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 November 2005
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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 November 9, 2005 with respect to the
Registrant's results of operations for the quarter ended September 30, 2005.
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 quarter ended September 30, 2005.
Attached hereto as Exhibit 3 and incorporated herein by reference are the
Registrant's unaudited condensed consolidated financial statements for the
quarter ended September 30, 2005.
Attached hereto as Exhibit 4 and incorporated herein by reference are the
unaudited condensed interim consolidated financial statements of Mondi Business
Paper Hadera Ltd. and subsidiaries with respect to the quarter ended September
30, 2005.
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 quarter ended September 30, 2005.
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: November 9, 2005.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
1. Press release dated November 9, 2005.
2. Registrant's management discussion.
3. Registrant's unaudited condensed consolidated financial
statements.
4. Unaudited condensed interim consolidated financial statements
of Mondi Business Paper Hadera Ltd. and subsidiaries.
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 FOR THIRD QUARTER AND NINE MONTHS
Hadera, Israel, November 9, 2005 - American Israeli Paper Mills Ltd. (ASE:AIP)
(the "Company" or "AIPM") today reported financial results for the third quarter
and the nine months period ended September 30, 2005.
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 its 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 the first nine months of 2005 (January - September
2005) totaled NIS 2,093.0 million, compared with NIS 2,002.3 million in the
corresponding period last year (January - September 2004). Aggregate sales in
the third quarter of 2005 (July - September 2005) totaled NIS 722.1 million,
compared with NIS 664.9 million in the corresponding quarter last year (July -
September 2004).
Aggregate operating profit in the first nine months of 2005 totaled NIS 104.3
million, compared with NIS 147.0 million in the corresponding period last year.
Aggregate operating profit in the third quarter of 2005 totaled NIS 39.0
million, compared with NIS 41.9 million in the corresponding quarter last year.
The aggregate operating income data for the reported period this year, as
presented above, do not include the provision for loss in the sum of NIS 10.6
million, that was recorded at H-K this year on account of the collapse of the
Club Market chain.
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 the first nine months of 2005 totaled NIS 364.9 million,
compared with NIS 358.3 million in the corresponding period last year.
Consolidated sales in the third quarter of the year totaled NIS 124.8 million,
compared with NIS 120.1 million in the corresponding quarter last year.
Operating profit in the first nine months of 2005 totaled NIS 36.5 million,
compared with NIS 40.6 million in the corresponding period last year. Operating
profit in the third quarter of 2005 totaled NIS 10.7 million, compared with NIS
13.3 million in the corresponding quarter last year.
Net profit totaled NIS 37.1 million during the nine months period of this year,
as compared with NIS 57.0 million in the corresponding period last year.
The net profit during the reported period includes a non-recurring loss of NIS
3.5 million, representing the Company's share in the net loss (after taxes)
recorded by an associated company (H-K) due to the Club Market chain collapse.
On the other hand, a tax benefit of NIS 8 million is included (including the
Company's share in the benefit in the associated companies), on account of the
impact of the reform in taxation legislation that was approved by the Israeli
Knesset (parliament) on July 25, 2005, that will serve to gradually lower the
corporate tax rate to a level of 25% by 2010. During the corresponding period
last year, a non-recurring income in the amount of NIS 10.2 million was recorded
in the company's financial statements, on account of a tax benefit (including
the company's share in the benefit at the associated companies), originating
from the change in deferred taxes on account of the lowering of the tax rate,
became effective in June 2004.
Earnings per share (EPS), before non-recurring items, in the first nine months
this year totaled NIS 8.06 ($1.75 per share), as compared with NIS 11.54 in the
corresponding period last year ($2.57 per share). Earnings per share (EPS),
before non-recurring items, in the third quarter this year totaled NIS 2.36
($0.51 per share), as compared with NIS 3.55 in the corresponding quarter last
year ($0.79 per share).
The inflation rate in the first nine months of 2005 was 1.9% as compared with an
inflation rate of 1.2% in the corresponding period last year.
The exchange rate of the NIS was devaluated against the U.S. dollar in the first
nine months of 2005 by approximately 6.7% as compared with a devaluation of 2.4%
in the corresponding period last year.
Mr. Avi Brener, Chief Executive Officer of the Company, said that a recovery was
recorded in the growth rate of the Israeli economy during the first nine months
of the year, as compared with the previous year, although this growth did not
encompass all sectors of operation and originated primarily from higher demand
on the part of the public sector, rather than private consumption growth.
The unusual increase in energy prices that began in 2004 and grew more severe in
2005 - and primarily in the third quarter of the year - had a material adverse
impact on the Group's results during the reported period (January-September
2005).These price hikes included fuel oil and diesel prices, which increased by
an unusual 37% in relation to the corresponding period last year. In the third
quarter of the current year alone, the prices of fuel oil (a significant factor
in the Group's production costs) increased by 15% compared to the second quarter
of the year and by 60% in relation to the corresponding quarter last year.
Utility prices such as electricity and water also increased during the reported
period compared to the corresponding period last year (by 14% and 9%,
respectively). The impact of these higher prices on the Group's results in
annual terms amounts to a sum of NIS 35 million.
At the same time, the prices of the principal raw materials used by the AIPM
Group companies in their various operations, also increased, amounting to an
increase of NIS 46 million compared to the corresponding period last year.
2
Consequently, in order to deal with the said increase in input prices, the Group
accelerated its efficiency programs in all companies, operating intensively
across all expense areas - while maintaining quality of products and respective
market shares. As part of the Company's operations aimed at cutting
manufacturing costs and achieving additional environmental goals, the company is
continuing to promote the energy-cogeneration plant project in Hadera, using
natural gas. The Company is initially preparing for the conversion of its
energy-generation systems from the use of fuel oil to natural gas, once the
transportation infrastructure of natural gas to Hadera is completed. In
connection therewith the Company signed an agreement in London on July 29, 2005,
with the Thetis Sea Group, for the purchase of natural gas.
The conversion of fuel oil to natural gas will allow for significant savings,
due to the considerable differences between the current prices of fuel oil and
natural gas (annual differential of $10 million for the Group). This will serve
to improve the Group's competitive situation and its profitability.
The Company's share in the earnings of associated companies (before
non-recurring items) totaled NIS 14.1 million during the reported period, as
compared with NIS 25.2 million in the corresponding period last year.
The following principal changes were recorded in the Company's share in the
earnings of associated companies, in relation to the corresponding period last
year (before non-recurring items):
- The Company's share in the net income of Mondi Hadera (49.9%) decreased by
NIS 6.6 million. Most of the change in the net income results from the
decrease in operating income between the years, as a result of the rebuild
of Mondi Hadera's paper machine this year. The massive rebuild which is
intended to improve the output of the machine and the quality of the paper,
necessitated shut down of manufacturing during the rebuild and was
accompanied by a subsequent learning curve, as is expected during such a
significant project. The positive results of this project will be evident
in 2006.
The unusual increase in raw material, energy and water prices also
adversely affected the profitability of Mondi Hadera. The economic slowdown
in Europe is creating a constant erosion in the prices of paper imports,
despite the aforementioned increase in raw material and energy prices. This
renders it difficult for Mondi Hadera to raise its prices, as warranted
from the said price hikes - both on the local and especially in export
markets. Mondi Hadera is nevertheless continuing its efforts to raise
prices and is further expanding its cost-cutting efforts. At the same time,
Mondi Hadera is focusing intensive efforts in product development and in
creating differentiation from other import products that will result in a
gradual increase of the premium on products.
- The Company's share in the net income of H-K Israel (49.9%) grew by NIS 2.8
million (prior to non-recurring items: loss on account of Club Market on
the one hand and a tax benefit on account of a change in taxation rates, on
the other hand). The implementation of the efficiency program at H-K, in
conjunction with higher prices, served to compensate for the sharp rise in
input prices (raw materials and energy) and improved the operating income
in the reported period.
- The Company's share in the net income of Ovisan (Turkey) (49.9%) decreased
by NIS 3.1 million. Ovisan is continuing its preparation for the expansion
of operations in the Turkish market and for the introduction of Kimberly
3
Clark's international premium products into the Turkish market, within the
framework of the multi-annual program (that is being formulated in
conjunction with Kimberly Clark). In this capacity, the local management
team was reinforced to enable the realization of the said plan. Ovisan is
gearing up for the introduction of the KOTEX(R) line of feminine hygiene
products by the end of 2005, to be followed by the introduction of
HUGGIES(R) diapers and Kleenex(R) tissue products.
- The Company's share in the net earnings of the Carmel Group (26.25%) fell
by NIS 1.8 million, due to the decrease in the operating income, coupled
with an increase in financial expenses during the reported period (due to
devaluation differentials). The decrease in operating income, despite the
quantitative increase in sales, originated primarily from the sharp rise in
raw material prices, that was only partially offset by the increase in
selling prices (in view of the escalating competition in the corrugating
board market), leading to a consequent erosion in the gross margin.
- The Company's share in the TMM net earnings (41.6%) decreased by NIS 3.0
million. A sharp decrease was recorded in the operating income of TMM
during the reported period, in relation to the corresponding period last
year, due to the significant rise in transportation costs (resulting from
significantly higher diesel prices - averaging 36% - compared to the
corresponding period last year - an impact of about NIS 6 million). The
said increase in diesel prices was not sufficiently compensated for in the
selling prices, due to the fact that most of the agreements are linked to
the Consumer Price Index (CPI), which rose by only 1.9% this year. The
company is intensively carrying out efficiency measures and is attempting
to modify some of the agreements, so as to reflect the extraordinary
increase in diesel prices.
The Company's share in the earnings of associated companies, including
non-recurring items, amounted to NIS 14.5 million in the reported period,
following a deduction of NIS 3.5 million as the Company's share in the losses of
H-K on account of Club Market and an income of NIS 3.9 million resulting from
the Company's share in the tax benefit that was recorded by the associated
companies, following the change in the taxation rate.
During the corresponding period last year, the company's share in the earnings
of associated companies included a sum of NIS 4.4 million, as AIPM's share in
the tax benefit recorded at the companies following the tax reform of 2004.
Consequently, the company's share in the earnings of associated companies -
including non-recurring items - amounted to NIS 29.6 million during the
corresponding period.
A total of 4,558 shares were issued during the reported period (0.1% dilution),
as a result of the exercise of 14,647 option warrants as part of the Company's
employee stock option plans.
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
(UNAUDITED)
NIS IN THOUSANDS
except per share amounts
Nine Months Ended September 30,
-------------------------------
2005 2004
==== ====
Net sales 364,940 358,316
Net earnings 37,124(1) 57,023(2)
Earnings per share 9.18(1) 14.05(2)
Three Months Ended September 30,
--------------------------------
2005 2004
==== ====
Net sales 124,899 120,072
Net earnings 17,583(1) 14,393
Earnings per share 4.35(1) 3.56
(1) The net earnings of 2005 include a non- recurring loss in the sum of NIS
3.5 million, on account of AIPM's share in Hogla-Kimberly's loss regarding
Club-Market, and a tax benefit in the sum of about NIS 8 million on
account of the 2005 tax rate reduction in Israel (including the Company's
share in the tax benefit of the associated companies).The tax benefit was
recorded in the third quarter of 2005.
(2) The net earnings in the corresponding period include NIS 10.2 million, tax
benefit resulting from the tax rate reduction last year (including the
Company's share in the tax benefit of the associated companies).
The representative exchange rate at September 30, 2005 was NIS 4.598=$1.00
5
EXHIBIT 2
November 9, 2005
MANAGEMENT DISCUSSION
We are honored to present the consolidated financial statements of the American
Israeli Paper Mills Ltd. Group ("AIPM") for the first nine months of the year
2005.
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. The Company also holds
associated companies that deal in the manufacture and
marketing of fine 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 recovery was recorded in the growth rate of the Israeli
economy during the first nine months of the year, as compared
with the previous year, although this growth did not encompass
all sectors of operation and originated primarily from higher
demand on the part of the exceptional public sector, rather
than private consumption growth.
The unusual increase in energy prices that began in 2004 and
grew more severe in 2005 - and primarily in the third quarter
of the year - had a material impact on AIPM's results during
the reported period (January-September 2005).
These price increases included fuel oil and diesel prices,
which increased by an unusual 37% compared to the
corresponding period last year (January-September 2004). It
should be noted that in the third quarter of the current year
alone, the prices of fuel oil (a significant factor in the
Group's production costs) increased by 15% compared to the
second quarter of the year and by 60% compared to the
corresponding quarter last year. Utility prices such as
electricity and water increased grew during the reported
period compared to the corresponding period last year (by 14%
and 9%, respectively).
The impact of these higher prices on the Group's results in
annual terms amounts to a sum of NIS 35 million.
At the same time, the prices of the principal raw materials
used by the Group companies in their various operations, also
continued to rise, amounting to an additional cost of NIS 46
million compared to the corresponding period last year.
2
Due to the crisis in the European economy and the
over-capacity in the paper sector, low-priced import of paper
is arriving in Israel and renders it impossible to raise
prices, as warranted by the said increase in prices.
Consequently, in order to deal with the said rise in input
prices, the Group accelerated its efficiency programs in all
companies, operating intensively across all expense areas
while maintaining quality of products and market shares.
Moreover, the Group raised the selling prices of its products,
albeit only partially and not to the extent warranted by the
higher input prices - due to the economic conditions outlined
above, the moderated demand and the escalating competition
against both imports and local manufacturers.
The said efficiency measures, together with the
partially-higher prices, rendered it possible to reduce the
heavy impact of the rising input prices on the results.
The Group is currently continuing its efforts to improve
selling prices, on the one hand, while extending the
efficiency measures, on the other hand, in order to compensate
for the said higher prices.
As part of the Company's operations, aimed at cutting
manufacturing costs and achieving additional environmental
improvements, the Company is continuing to promote the energy
co-generation plant project in Hadera, using natural gas. The
company is initially preparing for the conversion of its
energy-generation systems from the use of fuel oil to natural
gas, once the transportation infrastructure of natural gas to
Hadera is completed.
In connection therewith, the Company signed an agreement in
London on July 29, 2005, with the Thetis Sea Group, for the
purchase of natural gas. The gas that will be purchased is
intended to fulfill the Company's requirements in the coming
years, for the operation of its existing energy co-generation
plant at the Hadera mill, which will be converted for the use
of natural gas, instead of the current use of fuel oil. The
overall financial volume of the transaction totals $40 million
over the term of the agreement (5 years from the initial
supply of gas, but no later than Jul-1-2011).
The conversion of fuel oil to natural gas allows for
significant savings, due to the considerable differences
between the current prices of fuel oil and the price of
natural gas (annual differential of $10 million for the
Group). This will serve to improve the Group's competitive
situation and its profitability.
The exchange rate of the shekel (NIS) vis-a-vis the US dollar
was devaluated by 6.7% during the reported period, as compared
with a devaluation of 2.4% during the corresponding period
last year.
The inflation rate during the reported period amounted to
1.9%, as compared with an inflation rate of 1.2% in the
corresponding period last year.
3
B. RESULTS OF OPERATIONS
1. AGGREGATE DATA
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 Hadera Paper Ltd. (Mondi Hadera)
and Hogla-Kimberly that were consolidated in the past, until
the transfer of control over these companies to its
international strategic partners), we present 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 mutual sales and without
considering the rate of holding.
The aggregate sales amounted to NIS 2,093.0 million during the
reported period, as compared with NIS 2,002.3 million in the
corresponding period last year.
The aggregate sales in the third quarter of the year
(July-September 2005) totaled NIS 722.1 million, as compared
with NIS 664.9 million in the corresponding quarter last year
(July-September 2004).
The aggregate operating profit totaled NIS 104.3 million
during the reported period, as compared with NIS 147.0 million
in the corresponding period last year.
The aggregate operating income in the third quarter of the
year totaled NIS 39.0 million, as compared with NIS 41.9
million in the corresponding quarter last year.
The aggregate operating income data for the reported period
this year, as presented above, do not include the provision
for loss in the sum of NIS 10.6 million, that was recorded at
Hogla Kimberly this year on account of the collapse of the
Club Market chain.
2. CONSOLIDATED DATA
The information set forth below does not include the results of
operation of Mondi Hadera, Hogla-Kimberly, Carmel and TMM
Integrated Recycling Industries.
The sales during the reported period amounted to NIS 364.9
million, as compared with NIS 358.3 million in the
corresponding period last year.
The sales in the third quarter of the year amounted to NIS
124.8 million, as compared with NIS 120.1 million in the
corresponding quarter last year.
The operating income totaled NIS 36.5 million during the
reported period, as compared with NIS 40.6 million in the
corresponding period last year.
The operating income in the third quarter of the year totaled
NIS 10.7 million, as compared with NIS 13.3 million in the
corresponding quarter last year.
4
3. NET PROFIT AND EARNINGS PER SHARE
The net profit amounted to NIS 37.1 million in the reported
period, as compared with NIS 57.0 million in the corresponding
period last year.
The net profit during the reported period includes a
non-recurring loss of NIS 3.5 million, representing the
Company's share in the net loss (after taxes) recorded by an
associated company (Hogla-Kimberly) due to the Club Market
collapse. On the other hand, a tax benefit of NIS 8 million is
included (including the Company's share in the benefit in the
associated companies), on account of the impact of the reforms
in taxation legislation that was approved by the Israeli
Knesset (parliament) on July 25, 2005, that will gradually
lower the corporate tax rate to a level of 25% by 2010.
During the corresponding period last year, non-recurring
income in the amount of NIS 10.2 million was recorded in the
company's financial statements, on account of the tax benefit
(including the company's share in the benefit at the
associated companies), originating from the change in deferred
taxes on account of the lowering of the tax rate, that entered
into effect in June 2004.
The net profit before non-recurring items totaled NIS 32.7
million during the reported period, as compared with NIS 46.8
million in the corresponding period last year.
Earnings per share (EPS), before non-recurring items, in the
reported period this year totaled NIS 806 per NIS 1 par value
($1.75 per share), as compared with NIS 1,154 per NIS 1 par
value in the corresponding period last year ($2.57 per share).
Earnings per share (EPS), before non-recurring items, in the
third quarter this year totaled NIS 236 per NIS 1 par value
($0.51 per share), as compared with NIS 355 per NIS 1 par
value in the corresponding quarter last year ($0.79 per
share).
The return on shareholders' equity in annual terms, before
non-recurring items, amounted to 7.6% during the reported
period, as compared with 10.2% in the corresponding period
last year.
C. ANALYSIS OF OPERATIONS AND PROFITABILITY
The analysis set forth below is based on the consolidated data.
1. SALES
The consolidated sales during the reported period amounted to
NIS 364.9 million, as compared with NIS 358.3 million in the
corresponding period last year.
The growth in sales compared to the corresponding period last
year originated from quantitative growth, primarily in the
local market, coupled with partial adjustments of product
prices.
5
2. COST OF SALES
The cost of sales amounted to NIS 288.6 million - or 79.1% of
sales - during the reported period, as compared with NIS 276.8
million - or 77.2% of sales - in the corresponding period last
year.
The gross margin as a percentage of sales reached 20.9% during
the reported period, as compared with 22.8% in the
corresponding period last year.
The decrease in the gross margin originated primarily from an
increase in raw material prices (9% in paper waste), coupled
with an extraordinary increase in energy prices and utilities
(37% in fuel oil, 14% in electricity and 9% in water) and was
partially offset by quantitative growth in the sale of paper
waste, higher selling prices and the continuing efficiency
processes in all areas of operation.
LABOR WAGES
The wage component in the cost of sales and in the selling,
general and administrative expenses amounted to NIS 109.6
million in the reported period, as compared with NIS 108.1
million in the corresponding period last year.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The selling, general and administrative expenses (including
wages) amounted to NIS 39.9 million in the reported period -
or 10.9% of sales - as compared with NIS 40.9 million - or
11.4% of sales - in the corresponding period last year. The
decrease in selling, general and administrative expenses
originated from cost-cutting and efficiency measures, which
were partially offset by the growth in the volume of
operations.
4. OPERATING INCOME
The operating profit totaled NIS 36.5 million during the
reported period (10.0% of sales), as compared with NIS 40.6
million (11.3% of sales) in the corresponding period last
year.
5. FINANCIAL EXPENSES
The financial expenses during the reported period amounted to
NIS 8.2 million, as compared with NIS 7.6 million in the
corresponding period last year.
The total average of the company's net, interest-bearing
liabilities grew by approximately NIS 52 million, between the
periods. The growth originated primarily from the payment of
NIS 100 million in dividends in September 2004, and the
investments in fixed assets, minus the dividend received from
an associated company (NIS 21.8 million) and the positive cash
flows for the period.
Moreover, the cost of the transaction for hedging the
Company's Series 2 notes against a rise in the CPI has risen
to 1.3% per annum in 2005, as compared with 0.92% per annum in
2004 and resulted in an increase in costs related to the
notes.
6
Nevertheless, the Consumer Price Index grew by an actual of
1.9% during the first nine months of the year and additional
financing costs of NIS 1.7 million were saved due to the
hedging transaction.
The decrease in the average interest rate in the economy, due
to the decreasing interest rate, and the higher devaluation of
the NIS against the dollar this year (that served to increase
the revenues from the company's dollar-denominated assets)
resulted in the fact that the financial expenses grew only
slightly this year compared to the corresponding period last
year.
6. TAXES ON INCOME
Taxes on income from current activities amounted to NIS 9.8
-----------------------
million in the reported period, as compared with NIS 11.4
million in the corresponding period last year.
The main reasons for the decrease in tax expenses during the
reported period compared to the corresponding period last year
are the decrease in pre-tax earnings this year and the lower
tax rates this year, compared to last year.
The tax expenses amounted to a total of NIS 5.6 million this
year, similar to last year, due to the recording of a NIS 4.2
million tax benefit this year on the Company's deferred taxes,
on account of the impact of the tax reforms, that were
approved by the Knesset in July this year (regarding the
gradual reduction of corporate tax rates to a level of 25% by
2010).
A tax benefit of NIS 5.8 million was recorded in the financial
statements during the corresponding period last year on
account of the impact of the corporate tax change last year on
the company's deferred taxes.
7. PROFIT AFTER TAXES AND PRIOR TO THE COMPANY'S SHARE IN THE
EARNINGS OF ASSOCIATED COMPANIES
The profit after taxes and before the Company's share in the
earnings of associated companies for the reported period,
amounted to NIS 22.6 million, as compared with NIS 27.4
million during the corresponding period last year.
8. COMPANY'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.
The Company's share in the earnings of associated companies
(before non-recurring items) totaled NIS 14.1 million during
the reported period, as compared with NIS 25.2 million in the
corresponding period last year.
The following principal changes were recorded in the Company's
share in the earnings of associated companies, in relation to
the corresponding period last year (before non-recurring
items):
7
- The Company's share in the net income of Mondi Hadera
(49.9%) decreased by NIS 6.6 million. Most of the
change in the net income results from the decrease in
operating income between the years, as a result of
the rebuild of Mondi Hadera's paper machine this
year. The massive rebuild intended to improve the
output of the machine and the quality of the paper,
necessitated shut down of manufacturing during the
rebuild and was accompanied by a subsequent learning
curve, as is expected during such a significant
project. The results of this rebuild project will be
evident in 2006.
The unusual increase in raw material, energy and
water prices also adversely affected the
profitability of Mondi Hadera. The economic slowdown
in Europe is creating an erosion in the prices of
paper imports, despite the aforementioned increase in
raw material and energy prices. This renders it
difficult for Mondi Hadera to raise its prices, as
warranted from the said price hikes - both on the
local and especially in export markets. Mondi Hadera
is nevertheless continuing its efforts to raise
prices and is further expanding its cost-cutting
efforts.
In addition, Mondi Hadera is focusing intensive
efforts in product development and in creating
differentiation form other import products that will
result in a gradual increase of the premium on
products.
- The company's share in the net income of Hogla
Kimberly Israel (49.9%) grew by NIS 2.8 million
(prior to non-recurring items: loss on account of
Club Market on the one hand and a tax benefit on
account of a change in taxation rates, on the other
hand). The implementation of the efficiency program
at Hogla Kimberly, in conjunction with higher prices,
served to compensate for the sharp rise in input
prices (raw materials and energy) and improved the
operating income in the reported period.
- The Company's share in the net income of Ovisan
(Turkey) (49.9%) decreased by NIS 3.1 million. Ovisan
is continuing its preparation for the expansion of
operations in the Turkish market and for the
introduction of Kimberly Clark's international
premium products into the Turkish market, within the
framework of the multi-annual program (that is being
formulated in conjunction with Kimberly Clark). In
this capacity, the local management team was
reinforced, to enable the realization of the said
plan. Ovisan is gearing up for the introduction of
the KOTEX(R) line of feminine hygiene products by the
end of 2005, to be followed by the introduction of
HUGGIES(R) diapers and Kleenex(R) tissue products.
- The Company's share in the net earnings of the Carmel
Group (26.25%) fell by NIS 1.8 million, due to the
decrease in the operating income, coupled with an
increase in financial expenses during the reported
period (due to devaluation differentials). The
decrease in operating income, despite the
quantitative increase in sales, originated primarily
from the sharp rise in raw material prices, that was
only partially offset by the rise in selling prices
(in view of the escalating competition in the
corrugating board market), leading to a consequent
erosion in the gross margin.
8
- The Company's share in the TMM net earnings (41.6%)
decreased by NIS 3.0 million. A sharp decrease was
recorded in the operating income of TMM during the
reported period, in relation to the corresponding
period last year, due to the significant rise in
transportation costs (resulting from significantly
higher diesel prices - averaging 36% - compared to
the corresponding period last year - an impact of NIS
6 million). The said increase in diesel prices was
not sufficiently compensated for in the selling
prices, due to the fact that most of the agreements
are linked to the Consumer Price Index (CPI), which
rose by only 1.9% this year. The company is
intensively carrying out efficiency measures and is
attempting to modify some of the agreements, so as to
reflect the extraordinary increase in diesel prices.
The Company's share in the earnings of associated companies,
including non-recurring items, amounted to NIS 14.5 million in
the reported period, following a deduction of NIS 3.5 million
(as AIPM's share in the losses of Hogla Kimberly on account of
Club Market), and an income amounting to NIS 3.9 million
resulting from the company's share in the tax benefit that was
recorded by the associated companies, following the change in
the taxation rate.
During the corresponding period last year, the company's share
in the earnings of associated companies included a sum of NIS
4.4 million, as AIPM's share in the tax benefit recorded at
the companies following the tax reform of 2004. Consequently,
the company's share in the earnings of associated companies -
including non-recurring items - amounted to NIS 29.6 million
during the corresponding period.
D. LIQUIDITY AND INVESTMENTS
1. ACCOUNTS RECEIVABLE - TRADE
Accounts Receivable, as at September 30, 2005, amounted to NIS 150.9
million, as compared with NIS 155.1 million at September 30, 2004
and NIS 143.3 million at December 31, 2004.
The change in accounts receivable in the course of the year is
primarily attributed to a certain increase in the days of customer
credit, coupled with the timing of payment receipts from customers
toward the end of the third quarter of the year.
2. CASH FLOWS
The cash flows from operating activities (excluding dividend from a
consolidated subsidiary) amounted to NIS 49.7 million during the
reported period this year, as compared with NIS 33.8 million in the
corresponding period last year (including the dividend received from
an associated company, the cash flows this year amounted to NIS 71.5
million). The improvement in the cash flows from operating
activities during the reported period originated primarily from the
reduction in working capital, partially due to sums that should have
been received in late 2004 and were received at the beginning of
2005.
9
3. INVESTMENTS IN FIXED ASSETS
The investments in fixed assets amounted to NIS 54.7 million during
the reported period, as compared with NIS 20.9 million during the
corresponding period last year, and included investments in real
estate (in Hadera and Nahariya - including buildings - in the amount
of NIS 32.8 million), in storage and compaction equipment, in
compactors, in machines, equipment and transportation equipment. The
investment in real estate in Hadera was made as part of the
preparations for the planned construction of the power co-generation
plant, to which end the company acquired 21.5 acres of agricultural
land during the reported period, in direct proximity to its Hadera
plant, for a sum of NIS 20 million (approx. $4.4 million).
4. FINANCIAL LIABILITIES
The long-term liabilities (including current maturities) amounted to
NIS 266.9 million as at September 30, 2005, as compared with NIS
270.9 million as at September 30, 2004.
The long-term liabilities include primarily two series of
debentures:
Series 1 - NIS 27.2 million, for repayment until 2009.
Series 2 - NIS 205.6 million, for repayment between 2007 and 2013.
The balance of short-term credit, as at September 30, 2005, amounted
to NIS 91.4 million, as compared with NIS 112.6 million at September
30, 2004.
The positive cash flows for the period and the repayment of deposits
(due to the lower creditory interest rate) served for financing the
investments in fixed assets, for the payment of NIS 50 million in
dividends in September this year and for the reduction of short-term
credit.
E. EXPOSURE AND MANAGEMENT OF MARKET RISKS
Pursuant to the Management Discussion dated December 31, 2004, which
outlined the essence of the exposure and management of market risks, as
set forth by the board of directors, the following is an update, true to
September 30, 2005:
The Company possesses CPI-linked liabilities (net of deposits) in the net
overall sum of NIS 236 million, with 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 the Company's
financial statements, due to the surplus of CPI-linked liabilities. The
company consequently entered into a forward transaction, with a term of
one year - until the end of 2005, to hedge a sum of NIS 200 million
against a rise in the CPI (at a cost of 1.3% per annum).
10
REPORT OF LINKAGE BASES
The following are the balance sheet items, according to linkage bases, as
at December 31, 2004 and updated for September 30, 2005:
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
IN NIS MILLIONS UNLINKED CPI-LINKED IN FOREIGN NON-MONETARY TOTAL
CURRENCY, OR ITEMS
LINKED THERETO
(PRIMARILY US$)
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
ASSETS
------
CASH AND CASH EQUIVALENTS 1.2 1.6 2.8
SHORT-TERM DEPOSITS AND INVESTMENTS 11.4 11.4
OTHER ACCOUNTS RECEIVABLE 203.7 0.2 49.5 9.3 262.7
INVENTORIES 83.4 83.4
INVESTMENTS IN ASSOCIATED COMPANIES 57.2 6.4 9.2 357.2 430.0
DEFERRED TAXES ON INCOME 6.5 6.5
FIXED ASSETS, NET 352.5 352.5
DEFERRED EXPENSES, NET OF ACCRUED 1.0 1.0
AMORTIZATION
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
TOTAL ASSETS 273.5 6.6 60.3 809.9 1,150.3
----- --- ---- ----- -------
LIABILITIES
-----------
SHORT-TERM CREDIT FROM BANKS 90.5 0.9 91.4
ACCOUNTS PAYABLE 162.3 9.5 9.4 181.2
DEFERRED TAXES ON INCOME 45.8 45.8
NOTES - INCLUDING CURRENT MATURITIES 232.8 232.8
OTHER LIABILITIES - INCLUDING CURRENT 32.8 1.3 34.1
MATURITIES
SHAREHOLDERS' EQUITY 565.0 565.0
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
TOTAL LIABILITIES AND EQUITY 285.6 242.3 11.6 610.8 1,150.3
----- ----- ---- ----- -------
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
SEPTEMBER 30, 2005 (12.1) (235.7) 48.7 199.1 -
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
DECEMBER 31, 2004 (24.6) (177.5) 44.4 157.7 -
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
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, which characterized the Turkish economy in the past and
that may recur and harm the Ovisan operations.
11
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 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 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. The Company
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
The AIPM Group, within the framework of its business and social
commitment, invests efforts and funds 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, the company makes contributions to various
institutions that are active in the said areas, while also participating,
through its employees, in volunteering work in the community, for
promoting these same objectives.
Moreover, a sum totaling NIS 105 thousand was granted for student
scholarships and for a project this year, through the Shenkar Foundation,
that was established by the company together with its Austrian strategic
partner in Mondi Hadera.
H. UPDATE REGARDING THE DESCRIPTION OF THE COMPANY'S BUSINESS IN THE ISRAELI
PERIODICAL REPORT FOR 2004
o On July 29, 2005, the Company signed an agreement in London with the
Thetis Sea Group, for the purchase of natural gas. The gas that will
be purchased is intended to fulfill the Company's requirements in
the coming years, for the operation of its energy co-generation
plant at the Hadera mill, that will be converted for the use of
natural gas, instead of the current use of fuel oil. The overall
financial volume of the transaction totals $40 million over the term
of the agreement (5 years from the initial supply of gas, but no
later than July 1, 2011).
o Due to the collapse of the Club Market chain, that entered into a
stay of proceedings in July this year, an associated company - Hogla
Kimberly - recorded an additional provision for doubtful debts, in
the amount of NIS 10.6 million. The total provision amounts to 75%
of the debt. This provision, net of the tax influence, led to a net
non-recurring loss of NIS 7 million at Hogla Kimberly, of which
AIPM's share totals a net sum of NIS 3.5 million.
12
I. PEER GROUP SURVEY
The Israeli Securities Authority published a directive in July 28, 2005,
requiring disclosure regarding consent for conducting a "Peer Review" that
is intended - as mentioned in the directive - to put in motion a process
of control over the work of the auditing certified public accountants. The
Company does not object to a Peer Review and is willing to cooperate in
promoting this process. Nevertheless, an agreement to participate in the
survey involves certain significant legal issues having to do, inter alia,
with the non-disclosure of confidential information that the company
discloses to the auditing CPAs, matters related to the prevention of
conflicts of interest and liability toward the company in the event that
confidential information is disclosed by the survey team. As of the date
hereof, a satisfactory solution to these issues has yet to be found. The
Company's board of directors has consequently authorized the Company to
defer the resolution regarding the consent to conduct a Peer Review, until
the said issues are resolved.
The Company is satisfied regarding the appropriateness of the auditing of
its financial statements by its auditing CPAs, among others due to the
fact that it has selected one of the Big Four international CPA firms,
which possess well-defined working procedures.
J. GENERAL
o In August 2005, the company announced the distribution of a dividend
for 2005, in the amount of about NIS 50 million (NIS 12.5 per
share). The dividend was paid in September 2005.
o 4,558 shares were issued during the reported period (0.1% dilution),
on account of the exercise of 14,647 option warrants as part of the
Company's stock employee option plans.
o The Company recently acquired a land plot of 21.5 acres, next to its
Hadera plant, in return for $4.4 million.
o In July 2005, Carmel Container Systems Ltd. - an associated company
- completed its delisting process from the AMEX.
--------------------- ----------------
Y. Yerushalmi Avi Brenner
Chairman of the Board of General Manager
Directors
EXHIBIT 3
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED BALANCE SHEETS
NIS IN THOUSANDS
SEPT. 30, 2005 SEPT. 30, 2004 DEC. 31, 2004
(UNAUDITED) (UNAUDITED) (AUDITED)
---------- ---------- ----------
CURRENT ASSETS :
Cash and cash equivalents 2,810 4,088 7,813
Short-term deposits and investments 11,409 62,087 62,464
Receivables :
Trade 150,931 155,141 143,275
Other 111,691 137,975 101,840
Inventories 83,389 87,645 83,220
---------- ---------- ----------
Total current assets 360,230 446,936 398,612
INVESTMENTS AND LONG TERM RECEIVABLES:
Investments in associated companies 430,036 402,090 431,752
Deferred income taxes 6,511 3,885 6,511
---------- ---------- ----------
436,547 405,975 438,263
FIXED ASSETS
Cost 1,023,532 969,531 974,462
Less - accumulated depreciation 670,996 644,510 650,056
---------- ---------- ----------
352,536 325,021 324,406
Deferred charges -
net of accumulated amortization 986 1,146 1,106
---------- ---------- ----------
1,150,299 1,179,078 1,162,387
---------- ---------- ----------
CURRENT LIABILITIES:
Credit from banks and others 91,754 112,573 112,684
Current maturities of long-term notes 6,774 6,668 6,648
Payables and accured liabilities :
Trade 86,606 84,132 87,556
Other 94,501 85,021 66,355
---------- ---------- ----------
Total current liabilities 279,635 288,394 273,243
LONG-TERM LIABILITIES
Deferred income taxes 45,836 54,672 52,562
Loans from banks and other liabilities (net
of current maturities):
Notes 226,045 229,181 228,499
Other liabilities 33,766 35,067 32,770
---------- ---------- ----------
Total long term liabilities 305,647 318,920 313,831
Total liabilities 585,282 607,314 587,074
SHAREHOLDERS' EQUITY :
Share capital 125,257 125,257 125,257
Capital surplus 90,060 90,060 90,060
Capital surplus on account of tax benefit from
exercise of employee options 340
Currency adjustments in respect of financial
statements of associated companies (621) (647) (2,807)
Retained earnings 349,981 357,094 362,803
---------- ---------- ----------
565,017 571,764 575,313
---------- ---------- ----------
1,150,299 1,179,078 1,162,387
---------- ---------- ----------
The accompanying notes are an integral part of the financial statements.
-2-
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME
NIS IN THOUSANDS
NINE-MONTH PERIOD THREE-MONTH PERIOD YEAR ENDED
ENDED SEPT. 30 ENDED SEPT. 30 DEC. 31
2005 2004 2005 2004 2004
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (AUDITED)
----------- ----------- ---------
Net sales 364,940 358,316 124,899 120,072 482,854
Cost of sales 288,569 276,764 100,841 93,390 375,904
------------- ------------- ------------- ------------- -------------
Gross profit 76,371 81,552 24,058 26,682 106,950
------------- ------------- ------------- ------------- -------------
Selling and marketing, administrative and general expenses :
Selling and marketing 23,081 23,267 8,329 7,363 30,595
Administrative and general 16,778 17,681 4,989 6,053 22,425
------------- ------------- ------------- ------------- -------------
39,859 40,948 13,318 13,416 53,020
------------- ------------- ------------- ------------- -------------
Income from ordinary operations 36,512 40,604 10,740 13,266 53,930
Financial expenses - net 8,241 7,617 3,967 3,146 13,118
------------- ------------- ------------- ------------- -------------
Income before taxes on income 28,271 32,987 6,773 10,120 40,812
Taxes on income (tax benefit) (see note 2) 5,634 5,576 (866) 3,700 3,152
Income from operations of the company
------------- ------------- ------------- ------------- -------------
and the consolidated subsidiaries 22,637 27,411 7,639 6,420 37,660
Share in profits of associated companies - net 14,487 * 29,612 * 9,944 * 7,973 * 25,072 *
------------- ------------- ------------- ------------- -------------
Net income for the period 37,124 57,023 17,583 14,393 62,732
------------- ------------- ------------- ------------- -------------
NET INCOME PER NIS 1 PAR VALUE OF SHARES (IN N.I.S) 918 1,405 435 356 1,544
------------- ------------- ------------- ------------- -------------
* In 2005 (accumulative) including loss on account of an additional provision
for doubtful accounts in an associated company, in the sum of NIS 3.5
million, net (the company's share).
In 2005 (third quarter and accumulative) including a tax benefit income in
the associated companies, originating from the change in the tax rate, in
the sum of NIS 3.9 million (the company's share). See note 2.
In 2004 (accumulative) including a tax benefit income in the associated
companies, originating from the change in the tax rate last year, in the
sum of NIS 4.4 million (the company's share). See note 2.
The accompanying notes are an integral part of the financial statements.
-3-
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NIS IN THOUSANDS
CURRENCY
CAPITAL ADJUSTMENTS
SURPLUS ON IN RESPECT OF
ACCOUNT OF FINANCIAL
TAX BENEFIT STATEMENTS OF
FROM EXERCISE AN ASSOCIATED
SHARE CAPITAL OF EMPLOYEE COMPANY AND RETAINED
CAPITAL SURPLUS OPTIONS A SUBSIDIARY EARNINGS TOTAL
---------- ---------- ---------- ------------- ---------- ----------
Balance at January 1, 2005 (audited) 125,257 90,060 (2,807) 362,803 575,313
Changes during the nine month period ended
September 30, 2005 (unaudited):
Net income 37,124 37,124
Dividend distributed (49,946) (49,946)
Exercise of employees options into shares * 340 340
Adjustments due to the translation respect of financial
statements of associated companies 2,186 2,186
---------- ---------- ---------- ------------- ---------- ----------
Balance at September 30, 2005 (unaudited) 125,257 90,060 340 (621) 349,981 565,017
---------- ---------- ---------- ------------- ---------- ----------
Balance at January 1, 2004 (audited) 125,257 90,060 (1,122) 400,035 614,230
Changes during the nine month period ended
September 30, 2004 (unaudited) :
Net income 57,023 57,023
Dividend distributed (99,964) (99,964)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies 475 475
---------- ---------- ------------- ---------- ----------
Balance at September 30, 2004 (unaudited) 125,257 90,060 (647) 357,094 571,764
---------- ---------- ------------- ---------- ----------
Balance at July 1, 2005 (unaudited) 125,257 90,060 267 (1,356) 382,344 596,572
Changes during the three month period
ended September 30, 2005 (unaudited):
Net income 17,583 17,583
Dividend distributed (49,946) (49,946)
Exercise of employees options into shares * 73 73
Adjustments due to the translation respect of financial
statements of associated companies 735 735
---------- ---------- ---------- ------------- ---------- ----------
Balance at September 30, 2005 (unaudited) 125,257 90,060 340 (621) 349,981 565,017
---------- ---------- ---------- ------------- ---------- ----------
Balance at July 1, 2004 (unaudited) 125,257 90,060 (279) 442,665 657,703
Changes during the three month period
ended September 30, 2004 (unaudited):
Net income 14,393 14,393
Dividend distributed (99,964) (99,964)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies (368) (368)
---------- ---------- ------------- ---------- ----------
Balance at September 30, 2004 (unaudited) 125,257 90,060 (647) 357,094 571,764
---------- ---------- ------------- ---------- ----------
Balance at January 1, 2004 (audited) 125,257 90,060 (1,122) 400,035 614,230
Changes during the year ended December 31, 2004
(audited) :
Net income 62,732 62,732
Dividend distributed (99,964) (99,964)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies (1,685) (1,685)
---------- ---------- ------------- ---------- ----------
Balance at December 31, 2004 (audited) 125,257 90,060 (2,807) 362,803 575,313
---------- ---------- ------------- ---------- ----------
* Represents a sum under 1,000 NIS.
The accompanying notes are an integral part of the financial statements.
-4-
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS IN THOUSANDS
NINE-MONTH NINE-MONTH THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30, 2005 SEPT. 30, 2004 SEPT. 30, 2005 SEPT. 30, 2004 DEC. 31, 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (AUDITED)
-------- -------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period 37,124 57,023 17,583 14,393 62,732
Adjustments to reconcile net income to net cash
provided by operating activities (*): 34,360 (23,221) (13,107) (365) (15,637)
-------- -------- -------- -------- --------
Net cash provided by operating activities 71,484 33,802 4,476 14,028 47,095
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES :
Purchase of fixed assets (54,711) (20,943) (31,670) (8,823) (30,952)
Short-term deposits and investments - net 51,003 (41,999) 45,000 (42,000)
Associated companies :
Investment in associated companies and
loans granted (2,762) (779) (779)
Repayment of loans 13,688 6,806 13,688
Proceeds from sale of fixed assets 6,432 670 6,080 232 1,001
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities (38) (49,363) (25,590) 43,215 (59,042)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES :
Long-term loans received 1,746 292
Repayment of long-term loans (276) (382) (276) (383)
Redemption of Notes (6,681) (6,666) (6,666)
Dividend paid (49,946) (99,964) (49,946) (99,964) (99,964)
Short-term bank credit and loans - net (21,292) (32,045) 62,857 (22,943) (31,933)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities (76,449) (139,057) 12,927 (122,907) (138,946)
-------- -------- -------- -------- --------
Decrease in cash and cash equivalents (5,003) (154,618) (8,187) (65,664) (150,893)
Balance of cash and cash equivalents at
beginning of period 7,813 158,706 10,997 69,752 158,706
-------- -------- -------- -------- --------
Balance of cash and cash equivalents at end of period 2,810 4,088 2,810 4,088 7,813
-------- -------- -------- -------- --------
(*) Adjustments to reconcile net income to net cash
provided by operating activities:
INCOME AND EXPENSES NOT INVOLVING CASH FLOWS:
Associated companies:
Share in profits of associated companies - net (14,487) (29,612) (9,944) (7,973) (25,072)
Dividend received from those companies 21,761
Depreciation and amortization 23,760 21,300 7,871 7,222 28,633
Deferred income taxes - net (7,325) (7,729) (4,562) (236) (10,096)
Capital (gains) losses on sale of fixed assets (3,491) (286) (3,367) (52) 508
Loss (income) from short-term deposits and investments,
not realized 52 (88) (112) (334) (464)
Linkage differences (erosion) of principal of long-term
loans from banks and others - net (112) 65 (112) (9) (26)
Exchange and linkage differences on Notes 4,353 2,886 3,183 2,184
Erosion of long-term loans to associated companies (844) (1,033) (158) (77) (721)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in receivables (16,334) (23,274) (15,331) (696) (14,316)
Decrease (increase) in inventories (169) 3,009 1,149 1,137 7,434
Increase (decrease) in payables and accrued liabilities 27,196 11,541 8,276 653 (3,701)
-------- -------- -------- -------- --------
34,360 (23,221) (13,107) (365) (15,637)
-------- -------- -------- -------- --------
The accompanying notes are an integral part of the financial statements.
-5-
AMIRICAN ISRAELI PAPER MILLS LTD.
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2005
(Unaudited)
NOTE 1 - GENERAL
a. The interim financial statements as of September 30, 2005 and for the
nine and three month periods then ended (hereafter - the interim
financial statements) were drawn up in condensed form, in accordance
with Accounting Standard No. 14 of the Israel Accounting Standards
Board (hereafter - the IASB) and in accordance with the Securities
(Preparation of Periodic and Immediate Financial Statements)
Regulations , 1970.
b. The accounting principles applied in preparation of the interim
statements are consistent with those applied in the annual financial
statements, except for the change in the accounting treatment applied
to taxes on income, from the implementation of Israel Accounting
Standard No.19 -"Taxes on Income" of the IASB, as detailed in note 2;
nevertheless, the interim statements do not include all the information
and explanations required for the annual financial statements.
Costs unevenly incurred during the year are brought forward or deferred
for interim reporting purposes if, and only if, such costs may be
brought forward or deferred in the annual reporting.
c. The company draws up and presents its financial statements in Israeli
currency (hereafter -NIS) in accordance with the provisions of
Accounting Standard No.12 -"Discontinuance of Adjusting Financial
Statements for Inflation"-of the IASB, which set transitory provisions
for financial reporting on a nominal basis, commencing January 1,2004.
Accordingly, the amounts of non-monetary assets, mainly fixed assets
and other assets (including depreciation and amortization in respect of
those assets),and the shareholders' equity components included in the
financial statements, originating from the period that preceded the
transition date, are based on their adjusted to December 2003 shekel
amount.
Follwing are the changes in exchange rate of the dollar and in the Israeli
consumer price index (the "CPI"):
EXCHANGE RATE
OF THE DOLLAR CPI
------------------------
% %
------------------------
Increase in the nine months ended September 30:
2005 6.7 1.9
2004 2.4 1.2
Increase (decrease) in the three months ended September 30:
2005 0.5 1.4
2004 (0.3) (0.2)
Increase (decrease) in the year ended December 31, 2004 (1.6) 1.2
The dollar exchange rate as of September 30, 2005 is: $1=NIS 4.598
-6-
AMIRICAN ISRAELI PAPER MILLS LTD.
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2005
(Unaudited)
NOTE 2 - TAXES ON INCOME
a. On June 29, 2004, the Israeli Parliament (the "Knesset") passed the
second and third readings of the Income Tax Ordinance Amendment (No.
140 and Ad Hoc Provision) Law, 2004 (hereafter - the 2004 Amendment),
which was published in the Official Gazette of the Government of Israel
on July 11, 2004. The 2004 Amendment provided for the gradual reduction
- commencing from January 1, 2004 - in the rate of corporate tax from
36% to 30%, in the following manner: the rate for 2004 would be 35%, in
2005 - 34%, in 2006 - 32%, and in 2007 and thereafter - 30%.
As a result of the amendment the tax expenses in the statement of
income (regarding deferred taxes) were reduced by NIS 5.8 millions in
the second quarter of 2004.
b. On July 25, 2005, the Israeli Parliament (the "Knesset") passed the
second and third readings of the proposed Income Tax Ordinance
Amendment (No. 147 and Ad Hoc Provision) Law, 2005 (hereafter - the
2005 Amendment). The 2005 Amendment further reduces the corporate tax
rates stipulated under the 2004 amendment, and provides for the gradual
reduction - commencing from January 1, 2006 - in the following manner:
the rate for 2006 will be 31%, in 2007 - 29%, in 2008 - 27%, in 2009 -
26%, and in 2010 and thereafter - 25%.
As a result of the 2005 Amendment, the tax expenses in the statement of
income (regarding deferred taxes) were reduced by NIS 4.2 millions in
the third quarter of 2005.
c. Accounting changes Accounting Standard No.19
Commencing in the financial statements for the 3-month period ended
March 31,2005 ,the company implements Israel Accounting Standard No.19
-"Taxes on Income" of the IASB, which came into effect on January
1,2005. This Standard prescribes the accounting treatment (recognition
criteria, measurement, presentation and disclosure) required for taxes
on income.
For the most part, the provisions of this standard are the same as the
accounting principles that were applied before the application of the
new standard. The adoption of this standard does not have any effect on
the company's financial statements in the reported periods.
-7-
AMIRICAN ISRAELI PAPER MILLS LTD.
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2005
(Unaudited)
NOTE 3 - SEGMENT INFORMATION
Data on segment activity - In NIS in thousands:
Marketing of office
For the period of 9 monthes : Paper and recycling supplies Total
---------------------------- -------------------------- -------------------------
Jan- Sept. Jan- Sept. Jan- Sept. Jan- Sept. Jan- Sept. Jan-Sept.
2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
Sales - net (1) 280,146 272,284 84,794 86,032 364,940 358,316
Income (loss) from operations 37,297 44,136 (785) (3,532) 36,512 40,604
Marketing of office
For the period of 3 monthes : Paper and recycling supplies Total
---------------------------- -------------------------- -------------------------
July-Sept. July-Sept. July-Sept. July-Sept. July-Sept. July-Sept.
2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
Sales - net (1) 91,502 92,098 33,397 27,974 124,899 120,072
Income (loss) from operations 10,292 13,938 448 (672) 10,740 13,266
Marketing of office
For 2004: Paper and recycling supplies Total
---------------------------- -------------------------- -------------------------
2004 2004 2004
---- ---- ----
Sales - net (1) 367,391 115,463 482,854
Income (loss) from operations 58,496 (4,566) 53,930
(1) Represents sales to external customers
-8-
AMIRICAN ISRAELI PAPER MILLS LTD.
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2005
(Unaudited)
NOTE 4 - RECENTLY ISSUED PRONOUNCEMENT
1. In August 2005, the Israel Accounting Standards Board issued Israel
Accounting Standard No. 22 - "Financial Instruments: Disclosure and
Presentation", which is based on International Accounting Standard No. 32. This
standard prescribes the rules for the presentation of financial instruments and
the proper disclosure required therefor. The standard sets forth the rules for
classifying financial instruments, the rules for splitting and classifying
compound financial instruments and the rules for offsetting financial assets and
financial liabilities. The standard also prescribes the rules for classifying
interest, dividends, losses and gains relating to financial instruments.
This accounting standard applies to financial statements for periods commencing
on or after January 1, 2006. The standard is to be applied prospectively and,
accordingly, comparative data that are presented in the financial statements for
periods commencing from the effective date of the standard will not be
re-presented. Financial instruments issued before the standard's effective date
are to be classified and presented in conformity with the provisions of the
standard from its effective date. Compound financial instruments (that include
both an equity component and a liability component), which were issued in
periods prior to the standard's effective date, and which had not yet been
converted or redeemed at that date, are to be classified according to their
component parts and are to be presented in conformity with the provisions of the
standard, commencing from the effective date of the standard.
When the standard becomes effective, Opinion 48 - "Accounting Treatment of
Option Warrants", and Opinion 53 - "Accounting Treatment of Convertible
Liabilities" will be revoked.
The Company is currently assessing the implications of implementing this
standard on its financial statements in future periods.
2. In September 2005, the Israel Accounting Standards Boards issued Accounting
Standard Israel No. 24 - "Share-based Payment". This standard prescribes the
recognition and measurement principles, as well as the disclosure requirements,
relating to share-based payment transactions. Prior to the issuance of said
standard, no mandatory directives were in place in Israel for the measurement
and recognition of share-based payment transactions, with the exception of
certain disclosure requirements.
The new standard is applicable to transactions whereunder the company acquires
goods or receives services in consideration for equity instruments of the
company (hereafter - equity grant), or that are settled in cash (or other
assets), where the amount of the consideration is based on the price or value of
equity instruments of the company (hereafter - liability grant). The standard
requires the inclusion of such transactions at fair value. The standard is
applicable to share-based payment transactions with employees and non-employees.
-9-
With respect to equity grants to employees, the standard stipulates that the
value of the labor services received from them in return is to be measured on
the day of the grant, based on the fair value of the equity instruments that
were granted to the employees. The value of the transactions, measured in the
above manner, is to be expensed over the period that the employee's right to
exercise or receive the underlying equity instruments vests; commensurate with
the recognition of the expense, a corresponding increase is to be recorded as a
capital surplus under the company's shareholders' equity.
According to the provisions of the standard, the initial measurement of the fair
value of liability grants is to be made on the date of the grant and recognized
as a liability in the company's balance sheet; thereafter, the liability is to
be remeasured at each balance sheet date until said liability is settled. The
changes in the amount of the liability are carried to the income statement on a
current basis. The standard also sets out guidelines for the allocation of
income taxes in respect of share-based payments.
Accounting Standard No. 24 is to be applied to financial statements covering
periods commencing on, or after, January 1, 2006.
The transitional provisions of the standard make a distinction between equity
grants and liability grants:
1. For equity grants, the standard prescribes that its provisions are to
be applied to all grants that are made subsequent to March 15, 2005,
which had not yet vested at the effective date of the standard. As a
result, upon the standard taking effect, the financial statements for
2005 (including the interim periods of 2005) will need to be restated
in order to reflect such grants.
2. The provisions of the standard shall be retroactively applicable to
liabilities relating to liability grants existing at the effective
date. As a result, upon the standard taking effect, the financial
statements for all prior periods will need to be restated in order to
reflect these grants.
The transitional provisions of the standard further stipulate that any
modifications to the terms of existing grants executed subsequent to March 15,
2005 shall be subject to the provisions of the standard, even if the grants
themselves are not. As a result, upon the standard taking effect, the financial
statements for 2005 (including the interim periods of 2005) will need to be
restated in order to reflect such modifications.
The company intends to apply the provisions of the standard starting in the
first quarter of 2006. The Company is currently assessing the implications of
implementing this standard on its financial statements in future periods.
-10-
EXHIBIT 4
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
TABLE OF CONTENTS
PAGE
ACCOUNTANTS' REVIEW REPORT 1
CONDENSED FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to the Financial Statements 6-8
[LOGO OF DELOITTE TOUCHE TOHMATSU]
Brightman Almagor
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593
Tel Aviv 61164
Israel
Tel: +972 (3) 608 5555
Fax: +972 (3) 609 4022
info @deloitte.co.il
www.deloitte.com
The Board of Director of
Mondi Business Paper Hadera Ltd.
RE: REVIEW OF UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 2005
---------------------------------------------------------------
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Mondi Business Paper Hadera Ltd.
("the Company") and its subsidiaries, as follows:
- Balance sheet as of September 30, 2005.
- Statements of operations for the nine months and three months ended
September 30, 2005.
- Statements of changes in shareholders'equity for the nine months and
three months ended September 30, 2005.
- Statements of cash flows for the nine months and three months ended
September 30, 2005.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the interim financial statements, reading the minutes of the
shareholders'meetingsand meetings of the board of directors and its committees,
and making inquiries with the persons responsible for financial and accounting
affairs.
Since the review that was performed is limited in scope and does not constitute
an audit inaccordance with generallyaccepted auditing standards, we do not
express an opinion on the interim financial statements. In performing our
review, nothing came to our attention which indicates that material adjustments
are required to the aforementioned interim financial statements for them to be
deemed financial statementsprepared in conformity with generally accepted
accounting principles in Israeland in accordance withthe Israeli Securities
Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, November 7, 2005
Audit.Tax.Consulting.Financial Advisory.
Member of
Deloitte Touche Tohmatsu
-1-
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands; Reported Amounts)
September 30, December 31,
-------------------- -------
2005 2004 2004
------- ------- -------
(Unaudited)
--------------------
A S S E T S
Current Assets
Cash and cash equivalents 7,433 9,668 10,804
Trade receivables 174,772 159,326 157,815
Other receivables 10,728 9,068 (*) 7,580
Inventories 111,922 105,950 90,391
------- ------- -------
Total current assets 304,855 284,012 266,590
------- ------- -------
Fixed Assets
Cost 196,999 141,063 149,083
Less - accumulated depreciation 40,432 31,312 33,345
------- ------- -------
156,567 109,751 115,738
------- ------- -------
Other Assets - Goodwill 3,331 3,958 3,800
======= ======= =======
Total assets 464,753 397,721 386,128
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank loans 80,843 13,822 --
Current maturities of long-term bank loans 16,091 15,525 15,125
Trade payables 113,550 115,192 104,661
American Israeli Paper Mills Group, net 66,800 57,735 (*) 65,033
Other payables and accrued expenses 23,245 17,552 (*) 23,132
------- ------- -------
Total current liabilities 300,529 219,826 207,951
------- ------- -------
Long-Term Liabilities
Long-term bank loans 23,378 38,649 36,248
Capital notes to shareholders 18,392 17,928 17,233
Deferred taxes 22,748 25,183 25,422
Accrued severance pay, net 87 145 87
------- ------- -------
Total long-term liabilities 64,605 81,905 78,990
------- ------- -------
Shareholders' Equtiy
Share capital 1 1 1
Premium 43,352 43,352 43,352
Retained earnings 56,266 52,637 55,834
------- ------- -------
99,619 95,990 99,187
======= ======= =======
Total liabilities and shareholders' equity 464,753 397,721 386,128
======= ======= =======
------------------ --------------- --------------------
A. Magid A. Solel Y. Yerushalmi
Financial Director General Manager Vice Chairman of the
Board of Directors
(*) Reclassified.
Approval date of the interim financial statements: November 7, 2005.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
2
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands except per share data; Reported Amounts)
Nine months ended Three months ended Year Ended
September 30, September 30, December 31,
------------------------ ------------------------ -------
2005 2004 2005 2004 2004
------- ------- ------- ------- -------
(Unaudited) (Unaudited)
------------------------ ------------------------
NET SALES 504,635 514,666 (*) 174,936 169,645 (*) 686,094
COST OF SALES 460,011 454,010 (*) 160,054 154,485 (*) 605,738
------- ------- ------- ------- -------
GROSS PROFIT 44,624 60,656 14,882 15,160 80,356
------- ------- ------- ------- -------
OPERATING COSTS AND EXPENSES
Selling expenses 32,835 34,276 11,906 11,031 46,135
General and administative expenses 6,786 5,529 2,445 1,622 7,803
------- ------- ------- ------- -------
39,621 39,805 14,351 12,653 53,938
======= ======= ======= ======= =======
OPERATING PROFIT 5,003 20,851 531 2,507 26,418
FINANCING INCOME (EXPENSES), NET (10,690) (6,661) (2,192) 9 (8,438)
OTHER INCOME (LOSS), NET 73 90 (3) 56 100
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES
(TAX BENEFITS) (5,614) 14,280 (1,664) 2,572 18,080
INCOME TAXES (TAX BENEFITS) (6,046) 215 (5,025) 976 818
------- ------- ------- ------- -------
NET INCOME FOR THE PERIOD 432 14,065 3,361 1,596 17,262
======= ======= ======= ======= =======
BASIC EARNINGS PER ORDINARY SHARE
EARNINGS PER ORDINARY SHARE (IN NIS) 432 14,065 3,361 1,596 17,262
======= ======= ======= ======= =======
Number of shares used in computation 1,000 1,000 1,000 1,000 1,000
======= ======= ======= ======= =======
(*) Reclassified.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
MONDI BUSINESS PAPER HADERA LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
Share Retained
capital Premium earnings Total
------ ------ ------ ------
Nine months ended September 30, 2005
(Unaudited)
Balance - January 1, 2005 1 43,352 55,834 99,187
Net income for the period 432 432
------ ------ ------ ------
Balance - September 30, 2005 1 43,352 56,266 99,619
====== ====== ====== ======
Nine months ended September 30, 2004
(Unaudited)
Balance - January 1, 2004 1 43,352 38,572 81,925
Net income for the period 14,065 14,065
------ ------ ------ ------
Balance - September 30, 2004 1 43,352 52,637 95,990
====== ====== ====== ======
Three months ended September 30, 2005
(Unaudited)
Balance - July 1, 2005 1 43,352 52,905 96,258
Net income for the period 3,361 3,361
------ ------ ------ ------
Balance - September 30, 2005 1 43,352 56,266 99,619
====== ====== ====== ======
Three months ended September 30, 2004
(Unaudited)
Balance - July 1, 2004 1 43,352 51,041 94,394
Net income for the period 1,596 1,596
------ ------ ------ ------
Balance - September 30, 2004 1 43,352 52,637 95,990
====== ====== ====== ======
Year ended December 31, 2004
Balance - January 1, 2004 1 43,352 38,572 81,925
Net income for the year 17,262 17,262
------ ------ ------ ------
Balance - December 31, 2004 1 43,352 55,834 99,187
====== ====== ====== ======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
--------------------- --------------------- --------
2005 2004 2005 2004 2004
-------- -------- -------- -------- --------
(Unaudited) (Unaudited)
--------------------- ---------------------
CASH FLOWS - OPERATING ACTIVITIES
Net income for the period 432 14,065 3,361 1,596 17,262
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Income and expenses
not involving cash flows:
Depreciation and amortization 7,841 6,787 2,824 2,302 9,118
Deferred taxes, net (6,081) 180 (5,032) 1,023 823
Decrease in liability for
severance pay, net -- -- -- -- (58)
Other income (loss), net (73) (90) 3 (56) (100)
Effect of exchange rate and linkage differences
of long-term bank loans 2,057 1,250 280 (78) (195)
Effect of exchange rate differences
of long-term capital notes to shareholders 1,159 1,266 96 (187) 571
Changes in assets and liabilities:
Increase in trade receivables (16,957) (11,578) (7,222) (25) (10,067)
Decrease (increase) in other receivables 259 (2,016)(*) 2,050 (2,345)(*) (932)
Increase in inventories (21,531) (16,719) (2,786) (21,127) (1,160)
Increase (decrease) in trade payables 9,051 11,095 (20,799) 29,444 (220)
Increase in American
Israeli Paper Mills Group, net 1,767 8,949 (*) 905 1,342 (*) 16,247
Increase (decrease) in other payables
and accrued expenses 113 688 (*) (1,763) (3,631)(*) 6,268
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities (21,963) 13,877 (28,083) 8,258 37,557
-------- -------- -------- -------- --------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of fixed assets (48,535) (8,818) (13,313) (4,378) (16,235)
Proceeds from sale of fixed assets 245 146 169 60 197
-------- -------- -------- -------- --------
Net cash used in investing activities (48,290) (8,672) (13,144) (4,318) (16,038)
-------- -------- -------- -------- --------
CASH FLOWS - FINANCING ACTIVITIES
Short-term bank loans, net 80,843 13,822 50,242 10,664 --
Repayment of long-term loans (13,961) (13,909) (6,333) (6,340) (15,265)
Repayment of long-term
capital notes to shareholders -- (27,128) -- (13,364) (27,128)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 66,882 (27,215) 43,909 (9,040) (42,393)
======== ======== ======== ======== ========
Increase (decrease) in cash and cash equivalents (3,371) (22,010) 2,682 (5,100) (20,874)
Cash and cash equivalents - beginning of period 10,804 31,678 4,751 14,768 31,678
-------- -------- -------- -------- --------
Cash and cash equivalents - end of period 7,433 9,668 7,433 9,668 10,804
======== ======== ======== ======== ========
Non-cash activities
Acquisition of fixed assets on credit 622 622 784
======== ======== ========
(*) Reclassified.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as of
September 30, 2005 and for the nine months and three months then ended
("interim financial statements") of Mondi Business Paper Hadera Ltd.
("the Company") and subsidiaries should be read in conjunction with the
audited consolidated financial statements of the Company and
subsidiaries as of December 31, 2004 and for the year then ended,
including the notes thereto. In the opinion of management, the interim
financial statements include all adjustments necessary for a fair
presentation of the financial position and results of operations as of
September 30, 2005 and for the interim periods presented. The results
of operations for the interim periods are not necessarily indicative of
the results to be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
The interim financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") in Israel, in a condensed format in accordance with
GAAP applicable to the preparation of interim period financial
statements, including those under Standard No. 14, "Interim
Financial Reporting" and in accordance with Paragraph D of the
Israeli Securities Regulations (Periodic and Immediate
Reports), 1970. The accounting principles applied in the
preparation of these interim financial statements are
consistent with those principles applied in the preparation of
the most recent annual audited financial statements with the
exception of Standard No. 19 "Income Taxes" as described in
paragraph B below.
B. INCOME TAXES
In July 2004, the Israeli Accounting Standards Board published
Accounting Standard No. 19 "Income Taxes" (the "Standard").
The Standard establishes the guidelines for recognizing,
measuring, presenting and disclosing taxes on income 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
is 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 implementation of
Standard No. 19 did not affect the Group's financial position,
results of operations and cash flows.
6
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. Following are the changes in the representative exchange rate
of the U.S. dollar vis-a-vis the NIS and in the Israeli
Consumer Price Index ("CPI").
REPRESENTATIVE
EXCHANGE CPI
RATE OF THE DOLLAR "IN RESPECT OF"
AS OF: (NIS PER $1) (IN POINTS)
------------------ ----------------
September 30, 2005 4.598 184.15
September 30, 2004 4.482 180.74
December 31, 2004 4.308 180.74
INCREASE (DECREASE) DURING THE: % %
Nine months ended September 30, 2005 6.7 1.9
Nine months ended September 30, 2004 2.4 1.2
Three months ended September 30, 2005 2.6 1.4
Three months ended September 30, 2004 (0.3) (0.2)
Year ended December 31, 2004 (1.6) 1.2
NOTE 3 - SUPPLEMENTAL DATA
A. REDUCTION OF CORPORATE TAX RATE
In July 2005, the Israeli Knesset passed the Law for Amending
the Income Tax Ordinance (No. 147), 2005, according to which
commencing in 2006 the corporate income-tax rate would be
gradually reduced, for which a 31% tax rate was established,
through 2010, in respect of which a 25% tax rate was
established. The effect of this amendment on the Group's
deferred income tax provisions is reflected by an increase of
NIS 4,140 thousand in income tax benefit for the nine month
and three month periods ended September 30, 2005.
B. ACCOUNTING STANDARD NO. 22 "FINANCIAL INSTRUMENTS: DISCLOSURE
AND PRESENTATION"
At the end of July 2005, the Israeli Accounting Standards
Board approved for publication Accounting Standard No. 22,
"Financial Instruments: Disclosure and Presentation".
Financial instrument under this Standard is, in general, any
contract that establishes a financial asset of an entity, or a
financial liability or equity instrument of another entity.
This Standard establishes the requirements for presentation of
financial instruments in the financial statements and
indicates the information that should be disclosed in relation
thereto
The presentation requirements relate to the classification of
financial instruments as financial assets, financial
liabilities or equity instruments. It also deals with the
classification of related interest, dividends, losses and
gains and to the circumstances under which financial assets
and liabilities derived from financial instruments are to be
offset. The Standard requires disclosure of information
relating to factors affecting the amount, timing and certainty
of the entity's future cash flows relating to financial
7
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
NOTE 3 - SUPPLEMENTAL DATA (cont.)
B. ACCOUNTING STANDARD NO. 22 "FINANCIAL INSTRUMENTS: DISCLOSURE
AND PRESENTATION" (cont.)
instruments and accounting policy implemented in respect of
these instruments. The Standard also establishes requirements
for disclosure of information about the nature and the extent
of an entity's use of financial instruments, the business
purposes they serve, the risks associated with them and
management's policies for the oversight of those risks.
Standard No. 22 is effective for financial statements for
periods commencing January 1, 2006 or thereafter. The initial
adoption of the Standard will be accounted for prospectively.
Comparative financial statements for prior periods shall not
be adjusted. The Standard's effect on the Group's financial
statements is not expected to be significant.
C. ACCOUNTING STANDARD NO. 24 "SHARE-BASED PAYMENT"
In September 2005, the Israeli Accounting Standards Board
published Accounting Standard No. 24 "Share-Based Payment"
(the "Standard"), which calls for the recognition in the
financial statements of Share-Based Payment transactions. Such
transactions include transactions with employees and related
parties to be settled by cash, by other assets, or by equity
instruments. Consequently, amongst other matters, costs
associated with grants of shares and options to employees will
be expensed over the vesting period of each grant. These costs
will be determined based on the fair value of the awards at
each grant date. The Standard establishes guidelines for
measuring each award based on the settlement terms (either by
cash or equity instrument). The Standard also establishes
certain disclosure requirements relating to Share-Based
Payment.
The Standard is effective for financial statements for periods
commencing January 1, 2006 or thereafter (initial adoption is
recommended). The application of the Standard is not expected
to affect the Company's financial position and results of
operations.
D. SUBSEQUENT EVENTS
In October, 2005 the Company entered into an agreement with
one of its banks, which substituted the previous agreement
signed by the parties in February 2000. According to the
October 2005 agreement, amongst other matters, the financial
ratio at the end of each audited fiscal year of total
shareholders equity including capital notes to shareholders to
total assets was reduced from 30% to 22%.
The Company and its other bank have reached arrangements
pursuant to which the financial ratio at the end of each
audited fiscal year of total shareholders equity including
capital notes to shareholders to total assets would be reduced
from 30% to 23%. In this regard, in September 2005, the
Company submitted to this bank a committed letter that once
approved by this bank would substitute the previous agreement
signed by the parties in September 2000.
8
EXHIBIT 5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
TABLE OF CONTENTS
PAGE
ACCOUNTANTS' REVIEW REPORT 1
CONDENSED FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4-5
Statements of Cash Flows 6-7
Notes to the Financial Statements 8-11
The Board of Directors of
Hogla-Kimberly Ltd.
RE: REVIEW OF UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 2005
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Hogla-Kimberly Ltd. ("the
Company") and its subsidiaries, as follows:
- Balance sheet as of September 30, 2005.
- Statements of operations for the nine months and three months ended
September 30, 2005.
- Statements of changes in shareholders' equity for the nine months and three
months ended September 30, 2005.
- Statements of cash flows for the nine months and three months ended
September 30, 2005.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention which indicates that
material adjustments are required to the aforementioned interim financial
statements for them to be deemed financial statements prepared in conformity
with generally accepted accounting principles in Israel and in accordance with
the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, November 3 , 2005
-1-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands; Reported Amounts)
September 30, December 31,
------------------- -------
2005 2004 2004
------- ------- -------
(Unaudited)
-------------------
Assets
Current Assets
Cash and cash equivalents 42,327 93,197 117,364
Trade receivables 247,480 271,470 214,389
Other receivables 49,341 29,305 35,725
Inventories 132,981 110,588 142,551
------- ------- -------
472,129 504,560 510,029
------- ------- -------
Long-Term Investments
Long-term bank deposits 73,568 71,712 68,928
Capital note of shareholder 32,770 32,770 32,770
------- ------- -------
106,338 104,482 101,698
------- ------- -------
Fixed Assets
Cost 533,375 485,918 507,175
Less-accumulated depreciation 238,687 216,310 222,256
------- ------- -------
294,688 269,608 284,919
------- ------- -------
Other Assets
Goodwill 25,506 27,619 25,878
Deferred taxes 20,640 -- 15,108
------- ------- -------
46,146 27,619 40,986
======= ======= =======
919,301 906,269 937,632
======= ======= =======
Liabilities & Shareholders' Equity
Current Liabilities
Current maturities of long-term bank loans 72,984 44,372 68,747
Trade payables 200,901 184,250 219,902
Other payables and accrued expenses 46,825 43,559 38,720
------- ------- -------
320,710 272,181 327,369
------- ------- -------
Long-Term Liabilities
Long-term bank loans 73,568 91,880 81,851
Deffered taxes 37,988 32,937 37,388
------- ------- -------
111,556 124,817 119,239
------- ------- -------
Minority Interest 56,160 53,721 54,492
------- ------- -------
Shareholders Equity
Share capital 29,038 29,038 29,038
Capital reserves 180,414 180,414 180,414
Translation adjustments relating to
foreign held autonomous Subsidiary 535 951 (3,377)
Retained earnings 220,888 245,147 230,457
------- ------- -------
430,875 455,550 436,532
======= ======= =======
919,301 906,269 937,632
======= ======= =======
------------------------- ------------------------- ------------------------
T. Davis O. Argov A. Schor
Chairman of the Board Chief Financial Officer Chief Executive Officer
of Directors
Approval date of the interim financial stataments: November 3, 2005.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
-2-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands; Reported Amounts, except per share data)
NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------ ---------
2005 2004 2005 2004 2004
--------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
------------------------ ------------------------
Net sales 851,902 785,306 298,094 260,382 995,569
Cost of sales 611,812 545,589 211,677 181,780 719,982
--------- --------- --------- --------- ---------
GROSS PROFIT 240,090 239,717 86,417 78,602 275,587
Selling expenses 146,555 142,429 47,472 47,647 193,701
General and administrative expenses 45,052 31,451 13,257 10,957 41,029
--------- --------- --------- --------- ---------
OPERATING PROFIT 48,483 65,837 25,688 19,998 40,857
Financing income (expenses), net 2,500 (7,447) (2,865) (1,125) (1,490)
Other income, net 256 1,257 225 -- 903
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 51,239 59,647 23,048 18,873 40,270
Income taxes 15,530 15,702 4,087 5,033 10,244
--------- --------- --------- --------- ---------
INCOME AFTER INCOME TAXES 35,709 43,945 18,961 13,840 30,026
Minority interest in results of subsidiary (1,668) (2,327) (1,428) (834) (3,098)
--------- --------- --------- --------- ---------
NET INCOME FOR THE PERIOD 34,041 41,618 17,533 13,006 26,928
========= ========= ========= ========= =========
BASIC EARNINGS PER ORDINARY SHARE
(Earnings per share (in NIS) 4.00 4.89 2.06 1.53 3.16
========= ========= ========= ========= =========
NUMBER OF SHARES USED IN COMPUTATION 8,513,473 8,513,473 8,513,473 8,513,473 8,513,473
========= ========= ========= ========= =========
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
-3-
HOGLA-KIMBERLY LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
TRANSLATION
ADJUSTMENTS
RELATING TO
FOREIGN HELD
SHARE CAPITAL AUTONOMOUS RETAINED
CAPITAL RESERVES SUBSIDIARY EARNINGS TOTAL
------- ------- ------- ------- -------
NINE MONTHS ENDED
SEPTEMBER 30, 2005 (UNAUDITED)
Balance - January 1, 2005 29,038 180,414 (3,377) 230,457 436,532
Translation adjustments
relating to foreign held
autonomous Subsidiary 3,912 3,912
Dividend Paid (43,610) (43,610)
Net income for the period 34,041 34,041
------- ------- ------- ------- -------
Balance - September 30, 2005 29,038 180,414 535 220,888 430,875
======= ======= ======= ======= =======
NINE MONTHS ENDED
SEPTEMBER 30, 2004 (UNAUDITED)
Balance - January 1, 2004 28,788 156,799 - 227,394 412,981
Distribution of bonus shares 250 23,615 (23,865) -
Translation adjustments
relating to foreign held
autonomous Subsidiary 951 951
Net income for the period 41,618 41,618
------- ------- ------- ------- -------
Balance - September 30, 2004 29,038 180,414 951 245,147 455,550
======= ======= ======= ======= =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
-4-
HOGLA-KIMBERLY LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
TRANSLATION
ADJUSTMENTS
RELATING TO
FOREIGN HELD
SHARE CAPITAL AUTONOMOUS RETAINED
CAPITAL RESERVES SUBSIDIARY EARNINGS TOTAL
------ ------- ------ ------- -------
Three months ended
September 30, 2005 (unaudited)
Balance - July 1, 2005 29,038 180,414 (905) 203,355 411,902
Translation adjustments
relating to foreign held
autonomous Subsidiary 1,440 1,440
Net income for the period 17,533 17,533
------ ------- ------ ------- -------
Balance - September 30, 2005 29,038 180,414 535 220,888 430,875
====== ======= ====== ======= =======
Three months ended
September 30, 2004 (unaudited)
Balance - July 1, 2004 28,788 156,799 1,690 256,006 443,283
Distribution of bonus shares 250 23,615 (23,865) -
Translation adjustments
relating to foreign held
autonomous Subsidiary (739) (739)
Net income for the period 13,006 13,006
------ ------- ------ ------- -------
Balance - September 30, 2004 29,038 180,414 951 245,147 455,550
====== ======= ====== ======= =======
Year ended December 31, 2004
Balance - January 1, 2004 28,788 156,799 - 227,394 412,981
Distribution of bonus shares 250 23,615 (23,865) -
Translation adjustments
relating to foreign held
autonomous Subsidiary (3,377) (3,377)
Net income for the year 26,928 26,928
------ ------- ------ ------- -------
Balance - December 31, 2004 29,038 180,414 (3,377) 230,457 436,532
====== ======= ====== ======= =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
-5-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------- -------
2005 2004 2005 2004 2004
------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
-------------------- --------------------
CASH FLOWS - OPERATING ACTIVITIES
NET INCOME FOR THE PERIOD 34,041 41,618 17,533 13,006 26,928
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES (APPENDIX A) (24,977) (5,853) (9,992) (16,504) 30,683
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 9,064 35,765 7,541 (3,498) 57,611
------- ------- ------- ------- -------
CASH FLOWS - INVESTING ACTIVITIES
WITHDRAWAL OF LONG-TERM BANK DEPOSITS -- 8,138 -- 8,138 8,138
ACQUISITION OF FIXED ASSETS (28,010) (13,794) (11,524) (7,677) (25,191)
PROCEEDS FROM SALE OF FIXED ASSETS 256 1,827 224 -- 1,827
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (27,754) (3,829) (11,300) 461 (15,226)
------- ------- ------- ------- -------
CASH FLOWS - FINANCING ACTIVITIES
DIVIDEND PAID (43,610) -- -- -- --
LONG-TERM LOAN RECEIVED 31,304 38,052 22,371 24,449 57,672
REPAYMENT OF LONG-TERM LOAN (44,759) (15,162) (36,258) (10,741) (15,162)
SHORT-TERM BANK CREDIT -- (1,087) -- -- (1,087)
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (57,065) 21,803 (13,887) 13,708 41,423
------- ------- ------- ------- -------
TRANSLATION ADJUSTMENTS OF CASH
AND CASH EQUIVALENTS OF FOREIGN
HELD AUTONOMOUS SUBSIDIARY 718 2,118 1,017 2,157 (3,784)
======= ======= ======= ======= =======
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (75,037) 55,857 (16,629) 12,828 80,024
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 117,364 37,340 58,956 80,369 37,340
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS - END OF PERIOD 42,327 93,197 42,327 93,197 117,364
======= ======= ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS.
-6-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
APPENDICES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------- -------
2005 2004 2005 2004 2004
------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
----------------------- -----------------------
A. ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES
INCOME AND EXPENSES NOT
INVOLVING CASH FLOWS:
MINORITY INTEREST IN RESULTS OF
SUBSIDIARY 1,668 2,327 1,428 834 3,098
DEPRECIATION AND AMORTIZATION 18,395 18,205 6,022 6,479 23,468
DEFERRED TAXES, NET (7,098) (983) (4,338) (295) (5,011)
GAIN FROM SALE OF FIXED ASSETS (256) (1,257) (225) -- (1,162)
EFFECT OF EXCHANGE RATE
DIFFERENCES, NET (549) 1,039 230 1,594 (1,901)
CHANGES IN ASSETS AND
LIABILITIES:
DECREASE (INCREASE) IN TRADE
RECEIVABLES (31,078) (44,444) (22,585) (14,583) 15,763
INCREASE IN OTHER RECEIVABLES (8,920) (11,229) (10,523) (8,234) (20,938)
DECREASE (INCREASE) IN INVENTORIES 12,577 (19,554) (3,548) 559 (46,919)
INCREASE (DECREASE) IN TRADE
PAYABLES (6,749) 32,749 24,057 (3,934) 49,624
NET CHANGE IN BALANCES WITH
RELATED PARTIES (10,735) 11,058 (4,146) (446) 13,591
INCREASE IN OTHER
PAYABLES AND ACCRUED EXPENSES 7,768 6,236 3,636 1,522 1,070
------- ------- ------- ------- -------
(24,977) (5,853) (9,992) (16,504) 30,683
======= ======= ======= ======= =======
B. NON-CASH ACTIVITIES
ACQUISITION OF FIXED ASSETS ON
CREDIT 16,852 7,368 7,589 4,005 18,470
======= ======= ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS.
-7-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as of
September 30, 2005 and for the nine months and three months then ended
("interim financial statements") of Hogla-Kimberly Ltd. ("the Company") and
Subsidiaries should be read in conjunction with the audited consolidated
financial statements of the Company and Subsidiaries as of December 31,
2004 and for the year then ended, including the notes thereto. In the
opinion of management, the interim financial statements include all
adjustments necessary for a fair presentation of the financial position and
results of operations as of September 30, 2005 and for the interim periods
presented. The results of operations for the interim periods are not
necessarily indicative of the results to be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
The interim financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") in Israel, in a
condensed format in accordance with GAAP applicable to the preparation
of interim period financial statements, including those under Standard
No. 14, "Interim Financial Reporting" and in accordance with Paragraph
D of the Israeli Securities Regulations (Periodic and Immediate
Financial Statements), 1970. The accounting principles applied in the
preparation of these interim financial statements are consistent with
those principles applied in the preparation of the most recent annual
audited financial statements with the exception of Standard No. 19
"Income Taxes" as described in paragraph B below.
B. 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 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 is 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 implementation of
Standard No. 19 did not affect the Group's financial position, results
of operations and cash flows.
-8-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. 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 Israeli
Consumer Price Index ("CPI"):
REPRESENTATIVE TURKISH LIRA CPI
EXCHANGE RATE OF EXCHANGE RATE WITH THE "IN RESPECT
THE DOLLAR DOLLAR OF"
AS OF: (NIS PER $1) (TL'000 PER $1) (IN POINTS)
------------ --------------- -----------
September 30, 2005 4.598 1,349 184.15
September 30, 2004 4.482 1,508 180.74
December 31, 2004 4.308 1,352 180.74
INCREASE (DECREASE)
DURING THE PERIOD ENDED: % % %
------------ --------------- -----------
Nine months ended September 30, 2005 6.7 (0.2) 1.9
Nine months ended September 30, 2004 2.4 7.4 1.2
Three months ended September 30, 2005 0.5 1.2 1.4
Three months ended September 30, 2004 (0.3) 1.3 (0.2)
December 31, 2004 (1.6) (2.9) 1.2
NOTE 3 -SUPPLEMENTAL DATA
A. REDUCTION OF CORPORATE TAX RATE
In July 2005, the Israeli Knesset passed the Law for Amending the
Income Tax Ordinance (No. 147), 2005, according to which commencing in
2006 the corporate income-tax rate would be gradually reduced, for
which a 31% tax rate was established, through 2010, in respect of
which a 25% tax rate was established. The effect of this amendment on
the Group's deferred income tax provisions is reflected by a reduction
of NIS 3 million in income tax expenses for the nine-month and
three-month periods ended September 30, 2005.
B. ACCOUNTING STANDARD NO.22 "FINANCIAL INSTRUMENTS: DISCLOSURE AND
PRESENTATION"
At the end of July 2005, the Israeli Accounting Standards Board
approved for publication Accounting Standard No. 22, "Financial
Instruments: Disclosure and Presentation". Financial instrument under
this Standard is, in general, any contract that establishes a
financial asset of an entity, or a financial liability or equity
instrument of another entity. This Standard establishes the
requirements for presentation of financial instruments in the
financial statements and indicates the information that should be
disclosed in relation thereto, and in some certain cases the method to
measure their impact on the entity's financial statements.
-9-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
NOTE 3 -SUPPLEMENTAL DATA (cont.)
B. ACCOUNTING STANDARD NO.22 "FINANCIAL INSTRUMENTS: DISCLOSURE AND
PRESENTATION" (cont.)
The presentation requirements relate to the classification of
financial instruments as financial assets, financial liabilities or
equity instruments. It also deals with the classification of related
interest, dividends, losses and gains and to the circumstances under
which financial assets and liabilities derived from financial
instruments are to be offset. The Standard requires disclosure of
information relating to factors affecting the amount, timing and
certainty of the entity's future cash flows relating to financial
instruments and accounting policy implemented in respect of these
instruments. The Standard also establishes requirements for disclosure
of information about the nature and the extent of an entity's use of
financial instruments, the business purposes they serve, the risks
associated with them and management's policies for the oversight of
those risks.
Standard No. 22 is effective for financial statements for periods
commencing January 1, 2006 or thereafter. The initial adoption of the
Standard will be accounted for by the "prospective method".
Comparative financial statements for prior periods shall not be
adjusted. The Standard's effect on the Group's financial statements is
not expected to be significant.
C. ACCOUNTING STANDARD NO.24 "STOCK-BASED COMPENSATION"
In September 2005, the Israeli Accounting Standards Board published
Accounting Standard No. 24 "Stock-Based Compensation" (the
"Standard"), which calls for the recognition in the financial
statements of transactions the payments related to are stock-based.
Such transactions include transactions with employees and related
parties to be settled by cash, by other assets, or by equity
instruments. Consequently, amongst other matters, costs associated
with grants of shares and options to employees will be expensed over
the vesting period of each grant. Said costs will be determined based
on the fair value of the grants at each grant date. The Standard
establishes guidelines for measuring the fair value of each grant
based on the settlement terms (either by cash or equity instrument),
and disclosure provisions.
The Standard is effective for financial statements for periods
commencing January 1, 2006 or thereafter (initial adoption is
recommended). The application of the Standard is not expected to
affect the Company's financial position and results of operations.
-10-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
NOTE 3 -SUPPLEMENTAL DATA (cont.)
D. PROVISION FOR DOUBTFUL ACCOUNTS
In July 2005, Clubmarket Marketing Chains Ltd. ("Clubmarket"), a
customer of the Company and one of the largest retail groups in
Israel, applied for the regional court in Tel-Aviv ("Court") for a
staying of procedures by creditors. The court protection was granted
until August 17, 2005. As a result, in the second quarter of 2005 a
provision of NIS 10.6 million for doubtful accounts was recorded,
which was included in the general and administrative expenses line
item. In the third quarter of 2005, Shufersal, Israel's biggest retail
chain, won a bid supervised by the Court for the purchase of the
stores, operations and inventories of Clubmarket. The trustees
submitted to the Court a settlement, at a draft stage, which includes
Clubmarket's debt to the Company. Said draft settlement is yet to be
approved by the Court. Since the settlement is at a draft stage and in
an early stage and was not yet approved by Court, management cannot
estimate, at this stage, the exact payout of Clubmarket's debt to the
Company as a result of said settlement. The remaining net balance of
Clubmarket as of September 30, 2005, that is in excess of the doubtful
accounts provision recorded in the interim financial statements, is
approximately NIS 5.3 million, which represents approximately 25% of
the balance as of such date (including VAT).
The net sales to Clubmarket during the six-month period ended June 30,
2005 constituted approximately 6.4% of total net sales of that period
on a consolidated basis.
-11-