes in the exchange rate
of the US dollar on the reporting last year with the transition to
reporting according to Standard 12, the adjusted cost of wages last
year, as presented above, was NIS 3.7 million lower than the nominal
cost at the time that amounted to NIS 140.7 million. Most of the
growth in relation to last year originated from an increase in wages
by an average of 3%, that was mostly offset by a reduction in
personnel and by differences in other payments - primarily bonuses.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
The selling, general and administrative expenses (including wages)
amounted to NIS 53.0 million - or 11.0% of sales -in the reported
year, as compared with NIS 56.3 million - or 12.1% of sales - last
year.
4. OPERATING PROFIT
----------------
The operating profit amounted to NIS 53.9 million - or 11.2% of sales
- in the reported year, as compared with NIS 46.6 million - or 10.0%
of sales - last year.
5. FINANCIAL EXPENSES
------------------
Financial expenses amounted to NIS 13.1 million during the reported
year, as compared with NIS 16.0 million last year.
AIPM's linkage bases includes a surplus of dollar-linked monetary
assets on the one hand, and a surplus of NIS-denominated monetary
liabilities, on the other hand (see linkage base report, below).
The financial expenses last year were influenced by the sharp
revaluation of the shekel against the dollar (7.6%), which caused a
significant increase in the financial expenses during the said period,
when financial reporting was adjusted to the dollar.
5
In the reported year, with the transition to reporting in nominal
shekels in accordance with Standard 12, AIPM's financial expenses grew
slightly, as a result of the effects of the small revaluation this
year (1.6%) on AIPM's surplus dollar assets.
The average increase of NIS 60 million in net financial liabilities -
in relation to the preceding year - resulted in an increase in
financial expenses during the reported year. This growth was partially
offset by the decrease in the average interest rate on short-term
credit (5% in the reported year as compared with 7.9% last year).
6. TAXES ON INCOME
---------------
Taxes on income from current operations amounted to NIS 13.2 million
in the reported period, as compared with NIS 8.8 million last year.
The principal factors behind the growth in tax expenses in the
reported year as compared with last year include the growth in
earnings before taxes this year, as opposed to the tax benefit that
was recorded last year on account of the sharp revaluation (erosion of
the reserve), due to reporting adjusted to the changes in the exchange
rate of the dollar.
In June 2004 a law was passed in Israel, effective retroactively from
January 1, 2004, that serves to lower the corporate tax rate (36%
prior to the amendment) to 35% in 2004 and gradually down to 30% by
2007. The effect of this change on AIPM's deferred taxes during the
reported year (in the consolidated report) amounted to NIS 5.8 million
(primarily due to future tax liabilities which were deferred in
respect of timing differences in depreciation, which were calculated
at an accelerated pace in the tax reports).
Moreover, a tax benefit of NIS 4.2 million was recorded in the
reported year, on account of the exercise of options by employees.
In view of the above, the tax expenses during the reported year, as
reported in the financial statements, amounted to NIS 3.2 million.
7. PROFIT AFTER TAXES AND PRIOR TO AIPM'S SHARE IN THE EARNINGS OF
---------------------------------------------------------------
ASSOCIATED COMPANIES
--------------------
The profit after taxes and before AIPM's share in the earnings of
associated companies for the reported year, amounted to NIS 37.7
million, as compared with NIS 24.5 million last year.
8. AIPM'S SHARE IN EARNINGS OF ASSOCIATED COMPANIES
------------------------------------------------
The companies whose earnings are reported under this item (according
to AIPM's holdings therein), include primarily: Mondi Hadera,
Hogla-Kimberly, Carmel and TMM.
6
AIPM's share in the earnings of associated companies amounted to NIS
25.1 million in the reported year (including NIS 4.4 million as our
share in a non-recurring benefit recorded in respect of the change in
the corporate tax rate on the deferred earnings of the companies), as
compared with NIS 35.5 million last year.
The following principal changes were recorded in AIPM's share in the
earnings of associated companies (this year - not including the
aforementioned tax benefit), in relation to last year:
- AIPM's share in the net income of Mondi Hadera (49.9%) decreased
by NIS 3.0 million. Most of the change in the earnings is
associated with a decrease in operating profit over the years,
that originated primarily from lower margins in exports to
Europe, coupled with elevated financial expenses this year as a
result of the repayment of shareholder loans over the past two
years, that led to an increase in Mondi Hadera's debt balance.
- AIPM's share in the net earnings of Hogla-Kimberly Israel (49.9%)
increased by approximately NIS 1.2 million, primarily due to the
ongoing improvement in operating profit at Hogla-Kimberly Israel,
as compared with last year. This improvement was achieved
primarily as a result of better prices and quantitative growth,
coupled with the continuing efficiency measures, both in
logistics and in production, and particularly as a result of the
expanded production of Huggies diapers in Afula. The said
increase was offset by lower financial revenues this year as
compared with last year, due to the transition to reporting
according to Standard 12 and the effects of revaluation
differentials on the NIS in relation to the USD, on Hogla's
linkage balance sheet.
- AIPM's share in the net loss of Ovisan (Turkey) (49.9%) amounted
to NIS 15.4 million in the reported year. Ovisan made
considerable efforts to increase its volume of operations in the
Turkish market during the past year, while tapping into
Unilever's nationwide distribution network, which includes a wide
logistic network that covers all of Turkey in a wide national
spread, as a necessary condition for the preparations for the
continued development of Ovisan and the creation of a platform
for introducing the Kimberly-Clark Group's international brands.
In this capacity, a significant quantitative increase was
recorded this year in the Ovisan sales - both to the domestic
market and to exports (up about 40% quantitatively) - accompanied
by a significant increase in selling and advertising expenses.
The Ovisan loss during the reported year was caused as a result
of the said change in the Ovisan distribution and sales network,
coupled with escalating competition in the Turkish market due to
the arrival of additional competitors into the sector, which
resulted in lower prices and a need to adjust the value of
inventories to the market prices on the balance sheet date. The
difficulties that were created in the assimilation of the new
reporting
7
system, which accompanied the change in the distribution system,
resulted in delays in receiving the data and in difficulties in
providing an immediate response to changing market conditions in
reducing the losses, as mentioned above.
- AIPM's share in the net profits of the Carmel Group (26.25%)
increased by NIS 3.6 million, due to the continuing improvement
in the operating profit. The improvement is attributed to the
comprehensive efficiency measures being initiated by the company,
coupled with the growth in the volume of operations.
- AIPM's share in the TMM earnings (41.6%) increased by NIS 1.3
million. The improvement originates from a significant decrease
in the company's elevated financial expenses during the reported
year, in relation to last year. Among other factors, this is
attributed to a decrease in the interest rate over the two
periods, coupled with financial revenues from local
municipalities (with which an agreement was reached) due to
considerable arrears in their payments. TMM managed to preserve
its operating margin during the reported year, despite the
considerable increase in transportation costs, due to the
significant increase in diesel prices (up by an average of 40%
since last year) which was not compensated by selling prices
since most of the company's agreements are linked to the consumer
price index which rose during 2004 by only 1.2% .
D. LIQUIDITY AND INVESTMENTS
-------------------------
1. ACCOUNTS RECEIVABLE - TRADE
---------------------------
Accounts Receivable, as at December 31, 2004, amounted to NIS 143.3
million, as compared with NIS 141.0 million at December 31, 2003. The
increase in receivables originated primarily from the growth in the
volume of operations. A certain decrease was recorded in the customer
credit days.
2. CASH FLOWS
----------
The cash flows from operating activities amounted to NIS 47.1 million
this year, as compared with NIS 36.3 million last year. (The NIS 36.3
million in cash flows last year is prior to a NIS 16.4 million
dividend received from an associated company. Together with the said
dividend, the cash flows from operating activities amounted to NIS
52.7 million last year). The improvement in the cash flows from
operating activities during the reported year originated primarily
from a smaller increase in the operating working capital during the
reported year in relation to last year, despite the growth in
operating volumes this year.
8
3. INVESTMENTS IN FIXED ASSETS
---------------------------
Investments in fixed assets totaled NIS 31.0 million in the reported
year, as compared with NIS 29.2 million last year and included current
investments in production, marketing and transport processes as well
as in the expansion of information security operations in Israel.
4. FINANCIAL LIABILITIES
---------------------
The long-term liabilities (including current maturities) amounted to
NIS 267.9 million as at December 31, 2004 as compared with NIS 275.0
million as at December 31, 2003 The long-term liabilities include
primarily two series of debentures: Series 1 - NIS 33.3 million, for
repayment until 2009. Series 2 - NIS 201.8 million, for repayment
between 2007 and 2013.
The balance of short-term credit, as at December 31, 2004, amounted to
NIS 112.7 million, as compared with NIS 144.6 million December 31,
2003. The short-term credit balances decreased in relation to last
year, primarily due to the positive cash flows from operating
activities. Dividends of NIS 100 million were paid in September 2004.
The dividend payment was financed by AIPM's deposits and assets.
E. EXPOSURE AND MANAGEMENT OF MARKET RISKS
---------------------------------------
Due to its operations, the company is exposed to market risks, consisting
primarily of changes in interest rates - on both short and long-term loans,
changes in exchange rates and changes in raw material and energy prices.
These changes possess an influence on the company's results. AIPM's Board
of Directors determines the policy according to which financial instruments
are employed and defines the objectives to be attained, taking into account
the AIPM's linkage balance sheet and the impact of changes in various
currencies and in the Consumer Price Index on AIPM's balance sheets and on
its financial statements.
Mr. Israel Eldar, AIPM's Controller, is in charge of the management of
market risks. He conducts calculations of AIPM's exposure every month and
examines the compliance with the policy determined by the Board of
Directors.
Furthermore, limited use is made of derivative financial instruments, which
AIPM's employs for hedging the cash flows, originating from the existing
assets and liabilities. Such transactions are conducted primarily through
currency options and forward transactions opposite Israeli banking
institutions. AIPM therefore believes that the inherent credit risk of
these transactions is slight.
AIPM possesses CPI-linked long-term loans (notes) in the total sum of about
NIS 235 million, which the interest thereupon being no higher than the
market interest rate. In the event that the inflation rate shall rise
significantly, a loss may be recorded in AIPM's financial statements, due
to the surplus of CPI-linked liabilities. In order to hedge this exposure,
AIPM has entered into forward transactions, as at December 31, 2004 for
hedging NIS 200 million against a rise in the CPI until December 2005.
9
These transactions serve to replace hedging transactions in the same
amount, that terminated in January 2005.
CREDIT RISKS
------------
Most of AIPM's sales are made in Israel to a large number of customers and
the exposure to customer-related credit risks is consequently generally
limited. AIPM regularly analyzes - through credit committees that operate
within its various companies - the quality of the customers, their credit
limits and the relevant collateral required, as the case may be. The
financial statements include provisions for doubtful debts, based on the
existing risks on the date of the statements.
The cash, cash equivalents and fixed-term deposits are by and large
deposited with large Israeli banking institutions.
The following are the balance sheet items, according to linkage bases, as
at December 31, 2004 (including comparison numbers for December 31, 2003):
REPORT OF LINKAGE BASES
-----------------------
--------------------------------------------------------------------------------------------------------------------
IN NIS MILLIONS UNLINKED CPI-LINKED IN FOREIGN NON-MONETARY TOTAL
CURRENCY, OR ITEMS
LINKED THERETO
(PRIMARILY US$)
--------------------------------------------------------------------------------------------------------------------
ASSETS
CASH AND CASH EQUIVALENTS 3.3 4.5 7.8
SHORT-TERM INVESTMENTS 16.9 45.6 62.5
OTHER ACCOUNTS RECEIVABLE 192.0 1.8 43.6 7.7 245.1
INVENTORIES 83.2 83.2
INVESTMENTS IN ASSOCIATED COMPANIES 49.3 11.2 8.6 362.7 431.8
DEFERRED TAXES ON INCOME 6.5 6.5
FIXED ASSETS, NET 324.4 324.4
DEFERRED EXPENSES, NET OF ACCRUED 1.1 1.1
AMORTIZATION
--------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 261.5 58.6 56.7 785.6 1,162.4
--------------------------------------------------------------------------------------------------------------------
LIABILITIES
CREDIT FROM BANKS 110.5 2.2 112.7
ACCOUNTS PAYABLE 142.8 1.0 10.1 153.9
DEFERRED TAXES ON INCOME 52.6 52.6
NOTES 235.1 235.1
OTHER LIABILITIES 32.8 32.8
SHAREHOLDERS' EQUITY 575.3 575.3
--------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 286.1 236.1 12.3 627.9 1,162.4
--------------------------------------------------------------------------------------------------------------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
DECEMBER 31, 2004 (24.6) (177.5) 44.4 (157.7) -
--------------------------------------------------------------------------------------------------------------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
DECEMBER 31, 2003 (69.4) (229.2) 65.2 94.6 -
--------------------------------------------------------------------------------------------------------------------
10
ASSOCIATED COMPANIES
--------------------
AIPM is exposed to various risks associated with operations in Turkey,
where Hogla-Kimberly is active through its subsidiary, Ovisan. These risks
originate from concerns regarding economic instability and elevated
interest rates, that characterized the Turkish economy in the past and that
may recur and harm the Ovisan operations.
F. FORWARD-LOOKING STATEMENTS
--------------------------
This report contains various forward-looking statements, based upon the
Board of Directors' present expectations and estimates regarding the
operations of AIPM and its business environment. AIPM does not guarantee
that the future results of operations will coincide with the
forward-looking statements and these may in fact considerably differ from
the present forecasts as a result of factors that may change in the future,
such as changes in costs and market conditions, failure to achieve
projected goals, failure to achieve anticipated efficiencies and other
factors which lie outside the control of the company. AIPM undertakes no
obligation to publicly update such forward-looking statements, regardless
of whether these updates originate from new information, future events or
any other reason.
G. DONATIONS AND CONTRIBUTIONS
---------------------------
AIPM, within the framework of its business and social commitment, invests
efforts and resources in community assistance and support, while focusing
on providing help to the weaker echelons of Israeli society - and primarily
teenagers - as part of a desire to build and contribute to shaping the
human fabric of Israeli society. As part of this policy, AIPM makes
contributions to various institutions, primarily those that are active in
the said areas. These contributions amounted to an adjusted sum of NIS 150
thousand in 2004, in the consolidated financial statements. Through its
employees, AIPM also participates in volunteer activity in the community,
for promoting these same objectives.
In addition, a sum totaling NIS 90 thousand was granted for student
scholarships and social projects this year through the Schenker Foundation,
that was established by the company together with its Austrian strategic
partner in Mondi Hadera.
11
H. MEMBERS OF THE BOARD OF DIRECTORS POSSESSING FINANCIAL SKILLS AND
-----------------------------------------------------------------
QUALIFICATIONS
--------------
The minimum appropriate number of company directors possessing accounting
and financial and skills was determined to be two for AIPM, in
consideration of the nature of the accounting and financial issues that are
raised in the preparation of AIPM's financial statements, in view of AIPM's
areas of operation and in consideration of the composition of the board of
directors as a whole, that includes individuals possessing business,
management and professional experience that enables them to deal
effectively with the tasks of managing the company, including reporting
duties. The minimum number was also set while taking into account the close
accounting counseling that is provided by the company's CPAs, including
their participation in board meetings discussing accounting issues and
their availability to answer any question put forth by the board of
directors.
The members of AIPM's board of directors who possess accounting and
financial qualifications and skills are:
Nochi Dankner - Chairman of the Board of Directors and CEO of IDB
Holding Corporation Ltd. Chairman of the Board of
Directors of IDB Development Company Ltd., Discount
Investments Ltd. and Clal Industries and Investments
Ltd. Serves or has served in the past as Chairman of
the Board of Directors and Director in
publicly-traded and privately-held companies in the
Ganden Group, IDB Group, and Bank Hapoalim, where he
served as Chairman of the Credit Committee of the
Board. Holds L.L.B in Law.
Avi Yehezkel - Holds a degree in economics. External director at
Bank Yahav. Served as a Knesset member between
1992-2003, during these years alternately, served as
Chairman of the Economics Committee, Chairman of the
Defense Budget Committee, Chairman of the Capital
Market Sub-Committee, Chairman of the Banking
Sub-Committee and member of the Finance Committee.
Oren Lieder - Holds B.A in economics and statistics. Serves as
Senior VP and CFO of Discount Investments Ltd.
Serves as director at various companies, including
publicly-traded companies. Formerly served as CFO of
Bezeq, the Israeli Telecom Company Ltd.
Isaac Manor - Holds an MBA. Serves as director at various
publicly-traded and privately-held companies within
the IDB Group; Chairman of companies in the David
Lubinsky Group Ltd.; member of the Accounts
Committee at Israel Union Bank Ltd.
Amos Mar-Haim - Holds a first degree in economics and an MBA.
Formerly served and currently serves as Chairman or
Deputy Chairman at publicly-traded or privately-held
companies. Member of the Israeli Accounting
Standards Board.
12
I. AIPM'S INTERNAL AUDITOR
-----------------------
1. Auditor's Name: Lenny Siegel
In the position since: 1996
Credentials: CPA, CA Canadian
2. The Auditor is employed by AIPM.
3. Scope of employment: Full-time job as Auditor, plus an assistant.
4. The auditing program is based on a five-year program that covers
numerous topics, in addition to current auditing requirements of the
management and directives of the Audit Committee.
5. The Internal Auditing program includes auditing topics in corporations
that constitute significant holdings by AIPM.
6. The Internal Auditor conducts the audit according to
generally-accepted professional standards in Israel and worldwide.
7. The Internal Auditor is supervised by the Audit Committee and by the
General Manager.
8. Audit reports were submitted and discussed at the following dates:
SUBMITTED DISCUSSED
------------------------- ------------------
Report I March 4, 2004 March 10, 2004
Report II May 5, 2004 May 10, 2004
Report III August 8, 2004 August 11, 2004
Report IV November 7, 2004 November 10, 2004
9. The scope of employment of the Internal Auditor is determined
according to a cycle that renders it possible to audit all the
significant topics at AIPM, once every few years. This scope of
activity, the nature, the continuity of operation and the work plan of
the Internal Auditor - are reasonable - according to the estimation of
AIPM's Audit Committee, while rendering it possible to realize the
Internal Audit objectives of the organization. AIPM declares that it
has granted the Internal Auditor free, constant and direct access to
all the information that it possesses.
J. GENERAL
-------
o In August 2004, AIPM announced the distribution of dividends for 2004,
in the amount of NIS 100 million (NIS 25.12 per share). The dividend
was paid in September 2004.
13
o 28,379 shares were issued during the reported year (0.7% dilution), on
account of the exercise of 64,140 option warrants as part of AIPM's
employee option plans.
o Avi Brenner was appointed General Manager of AIPM on January 1, 2005.
----------------------------------- -------------------------------
Yaki. Yerushalmi Avi Brenner
Chairman of the Board of Directors General Manager
EXHIBIT 3
AMERICAN ISRAELI PAPER MILLS LIMITED
2004 CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ISRAELI PAPER MILLS LIMITED
2004 CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT AUDITORS 2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets 3-4
Statements of income 5
Statements of changes in shareholders' equity 6
Statements of cash flows 7-8
Notes to financial statements 9-40
SCHEDULE - DETAILS OF SUBSIDIARIES AND
ASSOCIATED COMPANIES 41
---------------
-------------------------------
---------------
AUDITORS' REPORT
To the shareholders of
AMERICAN ISRAELI PAPER MILLS LIMITED
We have audited the consolidated balance sheets of American Israeli Paper Mills
Limited (hereafter - the Company) and its subsidiaries as of December 31, 2004
and 2003 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2004. These financial statements are the responsibility of
the Company's board of directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We did not audit the financial statements of certain associated companies, the
Company's interest in which as reflected in the balance sheets as of December
31, 2004 and 2003 is NIS 353.1 million and NIS 299.3 million, respectively, and
the Company's share in excess of profits over losses of which is a net amount of
NIS 25.0 million, NIS 28.2 million and NIS 10.2 million for the years ended
December 31, 2004, 2003 and 2002, respectively. The financial statements of
those companies were audited by other auditors whose reports have been furnished
to us, and our opinion, insofar as it relates to amounts included for those
companies, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the standards of the Public Company Accounting Oversight Board
(United States), including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Company's board of directors and management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company and its subsidiaries as of
December 31, 2004 and 2003 and the consolidated results of operations, changes
in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted ("GAAP") in Israel. Furthermore, in our opinion, the financial
statements referred to above have been prepared in accordance with the Israeli
Securities (Preparation of Annual Financial Statements) Regulations, 1993.
As explained in note 1b the financial statements, as of dates and for reporting
periods subsequent to December 31, 2003, are presented in New Israeli Shekels,
in conformity with accounting standards issued by the Israel Accounting
Standards Board. The financial statements as of dates and for reporting periods
ended prior to, or on the above date, are presented in values that have been
adjusted for the changes in the exchange rate of the U.S. dollar, through that
date, in accordance with pronouncements of the Institute of Certified Public
Accountants in Israel.
Tel-Aviv, Israel
March 10 , 2005
2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED BALANCE SHEETS
December 31
-----------------------------------
Note 2004 2003
---- ---------------- -----------------
NIS in thousands (see note 1b.)
-----------------------------------
A s s e t s
CURRENT ASSETS: 8
Cash and cash equivalents 1o 7,813 158,706
Short-term investments 10a;1f 62,464 20,000
Accounts receivable: 10b
Trade 143,275 140,996
Other 101,840 128,246
Inventories 10c 83,220 90,654
--------- ---------
T o t a l current assets 398,612 538,602
--------- ---------
INVESTMENT AND LONG TERM
RECEIVABLES:
Investments in associated companies 2;8 431,752 383,879
Deferred income taxes 7f 6,511 3,885
--------- ---------
438,263 387,764
--------- ---------
FIXED ASSETS: 3
Cost 974,462 953,656
L e s s - accumulated depreciation 650,056 628,015
--------- ---------
324,406 325,641
--------- ---------
DEFERRED CHARGES,
net of accumulated amortization 1i 1,106 1,267
--------- ---------
T o t a l assets 1,162,387 1,253,274
========= =========
) Chairman of the
-------------------------------------------
Yaki Yerushalmi ) Board of Directors
)
-------------------------------------------
Avi brener ) Chief Executive Officer
)
-------------------------------------------
Israel Eldar ) Controller
Date of approval of the financial statements: March 10, 2005.
The accompanying notes are an integral part of the financial statements.
3
December 31
-------------------------------
Note 2004 2003
---- -------------- ---------------
NIS in thousands (see note 1b.)
---------------------------------------
Liabilities and shareholders' equity
CURRENT LIABILITIES: 8
Credit from banks 10d 112,684 144,989
Current maturities of long-term notes 4a 6,648 6,590
Accounts payable and accruals:
Trade 87,556 84,602
Other 10e 66,355 73,010
--------- ---------
T o t a l current liabilities 273,243 309,191
--------- ---------
LONG-TERM LIABILITIES:
Deferred income taxes 7f 52,562 61,801
Loans and other liabilities
(net of current maturities): 4;8
Notes 228,499 233,039
Other liabilities 32,770 35,013
--------- ---------
T o t a l long-term liabilities 313,831 329,853
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES 9
T o t a l liabilities 587,074 639,044
--------- ---------
SHAREHOLDERS' EQUITY: 6
Share capital (ordinary shares of NIS 0.01 par value: 125,257 125,257
authorized - 20,000,000 shares; issued and paid:
December 31, 2004 and 2005 - 3,996,674 and
3,968,295 shares, respectively)
Capital surplus 90,060 90,060
Currency adjustments in respect of financial statements
of associated companies (2,807) (1,122)
Retained earnings 362,803 400,035
575,313 614,230
--------- ---------
T o t a l liabilities and shareholders' equity 1,162,387 1,253,274
========= =========
The accompanying notes are an integral part of the financial statements.
4
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
Note 2004 2003 2002
------ ------- ------- ------
NIS in thousands (see note 1b.)
SALES - net 10f;14 482,854 465,092 455,775
COST OF SALES 10g 375,904 362,185 363,771
------- ------- ------
GROSS PROFIT 106,950 102,907 92,004
------- ------- ------
SELLING, MARKETING, ADMINISTRATIVE
AND GENERAL EXPENSES: 10h
Selling and marketing 30,595 31,324 29,167
Administrative and general 22,425 24,999 26,382
------- ------- ------
53,020 56,323 55,549
------- ------- ------
INCOME FROM ORDINARY OPERATIONS 53,930 46,584 36,455
FINANCIAL EXPENSES - net 10i 13,118 15,989 2,988
OTHER INCOME (EXPENSES) 10j 1,609 (2,942)
------- ------- ------
INCOME BEFORE TAXES ON INCOME 40,812 32,204 30,525
TAXES ON INCOME 7 3,152 7,706 9,792
------- ------- ------
INCOME FROM OPERATIONS OF THE
COMPANY AND ITS SUBSIDIARIES 37,660 24,498 20,733
SHARE IN PROFITS OF ASSOCIATED
COMPANIES - net 2 25,072 35,549 16,727
------- ------- ------
NET INCOME FOR THE YEAR 62,732 60,047 37,460
======= ======= ======
NIS
--------------------------------------
NET INCOME PER NIS 1 OF PAR VALUE
OF SHARES 1p;11 1,544 1,494 947
======= ======= ======
The accompanying notes are an integral part of the financial statements.
5
AMERICAN ISRAELI PAPER MILLS LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Currency
adjustments
in respect
of financial
statements of
Share Capital associated Retained
Capital surplus companies earnings Total
------- ------- --------- -------- -----
NIS in thousands (see note 1b.)
BALANCE AT JANUARY 1, 2002 125,256 90,060 (3,175) 422,332 634,473
CHANGES IN 2002:
Net income 37,460 37,460
Dividend paid (20,676) (20,676)
Currency adjustments in respect of financial
statements of associated companies (307) (307)
------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 2002 125,256 90,060 (3,482) 439,116 650,950
CHANGES IN 2003:
Net income 60,047 60,047
Dividend paid (99,128) (99,128)
Exercise of employee options into shares 1 1
Currency adjustments in respect of financial
statements of associated companies 2,360 2,360
------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 2003 125,257 90,060 (1,122) 400,035 614,230
======= ====== ====== ======= =======
CHANGES IN 2004:
Net income 62,732 62,732
Dividend paid (99,964) (99,964)
Exercise of employee options into shares * *
Currency adjustments in respect of financial
statements of associated companies (1,685) (1,685)
------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 2004 125,257 90,060 (2,807) 362,803 575,313
======= ====== ====== ======= =======
*Represents an amount less than NIS 1,000.
The accompanying notes are an integral part of the financial statements.
6
(Continued) - 1
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
2004 2003 2002
------- ------- -------
NIS in thousands (see note 1b.)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year 62,732 60,047 37,460
Adjustments to reconcile net income to
net cash provided by operating activities (*) (15,637) (7,396) 39,718
------- ------- -------
Net cash provided by operating activities 47,095 52,651 77,178
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (30,952) (29,247) (46,807)
Short-term investments (42,000) (20,000)
Associated companies:
Granting of loans (779) (8,241) (3,302)
Collection of loans 13,688 21,895
Proceeds from sale of fixed assets 1,001 3,332 9,729
------- ------- -------
Net cash used in investing activities (59,042) (32,261) (40,380)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes issuance, net of issuance expenses of NIS 800,000 198,909
Consideration in respect of the exercise of options by employees 1
Repayment of long-term loans from banks and others (383) (762) (1,038)
Redemption of notes (6,666) (6,770) (5,960)
Dividend paid (99,964) (99,128) (20,676)
Short-term credit from banks - net (31,933) 40,606 (7,219)
------- ------- -------
Net cash provided by (used in) financing activities (138,946) 132,856 (34,893)
------- ------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (150,893) 153,246 1,905
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 158,706 5,460 3,555
------- ------- -------
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF YEAR 7,813 158,706 5,460
======= ======= =======
The accompanying notes are an integral part of the financial statements.
7
(Concluded) - 2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
2004 2003 2002
------- ------- -------
NIS in thousands (see note 1b.)
(*) Adjustments to reconcile net income to net cash provided by operating
activities: Income and expenses not involving cash flows:
Share in profits of associated companies - net (25,072) (35,549) (16,727)
Dividend received from associated company 16,391 21,852
Depreciation and amortization 28,633 28,247 26,809
Deferred income taxes - net (10,096) 3,471 3,703
Capital losses (gains) on:
Sale of fixed assets 508 (2,054) (137)
Termination of activities and disposal of assets - net 1,345
Gains on short-term deposits and investments not yet realized (464)
Linkage and exchange differences on principal of
long-term loans from banks - net (26) 79 (17)
Linkage differences on (erosion of) principal of Notes 2,184 3,110 (524)
Erosion of (linkage differences on) principal of
long-term loans to associated companies (721) (1,101) 153
Appreciation (erosion) of a long-term capital note granted to
an associated company 2,477 (2,202)
------- ------- -------
5,054 15,071 34,255
------- ------- -------
Changes in operating asset and liability items:
Increase in trade receivables (2,279) (9,260) (15,064)
Decrease (increase) in other receivables
(not include deferred income taxes) (12,037) (8,935) 3,394
Decrease (increase) in inventories 7,434 (159) 22,060
Increase (decrease) in trade payables 2,954 (14,653) 11,180
Increase (decrease) in other payables and accruals (6,655) 10,540 (16,107)
------- ------- -------
(10,583) (22,467) 5,463
------- ------- -------
(15,637) (7,396) 39,718
======= ======= =======
Supplementary cash flow information - cash paid during the year for:
Taxes on income 3,242 11,553 26,711
======= ======= =======
Interest 20,697 11,335 9,839
======= ======= =======
Information on activities not involving cash flows:
In 2004, equipment, which the company did not find suitable for its use, was
retired. The retirement was made against the cancellation of the loan made
available to the supplier in respect of said equipment. The retirement amounted
to NIS 1,079,000.
The accompanying notes are an integral part of the financial statements.
8
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies, which, except for the changes required
by the transition to nominal financial reporting in 2004 - see b(1) and
b(4) below, were applied on a consistent basis, are as follows:
a. General:
1) Activities of the Group
American Israeli Paper Mills Limited (hereafter - the Company)
and its subsidiaries and associated companies (hereafter - the
Group) are engaged in the production and sale of paper and paper
products, including paper recycling activities and handling solid
waste. Certain companies are engaged in the marketing of office
supplies and in the sale of products produced by others (some of
which are not paper or paper products). Most of the Group's sales
are made to the local market (Israel). As to information by
operating segments, see note 14.
2) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets
and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
years. Actual results could differ from those estimates.
3) Definitions:
Subsidiaries - companies over which the Company has control and
over 50% of the ownership, the financial statements of which have
been consolidated with the financial statements of the Company.
Associated companies - investee companies, which are not
subsidiaries, over whose financial and operational policy the
Company exerts material influence, the investment in which is
presented by the equity method. Material influence is deemed to
exist when the percentage of holding in said company is 20% or
more, unless there are circumstances that contradict this
assumption.
Interested parties - as defined in the Israeli Securities
(Preparation of Annual Financial Statements) Regulations, 1993.
9
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
b. Basis of presentation of the financial statements
The Company draws up and presents its financial statements in Israeli
currency (hereafter - shekels or NIS).
Commencing in 2004, the adjustment of financial statements in Israel
for the changes in the exchange rate of the US dollar was
discontinued, and transitory provisions for financial reporting on a
nominal basis began being applied, as explained below; notwithstanding
the above, the comparative figures included in these financial
statements are based on the amounts adjusted for the changes in the
exchange rate of the US dollar, as previously reported; in the case of
the Company, these figures represented adjustment to inflation by way
of adjustment of the amounts for the changes in the exchange rate of
the US dollar (hereafter - the dollar), see (2) below.
1) Transition to nominal financial reporting in 2004
With effect from January 1, 2004, the company has adopted the
provisions of Israel Accounting Standard No. 12 -"Discontinuance
of Adjusting Financial Statements for Inflation" - of the Israel
Accounting Standards Board (hereafter -the IASB) and, pursuant
thereto, the company has discontinued, from the aforesaid date,
the adjustment of its financial statements for the changes in the
exchange rate of the dollar against the shekel.
The amounts adjusted for the changes in the exchange rate of the
dollar against the shekel (see (2) below), presented in the
financial statements as of December 31, 2003 (hereafter - "the
transition date"), were used as the opening balances for the
nominal financial reporting in the following periods. Additions
made after the transition date have been included in the
financial statements at their nominal values.
Accordingly, the amounts reported in 2004 are composed as
follows: amounts originating from the period that preceded the
transition date are composed of their adjusted to December 2003
shekel amount, with the addition of amounts in nominal values
that were added after the transition date, and net of amounts
that were deducted after the transition date (the retirement of
such sums is effected at their adjusted values as of transition
date, their nominal values, or a combination of the two,
according to the circumstances). All the amounts originating from
the period after the transition date are included in the
financial statements at their nominal values.
10
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
2) Comparative figures - amounts adjusted to end of 2003
Through December 31, 2003, the Company prepared its financial
statements on the basis of historical cost adjusted for the
changes in the exchange rate of the dollar, as permitted under
Opinion 36 of the Institute of Certified Public Accountants in
Israel (hereafter - the Israeli Institute) for companies whose
shares are traded on the stock exchange of a foreign country. The
Company's shares are traded in the United States on the AMEX.
The comparative figures included in these financial statements
are based on the amounts included for the prior reporting
periods, as adjusted for the changes in the exchange rate of the
dollar, stated at the exchange rate at December 31, 2003 (the
exchange rate in effect at the transition date).
The components of the income statements were, for the most part,
adjusted as follows: the components relating to transactions
carried out during the reported period - sales, purchases, labor
costs, etc. - were adjusted on the basis of the date in which the
transaction was carried out, while those relating to non-monetary
balance sheet items (mainly - changes in inventories and
depreciation) were adjusted on the same basis as the related
balance sheet item. The financing component represents financial
income and expenses in real terms and the erosion of balances of
monetary items during the year.
The investment in some of the associated companies (whose
operations constitute an integral part of the Company's
operations) and the company's share in their operating results
are recorded on the basis of the adjusted financial statements
(in accordance with the provisions of Standard No. 12, as
described above) of these companies. As to associated companies
whose financial statements were adjusted until December 31, 2003
on the basis of the changes in the CPI, see (4) below.
3) The amounts of non-monetary assets do not necessarily represent
realization value or current economic value, but only the
reported amounts of such assets, as described in (1) above. In
these financial statements, the term "cost" signifies cost in
reported amounts.
4) Associated companies whose financial statements are adjusted on
the basis of the changes in the Israeli CPI
For purposes of inclusion on the equity basis, until December 31,
2003, the amounts included in the financial statements of the
above associated companies operating independently were treated
as follows:
Balance sheet items at the end of the year and the results of
operations for the year reflect the amounts presented in the
financial statements of such companies. Balance sheet items at
the beginning of the year and changes in shareholders' equity
items during the year were adjusted on the basis of the changes
in the exchange rate of the dollar at the beginning of the year
or at the date of each change, respectively, through the end of
the year. Any differences resulting from the treatment described
above were carried to the adjusted shareholders' equity under a
separate item ("currency adjustments in respect of financial
statements of associated companies").
11
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
As from January 1, 2004, no additional differences have been
included in respect of said companies, in view of their
transition to reporting under Standard 12, as also applied by the
Company. The change in this equity item in 2004 is related to a
subsidiary of an associated company, which has a currency other
than NIS.
c. Principles of consolidation:
1) The consolidated financial statements include the accounts
of the Company and its subsidiaries. A list of the main
subsidiaries is presented in a schedule to the financial
statements.
2) Intercompany transactions and balances, as well as
intercompany profits on sales which have not yet been
realized outside the Group, have been eliminated.
d. Inventories
Raw materials and supplies, finished goods, purchased products
and maintenance and sundry stores are valued at the lower of cost
or market (net of processing costs and after deduction of a
provision for obsolescence, where appropriate); cost is
determined on the moving average basis.
e. Investments in associated companies:
1) The investments in these companies are accounted for by the
equity method.
2) Profits on intercompany sales, not yet realized outside the
Group, have been eliminated according to the percentage of
the Company's holding in such companies.
3) With effect from the interim financial statements for the
3-month period ended March 31, 2003, the Company reviews
whether any events have occurred or changes in circumstances
have taken place, which might indicate that there has been
an impairment of its investments in associated companies -
see h. below.
4) The excess of cost of the investment in associated companies
over the equity in net assets at time of acquisition
("excess of cost of investment") or the excess of equity in
net assets of associated companies at time of acquisition
over the cost of their acquisition ("negative excess of cost
of investment") represent the amounts attributed to specific
assets upon acquisition, at fair value. The excess of cost
of investment and the negative excess of cost of investment
are presented at their net amount and are amortized over the
remaining useful life of the assets. The average rate of
amortization is 10%.
f. Marketable securities
These securities are stated at market prices.
The changes in value of the above securities are carried to
financial income or expense.
12
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
g. Fixed assets:
1) Fixed assets are stated at cost, net of related investment
grants.
2) Fixed assets of own manufacture are stated at cost, based on
the direct costs with the addition of an appropriate portion
of related production costs.
3) Borrowing costs in respect of credit applied to finance the
construction of the fixed assets - during the period until
construction is completed - are charged to cost of such
assets.
4) The assets are depreciated by the straight-line method on
basis of their estimated useful life, as follows:
Years
-----------------------
Buildings 10-50 (mainly 33)
Machinery and equipment 7-20 (mainly 10 and 20)
Vehicles 5-7 (mainly 7)
Office furniture and equipment
(including computers) 3-17 (mainly 4)
h. Impairment of Assets
In February 2003, Accounting Standard No. 15 of the Israeli
Accounting Standard Board (hereafter - IASB) - "Impairment of
Assets", became effective. This standard requires a periodic
review to evaluate the need for a provision for the impairment of
the company's and its subsidiary's non-monetary assets - mainly
fixed assets as well as investments in associated companies.
Accordingly, commencing with the interim financial statements for
the 3-month period ended March 31, 2003, the Company assesses -
at each balance sheet date - whether any events have occurred or
changes in circumstances have taken place, which might indicate
that there has been an impairment of one or more of the above
assets. When such indicators of impairment are present, the
Company evaluates whether the carrying value of the asset is
recoverable from the cash flows expected from that asset.
The recoverable value of an asset is determined according to the
higher of the net selling price of the asset or its value in use
to the Company. The value in use is determined according to the
present value of anticipated cash flows from the continued use of
the asset, including those expected at the time of its future
retirement and disposal. When it is not possible to assess
whether an impairment provision is required for a particular
asset on its own, the need for such a provision is assessed in
relation to the recoverable value of the cash generating unit to
which that asset belongs.
The adoption of this Standard has not had any effect on the
Company and its subsidiaries.
13
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
i. Deferred charges
The item represents notes issuance costs, which are amortized
over the period of the notes (see note 4a).
j. Deferred income taxes:
1) Deferred taxes are computed in respect of differences
between the amounts presented in these statements and those
taken into account for tax purposes. As to the main factors
in respect of which deferred taxes have been included - see
note 7f. Deferred tax balances are computed at the tax rate
expected to be in effect at time of release to income from
the deferred tax accounts. The amount of deferred taxes
presented in the income statements reflects changes in the
above balances during the reporting years.
2) Taxes which would apply in the event of disposal of
investments in subsidiaries and associated companies have
not been taken into account in computing the deferred taxes,
as the Company intends to hold these investments, not to
realize them.
3) The Group may incur an additional tax liability in the event
of intercompany dividend distribution derived from "approved
enterprises" profits - see note 7a. No account was taken of
this additional tax, since it is the Group's policy not to
cause distribution of dividend which would involve an
additional tax liability to the Group in the foreseeable
future.
k. Revenue recognition
Revenue from sale of products to the local market, net of
discounts granted, is recognized upon shipment to the customer
(which represents the point at which the title transfers).
Revenue from sale of products for export, net of discounts, is
recognized as the products are delivered to the customer in the
target country.
l. Shipping and handling fees costs
Shipping and handling costs are classified as component of
selling and marketing expenses.
m. Allowance for doubtful accounts
The allowance is determined mainly in respect of specific debts
doubtful of collection (see note 12b).
n. Derivative financial instruments
Gains or losses from derivatives that are hedging existing assets
or liabilities are recognized in income and cash flows statements
commensurate with the results from those assets or liabilities.
14
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
o. Cash equivalents
The Group considers all highly liquid investments, which include
short-term bank deposits that are not restricted as to withdrawal
or use, the period to maturity of which did not exceed three
months at time of deposit, to be cash equivalents.
p. Net income per NIS 1 of par value of shares
Net income per NIS 1 of par value of shares is computed in
accordance with Opinion 55 of the Israeli Institute; as to the
data used in the per share computation - see note 11.
q. Recently issued pronouncement
In July 2004, the IASB issued Israel Accounting Standard No. 19 -
"Taxes on Income", which is based on International Accounting
Standard No. 12, that prescribes the accounting treatment
(recognition criteria, measurement, presentation and disclosure)
required for taxes on income. This accounting standard is to be
applied to financial statements covering periods commencing on,
or after, January 1, 2005.
For the most part, the provisions of this standard are the same
as the accounting principles that are customarily applied at
present (see j. above). The adoption of the standard is not
expected to have a material effect on the company's financial
statements in the forthcoming periods.
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES:
a. The Company has a number of investments in associated companies,
which are held either directly or through associated companies.
The financial statements of significant associated companies
(Mondy Business Paper Hadera Ltd. - formerly Neusiedler Hadera
Paper Ltd, NHP - and Hogla-Kimberly Ltd.) are attached to these
financial statements.
15
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
b. Composed as follows:
December 31
----------------------
2004 2003
------- -------
NIS in thousands
Cost:
Shares 54,241 54,241
Excess of cost of investment - net 2,086 2,086
L e s s - accumulated amortization (2,624) (3,068)
Gain on issuance of shares of an associated
company to a third party 40,241 40,241
Currency adjustments (2,807) (1,122)
Share in profits accumulated since acquisition - net 271,492 246,864
------- -------
362,629 339,242
Long-term loans and capital notes * 69,123 44,637
------- -------
431,752 383,879
======= =======
* Classified by linkage terms, the total amounts of the loans
and capital notes are as follows:
Weighted average December 31
interest rate ----------------------
at December 31, 2004 2003
2004 ------ ------
% NIS in thousands
Linked to the dollar 8,616 21,897
Linked to the Israeli CPI 0%-6% 11,220 10,553
Loan and unlinked capital note 0%-5% 49,287 12,187
------ ------
69,123 44,637
====== ======
As of December 31, 2004, the repayment dates of the balance of
the loans and capital notes have not yet been determined.
16
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
c. The changes in the investments during 2004 are as follows:
NIS in
thousands
-------
Balance at beginning of year 383,879
-------
Changes during the year:
Share in profits of associated companies - net 25,072
Currency adjustments (1,685)
Classifying long term balance 36,674
Decrease in balance of long-term loans and capital notes - net (12,188)
-------
Balance at end of year 431,752
=======
d. Mondy Business Paper Hadera Ltd. (hereafter - Mondy Hadera;
formerly - Neusiedler Hadera Paper Ltd- NHP):
Mondy Hadera is held to the extent of 49.9% by the Company and
also by Neusiedler AG (hereafter - Neusiedler), under an
agreement dated November 21, 1999. According to said agreement,
Mondy Hadera purchased the Group's activities in the field of
printing and writing paper, and issued to Neusiedler 50.1% of its
shares. As part of the said agreement, Neusiedler was granted an
option to sell to the Company its holdings in Mondy Hadera, at a
price which is 20% lower than the value (as defined in the
agreement). The understanding between the parties is that the
option would only be exercised under continued extraordinary
circumstances that preclude the operation of Mondy Hadera in
Israel. The Company believes that the likelihood of such
circumstances is very remote.
e. Investment in Carmel Container Systems Limited (hereafter -
Carmel)
The investment in shares includes, as of December 31, 2004 and
2003, amounts to NIS 32,300,000 and NIS 29,475,000, respectively,
which represents a holding of 26.25%. Carmel's shares are traded
in the United States on the "AMEX" Stock Exchange. The market
value of the Company's holding in these shares as of December 31,
2004 and 2003 is NIS 15,741,000 and NIS 9,656,000, respectively.
In November 2004, Carmel's board of directors decided to take
measures to withdraw Carmel's shares from trade on the "AMEX"
Stock Exchange in the United States and also to deregister with
the SEC. Accordingly, trade in Carmel's shares on the "AMEX" was
suspended from November 30, 2004 and the process of deregistering
with the SEC is currently being attended to.
17
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
The Company's management believes that the low market value of
these shares is not representative of the economic value, as the
trade in Carmel's shares is very weak as described above. At the
beginning of 2003, the Company used the services of an outside
appraiser in determining the value in use to the Company.
The Company's management believes, based on the abovementioned
and current developments in 2004, that the investment should not
be written down.
The financial statements of Carmel are drawn up in accordance
with the provisions of Accounting Standard No. 12 of the IASB.
Until December 31, 2003, the financial statements have been drawn
up on the basis of cost, adjusted for the changes in the general
purchasing power of Israeli currency measured on the basis of the
Israeli CPI. For purposes of inclusion in the consolidated
financial statements up to said date, Carmel's financial
statements were adjusted on the basis of the changes in the
exchange rate of the dollar.
f. Investment in T.M.M Integrated Recycling Industries Ltd.
(hereafter - T.M.M.)
As of December 31, 2004, the Company's share in T.M.M. (directly
and through another associated company) is 41.6%.
The excess of equity in net assets of T.M.M. shares, over the
cost of investment therein - amounting to NIS 1,581,000 is
amortized over a period of ten years.
As of December 31, 2004 and 2003, the direct investment in the
shares of T.M.M is NIS 15,726,000 and NIS 15,759,000,
respectively. The market value of these shares as of December 31,
2004 and 2003 is NIS 11,338,000 and NIS 13,713,000, respectively.
The Company's management examined the value of its investment in
T.M.M. for impairment which is not temporary in nature. At the
beginning of 2003, the Company used the services of an outside
appraiser in determining the value in use to the Company.
The Company's management believes, based on the abovementioned
and current business developments within T.M.M during 2004, that
the investment should not be written down.
18
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS:
a. Composition of assets, grouped by major classifications, and
changes therein during 2004, are as follows:
Cost
-----------------------------------------------------
Balance at Additions Retirements Balance at
beginning during during end of
of year the year the year year
------- ------ ------ -------
NIS in thousands
Land and buildings on the land 185,675 3,552 189,227
Machinery and equipment 653,206 25,008 4,461 673,753
Vehicles 31,860 3,772 5,678 29,954
Office furniture and equipment
(including computers) 65,569 2,800 7 68,362
Payments on account of
machinery and equipment 17,346 (4,180) 13,166
------- ------ ------ -------
953,656 30,952 10,146 974,462
======= ====== ====== =======
Accumulated depreciation Depreciated balance
---------------------------------------------------- ----------------------
Balance at Additions Retirements Balance at December 31
beginning during during end of ----------------------
of year the year the year year 2004 2003
------- ------ ----- ------- ------- -------
NIS in thousands NIS in thousands
Land and buildings on the land 104,237 3,348 107,585 81,642 81,438
Machinery and equipment 449,526 19,469 1,168 467,827 205,926 203,680
Vehicles 22,357 2,786 5,259 19,884 10,070 9,503
Office furniture and equipment
(including computers) 51,895 2,869 4 54,760 13,602 13,674
Payments on account of
machinery and equipment 13,166 17,346
------- ------ ----- ------- ------- -------
628,015 28,472 6,431 650,056 324,406 325,641
======= ====== ===== ======= ======= =======
19
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS (continued):
b. The item is net of investment grants in respect of investments in
"approved enterprises" (see notes 7a and 9a).
c. The Group's real estate is partly owned and partly leased - to
the extent of NIS 44.5 million, in respect of which lease fees of
approximately NIS 25.8 million have been capitalized. The
leasehold rights are for 49-year periods ending in the years 2008
to 2059, with options to extend for an additional 49 years.
d. As of December 31, 2004 and 2003, the cost of fixed assets
includes borrowing costs of NIS 1,007,000 capitalized to the cost
of machinery and equipment.
e. Depreciation expenses amounted to NIS 28,472,000, NIS 28,165,000
and NIS 26,726,000, for the years ended December 31, 2004, 2003
and 2002, respectively.
f. As to pledges on assets - see note 9a.
20
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - NOTES AND OTHER LONG-TERM LIABILITIES (continued):
a. Notes
The item represents two series of notes issued to institutional
investors as follows:
December 31
---------------------------------------------
2004 2003
------------------- -------------------
NIS in thousands
---------------------------------------------
Series II Series I Series II Series I
------- ------ ------- ------
Balance 201,807 33,340 200,000 39,629
L e s s - current maturities 6,648 6,590
------- ------ ------- ------
201,807 26,692 200,000 33,039
======= ====== ======= ======
(1) Series I - May 1992
The balance of the notes as of December 31, 2004 is
redeemable in five installments, due in June of each of the
years 2005-2009, each installment amounting to 6.66% of the
original par value of the notes, which is NIS 99,819,000, in
December 2004 terms; the unpaid balance of the notes bears
annual interest of 3.8%, payable each June. The notes -
principal and interest - are linked to the Israeli CPI of
February 1992.
(2) Series II - December 2003
As of December 31, 2004, the unpaid balance of the notes is
payable in 7 annual installments at December of each of the
years 2007-2013; The unpaid balance of the notes bears
annual interest of 5.65%, payable in annual installments at
December of each year. The notes - principal and interest -
are linked to the Israeli CPI of November 2003.
b. Other liabilities:
December 31
--------------------
2004 2003
------ ------
NIS in thousands
Capital note to an associated company * 32,770 32,770
Other liability 2,243
------ ------
32,770 35,013
====== ======
* The capital note is unlinked and interest free. No repayment date
has been fixed, but the associated company does not intend to
demand the repayment of the capital note before January 1, 2006.
21
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - EMPLOYEE RIGHTS UPON RETIREMENT:
a. Israeli labor laws and agreements require the company and its
subsidiaries to pay severance pay to employees dismissed or
leaving their employ under certain circumstances, computed on the
basis of the number of years of service and, generally, the
latest pay rate (one month's pay for each year of service) or a
pension upon retirement.
To cover the liability for employee rights upon retirement,
pursuant to labor agreements in force and based on salary
components which, in management's opinion, create entitlement to
severance pay, deposits are made by the Company and its
subsidiaries with various provident funds (including pension
funds) or insurance policies for the benefit of employees.
The severance pay and pension liability and the amounts funded as
above are not reflected in the financial statements, as the
pension and severance pay risks have been irrevocably transferred
to the pension funds and the insurance companies, as allowed by
the Severance Pay Law.
b. The expenses relating to employee rights upon retirement, which
reflect the amounts that were deposited during the reported years
with provident funds, pension funds and various insurance
policies, are NIS 8,368,000, NIS 8,515,000 and NIS 5,786,000 in
2004, 2003, and 2002, respectively.
NOTE 6 - SHAREHOLDERS' EQUITY:
a. Share capital
Composed of ordinary registered shares of NIS 0.01 par value, as
follows:
December 31
---------------------------
2004 2003
--------- ---------
Authorized Issued and paid
---------- ---------------------------
Number of shares 20,000,000 3,996,674 3,968,295
========== ========= =========
Amount in NIS 200,000 39,967 39,683
========== ========= =========
The shares are traded on stock exchanges in Tel-Aviv and in the
U.S. The quoted prices per share, as of December 31, 2004 are NIS
238.30 and $ 55.00 (NIS 236.94), respectively.
b. Employee stock option plans:
1) The 1998 plan for senior officers in the Group
On January 11, 1998, the board of directors approved a stock
option plan for senior officers in the Group ("the 1998 plan
for senior officers").
22
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
In 1998-2000, 155,498 options were granted under the 1998
plan for senior officers.
The number of shares resulted from exercise of the options
and the actual exercise price were fixed as follows: Upon
the receipt of an exercise request from an option holder, a
computation was made of the difference between the quoted
price of the Company's shares at the beginning of that
trading day and the exercise price; that difference was then
multiplied by the number of exercisable options (hereafter -
the benefit). The number of shares that the Company actually
issued to the option holder was the number of shares the
market value of which was equal to the amount of the benefit
computed as above. In consideration for the shares, the
option holder paid their par value only.
In 2000-2003, 154,000 options were exercised under the 1998
plan for senior officers. 92,832 shares of NIS 0.01 were
issued following the exercise. The unexercised balance of
1,498 options granted expired in 2003.
The ordinary shares issued upon exercise of the options
conferred upon their holders the same rights as all other
ordinary shares, upon issuance.
2) The 2001 plan for senior officers in the Group
On April 2, 2001, the Company's board of directors approved
a stock option plan for senior officers in the Group
(hereafter - the 2001 plan for senior officers). Under this
plan, 194,300 options were allotted on July 5, 2001 without
consideration. Each option is exercisable in purchase of one
ordinary share of NIS 0.01 par value of the Company. The
options will be exercisable in four equal annual batches.
The blocking period of the first batch is two years,
commencing on the date of grant; the blocking period of the
second batch is three years from the date of grant, and so
forth. Each batch is exercisable within two years from the
end of the blocking period.
The exercise price of the options granted as above was set
at NIS 217.00, linked to the CPI, on the basis of the CPI as
of April 2, 2001. The exercise price for each batch is
determined as the lesser of the aforementioned exercise
price or the average price of the Company's shares as quoted
on the Tel-Aviv Stock Exchange (hereafter - the Stock
Exchange) during thirty trading days preceding to the
effective date of each batch, less 10%. As stipulated by the
2001 plan for senior officers, the exercise price is to be
adjusted, following dividend distributions. Accordingly, the
exercise price as of December 31, 2004 is NIS 177.37 for the
first batch, NIS 68.77 for the second batch, NIS 125.18 for
the third batch and NIS 177.37 for the fourth batch.
The quoted price of the Company's shares on the Tel Aviv
Stock Exchange close to the time of the board of directors'
resolution to grant the options, was NIS 204.00. Prior to
the granting of the options, the price was NIS 185.8.
23
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
b. Employee stock option plans (continued):
The fair value of each option - computed on the basis of the
Black-Scholes option-pricing model - as prescribed by the
regulations of the Tel-Aviv Stock Exchange - was approximately
NIS 56.69 on the date of grant.
Notwithstanding the above, the number of shares resulting from
exercise of the options and the actual exercise price will be
determined as follows: when an exercise request is received from
an option holder, a computation will be made of the difference
between the quoted price of the Company's shares at the beginning
of that trading day and the exercise price; that difference is to
be multiplied by the number of exercisable options, as of the
date of the exercise (hereafter - the benefit). The number of
shares that the Company will actually issue to the option holder
will be the number of shares the market value of which is equal
to the amount of the benefit computed as above. In consideration
for the shares, the option holder will pay their par value only.
The ordinary shares issued upon exercise of the options will
confer upon their holders the same rights as all other ordinary
shares, upon issuance.
In 2004 and 2003, 55,525 and 1,550 options, respectively, were
exercised under the 2001 plan for senior officers, and 24,295 and
227 shares of NIS 0.01, respectively, were issued following the
exercise of options, as above. The unexercised balance of the
options granted is 137,225.
This plan is designed to be governed by the terms stipulated by
Section 102 of the Israeli Income Tax Ordinance. Inter alia,
these terms provide that the company will be allowed to claim, as
an expense for tax purposes, the amounts credited to the
employees as a benefit in respect of shares or options granted
under the plan.
The amount allowed as an expense for tax purposes, at the time
the employee utilizes such benefit, is limited to the amount of
the benefit that is liable to tax as labor income, in the hands
of the employee; all being subject to the restrictions specified
in Section 102 of the Income Tax Ordinance.
3) The 2001 employee plan
On August 29, 2001, the Company's board of directors
approved a stock option plan for employees in the Group,
according to a specification (hereafter - the 2001 employee
plan). Under this plan, up to 125,000 options will be
allotted without consideration. Each option is exercisable
in purchase of one ordinary share of NIS 0.01 par value of
the Company. The blocking period of the options is two years
from the date of grant. Each option is exercisable within
three years from the end of the blocking period.
On November 4, 2001, 81,455 options were granted under the
2001 employee plan.
24
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
The exercise price of all the options granted as above was
set at NIS 160.99, linked to the CPI, on the basis of the
CPI as of August 29, 2001. This price represents the average
price of the Company's shares as quoted on the Tel-Aviv
Stock Exchange during thirty trading days prior to the date
of the board of directors' approval, less 10%. As stipulated
by the 2001 employee plan, the exercise price has been
adjusted, following a dividend distribution and it is NIS
113.57 as of December 31, 2004.
The quoted price of the Company's shares on the Tel Aviv
Stock Exchange close to the time of the board of directors'
resolution to grant the options, was NIS 171.20. Prior to
the granting of the options, the price was NIS 138.80.
The fair value of each option - computed on the basis of the
Black-Scholes option-pricing model - as prescribed by the
regulations of the Tel-Aviv Stock Exchange - was
approximately NIS 64.11 on the date of grant.
Notwithstanding the above, the number of shares resulting
from exercise of the options and the actual exercise price
will be fixed as follows: when an exercise request is
received from an option holder, a computation will be made
of the difference between the quoted price of the Company's
shares at the beginning of that trading day and the exercise
price; that difference is to be multiplied by the number of
exercisable options, as of the date of the exercise
(hereafter - the benefit). The number of shares the that
Company will actually issue to the option holder will be the
number of shares the market value of which is equal to the
amount of the benefit computed as above. In consideration
for the shares, the option holder will pay their par value
only.
The ordinary shares issued upon exercise of the options will
confer upon their holders the same rights as all other
ordinary shares, upon issuance.
In 2004 and 2003, 8,615 and 57,962 options, respectively,
were exercised under the 2001 employee plan. 4,084 and
20,665 shares of NIS 0.01, respectively, were issued
following the exercise of options, as above. The unexercised
balance of the options granted is 14,878.
This plan is designed to be governed by the terms stipulated
by Section 102 of the Israeli Income Tax Ordinance. Inter
alia, these terms provide that the company will be allowed
to claim, as an expense for tax purposes, the amounts
credited to the employees as a benefit in respect of shares
or options granted under the plan.
The amount allowed as an expense for tax purposes, at the
time the employee utilizes such benefit, is limited to the
amount of the benefit that is liable to tax as labor income,
in the hands of the employee; all being subject to the
restrictions specified in Section 102 of the Income Tax
Ordinance.
25
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME:
a. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959 (hereafter - the law)
Under the law, by virtue of the "approved enterprise" status
granted to certain of their production facilities, certain
subsidiaries were entitled to various tax benefits (mainly
reduced tax rates) until 2003.
During the period of benefits - mainly 7 years commencing in the
first year in which the companies earn taxable income from the
approved enterprises, provided the maximum period to which it is
restricted by law has not elapsed - reduced tax rates or
exemption from tax apply, as follows:
1) Corporate tax rate of 25%, instead of the regular tax rate
(see d. below).
2) Tax exemption on income from certain approved enterprises in
respect of which the companies have elected the "alternative
benefits" (involving waiver of government guaranteed loans);
the length of the exemption period is 4 years, after which
the income from these enterprises is taxable at the rate of
25% for 3 years.
The part of the taxable income which is entitled to the tax
benefits is determined on the basis of the ratio of the
turnover attributed to the "approved enterprise" to the
total turnover of these companies, taking into account the
ratio of the "approved enterprise" assets to total assets of
these companies. The turnover that is attributed to the
"approved enterprise" is generally computed on the basis of
the ratio of the increase in turnover to the "basic"
turnover stipulated in the instrument of approval.
The period of benefits in respect of the "approved
enterprises" of these companies expired at the end of 2003.
The entitlement to the above benefits is conditional upon
the companies' fulfilling the conditions stipulated by the
law, regulations published thereunder and the instruments of
approval for the specific investments in "approved
enterprises". In the event of failure to comply with these
conditions, the benefits may be cancelled and the companies
may be required to refund the amount of the benefits, in
whole or in part, with the addition of linkage differences
to the CPI and interest.
b. Measurement of results for tax purposes under the Income Tax
(Inflationary Adjustments) Law, 1985 (hereafter - the
inflationary adjustments law)
Under the inflationary adjustments law, results for tax purposes
are measured in real terms, having regard to the changes in the
Israeli CPI. The Israeli companies in the Group are taxed under
this law.
26
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
c. The Law for the Encouragement of Industry (Taxation), 1969
The Company and certain subsidiaries are "industrial companies"
as defined by this law. These companies claimed depreciation at
accelerated rates on equipment used in industrial activity as
stipulated by regulations published under the inflationary
adjustments law.
The Company also files consolidated tax returns with certain
subsidiaries as permitted under this law.
d. Tax rates applicable to income not derived from "approved
enterprises"
The income of the Company and its Israeli subsidiaries (other
than income from "approved enterprises", see a. below) is taxed
at the regular rate. Through to December 31, 2003, the corporate
tax was 36%. In July 2004, an amendment to the Income Tax
Ordinance was enacted. One of the provisions of this amendment is
that the corporate tax rate is to be gradually reduced from 36%
to 30%, in the following manner: the rate for 2004 will be 35%,
in 2005 - 34%, in 2006 - 32%, and in 2007 and thereafter - 30%.
The effect of the change in the tax rates in the coming years on
the deferred tax balances on the effective date of the amendment
to the law, is included under "taxes on income" in the statements
of income (loss) - see g (1) below.
e. Carryforward tax losses
Carryforward tax losses are NIS 20,399,000 and NIS 14,002,000 as
of December 31, 2004 and 2003, respectively. Under the
inflationary adjustments law, carryforward losses are linked to
the Israeli CPI, and may be utilized indefinitely.
27
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
f. Deferred income taxes
The composition of the deferred taxes, and the changes therein
during 2004 and 2003, are as follows:
Among Among Among As a
non-current current non-current non-current
assets (1) assets (2) liability (3) Total
------ ------ ------ -------
NIS in thousands
Balance at January 1, 2003 (10,948) 58,266 47,318
Changes in 2003:
Reclassification 3,885 (3,885)
Amounts carried to income (64) 3,535 3,471
------ ------ ------ -------
Balance at December 31, 2003 (7,127) (3,885) 61,801 50,789
Changes in 2004:
Amounts carried to income 1,769 (2,626) (9,239) (10,096)
------ ------ ------ -------
Balance at December 31, 2004 (5,358) (6,511) 52,562 40,693
====== ====== ====== =======
(1) In respect of inventories, provisions for doubtful
accounts, vacation and recreation pay, and
carry-forward tax losses.
(2) In respect of carryforward tax losses.
(3) Mainly in respect of depreciable fixed assets.
The deferred taxes are computed at the rate of 30%-34%.
g. Taxes on income included in the income statements:
1) As follows:
2004 2003 2002
------ ----- -----
NIS in thousands
For the reported year:
Current 13,248 4,235 4,702
Deferred, see f. above:
In respect of changes to tax rates,
see d. above (5,824)
In respect of the reporting period (4,272) 3,471 3,703
------ ----- -----
3,152 7,706 8,405
For previous years - Current 1,387
------ ----- -----
3,152 7,706 9,792
====== ===== =====
28
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
2) Following is a reconciliation of the "theoretical" tax
expense, assuming all income is taxed at the regular
rate, as stated in d. above, and the actual tax
expense:
2004 2003 2002
----------------- ----------------- -----------------
NIS in NIS in NIS in
% thousands % thousands % thousands
----- ------ ----- ------ ----- ------
Income before taxes on income, as reported
in the statements of income 100.0 40,812 100.0 32,204 100.0 30,525
===== ====== ===== ====== ===== ======
Theoretical tax on the above amount 35.0 14,284 36.0 11,593 36.0 10,989
Tax benefits arising from reduced tax rate
for approved enterprises (1.5) (487) (1.0) (305)
----- ------ ----- ------ ----- ------
35.0 14,284 34.5 11,106 35.0 10,684
Decrease in taxes resulting from computation
of deferred taxes at a rate which is
different from the theoretical rate (4.3) (1,762)
Tax benefit resulting from
changes in tax rates, see d. above (14.3) (5,824)
Tax deduction in respect of options
exercised by employees according to
section 102 of the Israeli
Income Tax Ordinance (10.3) (4,221) (5.0) (1,607) (6.2) (1,883)
Other - net 1.6 675 (5.6) (1,793) (1.3) (396)
----- ------ ----- ------ ----- ------
Taxes on income for the reported year 7.7 3,152 23.9 7,706 27.5 8,405
===== ====== ===== ====== ===== ======
h. Tax assessments
The Company and most of its subsidiaries have received final tax
assessments through the year ended December 31, 2000.
29
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES:
a. As follows:
December 31, 2004
----------------------------------------
In, or linked
to, foreign
currency Linked to the
(mainly dollar) Israeli CPI Unlinked
------ ------ -------
NIS in thousands
Assets:
Current assets:
Cash and cash equivalents 4,531 3,282
Short-term investments 45,539 16,925
Receivables 43,600 1,799 192,071
Investments in associated companies - long-term
loans and capital notes 8,616 11,220 49,287
------ ------- -------
56,747 58,558 261,565
====== ======= =======
Liabilities:
Current liabilities:
Short-term credit from banks 2,238 110,446
Accounts payables and accruals 10,100 1,013 142,798
Long-term liabilities (including current maturities):
Loans from banks
Notes 235,147
Other liabilities 32,770
------ ------- -------
12,338 236,160 286,014
====== ======= =======
December 31, 2003
----------------------------------------
In, or linked
to, foreign
currency Linked to the
(mainly dollar) Israeli CPI Unlinked
------ ------ -------
NIS in thousands
Assets:
Current assets:
Cash and cash equivalents 8,561 150,145
Short-term investments 20,000
Receivables 48,457 215 210,560
Investments in associated companies - long-term
loans and capital notes 21,897 10,553 12,187
------ ------- -------
78,915 10,768 392,892
====== ======= =======
Liabilities:
Current liabilities:
Short-term credit from banks 144,617
Accounts payables and accruals 11,579 146,033
Long-term liabilities (including current maturities):
Loans from banks 372
Notes 239,629
Other liabilities 2,243 32,770
------ ------- -------
13,822 240,001 323,420
====== ======= =======
As to exposures relating to fluctuations in foreign currency exchange rates and
the use of derivatives for hedging purposes - see note 12a.
30
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES (continued):
b. Data regarding the exchange rate and the Israeli CPI:
Exchange rate of
one dollar CPI*
---------- ----
NIS Points
At end of year:
2004 4.308 180.7
2003 4.379 178.6
2002 4.737 182.0
Change in the year:
2004 (1.6%) 1.2%
2003 (7.6%) (1.9%)
2002 7.3% 6.5%
* Based on the index for the month ending on each
balance sheet date, on the basis of 1993 average =
100.
NOTE 9 - COMMITMENTS, CONTINGENT LIABILITIES AND LIABILITIES SECURED BY PLEDGES:
a. In respect of investment grants
Under the Law for the Encouragement of Capital Investments, 1959,
certain subsidiaries and an associated company have received
investment grants from the State of Israel. In the event of
failure to comply with the terms attached to the receipt of the
grants, the companies may be required to refund the amount of the
grants, in whole or in part, with linkage differences and
interest from the date of receipt.
The abovementioned subsidiaries have registered floating charges
on all their assets in favor of the State of Israel as security
for compliance with the terms of the investment grants received.
In respect of the grant received by the associated company, the
Company has provided a guarantee, with another associated
company, for the repayment of the grant. As of December 31, 2004,
the guarantee amounts to NIS 181,000.
b. In 1996, an associated company received a grant amounting to NIS
2,067,000 from the Fund for Preparation for Exposure of the
Ministry of Industry and Trade. With respect to this grant, the
Company has provided a bank guarantee of NIS 2,036,000 in favor
of the State of Israel.
c. The Company has provided guarantees of NIS 2,154,000 in favor of
an associated company, in connection with the latter's
participation in a tender. If the associated company does not win
the tender, the guarantee will become null and void.
d. A subsidiary has provided a guarantee of NIS 1,291,000 to a bank
in respect of a loan extended to an associated company.
e. A subsidiary provided guarantees to various entities, in
connection with tenders, in the aggregate amount of approximately
NIS 1,700,000.
31
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMITMENTS, CONTINGENT LIABILITIES AND LIABILITIES SECURED BY PLEDGES
(continued):
f. On May 7, 2001, the Company's board of directors resolved to
carry out a plan, which was approved by the shareholders'
meeting, to remunerate the Company's chairman of the board of
directors. According to the plan, a remuneration will be granted,
equal to the increase in the value of 50,000 shares of the
Company in the period from May 7, 2001 (share price - NIS 194.37,
linked to the terms of the plan) to May 7, 2008. The remuneration
will be spread over the period commencing two years from the
resolution of the board of directors, until the end of seven
years from said resolution. In 2004, one quarter of the
remuneration was exercised. As of December 31, 2004, another
quarter is exercisable. A liability was included in the financial
statements in respect of the above plan, under current
liabilities.
g. In accordance with the Companies Law, 1999, in 2004, the Company
issued new letters of indemnity to its officers, pursuant to
which the Company undertakes to indemnify the officers for any
liability or expense, for which indemnification may be paid under
the law, that may be incurred by the officers in connection with
actions performed by them as part of their duties as officers in
the Company, which are directly or indirectly related to the
events specified in the addendum to the letters of indemnity,
provided that the total amount of indemnification payable to the
officers, shall not exceed 25% of the Company's shareholders'
equity as per its latest financial statements published prior to
the actual indemnification. The liability of officers in
connection with the performance of their duties, as above, is
partly covered by an insurance policy.
32
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL
STATEMENT INFORMATION:
Balance sheets:
Weighted average December 31
interest rate -----------------------
at December 31, 2004 2003
2004 ------- -------
---------------- NIS in thousands
a. Short-term investments:
Short term deposit - linked to the CPI 4.0% 45,539
Short-term deposit - unlinked 20,000
Marketable securities 16,925
------- -------
62,464 20,000
======= =======
b. Receivables:
1) Trade:
Open accounts 128,699 128,021
Checks collectible 14,576 12,975
------- -------
143,275 140,996
======= =======
The item is:
Net of allowance for doubtful accounts 16,148 13,696
======= =======
Includes associated companies 26,089 26,594
======= =======
2) Other:
Employees and employee institutions 4,072 3,060
Associated companies 78,616 89,691
Prepaid expenses 2,287 2,883
Advances to suppliers 4,200 9,365
Deferred income taxes, see note 7f 5,358 7,127
Income tax authority 1,733 12,005
Interest receivable 1,579 257
Sundry 3,995 3,858
------- -------
101,840 128,246
======= =======
c. Inventories:
For industrial activities:
Finished goods 11,684 14,819
Raw materials and supplies 8,725 10,426
------- -------
20,409 25,245
For commercial activities - purchased products 16,972 18,817
------- -------
37,381 44,062
Maintenance and sundry stores 45,839 46,592
------- -------
83,220 90,654
======= =======
d. Credit from banks:
Short-term credit - unlinked 4.5% 110,446 144,617
Short-term credit - Swiss franc 3.2% 2,238
Current maturities of long-term
Loans 372
------- -------
112,684 144,989
======= =======
33
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
e. Accounts payable and accruals - other:
December 31
------------------
2004 2003
------ ------
NIS in thousands
Payroll and related expenses 34,904 37,324
Institutions in respect of employees 10,551 12,944
Customs and value added tax authorities 3,850 728
Associated company 511 521
Accrued interest 1,544 2,127
Accrued expenses 7,903 7,825
Sundry 7,092 11,541
------ ------
66,355 73,010
====== ======
Statements of income:
2004 2003 2002
------- ------- -------
NIS in thousands
f. Sales - net (1):
Industrial activities (2) 363,489 326,825 310,628
Commercial activities 119,365 138,267 145,147
------- ------- -------
482,854 465,092 455,775
======= ======= =======
(1) Including sales to associated companies 121,987 115,505 104,864
======= ======= =======
(2) Including sales to export 42,232 44,175 40,645
======= ======= =======
g. Cost of sales:
Industrial activities:
Materials consumed 83,533 72,292 61,649
Payroll and related expenses 91,468 85,419 78,903
Depreciation 24,537 22,739 21,182
Other manufacturing costs 82,991 80,709 77,765
Decrease (increase) in inventory of
finished goods 3,135 (1,651) 12,585
------- ------- -------
285,664 259,508 252,084
Commercial activities - cost of products sold 90,240 102,677 111,687
------- ------- -------
375,904 362,185 363,771
======= ======= =======
Including purchases from associated
Companies 22,793 26,374 29,423
34
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
2004 2003 2002
------ ------ ------
NIS in thousands
h. Selling, marketing, administrative and
general expenses:
Selling and marketing:
Payroll and related expenses 14,311 15,225 14,692
Packaging, transport and shipping 6,458 5,719 5,689
Commissions 2,467 2,733 1,605
Depreciation 1,159 1,595 1,659
Other 6,200 6,052 5,522
------ ------ ------
30,595 31,324 29,167
====== ====== ======
Administrative and general:
Payroll and related expenses 36,649 36,360 31,927
Office supplies, rent and maintenance 1,521 1,938 1,750
Professional fees 1,029 *1,663 1,010
Depreciation 2,776 2,814 3,884
Doubtful accounts and bad debts 3,102 944 1,791
Other 1,735 *4,681 10,148
------ ------ ------
46,812 48,400 50,510
L e s s - rent and participation from
associated companies 24,387 23,401 24,128
------ ------ ------
22,425 24,999 26,382
====== ====== ======
* Reclassified
i. Financial income (expenses) - net*: Expenses:
In respect of long-term loans - net 26 1,607
In respect of notes - including amortization
of deferred charges 15,188 5,031 1,291
Erosion of operating monetary balances,
net of related hedges 2,289
In respect of short-term balances - net
(2002 -net of borrowing costs capitalized to
the cost of fixed assets) 6,547 16,917 1,506
------ ------ ------
21,761 23,555 5,086
------ ------ ------
Income:
In respect of long-term loans - net 2,098
In respect of increase in value of operating
monetary balances, net of related hedges 1,901 **7,429
In respect of short-term balances - net 6,742 ** 137
------ ------ ------
8,643 7,566 2,098
------ ------ ------
(13,118) (15,989) (2,988)
====== ====== ======
* Including financial income (expenses) in respect
of loans to associated companies 721 (1,376) 2,207
====== ====== ======
** Reclassified
35
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
2003 2002
----- ------
NIS in thousands
j. Other income (expenses):
From the sale of apartments (1) 1,609
From termination of an activity and
disposal of assets(2) (2,942)
----- ------
1,609 (2,942)
===== ======
1) In 2003, the Company sold apartments that it previously held
for the use of its employees.
2) In 2002, the Company terminated operations at some of its
sites, as follows:
a) At the Molett site in Nahariya, the operation of the
old household paper machine was terminated, following
the introduction of a new tissue machine by
Hogla-Kimberly Ltd., an associated company.
Subsequently, the old paper machine was sold to a third
party (overseas).
b) In order to comply with the requirements of the
Ministry of Environment, the operation of the old paper
machines at the Shafir site in Tel-Aviv were
terminated. The termination included dismissal of
employees, sale of maintenance stores, sale of the
machines to a third party (overseas) and other related
costs (including closing inventories).
c) The Company sold real estate that it owned in Ashdod.
The effects of the restructuring resulting from the
termination of the operations are as follows:
2002
----------------
NIS in thousands
----------------
Severance pay expenses (2,334)
Other expenses, net of sale proceeds (4,475)
Gain on sale of real estate in Ashdod 3,867
----------------
(2,942)
================
NOTE 11 - NET INCOME PER NIS 1 OF PAR VALUE OF SHARES:
a. The weighted average par value of shares used in
computation of per share data is as follows:
NIS
---
Year ended December 31:
2004 40,640
==== ======
2003 40,197
==== ======
2002 39,557
==== ======
b. In the reported years, plans for granting stock options
to employees in the Group were taken into account in
computing per share data, having regard to the quoted
price of the Company's share at the end of each year.
36
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
a. Derivative financial instruments
The Company has limited involvement with derivative financial
instruments. The Company uses these instruments as hedges. The
Company utilizes derivatives, mainly forward exchange contracts
and currency options, to protect its cash flows in respect of
existing assets and liabilities denominated in currencies other
than the functional currency of the Company or that are linked to
the CPI. As the counter-parties to these derivatives are Israeli
banks, the Company considers the inherent credit risks remote.
In January 2004, the Company entered into a forward transaction
for a period of one year, in order to hedge an amount of NIS 200
million against increases in the Israeli CPI.
At the end of 2004, the Company entered into a forward
transaction for a period of one year, in order to hedge an amount
of NIS 200 million against increases in the CPI, following the
termination of the aforementioned transaction in January 2005.
b. Credit risks
The Company and its subsidiaries' cash and cash equivalents and
the short-term deposit as of December 31, 2004 are deposited
mainly with major Israeli banks. The Company and its subsidiaries
considers the credit risks in respect of these balances to be
remote.
Most of these companies sales are made in Israel, to a large
number of customers. The exposure to credit risks relating to
trade receivables is limited due to the relatively large number
of customers. The Group performs ongoing credit evaluations of
its customers to determine the required amount of allowance for
doubtful accounts. An appropriate allowance for doubtful accounts
is included in the financial statements.
c. Fair value of financial instruments
The fair value of the financial instruments included in working
capital of the Group is usually identical or close to their
carrying value. The fair value of loans and other liabilities
also approximates the carrying value, since they bear interest at
rates close to the prevailing market rates, except as described
below.
The Company does not disclose the fair value of long-term loans
and capital notes included under investments in associated
companies as of December 31, 2004, aggregating NIS 69,123,000
(see note 2b) and of a capital note to an associated company in
the amount of NIS 32,770,000 (see note 4b.), since their value
cannot be reliably determined so long as they have no repayment
dates.
37
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 - INTERESTED PARTIES - TRANSACTIONS AND BALANCES:
a. Transactions:
1) Income (expenses):
2004 2003 2002
------ ------ ------
NIS in thousands
Sales 45,278 38,715 36,030
====== ====== ======
Costs and expenses (9,247) (7,009) (6,038)
====== ====== ======
The amounts presented above represent transactions that the
Company carried out in the ordinary course of business with
interested parties (companies which are held by the Company's
principal shareholder), at terms and prices similar to those
applicable to non-affiliated customers and suppliers.
2) Benefits to interested parties:
2004 2003 2002
------ ------ -----
Payroll to interested parties employed
By the Company - NIS in thousands *3,300 *3,364 2,000
====== ====== =====
Number of people to whom
the benefits relate 2 2 1
====== ====== =====
Remuneration of directors who are not
employed by the Company -
NIS in thousands 528 444 324
====== ====== =====
Number of people to whom
the benefits relate 13 13 9
====== ====== =====
* In 2004 and 2003, the amounts include the salary of the
CEO who was appointed in April 2003 and ended his
office in April 2004, in addition to the salary of the
Chairman of the Board of Directors (who served earlier
as the CEO). The amount for 2004 includes a quarter of
the remuneration to the Chairman of the Board of
Directors, see note 9f.
3) In 2003, an interested party employed by the Company
exercised 15,999 options granted to him under the 1998 plan
for senior employees. 8,529 shares of NIS 0.01 par value
have been issued at par against the exercise of said
options.
4) As to the plan for the remuneration of the Company's
Chairman of the Board of Directors - see note 9f.
b. Balances with interested parties:
December 31
------------------
2004 2003
------ ------
NIS in thousands
Accounts receivable - commercial activity* 13,378 10,440
====== ======
Accounts payables and accruals 3,563 2,430
====== ======
* There were no significant changes in the balance during the year.
38
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 - SEGMENT INFORMATION:
a. Activities of the Company and its subsidiaries:
1) Manufacturing and marketing of packaging paper, including
collection and recycling of paper waste. The manufacturing
of paper relies mainly on paper waste as raw material.
2) Marketing of office supplies and paper, mainly to
institutions.
Most of the Group's sales are to the local market (Israel) and
most of its assets are located in Israel.
39
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 - SEGMENT INFORMATION (continued):
b. Business segment data:
Paper and recycling Marketing of office supplies
------------------------------- --------------------------------
2004 2003 2002 2004 2003 2002
------= ------- ------- ------- ------- -------
NIS in thousands
Sales - net(1) 367,391 332,124 314,636 115,463 132,968 141,139
== ======= ======= ======= ======= ======= =======
Income (loss) from ordinary operations 58,496 46,282 37,488 (4,566) 302 (1,033)
======= ======= ======= ======= ======= =======
Financial expenses, net
Other income (expenses)
Income before taxes on income
Segment assets (at end of year) 494,194 497,811 482,833 56,707 59,480 65,234
Unallocated assets (at end of year) (2)
Consolidated total assets (at end of year)
Segment liabilities (at end of year) 66,564 58,906 66,325 20,992 25,696 32,930
Unallocated liabilities (at end of year)
Consolidated total liabilities (at end of year)
Depreciation and amortization 26,671 25,523 24,422 1,962 2,724 2,387
======= ======= ======= ======= ======= =======
T o t a l
-----------------------------------
2004 2003 2002
--------- --------- ---------
NIS in thousands
Sales - net(1) 482,854 465,092 455,775
========= ========= =========
Income (loss) from ordinary operations 53,930 46,584 36,455
Financial expenses, net 13,118 15,989 2,988
Other income (expenses) 1,609 (2,942)
--------- --------- ---------
Income before taxes on income 40,812 32,204 30,525
Segment assets (at end of year) 550,901 557,291 548,067
Unallocated assets (at end of year) (2) 611,486 695,983 504,056
--------- --------- ---------
Consolidated total assets (at end of year) 1,162,387 1,253,274 1,052,123
========= ========= =========
Segment liabilities (at end of year) 87,566 84,602 99,255
Unallocated liabilities (at end of year) 499,518 554,442 301,918
--------- --------- ---------
Consolidated total liabilities (at end of year) 587,074 639,044 401,173
========= ========= =========
Depreciation and amortization 28,633 28,247 26,809
========= ========= =========
(1) Represents sales to external customers.
(2) Including investments in associated companies.
---------------
-------------------------------
---------------
40
Schedule
AMERICAN ISRAELI PAPER MILLS LIMITED
Details of Subsidiaries and Associated Companies
At December 31, 2004
Percentage of direct and
indirect holding in shares
conferring equity and
voting rights
--------------------------
%
Main subsidiaries:
Amnir Recycling Industries Limited 100.00
Graffiti Office Supplies and Paper Marketing Ltd. 100.00
Attar Marketing Office Supplies Ltd. 100.00
American Israeli Paper Mills Paper Industry (1995) Ltd. 100.00
Main associated companies:
Hogla-Kimberly Ltd. 49.90
Subsidiaries of Hogla-Kimberly Ltd.:
Hogla-Kimberly Marketing Limited 49.90
Molett Marketing Limited 49.90
Shikma For Personal Comfort Ltd. 49.90
Ovisan Sihhi Bez Sanai Ve Ticavet A.S. 49.90
Hogla-Kimberly Holdings A.S. 49.90
H-K Overseas (Holland) B.V. 49.90
Mondy Business Paper Hadera Ltd. 49.90
Subsidiaries of Mondy Business Paper Hadera Ltd.:
Grafinir Paper Marketing Ltd. 49.90
Yavnir (1999) Ltd. 49.90
Mondy Business Paper Hadera Marketing Ltd. 49.90
Mitrani Paper Marketing 2000 (1998) Ltd. 49.90
Carmel Container Systems Limited 26.25
C.D. Packaging Systems Limited* 63.20
Barthelemi Holdings Ltd. 33.91
T.M.M. Integrated Recycling Industries Ltd.** 41.60
* C.D. Packaging Systems Limited is partly held through Carmel Container
Systems Limited (an associated company); the holding in voting shares of
C.D. Packaging Systems Limited is 63.05%.
** T.M.M Integrated Recycling Industries Ltd. is partly held directly and
partly through Barthelemi Holdings Ltd.
41
[GRAPHIC OMITTED]
Enclosed please find the financial reports of the following associated
companies:
- Mondi Business Paper Hadera Ltd.
- Hogla-Kimberly Ltd.
The financial report of the following associated companies are not included:
- Carmel Containers Systems Ltd., according to section 44(c) of the
Securities (Periodic and Immediate Reports) Regulations.
- TMM Integrated Recycling Industries Ltd., a reporting corporation.
EXHIBIT 4
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
TABLE OF CONTENTS
Page
----
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7-32
Independent Auditors' Report
to the Shareholders of
Mondi Business Paper Hadera Ltd.
(formerly, Neusiedler Hadera Paper Ltd.)
We have audited the accompanying balance sheet of Mondi Business Paper Hadera
Ltd. ("the Company") as of December 31, 2004, and the consolidated balance sheet
as of that date, and the related statements of operations, changes in
shareholders' equity and cash flows - of the Company and on a consolidated basis
- for the year then ended. These financial statements are the responsibility of
the Company's Board of Directors and management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of the Company and on a consolidated basis as of December
31, 2003 and for each of the two years in the period then ended were audited by
other auditors whose report, dated March 10, 2004, expressed an unqualified
opinion on those financial statements.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States) and with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the Board of Directors and management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position - of the Company and on
a consolidated basis - as of December 31, 2004 and the results of operations,
changes in shareholders' equity and cash flows - of the Company and on a
consolidated basis - for the year then ended, in accordance with generally
accepted accounting principles in Israel. In addition, in our opinion, the
financial statements referred to above are prepared in accordance with the
Israeli Securities Regulations (Preparation of Annual Financial Statements),
1993.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
the financial position and results of operations as of the dates and for the
years presented.
As explained in Note 2A, the financial statements as of dates and for reporting
period commencing January 1, 2004, are presented at reported amounts, in
accordance with accounting standards of the Israeli Accounting Standards Board.
The financial statements as of dates prior to January 1, 2004 and for reporting
periods ended through December 31, 2003, have been prepared on the basis of
historical cost adjusted for changes in the exchange rate of the U.S. dollar in
relation to the NIS, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, February 23, 2005
-1-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
BALANCE SHEETS
(NIS in thousands)
Consolidated Company
------------------------- ------------------------
December 31, December 31,
------------------------- ------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------- ------- -------
Reported Adjusted Reported Adjusted
Note Amounts (1) Amounts (2) Amounts (1) Amounts (2)
--- ------- ------- ------- -------
Current Assets
Cash and cash equivalents 3 10,804 31,678 9,616 20,034
Trade receivables 4 157,815 147,748 - -
American Israeli Paper Mills
Group, net - - 178,289 (*)138,841
Other receivables 5 7,580 11,296 8,700 13,458
Inventories 6 90,391 89,231 60,301 62,650
------- ------- ------- -------
266,590 279,953 256,906 234,983
------- ------- ------- -------
Long-Term Investments
Investments in Subsidiaries 7 - - 1,933 (*) 4,340
------- ------- ------- -------
Fixed Assets 8
Cost 149,083 132,692 144,312 127,617
Less - accumulated depreciation 33,345 25,381 30,308 22,701
------- ------- ------- -------
115,738 107,311 114,004 104,916
------- ------- ------- -------
Other Assets - Goodwill 7B 3,800 4,423 - -
------- ------- ------- -------
386,128 391,687 372,843 344,239
======= ======= ======= =======
Current Liabilities
Current maturities of long-term
bank loans 11 15,125 15,108 15,125 15,108
Trade payables 9 104,661 104,097 63,902 53,397
American Israeli Paper Mills
Group, net 65,033 (*) 48,786 - -
Subsidiaries - - 99,159 52,671
Other payables and accrued expenses 10 23,132 (*) 16,864 16,480 16,231
------- ------- ------- -------
207,951 184,855 194,666 137,407
------- ------- ------- -------
Long-Term Liabilities
Long-term bank loans 11 36,248 51,725 36,248 51,725
Capital notes to shareholders 12 17,233 43,790 17,233 43,790
Deferred taxes 21 25,422 29,247 25,422 29,247
Accrued severance pay, net 13 87 145 87 145
------- ------- ------- -------
78,990 124,907 78,990 124,907
------- ------- ------- -------
Commitments and Contingent Liabilities 14
Shareholders' Equity
Share capital 15 1 1 1 1
Premium 43,352 43,352 43,352 43,352
Retained earnings 55,834 38,572 55,834 38,572
------- ------- ------- -------
99,187 81,925 99,187 81,925
------- ------- ------- -------
386,128 391,687 372,843 344,239
======= ======= ======= =======
(*) Reclassified.
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
----------------------- --------------- ----------------
E. Amar A. Solel Y. Yerushalmi
Chief Financial Officer General Manager Vice Chairman of
the Board of Directors
Approval date of the financial statements: February 23, 2005.
The accompanying notes are an integral part of the financial statements.
-2-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
STATEMENTS OF OPERATIONS
(NIS in thousands, except per share data)
Consolidated Company
---------------------------------------- ----------------------------------------
Year ended December 31, Year ended December 31,
---------------------------------------- ----------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ----------- ----------- ------- ----------- ----------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Note Amounts (1) Amounts (2) Amounts (2) Amounts (1) Amounts (2) Amounts (2)
-- ------- ----------- ----------- ------- ----------- ----------
Net sales 16 686,094 (*) 640,020 (*) 574,227 482,698 462,654 421,413
Cost of sales 17 605,738 556,890 (*) 491,712 416,504 391,492 (*)360,879
------- ----------- ----------- ------- ----------- ----------
Gross profit 80,356 83,130 82,515 66,194 71,162 60,534
Selling expenses 18 46,135 42,892 (*) 40,731 34,606 32,330 (*) 24,997
General and
administrative expenses 19 7,803 (*) 8,425 (*) 10,212 6,442 (*) 5,945 (*) 4,274
------- ----------- ----------- ------- ----------- ----------
Operating profit 26,418 31,813 31,572 25,146 32,887 31,263
Financing expenses, net 20 (8,438) (*) (2,561) (*) (3,852) (7,643) (2,713) (4,387)
Other income (expenses), net 100 (*) (215) (*) (109) 47 (*) (120) (*) (61)
------- ----------- ----------- ------- ----------- ----------
Income before income taxes 18,080 29,037 27,611 17,550 30,054 26,815
Income taxes 21 818 10,518 11,534 359 10,275 9,800
------- ----------- ----------- ------- ----------- ----------
Income after income taxes 17,262 18,519 16,077 17,191 19,779 17,015
Equity in net earnings
(losses) of Subsidiaries - - - 71 (1,260) (938)
------- ----------- ----------- ------- ----------- ----------
Net income for the year 17,262 18,519 16,077 17,262 18,519 16,077
======= =========== =========== ======= =========== ==========
Earnings per share (in NIS) 17,262 18,519 16,077 17,262 18,519 16,077
======= =========== =========== ======= =========== ==========
Number of shares used
In computation 1,000 1,000 1,000 1,000 1,000 1,000
======= =========== =========== ======= =========== ==========
(*) Reclassified.
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-3-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
Share Retained
capital Premium earnings Total
------- ------- -------- -----
Balance - January 1, 2002
(Adjusted Amounts (2)) 1 43,352 3,976 47,329
Changes during 2002:
Net income for the year - - 16,077 16,077
------- ------- -------- ------
Balance - December 31, 2002
(Adjusted Amounts (2)) 1 43,352 20,053 63,406
Changes during 2003:
Net income for the year - - 18,519 18,519
------- ------- -------- ------
Balance - December 31, 2003
(Adjusted Amounts (2)) 1 43,352 38,572 81,925
Changes during 2004:
Net income for the year - - 17,262 17,262
------- ------- -------- ------
Balance - December 31, 2004
(Reported Amounts (1)) 1 43,352 55,834 99,187
======= ======= ======== ======
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-4-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
STATEMENTS OF CASH FLOWS
(NIS in thousands)
Consolidated Company
--------------------------------------- ---------------------------------------
Year ended December 31, Year ended December 31,
--------------------------------------- ---------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------ ------- ------- ------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts (1) Amounts (2) Amounts (2) Amounts (1) Amounts (2) Amounts (2)
------- ------- ------ ------- ------- ------
Cash flows - operating activities
Net income for the year 17,262 18,519 16,077 17,262 18,519 16,077
Adjustments to reconcile net
income to net cash provided
by operating activities
(Appendix A) 20,295 37,698 31,659 30,855 29,887 26,772
------- ------- ------ ------- ------- ------
Net cash provided by
operating activities 37,557 56,217 47,736 48,117 48,406 42,849
------- ------- ------ ------- ------- ------
Cash flows - investing activities
Acquisition of fixed assets (16,235) (9,339) (16,305) (16,235) (9,339) (16,086)
Proceeds from sale of fixed assets 197 635 800 93 244 357
------- ------- ------ ------- ------- ------
Net cash used in investing
activities (16,038) (8,704) (15,505) (16,142) (9,095) (15,729)
------- ------- ------ ------- ------- ------
Cash flows - financing activities
Short-term bank credit, net - (18) (4,147) - - -
Repayment of long-term loans (15,265) (21,116) (7,266) (15,265) (21,116) (7,266)
Repayment of long-term capital
notes to shareholders (27,128) (43,790) - (27,128) (43,790) -
------- ------- ------ ------- ------- ------
Net cash used in
financing activities (42,393) (64,924) (11,413) (42,393) (64,906) (7,266)
------- ------- ------ ------- ------- ------
Increase (decrease) in
cash and cash equivalents (20,874) (17,411) 20,818 (10,418) (25,595) 19,854
Cash and cash equivalents -
beginning of year 31,678 49,089 28,271 20,034 45,629 25,775
------- ------- ------ ------- ------- ------
Cash and cash equivalents -
end of year 10,804 31,678 49,089 9,616 20,034 45,629
======= ======= ====== ======= ======= ======
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-5-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
APPENDICES TO STATEMENTS OF CASH FLOWS
(NIS in thousands)
Consolidated Company
--------------------------------- ----------------------------------
Year ended December 31, Year ended December 31,
--------------------------------- ----------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------ --------- ------ ------ ------ ------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts (1) Amounts (2) Amounts (2) Amounts (1) Amounts (2) Amounts (2)
------ --------- ------ ------ ------ ------
A. Adjustments to reconcile net
income to net cash provided by
operating activities
Income and expenses items
not involving cash flows:
Equity in net losses (earnings) of
subsidiaries - - - (71) 1,260 938
Depreciation and amortization 9,118 8,626 8,077 7,885 7,252 6,484
Deferred taxes, net 823 10,438 11,483 359 10,275 9,893
Increase (decrease) in liability for
severance pay, net (58) 14 5 (58) 49 19
Capital loss (gain)
from sale of fixed assets (100) 215 84 (47) 118 37
Effect of exchange rate and linkage
differences of long-term bank
loans and long-term loan to
subsidiary (195) 1,460 (134) (195) 1,307 (120)
Effect of exchange rate
differences of long-term
capital notes to shareholders 571 - - 571 - -
Changes in assets and liabilities:
Decrease (increase)
in trade receivables (10,067) 7,247 (696) - 2,811 (2,455)
Decrease (increase)
in other receivables (932) 752 9,025 574 (328) 7,983
Decrease (increase)
in inventories (1,160) (9,533) 13,010 2,349 1,945 5,744
Increase (decrease) in trade
payables (220) 27,447 6,043 9,721 8,626 1,716
Increase (decrease) in
American Israeli Paper Mills
Group, net 16,247 (*)(1,612) (*)(19,014) (39,448) (*)(63,995) (*)(41,447)
Increase in Subsidiaries - - - 48,966 61,486 33,473
Increase (decrease) in other
Payables and accrued expenses 6,268 (*)(7,356) (*) 3,776 249 (*) (919) (*) 4,507
------ --------- ------ ------ ------ ------
20,295 37,698 31,659 30,855 29,887 26,772
====== ========= ====== ====== ====== ======
B. Non-cash activities Acquisition of fixed
assets on credit 784 - - 784 - -
====== ========= ====== ====== ====== ======
(*) Reclassified.
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-6-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND GENERAL
A. Description of Business
Mondi Business Paper Hadera Ltd. ("the Company") was incorporated and
commenced operations on January 1, 2000. The Company and its
Subsidiaries are engaged in the production and marketing of paper,
mainly in Israel.
Within the framework of a comprehensive decision of Neusiedler AG
("NAG" or the "Parent Company"), wholly-owned by the Mondi Group, the
Company and one of its Subsidiaries changed their names in November
2004 to Mondi Business Paper Hadera Ltd. and Mondi Business Paper
Hadera Marketing Ltd. in replacement of Neusiedler Hadera Paper Ltd.
and Neusiedler Hadera Paper Marketing (1999) Ltd., respectively.
In the framework of a change in the organizational structure of the
Group, effective January 1, 2003, all marketing and selling activities
of the Group, which until such date were performed by four
Subsidiaries, were centralized to one Subsidiary with three logistic
sites.
The Company is presently owned by NAG (50.1%) and American-Israeli
Paper Mills Ltd. ("AIPM") (49.9%).
B. Definitions:
The Company - Mondi Business Paper Hadera Ltd.
The Group - the Company and its Subsidiaries, a list of which is
provided in Note 7C.
Subsidiaries - companies in which the Company exercises over 50%
ownership and control, directly or indirectly, and
whose financial statements are fully consolidated
with those of the Company.
Related Parties - as defined by Opinion No. 29 of the Institute of
Certified Public Accountants in Israel.
Interested Parties - as defined in the Israeli Securities Regulations
(Presentation of Financial Statements), 1993.
Controlling Shareholder - as defined in the Israeli Securities Regulations
(Presentation of Transactions between a Corporation
and its Controlling Shareholder in the Financial
Statements), 1996.
NIS - New Israeli Shekel.
CPI - the Israeli consumer price index.
Dollar - the U.S. dollar.
Euro - the United European currency.
Adjusted Amount - see Note 2A(1) below.
Reported Amount - see Note 2A(1) below.
-7-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND GENERAL (cont.)
C. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following are the principal accounting policies applied in the
preparation of the financial statements in a manner consistent with
previous years with the exception of the cessation of financial
statement adjustment as described in paragraph A below.
A. Cessation of Financial Statement Adjustment and Change to
Reporting in Reported Amounts - Standard No. 12
(1) Definitions
Adjusted Amount - historical nominal amount adjusted for
changes in the exchange rate of the U.S. dollar as of
December 31, 2003, in accordance with Opinion No. 36 of the
Institute of Certified Public Accountants in Israel.
Reported Amount - Adjusted Amount plus amounts in nominal
terms added subsequent to December 31, 2003, and less
amounts subtracted after that date.
(2) General
In January 2004, Israeli Accounting Standard No. 12
"Cessation of Financial Statements Adjustment" came into
effect. Following the initial implementation of Standard No.
12, commencing January 1, 2004, the Group ceased the
presentation of its financial statements based on nominal
historical cost adjusted for the changes in the exchange
rate of the U.S. dollar in relation to the NIS. Effective
with the interim financial statements as of March 31, 2004
and for the reporting periods thereafter, including the year
ended December 31, 2004, the Group's financial statements
are prepared and presented in Reported Amounts.
Comparative figures included in these financial statements
relating to December 31, 2003 and for each of the two years
then ended, are presented in Adjusted Amounts.
The amounts at which non-monetary items are presented in
these financial statements do not necessarily represent
their realization value or economic value, but solely their
Reported Amount.
The Company's condensed financial statements in nominal
values, on the basis of which the Company's financial
statements in Reported amounts and Adjusted Amounts were
prepared, are presented in Note 24.
-8-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. Cessation of Financial Statement Adjustment and Change to Reporting in
Reported Amounts - Standard No. 12 (cont.)
(3) Principles of Adjustment applicable for financial statements
relating to reporting periods ended through December, 31 2003
a. Balance Sheet Items
Non-monetary items (items whose balances reflect historical
value at acquisition or upon establishment) have been
adjusted in accordance with the changes in the exchange rate
of the U.S. dollar from the date of
acquisition/establishment through December 31, 2003.
Monetary items (items whose balance sheet amount reflects
their current value or realization value at the balance
sheet date) are presented in the December 31, 2003 balance
sheet at their nominal value as of that date.
Investments in Subsidiaries were presented based on the
dollar adjusted financial statements of these companies.
b. Statement of Operations Items
Income and expenses reflecting transactions, other than
financial income and expenses, were adjusted for changes in
the exchange rate of the U.S. dollar from the date of the
transaction through December 31, 2003.
Income and expenses deriving from non-monetary items (mainly
depreciation, amortization, deferred taxes and changes in
inventory) were presented in a manner corresponding to the
adjustment of the related balance sheet items.
Financing income (expenses), net reflect income and expenses
in real terms and include exchange rate differences derived
from monetary items.
The Company's share in the results of Subsidiaries is
determined based on the dollar adjusted financial statements
of these companies.
-9-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. Cessation of Financial Statement Adjustment and Change to Reporting in
Reported Amounts - Standard No. 12 (cont.)
(4) Principles of Adjustment applicable for financial statements
relating to reporting periods ended through December, 31 2004
a. Balance Sheet Items
Non-monetary items (items whose balances reflect historical value
at acquisition or upon establishment) are presented at their
Adjusted Amounts plus additions and dispositions occurring during
the reporting period. Additions made subsequent to December 31,
2003 and dispositions of items added subsequent to such date, are
presented at their historical nominal value. Dispositions of
items added on or prior to December 31, 2003 are presented at
their Adjusted Amount.
Monetary items (items whose balance sheet amount reflects their
current value or realization value at the balance sheet date) are
presented at their nominal value as of the balance sheet date.
Investments in Subsidiaries are presented based on the financial
statements of these companies prepared according to the guidance
of Standard No. 12.
b. Statement of Operations Items
Income and expenses reflecting transactions, and financial income
and expenses, are presented at their nominal value.
Income and expenses deriving from non-monetary items (mainly
depreciation, amortization and changes in inventory) were
presented in a manner corresponding to the presentation of the
related non-monetary balance sheet item, as illustrated above.
The Company's share in the results of Subsidiaries is determined
based on the financial statements of these companies prepared
according to the guidance of Standard No. 12.
-10-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. Principles of Consolidation
The consolidated financial statements include consolidation of the
financial statements of all Subsidiaries. Material inter-company
balances and transactions of and between Subsidiaries have been fully
eliminated.
The data included in the consolidated financial statements is based on
audited financial statements of the Subsidiaries included therein.
For amortization policy of an allocated goodwill associated with the
acquisition of a Subsidiary, see H below.
C. Cash and Cash Equivalents
Cash and cash equivalents include bank deposits, available for
immediate withdrawal, as well as unrestricted short-term deposits with
maturities of less than three months from the date of deposit.
D. Allowance for Doubtful Accounts
The allowance for doubtful accounts is computed on the specific
identification basis for accounts whose collectibility, on
management's estimation, is uncertain.
E. Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined for raw materials, auxiliary materials and finished
products on the basis of weighted moving average cost per unit.
F. Investments in Subsidiaries
Investments in Subsidiaries are presented using the equity method
based on their audited financial statements. For amortization of an
excess cost of an investment in a Subsidiary over its net book value
at the acquisition date, see H below.
G. Fixed Assets
Fixed assets are presented at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line
method at rates considered adequate to depreciate the assets over
their estimated useful lives. Amortization of leasehold improvements
is computed over the shorter of the term of the lease, including any
option period, where the Company intends to exercise such option, or
their useful life.
The annual depreciation and amortization rates are: %
Leasehold improvements 10
Machinery and equipment 5-20 (mainly 5%)
Motor vehicles 15-20
Office furniture and equipment 7-33
-11-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
G. Fixed Assets (cont.)
Impairment of Long-Lived Assets
Management reviews long-lived assets on a periodic basis, as well as
when such a review is required based upon relevant circumstances, to
determine whether events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. According to
the Israeli Accounting Standards Board's Standard No. 15, "Impairment
of Assets", an asset's recoverable value is the higher of the asset's
net selling price and the asset's value in use, the latter being equal
to the asset's discounted expected cash flows. If applicable, an
impairment loss is recorded at the amount in which the carrying amount
of the asset exceeds its recoverable value.
H. Other Assets - Goodwill
The unallocated excess cost of an investment in a Subsidiary over its
net book value at the acquisition date reflects goodwill. The goodwill
is amortized over the expected estimated economic life of the goodwill
(10 years) by the straight-line method. Impairment examinations and
recognition are performed and determined based on the accounting
policy outlined in G above.
In March 2004, the Israeli Accounting Standards Board issued Standard
No. 20 "The amortization Period of Goodwill". Standard No. 20 calls
for the amortization of goodwill over its useful life, based on a
systematic method that should reflect the estimated expected period in
which the goodwill is to contribute economic benefits. The
amortization period shall not exceed 20 years from the date on which
the goodwill was initially recognized. Standard No. 20 is in effect
for reporting periods commencing January 1, 2004, and its provisions
are to be applied on a prospective basis. The implementation of
Standard No. 20 did not, and is not expected to, affect the Group's
financial position and results of operations.
I. Supplier Discounts
Ongoing discounts granted by suppliers, as well as year end discounts,
in respect of which no commitments to meet given targets are required
by the Group, are included in the financial statements upon the
execution of purchases that grant the Group said discounts. Supplier
discounts contingent upon the Group's fulfillment of certain targets,
such as meeting a minimal annual volume (in quantities or amount), or
an increase in purchases over previous periods, are included in the
financial statements in proportion to Group's purchases from suppliers
during the reported period, which advance the Group towards the stated
targets, only if it is expected that those targets will be reached and
the discounts can reasonably be estimated. The estimate of meeting the
targets is based, inter-alia, on historical experience, Group's
relationships established with the suppliers and the estimated volume
of purchases during the remaining reported period.
-12-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
J. Deferred Income Taxes
The Group records deferred taxes in respect of temporary differences
between the carrying values of assets and liabilities in the financial
statements and their values for tax purposes, including depreciation
differences on leased property and fixed assets. The Group records
deferred-tax assets in respect of temporary difference as well as in
respect of carry-forward tax losses so long as it is probable that
those assets will be realized in the foreseeable future. The deferred
taxes are computed by the tax rates expected to be in effect at
realization, as they are known at the balance sheet date.
The computation of deferred taxes has not taken into account taxes
that would have been applicable in case of future realization of
investments in Subsidiaries, since the Group does not contemplate such
realization in the foreseeable future.
K. Revenue Recognition
Revenues are recognized upon shipment, when title has been transferred
and collectibility is reasonably assured. Revenues are presented net
of discounts granted. The accrual for estimated discounts granted is
computed according to the provisions stipulated in the agreements, and
is recorded when revenues are recognized.
L. Forward Transactions
The gain or loss of currency forward transactions designated to hedge
long-term loans from banks against currency fluctuations, are included
in operations as incurred.
M. Earnings Per Share
Earnings per share are computed based on the weighted average number
of paid up capital shares during the year.
-13-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
N. Exchange Rates and Linkage Basis
(1) Balances in foreign currency or linked thereto are included in
the financial statements based on the representative exchange
rates, as published by the Bank of Israel, that were prevailing
at the balance sheet date.
(2) Following are the changes in the representative exchange rate of
the U.S. dollar and the Euro vis-a-vis the NIS and in the Israeli
CPI:
Representative
exchange rate CPI
of the Dollar "in respect of"
As of: (NIS per $1) (in points)
------------ -----------
December 31, 2004 4.308 180.74
December 31, 2003 4.379 178.58
December 31, 2002 4.737 182.02
Increase (decrease)
during the year ended: % %
- -
December 31, 2004 (1.6) 1.2
December 31, 2003 (7.6) (1.9)
December 31, 2002 7.3 6.5
(3) Exchange-rate differences are charged to operations as
incurred.
O. Reclassification
Certain amounts in prior years' financial statements have been
reclassified in order to conform to the 2004 presentation.
P. Recent Accounting Standards - Income Taxes
In July 2004, the Israeli Accounting Standards Board published
Accounting Standard No. 19 "Income Taxes" (the "Standard"). The
Standard established the guideline for recognizing, measuring,
presenting and disclosing taxes on income taxes in the financial
statements. The Standard is effective for financial statements
relating to reporting periods commencing on, or after, January 1,
2005. The initial adoption of the Standard shall be accounted for by
the cumulative effect of change in accounting method, for the
beginning of the period in which the Standard is initially adopted.
The Company estimates that the implementation of the new Standard is
not expected to have an effect on the Group's financial position,
results of operations and cash flows.
-14-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - CASH AND CASH EQUIVALENTS
Consolidated Company
------------------------ ----------------------
December 31,
----------------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ ------ ----- ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------ ------ ----- ------
NIS in thousands NIS in thousands
In NIS 10,215 7,186 9,616 7,138
In foreign currencies (primarily the
U.S. dollar) 589 24,492 - 12,896
------ ------ ----- ------
10,804 31,678 9,616 20,034
====== ====== ===== ======
NOTE 4 - TRADE RECEIVABLES
Consolidated
----------------------------
December 31,
----------------------------
2 0 0 4 2 0 0 3
------- -------
Reported Adjusted
Amounts Amounts
------- -------
Composition: NIS in thousands
Domestic
Open accounts 107,693 96,469
Checks receivable 29,943 35,952
------- -------
137,636 132,421
------- -------
Foreign
Open accounts 749 -
Related parties 21,872 18,957
------- -------
22,621 18,957
------- -------
Less - allowance for doubtful accounts 2,442 3,630
------- -------
157,815 147,748
======= =======
NOTE 5 - OTHER RECEIVABLES
Consolidated Company
----------------------- ----------------------
December 31,
---------------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
----- ------ ----- ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
----- ------ ----- ------
Composition: NIS in thousands NIS in thousands
Deferred taxes (Note 21D) 3,952 8,600 2,928 7,112
Prepaid expenses 842 990 620 329
Advances to suppliers 1,133 736 737 569
Value added taxe - - 3,636 4,922
Income tax advances, net 240 201 - -
Others 1,413 769 779 526
----- ------ ----- ------
7,580 11,296 8,700 13,458
===== ====== ===== ======
-15-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INVENTORIES
Consolidated Company
------------------------ -----------------------
December 31,
----------------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ ------ ------ ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------ ------ ------ ------
NIS in thousands NIS in thousands
Raw and auxiliary materials 30,098 31,389 30,098 31,389
Finished products (1) 60,293 57,842 30,203 31,261
------ ------ ------ ------
90,391 89,231 60,301 62,650
====== ====== ====== ======
(1) Includes products in transit 1,723 - - -
====== ====== ====== ======
The inventories are net of provision
for obsolescence 1,302 1,347 1,200 971
====== ====== ====== ======
NOTE 7 - INVESTMENTS IN SUBSIDIARIES
Company
-----------------------
December 31,
-----------------------
2 0 0 4 2 0 0 3
------ ------
Reported Adjusted
Amounts Amounts
------ ------
A. Composition NIS in thousands
Cost of shares 4,338 4,338
Accumulated losses since acquisition, net (2,405) (2,476)
------ ------
1,933 1,862
Long-term loan (*) - 2,478
------ ------
1,933 4,340
====== ======
(*) The non-interest bearing loan, denominated in NIS and linked to
the Israeli Consumer Price Index, was considered part of the
Company's investments in the Subsidiary. The loan was repaid at
the end of 2004.
Consolidated
----------------------
December 31,
----------------------
2 0 0 4 2 0 0 3
----- -----
Reported Adjusted
Amounts Amounts
----- -----
B. Goodwill: NIS in thousands
Cost 6,232 6,232
Less - accumulated amortization 2,432 1,809
----- -----
3,800 4,423
===== =====
-16-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INVESTMENTS IN SUBSIDIARIES (cont.)
C. Consolidated Subsidiaries
The consolidated financial statements as of December 31, 2004, include
the financial statements of the following Subsidiaries:
Ownership and control
As of December 31,
---------------------
2 0 0 4
---------------------
%
---------------------
Mondi Business Paper Hadera Marketing Ltd. (see Note 1A) 100.00
Grafinir Paper Marketing Ltd. 100.00
Yavnir (1999) Ltd. 100.00
Miterani Paper Marketing 2000 (1998) Ltd. 100.00
NOTE 8 - FIXED ASSETS
Office
Machinery furniture
Leasehold and Motor and
improvements equipment vehicles equipment Total
----- ----------- ----- ----- -------
Consolidated NIS in thousands
Cost:
Balance - January 1, 2004
(Adjusted Amounts) 3,724 (*) 124,390 1,785 2,793 132,692
Changes during 2004:
Additions - 16,155 811 53 17,019
Dispositions - (317) (311) - (628)
----- ----------- ----- ----- -------
Balance - December 31, 2004
(Reported Amounts) (1) 3,724 140,228 2,285 2,846 149,083
----- ----------- ----- ----- -------
Accumulated depreciation:
Balance - January 1, 2004
(Adjusted Amounts) 1,427 21,703 1,215 1,036 25,381
Changes during 2004:
Additions 389 7,329 367 410 8,495
Dispositions - (277) (254) - (531)
----- ----------- ----- ----- -------
Balance - December 31, 2004
(Reported Amounts) 1,816 28,755 1,328 1,446 33,345
----- ----------- ----- ----- -------
Net book value:
December 31, 2004
(Reported Amounts) 1,908 111,473 957 1,400 115,738
===== =========== ===== ===== =======
December 31, 2003
(Adjusted Amounts) 2,297 102,687 570 1,757 107,311
===== =========== ===== ===== =======
(*) Reclassified.
-17-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - FIXED ASSETS (cont.)
Office
Machinery furniture
Leasehold and Motor and
improvements equipment vehicles equipment Total
------------ --------- -------- --------- ------
Company NIS in thousands
Cost:
Balance - January 1, 2004
(Adjusted Amounts) 2,651 (*)123,066 71 1,829 127,617
Changes during 2004:
Additions - 16,155 811 53 17,019
Dispositions - (317) (7) - (324)
------------ --------- -------- --------- -------
Balance - December 31, 2004
(Reported Amounts) (1) 2,651 138,904 875 1,882 144,312
------------ --------- -------- --------- -------
Accumulated depreciation:
Balance - January 1, 2004
(Adjusted Amounts) 1,040 21,033 38 590 22,701
Changes during 2004:
Additions 265 7,172 121 327 7,885
Dispositions - (277) (1) - (278)
------------ --------- -------- --------- -------
Balance - December 31, 2004
(Reported Amounts) 1,305 27,928 158 917 30,308
------------ --------- -------- --------- -------
Net book value:
December 31, 2004
(Reported Amounts) 1,346 110,976 717 965 114,004
-=========== ========= ======== ========= =======
December 31, 2003
(Adjusted Amounts) 1,611 102,033 33 1,239 104,916
-=========== ========= ======== ========= =======
(*) Reclassified.
(1) Total cost as of December 31, 2004 includes payments on account of fixed
asset in the amount of NIS 5,326 thousand.
-18-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - TRADE PAYABLES
Consolidated Company
------------------------ -----------------------
December 31,
-----------------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------- ------ ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------- ------- ------ ------
NIS in thousands NIS in thousands
In Israeli currency 22,484 19,981 20,561 16,163
In foreign currency or linked thereto 82,177 84,116 43,341 37,234
------- ------- ------ ------
104,661 104,097 63,902 53,397
======= ======= ====== ======
NOTE 10 - OTHER PAYABLES AND ACCRUED EXPENSES
Consolidated Company
----------------------- -----------------------
December 31,
----------------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ --------- ------ ---------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------ --------- ------ ---------
NIS in thousands NIS in thousands
Accrued payroll
and related expenses 11,703 (*)11,900 11,703 (*)11,900
Value Added Tax 3,366 368 - -
Advances from customers 862 258 - -
NAG - Parent Company 2,252 552 - 552
Interest payable 2,900 2,882 2,900 2,882
Forward transaction 1,322 - 1,322 -
Other 727 (*) 904 555 (*) 897
------ --------- ------ ---------
23,132 (*)16,864 16,480 (*)16,231
====== ========= ====== =========
(*) Reclassified.
-19-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - LONG-TERM BANK LOANS
Consolidated
and Company
Interest ---------------------
rate December 31,
-------- ---------------------
% (*) 2 0 0 4 2 0 0 3
------ ------
Reported Adjusted
Amounts Amounts
------ ------
A.Composition NIS in thousands
In U.S. dollar (**) 3.06 31,946 44,755
In Israeli CPI 6.55 19,427 22,078
------ ------
51,373 66,833
Less - current maturities 15,125 15,108
------ ------
36,248 51,725
====== ======
(*) Annual average interest rate as of December 31, 2004.
(**) As of December 31, 2004, NIS 25,484 thousand bear interest based on Libor
plus + 0.5%-0.6%.
Consolidated
and Company
-----------
December 31,
------------
2 0 0 4
-------
Reported
Amounts
-------
B. Maturities NIS in thousands
Second year - 2006 15,327
Third year - 2007 11,235
Fourth year - 2008 3,688
Fifth year - 2009 5,998
Sixth year - 2010 and thereafter -
-------
36,248
=======
C. According to the loan agreements with the banks, the Company is to
achieve, inter alia, financial ratio at the end of each audited fiscal
year of total shareholders equity including capital notes to
shareholders to total assets to be no less than 30%. In case the
Company fails to fulfill these covenants, the banks are entitled to
demand early repayment of the loans, in whole or in part. As of
December 31, 2004, the Company was in full compliance with the
covenants stipulated in the bank agreements and this financial ratio
amounted to 30.15%.
D. As to a "negative pledge agreement" signed by the Company, see Note
14B.
E. In 2004 and 2003, the Company and its Subsidiaries entered into an
agreement for a bank credit facility, pursuant to which the Company
and its subsidiaries may, from time to time, borrow an aggregate
principal amount of up to adjusted NIS 87,580 thousand. Under the
terms of the agreement, the credit facility has no time limit. As of
the balance sheet date, the Group has not utilized any of the credit
facility.
-20-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - CAPITAL NOTES TO SHAREHOLDERS
The capital notes to shareholders are linked to the dollar and bear no
interest. According to the terms of the capital notes, the Company has
the ultimate discretion upon the dates of repayment of the capital
notes. As of December 31, 2004, the Company has not yet determined the
future repayment dates.
During 2004, the Company repaid the shareholders an aggregate of NIS
27,128 thousand ($ 6,000 thousand) in respect of capital notes.
NOTE 13 - ACCRUED SEVERANCE PAY, NET
Israeli law and labor agreements determine the obligations of the
Group to make severance payments to dismissed employees and to
employees leaving employment under certain other circumstances. The
liability for severance pay benefits, as determined by Israeli Law, is
based upon length of service and the employee's most recent monthly
salary. The liability of the Group for severance pay to its permanent
employees is covered by current deposits to pension and severance
funds. Accumulated amounts so funded are not under the control or
administration of the Group, and accordingly, neither those amounts
nor the corresponding accruals are reflected in the financial
statements. The amounts presented in the balance sheet as of December
31, 2004 reflects the severance pay liability in respect of temporary
employees.
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES
A. Commitments
(1) The Group is obligated to pay license fees to a shareholder - see
Note 22B.
(2) The Company and its Subsidiaries lease certain of their
facilities under operating leases for varying periods with
renewal options primarily from AIPM. Future minimum lease rentals
as of December 31, 2004 are as follows:
Consolidated Company
------------ -------
Reported amounts
----------------
NIS in thousands
----------------
2005 4,599 3,446
2006 4,599 3,446
2007 4,599 3,446
2008 4,453 3,446
------ ------
18,250 13,784
====== ======
B. Liens
To secure long-term bank loans and short-term bank credit (the balance
of which as of December, 31 2004 is NIS 51,373 thousand), the Company
entered into a "negative pledge" agreement under which the Company is
committed not to pledge any of its assets, excluding fixed pledges
relating to assets financed by others, prior to the consent of the
banks.
-21-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
C. Guarantees
The Company from time to time and in the framework of its ongoing
operations provides guarantees, the amount of which as of December, 31
2004 was NIS 4,058 thousand.
NOTE 15 - SHARE CAPITAL
A. As of December 31, 2004 and 2003, share capital is composed of
ordinary shares of NIS 1.00 par value each. Authorized - 38,000
shares; issued and paid up - 1,000 shares.
B. Holders of ordinary shares are entitled to participate equally in the
payment of cash dividends and bonus share (stock dividend)
distributions and, in the event of the liquidation of the Company, in
the distribution of assets after satisfaction of liabilities to
creditors. See also Note 1A.
NOTE 16 - NET SALES
Consolidated Company
-------------------------------------- -------------------------------------
Year ended December 31, Year ended December 31,
------- ----------- ----------- ------- ------- -------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ----------- ----------- ------- ------- -------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ----------- ----------- ------- ------- -------
NIS in thousands NIS in thousands
Industrial operations 471,190 (*) 453,807 (*) 422,885 482,698 462,654 421,413
Commercial operations 214,904 186,213 (*) 151,342 - - -
------- ----------- ----------- ------- ------- -------
686,094 (*) 640,020 (*) 574,227 482,698 462,654 421,413
======= =========== =========== ======= ======= =======
(*) Reclassified.
-22-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - COST OF SALES
Consolidated Company
---------------------------------------- ------------------------------------
Year ended December 31, Year ended December 31,
---------------------------------------- ------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- --------- ---------- ------- --------- ----------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- --------- ---------- ------- --------- ----------
NIS in thousands NIS in thousands
Purchases (**) 188,013 177,176 122,125 - - -
Materials consumed 297,006 271,334 251,070 297,006 271,334 251,070
Salaries and related expenses 32,576 30,482 (*) 27,358 32,576 30,482 (*) 27,358
Subcontracting 5,066 (*) 4,388 (*) 2,951 5,06 (*) 4,388 (*) 2,951
Energy costs 45,991 43,166 36,539 45,991 43,166 36,539
Depreciation 7,896 7,243 6,464 7,897 7,243 6,464
Other manufacturing costs
and expenses (including rent) 31,124 (*)30,370 (*) 26,230 30,335 (*)29,584 (*) 24,788
------- --------- ---------- ------- --------- ----------
607,672 564,159 472,737 418,871 386,197 349,170
Change in finished goods and
goods in process (1,934) (7,269) 18,975 (2,367) 5,295 11,709
------- --------- ---------- ------- --------- ----------
605,738 556,890 (*)491,712 416,504 391,492 (*)360,879
======= ========= ========== ======= ========= ==========
(*) Reclassified.
(**) The purchases of the Group are related principally to commercial
operations.
NOTE 18 - SELLING EXPENSES
Consolidated Company
---------------------------------------- ------------------------------------
Year ended December 31, Year ended December 31,
---------------------------------------- ------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- --------- ---------- ------- --------- ----------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- --------- ---------- ------- --------- ----------
NIS in thousands NIS in thousands
Salaries and related expenses 17,169 16,913 (*)16,440 17,169 16,913 (*) 10,284
Packaging and shipping to customers 16,235 (*)14,368 (*)14,460 15,464 (*)13,756 (*) 13,058
Maintenance and rent 7,973 (*) 7,641 (*) 7,195 313 (*) 429 (*) 1,204
Transportation expenses 1,256 1,178 1,427 1,137 399 315
Advertising - 180 153 - 180 116
Commissions and license fees
to a shareholder 2,912 1,865 176 - - -
Depreciation 552 670 880 523 (*) 653 20
Other 38 (*) 77 (*) - - (*) - (*) -
------- --------- ---------- ------ --------- -----------
46,135 42,892 (*)40,731 34,606 32,330 (*) 24,997
======= ========= ========== ====== ========= ===========
(*) Reclassified.
-23-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 19 - GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated Company
---------------------------------- ------------------------------------
Year ended December 31, Year ended December 31,
---------------------------------- ------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
----- --------- --------- ----- --------- ---------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
----- --------- --------- ----- --------- ---------
NIS in thousands NIS in thousands
Salaries and related expenses 3,811 3,821 3,310 3,811 3,821 2,090
Office maintenance 187 (*) 232 (*) 696 - (*) - (*) -
Professional and
management fees 2,217 1,594 2,227 1,555 1,152 1,549
Depreciation 47 (*) 28 (*) 110 40 (*) 31 (*) -
Amortization of goodwill 623 (*) 623 (*) 623 - - -
Bad and doubtful debts (311) 679 1,475 - - -
Other 1,229 (*) 1,448 (*) 1,771 1,036 (*) 941 (*) 635
----- --------- --------- ----- --------- ---------
7,803 (*) 8,425 (*)10,212 6,442 (*) 5,945 (*) 4,274
===== ========= ========= ===== ========= =========
(*) Reclassified.
NOTE 20 - FINANCING EXPENSES, NET
Consolidated Company
---------------------------------- ----------------------------------
Year ended December 31, Year ended December 31,
---------------------------------- ----------------------------------
2 0 0 4 (*)2 0 0 3 (*)2 0 0 2 2 0 0 4 (*)2 0 0 3 (*)2 0 0 2
----- ----- ------ ----- ------ -----
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
----- ----- ------ ----- ------ -----
NIS in thousands NIS in thousands
Interest on long-term bank loans 2,573 3,254 4,208 2,573 3,254 4,208
===== ===== ====== ===== ====== =====
Erosion of monetary assets and
liabilities, net 2,070 (783) (1,210) 1,293 (2,112) (664)
===== ===== ====== ===== ====== =====
Forward transaction 1,322 - - 1,322 - -
===== ===== ====== ===== ====== =====
(*) Reclassified.
-24-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - INCOME TAXES
A. The Company and its Subsidiaries are taxed according to the provisions
of The Income Tax Ordinance and the Income Tax Law (Inflationary
Adjustments), 1985. The Company is an industrial company in conformity
with the Law for the Encouragement of Industry (Taxes), 1969. The
major benefits the Company is entitled to under this law is
accelerated depreciation rates.
Consolidated Company
------------------------------------ -------------------------------------
Year ended December 31, Year ended December 31,
------------------------------------ -------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------- ------- ------- -------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ------- ------- ------- ------- -------
B. Composition NIS in thousands NIS in thousands
Current taxes 81 80 51 - - -
Taxes in respect of prior years (86) - - - - (93)
Deferred taxes (E. below) 823 10,438 11,483 359 10,275 9,893
--- ------ ------ --- ------ -----
818 10,518 11,534 359 10,275 9,800
=== ====== ====== === ====== =====
C. Reconciliation of the Statutory Tax Rate to the Effective Tax Rate
Consolidated Company
-------------------------------------- --------------------------------------
Year ended December 31, Year ended December 31,
-------------------------------------- --------------------------------------
2 0 0 4 (*)2 0 0 3 (*)2 0 0 2 2 0 0 4 (*)2 0 0 3 (*)2 0 0 2
------ ------ ------ ------ ------ ------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------ ------ ------ ------ ------ ------
NIS in thousands NIS in thousands
Income before income taxes 18,080 29,037 27,611 17,550 30,054 26,815
====== ====== ====== ====== ====== ======
Tax computed by
statutory tax rate
(35%-36% - see E. below) 6,328 10,453 9,940 6,143 10,819 9,653
Tax increments (savings)
due to:
Non-deductible expenses 211 226 239 - 33 -
Non-taxable income (40) - (94) (21) (15) (94)
Reduction in corporate tax rates -
(E. below) (4,397) - - (4,479) - -
Differences arising from
basis of measurement (**) (1,198) (161) 1,449 (1,284) (562) 334
Prior years income taxes (86) - - - - (93)
------ ------ ------ ------ ------ ------
818 10,518 11,534 359 10,275 9,800
====== ====== ====== ====== ====== ======
(*) Reclassified.
(**) For 2004 - Reported Amounts (NIS) for financial reporting purposes
vis-a-vis the consumer price index for tax purposes; For 2003 and 2002 -
U.S. dollar for financial reporting purposes vis-a-vis the Consumer Price
Index for tax purposes.
-25-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - INCOME TAXES (cont.)
D. Deferred Taxes
Consolidated Company
--------------------------------------- ---------------------------------------
Year ended December 31, Year ended December 31,
--------------------------------------- ---------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------- ------- ------- -------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ------- ------- ------- ------- -------
NIS in thousands NIS in thousands
Balance as of beginning of year (20,647) (10,209) 1,274 (22,135) (11,860) (1,967)
Changes during the year (5,220) (10,438) (11,483) (4,838) (10,275) (9,893)
Adjustment due to
change in income tax rates 4,397 - - 4,479 - -
------- ------- ------- ------- ------- -------
Balance as of end of year (21,470) (20,647) (10,209) (22,494) (22,135) (11,860)
======= ======= ======= ======= ======= =======
Consolidated Company
----------------------- -----------------------
December 31,
-------------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------- ------- -------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------- ------- ------- -------
NIS in thousands NIS in thousands
Deferred taxes are presented in the
balance sheets as follows:
Long-term liabilities:
Depreciable fixed assets (25,448) (29,299) (25,448) (29,299)
Accrued severance pay, net 26 52 26 52
------- ------- ------- -------
(25,422) (29,247) (25,422) (29,247)
------- ------- ------- -------
Other receivables and prepayments (Note 5):
Inventories - 544 - 364
Allowance for doubtful accounts 831 1,308 - -
Vacation and recreation pay 1,564 1,518 1,564 1,518
Carry forward tax losses 1,557 5,230 1,364 5,230
------- ------- ------- -------
3,952 8,600 2,928 7,112
------- ------- ------- -------
(21,470) (20,647) (22,494) (22,135)
======= ======= ======= =======
For 2004 - Deferred taxes were computed at rates between 30%-34%, primarily
- 30%.
For 2003 - Deferred taxes were computed at 36%.
E. Reduction of Corporate Tax Rates
In June 2004, the Israeli Knesset passed Amendment No. 140 to the Income
Tax Ordinance, according to which the corporate income-tax rate would be
gradually reduced from 36% to 30% by 2007 (2004-35%, 2005-34%, 2006-32%,
2007-30%).
-26-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - INCOME TAXES (cont.)
F. Carryforward tax losses of the Group and the Company are NIS 4,362 thousand
and NIS 4,010 thousand as of December 31, 2004, respectively.
G. The Company and its Subsidiaries have tax assessments that are considered
final through the 2000 tax year.
NOTE 22 - RELATED PARTIES AND INTERESTED PARTIES
A. Balances with Related Parties and Subsidiaries
Consolidated Company
--------------------- ----------------------
December 31,
---------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ --------- ------- ----------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------ --------- ------- ----------
NIS in thousands NIS in thousands
Trade receivables - AIPM - - 178,289 (*)138,841
====== ========= ======= ==========
Trade receivables - related parties 21,872 18,957 - -
====== ========= ======= ==========
Long-term loan to Subsidiary - - - 2,478
====== ========= ======= ==========
Trade payables - AIPM 65,033 (*)48,786 - -
====== ========= ======= ==========
Trade payables - related parties 9,009 (*) 9,536 103,671 (*) 54,094
====== ========= ======= ==========
Other payables and accrued expenses - AIPM 2,478 (*) 2,298 2,478 (*) 2,298
====== ========= ======= ==========
Other payables and accrued expenses - related
parties 2,252 (*) 552 - (*) 552
====== ========= ======= ==========
Capital notes to shareholders 17,233 43,790 17,233 43,790
====== ========= ======= ==========
(*) Reclassified.
-27-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - RELATED PARTIES AND INTERESTED PARTIES (cont.)
B. Transactions with Related Parties and Subsidiaries
Consolidated Company
----------------------------------- ---------------------------------
Year ended December 31, Year ended December 31,
------- ---------- ---------- ------ ---------- ---------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ---------- ---------- ------ ---------- ---------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ---------- ---------- ------ ---------- ---------
NIS in thousands NIS in thousands
Sales to related parties 165,596 171,131 155,599 - - -
======= ========== ========== ======= ========== =========
Sales to Subsidiaries - - - 482,698 462,654 421,413
======= ========== ========== ======= ========== =========
Cost of sales 106,546 (*) 88,613 (*) 75,716 78,400 (*) 73,024 (*)66,035
======= ========== ========== ======= ========== =========
Selling expenses, net
(Participation in selling
expenses, net) 9,875 (*) 6,428 (*) - 1,796 (*) (1,909) (*)(3,643)
======= ========== ========== ======= ========== =========
General and administrative expenses 1,837 (*) 1,410 (*) 1,756 1,480 (*) 1,086 (*) 1,432
======= ========== ========== ======= ========== =========
Financing expenses (income), net 1,939 13,759 (3,722) 2,268 858 (298)
======= ========== ========== ======= ========== =========
(*) Reclassified.
(**) The transactions as above are in the ordinary course of business at market
prices and customary credit terms.
C. (1) The Company leases its premises from AIPM and render services
(including electricity, water, maintenance and professional services)
under agreements, which are renewed every year.
(2) The Group is obligated to pay commissions and license fees to NAG.
NOTE 23 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS
A. Credit Risk
The revenues of the Group's are derive from a large number of
customers mainly in Israel and in Europe. Management regularly
monitors the balance of trade receivables and the financial statements
include an allowance for doubtful accounts based on management's
estimation. Taking the aforementioned into consideration, the exposure
to credit risk from trade receivables is immaterial.
Cash and cash equivalents (including amounts in foreign currency) are
deposited with major commercial banks in Israel.
-28-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 23 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS (cont.)
B. Fair Value of Financial Instruments
The financial instruments of the Group consist primarily of
non-derivative assets and liabilities. Non-derivative assets include
cash and cash equivalents, receivables, other current assets and
long-term loans given. Non-derivative liabilities include trade
payables, other current liabilities, long-term loans from banks and
capital notes to shareholders. Due to the nature of these financial
instruments, their fair value, generally, is identical or close to the
value at which they are presented in the financial statements, unless
stated otherwise.
The fair value of the long-term loans approximates their carrying
value, since they bear interest at rates close to the prevailing
market rates.
The terms of the Capital Notes to shareholders do not include
determined payment dates. Therefore, fair value based on present
values cannot be established and accordingly is not disclosed in the
financial statements.
The Group maintains enters from time to time, into off-balance sheet
financial instruments for hedging against currency and interest-rate
risks.
-29-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 24 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES
A. Balance Sheets
Company
-----------------------
December 31,
-----------------------
2 0 0 4 2 0 0 3
------- -----------
NIS in thousands
Current Assets
Cash and cash equivalents 9,616 20,034
American Israeli Paper Mills Group, net 178,289 (*) 138,841
Other receivables 5,772 6,328
Inventories 60,301 63,651
------- -----------
253,978 228,854
------- -----------
Long-Term Investments
Investments in Subsidiaries
648 (*) 2,854
======= ===========
Fixed Assets, net 111,066 101,815
------- -----------
365,692 333,523
======= ===========
Current Liabilities
Current maturities of long-term bank loans 15,125 15,108
Trade payables 63,902 53,397
Subsidiaries 99,159 52,671
Other payables and accrued expenses 16,480 (*) 16,231
------- -----------
194,666 137,407
------- -----------
Long term liabilities
Long term-bank loans 36,248 51,725
Capital notes to shareholders 17,233 43,790
Accrued severance pay, net 87 145
------- -----------
53,568 95,660
------- -----------
Shareholders' Equity 117,458 100,456
------- -----------
365,692 333,523
======= ===========
-30-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 24 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES (cont.)
B. Statement of Operations
Year ended December 31,
------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2
------- --------- ----------
NIS in thousands
Net sales 482,698 480,764 452,986
Cost of sales 417,831 406,930 (*)380,830
------- --------- ----------
Gross profit 64,867 73,834 72,156
Selling expenses 34,598 33,455 (*) 26,929
General and administrative expenses 6,444 (*) 9,080 (*) 4,629
------- --------- ----------
Operating profit 23,825 31,299 40,598
Financing (expenses) income, net (7,143) 3,152 (11,957)
Other income (expenses), net 48 (*) (93) (*) (10)
------- --------- ----------
Income before income taxes 16,730 34,358 28,631
Income taxes - - -
------- --------- ----------
Income after income taxes 16,730 34,358 28,631
Equity in net earnings (losses) of Subsidiaries 272 (34) (385)
------- --------- ----------
Net income for the year 17,002 34,324 28,246
(*) Reclassified.
-31-
MONDI BUSINESS PAPER HADERA LTD.
(FORMERLY, NEUSIEDLER HADERA PAPER LTD.)
NOTES TO FINANCIAL STATEMENTS
NOTE 24 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES (cont.)
C. Statements of Changes in Shareholders' Equity
Share Retained
Capital Premium earnings Total
------- ------ ------ -------
NIS in thousands
Balance - January 1, 2002 1 41,125 (3,240) 37,886
------- ------ ------ -------
Changes during 2002:
Net income for the year - - 28,246 28,246
------- ------ ------ -------
Balance - December 31, 2002 1 41,125 25,006 66,132
------- ------ ------ -------
Changes during 2003:
Net income for the year - - 34,324 34,324
------- ------ ------ -------
Balance - December 31, 2003 1 41,125 59,330 100,456
------- ------ ------ -------
Changes during 2004:
Net income for the year - - 17,002 17,002
------- ------ ------ -------
Balance - December 31, 2004 1 41,125 76,332 117,458
======= ====== ====== =======
-32-
EXHIBIT 5
HOGLA-KIMBERLY LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
HOGLA-KIMBERLY LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
TABLE OF CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7-31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
Hogla-Kimberly Ltd.
We have audited the accompanying balance sheets of Hogla-Kimberly Ltd. ("the
Company") as of December 31, 2004 and 2003, and the consolidated balance sheets
as of those dates, and the related statements of operations, changes in
shareholders' equity and cash flows - of the Company and on a consolidated basis
- for each of the three years in the period ended December 31, 2004. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States) and with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the Board of Directors and management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position - of the Company and
on a consolidated basis - as of December 31, 2004 and 2003, and the results of
operations, changes in shareholders' equity and cash flows - of the Company and
on a consolidated basis - for each of the three years in the period ended
December 31, 2004, in accordance with generally accepted accounting principles
in Israel. In addition, in our opinion, the financial statements referred to
above are prepared in accordance with the Israeli Securities Regulations
(Preparation of Annual Financial Statements), 1993.
As explained in Note 2A, the financial statements as of dates and for reporting
period commencing January 1, 2004, are presented at reported amounts, in
accordance with accounting standards of the Israeli Accounting Standards Board.
The financial statements as of dates prior to January 1, 2004 and for reporting
periods ended through December 31, 2003, have been prepared on the basis of
historical cost adjusted for changes in the exchange rate of the U.S. dollar in
relation to the NIS, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, March 7, 2005
-1-
HOGLA-KIMBERLY LTD.
BALANCE SHEETS
(NIS in thousands)
Consolidated Company
---------------------- -----------------------
December 31, December 31,
---------------------- -----------------------
Note 2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
---- ------- ------- ------- -------
Reported Adjusted Reported Adjusted
Amounts (1) Amounts (3) Amounts (1) Amounts (3)
------- ------- ------- -------
Current Assets
Cash and cash equivalents 3 117,364 37,340 109,717 31,645
Current maturities of long-term bank deposits 7 - 7,882 - 7,882
Trade receivables 4 214,389 229,979 113,448 74,668
Other receivables 5 35,725 14,222 13,855 7,879
Inventories 6 142,551 92,664 71,185 58,539
------- ------- ------- -------
510,029 382,087 308,205 180,613
------- ------- ------- -------
Long-Term Investments
Long-term bank deposits 7 68,928 70,064 - -
Capital note of shareholder 8 32,770 32,770 32,770 32,770
Investments in Subsidiaries 9 - - 176,400 196,037
------- ------- ------- -------
101,698 102,834 209,170 228,807
------- ------- ------- -------
Fixed Assets 10
Cost 507,175 479,744 406,271 380,774
Less - accumulated depreciation 222,256 210,176 174,306 164,163
------- ------- ------- -------
284,919 269,568 231,965 216,611
------- ------- ------- -------
Other Assets
Goodwill 9B 25,878 29,073 - -
Deferred taxes 22 15,108 - - -
------- ------- ------- -------
40,986 29,073 - -
------- ------- ------- -------
937,632 783,562 749,340 626,031
======= ======= ======= =======
Current Liabilities
Short-term bank credit - 1,087 - 1,087
Current maturities of
long-term bank loans 13 68,747 15,147 - -
Trade payables 11 219,902 139,555 265,546 174,580
Other payables and accrued expenses 12 38,720 37,632 12,249 10,645
------- ------- ------- -------
327,369 193,421 277,795 186,312
------- ------- ------- -------
Long-Term Liabilities
Long-term bank loans 13 81,851 96,338 - -
Deferred taxes 22 37,388 29,428 35,013 26,738
------- ------- ------- -------
119,239 125,766 35,013 26,738
------- ------- ------- -------
Commitments and Contingent Liabilities 15
Minority Interest 54,492 51,394 - -
------- ------- ------- -------
Shareholders' Equity
Share capital 16 29,038 28,788 29,038 28,788
Capital reserves 180,414 156,799 180,414 156,799
Translation adjustments relating to
foreign held autonomous Subsidiary (2) (3,377) - (3,377) -
Retained earnings 230,457 227,394 230,457 227,394
------- ------- ------- -------
436,532 412,981 436,532 412,981
------- ------- ------- -------
937,632 783,562 749,340 626,031
======= ======= ======= =======
(1) See Note 2A(1).
(2) See Note 2B.
(3) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
-------- ------------- -------- ----------
T. Davis Y. Yerushalmi O. Argov A. Brenner
Chairman of the Vice-Chairman of the Chief Financial Chief Executive
Board of Directors Board of Directors Officer Officer
Approval date of the financial statements: March 7, 2005.
The accompanying notes are an integral part of the financial statements.
-2-
HOGLA-KIMBERLY LTD.
STATEMENTS OF OPERATIONS
(NIS in thousands)
Consolidated Company
---------------------------------------- ----------------------------------------
Year ended December 31, Year ended December 31,
---------------------------------------- ----------------------------------------
Note 2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
---- --------- --------- --------- --------- --------- ---------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts (1) Amounts (2) Amounts (2) Amounts (1) Amounts (2) Amounts (2)
--------- --------- --------- --------- --------- ---------
Net sales 17 995,569 868,671 766,549 479,320 377,117 285,442
Cost of sales 18 719,982 621,014 554,763 393,903 322,558 233,096
--------- --------- --------- --------- --------- ---------
Gross profit 275,587 247,657 211,786 85,417 54,559 52,346
Selling expenses 19 193,701 130,670 123,955 15,286 7,538 5,373
General and
administrative expenses 20 41,029 39,046 29,941 4,985 4,381 5,368
--------- --------- --------- --------- --------- ---------
Operating profit 40,857 77,941 57,890 65,146 42,640 41,605
Financing income
(expenses), net 21 (1,490) 5,517 (13,425) (4,536) (12,268) (4,622)
Other income, net 903 496 78 205 238 714
--------- --------- --------- --------- --------- ---------
Income before income taxes 40,270 83,954 44,543 60,815 30,610 37,697
Income taxes 22 10,244 20,566 19,232 17,627 11,775 16,076
--------- --------- --------- --------- --------- ---------
Income after income
taxes 30,026 63,388 25,311 43,188 18,835 21,621
Equity in net earnings (losses)
of Subsidiaries - - - (16,260) 37,418 1,091
Minority interest in
earnings of Subsidiary (3,098) (7,135) (2,599) - - -
--------- --------- --------- --------- --------- ---------
Net income for the year 26,928 56,253 22,712 26,928 56,253 22,712
========= ========= ========= ========= ========= =========
Earnings per share (in NIS) (*) 3.16 6.61 2.67 3.16 6.61 2.67
========= ========= ========= ========= ========= =========
Number of shares used in
computation (*) 8,513,473 8,513,473 8,513,473 8,513,473 8,513,473 8,513,473
========= ========= ========= ========= ========= =========
(1) See Note 2A(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
(*) Retroactively adjusted for the effect of bonus share distribution.
The accompanying notes are an integral part of the financial statements.
HOGLA-KIMBERLY LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
Translation Dividend
adjustments declared
relating to after
foreign held balance
Share Capital autonomous Retained sheet
capital reserves Subsidiary earnings date Total
------ ------- ------ ------- -------- -------
Balance - January 1, 2002
(Adjusted Amounts (3)) 28,788 156,799 - 181,272 - 366,859
Changes during 2002:
Dividend declared
after balance-sheet date (32,843) 32,843 -
Net income for the year 22,712 22,712
------ ------- -------- ------- -------- -------
Balance - December 31, 2002 28,788 156,799 32,843 389,571
(Adjusted Amounts (3)) - 171,141
Changes during 2003:
Dividend paid (32,843) (32,843)
Net income for the year 56,253 56,253
------ ------- -------- ------- -------- -------
Balance - December 31, 2003
(Adjusted Amounts (3)) 28,788 156,799 - 227,394 - 412,981
Changes during 2004:
Distribution of bonus shares 250 23,615 (23,865) -
Translation adjustments
relating to foreign held
autonomous Subsidiary (2) (3,377) (3,377)
Net income for the year 26,928 26,928
------ ------- -------- ------- -------- -------
Balance - December 31, 2004
(Reported Amounts (1)) 29,038 180,414 (3,377) 230,457 - 436,532
------ ------- -------- ------- -------- -------
(1) See Note 2A(1).
(2) See Note 2B.
(3) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the financial statements.
-3-
HOGLA-KIMBERLY LTD.
STATEMENTS OF CASH FLOWS
(NIS in thousands)
Consolidated Company
--------------------------------- ----------------------------------
Year ended December 31, Year ended December 31,
--------------------------------- ----------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------- ------- ------- -------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts (1) Amounts (3) Amounts (3) Amounts (1) Amounts (3) Amounts (3)
------- ------- ------- ------- ------- -------
Cash flows - operating activities
Net income 26,928 56,253 22,712 26,928 56,253 22,712
Adjustments to reconcile net
income to net cash provided by
operating activities
(Appendix A) 30,683 4,190 14,324 60,934 7,188 80,535
-------- ------- ------- -------- ------- -------
Net cash provided by
operating activities 57,611 60,443 37,036 87,862 63,441 103,247
-------- ------- ------- -------- ------- -------
Cash flows - investing activities
Withdrawal of short-term bank deposit - - 57,069 - - -
Withdrawal of long-term bank deposits 8,138 9,195 8,759 8,138 9,195 8,759
Acquisition of fixed assets (25,191) (26,953) (76,523) (17,490) (20,351) (66,375)
Proceeds from sale of fixed assets 1,827 1,092 456 649 284 161
-------- ------- ------- -------- ------- -------
Net cash used in investing activities (15,226) (16,666) (10,239) (8,703) (10,872) (57,455)
-------- ------- ------- -------- ------- -------
Cash flows - financing activities
Dividend paid - (32,843) (43,790) - (32,843) (43,790)
Long-term loans received 57,672 28,949 11,386 - - -
Repayment of long-term loans (15,162) (24,960) - - - -
Short-term bank credit (1,087) 1,087 - (1,087) 1,087 -
-------- ------- ------- -------- ------- -------
Net cash provided by
(used in) financing activities 41,423 (27,767) (32,404) (1,087) (31,756) (43,790)
-------- ------- ------- -------- ------- -------
Translation adjustments of cash
and cash equivalents of foreign
held autonomous Subsidiary (2) (3,784) - - - - -
-------- ------- ------- -------- ------- -------
Increase (decrease) in cash and
cash equivalents 80,024 16,010 (5,607) 78,072 20,813 2,002
Cash and cash equivalents -
beginning of year 37,340 21,330 26,937 31,645 10,832 8,830
-------- ------- ------- -------- ------- -------
Cash and cash equivalents -
end of year 117,364 37,340 21,330 109,717 31,645 10,832
======== ======= ======= ======== ======= =======
(1) See Note 2A(1).
(2) See Note 2B.
(3) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the financial statements.
-4-
HOGLA-KIMBERLY LTD.
APPENDICES TO STATEMENTS OF CASH FLOWS
(NIS in thousands)
Consolidated Company
---------------------------------- ----------------------------------
Year ended December 31, Year ended December 31,
---------------------------------- ----------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------ ----- ------ ------ ----- ------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts (1) Amounts (2) Amounts (2) Amounts (1) Amounts (2) Amounts (2)
------ ----- ------ ------ ----- ------
A. Adjustments to reconcile
net income to net cash provided
by operating activities
Income and expenses items
not involving cash flows:
Minority interest in
earnings of
Subsidiary 3,098 7,135 2,599 - - -
Equity in net losses
(earnings) of
Subsidiaries - - - 16,260 (37,418) (1,091)
Depreciation and
amortization 23,468 25,213 22,086 14,702 14,789 12,093
Deferred taxes, net (5,011) 8,251 1,072 8,512 10,417 1,046
Loss (gain) from sale of fixed
assets (1,162) (482) 81 (205) (208) (29)
Effect of exchange rate
differences, net (1,901) (2,266) 2,202 (258) (2,476) 2,202
Changes in assets and liabilities:
Decrease (increase) in trade
receivables 15,763 (47,933) (14,411) 1,799 (4,930) (455)
Decrease (increase) in other
receivables (20,938) (2,115) 4,860 (6,211) (1,431 (1,395)
Increase in inventories (46,919) (6,237) (16,362) (12,646) (16,247) (10,406)
Increase in trade payables 49,624 27,544 18,343 8,392 13,628 15,495
Net change in balances with
related parties 13,591 (10,050) 7,731 28,985 42,067 71,830
Increase (decrease) in other
payables and accrued expenses 1,070 5,130 (13,877) 1,604 (11,003) (8,755)
------ ------ ------ ----- ------ ------
30,683 4,190 14,324 60,934 7,188 80,535
------ ------ ------ ----- ------ ------
B. Non-cash activities
Acquisition of fixed assets on credit 18,470 8,661 13,707 11,619 8,460 13,707
(1) See Note 2A(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the financial statements.
-5-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. Description
Hogla Kimberly Ltd. ("the Company") and its Subsidiaries are engaged
principally in the production and marketing of paper and hygienic products.
The Company's results of operations are affected by transactions with
shareholders and affiliated companies (see Note 23).
The Company is presently owned by Kimberly Clark Corp. ("KC" or the "Parent
Company") (50.1%) and American-Israeli Paper Mills Ltd. ("AIPM") (49.9%).
B. Definitions:
The Company - Hogla-Kimberly Ltd.
The Group - the Company and its Subsidiaries, a list of which is
provided in Note 9D.
Subsidiaries - companies in which the Company exercises over 50%
ownership and control, directly or indirectly, and
whose financial statements are fully consolidated
with those of the Company.
Related Parties - as defined by Opinion No. 29 of the Institute of
Certified Public Accountants in Israel.
-6-
Interested Parties - as defined by the Israeli Securities Regulations
(Presentation of Financial Statements), 1993.
Controlling Shareholder as defined by the Israeli Securities Regulations
(Presentation of Transactions between a Corporation
and its Controlling Shareholder in the Financial
Statements), 1996.
NIS - New Israeli Shekel.
CPI - the Israeli consumer price index.
Dollar - the U.S. dollar.
Adjusted Amount - see Note 2A(1) below.
Reported Amount - see Note 2A(1) below.
C. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
D. The financial statements of the Company are prepared in accordance with
the Israeli Securities Regulations (Preparation of Annual Financial
Statements), 1993.
-7-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following are the principal accounting policies applied in the
preparation of the financial statements in a manner consistent with
previous years with the exception of the cessation of financial
statement adjustment as described in paragraph A below and Translation
of Foreign Operations as described in paragraph B below.
A. Cessation of Financial Statements Adjustment and Change to
Reporting in Reported Amounts - Standard No. 12
(1) Definitions
Adjusted Amount - historical nominal amount adjusted
for changes in the exchange rate of the U.S. dollar
as of December 31, 2003, in accordance with Opinion
No. 36 of the Institute of Certified Public
Accountants in Israel.
Reported Amount - Adjusted Amount plus amounts in
nominal terms added subsequent to December 31, 2003,
and less amounts subtracted after that date.
(2) General
In January 2004, Israeli Accounting Standard No. 12
"Cessation of Financial Statements Adjustment" came
into effect. Following the initial implementation of
Standard No. 12, commencing January 1, 2004, the
Group ceased the presentation of its financial
statements based on nominal historical cost adjusted
for the changes in the exchange rate of the U.S.
Dollar in relation to the NIS. Effective with the
interim financial statements as of March 31, 2004 and
for the reporting periods thereafter, including the
year ended December 31, 2004, the Group's financial
statements are prepared and presented in Reported
Amounts.
Comparative figures included in these financial
statements relating to December 31, 2003 and for each
of the two years then ended, are presented in
Adjusted Amounts.
The amounts at which non-monetary items are presented
in these financial statements do not necessarily
represent their realization value or economic value,
but solely their Reported Amount.
The Company's condensed financial information in
nominal values, on the basis of which the Company's
financial statements in Reported Amounts and Adjusted
Amounts were prepared, are presented in Note 25.
(3) Basis of presentation
a. Balance Sheet Items
Non-monetary items (items whose balances
reflect historical value at acquisition or
upon establishment) are presented at their
Adjusted Amounts plus additions and
dispositions occurring during the reporting
period. Additions made subsequent to
December 31, 2003 and dispositions of items
added subsequent to such date, are presented
at their historical nominal value.
Dispositions of items added on or prior to
December 31, 2003 are presented at their
Adjusted Amount.
-8-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. Cessation of Financial Statements Adjustment and Change to
Reporting in Reported Amounts - Standard No. 12 (cont.)
(3) Basis of presentation (cont.)
a. Balance Sheet Items (cont.)
Monetary items (items whose balance sheet
amount reflects their current value or
realization value at the balance sheet date)
are presented at their nominal value as of
the balance sheet date.
Investments in Subsidiaries and minority
interest are presented based on the
financial statements of these companies
prepared according to the guidance of
Standard No. 12.
b. Statement of Operations Items
Income and expenses reflecting transactions,
and financial income and expenses, are
presented at their nominal value.
Income and expenses deriving from
non-monetary items (mainly depreciation and
amortization) were presented in a manner
corresponding to the presentation of the
related non-monetary balance sheet item, as
illustrated above.
The Company's share and minority interest in
the results of Subsidiaries are determined
based on the financial statements of these
companies prepared according to the guidance
of Standard No. 12.
(4) Principles of Adjustment through December 31, 2003
a. Balance Sheet Items
Non-monetary items (items whose balances
reflect historical value at acquisition or
upon establishment) have been adjusted in
accordance with the changes in the exchange
rate of the U.S. dollar from the date of
acquisition/establishment through December
31, 2003.
Investments in Subsidiaries and minority
interest were determined based on the dollar
adjusted financial statements of these
companies.
-9-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
Monetary items (items whose balance sheet
amounts represent current or realization
value at the balance sheet date) are
presented in the December 31, 2003 balance
sheet at their nominal value as of that
date.
b. Statement of Operations Items
Income and expenses reflecting transactions,
other than financial income and expenses,
were adjusted for changes in the exchange
rate of the U.S. dollar from the date of the
transaction to the balance sheet date.
Income and expenses arising from
non-monetary items (mainly depreciation,
amortization, deferred taxes and changes in
inventory) were adjusted in a manner
corresponding to the adjustment of the
related balance sheet items.
(4) Principles of Adjustment through December 31, 2003
(cont.)
b. Statement of Operations Items (cont.)
Financing income (expenses), net reflect
income and expenses in real terms and
include exchange rate differences derived
from monetary items.
The Company's share and the minority
interest in the results of Subsidiaries were
determined based on the dollar adjusted
financial statements of these companies.
c. Adjustment and Translation of Foreign
Subsidiaries Financial Statements
The financial statements of Subsidiaries
operating abroad, which act as an integral
operation of the Group, were prepared in
U.S. dollars and translated into NIS based
on the exchange rate of the U.S. dollar on
the balance sheet date.
B. Translation of Foreign Operations' Financial Statements -
Standard No. 13
(a) In January 2004, Israeli Accounting Standard
No. 13 "Effect of Changes in Foreign
Exchange Rates" came into effect. This
Standard addresses the translation of
transactions denominated in foreign
currency, as well as the translation of
financial statements of a foreign entity,
for inclusion in the financial statements of
the reporting company. Standard No. 13
supersedes Clarifications No. 8 and 9 to
Opinion No. 36 of the Institute of Certified
Public Accountants in Israel, which were
nullified on the date on which Accounting
Standard No. 12 came into effect, as
described in A above.
-10-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
(b) A Foreign Entity Classified as a Foreign
Held Autonomous Subsidiary
o Following the implementation of
Standard No. 13, commencing January
2004 goodwill derived from an
investment made in another entity
is to be treated as one of that
entity's assets. Accordingly, the
goodwill associated with the
Group's investment in Ovisan (a
Subsidiary located in Turkey) is
translated to NIS at the closing
rate, rather than at the exchange
rate at the date in which said
investment was made, as was
previously required under the
applicable accounting literature in
effect through December 31, 2003.
o Monetary and non-monetary assets
and liabilities of the foreign
entity are translated at the
closing rate.
o Statement of operations items and
cash flow items of the foreign
entity are translated, in general,
by the average exchange rate for
the reporting period, rather than
by the closing rate as was
previously required under the
applicable accounting literature
prior to the date in which Standard
No. 13 came into effect (January 1,
2004).
o All differences resulting from the
translation of the foreign entity's
financial statements by the method
described above, are included in a
separate component of shareholders'
equity as "Translation adjustments
relating to foreign held autonomous
Subsidiary".
-11-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. Principles of Consolidation
The consolidated financial statements include consolidation of
the financial statements of all Subsidiaries. Material
inter-company balances and transactions of and between
Subsidiaries and the Company have been fully eliminated.
The data included in the consolidated financial statements is
based on audited financial statements of the Subsidiaries
included therein.
The excess cost of an investment in a Subsidiary in Turkey
over the net book value upon acquisition of that Subsidiary is
allocated to fixed assets and is amortized at the rate
applicable to those assets, or upon their realization. The
unallocated excess cost reflects goodwill, which is presented
in the consolidated balance sheet as "other assets" and
amortized by the straight-line method over 15 years due to the
unique economic conditions relating to that Subsidiary and the
expected economic benefit period from its acquisition. See
also I below.
D. Cash and Cash Equivalents
Cash and cash equivalents include bank deposits, available for
immediate withdrawal, as well as unrestricted short-term
deposits with maturities of less than three months from the
date of deposit.
E. Allowance for Doubtful Accounts
The allowance for doubtful accounts is generally computed as
percentage from the relevant balances, on the basis of
historical experience, with the addition of a specific
provision in respect of accounts, which on management estimate
are doubtful of collection.
F. Inventories
Inventories are presented at the lower of cost or market
value, with cost determined as follows:
Finished products - Based on actual production cost.
Raw, auxiliary
materials and - Based on moving-average basis.
other
G. Investments in Subsidiaries
Investments in Subsidiaries are presented using the equity
method based on their audited financial statements. In
relation to excess cost of investment in Subsidiary in Turkey,
see C above.
-12-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
H. Fixed Assets
Fixed assets are presented at cost less accumulated
depreciation and amortization. Depreciation is calculated
using the straight-line method at rates considered adequate to
depreciate the assets over their estimated useful lives.
Amortization of leasehold improvements is computed over the
shorter of the term of the lease, including any option period,
where the Company intends to exercise such option, or their
useful life.
The annual depreciation and amortization rates are: %
Buildings 2-4
Leasehold improvements 10-25
Machinery and equipment 5-20
Motor vehicles 15-20
Office furniture and equipment 10-33
Impairment of Long-Lived Assets
Management reviews long-lived assets on a periodic basis, as
well as when such a review is required based upon relevant
circumstances, to determine whether events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. According to Standard No.15 of the
Israeli Accounting Standards Board, "Impairment of Assets", an
asset's recoverable value is the higher of the asset's net
selling price and the asset's value in use, the latter being
equal to the asset's discounted expected cash flows. If
applicable, an impairment loss is recorded at the amount in
which the carrying amount of the asset exceeds its recoverable
value.
I. Other Assets - Goodwill
Goodwill derived from the acquisition of Subsidiary in Turkey
is amortized based on the straight line method over 15 years
(see also C above). Impairment examinations and recognition
are performed and determined based on the accounting policy
outlined in H above. In March 2004, the Israeli Accounting
Standard Board issued Standard No. 20 "The Amortization Period
of Goodwill". Standard No. 20 calls for the amortization of
goodwill over its useful life, based on a systematic method
that should reflect the estimated expected period in which the
goodwill is to contribute economic benefits. The amortization
period shall not exceed 20 years from the date on which the
goodwill was initially recognized. Standard No. 20 is in
effect for reporting periods commencing January 1, 2004, and
its provisions are to be applied on a prospective basis. The
implementation of Standard No. 20 did not, and is not expected
to, affect the Group's financial position and results of
operations.
J. Supplier Discounts
Ongoing discounts granted by suppliers, as well as year end
discounts, in respect of which no commitments to meet given
targets are required by the Group, are included in the
financial statements upon the execution of purchases that
grant the Group said discounts. Supplier discounts contingent
upon the Group's fulfillment of certain targets, such as
meeting a minimal annual volume (in quantities or amount), or
an increase in purchases over previous periods, are included
in the financial statements in proportion to the Group's
purchases from suppliers during the reported period, which
advance the Group towards the stated targets, only if it is
expected that those targets will be reached and the discounts
can reasonably be estimated. The estimate of meeting the
targets is based, inter-alia, on historical experience,
Group's relationships established with the suppliers and the
estimated volume of purchases during the remaining reported
period.
-13-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
K. Deferred Income Taxes
The Group records deferred taxes in respect of temporary
differences between the carrying values of assets and
liabilities in the financial statements and their values for
tax purposes, including depreciation differences on leased
property and fixed assets. The Group records deferred-tax
assets in respect of temporary differences as well as in
respect of carry-forward tax losses so long as it is probable
that those assets will be realized in the foreseeable future.
The deferred taxes are computed by the tax rates expected to
be in effect at realization, as they are known at the approval
date of the financial statements.
The computation of deferred taxes has not taken into account
taxes that would have been applicable in case of future
realization of investments in Subsidiaries, since the Group
does not contemplate such realization in the foreseeable
future. Moreover, the computation also excludes deferred taxes
in respect of dividend distributions within the Group for
cases in which such dividend distributions are expected to be
tax-exempt.
L. Dividends
Dividends proposed or declared subsequent to the balance-sheet
date, but prior to the financial statements approval date, are
presented as a separate component of shareholders' equity.
M. Revenue Recognition
Revenues are recognized upon shipment, when title has been
transferred and collectibility is reasonably assured.
Revenues are presented net of sales incentives, primarily:
bonuses granted to chains as a percentage of their purchases
(target bonus); volume discounts; and coupons distributed to
customers entitling price discounts.
An accrual for estimated returns and sales incentives,
computed primarily on the basis of historical experience, is
recorded at the time revenues are recognized and deducted from
revenues.
N. Earnings Per Share
Earnings per share are computed based on the number of paid up
capital shares during the year.
O. Exchange Rates and Linkage Basis
(1) Balances in foreign currency or linked thereto are
included in the financial statements based on the
representative exchange rates, as published by the
Bank of Israel, that were prevailing at the balance
sheet date.
-14-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
O. Exchange Rates and Linkage Basis (cont.)
(2) Following are the changes in the representative
exchange rate of the U.S. dollar vis-a-vis the NIS
and the Turkish Lira, and in the CPI:
Representative
exchange Turkish Lira exchange CPI
rate of the rate with the U.S. "in respect
Dollar dollar of"
As of: (NIS per $1) (TL'000 per $1) (in points)
------------ --------------- -----------
December 31, 2004 4.308 1,352 180.74
December 31, 2003 4.379 1,393 178.58
December 31, 2002 4.737 1,640 182.02
Increase (decrease)
during the year ended: % % %
------------ --------------- -----------
December 31, 2004 (1.6) (2.9) 1.2
December 31, 2003 (7.6) (15.0) (1.9)
December 31, 2002 7.3 13.3 6.5
(3) Exchange-rate differences are charged to operations
as incurred.
P. Reclassification
Certain amounts in prior years' financial statements have been
reclassified in order to conform to the 2004 presentation.
Q. Recent Accounting Standards - Income Taxes
In July 2004, the Israeli Accounting Standard Board published
Accounting Standard No. 19 "Income Taxes" (the "Standard").
The Standard established the guidelines for recognizing,
measuring, presenting and disclosing income taxes in the
financial statements. The Standard is effective for financial
statements relating to reporting periods commencing on, or
after, January 1, 2005. The initial adoption of the Standard
shall be accounted for by the cumulative effect of a change in
accounting method, for the beginning of the period in which
the Standard is initially adopted. The implementation of
Standard No. 19 is not expected to affect the Group's
financial position and results of operations.
NOTE 3 - CASH AND CASH EQUIVALENTS
Consolidated Company
-------------------- -------------------
December 31,
-----------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------ ------- ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------- ------ ------- ------
NIS in thousands NIS in thousands
In NIS 875 527 589 520
In foreign currencies
(primarily the U.S. dollar) 116,489 36,813 109,128 31,125
------- ------ ------- ------
117,364 37,340 109,717 31,645
======= ====== ======= ======
-15-
NOTE 4 - TRADE RECEIVABLES
Consolidated Company
-------------------- -------------------
December 31,
-----------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------- ------- ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------- ------- ------- ------
NIS in thousands NIS in thousands
Domestic - Open accounts 159,693 154,617 - -
Checks receivable 33,013 34,421 - -
Related parties 598 348 91,023 60,820
------- ------- ------- ------
193,304 189,386 91,023 60,820
Foreign - Open accounts 25,971 47,697 3,900 5,699
Related parties 775 206 18,567 8,191
------- ------- ------- ------
220,050 237,289 113,490 74,710
Less - allowance for doubtful accounts 5,661 7,310 42 42
------- ------- ------- ------
214,389 229,979 113,448 74,668
======= ======= ======= ======
The Company's products are marketed principally by its Subsidiaries.
NOTE 5 - OTHER RECEIVABLES
Consolidated Company
------------------- ------------------
December 31,
----------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ ------ ------ -------
Reported Adjusted Reported Adjusted
Amount Amounts Amounts Amounts
------ ------ ------ -------
NIS in thousands NIS in thousands
Deferred taxes (Note 22D) 4,611 5,518 1,532 1,769
Prepaid expenses 2,175 2,908 1,429 1,570
Advances to suppliers 615 3,074 411 2,128
Value added taxes 15,970 236 - (*) 924
Income tax advances, net 10,973 1,467 10,134 878
Loans to employees 600 477 232 262
Other 781 542 117 (*) 348
------ ------ ------ -------
35,725 14,222 13,855 7,879
====== ====== ====== =======
(*) Reclassified.
NOTE 6 - INVENTORIES
Consolidated Company
------------------- ------------------
December 31,
----------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ ------ ------ -------
Reported Adjusted Reported Adjusted
Amount Amounts Amounts Amounts
------ ------ ------ -------
NIS in thousands NIS in thousands
Raw and auxiliary materials 67,765 48,482 37,710 34,293
Finished goods 56,872 29,087 18,729 10,969
Spare parts and other 17,914 15,095 14,746 13,277
------- ------ ------ --------
142,551 92,664 71,185 58,539
======= ====== ====== ========
-16-
NOTE 7 - LONG-TERM BANK DEPOSITS
Consolidated Company
Interest ------------------- -----------------------
rate December 31,
-------- ------------------------------------------------
% (*) 2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------ ------ ------- -----
NIS in thousands NIS in thousands
A. Composition
Linked to the U.S.
dollar 1.75 68,928 77,946 - 7,882
Less - current
maturities - 7,882 - 7,882
------ ------ ------- -----
68,928 70,064 - -
(*) Annual interest rate as of December 31, 2004.
B. The deposit is held as collateral for long-term loan received by
Subsidiary (see Note 15C).
C. The deposit is subject to re-deposit every two years.
NOTE 8 - CAPITAL NOTE OF SHAREHOLDER
The capital note of AIPM, denominated in NIS, is not linked and does
not bear interest. Repayment date will be mutually agreed upon. The
erosion or increase in value of the capital note was charged to capital
reserves until March 31, 2000 (the date on which AIPM ceased to be the
controlling shareholder).
NOTE 9 - INVESTMENTS IN SUBSIDIARIES
Company
--------------------
December 31,
--------------------
2 0 0 4 2 0 0 3
------- -------
Reported Adjusted
Amounts Amounts
------- -------
A. Composition NIS in thousands
Cost of shares 972 972
Equity in post-acquisition earnings, net 174,600 190,860
Translation adjustments relating to
foreign held autonomous Subsidiary (3,377) -
Capital notes (*) 4,205 4,205
------- -------
176,400 196,037
======= =======
(*) The non-interest bearing capital notes, denominated
in U.S. dollar, are considered part of the Company's
investments in the Subsidiaries. Repayment dates
have not yet been determined.
-17-
NOTE 9 - INVESTMENTS IN SUBSIDIARIES (cont.)
Consolidated
-------------------
December 31,
-------------------
2 0 0 4 2 0 0 3
------ ------
Reported Adjusted
Amounts Amounts
------ ------
B. Goodwill (see Note 2C above) NIS in thousands
Cost 40,859 41,532
Less - accumulated amortization 14,981 12,459
------ ------
25,878 29,073
====== ======
C. Investment in Ovisan
As of December 31, 2004, the Group's investment in the
Turkish Subsidiary amounted to NIS 28,001 thousand
(including goodwill in the net amount of NIS 25,878
thousand).
D. Consolidated Subsidiaries
The consolidated financial statements as of December 31,
2004, include the financial statements of the following
Subsidiaries:
Ownership and
control as of
December 31,
2004
-------------
%
-------------
Rakefet Marketing and Trade Services Ltd. ("Rakefet") (*) 79.7
Subsidiaries of Rakefet:
Hogla-Kimberly Marketing Ltd. (**) 99.5
("Marketing")
Shikma Ltd. ("Shikma") (**) 99.0
Mollet Marketing Ltd. ("Mollet") 100.0
H-K Overseas (Holland) B.V. 100.0
Subsidiaries of H-K Overseas (Holland) B.V.:
Ovisan Sihhi Bez Sanai ve Ticaret Anonim 100.0
Sirketi ("Ovisan")
Hogla-Kimberly Holding Anonim Sirketi 100.0
(*) The remaining ownership and control of Rakefet are
held by AIPM group (10.1%) and by KC (10.2%).
(**) The remaining ownership and control of Marketing and
Shikma are held by the Company.
-18-
NOTE 10 - FIXED ASSETS
Office
Machinery furniture
Leasehold and Motor and
CONSOLIDATED Buildings (1) improvements equipment vehicles equipment Total (2)
------ ----- ------- ------ ----- -------
Cost: NIS in thousands
Balance - January 1, 2004
(Adjusted Amounts) 54,869 9,268 384,618 19,048 11,941 479,744
Changes during 2004:
Additions 1,184 111 33,679 334 840 36,148
Dispositions - - (4,477) (5,111) (395) (9,983)
Foreign currency
translation adjustments 305 - 829 71 61 1,266
------ ----- ------- ------ ----- -------
Balance - December 31, 2004
(Reported Amounts) 56,358 9,379 414,649 14,342 12,447 507,175
------ ----- ------- ------ ----- -------
Accumulated depreciation:
Balance - January 1, 2004
(Adjusted Amounts) 15,385 5,097 166,491 14,983 8,220 210,176
Changes during 2004:
Additions 614 841 15,911 1,968 1,302 20,636
Dispositions - - (3,946) (4,985) (387) (9,318)
Foreign currency
translation adjustments 112 - 519 63 68 762
------ ----- ------- ------ ----- -------
Balance - December 31, 2004
(Reported Amounts) 16,111 5,938 178,975 12,029 9,203 222,256
------ ----- ------- ------ ----- -------
Net book value:
December 31, 2004
(Reported Amounts) 40,247 3,441 235,674 2,313 3,244 284,919
====== ===== ======= ====== ===== =======
December 31, 2003
(Adjusted Amounts) 39,484 4,171 218,127 4,065 3,721 269,568
====== ===== ======= ====== ===== =======
COMPANY
Cost:
Balance - January 1, 2004
(Adjusted Amounts) 25,209 6,112 343,089 3,159 3,205 380,774
Changes during 2004:
Additions 116 111 29,816 334 123 30,500
Dispositions - - (4,125) (878) - (5,003)
------ ----- ------- ------ ----- -------
Balance - December 31, 2004
(Reported Amounts) 25,325 6,223 368,780 2,615 3,328 406,271
------ ----- ------- ------ ----- -------
Accumulated depreciation:
Balance - January 1, 2004
(Adjusted Amounts) 11,812 3,733 142,932 3,076 2,610 164,163
Changes during 2004:
Additions - 589 13,876 18 219 14,702
Dispositions - - (3,681) (878) - (4,559)
------ ----- ------- ------ ----- -------
Balance - December 31, 2004
(Reported Amounts) 11,812 4,322 153,127 2,216 2,829 174,306
------ ----- ------- ------ ----- -------
Net book value:
December 31, 2004
(Reported Amounts) 13,513 1,901 215,653 399 499 231,965
====== ===== ======= ====== ===== =======
December 31, 2003
(Adjusted Amounts) 13,397 2,379 200,157 83 595 216,611
====== ===== ======= ====== ===== =======
(1) Buildings include industrial buildings on lands leased by the Company
from AIPM (until 2005).
(2) The majority of the Group's fixed assets are located in Israel.
-19-
NOTE 11 - TRADE PAYABLES
Consolidated Company
--------------------- ---------------------
December 31,
----------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------- ------- -------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------- ------- ------- -------
NIS in thousands NIS in thousands
In Israeli currency
Open accounts 112,932 78,509 57,371 34,206
Related parties 23,124 13,682 184,476 114,455
In foreign currency
Open accounts 67,915 37,294 19,041 20,804
Related parties 15,931 10,070 4,658 5,115
------- ------- ------- -------
219,902 139,555 265,546 174,580
======= ======= ======= =======
NOTE 12 - OTHER PAYABLES AND ACCRUED EXPENSES
Consolidated Company
--------------------- ---------------------
December 31,
----------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------- ------- -------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------- ------- ------- -------
NIS in thousands NIS in thousands
Accrued income taxes,
net of advances 10,464 8,663 - -
Accrued payroll and related expenses 22,195 20,531 10,796 10,474
Value Added Tax 2,695 4,779 1,269 -
Advances from customers 726 1,085 - 32
Other 2,640 2,574 184 139
------ ------ ------ ------
38,720 37,632 12,249 10,645
====== ====== ====== ======
NOTE 13 - LONG-TERM BANK LOANS
Interest Consolidated
rate December 31,
-------- ------ ------
% (*) 2 0 0 4 2 0 0 3
------ ------
Reported Adjusted
Amounts Amounts
------ ------
A. Composition NIS in thousands
In U.S. dollar Libor +1.22-1.63 150,598 108,858
In Euro - 2,627
Less - current maturities 68,747 15,147
------ ------
81,851 96,338
====== ======
(*) Annual interest rate as of December 31, 2004.
B. Maturities (NIS in thousands)
2005 - current maturities 68,747
2006 12,923
Thereafter - see C below 68,928
-------
150,598
=======
C. Subject to renewal every two years - see Note 7C.
D. Liens - see Note 15C.
-20-
NOTE 14 - SEVERANCE PAY
Obligations of the Group for severance pay to its employees are covered
by current payments to pension and severance funds. Accumulated amounts
in the pension and severance funds are not under the control or
administration of the Group, and accordingly, neither those amounts nor
the corresponding accruals are reflected in the financial statements.
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
A. Commitments
(1) The Group is obligated to pay royalties to a
shareholder - see Note 23B.
(2) The Company and its Subsidiaries lease certain of
their facilities under operating leases for varying
periods with renewal options. Future minimum lease
rentals as of December 31, 2004 are as follows:
Consolidated Company
------------ -------
NIS in thousands
2005 13,966 5,763
2006 7,178 -
2007 7,178 -
2008 7,178 -
2009 and thereafter 25,122 -
60,622 5,763
B. Guarantees
(1) The Company is contingently liable in respect of a
guarantee securing bank loans provided to a
Subsidiary, the balance of which as of December 31,
2004 amounted to NIS 81,670 thousand.
(2) As part of their normal course of business, the
Subsidiaries provided third parties with bank
guarantees for contract performance, the balance of
which as of December 31, 2004 amounted to NIS 295
thousand.
C. Liens
As a collateral for long-term loans given to Subsidiary, the
Group recorded a lien on its bank deposits, in the amount of
NIS 68,928 thousand as of December 31, 2004.
D. Legal proceedings
(1) The Company received on December 7, 2003 a claim and
a petition that was filed in Tel-Aviv district court
for the approval of a class action against the
Company. According to the petition the Company has
reduced the number of units of diapers in a package
and thus misled the public according to the Israeli
Consumer Protection Act. The plaintiffs estimate the
scope of the class action to be NIS 18 million. The
Company rejects the claim and intends to defend
itself against the action. Based on the opinion of
the Company's legal counsel for this matter,
management is unable, at this stage, to estimate the
possible outcome of the lawsuit. However, based on
the legal counsels, management estimates that the
Company has valid arguments to oppose the lawsuit and
reasonable basis for denying it from being recognized
as a class action. Therefore, no provision was
recorded in the financial statements relating to this
matter.
-21-
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
D. Legal proceedings (cont.)
(2) In February 2004, a former customer filed a lawsuit
against the Company. This lawsuit is a part of
multi-suppliers lawsuit, filed by the customer and
asking for one billion NIS from the Company and each
other supplier for alleged damages. The customer
asked for discharge from legal fee and the request
was denied. Due to the preliminary stage of the
proceedings, management is unable to estimate the
possible outcome of the lawsuit. However, based on
the Company's legal counsels, management estimates
that the Company has valid arguments to oppose the
lawsuit. Therefore, no provision was recorded in the
financial statements relating to this matter.
NOTE 16 - SHARE CAPITAL
A. Composition of Share Capital in Nominal NIS
As of December 31, As of December 31,
-------------------------- --------------------------
2004 2003
-------------------------- --------------------------
Issued and Issued and
Authorized fully paid up Authorized fully paid up
---------- --------- ---------- ---------
Ordinary Shares of
Nis 1.00 par value 11,000,000 8,513,473 11,000,000 8,263,473
---------- --------- ---------- ---------
B. In connection with the Company's approved enterprise program,
in September 2004, the Company's Board of Directors decided to
issue to the Company's shareholders 250,000 bonus shares with
a premium of NIS 94.46 for each share.
C. Holders of ordinary shares are entitled to participate equally
in the payment of cash dividends and bonus share (stock
dividend) distributions and, in the event of the liquidation
of the Company, in the distribution of assets after
satisfaction of liabilities to creditors. Each ordinary share
is entitled to one vote on all matters to be voted on by
shareholders.
NOTE 17 - NET SALES
Consolidated
--------------------------------------
Year ended December 31,
--------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2
------- ------- -------
% % %
------- ------- -------
A. Sales to major customers (as percentage from total net
sales)
Customer A 9.9 8.9 11.1
Customer B 11.0 10.1 11.8
NIS in thousands
--------------------------------------
Reported Adjusted Adjusted
Amounts Amounts Amounts
------- ------- -------
B. Sales from commercial operations 238,989 376,974 311,360
C. Foreign sales (principally Turkey) 108,102 106,935 80,184
======= ======= ======
-22-
NOTE 18 - COST OF SALES
Consolidated Company
----------------------------------- --------------------------------
Year ended December 31, Year ended December 31,
------- ------- ------- ------- ------- -------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------- ------- ------- -------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ------- ------- ------- ------- -------
NIS in thousands NIS in thousands
Purchases (*) 558,155 446,008 425,365 239,402 178,339 122,861
Salaries and related expenses 85,167 67,516 55,999 62,870 56,812 46,389
Manufacturing expenses 87,201 79,810 55,834 84,717 73,281 51,229
Depreciation 17,244 18,221 14,207 14,674 15,309 11,423
------- ------- ------- ------- ------- -------
747,767 611,555 551,405 401,663 323,741 231,902
Change in finished
goods inventory (27,785) 9,459 3,358 (7,760) (1,183) 1,194
------- ------- ------- ------- ------- -------
719,982 621,014 554,763 393,903 322,558 233,096
======= ======= ======= ======= ======= =======
(*) The purchases of the Company are related to manufacturing operations.
Consolidated purchases in excess of Company purchases relate
principally to commercial operations.
NOTE 19 - SELLING EXPENSES
Consolidated Company
------------------------------------- ----------------------------------
Year ended December 31, Year ended December 31,
------------------------------------- ----------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------- ------- ------- -------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ------- ------- ------- ------- -------
NIS in thousands NIS in thousands
Salaries and related expenses 57,003 46,887 39,656 - - 16
Maintenance and
transportation expenses 42,283 26,596 24,332 7,206 5,810 3,868
Advertising and sales promotion 60,114 30,371 38,591 6,373 86 46
Commissions to distributors 5,130 4,571 2,007 - - 453
Royalties to a shareholder 20,468 15,642 12,220 1,679 1,500 673
Depreciation 3,687 3,778 4,188 28 142 317
Other 5,016 2,825 2,961 - - -
------- ------- ------- ------- ------- -------
193,701 130,670 123,955 15,286 7,538 5,373
======= ======= ======= ======= ======= =======
-23-
NOTE 20 - GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated Company
---------------------------------- -------------------------------
Year ended December 31, Year ended December 31,
---------------------------------- -------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------ ------ ------ ----- ----- -----
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------ ------ ------ ----- ----- -----
NIS in thousands NIS in thousands
Salaries and related expenses 15,837 18,283 13,481 2,387 2,567 2,423
Administrative and computer
services 10,150 6,287 6,210 1,640 1,190 1,188
Services provided by
Shareholder 1,188 1,161 1,161 238 215 736
Office maintenance 4,632 5,376 2,990 230 207 228
Depreciation 522 718 588 - 2 4
Goodwill amortization 2,832 2,768 2,768 - - -
Provision for doubtful accounts 2,144 1,562 215 - - -
Other 3,724 2,891 2,528 490 200 789
------ ------ ------ ----- ----- -----
41,029 39,046 29,941 4,985 4,381 5,368
====== ====== ====== ===== ===== =====
NOTE 21 - FINANCING INCOME (EXPENSES), NET
Consolidated Company
------------------------------------ -----------------------------------
Year ended December 31, Year ended December 31,
------------------------------------ -----------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
-------- -------- -------- -------- -------- --------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
-------- -------- -------- -------- -------- --------
NIS in thousands NIS in thousands
Interest on long-term bank loans (2,673) (2,111) (2,794) - - -
====== ====== ====== ======== ======== =======
Exchange rate differences
derived from capital note - 2,476 (2,202) - 2,476 (2,202)
====== ====== ====== ======== ======== =======
Interest from long-term and
short-term bank deposits 1,464 1,357 1,804 463 486 31
====== ====== ====== ======== ======== =======
The majority of the remaining balances of the consolidated financial income
(expenses) for each of the periods presented are comprised of exchange rate
differences.
-24-
NOTE 22 - INCOME TAXES
Consolidated Company
-------------------------------------- --------------------------------------
Year ended December 31, Year ended December 31,
-------------------------------------- --------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------- ------- ------- -------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ------- ------- ------- ------- -------
A. Composition NIS in thousands NIS in thousands
Current taxes 18,045 10,878 18,904 9,952 - 15,774
Taxes in
respect of prior
years (1,003) 1,437 (744) (837) 1,358 (744)
Deferred taxes - D. below (6,798) 8,251 1,072 8,512 10,417 1,046
------- ------- ------- ------- ------- -------
10,244 20,566 19,232 17,627 11,775 16,076
======= ======= ======= ======= ======= =======
B. The Company and its Israeli Subsidiaries are subject to the Income Tax
Ordinance and the Income Tax Law (Inflationary Adjustments), 1985.
Non-Israeli Subsidiaries are subject to income tax provisions of their
home country. The Company is an industrial company in conformity with
the Law for the Encouragement of Industry (Taxes), 1969. The principal
benefit that the Company is entitled to under this law is accelerated
depreciation rates and reduced tax rates.
During 2002, the Company's program for the establishment of a new
facility for manufacturing paper was granted Approved Enterprise status
in accordance with the Law for the Encouragement of Capital
Investments, 1959, under "alternative benefits" track. The approval
program is for total investments of approximately NIS 80 million.
According to the terms of the program, income derived from the Approved
Enterprise will be tax-exempt for a period of 10 years commencing in
the year in which the program was substantially completed. Distribution
of dividends from tax exempt profits of the Approved Enterprise will be
subject to income tax at a rate equal to the income tax rate of the
Approved Enterprise had the Company not elected the alternative
benefits track. The Company completed the investments relating to the
new facility and commenced its operations during 2003.
-25-
NOTE 22 - INCOME TAXES (cont.)
C. Reconciliation of the statutory tax rate to the effective tax rate:
Consolidated Company
---------------------------------- ----------------------------------
Year ended December 31, Year ended December 31,
---------------------------------- ----------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------ ------ ------ ------ ------ ------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------ ------ ------ ------ ------ ------
NIS in thousands NIS in thousands
Income before
income taxes 40,270 83,954 44,543 60,815 30,610 37,697
------ ------ ------ ------ ------ ------
Tax computed by
statutory tax rate
(35%-36% - see E. below) 14,095 30,223 16,035 21,285 11,020 13,570
Tax increments
(savings) due to:
Reduced tax rate (161) (1,185) (1,397) (2,433) (918) (1,397)
Non-deductible expenses 1,454 1,874 1,840 6 434 248
Non-taxable income (455) (65) (2,198) (87) - -
Unrecorded deferred
taxes in connection
with tax loss carry
forward - - 1,074 - - -
Utilization of prior
years unrecorded
deferred taxes in
connection with tax loss
carry forward - (3,471) - - - -
Unrecorded deferred
taxes in connection
with submitting
consolidated tax
returns - - - - 2,053 -
Reduction in corporate tax
rates (E. below) (1,594) - - (1,573) - -
Differences arising from
basis of measurement (*) (2,821) (7,629) 3,883 537 (1,753) 3,737
Income taxes for prior years (1,003) 1,437 (744) (837) 1,358 (744)
Other differences, net 729 (618) 739 729 (419) 662
------ ------ ------ ------ ------ ------
10,244 20,566 19,232 17,627 11,775 16,076
====== ====== ====== ====== ====== ======
(*) For 2004 - In Israel, Reported Amounts (NIS) for financial reporting
purposes vis-a-vis the consumer price index for tax purposes; In Turkey
- U.S. dollar for financial reporting purposes vis-a-vis the Turkish
Lira for tax purposes.
For 2003 and 2002 - U.S. dollar for financial reporting purposes
vis-a-vis the Consumer Price Index in Israel and the Turkish Lira for
tax purposes.
-26-
NOTE 22 - INCOME TAXES (cont.)
D. Deferred Taxes
Consolidated Company
--------------------------------- ---------------------------------
Year ended December 31, Year ended December 31,
--------------------------------- ---------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------ ------ ------ ------ ------ ------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------ ------ ------ ------ ------ ------
NIS in thousands NIS in thousands
Balance as of
beginning of year 23,910 15,659 14,587 24,969 14,552 13,506
Changes during the year (3,417) 8,251 1,072 10,085 10,417 1,046
Adjustment due to
change in income
tax
rates (1,594) - - (1,573) - -
Foreign currency
translation adjustments (1,230) - - - - -
------ ------ ------ ------ ------ ------
Balance as of end
of year 17,669 23,910 15,659 33,481 24,969 14,552
Consolidated Company
-------------------- --------------------
December 31,
------------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ ------ ------ ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------ ------ ------ ------
NIS in thousands NIS in thousands
Deferred taxes are presented in the
balance sheets as follows:
Long-term liabilities (in respect of
depreciable assets) 37,388 29,428 35,013 26,738
Other receivables (in respect of
temporary differences) - Note 5 (4,611) (5,518) (1,532) (1,769)
Other Assets (15,108) - - -
------ ------ ------ ------
17,669 23,910 33,481 24,969
====== ====== ====== ======
For 2004 - Deferred taxes were computed at rates between 30%-34%,
primarily - 30%. For 2003 - Deferred taxes were computed at rates
between 32%-36%, primarily - 30%.
E. Reduction of Corporate Tax Rates
In June 2004, the Israeli Knesset passed Amendment No. 140 to the
Income Tax Ordinance, according to which the corporate income-tax rate
would be gradually reduced from 36% to 30% by 2007 (2004-35%, 2005-34%,
2006-32%, 2007-30%).
F. The Company and one of its subsidiaries are "Industrial Companies" as
defined in the Israeli Law for the Encouragement of Industry
(Taxes)-1969. Based on this Law, the Company and that subsidiary file
consolidated tax returns.
G. The Company and its Israeli Subsidiaries possess final tax assessments
through 2001.
-27-
NOTE 23 - RELATED PARTIES AND INTERESTED PARTIES
A. Balances with Related Parties
Consolidated Company
------------------ ------------------
December 31,
------------------------------------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------ ------ ------ ------
Reported Adjusted Reported Adjusted
Amounts Amounts Amounts Amounts
------ ------ ------ ------
NIS in thousands NIS in thousands
Trade receivables (*) 1,373 554 18,731 8,354
====== ====== ====== ======
Capital note - shareholder 32,770 32,770 32,770 32,770
====== ====== ====== ======
Capital notes - Subsidiaries - - 4,205 4,205
====== ====== ====== ======
Trade payables (*) 39,055 23,752 31,251 24,097
====== ====== ====== ======
(*) Company - excludes Subsidiaries in Israel. See also Notes 4 and 11.
B. Transactions with Related Parties and Subsidiaries
Consolidated Company
--------------------------------- --------------------------------
Year ended December 31, Year ended December 31,
--------------------------------- --------------------------------
2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 4 2 0 0 3 2 0 0 2
------- ------- ------- ------ ------ ------
Reported Adjusted Adjusted Reported Adjusted Adjusted
Amounts Amounts Amounts Amounts Amounts Amounts
------- ------- ------- ------ ------ ------
NIS in thousands NIS in thousands
Sales to related parties 12,565 6,103 17,646 9,903 4,169 15,247
======= ======= ======= ======= ======= =======
Sales to Subsidiaries - - - 454,289 358,767 266,614
======= ======= ======= ======= ======= =======
Cost of sales 162,096 169,469 224,682 58,254 61,703 63,723
======= ======= ======= ======= ======= =======
Royalties 20,468 15,642 12,220 1,679 1,500 673
======= ======= ======= ======= ======= =======
Other selling expenses (*) - - 2,413 - - 451
======= ======= ======= ======= ======= =======
General and
administrative
expenses (*) 8,969 8,201 7,380 1,878 1,428 2,167
======= ======= ======= ======= ======= =======
Financing income, net (*) - 3,314 2,076 2,784 2,526 1,381
======= ======= ======= ======= ======= =======
(*) Company - excludes Subsidiaries in Israel.
-28-
NOTE 24 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS
A. Credit Risk
The revenues of the Group's principal Subsidiaries are derived
from two major customers and a large number of smaller
customers. Management regularly monitors the balance of trade
receivables and the financial statements include an allowance
for doubtful accounts based on management's estimation. Taking
the aforementioned into consideration, the exposure to credit
risk from trade receivables is immaterial.
Cash and cash equivalents and long-term deposits (including
amounts in foreign currency) are deposited with major banks in
Israel and abroad. Therefore, it is not expected that such
banks will fail to meet their obligations.
B. Fair Value of Financial Instruments
The financial instruments of the Group consist primarily of
non-derivative assets and liabilities. Non-derivative assets
include cash and cash equivalents, deposits, receivables and
other current assets. Non-derivative liabilities include trade
payables and other current liabilities. Due to the nature of
these financial instruments, their fair value, generally, is
identical or close to the value at which they are presented in
the financial statements, unless stated otherwise.
Due to the fact that as of December 31, 2004, the terms of the
capital note of shareholder do not include determined payment
dates, fair value based on present values cannot be
established. Accordingly, the fair value of the capital note
is not disclosed in the financial statements.
-29-
NOTE 25 - COMPANY'S FINANCIAL INFORMATION IN NOMINAL VALUES FOR TAX PURPOSES
A. Balance Sheets
Company
----------------------
December 31,
----------------------
2 0 0 4 2 0 0 3
------- -------
NIS in thousands
Current Assets
Cash and cash equivalents 109,717 31,645
Current maturities of long-term bank deposits - 7,882
Trade receivables 113,448 74,668
Other receivables 12,360 6,139
Inventories 71,185 58,539
------- -------
306,710 178,873
Long-Term Investments
Capital note of shareholder 32,770 32,770
Investments in Subsidiaries 169,303 189,340
------- -------
202,073 222,110
Fixed Assets, net 220,520 203,572
------- -------
729,303 604,555
Current Liabilities
Short-term bank credit - 1,087
Trade payables 265,546 174,580
Other payables and accrued expenses 12,249 10,645
------- -------
277,795 186,312
------- -------
Shareholders' Equity 451,508 418,243
------- -------
729,303 604,555
======= =======
-30-
NOTE 25 - COMPANY'S FINANCIAL INFORMATION IN NOMINAL VALUES FOR TAX
PURPOSES (cont.)
B. Statement of Operations
Year ended December 31,
-------------------------------------
2 0 0 4 2 0 0 3 2 0 0 2
------- ------- -------
NIS in thousands
Net sales 479,320 387,019 308,566
Cost of sales 392,376 334,764 245,936
------- ------- -------
Gross profit 86,944 52,255 62,630
Selling expenses 15,283 7,827 6,038
General and administrative expenses 4,985 4,327 5,762
------- ------- -------
Operating profit 66,676 40,101 50,830
Financing income (expenses), net (4,541) (5,995) 3,676
Other income, net 282 255 254
------- ------- -------
Income before income taxes 62,417 34,361 54,760
Income taxes 9,115 1,428 16,344
------- ------- -------
Income after income taxes 53,302 32,933 38,416
Equity in net earnings
of Subsidiaries 16,660 29,682 8,881
------- ------- -------
Net income for the year 36,642 62,615 47,297
======= ======= =======
-31-
NOTE 25 - COMPANY'S FINANCIAL INFORMATION IN NOMINAL VALUES FOR TAX
PURPOSES (cont.)
C. Statements of Changes in Shareholders' Equity
Translation
adjustments Dividend
relating to declared
foreign held after
Share Capital autonomous Retained balance
capital reserves Subsidiary earnings sheet date Total
----- ------- ------ ------- ----------- -------
NIS in thousands
Balance - January 1, 2002 8,263 132,127 - 206,977 - 347,367
Changes during 2002:
Dividend declared after
balance-sheet date (35,528) 35,528
Exchange rate differences of
prior year declared dividend (2,537) (2,537)
Net income for the year 47,297 47,297
----- ------- ------ ------- ------- -------
Balance - December 31, 2002 8,263 132,127 - 216,209 35,528 392,127
Changes during 2003:
Dividend paid (35,528) (35,528)
Exchange rate differences of
prior year declared dividend (971) (971)
Net income for the year 62,615 62,615
----- ------- ------ ------- ------- -------
Balance - December 31, 2003 8,263 132,127 - 277,853 - 418,243
Changes during 2004:
Dividend paid
Distribution of bonus 250 23,615 (23,865) -
shares
Translation adjustments
relating to foreign held
autonomous Subsidiary (3,377) (3,377)
Net income for the year 36,642 36,642
----- ------- ------ ------- ------- -------
Balance - December 31, 2004 8,513 155,742 (3,377) 290,630 - 451,508
===== ======= ====== ======= =======
-32-