SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the Month of March 2006
-----------------------
AMERICAN ISRAELI PAPER MILLS LTD.
(Translation of Registrant's Name into English)
P.O. Box 142, Hadera, Israel
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
|X| Form 20-F |_| Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): |_|
NOTE: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): |_|
NOTE: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
|_| Yes |X| No
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-______________
Attached hereto as Exhibit 1 and incorporated herein by reference is
the Registrant's press release dated March 8, 2006 with respect to the
Registrant's results of operations for the year ended December 31, 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 year ended December 31, 2005.
Attached hereto as Exhibit 3 and incorporated herein by reference are
the Registrant's audited consolidated financial statements for the year ended
December 31, 2005.
Attached hereto as Exhibit 4 and incorporated herein by reference are
the audited consolidated financial statements of Mondi Business Paper Hadera
Ltd. and subsidiaries with respect to the year ended December 31, 2005.
Attached hereto as Exhibit 5 and incorporated herein by reference are
the audited consolidated financial statements of Hogla-Kimberly Ltd. and
subsidiaries with respect to the year ended December 31, 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: March 9, 2006
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
----------- -----------
1. Press release dated March 8, 2006.
2. Registrant's management discussion.
3. Registrant's audited consolidated financial
statements.
4. Audited consolidated financial statements of Mondi
Business Paper Hadera Ltd. and subsidiaries.
5. Audited 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 FISCAL YEAR ENDED DECEMBER 31, 2005
Hadera, Israel, March 8, 2006 - American Israeli Paper Mills Ltd. (ASE:AIP) (the
"Company" or "AIPM") today reported financial results for the year ended
December 31,2005.
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")), 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" (hereafter - the "Group")), net of
intercompany sales and irrespective of the percentage of holding.
Aggregate Group sales in 2005 totaled NIS 2,784.8 million compared with NIS
2,626.2 million in 2004.
Aggregate operating profit in 2005 totaled NIS 117.5 million compared with NIS
143.5 million in 2004.
The aggregate operating income figures for 2005 include a provision for doubtful
debts in the amount of NIS 10.6 million, that was recorded in 2005 at H-K on
account of the collapse of one of its customers, the Club Market retail chain.
The erosion in the aggregate operating income in 2005 originated primarily from
the extraordinary rise in input prices, as stated below, for which it was
impossible to fully compensate by raising selling prices, due to the prevailing
business conditions.
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 2005 totaled NIS 482.5 million compared with NIS 482.9 in
2004 and NIS 465.1 million in 2003.
Operating profit in 2005 totaled NIS 47.8 million compared with NIS 53.9 million
in 2004 and NIS 46.6 million in 2003.
Net profit in 2005 amounted to NIS 45.7 million, as compared with NIS 62.7
million in 2004 and NIS 60.0 million in 2003.
Net profit in 2005 included a tax benefit of NIS 8 million (including the
Company's share in the benefit of associated companies) on account of the impact
of the tax law reforms that were passed by the Knesset (Israeli parliament) on
July 25th 2005, that serve to gradually lower the corporate tax rate to a level
of 25% by 2010.
Net profit in 2004 included a tax benefit in the amount of NIS 10.2 million
(including the Company's share in the benefit of associated companies)
originating from the lowering of the tax rate, that entered into effect in June
2004. Moreover, a tax benefit of NIS 4.2 million was recorded in 2004, on
account of the exercise of options by employees.
Net profit before non-recurring items amounted to NIS 37.7 million in 2005, as
compared with NIS 48.3 million in 2004 and NIS 57.4 million in 2003.
Earnings per share (EPS)in 2005 totaled NIS 11.27 compared with NIS 15.44 in
2004 and NIS 14.94 in 2003.
The inflation rate in 2005 was 2.4% as compared with an inflation rate of 1.2%
last year.
The exchange rate of the NIS was devaluated against the U.S. dollar in 2005 by
6.8% as compared with a revaluation of 1.6% last year.
Mr. Avi Brener Chief Executive Officer of the Company said that the year 2005
was characterized by an economic growth (approximately 5%), increased demand on
the part of the public sector and more moderate growth in private consumption.
The Group's results in 2005 were significantly affected by the unusual rise in
energy prices that began in 2004 and accelerated in 2005. This price increase
included fuel oil and diesel prices that rose by an extraordinary average of 38%
in relation to 2004. Water and electricity prices also rose in 2005 as compared
with 2004 (by an average of 10% and 13%, respectively).
The impact of these price increases on the Group's aggregate operating profit
results amounts to approximately NIS 40 million.
In parallel, the prices of the principal raw materials used by the Group
companies in their various activities also continued to rise. The impact is an
additional NIS 60 million to the Group's costs in the Group's aggregated
operating profit, compared with 2004.
The downturn in the European paper industry, originating from surplus supply due
to the recession in Europe, has resulted in competing imports into Israel, at
low prices, that rendered it impossible to raise prices, as warranted from the
said rise in input prices.
In view of these market conditions and the fierce competition which the Group is
facing, and with the intention of dealing with the increase in input prices, the
Group accelerated its efficiency programs at all the companies, operating
2
intensively to cut costs across all expense areas - while maintaining the
quality of products and market share.
The Company's share in the earnings of associated companies (before
non-recurring items) amounted to NIS 12.6 million in 2005, as compared with NIS
20.7 million in 2004 and NIS 35.5 million in 2003.
The following principal changes were recorded in the Company's share in the
earnings of associated companies before non-recurring items):
- The Company's share in the net earnings of Mondi Hadera (49.9%) decreased
by NIS 10.1 million in 2005, as compared with 2004. Most of the change in
profit in 2005 as compared with 2004 originates from the decrease in
operating income between the years, as a result of the rebuild that was
carried out on the paper machine in 2005. The unusual increase in raw
material, energy and water prices also adversely affected the profitability
of Mondi Hadera. The economic slowdown in Europe and the surplus of paper
led to an erosion of imported paper prices and rendered it difficult for
Mondi Hadera to raise prices, as warranted from the said price hikes - both
in local markets and especially in export markets. Mondi Hadera is
nevertheless continuing with its efforts to raise prices (in parallel to
announcing higher prices in Europe in late 2005) and is intensifying its
efficiency and cost-cutting measures.
- The Company's share in the net earnings of H-K (49.9%) increased by
NIS 2.9 million in 2005, as compared with 2004. The stronger marketing
operations and the fortification of brands, in combination with the
increase in prices and effective efficiency measures, served to
compensate in 2005 for the sharp rise in input prices (raw materials
and energy) and improved the operating income. A net loss of NIS 3.5
million was recorded in the second quarter of 2005 on account of
AIPM's share in a supplemental provision for doubtful debts, that was
recorded by H-K on account of the debts of Club Market, that is
undergoing a settlement of debts.
- The Company's share in the losses of Kimberly Clark Turkey, a
wholly-owned Hogla-Kimberly subsidiary that is consolidated in its
financial statements (hereinafter: "KCTR", formerly "Ovisan") (49.9%)
has decreased by NIS 6.6 million in 2005, as compared with 2004. In
2005, KCTR has continued its preparation for the expansion of
operations in the Turkish market and for the introduction of Kimberly
Clark's international premium products into that market, as part 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. KCTR has
started the introduction of the Kotex(R) line of feminine hygiene
products in late 2005 and is expected to introduce Huggies(R) diapers
in 2006. KCTR recorded a significant loss in 2004, since the
deployment of its distribution network on the one hand, and fierce
competition in the Turkish market, on the other hand, resulted in the
need to adjust the value of inventories to the prevailing market
prices at the end of that year.
- The Company's share in the net earnings of the Carmel Group (26.25%)
decreased by NIS 2.8 million in 2005 as compared with 2004. The change
in 2005 originated from a decrease in operating profit and a rise in
financial expenses (due to devaluation differentials). The decrease in
operating profit, despite the quantitative increase in sales,
originated primarily from the sharp rise in raw material prices, that
was only
3
partially offset by the rise in selling prices (in view of the
escalating competition in the corrugators market),leading to a
consequent erosion in the gross margin. In 2005, Carmel began making
investments as part of the strategic move to improve the corrugation
base with the intention of rendering the manufacturing process more
efficient. At the end of this process, the output capacity will reach
100 thousand tons. The investment will be completed in 2006.
- The Company's share in the net earnings of TMM (43.08%) decreased by
NIS 4.6 million in 2005 as compared with 2004. TMM recorded a sharp
decrease in operating profit in 2005 as compared with 2004, due to the
significant rise in transportation costs (originating from a
significant average rise of 32% in diesel prices as compared with 2004
- an impact of NIS 8 million). This unusual 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), that rose by only 2.4% this year. TMM 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. Some of the customers began responding to the price changes in
late 2005.
In August 2005, the Company announced the distribution of a dividend for 2005,
in the amount of NIS 50 million (NIS 12.5 per share). The dividend was paid in
September 2005.
In December 2005, the Company announced the distribution of additional dividend
for 2005, in the amount of NIS 50 million (NIS 12.494 per share). The dividend
was paid in January 2006.
A total of 5,531 shares were issued in 2005 (0.1% dilution), on account of the
exercise of 16,282 option warrants as part of the Company's employee stock
option plans.
The Chairman of the Board, Mr. Yaki Yerushalmi, announced on 6 March 2006 his
intention to retire, after 37 years of work at AIPM, of which 10 years as
General Manager of Hogla, 17 years as the CEO of AIPM and 5 years as chairman of
the AIPM group. The date of the retirement will be coordinated with the Board in
order to enable a smooth succession.
This report contains various forward-looking statements based upon the Board of
Directors' present expectations and estimates regarding the operations and plans
of the Group and its business environment. The Company does not guarantee that
the future results of operations will coincide with the forward-looking
statements and these may in fact differ considerably from the present forecasts
as a result of factors that may change in the future, such as changes in costs
and market conditions, failure to achieve projected goals, failure to achieve
anticipated efficiencies and other factors which lie outside the control of the
Company. The Company undertakes no obligation for publicly updating the said
forward-looking statements, regardless of whether these updates originate from
new information, future events or any other reason.
4
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF RESULTS
(AUDITED)
NIS IN THOUSANDS
except per share amounts
2005 2004
==== ====
Net sales 482,461 482,854
Net earnings 45,715(1) 62,732(2)
Earnings per share 1,127(1) 1,544(2)
(1) The net earnings in 2005 include a non- recurring 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).
(2) The net earnings in 2004 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), and an additional tax benefit of
4.2 millions on account of the exercise of employees option.
The representative exchange rate at December 31, 2005 was NIS 4.603=$1.00
(sec-pres-11358)
5
EXHIBIT 2
---------
March 7, 2006
MANAGEMENT DISCUSSION
We are honored to present the consolidated financial statements of the American
Israeli Paper Mills Ltd. ("AIPM" or the "Company") for the year 2005. The
Company, its subsidiaries and associated companies - the "Group".
A. A DESCRIPTION OF THE GROUP'S BUSINESS
-------------------------------------
1. GENERAL
-------
AIPM deals in the manufacture and sale of packaging 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
------------------------
The year 2005 was characterized by economic growth in Israel
(approximately 5%), increased demand on the part of the public sector
and more moderate growth in private consumption.
The Group's results in 2005 were significantly affected by the unusual
rise in energy prices, that began in 2004 and accelerated in 2005.
This price increase included fuel oil and diesel prices that rose by
an extraordinary average of 38% in relation to 2004. Water and
electricity prices also rose in 2005 as compared with 2004 (by an
average of 10% and 13%, respectively).
THE IMPACT OF THESE PRICE INCREASES ON THE GROUP'S AGGREGATE OPERATING
PROFIT RESULTS AMOUNTS TO APPROXIMATELY NIS 40 MILLION.
In parallel, the prices of the principal raw materials used by the
Group companies in their various activities also continued to rise.
THE IMPACT IS AN ADDITIONAL NIS 60 MILLION TO THE GROUP'S COSTS IN THE
AGGREGATED OPERATIONS PROFIT, COMPARED WITH 2004.
The downturn in the European paper industry, originating from surplus
supply due to the recession, has resulted in competing imports into
Israel, at low prices, that rendered it impossible to raise prices, as
warranted from the said rise in input prices.
In view of the said market conditions and the fierce competition which
the Group is facing, and with the intention of dealing with the said
rise in input prices, the Group accelerated its efficiency programs at
all the companies, operating intensively to cut costs across all
expense areas - in parallel to maintaining the quality of products and
the market share figures.
1
As part of the said operations, the Company is initiating measures to
achieve synergy between the Group companies, thereby allowing the
Group to enjoy economies of scale, while bringing about greater
efficiency and savings in various costs, including energy and raw
material costs. The said plans include among others the anticipated
savings from the expected transition to the use of natural gas at the
Hadera plant, as described below.
Concurrently, the Group is implementing some cross-organization plans:
The Talent Management plan for the development of the Group's managers
and the creation of managerial reserve, the WOW Program for enhancing
the perceived added value of the companies with the customers and
improving loyalty premium and price based on differentiation of
products and service, Kimberly Clark's global Centerlining program
aimed at improving production lines (operating a methodology that
creates a joint agenda for all elements impacting operations,
including: engineering, maintenance, technology and operations, while
constantly measuring the variation of selected parameters, thereby
creating a process of constant improvement in quality and efficiency).
In addition, the Group raised the selling prices of its products,
albeit only partially and not to the extent warranted by the increase
in input prices - due to the economic conditions outlined above, the
more moderate demand and the escalating competition against both
imports and local manufacturers.
The said efficiency measures, together with the partial rise in
prices, rendered it possible to significantly 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 increased input
prices.
It is impossible to estimate the impact of the above steps on the
Group's profitability, at this stage.
A trend has been identified in early 2006 whereby the gap between
supply and demand in the European paper market seems to be narrowing,
given the economic growth in the EU. This trend is leading to
announcements regarding increases paper prices in Europe and in the
USA.
As part of the Company's endeavors to cut manufacturing costs and to
achieve additional environmental improvements, the Company is
continuing to promote the energy-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. The transition is planned for the second half of 2006,
subject to the arrival of the gas to Hadera.
In this capacity, 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 the existing
energy co-generation plant at Hadera 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).
2
The transition from fuel oil to natural gas will allow for significant
savings, due to the significant differences between the current price
of fuel oil versus the gas price and will serve to improve the Group's
competitiveness and profitability.
The NIS exchange rate was devaluated by 6.8% against the dollar in
2005, as compared with a revaluation of 1.6% in 2004.
The inflation rate in 2005 amounted to 2.4%, as compared with an
inflation rate of 1.2% in 2004.
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 Ltd.), the
aggregate data appearing below 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"), without considering the rate of holding and
net of mutual sales.
The aggregate sales amounted to NIS 2,784.8 million in 2005, as
compared with NIS 2,626.2 million in 2004.
The aggregate operating income in 2005 amounted to NIS 117.5 million,
as compared with NIS 143.5 million in 2004.
The aggregate operating income figures for 2005 include a provision
for doubtful debts in the amount of NIS 10.6 million, that was
recorded this year at Hogla Kimberly on account of the collapse of one
of its customers, the Club Market retail chain.
The erosion in the aggregate operating income in 2005 originated
primarily from the extraordinary rise in input prices, as stated
above, for which it was impossible to fully compensate by raising
selling prices, due to the prevailing business conditions.
2. CONSOLIDATED DATA
-----------------
Excluding the results of operations of the associated companies: Mondi
Hadera, Hogla-Kimberly, Carmel and TMM.
The sales amounted to NIS 482.5 million in 2005, as compared with NIS
482.9 million in 2004 and NIS 465.1 million in 2003.
3
The total sales of the paper and recycling segment amounted to NIS
368.9 million, NIS 367.4 million and NIS 332.1 million in the years
2005, 2004 and 2003 respectively.
The gross profit of the paper and recycling segment amounted to NIS
69.8 million (19% of turnover), NIS 77.1 million (21% of turnover) and
NIS 67.5 million (20% of turnover), respectively.
The total sales of the office supplies segment amounted to NIS 113.6
million, NIS 115.5 million and NIS 133.0 million in the years 2005,
2004 and 2003, respectively. The gross profit of the office supplies
segment amounted to NIS 29.4 million (26% of turnover), NIS 29.9
million (26% of turnover) and NIS 35.4 million (27% of turnover),
respectively.
The operating profit in 2005 amounted to NIS 47.8, as compared with
NIS 53.9 million in 2004 and NIS 46.6 million in 2003.
3. NET PROFIT AND EARNINGS PER SHARE
---------------------------------
The net profit in 2005 amounted to NIS 45.7 million, as compared with
NIS 62.7 million in 2004 and NIS 60.0 million in 2003.
The net profit in 2005 included a tax benefit of NIS 8 million
(including the Company's share in the benefit of associated companies)
on account of the impact of the tax law reforms that were passed by
the Knesset (Israeli parliament) on July 25th 2005, that serve to
gradually lower the corporate tax rate to a level of 25% by 2010.
The net profit in 2004 included a tax benefit in the amount of NIS
10.2 million (including the Company's share in the benefit of
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. Moreover, a tax benefit of NIS 4.2 million was recorded in
2004, on account of the exercise of options by employees.
The net profit before non-recurring items amounted to NIS 37.7 million
in 2005, as compared with NIS 48.3 million in 2004 and NIS 57.4
million in 2003.
The Earnings Per Share in 2005 amounted to NIS 1,127 per NIS 1 par
value ($2.45 per share), as compared with NIS 1,544 per NIS 1 par
value ($3.58 per share) in 2004 and NIS 1,494 per NIS 1 par value
($3.41 per share) in 2003.
The return on shareholders' equity amounted to 7.9% in 2005, as
compared with 10.2% in 2004.
4
C. ANALYSIS OF OPERATIONS AND PROFITABILITY
----------------------------------------
The analysis set forth below is based on the consolidated data.
1. SALES
-----
The consolidated sales amounted to NIS 482.5 million in 2005, as
compared with NIS 482.9 million in 2004 and NIS 465.1 million in 2003.
The change in the turnover in 2005 originated from a certain growth in
sales of packaging paper and paper waste, along with an insignificant
decrease in the sales of office equipment sector due to the
implementation of a reorganization process in this sector.
The growth in sales in 2004, as compared with 2003, is attributed to a
quantitative increase in packaging paper and in the sale of paper
waste to external entities, coupled with an improvement in the prices
of fluting and paper waste and a change in the sales mix. On the other
hand, the decrease in Graffiti sales served to offset part of this
growth.
2. COST OF SALES
-------------
The cost of sales amounted to NIS 383.2 million in 2005, representing
79.4% of sales, as compared with NIS 375.9 million, or 77.9% of sales
in 2004 and as compared with NIS 362.2 million, or 77.9% of sales in
2003.
The gross margin amounted to 20.6% in 2005, as compared with 22.1% in
2004 and 2003.
The decrease in the gross margin originated primarily from the erosion
of the gross profit due to the increase in raw material prices
(approximately 9% for paper waste), the unusual rise in energy prices
(approximately 38% for fuel oil and approximately 13% for electricity)
and water (approximately 10%). This was partially offset by a certain
quantitative growth in sales of packaging and paper waste, a certain
rise in selling prices (that failed to compensate for the said rise)
and the continuing efficiency measures across all areas of operation.
The Company managed to preserve its gross margin in 2004, as compared
with 2003, despite the following rise in average input prices in 2004
as compared with 2003: Raw materials (paper waste by approximately
13%), energy (by approximately 4%) and water (by approximately 5%),
accomplished through an increase in sales, higher selling prices and
efficiency measures across all areas of operation.
Labor Wages
-----------
The labor wages in the cost of sales, in selling expenses and in
General and Administrative expenses, amounted to NIS 149.7 million in
2005, as compared with NIS 143.5 million in 2004 and NIS 137.0 million
in 2003.
5
The increase in wages is attributed to a certain rise in manpower due
to the quantitative growth, coupled with the preservation of a real
level of wages, in CPI terms.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
The selling, general and administrative expenses (including wages)
amounted to NIS 51.5 million in 2005, 10.7% of sales, as compared with
NIS 53.0 million, 11.0% of sales, in 2004 and NIS 56.3 million in 2003
(12.1% of sales).
The decrease in selling and General and administrative expenses
originated from continuing efficiency and cost-cutting measures.
4. OPERATING PROFIT
----------------
The operating profit amounted to NIS 47.8 million in 2005,
representing 9.9% of sales, as compared with NIS 53.9 million, or
11.2% of sales in 2004 and as compared with NIS 46.6 million, or 10.0%
of sales in 2003.
The decrease in the operating profit in the paper and recycling sector
in 2005 as compared with 2004 originated primarily from the said
erosion of margins, due to the sharp rise in input prices (primarily
energy, electricity and water) on the one hand, along with the
difficulty in raising prices - as warranted by the said rise in input
prices - due to competing imports.
The substantial decrease in the office supplies sector loss in 2005 as
compared with 2004 resulted from the reorganization process
implemented in this sector, along with extensive efficiency measures
and operations in order to increase sales.
5. FINANCIAL EXPENSES
------------------
The financial expenses amounted to NIS 12.5 million in 2005, as
compared with NIS 13.1 million in 2004 and NIS 16.0 million in 2003.
The total average of the company's net, interest-bearing liabilities
grew by approximately NIS 58 million, as a comparison between 2005 and
2004. The growth originated primarily from the payment of NIS 100
million in dividends in September 2004 and NIS 50 million in September
2005, coupled with investments in fixed assets, net of dividend
received from a consolidated subsidiary (NIS 21.8 million) and net of
the positive cash flows from operating activities.
Moreover, the cost of the transaction for hedging the 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.
Nevertheless, since the Consumer Price Index (CPI) rose by an actual
2.4% in 2005, the hedging transaction of 1.3% resulted in savings of
NIS 2.7 million on additional financing costs on account of the
CPI-linked notes.
Despite the aforesaid, the depreciation in 2005, that served to
increase the financial revenues from the Company's dollar-denominated
assets, as compared with the revaluation that took place in 2004,
resulted in net financial expenses that were lower in 2005 than in
2004.
The financial reporting in 2003 was adjusted to the US dollar. The
significant revaluation that year (7.6%) served to increase the
Company's NIS-denominated
6
liabilities in dollar terms, thereby leading the company to report
higher financial expenses in 2003.
6. TAXES ON INCOME
---------------
Expenses for taxes on income from current operations totaled NIS 10.2
million in 2005, as compared with NIS 13.2 million in 2004 and NIS 8.8
million in 2003.
The principal factors responsible for the decrease in tax expenses in
2005 as compared with 2004 include the decrease in pre-tax earnings
this year and the lower tax rate this year, in relation to last year.
A tax benefit of NIS 4.2 million was recorded in 2005 on account of
the impact of the tax reforms that were passed by the Knesset in July
this year (gradually lowering the corporate tax rate to 25% by 2010)
on the company's deferred taxes. The financial statements in 2004
included a tax benefit of NIS 5.8 million on account of the impact of
the change in the corporate tax rate that was passed in 2004 on the
company's deferred taxes, coupled with an additional tax benefit of
NIS 4.2 million on account of the exercise of options by employees.
The tax expenses, including the said benefits, amounted to NIS 6.0
million in 2005, as compared with NIS 3.2 million in 2004.
7. 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) amounted to NIS 12.6 million in 2005, as compared
with NIS 20.7 million in 2004 and NIS 35.5 million in 2003.
The following principal changes were recorded in the Company's share
in the earnings of associated companies, (before non-recurring items):
- The Company's share in the net earnings of Mondi Hadera (49.9%)
decreased by NIS 10.1 million in 2005, as compared with 2004
(2004 - gain, 2005 - loss) and by NIS 3.0 million in 2004 as
compared with 2003. Most of the change in profit in 2005 as
compared with 2004 originates from the decrease in operating
income between the years, as a result of the rebuild that was
carried out on the paper machine this year. The massive rebuild,
that was intended to improve the output of the machine and the
quality of the paper, necessitated discontinuing the
manufacturing process during the rebuild and was accompanied by a
subsequent learning curve, as is normal during such a significant
project. The unusual increase in raw material, energy and water
prices also adversely affected the profitability of Mondi Hadera.
The economic slowdown in Europe and the surplus of paper led to
an erosion of imported paper prices and rendered it difficult for
Mondi Hadera to raise prices, as warranted from the said price
hikes - both in local markets and especially in export markets.
Mondi Hadera is nevertheless continuing with its efforts to raise
prices (in parallel to
7
announcing higher prices in Europe in late 2005) and is
intensifying its efficiency and cost-cutting measures.
The Company's share in the net earnings of Hogla-Kimberly (49.9%)
increased by NIS 2.9 million in 2005, as compared with 2004 and
by NIS 1.2 million in 2004 as compared with 2003. The stronger
marketing operations and the fortification of brands, in
combination with the increase in prices and effective efficiency
measures, served to compensate in 2005 for the sharp rise in
input prices (raw materials and energy) and improved the
operating income. Hogla-Kimberly continues to improve the quality
of its products, while strengthening its brands, including
Mollett Hearts toilet paper, Kotex hygiene products and Nikol
(complementary kitchen products).
A net loss of NIS 3.5 million was recorded in the second quarter
of 2005 on account of AIPM's share in a supplemental provision
for doubtful debts, that was recorded by Hogla-Kimberly on
account of the debts of Club Market, that is in a stay of
proceedings and is currently - subsequent to its acquisition by
Supersol - undergoing a settlement of debts. The settlement was
approved by the court, but has yet to be finalized. The sum of
the settlement is yet unknown.
The Company's share in the losses of Kimberly Clark Turkey, a
wholly-owned Hogla-Kimberly subsidiary that is consolidated in
its financial statements (hereinafter: "KCTR", formerly "Ovisan")
(49.9%) has decreased by NIS 6.6 million in 2005, as compared
with 2004 and grew by NIS 19.7 million in 2004, as compared with
2003. In 2005, KCTR has continued 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, as part 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. KCTR has started the
introduction of the Kotex(R) line of feminine hygiene products in
late 2005 and is expected to introduce Huggies(R) diapers in
2006. KCTR recorded a significant loss in 2004, since the
deployment of its distribution network on the one hand, and
fierce competition in the Turkish market, on the other hand,
resulted in the need to adjust the value of inventories to the
prevailing market prices at the end of that year.
- The Company's share in the net earnings of the Carmel Group
(26.25%) decreased by NIS 2.8 million in 2005 as compared with
2004 while in 2004 increased by NIS 3.6 million as compared with
2003. The change in 2005 originated from a decrease in operating
profit and a rise in financial expenses (due to devaluation
differentials). The decrease in operating profit, 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 corrugator market), leading to a consequent
erosion in the gross margin. In 2005, Carmel began making
investments as part of the strategic move to improve the
corrugation base with the intention of rendering the
manufacturing process more efficient. At the end of this process,
the output
8
capacity will reach 100 thousand tons. The investment will be
completed in 2006.
- The Company's share in the net earnings of TMM (43.08%) decreased
by NIS 4.6 million in 2005 as compared with 2004 (2004 - gain,
2005 - loss); In 2004 the Company's share increased by NIS 1.4
million as compared with 2003. TMM recorded a sharp decrease in
operating profit in 2005 as compared with 2004, due to the
significant rise in transportation costs (originating from a
significant average rise of 32% in diesel prices as compared with
2004 - an impact of NIS 8 million). This unusual 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), that rose by only 2.4% this year.
TMM 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. We note that some of the
customers began responding to the price changes in late 2005.
The Company's share in the earnings of associated companies in
2005 includes its share in the tax benefits recorded by these
companies, following the change in tax rates (in the amount of
NIS 3.9 million) amounts to NIS 16.4 million, as compared with
NIS 25.1 million in 2004 (including a tax benefit of NIS 4.4
million).
D. ANALYSIS OF THE COMPANY'S FINANCIAL SITUATION
---------------------------------------------
o Short-term investments decreased from NIS 62.5 million on December 3,1
2004 to NIS 11.4 million on December 31, 2005. The decrease in this
item originated from the realization of short-term deposits that was
made, inter alia, due to the decrease in interest rates.
o Accounts receivable rose from NIS 143.3 million on Dece 31, 2004 to
NIS 150.4 million on December 31, 2005. This increase originates
primarily from proceeds that were expected in December 2005 and were
received in January 2006, coupled with a certain increase in days of
credit.
o Inventories rose from NIS 62.4 million on December 31, 2004 to NIS
64.0 million on December 31, 2005. The inventories represent current
operating levels.
o Investments in associated companies decreased from NIS 431.2 million
on December 31, 2004 to NIS 429.0 million on December 31, 2005. The
principal components of this decrease were the company's share in the
net income of associated companies in 2005, net of dividends received
from these companies.
o Short-term credit decresed from NIS 112.7 million on December 31, 2004
to NIS 93.2 million on December 31, 2005. The decrease in this item
originated from the positive net cash flows balance in 2005.
o The other payables item rose from NIS 65.8 million on December 31,
2004 to NIS 85.4 million on December 31, 2005. On account of an
increase in the balance of current taxes in 2005 and an increase in
the employee balance originating primarily from the timing of the
payment of the December paycheck over the years.
o The decrease in net deferred taxes, from NIS 40.7 million on December
31, 2004, to NIS 33.0 million on December 31, 2005, originated
primarily from the impact of the change in the corporate tax rate in
2005, in the sum of NIS 4.2 million.
9
o The Company's shareholders' equity decreased from NIS 575.3 million on
December 31, 2004 to NIS 523.0 million on December 31, 2005. The
change originates primarily from the net income on the one hand and
the dividend payment, on the other hand.
E. LIQUIDITY AND INVESTMENTS
-------------------------
1. CASH FLOWS
----------
The cash flows from operating activities in 2005 (excluding dividend
from an associated company) amounted to NIS 66.8 million, as compared
with NIS 47.1 million in 2004 (including the dividend received from an
associated company, the cash flows in 2005 amounted to NIS 88.6
million). The improvement in the cash flows from operating activities
in 2005 originated primarily from a decrease in working capital.
The cash flows from operating activities (excluding dividend from an
associated company) amounted to NIS 36.3 million in 2003 (including
the dividend received from an associated company, the cash flows
amounted to NIS 52.7 million).
The dividend that was declared in December 2005, in the amount of NIS
50 million, was paid in January 2006.
2. INVESTMENTS IN FIXED ASSETS
---------------------------
The investments in fixed assets amounted to NIS 78.1 million in 2005,
as compared with NIS 31.0 million in 2004 and included investments in
real estate in Hadera and Nahariya, in the amount of NIS 36.3 million,
including buildings. The land that was acquired in 2005 in Hadera is
agricultural land covering 21.5 acres, adjacent to the company's plant
in Hadera. The land was acquired for NIS 20 million (approx. $4.4
million) as a reserve for the Company's future development.
The investments in fixed assets in 2005 also included mainly
investments in storage and compaction containers, presses, machinery,
equipment and transportation means.
3. FINANCIAL LIABILITIES
---------------------
The long-term liabilities (including current maturities) amounted to
NIS 267.4 million as at December 31, 2005, as compared with NIS 267.9
million as at December 31, 2004.
The long-term liabilities include primarily two series of debentures:
Series 1 - NIS 27.4 million, for repayment until 2009.
Series 2 - NIS 207.2 million, for repayment between 2007 and 2013.
The balance of short-term credit, as at December 31, 2005, amounted to
NIS 93.2 million, as compared with NIS 112.7 million at December 31,
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.
10
F. EXPOSURE AND MANAGEMENT OF MARKET RISKS
---------------------------------------
Due to its operations, the Company is exposed to market risks, consisting
primarily of changes in interest rates - on both short and long-term loans,
changes in exchange rates and changes in raw material and energy prices.
These changes possess an influence on the company's results.
The Company's Board of Directors determines the policy according to which
financial instruments are employed and defines the objectives to be
attained, taking into account the Group's linkage balance sheet and the
impact of changes in various currencies and in the Consumer Price Index on
the Company's balance sheets and on its financial statements.
Mr. Israel Eldar, the Company's Controller, is in charge of the management
of market risks. He conducts calculations of the Company's exposure every
month and examines the compliance with the policy determined by the Board
of Directors.
Furthermore, limited use is made of derivative financial instruments, which
the Company employs for hedging the cash flows, originating from the
existing assets and liabilities. Such transactions are conducted primarily
through currency options and forward transactions opposite Israeli banking
institutions. The Company therefore believes that the inherent credit risk
of these transactions is slight.
The Company possesses CPI-linked long-term loans (bonds) in the total sum
of NIS 235 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.
In order to hedge this exposure, the Company has entered into forward
transactions, as at December 31, 2005, for hedging NIS 230 million against
a rise in the CPI until December 2006. These transactions serve to replace
hedging transactions of NIS 200 million, that terminated in late 2005.
Credit Risks
Most of the Group's sales are made in Israel to a large number of customers
and the exposure to customer-related credit risks is consequently generally
limited. The Group regularly analyzes - through credit committees that
operate within the various companies - the quality of the customers, their
credit limits and the relevant collateral required, as the case may be.
The financial statements include provisions for doubtful debts, based on
the existing risks on the date of the statements.
11
REPORT OF LINKAGE BASES
-----------------------
Below are the balance sheet items, according to linkage bases, as at
December 31, 2005:
-------------------------------------------------------------------------------------------------------------------
IN NIS MILLIONS UNLINKED CPI-LINKED IN FOREIGN NON-MONETARY TOTAL
CURRENCY, OR ITEMS
LINKED THERETO
(PRIMARILY US$)
-------------------------------------------------------------------------------------------------------------------
ASSETS
------
CASH AND CASH EQUIVALENTS 2.6 5.7 8.3
SHORT-TERM DEPOSITS AND INVESTMENTS 11.4 11.4
OTHER ACCOUNTS RECEIVABLE 189.9 0.2 55.3 11.1 256.5
INVENTORIES 64.0 64.0
INVESTMENTS IN ASSOCIATED COMPANIES 63.1 9.2 356.7 429.0
DEFERRED TAXES ON INCOME 5.7 5.7
FIXED ASSETS, NET 379.9 379.9
DEFERRED EXPENSES, NET OF ACCRUED 1.0 1.0
AMORTIZATION
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 267.0 0.2 70.2 818.4 1,155.8
----- --- ---- ----- -------
LIABILITIES
-----------
SHORT-TERM CREDIT FROM BANKS AND FROM OTHERS 93.2 93.2
ACCOUNTS PAYABLE 214.1 0.9 11.0 226.0
DEFERRED TAXES ON INCOME 45.8 45.8
NOTES (BONDS) - INCLUDING CURRENT MATURITIES 234.6 234.6
OTHER LIABILITY 32.8 32.8
SHAREHOLDERS' EQUITY, FUNDS AND RETAINER
EARNINGS 523.4 523.4
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 340.1 235.5 11.0 569.2 1,155.8
----- ----- ---- ----- -------
-------------------------------------------------------------------------------------------------------------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
DECEMBER 31, 2005 (73.1) (235.3) 59.2 249.2 -
-------------------------------------------------------------------------------------------------------------------
12
Below are the balance sheet items, according to linkage bases, as at
December 31, 2004:
-------------------------------------------------------------------------------------------------------------------
IN NIS M UNLINKED CPI-LINKED IN FOREIGN NON-MONETARY TOTAL
CURRENCY, OR ITEMS
LINKED THERETO
(PRIMARILY US$)
-------------------------------------------------------------------------------------------------------------------
ASSETS
------
CASH AND CASH EQUIVALENTS 3.3 4.5 7.8
SHORT-TERM INVESTMENTS 16.9 45.6 62.5
OTHER ACCOUNTS RECEIVABLE 192.0 1.8 43.6 7.7 245.1
INVENTORIES 83.2 83.2
INVESTMENTS IN ASSOCIATED COMPANIES 49.3 10.7 8.6 362.7 431.3
DEFERRED TAXES ON INCOME 6.5 6.5
FIXED ASSETS, NET 324.4 324.4
DEFERRED EXPENSES, NET OF ACCRUED
AMORTIZATION 1.1 1.1
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 261.5 58.1 56.7 785.6 1,161.9
----- ---- ---- ----- -------
LIABILITIES
-----------
CREDIT FROM BANKS 110.5 2.2 112.7
ACCOUNTS PAYABLE 142.3 1.0 10.1 153.4
DEFERRED TAXES ON INCOME 52.6 52.6
NOTES (BONDS) 235.1 235.1
OTHER LIABILITIES 32.8 32.8
SHAREHOLDERS' EQUITY, FUNDS AND RETAINED 575.3 575.3
EARNINGS
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 285.6 236.1 12.3 627.9 1,161.9
----- ----- ---- ----- -------
-------------------------------------------------------------------------------------------------------------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
DECEMBER 31, 2004 (24.1) (178.0) 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, KCTR. These risks
originate from concerns regarding economic instability and elevated
interest rates, that characterized the Turkish economy in the past and that
may recur and harm the KCTR operations.
G. 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.
13
H. 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 active in the said areas. The Group's contributions amounted
to NIS 200 thousand in 2005. In parallel, the Company also participates in
volunteer activity in the community through its employees, for promoting
these same objectives.
Moreover, a sum totaling NIS 105 thousand was granted for student
scholarships and for the project this year, through the Shenkar Foundation,
that was established by the company together with its Austrian strategic
partner in Mondi Hadera.
I. MEMBERS OF THE BOARD OF DIRECTORS POSSESSING FINANCIAL SKILLS AND
-----------------------------------------------------------------
QUALIFICATIONS
--------------
The minimum number of Company directors possessing accounting and financial
qualifications and skills was determined to be two for the company, in
consideration of the nature of the accounting and financial issues that are
raised in the preparation of the Company's financial statements, in view of
the Company's areas of operation and in consideration of the composition of
the board of directors as a whole, that includes individuals possessing
business, management and professional experience that enables them to deal
effectively with the tasks of managing the Company, including reporting
duties.
The members of the Company's board of directors who possess accounting and
financial qualifications and skills are:
Nochi Dankner - Chairman of the Board of Directors and CEO of IDB
Holding Corporation Ltd. Chairman of the Board of
Directors of IDB Development Company Ltd.,
Discount Investments Ltd. and Clal Industries and
Investments Ltd. Serves or has served in the past
as Chairman of the Board of Directors and Director
in publicly-traded and privately-held companies in
the Ganden Group, IDB Group, as well as at Bank
Hapoalim, where he served as Chairman of the Board
of Directors' Credit Committee. Holds a degree in
Law.
Avi Yehezkel - Holds a degree in economics. External directorat
Bank Yahav. Served as a Knesset member between
1992-2003, also served as Chairman of the
Economics Committee, Chairman of the Defense
Budget Committee, Chairman of the Capital Market
Sub-Committee, Chairman of the Banking
Sub-Committee and member of the Finance Committee.
Oren Lieder - Holds a degree in economics and statistics. Serves
as Senior VP and CFO of Discount Investments Ltd.
Serves as director at various companies, including
publicly-traded companies. Formerly served as CFO
of Bezeq, the Israeli Telecom Company Ltd.
14
Isaac Manor - Holds an MBA. Serves as director at various
publicly-traded and privately-held companies
within the IDB Group; Chairman of companies in the
David Lubinsky Group Ltd.; member of the Accounts
Committee at Israel Union Bank Ltd.
Amos Mar-Haim - Holds a first degree in economics and an MBA from
Hebrew University. Formerly served and currently
serves as Chairman or Deputy Chairman at
publicly-traded or privately-held companies.
Member of the Israeli Accounting Standards Board.
Amir Makov - Holds a degree in law and in engineering. Served
as CEO of Haifa Chemicals Ltd., Sonol Israel Ltd..
Served and serves as a director of various
publicly-traded and privately-held companies
including Bank Leumi Ltd., Dead Sea Works Ltd.,
Granite Hacarmel Ltd.
H. THE COMPANY'S INTERNAL AUDITOR
------------------------------
i. Auditor's Name: Lenny Siegel
In the position since: 1996
Credentials: CPA, CA Canadian
ii. The Auditor is employed by the Company.
iii. Scope of employment: Full-time job as Auditor, plus an assistant.
iv. The considerations in determining the current and the multi-annual audit
plan at the Company's: The current auditing program is based on a five-year
program that covers numerous topics approved by the Audit Committee,
pursuant to the auditing requirements of the company and encompasses issues
that the Internal Auditor believes warrant his inspection and attention in
the course of the current year, subject to the approval of the Audit
Committee and the law.
v. The Internal Auditing program includes auditing topics in corporations that
constitute significant holdings of the Company.
vi. The Internal Auditor conducts the audit according to generally-accepted
professional standards of internal auditing in Israel and worldwide.
vii. The Internal Auditor is supervised by the General Manager.
viii. Audit reports were submitted and discussed at the following dates:
SUBMITTED DISCUSSED
-------------------- -----------------
6.3.05 10.3.05
5.5.05 10.5.05
4.8.05 9.8.05
6.11.05 9.11.05
15
ix. The scope of employment of the Internal Auditor is determined according to
a cycle that renders it possible to audit all the significant topics at the
Company, once every few years. This scope of activity, the nature, the
continuity of operation and the work plan of the Internal Auditor - are
reasonable - according to the estimation of the Company's Audit Committee,
while rendering it possible to realize the Internal Audit objectives of the
organization. The Company declares that it has granted the Internal Auditor
free, constant and direct access to all the information at its disposal.
J. PEER GROUP SURVEY
-----------------
The Israeli Securities Authority published a directive based on Section 36a
of the Securities Law (1968) on July 28th 2005, regarding disclosure
pertaining to the granting of agreement to conduct a peer group survey
whose objective is - according to the said directive - to put in motion a
process whereby the auditing process performed by the firms will be
controlled, to contribute to the existence of an advanced capital market.
The Company's Board of Directors views this as a positive process, although
the process itself raises several issues, including legal issues, that have
yet to be resolved and that are related, inter alia, to safeguarding the
confidential information belonging to the Company and the Group companies,
to prevent conflicts of interest and to promote responsibility for damages
that may be incurred in relation to the process. The Company's Board of
Directors has therefore agreed, in principle, to cooperate in this process,
pursuant to a satisfactory resolution of the various issues that have yet
to be resolved, as stated above.
The general meeting of shareholders was held on June 28th 2005, prior to
the publication of the directives.
K. INDEPENDENT AUDITOR FEES
------------------------
Current Fees
------------
The professional fees for the Company's independent auditor covering
auditing services, services related to auditing and tax services, amounted
to $120 thousand in 2005, similar to 2004.
Additional services
-------------------
The Company's independent auditor provided additional services in 2005,
related to consulting and guidance regarding the establishment of processes
pursuant to Section 404 of the Sarbanes Oxley Act in the USA, in return for
which a fee of $30 thousand was paid.
L. GENERAL
-------
o In August 2005, the Company announced the distribution of a dividend
for 2005, in the amount of NIS 50 million (NIS 12.5 per share). The
dividend was paid in September 2005.
o In December 2005, the Company announced the distribution of additional
dividend for 2005, in the amount of NIS 50 million (NIS 12.494 per
share). The dividend was paid in January 2006.
16
o 5,531 shares were issued in 2005 (0.1% dilution), on account of the
exercise of 16,282 option warrants as part of the Company's employee
option plans.
o The company acquired a land plot of 21.5 acres in 2005, adjacent 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 American Stock Exchange.
o The Chairman of the Board, Mr. Yaki Yerushalmi, announced on 6 March
2006 his intention to retire after 37 years of work at AIPM, of which
10 years as General Manager of Hogla, 17 years as the CEO of AIPM and
5 years as chairman of the AIPM group. The date of the retirement will
be coordinated with the Board in order to enable a smooth succession.
Mr. Yerushalmi expressed his gratitude to all who accompanied me along
the way and contributed their share to the success of the group.
-------------------------------------- -----------------------------------
Y. Yerushalmi Avi Brenner
Chairman of the Board of Directors General Manager
17
EXHIBIT 3
---------
AMERICAN ISRAELI PAPER MILLS LIMITED
2005 CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ISRAELI PAPER MILLS LIMITED
2005 CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT AUDITORS 2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets 3-4
Statements of income 5
Statements of changes in shareholders' equity 6
Statements of cash flows 7-9
Notes to financial statements 10-44
SCHEDULE - DETAILS OF SUBSIDIARIES AND
ASSOCIATED COMPANIES 45
---------------
-------------------------------
---------------
AUDITORS' REPORT
To the shareholders of
AMERICAN ISRAELI PAPER MILLS LIMITED
We have audited the consolidated balance sheets of American Israeli Paper Mills
Limited (hereafter - the Company) and its subsidiaries as of December 31, 2005
and 2004 and the consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2005. These financial statements are the responsibility of the Company's
board of directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We did not audit the financial statements of certain associated companies, the
Company's interest in which as reflected in the balance sheets as of December
31, 2005 and 2004 is NIS 352.7 million and NIS 353.1 million, respectively, and
the Company's share in excess of profits over losses of which is a net amount of
NIS 19.2 million, NIS 25 million and NIS 28.2 million for the years ended
December 31, 2005, 2004 and 2003, respectively. The financial statements of
those companies were audited by other auditors whose reports have been furnished
to us, and our opinion, insofar as it relates to amounts included for those
companies, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in Israel, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Company's board of directors and management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company and its subsidiaries as of
December 31, 2005 and 2004 and the consolidated results of operations, changes
in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2005 in conformity with accounting principles generally
accepted ("GAAP") in Israel. Furthermore, in our opinion, the financial
statements referred to above have been prepared in accordance with the Israeli
Securities (Preparation of Annual Financial Statements) Regulations, 1993 (see
also note 1).
As explained in note 1b, the financial statements, as of dates and for reporting
periods subsequent to December 31, 2003, are presented in new Israeli shekels,
in conformity with accounting standards issued by the Israel Accounting
Standards Board. The financial statements as of dates and for reporting periods
ended prior to, or on, the above date are presented in values that have been
adjusted for the changes in the exchange rate of the U.S. dollar through that
date, in accordance with pronouncements of the Institute of Certified Public
Accountants in Israel.
Tel-Aviv, Israel
March 7, 2006
2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-----------------------------
NOTE 2005 2004
------- --------- --------
NIS IN THOUSANDS (SEE NOTE 1B.)
----------------------------------------------
ASSETS
CURRENT ASSETS: 8
Cash and cash equivalents 1o 8,318 7,813
Short-term investments 10a;1f 11,416 62,464
Accounts receivable: 10b
Trade 150,409 143,275
Other 106,124 101,840
Inventories 10c 63,999 *62,387
--------- ---------
Total current assets 340,266 377,779
--------- ---------
INVESTMENTS AND LONG-TERM
RECEIVABLES:
Investments in associated companies 2;8 428,957 *431,241
Deferred income taxes 7f 5,655 6,511
--------- ---------
434,612 437,752
--------- ---------
FIXED ASSETS: 3
Cost 1,057,911 *995,295
Less - accumulated depreciation 677,977 650,056
--------- ---------
379,934 345,239
--------- ---------
DEFERRED CHARGES,
net of accumulated amortization 1i 946 1,106
--------- ---------
Total assets 1,155,758 1,161,876
========= =========
*Reclassified
) CHAIRMAN OF THE
-------------------------------------------
YAKI YERUSHALMI ) BOARD OF DIRECTORS
)
-------------------------------------------
AVI BRENER ) CHIEF EXECUTIVE OFFICER
)
-------------------------------------------
ISRAEL ELDAR ) CONTROLLER
Date of approval of the financial statements: March 7, 2006
3
DECEMBER 31
-----------------------------
NOTE 2005 2004
------- --------- --------
NIS IN THOUSANDS (SEE NOTE 1B.)
----------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: 8
Credit from banks 10d 93,171 112,684
Current maturities of long-term notes 4a 6,827 6,648
Accounts payable and accruals: 10e
Trade 90,512 87,556
Dividend payable 50,093
Other 85,407 *65,844
--------- ---------
Total current liabilities 326,010 272,732
--------- ---------
LONG-TERM LIABILITIES:
Deferred income taxes 7f 45,783 52,562
Loans and other liability
(net of current maturities): 4;8
Notes 227,811 228,499
Other liability 32,770 32,770
--------- ---------
Total long-term liability 306,364 313,831
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES 9
Total liabilities 632,374 586,563
--------- ---------
SHAREHOLDERS' EQUITY: 6
Share capital (ordinary shares of NIS 0.01 par value: 125,257 125,257
authorized - 20,000,000 shares; issued and paid:
December 31, 2005 and 2004 - 4,002,205 and
3,996,674 shares, respectively)
Capital surplus 90,060 90,060
Capital surplus resulting from tax benefit on exercise
of employee options 401
Differences from translation of foreign currency
financial statements of associated companies (813) (2,807)
Retained earnings 308,479 362,803
--------- ---------
523,384 575,313
--------- ---------
Total liabilities and shareholders' equity 1,155,758 1,161,876
========= =========
*Reclassified
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
NOTE 2005 2004 2003
------- -------- -------- --------
NIS IN THOUSANDS (SEE NOTE 1B.)
---------------------------------------
SALES - net 10f;14 482,461 482,854 465,092
COST OF SALES 10g 383,179 375,904 362,185
-------- -------- --------
GROSS PROFIT 99,282 106,950 102,907
-------- -------- --------
SELLING, MARKETING, ADMINISTRATIVE
AND GENERAL EXPENSES: 10h
Selling and marketing 30,482 30,595 31,324
Administrative and general 21,018 22,425 24,999
-------- -------- --------
51,500 53,020 56,323
-------- -------- --------
INCOME FROM ORDINARY OPERATIONS 47,782 53,930 46,584
FINANCIAL EXPENSES - net 10i 12,490 13,118 15,989
OTHER INCOME 10j 1,609
INCOME BEFORE TAXES ON INCOME 35,292 40,812 32,204
-------- -------- --------
TAXES ON INCOME 7 5,991 3,152 7,706
-------- -------- --------
INCOME FROM OPERATIONS OF THE
COMPANY AND ITS SUBSIDIARIES 29,301 37,660 24,498
SHARE IN PROFITS OF ASSOCIATED
COMPANIES - net 2 16,414 25,072 35,549
-------- -------- --------
NET INCOME FOR THE YEAR 45,715 62,732 60,047
======== ======== ========
NIS
---------------------------------------
NET INCOME PER NIS 1 OF PAR VALUE
OF SHARES 1p;11 1,127 1,544 1,494
======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
AMERICAN ISRAELI PAPER MILLS LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
DIFFERENCES
FROM
CAPITAL TRANSLATION
SURPLUS OF
RESULTING FOREIGN
FROM TAX CURRENCY
BENEFIT ON FINANCIAL
EXERCISE OF STATEMETNS OF
SHARE CAPITAL EMPLOYEE ASSOCIATED RETAINED
CAPITAL SURPLUSES OPTIONS COMPANIES EARNINGS TOTAL
------- --------- ------- --------- -------- -----
NIS IN THOUSANDS (SEE NOTE 1B.)
---------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 2003 125,256 90,060 (3,482) 439,116 650,950
CHANGES IN 2003:
Net income 60,047 60,047
Dividend paid (99,128) (99,128)
Exercise of employee options
into shares 1 1
Differences from currency
translation resulting from
translation of financial
statements of associated companies 2,360 2,360
------- ------ ------- -------- --------- ---------
BALANCE AT DECEMBER 31, 2003 125,257 90,060 (1,122) 400,035 614,230
CHANGES IN 2004:
Net income 62,732 62,732
Dividend paid (99,964) (99,964)
Exercise of employee options
into shares * *
Differences from currency translation
resulting from translation of
financial statements of associated
companies (1,685) (1,685)
------- ------ ------- -------- --------- ---------
BALANCE AT DECEMBER 31, 2004 125,257 90,060 (2,807) 362,803 575,313
CHANGES IN 2005:
Net income 45,715 45,715
Dividend ** (100,039) (100,039)
Exercise of employee options
into shares * 401 401
Differences from currency translation
resulting from translation of
financial statements of
associated companies 1,994 1,994
------- ------ ------- -------- --------- ---------
BALANCE AT DECEMBER 31, 2005 125,257 90,060 401 (813) 308,479 523,384
======= ====== ======= ======== ========= =========
* Represents an amount less than NIS 1,000.
** Includes a dividend, declared in December 2005 and paid in January 2006,
amounting to approximately NIS 50 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
(Continued) - 1
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
2005 2004 2003
---- ---- ----
NIS IN THOUSANDS (SEE NOTE 1B.)
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year 45,715 62,732 60,047
Adjustments to reconcile net income to
net cash provided by operating activities (A) 42,845 (15,637) (7,396)
------- -------- -------
Net cash provided by operating activities 88,560 47,095 52,651
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (71,080) (30,952) (29,247)
Short-term investments 51,003 (42,000) (20,000)
Associated companies:
Granting of loans (2,744) (779) (8,241)
Collection of loans 13,688 21,895
Proceeds from sale of subsidiary consolidated in the past (B) 2,004
Proceeds from sale of fixed assets 6,532 1,001 3,332
------- -------- -------
Net cash used in investing activities (14,285) (59,042) (32,261)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes issuance, net of issuance expenses of NIS 800,000 198,909
Consideration in respect of the exercise of options by employees 1
Receipt of long-term loans from others 1,746
Repayment of long-term loans from banks and others (277) (383) (762)
Redemption of notes (6,680) (6,666) (6,770)
Dividend paid (49,946) (99,964) (99,128)
Short-term credit from banks - net (18,613) (31,933) 40,606
------- -------- -------
Net cash provided by (used in) financing activities (73,770) (138,946) 132,856
------- -------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 505 (150,893) 153,246
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 7,813 158,706 5,460
------- -------- -------
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF YEAR 8,318 7,813 158,706
======= ======== =======
7
(Continued) - 2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
2005 2004 2003
---- ---- ----
NIS IN THOUSANDS (SEE NOTE 1B.)
--------------------------------
(A) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Income and expenses not involving cash flows:
Share in profits of associated companies - net (16,414) (25,072) (35,549)
Dividend received from associated company 21,761 16,391
Depreciation and amortization 31,604 28,633 28,247
Deferred income taxes - net (7,671) (10,096) 3,471
Capital losses (gains) on:
Sale of fixed assets (3,570) 508 (2,054)
Sale of subsidiary consolidated in the past (B) (874)
Losses (gains) on short-term deposits and investments 45 (464)
Linkage and exchange differences (erosion) on principal of
long-term loans from banks and others - net (111) (26) 79
Linkage differences on principal of notes 6,171 2,184 3,110
Linkage differences on principal of long-term loans granted
to associated companies (975) (721) (1,101)
Appreciation of a long-term capital note granted to
an associated company 2,477
------- ------- -------
29,966 (5,054) 15,071
------- ------- -------
Changes in operating asset and liability items:
Increase in trade receivables (7,162) (2,279) (9,260)
Increase in other receivables
(excluding deferred income taxes) (1,587) (12,037) (8,935)
Decrease (increase) in inventories (1,612) 7,434 (159)
Increase (decrease) in trade payables 3,018 2,954 (14,653)
Increase (decrease) in other payables and accruals 20,222 (6,655) 10,540
------- ------- -------
12,879 (10,583) (22,467)
------- ------- -------
42,845 (15,637) (7,396)
======= ======= =======
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid 1,559 3,242 11,553
======= ======= =======
Interest paid 15,828 20,697 11,335
======= ======= =======
8
(Concluded) - 3
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
2005
----------------
NIS IN THOUSANDS
(SEE NOTE 1B.)
----------------
(B) PROCEEDS FROM SALE OF SUBSIDIARY CONSOLIDATED IN THE PAST - see also
note 10h:
Assets and liabilities of the subsidiary consolidated in
the past at the date of its sale:
Working capital (excluding cash and cash equivalents) 509
Fixed assets 1,979
Long-term liabilities (1,358)
Capital gain from the sale 874
-------
2,004
=======
(C) INFORMATION ON ACTIVITIES NOT INVOLVING CASH FLOWS:
1) Dividend declared by the Company in December 2005, in the amount of
approximately NIS 50 million, was paid in January 2006.
2) Dividend declared by an associated company in December 2005 was not
paid yet. The Company's share in this dividend amounts to NIS
2,650,000.
3) In 2004, equipment, which the Company had found to be unsuitable for
its use, was retired. The retirement was made against the
cancellation of the loan made available by the supplier in respect
of said equipment. The retirement amounted to NIS 1,079,000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements are drawn up in conformity with
accounting principles generally accepted in Israel and in
accordance with the Israeli Securities (Preparation of Annual
Financial Statements) Regulations, 1993. The Company's
financial statements are presented separately from these
consolidated financial statements.
The significant accounting policies, which, except for the
changes required by the transition to nominal financial
reporting in 2004 (see b below), and the implementation for
the first time of Clarification No. 7 in 2005 (see j(7)
below), were applied on a consistent basis, are as follows:
A. GENERAL:
1) Activities of the Group
American Israeli Paper Mills Limited and its
subsidiaries (hereafter - the Company) are engaged
in the production and sale of paper packaging, in
paper recycling activities and in the marketing of
office supplies. The Company also has holdings in
associated companies that are engaged in the
production and sale of paper and paper products
including the handling of solid waste (the Company
and its investee companies - hereafter - the Group).
Most of the Group's sales are made on the local
(Israeli) market. For segment information, see note
14.
2) Use of estimates in the preparation of financial
statements
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent
assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and
expenses during the reporting years. Actual results
could differ from those estimates.
3) Definitions:
Subsidiaries - companies over which the Company has
control and over 50% of the ownership, the financial
statements of which have been consolidated with the
financial statements of the Company.
Associated companies - investee companies, which are
not subsidiaries, over whose financial and
operational policy the Company exerts material
influence, the investment in which is presented by
the equity method. Material influence is deemed to
exist when the percentage of holding in said company
is 20% or more, unless there are circumstances that
contradict this assumption.
Interested parties - as defined in the Israeli
Securities (Preparation of Annual Financial
Statements) Regulations, 1993.
10
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
B. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
The Company draws up and presents its financial
statements in Israeli currency (hereafter - shekels or
NIS).
1) Transition to nominal financial reporting in 2004
With effect from January 1, 2004, the Company has
adopted the provisions of Israel Accounting Standard
No. 12 -"Discontinuance of Adjusting Financial
Statements for Inflation" - of the Israel Accounting
Standards Board (hereafter -the IASB) and, pursuant
thereto, the Company has discontinued, from the
aforesaid date, the adjustment of its financial
statements for the changes in the exchange rate of
the U.S. dollar (hereafter - the dollar) against the
shekel.
The amounts adjusted for the changes in the exchange
rate of the dollar against the shekel (see (2)
below), presented in the financial statements as of
December 31, 2003 (hereafter - "the transition
date"), were used as the opening balances for the
nominal financial reporting as of January 1, 2004.
Additions made after the transition date have been
included in the financial statements at their
nominal values.
Accordingly, the amounts reported for 2003, as well
as reported amounts for subsequent periods, that
relate to non-monetary assets (including the
depreciation and amortization thereon), investments
in associated companies and equity items, which
originate from the period that preceded the
transition date, are based on the data adjusted for
the changes in the exchange rate of the dollar, on
the basis of the exchange rate at December 31, 2003,
as previously reported. All the amounts originating
from the period after the transition date are
included in the financial statements at their
nominal values.
11
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
Through December 31, 2003, the Company prepared its
financial statements on the basis of historical cost
adjusted for the changes in the exchange rate of the
dollar, (see also note 8b) as permitted under
Opinion 36 of the Institute of Certified Public
Accountants in Israel (hereafter - the Israeli
Institute).
Through 2003, the components of the income
statements were, for the most part, adjusted as
follows: the components relating to transactions
carried out during the reported period - sales,
purchases, labor costs, etc. - were adjusted on the
basis of the date on which the transaction was
carried out, while those relating to non-monetary
balance sheet items (mainly - changes in inventories
and depreciation) were adjusted on the same basis as
the related balance sheet item. The financing
component represents financial income and expenses
in real terms and the erosion of balances of
monetary items during the year.
The investment in some of the associated companies
(whose operations constitute an integral part of the
Company's operations) and the Company's share in
their operating results are recorded on the basis of
the adjusted financial statements (in accordance
with the provisions of Standard No. 12, as described
above) of these companies. As to associated
companies whose financial statements were adjusted
until December 31, 2003 on the basis of the changes
in the Israeli CPI, see (3) below.
2) The amounts of non-monetary assets do not
necessarily represent realization value or current
economic value, but only the reported amounts of
such assets, as described in (1) above. In these
financial statements, the term "cost" signifies cost
in reported amounts.
3) Associated companies whose financial statements are
adjusted on the basis of the changes in the Israeli
CPI
For purposes of inclusion on the equity basis, until
December 31, 2003, the amounts included in the
financial statements of the above associated
companies operating independently, were treated as
follows:
Balance sheet items at the end of the year and the
results of operations for the year reflect the
amounts presented in the financial statements of
such companies. Balance sheet items at the beginning
of the year and changes in shareholders' equity
items during the year were adjusted on the basis of
the changes in the exchange rate of the dollar at
the beginning of the year or at the date of each
change, respectively, through the end of the year.
Any differences resulting from the treatment
described above were carried to the adjusted
shareholders' equity under a separate item
("differences from translation of foreign currency
financial statements of associated companies").
12
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
As from January 1, 2004, no additional differences
have been included in respect of said companies, in
view of their transition to reporting under Standard
12, as also applied by the Company.
C. PRINCIPLES OF CONSOLIDATION:
1) The consolidated financial statements include the
accounts of the Company and its subsidiaries. A list
of the main subsidiaries is presented in a schedule
to the financial statements.
2) Intercompany transactions and balances, as well as
profits on intercompany sales that have not yet been
realized outside the Group, have been eliminated.
D. INVENTORIES
Raw materials and supplies, finished goods, purchased
products and maintenance and sundry materials (including
spare parts) are valued at the lower of cost or market
(net of processing costs and after deduction of a
provision for obsolescence, where appropriate); cost is
determined on the moving average basis.
Spare parts of the machinery and equipment that are not
for current use, are presented under fixed assets.
E. INVESTMENTS IN ASSOCIATED COMPANIES:
1) The investments in these companies are accounted for by
the equity method.
According to this method, the Company records, in
its statement of income, its share in the profits
and losses of these companies that were created
after acquisition, and, in its statement of changes
in shareholders' equity, its share in changes in
capital surpluses (mostly translation differences
relating to their investments in subsidiaries that
present their financial statements in foreign
currency) that were created after acquisition.
2) Profits on intercompany sales, not yet realized
outside the Group, have been eliminated according to
the percentage of the Company's holding in such
companies.
3) The Company reviews - at each balance sheet date -
whether any events have occurred or changes in
circumstances have taken place, which might indicate
that there has been an impairment of its investments
in associated companies - see h. below.
4) The excess of cost of the investment in associated
companies over the equity in net assets at time of
acquisition ("excess of cost of investment") or the
excess of equity in net assets of associated companies
at time of acquisition over the cost of their
acquisition ("negative excess of cost of investment")
represent the amounts attributed to specific assets upon
acquisition, at fair value. The excess of cost of
investment and the negative excess of cost of investment
are presented at their net amount and are amortized over
the remaining useful life of the assets. The average
rate of amortization is 10%.
13
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
F. MARKETABLE SECURITIES
These securities are stated at market prices.
The changes in value of the above securities are carried to
financial income or expense.
G. FIXED ASSETS:
1) Fixed assets are stated at cost, net of related
investment grants.
2) Fixed assets of own manufacture are stated at cost,
based on the direct costs with the addition of an
appropriate portion of indirect production costs.
3) Borrowing costs in respect of credit applied to
finance the construction of fixed assets - during
the period until construction is completed - are
charged to the cost of such assets.
4) The assets are depreciated by the straight-line
method on the basis of their estimated useful life,
as follows:
YEARS
Buildings 10-50 (mainly 33)
Machinery and equipment 7-20 (mainly 10 and 20)
Vehicles 5-7 (mainly 7)
Office furniture and
equipment (including
computers) 3-17 (mainly 4)
H. IMPAIRMENT OF ASSETS
The Company assesses - at each balance sheet date -
whether any events have occurred or changes in
circumstances have taken place, which might indicate that
there has been an impairment of non-monetary assets,
mainly fixed assets and investments in associated
companies. When such indicators of impairment are
present, the Company evaluates whether the carrying value
of the asset is recoverable from the cash flows expected
from that asset. See note 2g.
The recoverable value of an asset is determined according
to the higher of the net selling price of the asset or
its value in use to the Company. The value in use is
determined according to the present value of anticipated
cash flows from the continued use of the asset, including
those expected at the time of its future retirement and
disposal.
When it is not possible to assess whether an impairment
provision is required for a particular asset on its own,
the need for such a provision is assessed in relation to
the recoverable value of the cash-generating unit to
which that asset belongs.
14
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
I. DEFERRED CHARGES
The item represents notes issuance costs, which are
amortized over the period of the notes (see note 4a).
As to the change from January 1, 2006 in the method of
presenting and amortizing these charges - see q(1) below.
J. DEFERRED INCOME TAXES:
1) Commencing January 1, 2005, the Company applies the
IASB's Accounting Standard No. 19 - "Taxes on
Income" that 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 the
Company applied prior to implementing the new
standard.
2) In accordance with the standard and with prior
years' policy, the Company recognizes deferred taxes
in respect of temporary differences between the
amounts of assets and liabilities as reported in the
consolidated financial statements and those taken
into account for tax purposes; the standard requires
that full recognition be given to deferred taxes in
respect of all taxable temporary differences, except
for the temporary difference resulting from the
initial recognition of goodwill and the temporary
difference resulting from the initial recognition of
an asset or a liability that has no effect on the
profit or loss, whether for accounting or tax
purposes, at that time (unless the temporary
difference results from the initial recognition of a
business combination).
Deferred tax assets are recognized for all temporary
differences that are tax deductible, up to the
amount of the differences that are expected to be
utilized in the future, against taxable income. As
to the main types of differences, in respect of
which deferred taxes have been included - see note
7f.
3) Deferred tax balances are computed at the tax rates
expected to be in effect at the time the deferred
tax asset is utilized or the deferred tax liability
is settled, based on the tax rates and the tax laws
enacted, or substantively enacted, by the balance
sheet date.
4) The current taxes, as well as the changes in the
deferred tax balances, are included in the tax
expenses or income in the reporting period, except
for taxes derived from the initial recognition of
business combinations and except for the tax in
respect of transactions that are recognized directly
in shareholders' equity (in such instances, the
applicable tax is taken directly to shareholders'
equity).
5) Taxes that would apply in the event of disposal of
investments in subsidiaries and associated companies
have not been taken into account in computing the
deferred taxes, as it is the Company's policy to
hold these investments, not to realize them.
15
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
6) The Group may incur an additional tax liability in the
event of an intercompany dividend distribution derived
from "approved enterprises" profits - see note 7a. No
account was taken of this additional tax, since it is
the Group's policy not to cause distribution of
dividends, which would involve an additional tax
liability to the Group in the foreseeable future.
7) In April 2005, the IASB issued Clarification No. 7 -
"Accounting Treatment of the Tax Benefits, in
Respect of Capital Instruments Granted to Employees,
For Which No Compensation was Recognized". The
provisions of this clarification apply to such tax
benefits, which have not been allowed as a deduction
through December 31, 2004. The clarification
stipulates that, commencing on January 1, 2005, the
tax benefit derived by the Company from the exercise
of options granted to employees is to be carried to
shareholders' equity, in the period in which the
benefit to the employees is allowed as a deduction
for tax purposes. Formerly, the aforesaid tax saving
was credited to the statement of income, as part of
the taxes on income item.
K. REVENUE RECOGNITION
Revenue from sale of products on the local market and for
export, net of discounts granted, is recognized upon the
transfer of ownership to the buyer (in accordance with
the sale conditions).
L. SHIPPING AND HANDLING COSTS
Shipping and handling costs are classified as a component
of selling and marketing expenses.
M. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance is determined mainly in respect of specific
debts doubtful of collection (see note 12b).
N. DERIVATIVE FINANCIAL INSTRUMENTS
Gains or losses from derivatives that are hedging
existing assets or liabilities are recognized in income
and cash flows statements commensurate with the results
from those assets or liabilities.
16
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
O. CASH EQUIVALENTS
The Group considers all highly liquid investments, which
include short-term bank deposits that are not restricted
as to withdrawal or use, the period to maturity of which
did not exceed three months at time of deposit, to be
cash equivalents.
P. NET INCOME PER NIS 1 OF PAR VALUE OF SHARES
Net income per NIS 1 of par value of shares is computed
in accordance with Opinion 55 of the Israeli Institute;
as to the data used in the per share computation - see
note 11.
Q. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS IN ISRAEL
1) In August 2005, the IASB 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
prescribes the rules pursuant to which financial
instruments are to be classified and are to be presented
as a liability (while broadening the definition of a
financial liability) or as an equity instrument
(presented within shareholders' equity). The standard
also prescribes rules for bifurcating and classifying
compound financial instruments (that include both an
equity component and a liability component), the
circumstances under which the offsetting of financial
assets and financial liabilities is permitted, and the
treatment of the costs of issuing financial instruments.
The standard also prescribes that interest, dividends,
losses and gains relating to financial instruments shall
be recorded as income or expense in the income
statements when the instrument is classified as a
financial liability, or an as an equity movement when
the instrument is classified as an equity instrument,
respectively.
This accounting standard is to be applied to financial
statements for periods commencing on or after January 1,
2006, and is to be applied prospectively. Upon initial
implementation of the standard, all the financial
instruments existing at the transition date will be
classified and presented in accordance with the
classification and presentation rules prescribed by the
standard; compound financial instruments will be
bifurcated into their components, prior to said
classification, in accordance with the transitional
provisions prescribed by the standard. Comparative data
will not be restated.
When the standard takes effect, the Israeli Institute's
Opinion 48 - "Accounting Treatment of Option Warrants",
and Opinion 53 - "Accounting Treatment of Convertible
Liabilities" will be revoked.
The balance of deferred issuance costs relating to the
notes, which at December 31, 2005 amounted to NIS
946,000 will be reclassified at the time of the standard
taking effect and will be presented as a deduction from
the amount of the liability to which such expenses
relate.
These costs will be amortized, in future reporting
periods, according to the interest method. The change in
the amortization method will not have a material effect
on operating results in future reporting periods.
17
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
2) In September 2005, the IASB 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. Accordingly, in the
past, equity instrument grants to Company employees did
not have recognition or measurement implications on the
Company's financial statements.
The new standard is applicable to transactions
whereunder a company acquires goods or receives
services in consideration for equity instruments of
the company (hereafter - equity grant), or cash (or
other assets) consideration, 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
recognition of such transactions at fair value. The
standard is applicable to share-based payment
transactions with employees and non-employees.
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:
a) 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
will need to be restated in order to reflect
such grants.
b) 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.
18
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
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 will need to be
restated in order to reflect such modifications.
The Company intends to implement the provisions of
the standard starting from 2006. The Company has a
liability in respect of a liability grant, regarding
which the effect of the retroactive implementation
of the provisions of the standard, for each of the
relevant years and cumulatively, is immaterial.
In addition, new grants of options or shares to
employees or service providers of the Company, would
result, in the following reporting periods, in the
recording of payroll expenses or expenses relating
to the cost of the services, at their fair value.
3) In February 2006, the IASB issued Israel Accounting
Standard No. 21 - "Earnings per Share", which is based
on International Accounting Standard No. 33. Accounting
Standard No. 21 provides rules for the computation of
earnings per share data and their presentation in the
financial statements, and is to supersede, starting from
its effective date, the existing rules relating to the
computation and presentation of such data, which are
based on Opinion 55 of the Israeli Institute; the
standard is to be applied in financial statements for
periods commencing on or after January 1, 2006.
According to the standard, the computation of basic
earnings per share is generally based on the
earnings available for distribution to holders of
ordinary shares, which is divided by the weighted
average number of ordinary shares outstanding during
the period. This computation no longer takes into
account the effect relating to potential shares that
may derive from the expected conversion of
convertible financial instruments, or the
performance of contracts that confer rights to
shares upon their holders.
In computing the diluted earnings or loss per share,
the weighted average number of shares to be issued
is to be added to the average number of ordinary
shares used in the computation of the basic earnings
per share data, assuming that all dilutive potential
shares will be converted into shares. The potential
shares are taken into account, as above, only when
their effect is dilutive (reducing the earnings or
increasing the loss per share from continuing
activities); for the purpose of the computation of
the weighted average, dilutive potential ordinary
shares shall be deemed to have been converted into
ordinary shares at the beginning of the period or,
if later, the date of the issue of the potential
ordinary shares. The standard also revises the
treatment of the effect on the earnings resulting
from the expected conversion of potential shares,
and makes certain adjustments to the Company's share
in the operating results of associated companies and
consolidated subsidiaries for the purpose of their
inclusion in earnings used for the computation.
Upon the initial adoption of the standard, and in
accordance with the transitional provisions
stipulated therein, the comparative earnings per
share data are to be restated in the financial
statements, in order to reflect, with retroactive
effect, the computation of the earnings per share
under the new directives.
19
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
In the opinion of the Company, the implementation of
this standard is not expected to have a material
effect on the earnings per share data included in
these financial statements.
4) In February 2006, the IASB issued Israel Accounting
Standard No. 25 - "Revenue", which is based on
International Accounting Standard No. 18. This standard
prescribes recognition, measurement, presentation and
disclosure criteria for revenues originating from the
sale of goods purchased or manufactured by the company,
the provision of services, as well as revenues deriving
from the use of the company's assets by others (interest
income, royalties or dividends).
The principal issue in accounting for revenue is
determining the timing of revenue recognition.
Revenue from the sale of goods shall be recognized
when all the following conditions have been
satisfied: (a) the significant risks and rewards of
ownership of the goods have been transferred to the
buyer; (b) the company retains neither continuing
managerial involvement to the degree usually
associated with ownership nor effective control over
the goods sold; (c) the amount of revenue can be
measured reliably; (d) it is probable that the
economic benefits associated with the transaction
will flow to the company; and (e) the costs incurred
or to be incurred in respect of the transaction can
be measured reliably.
Revenue from the provision of services shall be
recognized by reference to the stage of completion
of the transaction at the balance sheet date,
subject to the satisfaction of conditions (c)
through (e) above, and only when the stage of
completion of the transaction at the balance sheet
date can be measured reliably.
A clarification of said standard was issued by the
IASB in February 2006: Clarification No. 8 -
"Reporting of Revenue on a Gross or Net Basis".
According to the clarification, a company acting as
an agent or an intermediary, without bearing the
risks and rewards resulting from the transaction,
will present its revenue on a net basis (as profit
or commission). However, a company that acts as a
principal supplier and bears the risks and rewards
resulting from the transaction will present its
revenue on a gross basis, distinguishing the
turnover from the related expenses.
Standard 25 shall be applicable to financial
statements for periods commencing on or after
January 1, 2006. The standard is to be applied
prospectively; nevertheless, in accordance with the
transitional provisions of the standard, the
classification and presentation of revenue on a
gross or net basis, as above, shall be applied with
retroactive effect, including the restatement of
revenues and expenses appearing in the comparative
figures in the financial statements for periods
commencing on the effective date of the standard.
Until the publication of said standard and the
related clarification, there were no accounting
pronouncements, and the accounting treatment of this
issue was mostly based on generally accepted
accounting practices and foreign accounting
pronouncements. The company is currently examining
the effect of the implementation of this standard on
its financial statements in future periods.
20
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES:
A. The Company has a number of investments in associated
companies, which are held either directly or through
investee companies. The financial statements of
significant associated companies (Mondy Business Paper
Hadera Ltd. - formerly Neusiedler Hadera Paper Ltd, NHP
- and Hogla-Kimberly Ltd.) are attached to these
financial statements.
B. COMPOSED AS FOLLOWS:
DECEMBER 31
-------------------
2005 2004
---- ----
NIS IN THOUSANDS
-------------------
Shares:
Cost 54,241 54,241
Excess of cost of investment - net 2,086 2,086
Less - accumulated amortization (2,180) (2,624)
Gain on issuance of shares of an associated
company to a third party 40,241 40,241
Adjustments resulting from translation of foreign currency
financial statements (813) (2,807)
Share in profits (after deduction of losses) accumulated since
acquisition 263,051 271,492
------- -------
356,626 362,629
Long-term loans and capital notes * 72,331 **68,612
------- -------
428,957 431,241
======= =======
* Classified by linkage terms, the total amounts of the
loans and capital notes are as follows:
WEIGHTED AVERAGE
INTEREST RATE DECEMBER 31
AT DECEMBER 31, --------------------
2005 2005 2004
----------------- ---- ----
% NIS IN THOUSANDS
----------------- --------------------
In dollars 9,206 8,616
Linked to the Israeli CPI*** **10,709
Unlinked loans and capital notes 2.2% 63,125 49,287
------ ------
72,331 68,612
====== ======
** Reclassified.
*** In 2005, the terms of the loans linked to the
Israeli CPI were changed and these loans became
unlinked loans.
As of December 31, 2005, the repayment dates of the
balance of the loans and capital notes have not yet been
determined.
21
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
C. THE CHANGES IN THE INVESTMENTS DURING 2005 ARE AS FOLLOWS:
NIS IN THOUSANDS
Balance at beginning of year 431,241
-------
Changes during the year:
Share in profits of associated companies - net 16,414
Dividend from associated companies (24,411)
Adjustments resulting from translation of foreign currency
financial statements 1,994
Increase in balance of long-term loans and capital notes - net 3,719
-------
Balance at end of year 428,957
=======
D. MONDY BUSINESS PAPER HADERA LTD. (hereafter - Mondy Hadera;
formerly - Neusiedler Hadera Paper Ltd. - NHP):
Mondy Hadera is held to the extent of 49.9% by the
Company and also by Neusiedler AG (hereafter -
Neusiedler), under an agreement dated November 21, 1999.
According to said agreement, Mondy Hadera purchased the
Group's activities in the field of printing and writing
paper, and issued to Neusiedler 50.1% of its shares. As
part of the said agreement, Neusiedler was granted an
option to sell to the Company its holdings in Mondy
Hadera, at a price that is 20% lower than the value (as
defined in the agreement). The understanding between the
parties is that the option would only be exercised under
prolonged, extraordinary circumstances that preclude the
operation of Mondy Hadera in Israel. The Company believes
that the likelihood of such circumstances is very remote.
E. HOGLA-KIMBERLY LTD. (hereafter - Hogla-Kimberly)
Hogla-Kimberly is held to the extent of 49.9% by the
Company and to the extent of 50.1% by Kimberly Clark
Corporation (hereafter- KC).
F. INVESTMENT IN CARMEL CONTAINER SYSTEMS LIMITED
(HEREAFTER - CARMEL)
The investment in Carmel's shares, as of December 31,
2005 and 2004, amounts to NIS 32,897,000 and NIS
32,300,000, respectively, which represents a holding of
26.25%. Carmel's shares are traded in the United States
on the "AMEX" Stock Exchange.
22
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
In November 2004, Carmel's board of directors decided to
take measures to withdraw Carmel's shares from trade on
the "AMEX" Stock Exchange in the United States and also
to deregister with the SEC. Accordingly, trade in
Carmel's shares on the "AMEX" was suspended from November
30, 2004 and in July 2005 the process of deregistering
the shares from being traded and with the SEC was
finalized.
The financial statements of Carmel are drawn up in
accordance with the provisions of Accounting Standard No.
12 of the IASB. Until December 31, 2003, the financial
statements were drawn up on the basis of cost, adjusted
for the changes in the general purchasing power of
Israeli currency measured on the basis of the Israeli
CPI. For purposes of inclusion in the consolidated
financial statements up to said date, Carmel's financial
statements were adjusted on the basis of the changes in
the exchange rate of the dollar.
G. INVESTMENT IN T.M.M INTEGRATED RECYCLING INDUSTRIES LTD.
(HEREAFTER - T.M.M.)
As of December 31, 2005, the Company's share in T.M.M.
(directly and through another associated company) is
43.08%
The excess of equity in net assets of T.M.M. shares, over
the cost of the investment therein, which amounts to NIS
1,581,000, is amortized over a period of ten years.
As of December 31, 2005 and 2004, the direct investment
in the shares of T.M.M is NIS 13,703,000 and NIS
15,726,000, respectively. The market value of these
shares as of December 31, 2005 and 2004 is NIS 10,436,000
and NIS 11,338,000, respectively.
The Company's management examined the value of its
investment in T.M.M. for impairment, which is not
temporary in nature. The Company used the services of an
outside appraiser in determining the value in use to the
Company. Based on this, the Company's management believes
that the investment does not need to be written down.
23
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS:
A. COMPOSITION OF ASSETS AND THE ACCUMULATED DEPRECIATION
THEREON, GROUPED BY MAJOR CLASSIFICATIONS, AND CHANGES
THEREIN DURING 2005, ARE AS FOLLOWS:
COST
---------------------------------------------------------------
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT
BEGINNING DURING DURING END OF
OF YEAR THE YEAR THE YEAR YEAR
------- -------- -------- ----
NIS IN THOUSANDS
---------------------------------------------------------------
Land and buildings thereon 189,227 40,369 774 228,822
Machinery and equipment 673,753 16,681 1,036 689,398
Vehicles 29,954 5,362 4,220 31,096
Office furniture and equipment
(including computers) 68,362 2,073 269 70,166
Payments on account of
machinery and equipment 13,166 4,166 2,165 15,167
Spare parts - not current 20,833* 2,429 23,262
------- ------ ----- ---------
995,295 71,080 8,464 1,057,911
======= ====== ===== =========
ACCUMULATED DEPRECIATION DEPRECIATED BALANCE
--------------------------------------------------------------- -------------------
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT DECEMBER 31
BEGINNING DURING DURING END OF -------------------
OF YEAR THE YEAR THE YEAR YEAR 2005 2004
------- -------- -------- ---- ---- ----
NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------------------------------------- -------------------
Land and buildings thereon 107,585 3,496 277 110,804 118,018 81,642
Machinery and equipment 467,827 22,031 902 488,956 200,442 205,926
Vehicles 19,884 3,307 2,276 20,915 10,181 10,070
Office furniture and equipment
(including computers) 54,760 2,610 68 57,302 12,864 13,602
Payments on account of
machinery and equipment 15,167 13,166
Spare parts - not current 23,262 20,833*
------- ------ ----- ------- ------- -------
650,056 31,444 3,523 677,977 379,934 345,239
======= ====== ===== ======= ======= =======
*Reclassified.
24
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS (continued):
B. The item is net of investment grants in respect of
investments in "approved enterprises" (see notes 7a and
9a).
C. The Company's real estate is partly owned and partly
leased - to the extent of NIS 44.5 million, in respect of
which lease fees of approximately NIS 25.8 million have
been capitalized. The leasehold rights are for 49 year
periods ending in the years 2008 to 2059, with options to
extend for an additional 49 years.
D. As of December 31, 2005 and 2004, the cost of fixed
assets includes borrowing costs of NIS 1,007,000
capitalized to the cost of machinery and equipment.
E. Depreciation expenses amounted to NIS 31,444,000 NIS
28,472,000 and NIS 28,165,000, for the years ended
December 31, 2005, 2004 and 2003, respectively.
F. As to pledges on assets - see note 9a.
25
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - NOTES AND OTHER LONG-TERM LIABILITIES:
A. NOTES
The item represents two series of notes issued to
institutional investors as follows:
DECEMBER 31
-----------------------------------------------
2005 2004
------------------- ----------------------
NIS IN THOUSANDS
-----------------------------------------------
SERIES II SERIES I SERIES II SERIES I
Balance 207,229 27,409 201,807 33,340
Less - current maturities 6,827 6,648
------- ------ ------- ------
207,229 20,582 201,807 26,692
======= ====== ======= ======
1) Series I - May 1992
The balance of the notes as of December 31, 2005 is
redeemable in four installments, due in June of each
of the years 2006-2009, each installment amounting
to 6.66% of the original par value of the notes,
which is NIS 102,501,000, in December 2005 terms;
the unpaid balance of the notes bears annual
interest of 3.8%, payable annually each June. The
notes - principal and interest - are linked to the
Israeli CPI of February 1992.
2) Series II - December 2003
The balance of the notes as of December 31, 2005 is
redeemable in 7 equal, annual installments due in
December of each of the years 2007-2013; the unpaid
balance of the notes bears annual interest of 5.65%,
payable annually each December. The notes -
principal and interest - are linked to the Israeli
CPI of November 2003.
As to the change from January 2006 in the presentation of
deferred issuance costs - see note 1q (1) above.
B. OTHER LIABILITY:
The capital note to an associated company is unlinked and
interest free. No repayment date has been fixed, but the
associated company does not intend to demand the
repayment of the capital note before January 1, 2007.
26
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - EMPLOYEE RIGHTS UPON RETIREMENT:
A. Israeli labor laws and agreements require the Company and
its subsidiaries to pay severance pay to employees
dismissed or leaving their employ under certain
circumstances, computed on the basis of the number of
years of service, or a pension upon retirement.
To cover the liability for employee rights upon
retirement, pursuant to labor agreements in force and
based on salary components that, in management's opinion,
create entitlement to severance pay, deposits are made by
the Company and its subsidiaries with various provident
funds (including pension funds) or insurance policies for
the benefit of the employees.
The severance pay and pension liability and the amounts
funded as above are not reflected in the financial
statements, as the pension and severance pay risks have
been irrevocably transferred to the pension funds and the
insurance companies, as allowed by the Severance Pay Law.
B. The expenses relating to employee rights upon retirement,
which reflect the amounts that were deposited during the
reported years with provident funds, pension funds and
various insurance policies, are NIS 8,710,000 NIS
8,368,000,and NIS 8,515,000 in 2005, 2004, and 2003,
respectively.
NOTE 6 - SHAREHOLDERS' EQUITY:
A. SHARE CAPITAL
Composed of ordinary registered shares of NIS 0.01 par value,
as follows:
DECEMBER 31
-------------------------------
2005 2004
AUTHORIZED ISSUED AND PAID
------------- -------------------------------
Number of shares 20,000,000 4,002,205 3,996,674
========== ========= =========
Amount in NIS 200,000 40,022 39,967
========== ========= =========
The shares are traded on stock exchanges in Tel-Aviv and
in the U.S. ("AMEX"). The quoted prices per share, as of
December 31, 2005 are NIS 195.4 and $ 42.51 (NIS 195.67),
respectively.
B. EMPLOYEE STOCK OPTION PLANS:
1) The 1998 plan for senior officers in the Group
On January 11, 1998, the board of directors approved
a stock option plan for senior officers in the Group
("the 1998 plan for senior officers").
27
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
In 1998-2000, 155,498 options were granted under the
1998 plan for senior officers.
The number of shares resulting from the exercise of
the options and the actual exercise price were
determined as follows: Upon receipt of an exercise
request from an option holder, a computation was
made of the difference between the quoted price of
the Company's shares at the beginning of that
trading day and the exercise price; that difference
was then multiplied by the number of exercisable
options (hereafter - the benefit). The number of
shares that the Company actually issued to the
option holder was the number of shares the market
value of which was equal to the amount of the
benefit computed as above. In consideration for the
shares, the option holder paid their par value only.
In 2000-2003, 154,000 options were exercised under
the 1998 plan for senior officers. 92,832 shares of
NIS 0.01 were issued following the exercise. The
unexercised balance of 1,498 options granted expired
in 2003.
Immediately upon issuance, the ordinary shares
issued upon exercise of the options have all the
same rights as other ordinary shares of the Company.
2) The 2001 plan for senior officers in the Group
On April 2, 2001, the Company's board of directors
approved a stock option plan for senior officers in
the Group (hereafter - the 2001 plan for senior
officers). Under this plan, 194,300 options were
allotted on July 5, 2001 without consideration. Each
option can be exercised to purchase one ordinary
share of NIS 0.01 par value of the Company. The
options are exercisable in four equal annual
batches. The blocking period of the first batch is
two years, commencing on the date of grant; the
blocking period of the second batch is three years
from the date of grant, and so forth. Each batch is
exercisable within two years from the end of the
blocking period.
The exercise price of the options granted as above
was set at NIS 217.00, linked to the CPI, on the
basis of the known CPI on April 2, 2001. The
exercise price for each batch is determined as the
lesser of the aforementioned exercise price or the
average price of the Company's shares as quoted on
the Tel-Aviv Stock Exchange (hereafter - the Stock
Exchange) during the thirty trading days preceding
to the effective date of each batch, less 10%. As
stipulated by the 2001 plan for senior officers, the
exercise price of unexercised options is to be
adjusted, in the event of cash dividend
distributions. Accordingly, the exercise price as of
December 31, 2005 is NIS 45.5 for the second batch,
NIS 103.43 for the third batch and NIS 157.02 for
the fourth batch. In May 2005, the remaining options
from the first batch expired.
The quoted price of the Company's shares on the Tel
Aviv Stock Exchange, immediately prior to the date
of the board of directors' resolution to grant the
options, was NIS 204.00. Immediately prior to the
granting of the options, the price was NIS 185.8.
28
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
The fair value of each option - computed on the
basis of the Black-Scholes option-pricing model - as
prescribed by the regulations of the Tel-Aviv Stock
Exchange - was approximately NIS 56.69 on the date
of grant.
Notwithstanding the above, the number of shares
resulting from the exercise of the options and the
actual exercise price will be determined as follows:
Upon receipt of an exercise request from an option
holder, a computation will be made of the difference
between the quoted price of the Company's shares at
the beginning of that trading day and the exercise
price; that difference is to be multiplied by the
number of exercisable options (hereafter - the
benefit). The number of shares that the Company will
actually issue to the option holder will be the
number of shares the market value of which is equal
to the amount of the benefit computed as above. In
consideration for the shares, the option holder will
pay their par value only.
Immediately upon issuance, the ordinary shares
issued upon exercise of the options will have all
the same rights as other ordinary shares of the
Company.
In 2005, 2004 and 2003, 13,877, 55,525 and 1,550
options, respectively, were exercised under the 2001
plan for senior officers, and 4,307, 24,295 and 227
shares of NIS 0.01, respectively, were issued
following the exercise of the options, as above.
8,250 options expired in 2005 (from the first
batch). As of December 31, 2005, the unexercised
balance of the options granted is 115,098.
This plan is designed to be governed by the terms
stipulated by Section 102 of the Israeli Income Tax
Ordinance. Inter alia, these terms provide that the
Company is allowed to claim, as an expense for tax
purposes, the amounts credited to the employees as a
benefit in respect of shares or options granted
under the plan.
The amount allowed as an expense for tax purposes,
at the time the employee utilizes such benefit, is
limited to the amount of the benefit that is liable
to tax as labor income, in the hands of the
employee; all being subject to the restrictions
specified in Section 102 of the Income Tax
Ordinance.
Since, in accordance with Israeli accounting
principles, the Company does not recognize the
expense in its accounts with respect to the salary
benefit embodied in these grants, then under
Clarification No. 7 of the IASB (See note 1j(7)),
the Company credited the tax saving derived from the
exercise of benefits by employees in 2005 to capital
surplus.
3) The 2001 employee plan
On August 29, 2001, the Company's board of directors
approved a stock option plan for employees in the
Group, according to a specification (hereafter - the
2001 employee plan). Under this plan, up to 125,000
options will be allotted without consideration. Each
option can be exercised to purchase one ordinary
share of NIS 0.01 par value of the Company. The
blocking period of the options is two years from the
date of grant. Each option is exercisable within
three years from the end of the blocking period.
On November 4, 2001, 81,455 options were granted under
the 2001 employee plan.
29
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
The exercise price of all the options granted as
above was set at NIS 160.99, linked to the CPI, on
the basis of the known CPI on August 29, 2001. This
price represents the average price of the Company's
shares as quoted on the Tel-Aviv Stock Exchange
during the thirty trading days prior to the date of
the board of directors' approval, less 10%. As
stipulated by the 2001 employee plan, the exercise
price has been adjusted, as a result of dividend
distributions, and it is NIS 91.16 as of December
31, 2005.
The quoted price of the Company's shares on the Tel
Aviv Stock Exchange, immediately prior to the date
of the board of directors' resolution to grant the
options, was NIS 171.20. Immediately prior to the
granting of the options, the price was NIS 138.80.
The fair value of each option - computed on the
basis of the Black-Scholes option-pricing model - as
prescribed by the regulations of the Tel-Aviv Stock
Exchange - was approximately NIS 64.11 on the date
of grant.
Notwithstanding the above, the number of shares
resulting from the exercise of the options and the
actual exercise price will be determined as follows:
Upon receipt of an exercise request from an option
holder, a computation will be made of the difference
between the quoted price of the Company's shares at
the beginning of that trading day and the exercise
price; that difference is to be multiplied by the
number of options to be exercised (hereafter - the
benefit). The number of shares the that Company will
actually issue to the option holder will be the
number of shares the market value of which is equal
to the amount of the benefit computed as above. In
consideration for the shares, the option holder will
pay their par value only.
Immediately upon issuance, the ordinary shares
issued upon exercise of the options will have all
the same rights as other ordinary shares of the
Company.
In 2005, 2004 and 2003, 2,405, 8,615 and 57,962
options, respectively, were exercised under the 2001
employee plan, and 1,224, 4,084 and 20,665 shares of
NIS 0.01, respectively, were issued following the
exercise of options, as above. As of December 31,
2005, the unexercised balance of the options granted
is 12,473.
This plan is designed to be governed by the terms
stipulated by Section 102 of the Israeli Income Tax
Ordinance. Inter alia, these terms provide that the
Company is allowed to claim, as an expense for tax
purposes, the amounts credited to the employees as a
benefit in respect of shares or options granted
under the plan.
The amount allowed as an expense for tax purposes,
at the time the employee utilizes such benefit, is
limited to the amount of the benefit that is liable
to tax as labor income, in the hands of the
employee; all being subject to the restrictions
specified in Section 102 of the Income Tax
Ordinance.
Since, in accordance with Israeli accounting
principles, the Company does not recognize the
expense in its accounts (with respect to the salary
benefit embodied in these grants), then under
Clarification No. 7 of the IASB (See note 1j(7)),
the Company credited the tax saving derived from the
exercise of benefits by employees in 2005 to capital
surplus.
30
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME:
A. TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL
INVESTMENTS, 1959 (hereafter - the law)
Under the law, by virtue of the "approved enterprise"
status granted to certain of their production facilities,
certain subsidiaries were entitled to various tax
benefits (mainly reduced tax rates) until 2003.
During the period of benefits - mainly 7 years commencing
in the first year in which the companies earn taxable
income from the approved enterprises, provided the
maximum period to which it is restricted by law has not
elapsed - reduced tax rates or exemption from tax apply,
as follows:
1) Corporate tax rate of 25%, instead of the regular
tax rate (see d. below).
2) Tax exemption on income from certain approved
enterprises in respect of which the companies have
elected the "alternative benefits" (involving waiver
of government guaranteed loans instead of the tax
exemption); the length of the exemption period is 4
years, after which the income from these enterprises
is taxable at the rate of 25% for 3 years.
The part of the taxable income, which is entitled to
the tax benefits, is determined on the basis of the
ratio of the turnover attributed to the "approved
enterprise" to the total turnover of these
companies, taking into account the ratio of the
"approved enterprise" assets to total assets of
these companies. The turnover that is attributed to
the "approved enterprise" is generally computed on
the basis of the ratio of the increase in turnover
to the "basic" turnover stipulated in the instrument
of approval.
The period of benefits in respect of the "approved
enterprises" of these companies expired at the end
of 2003.
The entitlement to the above benefits is conditional
upon the companies' fulfilling the conditions
stipulated by the law, regulations published
thereunder and the instruments of approval for the
specific investments in "approved enterprises". In
the event of failure to comply with these
conditions, the benefits may be cancelled and the
companies may be required to refund the amount of
the benefits, in whole or in part, with the addition
of CPI linkage differences and interest.
B. MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME
TAX (INFLATIONARY ADJUSTMENTS) LAW, 1985 (hereafter - the
inflationary adjustments law)
Under the inflationary adjustments law, results for tax
purposes are measured in real terms, having regard to the
changes in the Israeli CPI. The Company and its subsidiaries
are taxed under this law.
31
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
C. THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXATION), 1969
The Company and certain consolidated subsidiaries are
"industrial companies" as defined by this law. These
companies claimed depreciation at accelerated rates on
equipment used in industrial activity as stipulated by
regulations published under the inflationary adjustments
law.
The Company also files consolidated tax returns with
certain consolidated subsidiaries as permitted under this
law.
D. TAX RATES APPLICABLE TO INCOME NOT DERIVED FROM "APPROVED
ENTERPRISES"
The income of the Company and its Israeli subsidiaries
(other than income from "approved enterprises", see a.
above) is taxed at the regular rate. Through to December
31, 2003, the corporate tax was 36%. In July 2004, an
amendment No. 140, to the Income Tax Ordinance was
published fixing, among others that corporate tax rate is
gradually reduced from 36% to 30%. In August 2005, an
additional amendment (No. 147) to the Income Tax
Ordinance was published which makes a further revision to
the corporate tax rates prescribed by Amendment No. 140.
As a result of the aforementioned amendments, the tax
rates for 2004 and thereafter are as follows: 2004 - 35%,
2005 - 34%, 2006 - 31%, 2007 - 29%, 2008 - 27%, 2009 -
26% and 2010 and thereafter - 25%.
As a result of the said changes in the tax rates, the
Company adjusted - in each of the years 2004 and 2005 -
at the time the aforementioned amendments were made, its
deferred tax balances, in accordance with the tax rates
expected to be in effect in the coming years; the effect
of the change has been carried to income in these years.
Capital gains (except for the real capital gain from the
sale of marketable securities - to which the regular tax
rates will apply) are taxed at a reduced tax rate of 25%
on capital gains that arose after January 1, 2003, and at
the regular corporate tax rate on income that arose until
that date.
E. CARRYFORWARD TAX LOSSES
Carryforward tax losses in subsidiary companies are NIS
22,470,000 and NIS 20,239,000 as of December 31, 2005 and
2004, respectively.
The Company examines on each balance sheet date the
possibility of recording deferred taxes in respect of
carryforward tax losses based on an assessment of all
evidence, both positive and negative, regarding the
likelihood of their being taxable income in the
foreseeable future.
Under the inflationary adjustments law, carryforward
losses are linked to the Israeli CPI, and may be utilized
indefinitely.
32
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
F. DEFERRED INCOME TAXES
The composition of the deferred taxes at balance sheet dates,
and the changes therein during the years 2005 and 2004 , are
as follows:
In respect of balance sheet items Provisions for employee rights
-------------------------------------------------------------------
Vacation In respect of
Depreciable and carryforward tax
fixed Severance recreation Doubtful losses
assets Inventories pay pay Accounts (see above) Total
------ ----------- --- --- -------- ----------- -------
NIS in thousands
-----------------------------------------------------------------------------------------------
Balance at January 1, 2004 61,802 3,386 688 (4,297) (5,749) (5,041) 50,789
Changes in 2004:
Amounts carried to income (9,240) 652 (87) 210 (161) (1,470) (10,096)
------ ----- --- ------ ------ ------ ------
Balance at December 31, 2004 52,562 4,038 601 (4,087) (5,910) (6,511) 40,693
Changes in 2005:
Amounts carried to income (6,779) (1,487) (75) 8 (52) 714 (7,671)
------ ----- --- ------ ------ ------ ------
Balance at December 31, 2005 45,783 2,551 526 (4,079) (5,962) (5,797) 33,022
====== ===== === ====== ====== ====== ======
The deferred taxes are computed at the rate of 25%-31%.
Deferred taxes are presented in the balance sheets as
follows:
DECEMBER 31
-----------------------
2005 2004
---- ----
NIS IN THOUSANDS
-----------------------
Among current assets (7,106) (5,358)
Among long-term asset balances (5,655) (6,511)
Among long-term liabilities 45,783 52,562
------ ------
Balance - liability (asset) - net 33,022 40,693
====== ======
33
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
G. TAXES ON INCOME INCLUDED IN THE INCOME STATEMENTS:
1) As follows:
2005 2004 2003
---- ---- ----
NIS IN THOUSANDS
---------------------------------
For the reported year:
Current 13,662 13,248 4,235
Deferred, see f. above:
In respect of changes to tax rates,
see d. above (4,166) (5,824)
In respect of the reporting period (3,505) (4,272) 3,471
------ ------ -----
5,991 3,152 7,706
====== ====== =====
Current taxes in 2005 were computed at an average
tax rate of 34%, 2004 - 35% and 2003 - 34.5%, see
(2) below.
2) Following is a reconciliation of the "theoretical"
tax expense, assuming all income is taxed at the
regular rate applicable to companies in Israel, as
stated in d. above, and the actual tax expense:
2005 2004 2003
----------------- ----------------- ------------------
NIS IN NIS IN NIS IN
% THOUSANDS % THOUSANDS % THOUSANDS
--- --------- --- --------- --- ---------
Income before taxes on income, as reported
in the statements of income 100.0 35,292 100.0 40,812 100.0 32,204
===== ====== ===== ====== ===== ======
Theoretical tax on the above amount 34.0 11,999 35.0 14,284 36.0 11,593
Tax benefits arising from reduced tax rate
for approved enterprises (1.5) (487)
----- ------ ----- ------ ----- ------
34.0 11,999 35.0 14,284 34.5 11,106
Decrease in taxes resulting from computation
of deferred taxes at a rate which is
different from the theoretical rate (0.9) (324) (4.3) (1,762)
Decrease in taxes resulting from adjustment to
deferred tax balances due to changes
in tax rates, see d. above (11.8) (4,166) (14.3) (5,824)
Tax deduction in respect of options
exercised by employees according to
Section 102 of the Israeli Income
Tax Ordinance (2005 - see note 1j(7)) (10.3) (4,221) (5.0) (1,607)
Other - net (4.3) (1,518) 1.6 675 (5.6) (1,793)
----- ------ ----- ------ ----- ------
Taxes on income for the reported year 17.0 5,991 7.7 3,152 23.9 7,706
===== ====== ===== ====== ===== ======
H. TAX ASSESSMENTS
The Company and most of its subsidiaries have received
final tax assessments through the year ended December 31,
2000.
34
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES:
A. AS FOLLOWS:
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------------------------------- ------------------------------------------
IN, OR LINKED IN, OR LINKED
TO, FOREIGN TO, FOREIGN
CURRENCY LINKED TO THE CURRENCY LINKED TO THE
(MAINLY DOLLAR) ISRAELI CPI UNLINKED (MAINLY DOLLAR) ISRAELI CPI UNLINKED
--------------- ----------- -------- --------------- ----------- --------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------------------------------- ------------------------------------------
Assets:
Current assets:
Cash and cash equivalents 5,740 2,578 4,531 3,282
Short-term investments 11,416 45,539 16,925
Receivables 55,307 167 189,912 43,600 1,799 192,071
Investments in associated companies -
long-term loans and capital notes 9,206 63,125 8,616 10,709 49,287
------ ------- ------- ------ ------- -------
70,253 167 267,031 56,747 58,047 261,565
====== ======= ======= ====== ======= =======
Liabilities:
Current liabilities:
Short-term credit from banks 93,171 2,238 110,446
Accounts payables and accruals 11,062 868 214,082 10,100 1,013 142,287
Long-term liabilities (including
current maturities):
Notes 234,638 235,147
Other liability 32,770 32,770
------ ------- ------- ------ ------- -------
11,062 235,506 340,023 12,338 236,160 285,503
====== ======= ======= ====== ======= =======
As to exposures relating to fluctuations in foreign
currency exchange rates and the use of derivatives for
hedging purposes - see note 12a.
35
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES (continued):
B. DATA REGARDING THE EXCHANGE RATE AND THE ISRAELI CPI:
HANGE RATE OF
ONE DOLLAR CPI*
---------- ----
NIS POINTS
--- ------
AT END OF YEAR:
2005 4.603 185.0
2004 4.308 180.7
2003 4.379 178.6
CHANGE IN THE YEAR:
2005 6.8% 2.4%
2004 (1.6%) 1.2%
2003 (7.6%) (1.9%)
* Based on the index for the month ending on each
balance sheet date, on the basis of 1993 average
= 100.
NOTE 9 - COMMITMENTS, CONTINGENT LIABILITIES AND LIABILITIES SECURED BY
PLEDGES:
A. IN RESPECT OF INVESTMENT GRANTS
Under the Law for the Encouragement of Capital
Investments, 1959, certain subsidiaries and an associated
company have received investment grants from the State of
Israel. In the event of failure to comply with the terms
attached to the receipt of the grants, the companies may
be required to refund the amount of the grants, in whole
or in part, with linkage differences and interest from
the date of receipt thereof.
The abovementioned subsidiaries have registered floating
charges on all their assets in favor of the State of
Israel in order to secure compliance with the terms of
the investment grants received. In respect of the grant
received by the associated company, the Company has
provided a guarantee, with another associated company,
for the repayment of the grant. As of December 31, 2005,
the grant was repaid in full, as agreed with the
Investment Center.
B. In 1996, an associated company received a grant amounting to
NIS 2,067,000 from the Fund for Preparation for Exposure of
the Ministry of Industry and Trade. With respect to this
grant, the Company has provided a bank guarantee of NIS
2,091,000 in favor of the State of Israel.
C. The Company has provided guarantees of NIS 2,301,000 in favor
of an associated company, in connection with the latter's
participation in a tender. If the associated company does not
win the tender, the guarantee will become null and void.
D. Subsidiaries provided guarantees to various entities, in
connection with tenders, in the aggregate amount of
approximately NIS 2,232,000.
36
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMITMENTS, CONTINGENT LIABILITIES AND LIABILITIES SECURED BY
PLEDGES (continued):
E. On May 7, 2001, the Company's board of directors resolved to
carry out a plan, which was approved by the shareholders'
meeting, to remunerate the Company's chairman of the board of
directors. According to the plan, remuneration will be
granted, equal to the increase in the value of 50,000 shares
of the Company in the period from May 7, 2001 (share price -
NIS 194.37, linked to the terms of the plan) to May 7, 2008.
The remuneration will be spread over the period commencing two
years from the resolution of the board of directors, until the
end of seven years from said resolution. Up to December 31
2005, one quarter of the remuneration was exercised. An
additional quarter was exercised in January 2006, after the
balance sheet date. A liability was included in the financial
statements in respect of the above plan, under current
liabilities.
F. In accordance with the Companies Law, 1999, the Company issued
new letters of indemnity to its officers in 2004, pursuant to
which the Company undertakes to indemnify the officers for any
liability or expense, for which indemnification may be paid
under the law, that may be incurred by the officers in
connection with actions performed by them as part of their
duties as officers in the Company, which are directly or
indirectly related to the events specified in the addendum to
the letters of indemnity, provided that the total amount of
indemnification payable to the officers, shall not exceed 25%
of the Company's shareholders' equity as per its latest
financial statements published prior to the actual
indemnification. The liability of officers in connection with
the performance of their duties, as above, is partly covered
by an insurance policy.
G. The Company is preparing for the conversion of its
energy-generation plant to using natural gas, instead of fuel
oil. The transition is planned for the second half of 2006,
subject to the arrival of the gas in Hadera.
In this capacity, 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 the existing energy generation plants using
cogeneration at the Hadera plant, when it will be converted
for the use of natural gas, instead of the current use of fuel
oil. The overall financial scope 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).
In this capacity the Company also contracted with Alstom Power
Boiler Service gmbh, a manufacturer of equipment in the energy
industry, in an agreement worth approximately (euro) 1.74
million, for the purchase of the systems needed for the
conversion and assistance with their installation at the plant
in Hadera.
37
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
BALANCE SHEETS:
WEIGHTED AVERAGE DECEMBER 31
INTEREST RATE ----------------------
AT DECEMBER 31, 2005 2004
---- ----
2005 NIS IN THOUSANDS
-------------------- ------------------------
A. SHORT-TERM INVESTMENTS:
Short term deposit - linked to the CPI 45,539
Marketable securities 11,416 16,925
------- --------
11,416 62,464
======= ========
B. RECEIVABLES:
1) Trade:
Open accounts 136,792 128,699
Checks collectible 13,617 14,576
------- --------
150,409 143,275
======= ========
The item is:
Net of allowance for doubtful accounts 16,914 16,148
======= ========
Includes associated companies 31,504 26,089
======= ========
2) Other:
Employees and employee institutions 3,155 4,072
Associated companies - current debt 84,096 78,616
Prepaid expenses 4,041 2,287
Advances to suppliers 3,235 4,200
Deferred income taxes, see note 7f 7,106 5,358
Income tax authority 1,733
Interest receivable 1,579
Sundry 4,491 3,995
------- --------
106,124 101,840
======= ========
C. INVENTORIES:
For industrial activities:
Finished goods 16,578 11,684
Raw materials and supplies 9,356 8,725
------- --------
25,934 20,409
For commercial activities - purchased products 15,683 16,972
------- --------
41,617 37,381
Maintenance and spare parts ** 22,382 *25,006
------- --------
63,999 62,387
======= ========
D. CREDIT FROM BANKS:
Unlinked 5.3% 93,171 110,446
Swiss francs 2,238
------- --------
93,171 112,684
======= ========
* Reclassified.
** Including inventories for the use of associated companies.
38
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
E. ACCOUNTS PAYABLE AND ACCRUALS - OTHER:
DECEMBER 31
---------------------
2005 2004
---- ----
NIS IN THOUSANDS
---------------------
1) Trade:
Open accounts 84,727 76,311
Checks payable 5,785 11,245
------ ------
90,512 87,556
====== ======
2) Other:
Payroll and related expenses 44,587 34,904
Institutions in respect of employees 11,855 10,551
Income tax authority 15,655
Customs and value added tax authorities 142 3,850
Accrued interest 1,209 1,544
Accrued expenses 9,201 7,903
Sundry 2,758 7,092
------ ------
85,407 *65,844
====== ======
STATEMENTS OF INCOME:
2005 2004 2003
---- ---- ----
NIS IN THOUSANDS
--------------------------------------
F. SALES - net (1):
Industrial operations (2) 364,539 363,489 326,825
Commercial operations 117,922 119,365 138,267
------- ------- -------
482,461 482,854 465,092
======= ======= =======
(1) Including sales to associated companies 115,262 121,987 115,505
======= ======= =======
(2) Including sales to export 43,356 42,232 44,175
======= ======= =======
G. COST OF SALES: Industrial operations:
Materials consumed 80,740 83,533 72,292
Payroll and related expenses 96,370 *92,566 85,419
Depreciation 27,396 24,537 22,739
Other manufacturing costs 94,517 *81,893 80,709
Decrease (increase) in inventory of
finished goods (4,894) 3,135 (1,651)
------- ------- -------
294,129 285,664 259,508
Commercial operations - cost of products sold 89,050 90,240 102,677
------- ------- -------
383,179 375,904 362,185
======= ======= =======
Including purchases from associated
companies 37,747 26,646 30,654
* Reclassified. ======= ======= =======
39
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
2005 2004 2003
---- ---- ----
NIS IN THOUSANDS
-------------------------------
H. SELLING, MARKETING, ADMINISTRATIVE AND
GENERAL EXPENSES:
Selling and marketing:
Payroll and related expenses 13,641 14,311 15,225
Packaging, transport and shipping 7,866 6,458 5,719
Commissions 2,699 2,467 2,733
Depreciation 1,145 1,159 1,595
Other 5,131 6,200 6,052
------ ------ ------
30,482 30,595 31,324
====== ====== ======
Administrative and general:
Payroll and related expenses 39,727 36,649 36,360
Office supplies, rent and maintenance 1,241 1,521 1,938
Professional fees 991 1,029 1,663
Depreciation 2,903 2,776 2,814
Doubtful accounts and bad debts 840 3,102 944
Capital loss (gain) from sale of fixed assets (3,570) *508 *(445)
Other** 3,327 *1,227 *5,126
------ ------ ------
45,459 46,812 48,400
Less - rent and participation from
associated companies 24,441 24,387 23,401
------ ------ ------
21,018 22,425 24,999
====== ====== ======
* Reclassified.
** 2005 - includes gain from sale of subsidiary consolidated
in the past, in the amount of NIS 874,000.
I. FINANCIAL INCOME (EXPENSES) - NET*:
EXPENSES:
In respect of long-term loans - net 26 1,607
In respect of notes - including amortization
of deferred charges and net of related hedges 16,516 15,188 5,031
In respect of short-term balances - net 3,559 6,547 16,917
------ ------ ------
20,075 21,761 23,555
------ ------ ------
INCOME:
In respect of increase in value of operating
monetary balances 3,294 1,901 7,429
In respect of short-term balances - net 4,291 6,742 137
------ ------ ------
7,585 8,643 7,566
------ ------ ------
(12,490) (13,118) (15,989)
====== ====== ======
* Including financial income (expenses) in respect
of loans to associated companies 975 721 (1,376)
====== ====== ======
40
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
J. OTHER INCOME
In 2003, the Company sold apartments that it previously held
for the use of its employees.
NOTE 11 - NET INCOME PER NIS 1 OF PAR VALUE OF SHARES:
A. The weighted average par value of shares used in computation
of per share data is as follows:
Year ended December 31:
NIS
---
2005 40,553
======
2004 40,640
======
2003 40,197
======
B. In the reported years, shares that will be allocated upon
exercise of unexercised stock options granted to
employees were taken into account in computing per share
data, having regard to the quoted price of the Company's
share at the end of each year.
NOTE 12 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
A. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative
financial instruments. The Company uses these instruments
as hedges. The Company utilizes derivatives, mainly
forward exchange contracts, to protect its expected cash
flows in respect of existing assets and liabilities
denominated in currencies other than the functional
currency of the Company or that are linked to the CPI. As
the counter-parties to these derivatives are Israeli
banks, the Company considers the inherent credit risks
remote.
In November-December 2004, the Company entered into
forward transactions for a period of one year, in order
to hedge an amount of NIS 200 million against increases
in the Israeli CPI.
In December 2005, the Company entered into forward
transactions for a period of one year, in order to hedge
an amount of NIS 230 million against increases in the
CPI, following the termination of the aforementioned
transaction.
41
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):
B. CREDIT RISKS
The Company and its subsidiaries' cash and cash
equivalents and the short-term deposit as of December 31,
2005 and 2004 are deposited mainly with major banks. The
Company and its subsidiaries consider the credit risks in
respect of these balances to be remote.
Most of these companies' sales are made in Israel, to a
large number of customers. The exposure to credit risks
relating to trade receivables is limited due to the
relatively large number of customers. The Group performs
ongoing credit evaluations of its customers to determine
the required amount of allowance for doubtful accounts.
An appropriate allowance for doubtful accounts is
included in the financial statements.
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the financial instruments included in
the working capital of the Company is usually identical
or close to their carrying value. The fair value of loans
and other liabilities also approximates the carrying
value, since they bear interest at rates close to the
prevailing market rates, except as described below.
The Company does not disclose the fair value of long-term
loans and capital notes included under investments in
associated companies as of December 31, 2005, aggregating
NIS 72,331,000 (see note 2b) and of a capital note to an
associated company in the amount of NIS 32,770,000 (see
note 4b), since their value cannot be reliably determined
so long as they have no repayment dates.
NOTE 13 - INTERESTED PARTIES - TRANSACTIONS AND BALANCES:
A. TRANSACTIONS:
1) Income (expenses):
2005 2004 2003
---- ---- ----
NIS IN THOUSANDS
---------------------------------
Sales 46,396 45,278 38,715
======= ====== ======
Costs and expenses (13,997) (9,247) (7,009)
======= ====== ======
Financial expenses (1,731) (1,688)
======= ====== ======
The amounts presented above represent transactions that the
Company carried out in the ordinary course of business with
interested parties (companies which are held by the Company's
principal shareholder), at terms and prices similar to those
applicable to non-affiliated customers and suppliers.
42
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 - INTERESTED PARTIES - TRANSACTIONS AND BALANCES (continued)
2) Benefits to interested parties:
2005 2004 2003
---- ---- ----
Payroll to interested parties employed
by the Company - NIS in thousands *5,181 *3,300 *3,364
===== ===== =====
Number of people to whom
the benefits relate 2 2 2
===== ===== =====
Remuneration of directors who are not
employed by the Company -
NIS in thousands 485 528 444
===== ===== =====
Number of people to whom
the benefits relate 12 13 13
===== ===== =====
*In 2005 including the CEO and the Chairman of the Board of
Directors. In 2004 and 2003 a CEO was in a position only part
of the year. In 2005 includes a special bonus to the Chairman
of the Board of Directors, at a sum of NIS 800,000, subject to
the general meeting's approval.
3) In 2003, an interested party employed by the Company
(the chairman of the board of directors) exercised
15,999 options granted to him under the 1998 plan
for senior employees. 8,529 shares of NIS 0.01 par
value have been issued at par value against the
exercise of said options.
4) At December 31, 2005, an interested party employed
by the Company (the CEO) held 3,950 options under
the 2001 plan for senior employees in the group (see
note 6b(2)). In January 2006, after the balance
sheet date, the interested party exercised 1,975 of
said options.
5) As to the plan for the remuneration of the Company's
chairman of the board of directors - see note 9e.
B. BALANCES WITH INTERESTED PARTIES:
DECEMBER 31
------------------
2005 2004
---- ----
NIS IN THOUSANDS
------------------
Accounts receivable - commercial operations* 12,225 13,378
====== ======
Accounts payables and accruals 4,401 3,563
====== ======
Notes 30,697 29,963
====== ======
* There were no significant changes in the balance during the
year.
NOTE 14 - SEGMENT INFORMATION:
A. Activities of the Company and its subsidiaries:
1) Manufacturing and marketing of packaging paper,
including collection and recycling of paper waste.
The manufacturing of paper relies mainly on paper
waste as raw material.
2) Marketing of office supplies and paper, mainly to
institutions.
Most of the sales are on the local (Israeli) market and
most of the assets are located in Israel.
43
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 - SEGMENT INFORMATION (continued):
B. BUSINESS SEGMENT DATA:
PAPER AND RECYCLING MARKETING OF OFFICE SUPPLIES T O T A L
------------------------------ ------------------------------ ---------------------------
2005 2004 2003 2005 2004 2003 2005 2004 2003
---- ---- ---- ---- ---- ---- ---- ---- ----
NIS IN THOUSANDS
-------------------------------------------------------------------------------------------
Sales - net(1) 368,884 367,391 332,124 113,577 115,463 132,968 482,461 482,854 465,092
======= ======= ======= ======= ======= ======= ======= ======= =======
Income (loss) from ordinary
operations 48,662 58,496 46,282 (880) (4,566) 302 47,782 53,930 46,584
Financial expenses, net 12,490 13,118 15,989
Other income 1,609
--------- --------- ---------
Income before taxes on income 35,292 40,812 32,204
Taxes on income 5,991 3,152 7,706
--------- --------- ---------
Income from operations of the
Company and its subsidiaries 29,301 37,660 24,498
Share in profits of associated
companies - net 16,414 25,072 35,549
--------- --------- ---------
Net income 45,715 62,732 60,047
========= ========= =========
Segment assets (at end of year) 536,965 494,194 497,811 57,377 56,707 59,480 594,342 550,901 557,291
Unallocated corporate assets
(at end of year) (2) 561,416 610,975* 695,983
--------- --------- ---------
Consolidated total assets
(at end of year) 1,155,758 1,161,876 1,253,274
========= ========= =========
Segment liabilities (at end of year) 57,754 58,782* 58,906 32,758 28,774* 25,696 90,512 87,566 84,602
Unallocated corporate liabilities
(at end of year) 541,862 *499,007 554,442
--------- --------- ---------
Consolidated total liabilities
(at end of year) 632,374 586,563 639,044
========= ========= =========
Depreciation and amortization 29,795 26,671 25,523 1,809 1,962 2,724 31,604 28,633 28,247
======= ======= ======= ======= ======= ======= ========= ========= =========
* Reclassified.
(1) Represents sales to external customers.
(2) Including investments in associated companies.
---------------
-------------------------------
---------------
44
SCHEDULE
DETAILS OF SUBSIDIARIES AND ASSOCIATED COMPANIES
AT DECEMBER 31, 2005
PERCENTAGE OF DIRECT AND
INDIRECT HOLDING IN SHARES
CONFERRING EQUITY AND
VOTING RIGHTS
--------------------------
%
MAIN SUBSIDIARIES:
Amnir Recycling Industries Limited 100.00
Graffiti Office Supplies and Paper Marketing Ltd. 100.00
Attar Marketing Office Supplies Ltd. 100.00
American Israeli Paper Mills Paper Industry (1995) Ltd. 100.00
MAIN ASSOCIATED COMPANIES:
Hogla-Kimberly Ltd. 49.90
Subsidiaries of Hogla-Kimberly Ltd.:
Hogla-Kimberly Marketing Limited 49.90
Molett Marketing Limited 49.90
Shikma For Personal Comfort Ltd. 49.90
Ovisan Sihhi Bez Sanai Ve Ticavet A.S. 49.90
Mondy Business Paper Hadera Ltd. 49.90
Subsidiariy of Mondy Business Paper Hadera Ltd.:
Mondy Business Paper Hadera Marketing Ltd. 49.90
Carmel Container Systems Limited 26.25
C.D. Packaging Systems Limited** 63.20
Barthelemi Holdings Ltd. 35.98
T.M.M. Integrated Recycling Industries Ltd.*** 43.08
* Not including dormant companies.
** C.D. Packaging Systems Limited is partly held through Carmel
Container Systems Limited (an associated company); the holding in
voting shares of C.D. Packaging Systems Limited is 63.05%.
*** T.M.M Integrated Recycling Industries Ltd. is partly held directly
and partly through Barthelemi Holdings Ltd.
45
EXHIBIT 4
---------
MONDI BUSINESS PAPER HADERA LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
MONDI BUSINESS PAPER HADERA LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7-28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF
MONDI BUSINESS PAPER HADERA LTD.
We have audited the accompanying balance sheet of MONDI BUSINESS PAPER HADERA
LTD. ("the Company") as of December 31, 2005 and 2004, and the consolidated
balance sheets as of such dates, and the related statements of operations,
changes in shareholders' equity and cash flows - of the Company and on a
consolidated basis - for each of the two years in the period ended December 31,
2005. These financial statements are the responsibility of the Company's Board
of Directors and management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of the
Company and on a consolidated basis as of December 31, 2003 and for the year
then ended were audited by other auditors whose report, dated March 10, 2004,
expressed an unqualified opinion on those financial statements.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States) and with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by the Board of Directors and management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position - of the Company and on
a consolidated basis - as of December 31, 2004 and 2005 and the results of
operations, changes in shareholders' equity and cash flows - of the Company and
on a consolidated basis - for each of the two years in the period ended December
31, 2005, in accordance with generally accepted accounting principles in Israel.
In addition, in our opinion, the financial statements referred to above are
prepared in accordance with the Israeli Securities Regulations (Preparation of
Annual Financial Statements), 1993.
As explained in Note 2A, the financial statements as of dates and for reporting
periods commencing January 1, 2004, are presented at reported amounts, in
accordance with accounting standards of the Israeli Accounting Standards Board.
The financial statements for the year ended December 31, 2003, have been
prepared on the basis of historical cost adjusted for changes in the exchange
rate of the U.S. dollar in relation to the NIS, in accordance with
pronouncements of the Institute of Certified Public Accountants in Israel.
BRIGHTMAN ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A MEMBER FIRM OF DELOITTE TOUCHE TOHMATSU
Tel Aviv, Israel
March 5, 2006
MONDI BUSINESS PAPER HADERA LTD.
BALANCE SHEETS
(NIS in thousands; Reported Amounts)
CONSOLIDATED COMPANY
------------------------ -----------------------
DECEMBER 31, DECEMBER 31,
------------------------ -----------------------
NOTE 2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
-------- ------- ------- ------- -------
CURRENT ASSETS
Cash and cash equivalents 3 - 10,804 - 9,616
Trade receivables 4 160,875 157,815 - -
American Israeli Paper Mills
Group, net - - 231,715 178,289
Other receivables 5 10,872 7,580 14,813 8,700
Inventories 6 116,859 90,391 90,454 60,301
------- ------- ------- -------
288,606 266,590 336,982 256,906
------- ------- ------- -------
LONG-TERM INVESTMENTS
Investments in Subsidiaries 7 - - 2,595 1,933
FIXED ASSETS 8
Cost 202,469 149,083 197,880 144,312
Less - accumulated depreciation 43,132 33,345 39,796 30,308
------- ------- ------- -------
159,337 115,738 158,084 114,004
LONG -TERM ASSETS
Goodwill 7B 3,177 3,800 - -
------- ------- ------- -------
3,177 3,800 - -
------- ------- ------- -------
451,120 386,128 497,661 372,843
------- ------- ------- -------
CURRENT LIABILITIES
Short term bank credit 85,887 - 85,871 -
Current maturities of long-term
bank loans 11 16,242 15,125 16,242 15,125
Capital notes to shareholders 12 18,412 - 18,412 -
Trade payables 9 102,984 104,661 75,367 63,902
American Israeli Paper Mills
Group, net 69,854 65,033 - -
Subsidiaries - - 148,844 99,159
Other payables and accrued expenses 10 20,202 23,132 15,386 16,480
------- ------- ------- -------
313,581 207,951 360,122 194,666
------- ------- ------- -------
LONG-TERM LIABILITIES
Long-term bank loans 11 21,807 36,248 21,807 36,248
Capital notes to shareholders 12 - 17,233 - 17,233
Deferred taxes 21 19,900 25,422 19,900 25,422
Accrued severance pay, net 13 51 87 51 87
------- ------- ------- -------
41,758 78,990 41,758 78,990
------- ------- ------- -------
COMMITMENTS AND CONTINGENT LIABILITIES 14
SHAREHOLDERS' EQUITY
Share capital 15 1 1 1 1
Premium 43,352 43,352 43,352 43,352
Retained earnings 52,428 55,834 52,428 55,834
------- ------- ------- -------
95,781 99,187 95,781 99,187
------- ------- ------- -------
451,120 386,128 497,661 372,843
------- ------- ------- -------
------------------- --------------- ---------------------------------------
A. MAGID A. SOLEL Y. YERUSHALMI
Financial Director General Manager Vice Chairman of the Board of Directors
Approval date of the financial statements: March 5, 2006.
The accompanying notes are an integral part of the financial statements.
-2-
MONDI BUSINESS PAPER HADERA LTD.
STATEMENTS OF OPERATIONS
(NIS in thousands; except per share data)
CONSOLIDATED COMPANY
------------------------------------------ ------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------------ ------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
-------- -------- -------- -------- -------- --------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
NOTE AMOUNTS (1) AMOUNTS (1) AMOUNTS (2) AMOUNTS (1) AMOUNTS (1) AMOUNTS(2)
------- -------- -------- -------- -------- -------- --------
Net sales 16 663,338 686,094 640,020 462,177 482,698 462,654
Cost of sales 17 609,752 605,738 556,890 420,558 416,504 391,492
-------- -------- -------- -------- -------- --------
GROSS PROFIT 53,586 80,356 83,130 41,619 66,194 71,162
Selling expenses 18 45,268 46,135 42,892 35,924 34,606 32,330
General and
administrative expenses 19
7,301 7,803 8,425 6,702 6,442 5,945
-------- -------- -------- -------- -------- --------
OPERATING PROFIT (LOSS) 1,017 26,418 31,813 (1,007) 25,146 32,887
Financing expenses, net 20 (12,868) (8,438) (2,561) (11,533) (7,643) (2,713)
Other income
(expenses), net 65 100 (215) - 47 (120)
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES (11,786) 18,080 29,037 (12,540) 17,550 30,054
Income taxes (tax
benefits) 21 (8,380) 818 10,518 (8,470) 359 10,275
-------- -------- -------- -------- -------- --------
INCOME (LOSS) AFTER
INCOME TAXES (TAX
BENEFITS) (3,406) 17,262 18,519 (4,070) 17,191 19,779
Equity in net earnings
(losses) of
Subsidiaries - - - 664 71 (1,260)
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) FOR
THE YEAR (3,406) 17,262 18,519 (3,406) 17,262 18,519
-------- -------- -------- -------- -------- --------
EARNINGS (LOSS)
PER SHARE (IN NIS) (3,406) 17,262 18,519 (3,406) 17,262 18,519
-------- -------- -------- -------- -------- --------
NUMBER OF SHARES
USED IN COMPUTATION 1,000 1,000 1,000 1,000 1,000 1,000
-------- -------- -------- -------- -------- --------
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-3-
MONDI BUSINESS PAPER HADERA LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
SHARE RETAINED
CAPITAL PREMIUM EARNINGS TOTAL
------- ------- -------- -----
BALANCE - JANUARY 1, 2003
(ADJUSTED AMOUNTS (2)) 1 43,352 20,053 63,406
CHANGES DURING 2003:
Net income for the year - - 18,519 18,519
------- -------- -------- -------
BALANCE - DECEMBER 31, 2003
(ADJUSTED AMOUNTS (2)) 1 43,352 38,572 81,925
CHANGES DURING 2004:
Net income for the year - - 17,262 17,262
------- -------- -------- -------
BALANCE - DECEMBER 31, 2004
(REPORTED AMOUNTS (2)) 1 43,352 55,834 99,187
CHANGES DURING 2005:
Loss for the year - - (3,406) (3,406)
------- -------- -------- -------
BALANCE - DECEMBER 31, 2005
(REPORTED AMOUNTS (1)) 1 43,352 52,428 95,781
------- -------- -------- -------
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-4-
MONDI BUSINESS PAPER HADERA LTD.
STATEMENTS OF CASH FLOWS
(NIS in thousands)
CONSOLIDATED COMPANY
----------------------------------- -----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------- -----------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS (1) AMOUNTS (1) AMOUNTS (2) AMOUNTS (1) AMOUNTS (1) AMOUNTS (2)
------- ------- ------- ------- ------- -------
CASH FLOWS - OPERATING ACTIVITIES
Net income (loss) for the year (3,406) 17,262 18,519 (3,406) 17,262 18,519
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities
(Appendix A) (29,625) 20,295 37,698 (28,359) 30,855 29,887
------- ------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (33,031) 37,557 56,217 (31,765) 48,117 48,406
------- ------- ------- ------- ------- -------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of fixed assets (51,323) (16,235) (9,339) (51,323) (16,235) (9,339)
Proceeds from sale of fixed assets 248 197 635 184 93 244
------- ------- ------- ------- ------- -------
NET CASH USED IN INVESTING
ACTIVITIES (51,075) (16,038) (8,704) (51,139) (16,142) (9,095)
------- ------- ------- ------- ------- -------
CASH FLOWS - FINANCING ACTIVITIES
Short-term bank credit, net 87,004 - (18) 86,990 - -
Repayment of long-term bank loans (13,702) (15,265) (21,116) (13,702) (15,265) (21,116)
Repayment of long-term capital
notes to shareholders - (27,128) (43,790) - (27,128) (43,790)
------- ------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 73,302 (42,393) (64,924) 73,288 (42,393) (64,906)
------- ------- ------- ------- ------- -------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (10,804) (20,874) (17,411) (9,616) (10,418) (25,595)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 10,804 31,678 49,089 9,616 20,034 45,629
------- ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS -
END OF YEAR - 10,804 31,678 - 9,616 20,034
------- ------- ------- ------- ------- -------
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-5-
MONDI BUSINESS PAPER HADERA LTD.
APPENDICES TO STATEMENTS OF CASH FLOWS
(NIS in thousands)
CONSOLIDATED COMPANY
----------------------------------- -----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------- -----------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------ ------ ------- ------ ------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS (1) AMOUNTS (1) AMOUNTS (2) AMOUNTS (1) AMOUNTS (1) AMOUNTS (2)
------- ------ ------ ------- ------ ------
A. ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES
INCOME AND EXPENSES ITEMS
NOT INVOLVING CASH FLOWS:
Equity in net losses (earnings) of
Subsidiaries - - - (664) (71) 1,260
Depreciation and amortization 10,722 9,118 8,626 9,617 7,885 7,252
Deferred taxes, net (8,470) 823 10,438 (8,470) 359 10,275
Increase (decrease) in liability for
severance pay, net (36) (58) 14 (36) (58) 49
Capital loss (gain)
from sale of fixed assets (65) (100) 215 - (47) 118
Effect of exchange rate and linkage
differences of long-term bank
loans and long-term loan to
Subsidiary (738) (195) 1,460 (739) (195) 1,307
Effect of exchange rate
differences of long-term
capital notes to shareholders 1,179 571 - 1,179 571 -
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase)
in trade receivables (3,060) (10,067) 7,247 - - 2,811
Decrease (increase)
in other receivables (345) (932) 752 (3,165) 574 (328)
Decrease (increase)
in inventories (26,468) (1,160) (9,533) (30,153) 2,349 1,945
Increase (decrease) in trade
payables (4,235) (220) 27,447 8,907 9,721 8,626
Increase (decrease) in
American Israeli Paper Mills
Group, net 4,821 16,247 (1,612) 49,685 (39,448) (63,995)
Increase (decrease) in Subsidiaries - - - (53,426) 48,966 61,486
Increase (decrease) in other
payables and accrued expenses (2,930) 6,268 (7,356) (1,094) 249 (919)
------- ------ ------ ------- ------ ------
(29,625) 20,295 37,698 (28,359) 30,855 29,887
------- ------ ------ ------- ------ ------
B. NON-CASH ACTIVITIES
Acquisition of fixed
assets on credit 3,342 784 - 3,342 784 -
------- ------ ------ ------- ------ ------
(1) See Note 2A.
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the financial statements.
-6-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND GENERAL
A. DESCRIPTION OF BUSINESS
Mondi Business Paper Hadera Ltd. ("the Company") was
incorporated and commenced operations on January 1, 2000. The
Company and its Subsidiaries are engaged in the production and
marketing of paper, mainly in Israel.
The Company is presently owned by Neusiedler AG ("NAG" or the
"Parent Company") (50.1%) and American-Israeli Paper Mills
Ltd. ("AIPM") (49.9%).
In the framework of a change in the organizational structure
of the Group, effective January 1, 2003, all marketing and
selling activities of the Group, which until such date were
performed by four Subsidiaries, were centralized to one
Subsidiary with three logistic sites.
The financial statements are prepared in accordance with the
Israeli Securities Regulations (Preparation of Annual
Financial Statements), 1993.
B. DEFINITIONS:
THE COMPANY - Mondi Business Paper Hadera
Ltd.
THE GROUP - the Company and its
Subsidiaries, a list of which
is presented in Note 7C.
SUBSIDIARIES - companies in which the Company
exercises over 50% ownership
and control, directly or
indirectly, and whose financial
statements are fully
consolidated with those of the
Company.
RELATED PARTIES - as defined by Opinion No. 29 of
the Institute of Certified
Public Accountants in Israel.
INTERESTED PARTIES - as defined in the Israeli
Securities Regulations
(Presentation of Financial
Statements), 1993.
CONTROLLING SHAREHOLDER - as defined in the Israeli
Securities Regulations
(Presentation of Transactions
between a Corporation and its
Controlling Shareholder in the
Financial Statements), 1996.
NIS - New Israeli Shekel.
CPI - the Israeli consumer price index.
DOLLAR - the U.S. dollar.
EURO - the United European currency.
ADJUSTED AMOUNT - see Note 2A(1) below.
REPORTED AMOUNT - see Note 2A(1) below.
-7-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND GENERAL (cont.)
C. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following are the principal accounting policies applied in the
preparation of the financial statements in a manner consistent with
previous years with the exception of the application of the provisions
of Standard No. 19 "Income Taxex".
A. CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE TO
REPORTING IN REPORTED AMOUNTS - STANDARD NO. 12
(1) DEFINITIONS
ADJUSTED AMOUNT - historical nominal amount adjusted
for changes in the exchange rate of the U.S. dollar
as of December 31, 2003, in accordance with Opinion
No. 36 of the Institute of Certified Public
Accountants in Israel.
REPORTED AMOUNT - Adjusted Amount plus amounts in
nominal terms added subsequent to December 31, 2003,
and less amounts subtracted after that date.
(2) GENERAL
In January 2004, Israeli Accounting Standard No. 12
"Cessation of Financial Statements Adjustment" came
into effect. Following the initial implementation of
Standard No. 12, commencing January 1, 2004, the
Group ceased the presentation of its financial
statements based on nominal historical cost adjusted
for the changes in the exchange rate of the U.S.
dollar in relation to the NIS. Effective with the
interim financial statements as of March 31, 2004 and
for the reporting periods thereafter, including the
years ended December 31, 2004 and 2005, the Group's
financial statements are prepared and presented in
Reported Amounts.
Comparative figures included in these financial
statements relating to the year ended December 31,
2003, are presented in Adjusted Amounts.
The amounts at which non-monetary items are presented
in these financial statements do not necessarily
represent their realization value or economic value,
but solely their Reported Amount.
The Company's condensed financial statements in
nominal values, on the basis of which the Company's
financial statements in Reported amounts and Adjusted
Amounts were prepared, are presented in Note 24.
-8-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE TO
REPORTING IN REPORTED AMOUNTS - STANDARD NO. 12 (cont.)
(3) PRINCIPLES OF ADJUSTMENT APPLICABLE FOR FINANCIAL
STATEMENTS RELATING TO REPORTING PERIODS ENDED IN
DECEMBER 31, 2005 AND 2004
a. BALANCE SHEET ITEMS
Non-monetary items (items whose balances
reflect historical value at acquisition or
upon establishment) are presented at their
Adjusted Amounts as of December 31, 2003
plus additions and dispositions occurring
subsequent to such date. Additions made
subsequent to December 31, 2003 and
dispositions of items added subsequent to
such date, are presented at their historical
nominal value. Dispositions of items added
on or prior to December 31, 2003 are
presented at their Adjusted Amount.
Monetary items (items whose balance sheet
amount reflects their current value or
realization value at the balance sheet date)
are presented at their nominal value as of
the balance sheet date.
Investments in Subsidiaries are presented
based on the financial statements of these
companies prepared according to the guidance
of Standard No. 12.
b. STATEMENT OF OPERATIONS ITEMS
Income and expenses reflecting transactions,
and financial income and expenses, are
presented at their nominal value.
Income and expenses deriving from
non-monetary items (mainly depreciation,
amortization and changes in inventory) were
presented in a manner corresponding to the
presentation of the related non-monetary
balance sheet item, as illustrated above.
The Company's share in the results of
Subsidiaries is determined based on the
financial statements of these companies
prepared according to the guidance of
Standard No. 12.
(4) PRINCIPLES OF ADJUSTMENT APPLICABLE FOR FINANCIAL
STATEMENTS RELATING TO REPORTING PERIOD ENDED THROUGH
DECEMBER 31, 2003
STATEMENT OF OPERATIONS ITEMS
Income and expenses reflecting transactions, other
than financial income and expenses, were adjusted for
changes in the exchange rate of the U.S. dollar from
the date of the transaction through December 31,
2003.
Income and expenses deriving from non-monetary items
(mainly depreciation, amortization, deferred taxes
and changes in inventory) were presented in a manner
corresponding to the adjustment of the related
balance sheet items.
Financing expenses, net reflect income and expenses
in real terms and include exchange rate differences
derived from monetary items.
The Company's share in the results of Subsidiaries is
determined based on the adjusted financial statements
of these companies.
-9-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include consolidation of
the financial statements of all Subsidiaries. Material
inter-company balances and transactions of and between
Subsidiaries have been fully eliminated.
The data included in the consolidated financial statements is
based on audited financial statements of the Subsidiaries
included therein.
For amortization policy of an unallocated goodwill associated
with the acquisition of a Subsidiary, see H below.
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits, available for
immediate withdrawal, as well as unrestricted short-term
deposits with maturities of less than three months from the
date of deposit.
D. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is computed on the
specific identification basis for accounts whose
collectibility, on management's estimation, is uncertain.
E. INVENTORIES
Inventories are stated at the lower of cost or market value.
Cost is determined for raw materials, auxiliary materials and
finished products on the basis of weighted moving average cost
per unit.
F. INVESTMENTS IN SUBSIDIARIES
Investments in Subsidiaries are presented using the equity
method based on their audited financial statements. For
amortization the goodwill included in an investment in a
Subsidiary, see H below.
G. FIXED ASSETS
Fixed assets are presented at cost less accumulated
depreciation and amortization. Depreciation is calculated
using the straight-line method at rates considered adequate to
depreciate the assets over their estimated useful lives.
Amortization of leasehold improvements is computed over the
shorter of the term of the lease, including any option period,
where the Company intends to exercise such option, or their
useful life.
The annual depreciation and amortization rates are:
%
---------
Leasehold improvements 10
Machinery and equipment 5-20 (mainly 5%)
Motor vehicles 15-20
Office furniture and equipment 7-33
-10-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
G. FIXED ASSETS (cont.)
IMPAIRMENT OF LONG-LIVED ASSETS
Management reviews long-lived assets on a periodic basis, as
well as when such a review is required based upon relevant
circumstances, to determine whether events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. According to the Israeli Accounting
Standards Board's Standard No. 15, "Impairment of Assets", an
asset's recoverable value is the higher of the asset's net
selling price and the asset's value in use, the latter being
equal to the asset's discounted expected cash flows. If
applicable, an impairment charge is recorded at the amount in
which the carrying amount of the asset exceeds its recoverable
value.
H. OTHER ASSETS - GOODWILL
The unallocated excess cost of an investment in a Subsidiary
over its net book value at the acquisition date reflects
goodwill. The goodwill is amortized over the expected
estimated economic life of the goodwill (10 years) using a
straight-line method. The amortization period and method were
determined following the provisions of Standard No. 20 "The
amortization Period of Goodwill" which calls for the
amortization of goodwill over its useful life, based on a
systematic method that should reflect the estimated expected
period in which the goodwill is to contribute economic
benefits. Impairment examinations and recognition are
performed and determined based on the accounting policy
outlined in G above.
I. DEFERRED INCOME TAXES
The Group records deferred income taxes in respect of
temporary differences between the carrying values of assets
and liabilities in the financial statements and their values
for tax purposes, including depreciation differences on leased
property and fixed assets. The Group records deferred-tax
assets in respect of temporary differences as well as in
respect of carry-forward tax losses so long as it is probable
that those assets will be realized. The deferred income taxes
are computed by the tax rates expected to be in effect at
realization, as they are known at the balance sheet date.
The computation of deferred income taxes has not taken into
account taxes that would have been applicable in case of
future realization of investments in Subsidiaries, since the
Group does not contemplate such realization in the foreseeable
future.
J. REVENUE RECOGNITION
Revenues are recognized upon shipment, when title has been
transferred and collectibility is reasonably assured. Revenues
are presented net of discounts granted. The accrual for
estimated discounts granted is computed according to the
provisions stipulated in the agreements, and is recorded when
revenues are recognized.
-11-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
K. SUPPLIER DISCOUNTS
Ongoing discounts granted by suppliers, as well as year end
discounts, in respect of which no commitments to meet given
targets are required by the Group, are included in the
financial statements upon the execution of purchases that
grant the Group said discounts. Supplier discounts contingent
upon the Group's fulfillment of certain targets, such as
meeting a minimal annual volume (in quantities or amount), or
an increase in purchases over previous periods, are included
in the financial statements in proportion to Group's purchases
from suppliers during the reported period, which advance the
Group towards the stated targets, only if it is expected that
those targets will be reached and the discounts can reasonably
be estimated. Management's estimate of meeting the targets is
based, inter-alia, on historical experience, Group's
relationships established with the suppliers and the estimated
volume of purchases during the remaining reported period.
L. FORWARD TRANSACTIONS
The gain or loss of currency forward transactions designated
to hedge long-term loans from banks against currency
fluctuations, are included in operations as incurred.
M. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based on the weighted
average number of paid up capital shares during the year.
N. EXCHANGE RATES AND LINKAGE BASIS
(1) Balances in foreign currency or linked thereto are
included in the financial statements based on the
representative exchange rates, as published by the
Bank of Israel, that were prevailing at the balance
sheet date.
(2) Following are the changes in the representative
exchange rate of the U.S. dollar vis-a-vis the NIS
and in the Israeli CPI:
REPRESENTATIVE
EXCHANGE RATE CPI
OF THE DOLLAR "IN RESPECT OF"
(NIS PER $1) (IN POINTS)
AS OF: ------------ -----------
December 31, 2005 4.603 185.80
December 31, 2004 4.308 180.74
December 31, 2003 4.379 178.58
INCREASE (DECREASE)
DURING THE YEAR ENDED: % %
- -
December 31, 2005 6.8 2.8
December 31, 2004 (1.6) 1.2
December 31, 2003 (7.6) (1.9)
(3) Exchange-rate differences are charged to operations
as incurred.
-12-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
O. RECENT ACCOUNTING STANDARDS
(1) ACCOUNTING STANDARD NO. 21 "EARNINGS PER SHARE"
In February 2006, the Israeli Accounting Standards
Board approved for publication Accounting Standard
No. 21, "Earnings Per Share" (the "Standard"). With
the initial adoption of the Standard, Opinion No. 55
of the Institute of Certified Public Accountants in
Israel - Earnings per share will be cancelled. The
Standard prescribes that an entity shall calculate
basic earnings per share amounts for profit or loss
attributable to ordinary equity holders of the entity
and, if presented, profit or loss from continuing
operations attributable to those equity holders. The
basic earnings per share shall be calculated by
dividing profit or loss attributable to ordinary
equity holders of the entity (the numerator) by the
weighted average number of ordinary shares
outstanding (the denominator) during the reported
period.
For the purpose of calculating diluted earnings per
share, an entity shall adjust profit or loss
attributable to ordinary equity holders of the
entity, and the weighted average number of shares
outstanding, for the effects of all dilutive
potential ordinary shares.
The Standard is effective for financial statements
for periods commencing January 1, 2006 or thereafter.
The initial adoption of the Standard will be
accounted for retrospectively and comparative
Earnings per share data for prior periods shall be
adjusted. The application of the Standard is not
expected to materially affect the Company's Earnings
per share data.
(2) ACCOUNTING STANDARD NO. 22
"FINANCIAL INSTRUMENTS: DISCLOSURE AND PRESENTATION"
In 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 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.
-13-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
O. RECENT ACCOUNTING STANDARDS (cont.)
(2) ACCOUNTING STANDARD NO. 22
"FINANCIAL INSTRUMENTS: DISCLOSURE AND PRESENTATION"
(cont.)
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.
(3) 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.
(4) ACCOUNTING STANDARD NO. 25 "REVENUES"
In February 2006, the Israeli Accounting Standards
Board approved for publication Accounting Standard
No. 25, "Revenues" (the "Standard").
This Standard establishes the requirements for
recognition criteria, measurement, disclosure and
presentation of revenues arising from sale of goods,
rendering of services and from the use by others of
entity assets yielding interest, royalties and
dividends. This Standard prescribes that revenue
shall be measured at the fair value of the
consideration received or receivable. The Standard is
effective for financial statements for periods
commencing January 1, 2006 or thereafter. Assets and
liabilities included in the financial statements as
of December 31, 2005 in different amounts from those
that would have been presented if the standard's
requirements were applied will be adjusted on January
1, 2006 to the amounts to be recognized in accordance
with the Standard's guidelines. The results of the
initial adoption of the Standard as at January 1,
2006 shall be accounted for by the cumulative effect
of a change in accounting method.
The company is currently evaluating the impact, if
any, of the adoption of the Standard on its financial
position and results of operations.
-14-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - CASH AND CASH EQUIVALENTS
CONSOLIDATED COMPANY
------------------------ -----------------------
DECEMBER 31,
----------------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------ ------ ------ -----
REPORTED AMOUNTS REPORTED AMOUNTS
------------------------ -----------------------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------------ -----------------------
In NIS - 10,215 - 9,616
In foreign currencies
(primarily in U.S. dollar) - 589 - -
------ ------ ------ -----
- 10,804 - 9,616
------ ------ ------ -----
NOTE 4 - TRADE RECEIVABLES
CONSOLIDATED
----------------------
DECEMBER 31,
----------------------
2 0 0 5 2 0 0 4
------- -------
REPORTED AMOUNTS
----------------------
COMPOSITION: NIS IN THOUSANDS
----------------------
Domestic
Open accounts 117,150 107,693
Checks receivable 29,538 29,943
------- -------
146,688 137,636
------- -------
Foreign
Open accounts (primarily in u.s. dollar) 4,311 749
Related parties 12,135 21,872
------- -------
16,446 22,621
------- -------
163,134 160,257
Less - allowance for doubtful accounts 2,259 2,442
------- -------
160,875 157,815
------- -------
NOTE 5 - OTHER RECEIVABLES
CONSOLIDATED COMPANY
---------------------- ----------------------
DECEMBER 31,
------------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------ ------ ------ ------
REPORTED AMOUNTS REPORTED AMOUNTS
---------------------- ----------------------
COMPOSITION: NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
Deferred taxes (Note 21D) 6,899 3,952 5,876 2,928
Prepaid expenses 527 842 2,161 620
Advances to suppliers 2,642 1,133 2,640 737
Value Added Tax - - 4,065 3,636
Income tax advances, net 207 240 - -
Others 597 1,413 71 779
------ ------ ------ ------
10,872 7,580 14,813 8,700
------ ------ ------ ------
-15-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INVENTORIES
CONSOLIDATED COMPANY
------------------------ ------------------------
DECEMBER 31,
----------------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED AMOUNTS REPORTED AMOUNTS
------------------------ ------------------------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------------ ------------------------
Raw and auxiliary materials 38,134 30,098 38,134 30,098
Finished products and goods in process (1)
78,725 60,293 52,320 30,203
------- ------- ------- -------
116,859 90,391 90,454 60,301
------- ------- ------- -------
(1)Includes products in transit 857 (*)3,812 - -
------- ------- ------- -------
The inventories are presented net of
provision for obsolescence 715 1,302 418 1,200
------- ------- ------- -------
(*) Reclassified
NOTE 7 - INVESTMENTS IN SUBSIDIARIES
COMPANY
-------------------------
DECEMBER 31,
-------------------------
2 0 0 5 2 0 0 4
------- -------
REPORTED AMOUNTS
-------------------------
A. COMPOSITION NIS IN THOUSANDS
Cost of shares 4,338 4,338
Accumulated losses since acquisition, net (1,743) (2,405)
------ ------
2,595 1,933
------ ------
CONSOLIDATED
-------------------------
DECEMBER 31,
-------------------------
2 0 0 5 2 0 0 4
------- -------
REPORTED AMOUNTS
-------------------------
B. GOODWILL: NIS IN THOUSANDS
-------------------------
Cost 6,232 6,232
Less - accumulated amortization 3,055 2,432
----- -----
3,177 3,800
----- -----
C. CONSOLIDATED SUBSIDIARIES
The consolidated financial statements as of December 31, 2005, include the
financial statements of the following Subsidiaries:
OWNERSHIP AND CONTROL
AS OF DECEMBER 31,
2 0 0 5
---------------------
%
---------------------
Mondi Business Paper Hadera Marketing Ltd. 100.00
Grafinir Paper Marketing Ltd. 100.00
Yavnir (1999) Ltd. 100.00
Miterani Paper Marketing 2000 (1998) Ltd. 100.00
-16-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - FIXED ASSETS
OFFICE
FURNITURE,
MACHINERY COMPUTERS
LEASEHOLD AND MOTOR AND
IMPROVEMENTS EQUIPMENT VEHICLES EQUIPMENT TOTAL
------------ --------- -------- --------- -----
REPORTED AMOUNTS
---------------------------------------------------------------------------------
NIS IN THOUSANDS
---------------------------------------------------------------------------------
CONSOLIDATED
------------
COST:
Balance - January 1, 2005 3,724 140,228 2,285 2,846 149,083
Changes during 2005:
Additions - 53,275 348 284 53,907
Dispositions - (370) (151) - (521)
----- ------- ----- ----- -------
Balance - December 31, 2005 3,724 193,133 2,482 3,130 202,469
----- ------- ----- ----- -------
ACCUMULATED DEPRECIATION:
Balance - January 1, 2005 1,816 28,755 1,328 1,446 33,345
Changes during 2005:
Additions 388 8,904 380 453 10,125
Dispositions - (187) (151) - (338)
----- ------- ----- ----- -------
Balance - December 31, 2005 2,204 37,472 1,557 1,899 43,132
----- ------- ----- ----- -------
NET BOOK VALUE:
December 31, 2005 1,520 155,661 925 1,231 159,337
----- ------- ----- ----- -------
December 31, 2004 1,908 111,473 957 1,400 115,738
----- ------- ----- ----- -------
COMPANY
-------
COST:
Balance - January 1, 2005 2,651 138,904 875 1,882 144,312
Changes during 2005:
Additions - 53,275 348 284 53,907
Dispositions - (339) - - (339)
----- ------- ----- ----- -------
Balance - December 31, 2005 2,651 191,840 1,223 2,166 197,880
----- ------- ----- ----- -------
ACCUMULATED DEPRECIATION:
Balance - January 1, 2005 1,305 27,928 158 917 30,308
Changes during 2005:
Additions 265 8,787 215 378 9,645
Dispositions - (157) - - (157)
----- ------- ----- ----- -------
Balance - December 31, 2005 1,570 36,558 373 1,295 39,796
----- ------- ----- ----- -------
NET BOOK VALUE:
December 31, 2005 1,081 155,282 850 871 158,084
----- ------- ----- ----- -------
December 31, 2004 1,346 110,976 717 965 114,004
----- ------- ----- ----- -------
-17-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - TRADE PAYABLES
CONSOLIDATED COMPANY
---------------------------- -------------------------
DECEMBER 31,
--------------------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED AMOUNTS REPORTED AMOUNTS
---------------------------- -------------------------
NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------------------------------------
In Israeli currency 27,539 22,484 21,690 20,561
In foreign currency or linked thereto
(primarily in u.s. dollar) 75,445 82,177 53,677 43,341
------- ------- ------ ------
102,984 104,661 75,367 63,902
------- ------- ------ ------
NOTE 10 - OTHER PAYABLES AND ACCRUED EXPENSES
CONSOLIDATED COMPANY
---------------------------- -------------------------
DECEMBER 31,
--------------------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED AMOUNTS REPORTED AMOUNTS
---------------------------- -------------------------
NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------------------------------------
Accrued payroll and
related expenses 13,772 11,703 13,772 11,703
Value Added Tax 1,030 3,366 - -
Advances from customers 448 862 - -
NAG - Parent Company
(in u.s. dollar) 3,241 2,252 - -
Interest payable 1,049 2,900 1,049 2,900
Forward transaction - 1,322 - 1,322
Other 662 727 565 555
------- ------- ------ ------
20,202 23,132 15,386 16,480
------- ------- ------ ------
NOTE 11 - LONG-TERM BANK LOANS
CONSOLIDATED
AND COMPANY
INTEREST ------------
RATE DECEMBER 31,
---- ------------
% (*) 2 0 0 5 2 0 0 4
----- ------- -------
REPORTED AMOUNTS
----------------
A.COMPOSITION NIS IN THOUSANDS
----------------
In U.S. dollar (**) 5.67 21,221 31,946
In NIS indexed to the CPI 6.55 16,828 19,427
------ ------
38,049 51,373
Less - current maturities 16,242 15,125
------ ------
21,807 36,248
------ ------
(*) Annual average interest rate as of December 31, 2005.
(**) As of December 31, 2005, NIS 17,078 thousand bear
interest based on Libor plus + 0.5%-0.6%.
-18-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 -LONG-TERM BANK LOANS (cont.)
CONSOLIDATED
AND COMPANY
----------------
DECEMBER 31,
2 0 0 5
----------------
REPORTED AMOUNTS
----------------
B. MATURITIES NIS IN THOUSANDS
Second year - 2007 11,860
Third year - 2008 3,912
Fourth year - 2009 4,040
Fifth year (2010) and thereafter 1,995
------
21,807
------
C. According to the loan agreements with the banks, as amended
in the second half of 2005, the Company is to achieve,
inter alia, financial ratio at the end of each audited
fiscal year of total shareholders equity (which includes
capital notes to shareholders) to total assets to be no
less than 23% (prior to the amendment, the required ratio
under the covenant was 30%). In case the Company fails to
fulfill these covenants, the banks are entitled to demand
early repayment of the loans, in whole or in part. As of
December 31, 2005, the Company was in full compliance with
the covenants stipulated in the bank agreements and this
financial ratio amounted to 25.11%.
D. As to a "negative pledge agreement" signed by the Company,
see Note 14B.
E. In 2004 and 2003, the Company and its Subsidiaries entered
into an agreement for a bank credit facility, pursuant to
which the Company and its Subsidiaries may, from time to
time, borrow an aggregate principal amount of up to
adjusted NIS 122,000 thousand. Under the terms of the
agreement, the credit facility has no time limit. As of the
balance sheet date, the Group utilized NIS 85,887 thousand
of the credit facility.
NOTE 12 -CAPITAL NOTES TO SHAREHOLDERS
The capital notes to shareholders are linked to the dollar and
bear no interest. According to the terms of the capital notes,
the Company has the ultimate discretion upon the dates of
repayment of the capital notes. As of December 31, 2005,
management intends to repay the capital note at their entirety by
the end of 2006.
NOTE 13 -ACCRUED SEVERANCE PAY, NET
Israeli law and labor agreements determine the obligations of the
Group to make severance payments to dismissed employees and to
employees leaving employment under certain other circumstances.
The liability for severance pay benefits, as determined by Israeli
Law, is based upon length of service and the employee's most
recent monthly salary. The liability of the Group for severance
pay to its permanent employees is covered by current deposits to
pension and severance funds. Accumulated amounts so funded are not
under the control or administration of the Group, and accordingly,
neither those amounts nor the corresponding accruals are reflected
in the financial statements. The amounts presented in the balance
sheet as of December 31, 2005 reflects the severance pay liability
in respect of temporary employees.
-19-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 -COMMITMENTS AND CONTINGENT LIABILITIES
A. COMMITMENTS:
(1) The Group is obligated to pay license fees to a
shareholder - see Note 22B.
(2) The Company and its Subsidiaries lease certain of
their facilities under operating leases for varying
periods with renewal options primarily from AIPM.
Future minimum lease rentals as of December 31, 2005
are as follows:
CONSOLIDATED COMPANY
------------ -------
REPORTED AMOUNTS
---------------------------
NIS IN THOUSANDS
---------------------------
2006 4,914 3,682
2007 4,914 3,682
2008 4,757 3,682
2009 3,682 3,682
------ ------
18,267 14,728
------ ------
B. Liens
To secure long-term bank loans and short-term bank credits
(the balance of which as of December, 31 2005 is NIS 38,049
thousand), the Company entered into a "negative pledge"
agreement under which the Company is committed not to
pledge any of its assets, excluding fixed pledges relating
to assets financed by others, prior to the consent of the
banks.
C. Guarantees
The Company from time to time and in the framework of its
ongoing operations provides guarantees, the amount of which
as of December, 31 2005 was NIS 8,268 thousand.
NOTE 15 - SHARE CAPITAL
A. As of December 31, 2005 and 2004, share capital is composed
of ordinary shares of NIS 1.00 par value each. Authorized -
38,000 shares; issued and paid up - 1,000 shares.
B. Holders of ordinary shares are entitled to participate
equally in the payment of cash dividends and bonus share
(stock dividend) distributions and, in the event of the
liquidation of the Company, in the distribution of assets
after satisfaction of liabilities to creditors. See also
Note 1A.
-20-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - NET SALES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Industrial operations 460,383 471,190 453,807 462,177 482,698 462,654
Commercial operations 202,955 214,904 186,213 - - -
------- ------- ------- ------- ------- -------
663,338 686,094 640,020 462,177 482,698 462,654
------- ------- ------- ------- ------- -------
NOTE 17 - COST OF SALES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Purchases (*) 187,618 188,013 177,176 - - -
Materials consumed 306,803 297,006 271,334 306,803 297,006 271,334
Salaries and related expenses 36,391 32,576 30,482 36,391 32,576 30,482
Subcontracting 5,898 5,066 4,388 5,898 5,066 4,388
Energy costs 54,883 45,991 43,166 54,883 45,991 43,166
Depreciation 9,607 7,896 7,243 9,607 7,896 7,243
Other manufacturing costs
and expenses (including rent) 29,939 31,124 30,370 29,093 30,336 29,584
------- ------- ------- ------- ------- -------
631,139 607,672 564,159 442,675 418,871 386,197
Change in finished goods ,
goods in process, and products in
transit.(**) (21,387) (1,934) (7,269) (22,117) (2,367) 5,295
------- ------- ------- ------- ------- -------
609,752 605,738 556,890 420,558 416,504 391,492
------- ------- ------- ------- ------- -------
(*) The purchases of the Group are related principally to commercial
operations.
(**) CHANGE IN RAW AND AUXILIARY MATERIALS ARE INCLUDED IN MATERIALS CONSUMED.
-21-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 18 - SELLING EXPENSES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Salaries and related expenses 17,205 17,169 16,913 17,146 17,169 16,913
Packaging and shipping to customers 16,719 16,235 14,368 16,096 15,464 13,756
Maintenance and rent 8,237 7,973 7,641 750 313 429
Transportation expenses 1,360 1,256 1,178 1,349 1,137 399
Advertising 166 - 180 166 - 180
Commissions and license fees
to a shareholder 1,164 2,912 1,865 - - -
Depreciation 417 552 670 417 523 653
Other - 38 77 - - -
------- ------- ------- ------- ------- -------
45,268 46,135 42,892 35,924 34,606 32,330
------- ------- ------- ------- ------- -------
NOTE 19 - GENERAL AND ADMINISTRATIVE EXPENSES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Salaries and related expenses 3,863 3,811 3,821 3,863 3,811 3,821
Office maintenance 169 187 232 - - -
Professional and
management fees 2,060 2,217 1,594 1,537 1,555 1,152
Depreciation 74 47 28 74 40 31
Amortization of goodwill 623 623 623 - - -
Bad and doubtful debts (840) (311) 679 - - -
Other 1,352 1,229 1,448 1,228 1,036 941
----- ----- ----- ----- ----- ---
7,301 7,803 8,425 6,702 6,442 5,945
----- ----- ----- ----- ----- -----
NOTE 20 - FINANCING INCOME (EXPENSES), NET
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Interest on long-term bank loans 2,486 2,573 3,254 4,935 2,573 3,254
------- ------ ------- ------- ------- -------
Erosion of monetary assets and
liabilities, net 5,630 2,070 (783) 4,883 1,293 (2,112)
------- ------ ------- ------- ------- -------
Forward transaction (1,497) 1,322 - (1,497) 1,322 -
------- ------ ------- ------- ------- -------
-22-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - INCOME TAXES (TAXES BENEFITS)
A. The Company and its Subsidiaries are taxed according to the provisions
of The Income Tax Ordinance and the Income Tax Law (Inflationary
Adjustments), 1985. The Company is an industrial company in conformity
with the Law for the Encouragement of Industry (Taxes), 1969. The major
benefits the Company is entitled to under this law is accelerated
depreciation rates.
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
B. COMPOSITION
Current taxes 54 81 80 - - -
Taxes in respect of prior years 36 (86) - - - -
Deferred taxes (E. below) (8,470) 823 10,438 (8,470) 359 10,275
------ --- ------ ------ --- ------
(8,380) 818 10,518 (8,470) 359 10,275
------ --- ------ ------ --- ------
C. RECONCILIATION OF THE STATUTORY TAX RATE TO THE EFFECTIVE TAX RATE
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Income (loss) before income taxes (11,786) 18,080 29,037 (12,540) 17,550 30,054
------- ------ ------ ------- ------ ------
Statutory tax rate 34% 35% 36% 34% 35% 36%
Tax computed by statutory tax
rate (4,007) 6,328 10,453 (4,264) 6,143 10,819
TAX INCREMENTS (SAVINGS)
DUE TO:
Non-deductible expenses 212 211 226 - - 33
Non-taxable income (22) (40) - - (21) (15)
Reduction in corporate tax rates -
(E. below) (3,888) (4,397) - (3,962) (4,479) -
Differences arising from
basis of measurement (*) (711) (1,198) (161) (244) (1,284) (562)
Prior years income taxes 36 (86) - - - -
------- ------ ------ ------- ------ ------
(8,380) 818 10,518 (8,470) 359 10,275
------- ------ ------ ------- ------ ------
(*) For 2004 and 2005 - Reported Amounts (NIS) for financial
reporting purposes vis-a-vis the consumer price index for tax
purposes;
For 2003 - U.S. dollar for financial reporting purposes
vis-a-vis the Consumer Price Index for tax purposes.
-23-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - INCOME TAXES (TAXES BENEFITS) (cont.)
D. DEFERRED TAXES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Balance as of beginning of year (21,470) (20,647) (10,209) (22,494) (22,135) (11,860)
Changes during the year 4,582 (5,220) (10,438) 4,508 (4,838) (10,275)
Adjustment due to
change in income tax rates 3,888 4,397 - 3,962 4,479 -
------- ------- ------- ------- ------- -------
Balance as of end of year (13,001) (21,470) (20,647) (14,024) (22,494) (22,135)
------- ------- ------- ------- ------- -------
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
DEFERRED TAXES ARE PRESENTED IN THE
BALANCE SHEETS AS FOLLOWS:
Other receivables and prepayments (Note 5):
Allowance for doubtful accounts 700 831 - -
Vacation and recreation pay 1,589 1,564 1,589 1,564
Carry forward tax losses 4,609 1,557 4,287 1,364
------- ------- ------- -------
6,899 3,952 5,876 2,928
------- ------- ------- -------
Long-term liabilities:
Depreciable fixed assets (23,596) (25,448) (23,596) (25,448)
Accrued severance pay, net 13 26 13 26
Less- Carry forward tax losses 3,683 - 3,683 -
------- ------- ------- -------
(19,900) (25,422) (19,900) (25,422)
------- ------- ------- -------
(13,001) (21,470) (14,024) (22,494)
------- ------- ------- -------
For 2005 - Deferred taxes were computed at rates between 31%-25%,
primarily - 25%.
For 2004 - Deferred taxes were computed at rates between 30%-34%,
primarily - 30%.
For 2003 - Deferred taxes were computed at 36%.
Deferred taxes are recognized in respect of all carry forward losses of
the Group, see F.
-24-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - INCOME TAXES (TAXES BENEFITS) (cont.)
E. REDUCTION OF CORPORATE TAX RATES
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 3,888 thousand in income tax benefit for the year ended December
31, 2005.
F. Carryforward tax losses of the Group and the Company are NIS 26,814
thousand and NIS 27,250 thousand as of December 31, 2005, respectively.
G. The Company and its Subsidiaries have tax assessments that are
considered final through the 2000 tax year.
NOTE 22 - RELATED PARTIES AND INTERESTED PARTIES
A. Balances with Related Parties and Subsidiaries
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
Trade receivables - AIPM - - 227,368 178,289
------ ------ ------ ------
Trade receivables - related parties 12,135 21,872 - -
------ ------ ------ ------
Trade payables - AIPM 69,854 65,033 - -
------ ------ ------ ------
Trade payables - related parties 4,032 9,009 150,862 103,671
------ ------ -------- -------
Other payables and accrued expenses - AIPM 2,406 2,478 2,406 2,478
------ ------ ------ ------
Other payables and accrued expenses -
related parties 3,241 2,252 - -
------ ------ ------ ------
Capital notes to shareholders 18,412 17,233 18,412 17,233
------ ------ ------ ------
-25-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - RELATED PARTIES AND INTERESTED PARTIES (cont.)
B. TRANSACTIONS WITH RELATED PARTIES AND SUBSIDIARIES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Sales to related parties 103,196 165,596 171,131 - - -
------- ------- ------- ------- ------- -------
Sales to Subsidiaries - - - 462,177 482,698 462,654
------- ------- ------- ------- ------- -------
Cost of sales 106,076 106,546 88,613 77,930 78,400 73,024
------- ------- ------- ------- ------- -------
Selling expenses, net
(Participation in selling
expenses, net) 5,969 9,875 6,428 (450) 1,796 (1,909)
------- ------- ------- ------- ------- -------
General and administrative expenses 1,750 1,837 1,410 1,447 1,480 1,086
------- ------- ------- ------- ------- -------
Financing expenses (income), net 2,406 1,939 13,759 1,845 2,268 858
------- ------- ------- ------- ------- -------
C. (1) The Company leases its premises from AIPM and render services
(including electricity, water, maintenance and professional
services) under agreements, which are renewed every year.
(2) The Group is obligated to pay commissions and license fees to
NAG.
NOTE 23 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS
A. CREDIT RISK
The revenues of the Group's are derive from a large number of customers
mainly in Israel and in Europe. Management regularly monitors the
balance of trade receivables and the financial statements include an
allowance for doubtful accounts based on management's estimation.
Taking the aforementioned into consideration, the exposure to credit
risk from trade receivables is immaterial.
Cash and cash equivalents (including amounts in foreign currency) are
deposited with major commercial banks in Israel.
B. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Group consist primarily of
non-derivative assets and liabilities. Non-derivative assets include
cash and cash equivalents, receivables, other current assets and
long-term loans given. Non-derivative liabilities include short-term
bank credit, trade payables, other current liabilities, long-term loans
from banks and capital notes to shareholders. Due to the nature of
these financial instruments, their fair value, generally, is identical
or close to the value at which they are presented in the financial
statements, unless stated otherwise.
The fair value of the long-term loans approximates their carrying
value, since they bear interest at rates close to the prevailing market
rates.
The Group enters from time to time into off-balance sheet financial
instruments for hedging against currency and interest-rate risks.
-26-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 24 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES
FOR TAX PURPOSES
A. BALANCE SHEETS
COMPANY
-----------------------
DECEMBER 31,
-----------------------
2 0 0 5 2 0 0 4
------- -------
NIS IN THOUSANDS
-----------------------
CURRENT ASSETS
Cash and cash equivalents - 9,616
American Israeli Paper Mills Group, net 231,715 178,289
Other receivables 14,869 5,772
Inventories 90,454 60,301
------- -------
337,038 253,978
------- -------
LONG-TERM INVESTMENTS
Investments in Subsidiaries 1,312 648
------- -------
FIXED ASSETS, NET 155,315 111,066
------- -------
LONG -TERM ASSETS
Deferred Taxes 2,555 -
------- -------
496,220 365,692
------- -------
CURRENT LIABILITIES
Short term bank credit 85,871 -
Current maturities of long-term bank loans 16,242 15,125
Capital notes to shareholders 18,412 -
Trade payables 75,367 63,902
Subsidiaries 148,844 99,159
Other payables and accrued expenses 15,386 16,480
------- -------
360,122 194,666
------- -------
LONG TERM LIABILITIES
Long-term bank loans 21,807 36,248
Capital notes to shareholders - 17,233
Accrued severance pay, net 51 87
------- -------
21,858 53,568
------- -------
SHAREHOLDERS' EQUITY 114,240 117,458
------- -------
496,220 365,692
------- -------
-27-
MONDI BUSINESS PAPER HADERA LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 24 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES
FOR TAX PURPOSES (cont.)
B. STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3
------- ------- -------
NIS IN THOUSANDS
----------------------------------------------
Net sales 462,177 482,698 480,764
Cost of sales 420,394 417,831 406,930
------- ------- -------
GROSS PROFIT 41,783 64,867 73,834
Selling expenses 35,904 34,598 33,455
General and administrative expenses 6,698 6,444 9,080
------- ------- -------
OPERATING PROFIT (LOSS) (819) 23,825 31,299
Financing (expenses) income, net (11,533) (7,143) 3,152
Other income (expenses), net - 48 (93)
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAX BENEFITS (12,352) 16,730 34,358
Income tax benefits 8,470 - -
------- ------- -------
INCOME (LOSS) AFTER INCOME TAX BENEFITS (3,882) 16,730 34,358
Equity in net earnings (losses) of Subsidiaries 664 272 (34)
------- ------- -------
NET INCOME (LOSS) FOR THE YEAR (3,218) 17,002 34,324
------- ------- -------
C. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SHARE RETAINED
CAPITAL PREMIUM EARNINGS TOTAL
------- ------- -------- -----
NIS IN THOUSANDS
-----------------------------------------------------
BALANCE - JANUARY 1, 2003 1 41,125 25,006 66,132
CHANGES DURING 2003:
Net income for the year - - 34,324 34,324
- ------ ------ -------
BALANCE - DECEMBER 31, 2003 1 41,125 59,330 100,456
CHANGES DURING 2004:
Net income for the year - - 17,002 17,002
- ------ ------ -------
BALANCE - DECEMBER 31, 2004 1 41,125 76,332 117,458
CHANGES DURING 2005:
Loss for the year - - (3,218) (3,218)
- ------ ------ -------
BALANCE - DECEMBER 31, 2005 1 41,125 73,114 114,240
- ------ ------ -------
-28-
EXHIBIT 5
---------
HOGLA-KIMBERLY LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
HOGLA-KIMBERLY LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7-35
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF
HOGLA-KIMBERLY LTD.
We have audited the accompanying balance sheets of HOGLA-KIMBERLY LTD. ("the
Company") as of December 31, 2005 and 2004, and the consolidated balance sheets
as of such dates, and the related statements of operations, changes in
shareholders' equity and cash flows - of the Company and on a consolidated basis
- for each of the three years in the period ended December 31, 2005. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States) and with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the Board of Directors and management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position - of the Company and on
a consolidated basis - as of December 31, 2005 and 2004, and the results of
operations, changes in shareholders' equity and cash flows - of the Company and
on a consolidated basis - for each of the three years in the period ended
December 31, 2005, in accordance with generally accepted accounting principles
in Israel. In addition, in our opinion, the financial statements referred to
above are prepared in accordance with the Israeli Securities Regulations
(Preparation of Annual Financial Statements), 1993.
BRIGHTMAN ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A MEMBER FIRM OF DELOITTE TOUCHE TOHMATSU
Tel Aviv, Israel:
March 2, 2006
-1-
HOGLA-KIMBERLY LTD.
BALANCE SHEETS
(NIS in thousands)
CONSOLIDATED COMPANY
------------------------ -----------------------
DECEMBER 31, DECEMBER 31,
------------------------ -----------------------
NOTE 2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
-------- ------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS (1) AMOUNTS (1) AMOUNTS (1) AMOUNTS (1)
----------- ----------- ----------- -----------
CURRENT ASSETS
Cash and cash equivalents 3 35,551 117,364 25,831 109,717
Trade receivables 4 257,899 214,389 120,427 113,448
Other receivables 5 59,805 35,725 14,196 13,855
Inventories 6 148,077 142,551 76,840 71,185
------- ------- ------- -------
501,332 510,029 237,294 308,205
------- ------- ------- -------
LONG-TERM INVESTMENTS
Long-term bank deposit 7 - 68,928 - -
Capital note of shareholder 8 32,770 32,770 32,770 32,770
Investments in Subsidiaries 9 - - 286,133 176,400
------- ------- ------- -------
32,770 101,698 318,903 209,170
------- ------- ------- -------
FIXED ASSETS 10
Cost 542,377 507,175 419,215 406,271
Less - accumulated depreciation 235,144 222,256 179,400 174,306
------- ------- ------- -------
307,233 284,919 239,815 231,965
------- ------- ------- -------
OTHER ASSETS
Goodwill 9B 24,737 25,878 - -
Deferred taxes 22 26,559 15,108 - -
------- ------- ------- -------
51,296 40,986 - -
------- ------- ------- -------
892,631 937,632 796,012 749,340
------- ------- ------- -------
CURRENT LIABILITIES
Short-term bank credit 66,559 42,649 - -
Current maturities of long-term bank loans 13 20,714 26,098 - -
Trade payables 11 215,772 219,902 303,710 265,546
Other payables and accrued expenses 12 51,920 38,720 16,115 12,249
------- ------- ------- -------
354,965 327,369 319,825 277,795
------- ------- ------- -------
LONG-TERM LIABILITIES
Long-term bank loans 13 - 81,851 - -
Deferred taxes 22 38,566 37,388 36,003 35,013
------- ------- ------- -------
38,566 119,239 36,003 35,013
COMMITMENTS AND CONTINGENT LIABILITIES 15
MINORITY INTEREST 58,916 54,492 - -
------- ------- ------- -------
SHAREHOLDERS' EQUITY
Share capital 16 29,038 29,038 29,038 29,038
Capital reserves 180,414 180,414 180,414 180,414
Translation adjustments relating to
foreign held autonomous Subsidiary (2) 618 (3,377) 618 (3,377)
Retained earnings 230,114 230,457 230,114 230,457
------- ------- ------- -------
440,184 436,532 440,184 436,532
------- ------- ------- -------
892,631 937,632 796,012 749,340
------- ------- ------- -------
(1) See Note 2A(1).
(2) See Note 2B.
------------------ ---------------------- --------------- -------------------------
T. DAVIS Y. YERUSHALMI O. ARGOV A. SCHOR
Chairman of the Vice-Chairman of Chief Financial Officer Chief Executive
Board of Directors the Board of Directors
Approval date of the financial statements: March 2, 2006.
-2-
HOGLA-KIMBERLY LTD.
STATEMENTS OF OPERATIONS
(NIS in thousands; except per share data)
CONSOLIDATED COMPANY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------- ----------------------------------------
NOTE 2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
---- ------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS (1) AMOUNTS (1) AMOUNTS (2) AMOUNTS (1) AMOUNTS (1) AMOUNTS (2)
----------- ----------- ----------- ----------- ----------- ----------
Net sales 17 1,145,981 995,569 868,671 540,002 479,320 377,117
Cost of sales 18 820,715 719,982 621,014 452,694 393,903 322,558
--------- --------- --------- --------- --------- ---------
GROSS PROFIT 325,266 275,587 247,657 87,308 85,417 54,559
Selling and marketing
expenses 19 202,683 193,701 130,670 13,708 15,286 7,538
General and
administrative expenses 20 56,283 41,029 39,046 5,040 4,985 4,381
--------- --------- --------- --------- --------- ---------
OPERATING PROFIT 66,300 40,857 77,941 68,560 65,146 42,640
Financing income
(expenses), net 21 752 (1,490) 5,517 34 (4,536) (12,268)
Other income, net 176 903 496 153 205 238
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME
TAXES 67,228 40,270 83,954 68,747 60,815 30,610
Income taxes 22 19,527 10,244 20,566 18,895 17,627 11,775
--------- --------- --------- --------- --------- ---------
INCOME AFTER INCOME
TAXES 47,701 30,026 63,388 49,852 43,188 18,835
Equity in net earnings (losses)
of Subsidiaries - - - (6,576) (16,260) 37,418
Minority interest in
earnings of Subsidiary (4,425) (3,098) (7,135) - - -
--------- --------- --------- --------- --------- ---------
NET INCOME FOR THE YEAR 43,276 26,928 56,253 43,276 26,928 56,253
--------- --------- --------- --------- --------- ---------
EARNINGS PER SHARE (IN NIS) 5.08 3.16 6.61 5.08 3.16 6.61
--------- --------- --------- --------- --------- ---------
NUMBER OF SHARES USED IN
COMPUTATION 8,513,473 8,513,473 8,513,473 8,513,473 8,513,473 8,513,473
--------- --------- --------- --------- --------- ---------
(1) See Note 2A(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as
of December 31, 2003.
-3-
HOGLA-KIMBERLY LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
TRANSLATION DIVIDEND
ADJUSTMENTS DECLARED
RELATING TO AFTER
FOREIGN HELD BALANCE
SHARE CAPITAL AUTONOMOUS RETAINED SHEET
CAPITAL RESERVES SUBSIDIARY EARNINGS DATE TOTAL
------- -------- ---------- -------- --------- -----
BALANCE - JANUARY 1, 2003
(ADJUSTED AMOUNTS (3)) 28,788 156,799 - 171,141 32,843 389,571
CHANGES DURING 2003:
Dividend paid (32,843) (32,843)
Net income for the year 56,253 56,253
------ ------- ------ ------- ------ -------
BALANCE - DECEMBER 31, 2003
(ADJUSTED AMOUNTS (3)) 28,788 156,799 - 227,394 - 412,981
CHANGES DURING 2004:
Distribution of bonus shares 250 23,615 (23,865) -
Translation adjustments
relating to foreign held
autonomous Subsidiary(2) (3,377) (3,377)
Net income for the year 26,928 26,928
------ ------- ------ ------- ------ -------
BALANCE - DECEMBER 31, 2004
(REPORTED AMOUNTS (1)) 29,038 180,414 (3,377) 230,457 - 436,532
CHANGES DURING 2005:
Translation adjustments
relating to foreign held
autonomous Subsidiary (2) 3,995 3,995
Dividend paid (43,619) (43,619)
Net income for the year 43,276 43,276
------ ------- ------ ------- ------ -------
BALANCE - DECEMBER 31, 2005
(REPORTED AMOUNTS (1)) 29,038 180,414 618 230,114 - 440,184
------ ------- ------ ------- ------ -------
(1) See Note 2A(1).
(2) See Note 2B.
(3) Adjusted for changes in the exchange rate of the U.S dollar as
of December 31, 2003.
-4-
HOGLA-KIMBERLY LTD.
STATEMENTS OF CASH FLOWS
(NIS in thousands)
CONSOLIDATED COMPANY
------------------------------------ ----------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------ ----------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS (1) AMOUNTS (1) AMOUNTS (3) AMOUNTS (1) AMOUNTS (1) AMOUNTS (3)
----------- ----------- ----------- ----------- ----------- -----------
CASH FLOWS - OPERATING ACTIVITIES
Net income 43,276 26,928 56,253 43,276 26,928 56,253
Adjustments to reconcile net income to
net cash provided by operating
activities (Appendix A) (37,622) 30,683 4,190 44,953 60,934 7,188
-------- ------ ------- ------- ------ -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 5,654 57,611 60,443 88,229 87,862 63,441
-------- ------ ------- ------- ------ -------
CASH FLOWS - INVESTING ACTIVITIES
Withdrawal of long-term bank deposit 73,648 8,138 9,195 - 8,138 9,195
Capital notes and loans to Subsidiary - - - (112,314) - -
Acquisition of fixed assets (44,634) (25,191) (26,953) (16,335) (17,490) (20,351)
Proceeds from sale of fixed assets 293 1,827 1,092 153 649 284
-------- ------ ------- ------- ------ -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 29,307 (15,226) (16,666) (128,496) (8,703) (10,872)
-------- ------ ------- ------- ------ -------
CASH FLOWS - FINANCING ACTIVITIES
Dividend paid (43,619) - (32,843) (43,619) - (32,843)
Long-term loans received - 57,672 28,949 - - -
Repayment of long-term loans (94,437) (15,162) (24,960) - - -
Short-term bank credit 21,475 (1,087) 1,087 - (1,087) 1,087
-------- ------ ------- ------- ------ -------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (116,581) 41,423 (27,767) (43,619) (1,087) (31,756)
-------- ------ ------- ------- ------ -------
TRANSLATION ADJUSTMENTS OF CASH
AND CASH EQUIVALENTS OF FOREIGN
HELD AUTONOMOUS SUBSIDIARY (2) (193) (3,784) - - - -
-------- ------ ------- ------- ------ -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (81,813) 80,024 16,010 (83,886) 78,072 20,813
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 117,364 37,340 21,330 109,717 31,645 10,832
-------- ------ ------- ------- ------ -------
CASH AND CASH EQUIVALENTS -
END OF YEAR 35,551 117,364 37,340 25,831 109,717 31,645
-------- ------ ------- ------- ------ -------
(1) See Note 2A(1).
(2) See Note 2B.
(3) Adjusted for changes in the exchange rate of the U.S dollar as
of December 31, 2003.
-5-
HOGLA-KIMBERLY LTD.
APPENDICES TO STATEMENTS OF CASH FLOWS
(NIS in thousands)
CONSOLIDATED COMPANY
------------------------------------ ---------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------ ---------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS (1) AMOUNTS (1) AMOUNTS (2) AMOUNTS (1) AMOUNTS (1) AMOUNTS (2)
----------- ----------- ----------- ----------- ----------- -----------
A ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
INCOME AND EXPENSES ITEMS
NOT INVOLVING CASH FLOWS:
Minority interest in earnings of
Subsidiary 4,424 3,098 7,135 - - -
Equity in net losses (earnings) of
Subsidiaries - - 6,576 16,260 (37,418)
Depreciation and amortization 25,162 23,468 25,213 15,606 14,702 14,789
Deferred taxes, net (12,740) (5,011) 8,251 1,029 8,512 10,417
Gain from sale of fixed assets (293) (1,162) (482) (153) (205) (208)
Effect of exchange rate
differences, net 20 (1,901) (2,266) - (258) (2,476)
CHANGES IN ASSETS AND
IABILITIES:
Decrease (increase) in trade
receivables (41,401) 15,763 (47,933) 1,733 1,799 (4,930)
Increase in other receivables (18,974) (20,938) (2,115) (380) (6,211) (1,431)
Increase in inventories (2,357) (46,919) (6,237) (5,655) (12,646) (16,247)
Increase in trade payables 6,167 49,624 27,544 9,936 8,392 13,628
Net change in balances with
related parties (10,515) 13,591 (10,050) 12,395 28,985 42,067
Increase (decrease) in other
payables and accrued expenses 12,885 1,070 5,130 3,866 1,604 (11,003)
------- ------ ----- ------ ------ -----
(37,622) 30,683 4,190 44,953 60,934 7,188
------- ------ ----- ------ ------ -----
B NON-CASH ACTIVITIES
Acquisition of fixed assets on credit 37,617 18,470 8,661 7,121 11,619 8,460
------- ------ ----- ------ ------ -----
(1) See Note 2A(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as
of December 31, 2003.
-6-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. DESCRIPTION
Hogla Kimberly Ltd. ("the Company") and its Subsidiaries are engaged
principally in the production and marketing of paper and hygienic
products. The Company's results of operations are affected by
transactions with shareholders and affiliated companies (see Note 23).
The Company is owned by Kimberly Clark Corp. ("KC" or the "Parent
Company") (50.1%) and American-Israeli Paper Mills Ltd. ("AIPM")
(49.9%).
B. DEFINITIONS:
THE COMPANY - Hogla-Kimberly Ltd.
THE GROUP - the Company and its
Subsidiaries, a list of which is
presented in Note 9D.
SUBSIDIARIES - companies in which the Company
exercises over 50% ownership and
control, directly or indirectly,
and whose financial statements
are fully consolidated with
those of the Company.
RELATED PARTIES - as defined by Opinion No. 29 of
the Institute of Certified
Public Accountants in Israel.
INTERESTED PARTIES - as defined by the Israeli
Securities Regulations
(Preparation of Financial
Statements), 1993.
CONTROLLING SHAREHOLDER - as defined by the Israeli
Securities Regulations
(Presentation of Transactions
between a Corporation and its
Controlling Shareholder in the
Financial Statements), 1996.
NIS - New Israeli Shekel.
CPI - the Israeli consumer price
index.
DOLLAR - the U.S. dollar.
ADJUSTED AMOUNT - see Note 2A(1) below.
REPORTED AMOUNT - see Note 2A(1) below.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
D. The financial statements of the Company are prepared in accordance with
the Israeli Securities Regulations (Preparation of Annual Financial
Statements), 1993.
-7-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following are the principal accounting policies applied in the
preparation of the financial statements in a manner consistent with
previous years with the exception of the application of the provisions
of Standard No. 19 "Income Taxes".
A. CESSATION OF FINANCIAL STATEMENTS ADJUSTMENT AND CHANGE TO REPORTING IN
REPORTED AMOUNTS - STANDARD NO. 12
(1) DEFINITIONS
ADJUSTED AMOUNT - historical nominal amount adjusted for
changes in the exchange rate of the U.S. dollar as of December
31, 2003, in accordance with Opinion No. 36 of the Institute
of Certified Public Accountants in Israel.
REPORTED AMOUNT - Adjusted Amount plus amounts in nominal
terms added subsequent to December 31, 2003, and less amounts
subtracted after that date.
(2) GENERAL
In January 2004, Israeli Accounting Standard No. 12 "Cessation
of Financial Statements Adjustment" came into effect.
Following the initial implementation of Standard No. 12,
commencing January 1, 2004, the Group ceased the presentation
of its financial statements based on nominal historical cost
adjusted for the changes in the exchange rate of the U.S.
Dollar in relation to the NIS. Effective with the interim
financial statements as of March 31, 2004 and for the
reporting periods thereafter, including each of the years
ended December 31, 2004, and 2005 the Group's financial
statements are prepared and presented in Reported Amounts.
Comparative figures included in these financial statements
relating to the year ended December 31, 2003 are presented in
Adjusted Amounts.
The amounts at which non-monetary items are presented in these
financial statements do not necessarily represent their
realization value or economic value, but solely their Reported
Amount.
The Company's condensed financial information in nominal
values, on the basis of which the Company's financial
statements in Reported Amounts and Adjusted Amounts were
prepared, are presented in Note 25.
(3) PRINCIPLES OF ADJUSTMENT APPLICABLE FOR FINANCIAL STATEMENTS
RELATING TO REPORTING PERIODS ENDED IN DECEMBER 31, 2005 AND
2004
a. BALANCE SHEET ITEMS
Non-monetary items (items whose balances reflect historical
value at acquisition or upon establishment) are presented at
their Adjusted Amounts plus additions and dispositions
occurring during the reporting period. Additions made
subsequent to December 31, 2003 and dispositions of items
added subsequent to such date, are presented at their
historical nominal value. Dispositions of items added on or
prior to December 31, 2003 are presented at their Adjusted
Amount.
-8-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. CESSATION OF FINANCIAL STATEMENTS ADJUSTMENT AND CHANGE TO REPORTING IN
REPORTED AMOUNTS - STANDARD NO. 12 (cont.)
(3) PRINCIPLES OF ADJUSTMENT APPLICABLE FOR FINANCIAL STATEMENTS
RELATING TO REPORTING PERIODS ENDED IN DECEMBER 31, 2005 AND
2004 (cont.)
A. BALANCE SHEET ITEMS (cont.)
Monetary items (items whose balance sheet amount
reflects their current value or realization value at
the balance sheet date) are presented at their
nominal value as of the balance sheet date.
Investments in Subsidiaries and minority interest are
presented based on the financial statements of these
companies prepared according to the guidance of
Standard No. 12.
B. STATEMENT OF OPERATIONS ITEMS
Income and expenses reflecting transactions, and
financial income and expenses, are presented at their
nominal value.
Income and expenses deriving from non-monetary items
(mainly depreciation and amortization) were presented
in a manner corresponding to the presentation of the
related non-monetary balance sheet item, as
illustrated above.
The Company's share and minority interest in the
results of Subsidiaries are determined based on the
financial statements of these companies prepared
according to the guidance of Standard No. 12.
(4) PRINCIPLES OF ADJUSTMENT APPLICABLE FOR FINANCIAL STATEMENTS
RELATING TO REPORTING PERIODS ENDED THROUGH DECEMBER 31, 2003
STATEMENT OF OPERATIONS ITEMS
Income and expenses reflecting transactions, other than
financial income and expenses, were adjusted for changes in
the exchange rate of the U.S. dollar from the date of the
transaction to the December 31,2003.
Income and expenses arising from non-monetary items (mainly
depreciation, amortization, deferred taxes and changes in
inventory) were adjusted in a manner corresponding to the
adjustment of the related balance sheet items.
Financing income (expenses), net reflect income and expenses
in real terms and include exchange rate differences derived
from monetary item.
The Company's share and the minority interest in the results
of Subsidiaries were determined based on the dollar adjusted
financial statements of these companies.
-9-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. TRANSLATION OF FOREIGN OPERATIONS' FINANCIAL STATEMENTS - STANDARD
NO. 13
In January 2004, Israeli Accounting Standard No. 13 "Effect of Changes
in Foreign Exchange Rates" came into effect. This Standard addresses
the translation of transactions denominated in foreign currency, as
well as the translation of financial statements of a foreign entity,
for inclusion in the financial statements of the reporting company.
Standard No. 13 supersedes Clarifications No. 8 and 9 to Opinion No. 36
of the Institute of Certified Public Accountants in Israel, which were
nullified on the date on which Accounting Standard No. 12 came into
effect, as described in A above.
(1) PRINCIPLES OF TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN
HELD AUTONOMOUS SUBSIDIARY APPLICABLE FOR FINANCIAL STATEMENTS
RELATING TO REPORTING PERIODS ENDED IN DECEMBER 31, 2005 AND
2004
o Monetary and non-monetary assets and liabilities of
the foreign entity are translated at the closing
rate.
o Statement of operations items and cash flow items of
the foreign entity are translated, in general, by the
average exchange rate for the reporting period,
rather than by the closing rate as was previously
required under the applicable accounting literature
prior to the date in which Standard No. 13 came into
effect (January 1, 2004).
o All differences resulting from the translation of the
foreign entity's financial statements by the method
described above, are included in a separate component
of shareholders' equity as "Translation adjustments
relating to foreign held autonomous Subsidiary".
o Following the implementation of Standard No. 13,
commencing January 2004 goodwill derived from an
investment made in another entity is to be treated as
one of that entity's assets. Accordingly, the
goodwill associated with the Group's investment in
Ovisan (a Subsidiary located in Turkey) is translated
to NIS at the closing rate, rather than at the
exchange rate at the date in which said investment
was made, as was previously required under the
applicable accounting literature in effect through
December 31, 2003.
(2) PRINCIPLES OF TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN
HELD AUTONOMOUS SUBSIDIARY APPLICABLE FOR FINANCIAL STATEMENTS
RELATING TO REPORTING PERIODS ENDED IN DECEMBER 31, 2003
The financial statements of Subsidiaries operating abroad were
prepared in U.S. dollars and translated into NIS based on the
exchange rate of the U.S. dollar as of the balance sheet date.
-11-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include consolidation of the
financial statements of the Company and all its Subsidiaries. Material
inter-company balances and transactions of and between Subsidiaries and
the Company have been fully eliminated.
The data included in the consolidated financial statements is based on
audited financial statements of the Subsidiaries included therein.
The excess cost of an investment in a Subsidiary in Turkey over the net
book value upon acquisition of that Subsidiary is allocated to fixed
assets and is amortized at the rate applicable to those assets, or upon
their realization. The unallocated excess cost reflects goodwill, which
is presented in the consolidated balance sheet as "other assets" and
amortized by the straight-line method over 15 years due to the unique
economic conditions relating to that Subsidiary and the expected
economic benefit period from its acquisition. See also I below.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits, available for
immediate withdrawal, as well as unrestricted short-term deposits with
maturities of less than three months from the date of deposit.
E. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is generally computed as percentage
from the relevant balances, on the basis of historical experience, with
the addition of a specific provision in respect of accounts, which on
management estimate are doubtful of collection.
F. INVENTORIES
Inventories are presented at the lower of cost or market value, with
cost determined as follows:
Finished products - Based on actual production cost.
Raw, auxiliary
materials and other - Based on moving-average basis.
G. INVESTMENTS IN SUBSIDIARIES
Investments in Subsidiaries are presented using the equity method based
on their audited financial statements. In relation to excess cost of
investment in Subsidiary in Turkey, see C above.
-12-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
H. FIXED ASSETS
Fixed assets are presented at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method
at rates considered adequate to depreciate the assets over their
estimated useful lives. Amortization of leasehold improvements is
computed over the shorter of the term of the lease, including any
option period, where the Company intends to exercise such option, or
their useful life.
The annual depreciation and amortization rates are: %
------
Buildings 2-4
Leasehold improvements 10-25
Machinery and equipment 5-10
Motor vehicles 15-20
Office furniture and equipment 6-33
IMPAIRMENT OF LONG-LIVED ASSETS
Management reviews long-lived assets on a periodic basis, as well as
when such a review is required based upon relevant circumstances, to
determine whether events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. According to
Standard No. 15 of the Israeli Accounting Standards Board, "Impairment
of Assets", an asset's recoverable value is the higher of the asset's
net selling price and the asset's value in use, the latter being equal
to the asset's discounted expected cash flows. If applicable, an
impairment charge is recorded at the amount in which the carrying
amount of the asset exceeds its recoverable value.
I. OTHER ASSETS - GOODWILL
Goodwill derived from the acquisition of Subsidiary in Turkey is
amortized based on the straight line method over 15 years (see also C
above). The amortization period and method were determined following
the provisions of Standard No. 20 "The amortization Period of Goodwill"
which calls for the amortization of goodwill over its useful life,
based on a systematic method that should reflect the estimated expected
period in which the goodwill is to contribute economic benefits.
Impairment examinations and recognition are performed and determined
based on the accounting policy outlined in H above.
J. SUPPLIER DISCOUNTS
Ongoing discounts granted by suppliers, as well as year end discounts,
in respect of which no commitments to meet given targets are required
by the Group, are included in the financial statements upon the
execution of purchases that grant the Group said discounts. Supplier
discounts contingent upon the Group's fulfillment of certain targets,
such as meeting a minimal annual volume (in quantities or amount), or
an increase in purchases over previous periods, are included in the
financial statements in proportion to the Group's purchases from
suppliers during the reported period, which advance the Group towards
the stated targets, only if it is expected that those targets will be
reached and the discounts can reasonably be estimated. The estimate of
meeting the targets is based, inter-alia, on historical experience,
Group's relationships established with the suppliers and the estimated
volume of purchases during the remaining reported period.
-13-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
K. DEFERRED INCOME TAXES
The Group records deferred income taxes in respect of temporary
differences between the carrying values of assets and liabilities in
the financial statements and their values for tax purposes, including
those that result from depreciation differences on leased property and
fixed assets. The Group records deferred-tax assets in respect of
temporary differences as well as in respect of carry-forward tax losses
so long as it is probable that those assets will be realized in the
foreseeable future. The deferred income taxes are computed using the
tax rates expected to be in effect at realization according to tax laws
that have been substantively enacted by the balance sheet date.
The computation of deferred income taxes has not taken into account
taxes that would have been applicable in case of future realization of
investments in Subsidiaries, since the Group does not contemplate such
realization in the foreseeable future. Moreover, the computation also
excludes deferred taxes in respect of dividend distributions within the
Group for cases in which such dividend distributions are expected to be
tax-exempt.
L. DIVIDENDS
Dividends proposed or declared subsequent to the balance-sheet date,
but prior to the financial statements approval date, are presented as a
separate component of shareholders' equity.
M. REVENUE RECOGNITION
Revenues are recognized upon shipment, when title has been transferred
and collectibility is reasonably assured.
Revenues are presented net of sales incentives, primarily: bonuses
granted to chains as a percentage of their purchases (target bonus);
volume discounts; and coupons distributed to customers entitling price
discounts.
An accrual for estimated returns and sales incentives, computed
primarily on the basis of historical experience, is recorded at the
time revenues are recognized and deducted from revenues.
N. EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
shares outstanding during the year.
O. EXCHANGE RATES AND LINKAGE BASIS
(1) Balances in foreign currency or linked thereto are included in
the financial statements based on the representative exchange
rates, as published by the Bank of Israel, that were
prevailing at the balance sheet date.
(2) Exchange-rate differences are charged to operations as
incurred.
-14-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
O. EXCHANGE RATES AND LINKAGE BASIS (cont.)
(3) Following are the changes in the representative exchange rate
of the U.S. dollar vis-a-vis the NIS and the Turkish Lira, and
in the CPI:
REPRESENTATIVE TURKISH LIRA EXCHANGE CPI
EXCHANGE RATE VIS-A-VIS THE "IN RESPECT
RATE OF THE DOLLAR U.S. DOLLAR OF"
(NIS PER $1) (TL'000 PER $1) (IN POINTS)
------------ --------------- -----------
December 31, 2005 4.603 1,351 185.05
December 31, 2004 4.308 1,352 180.74
December 31, 2003 4.379 1,393 178.58
INCREASE (DECREASE)
DURING THE YEAR ENDED: % % %
--- --- ---
December 31, 2005 6.8 - 2.4
December 31, 2004 (1.6) (2.9) 1.2
December 31, 2003
(7.6) (15.0) (1.9)
P. RECENT ACCOUNTING STANDARDS
(1) ACCOUNTING STANDARD NO.22 "FINANCIAL INSTRUMENTS: DISCLOSURE
AND PRESENTATION"
In 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
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
position and results of operations is not expected to be
significant.
-15-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
P. RECENT ACCOUNTING STANDARDS (cont.)
(2) ACCOUNTING STANDARD NO.24 "STOCK-BASED COMPENSATION"
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.
(3) ACCOUNTING STANDARD NO. 21 "EARNINGS PER SHARE"
In February 2006, the Israeli Accounting Standards Board
approved for publication Accounting Standard No. 21, "Earnings
Per Share" (the "Standard"). With the initial adoption of the
Standard, Opinion No. 55 of the Institute of Certified Public
Accountants in Israel - Earnings per share will be cancelled.
The Standard prescribes that an entity shall calculate basic
earnings per share amounts for profit or loss attributable to
ordinary equity holders of the parent entity and, if
presented, profit or loss from continuing operations
attributable to those equity holders. The basic earnings per
share shall be calculated by dividing profit or loss
attributable to ordinary equity holders of the parent entity
(the numerator) by the weighted average number of ordinary
shares outstanding (the denominator) during the reported
period.
For the purpose of calculating diluted earnings per share, an
entity shall adjust profit or loss attributable to ordinary
equity holders of the parent entity, and the weighted average
number of shares outstanding, for the effects of all dilutive
potential ordinary shares.
The Standard is effective for financial statements for periods
commencing January 1, 2006 or thereafter. The initial adoption
of the Standard will be accounted for retrospectively and
comparative Earnings per share data for prior periods shall be
adjusted. The application of the Standard is not expected to
materially affect the Company's Earnings per share data.
-16-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
P. RECENT ACCOUNTING STANDARDS (cont.)
(4) ACCOUNTING STANDARD NO. 25 "REVENUES"
In February 2006, the Israeli Accounting Standards Board
approved for publication Accounting Standard No. 25,
"Revenues" (the "Standard").
This Standard establishes the requirements for recognition
criteria, measurement, disclosure and presentation of revenues
arising from sale of goods, rendering of services and from the
use by others of entity assets yielding interest, royalties
and dividends. This Standard prescribes that revenue shall be
measured at the fair value of the consideration received or
receivable.
The Standard is effective for financial statements for periods
commencing January 1, 2006 or thereafter. Assets and
liabilities included in the financial statements as of
December 31, 2005 in different amounts from those that would
have been presented if the standard's requirements were
applied will be adjusted on January 1, 2006 to the amounts to
be recognized in accordance with the Standard's guidelines.
The results of the initial adoption of the Standard as at
January 1, 2006 shall be accounted for by the cumulative
effect of a change in accounting method.
The company is currently evaluating the impact, if any, of the
adoption of the Standard on its financial position and results
of operations.
NOTE 3 - CASH AND CASH EQUIVALENTS
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
In NIS 1,086 875 20 589
In foreign currencies
(Primarily the U.S. dollar) 34,465 116,489 25,811 109,128
------ ------- ------ -------
35,551 117,364 25,831 109,717
------ ------- ------ -------
-17-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - TRADE RECEIVABLES
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
Domestic - Open accounts 184,952 159,693 34 -
- Checks receivable 36,077 33,013 35 -
- Related parties (*) 782 598 118,302 91,023
------- ------- ------- -------
221,811 193,304 118,371 91,023
------- ------- ------- -------
Foreign - Open accounts 54,364 25,971 2,056 3,900
- Related parties 668 775 - 18,567
------- ------- ------- -------
55,032 26,746 2,056 22,467
------- ------- ------- -------
Less - allowance for doubtful accounts 276,843 220,050 120,427 113,490
18,944 5,661 - 42
------- ------- ------- -------
257,899 214,389 120,427 113,448
------- ------- ------- -------
(*) Balances with Israeli related parties are linked to the CPI
and bear 4% annual interest
The Company's products are marketed principally by its Subsidiaries.
NOTE 5 - OTHER RECEIVABLES
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
Deferred taxes (Note 22D) 8,207 4,611 1,493 1,532
Prepaid expenses 1,775 2,175 1,446 1,429
Advances to suppliers 7,549 615 - 411
Value Added Taxes 24,345 15,970 - -
Income tax advances, net 16,230 10,973 10,906 10,134
Loans to employees 509 600 245 232
Other 1,190 781 106 117
------ ------ ------ ------
59,805 35,725 14,196 13,855
------ ------ ------ ------
NOTE 6 - INVENTORIES
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
Raw and auxiliary materials 71,426 67,765 39,453 37,710
Finished goods 57,741 56,872 19,499 18,729
Spare parts and other 18,910 17,914 17,888 14,746
------- ------- ------ ------
148,077 142,551 76,840 71,185
------- ------- ------ ------
-18-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM BANK DEPOSIT
The US dollar linked deposit was held as collateral for long-term loan
received by Subsidiary (see Note 15C) that was fully repaid on December
30, 2005. Consequently, the Group withdrew the deposit at the same
time.
NOTE 8 - CAPITAL NOTE OF SHAREHOLDER
The capital note of AIPM, denominated in NIS, is not linked and does
not bear interest. Repayment date will be mutually agreed upon.
NOTE 9 - INVESTMENTS IN SUBSIDIARIES
COMPANY
-----------------------
DECEMBER 31,
-----------------------
2 0 0 5 2 0 0 4
------- -------
NIS IN THOUSANDS
-----------------------
A. COMPOSITION
Cost of shares 972 972
Equity in post-acquisition earnings, net 168,024 174,600
Translation adjustments relating to
foreign held autonomous Subsidiary (2,179) (3,377)
------- --------
166,817 172,195
------- --------
Long-term loans (1) 46,114 -
Capital notes (2) 70,405 4,205
Translation adjustments on loans and capital notes 2,797 -
------- --------
119,316 4,205
------- --------
286,133 176,400
------- --------
(1) Non-interest bearing loans, denominated in Turkish
Lira, with all principle to be repaid in 2025. See
also C below.
(2) Non-interest bearing capital notes, denominated in
U.S. dollar. Repayment dates have not yet been
determined. See also C below.
CONSOLIDATED
-----------------------
DECEMBER 31,
-----------------------
2 0 0 5 2 0 0 4
------- -------
NIS IN THOUSANDS
-----------------------
B. GOODWILL (SEE NOTE 2C ABOVE)
Cost 44,927 44,927
Translation adjustments (1,272) (4,068)
------- --------
43,655 40,859
Less - accumulated amortization 18,918 14,981
------- --------
24,737 25,878
------- --------
C. INVESTMENT IN KIMBERLI CLARK TUKETIM MALLARI SANAYI VE TICARET A.(S).
("KCTR") (FORMERLY: OVISAN)
As of December 31, 2005, the Group's investment in KCTR (a Turkish
Subsidiary) amounted to NIS 4,358 thousand (including goodwill - see
above). In the recent years KCTR incurred significant losses from
operations.
-19-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INVESTMENTS IN SUBSIDIARIES (cont.)
C. INVESTMENT IN KIMBERLI CLARK TUKETIM MALLARI SANAYI VE TICARET A.(S).
("KCTR") (FORMERLY: OVISAN) (cont.)
In addition to the NIS 116.5 million the Company provided KCTR in 2005
for the continuation of its on going operations, the Company has
committed to financially support KCTR in 2006. Such finance support may
be granted to KCTR either by cash injection, long-term loans, or
guaranteed if required so by banks according to the financing needs of
KCTR. The ability of KCTR to continue as a stand-alone business unit
depends significantly on the occurrence of its multiple-year working
plan and on said financial support by the Company.
D. CONSOLIDATED SUBSIDIARIES
The consolidated financial statements as of December 31, 2005, include
the financial statements of the following Subsidiaries:
OWNERSHIP AND
CONTROL AS OF
DECEMBER 31,
2005
-------------
%
-------------
Rakefet Marketing and Trade Services Ltd. ("Rakefet") (*) 79.7
SUBSIDIARIES OF RAKEFET:
Hogla-Kimberly Marketing Ltd. ("Marketing") (**) 99.5
Shikma Ltd. ("Shikma") (**) 99.0
SUBSIDIARY OF SHIKMA
Kimberli Clark Tuketim Mallari Sanayi 100.0
Ve Ticaret A.(S). ("KCTR")
Mollet Marketing Ltd. ("Mollet") 100.0
H-K Overseas (Holland) B.V. 100.0
SUBSIDIARY OF H-K OVERSEAS (HOLLAND) B.V.:
Hogla-Kimberly Holding Anonim Sirketi (***) 100.0
(*) The remaining ownership and control of Rakefet are held by
AIPM Group (10.1%) and by KC (10.2%).
(**) The remaining ownership and control of Marketing and Shikma
are held by the Company.
(***) During the year ended December 31, 2005 the company was
dormant.
E. SUPPLEMENTAL DATA
On December 30, 2005, H-K Overseas (Holland) B.V sold the entirety of
its holdings in KCTR to Shikma Ltd. in consideration for NIS 70,826.
The consideration amount was determined based on an independent
appraisal, and reflects a fair value of the transaction.
In December 2005, the Company filed a request with the Israeli Tax
Authority for the merger of Rakefet and Shikma into the Company.
According to the merger request, the assets and liabilities of Shikma
and Rakefet will be merged into those of the Company, and the Company
will issue shares to its shareholders, KC and AIPM, in respect of their
holdings in Rakefet. As of the approval date of the financial
statements, the Company's request has not yet been approved by the
Israeli Tax Authority.
-20-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - FIXED ASSETS
OFFICE
MACHINERY FURNITURE
LEASEHOLD AND MOTOR AND
CONSOLIDATED BUILDINGS (1) IMPROVEMENTS EQUIPMENT VEHICLES EQUIPMENT TOTAL (2)
------------ ------------- ------------ --------- -------- --------- ---------
COST: NIS IN THOUSANDS; REPORTED AMOUNTS
------------------------------------------------------------------------------------------
BALANCE - JANUARY 1, 2005 56,884 9,713 412,663 14,029 13,886 507,175
Changes during 2005:
Additions 815 1,189 37,090 921 1,527 41,541
Dispositions - - (10,066) (768) - (10,834)
Foreign currency
translation adjustments 2,139 22 2,002 130 202 4,495
------ ----- ------- ----- ----- -------
BALANCE - DECEMBER 31, 2005 59,838 10,924 441,711 14,312 15,592 542,377
------ ----- ------- ----- ----- -------
ACCUMULATED DEPRECIATION:
BALANCE - JANUARY 1, 2005 17,821 4,809 178,265 11,726 9,635 222,256
Changes during 2005:
Additions 1,074 573 17,792 1,405 1,495 22,317
Dispositions - - (10,066) (768) - (10,834)
Foreign currency
translation adjustments 299 - 879 119 86 1,383
------ ----- ------- ----- ----- -------
BALANCE - DECEMBER 31, 2005 19,194 5,383 186,848 12,482 11,237 235,144
------ ----- ------- ----- ----- -------
NET BOOK VALUE:
December 31, 2005 40,644 5,541 254,863 1,830 4,355 307,233
------ ----- ------- ----- ----- -------
December 31, 2004 40,247 3,441 235,674 2,313 3,244 284,919
------ ----- ------- ----- ----- -------
COMPANY
COST:
BALANCE - JANUARY 1, 2005 25,291 7,611 367,247 2,325 3,797 406,271
Changes during 2005:
Additions - 59 22,672 421 304 23,456
Dispositions - - (10,066) (446) - (10,512)
------ ----- ------- ----- ----- -------
BALANCE - DECEMBER 31, 2005 25,291 7,670 379,853 2,300 4,101 419,215
------ ----- ------- ----- ----- -------
ACCUMULATED DEPRECIATION:
BALANCE - JANUARY 1, 2005 12,763 4,074 152,372 2,221 2,876 174,306
Changes during 2005:
Additions 473 274 14,569 35 255 15,606
Dispositions - - (10,066) (446) - (10,512)
------ ----- ------- ----- ----- -------
BALANCE - DECEMBER 31, 2005 13,236 4,348 156,875 1,810 3,131 179,400
------ ----- ------- ----- ----- -------
NET BOOK VALUE:
December 31, 2005 12,055 3,322 222,978 490 970 239,815
------ ----- ------- ----- ----- -------
December 31, 2004 12,528 3,537 214,875 104 921 231,965
------ ----- ------- ----- ----- -------
(1) Company - leasehold improvements of industrial buildings on
lands leased by the Company from AIPM (until 2005). The lease
agreements are renewed annually.
(2) The majority of the Group's fixed assets are located in Israel
with the remaining located in Turkey.
-21-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - TRADE PAYABLES
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
In Israeli currency:
Open accounts 114,140 94,218 51,292 38,567
Related parties 19,690 23,124 205,037 184,476
In foreign currency:
Open accounts 71,935 86,719 42,177 37,845
Related parties 10,007 15,931 5,204 4,658
------- ------- ------- -------
215,772 219,902 303,710 265,546
------- ------- ------- -------
NOTE 12 - OTHER PAYABLES AND ACCRUED EXPENSES
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
Accrued income taxes,
net of advances 12,621 10,464 - -
Accrued payroll and related
expenses 24,101 22,195 11,316 10,796
Value Added Tax 5,462 2,695 2,329 1,269
Advances from customers 1,099 726 - -
Other 8,367 2,640 2,288 184
------ ------ ------ ------
51,920 38,720 15,933 12,249
------ ------ ------ ------
NOTE 13 - LONG-TERM BANK LOANS
CONSOLIDATED
INTEREST ------------
RATE DECEMBER 31,
---- ------------
% (*) 2 0 0 5 2 0 0 4
----- ------- -------
REPORTED AMOUNTS
----------------
NIS IN THOUSANDS
----------------
In U.S. dollar Libor +1.22-1.63 20,714 107,679
Less - current maturities 20,714 26,098
------ ------
- 81,851
------ ------
NOTE 14 - SEVERANCE PAY
Obligations of the Group for severance pay to its employees are covered
by current payments to pension and severance funds. Accumulated amounts
in the pension and severance funds are not under the control or
administration of the Group, and accordingly, neither those amounts nor
the corresponding accruals are reflected in the financial statements.
-22-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
A. COMMITMENTS
(1) The Group is obligated to pay royalties to a shareholder - see
also Note 23B.
(2) The Company and its Subsidiaries lease certain of their
facilities under operating leases for varying periods with
renewal options. Future minimum lease rentals as of December
31, 2005 are as follows:
CONSOLIDATED COMPANY
------------ -------
NIS IN THOUSANDS
----------------------------
2006 14,695 6,585
2007 8,399 766
2008 7,548 669
2009 7,548 669
2010 and thereafter 87,074 1,342
------- ------
125,263 10,031
------- ------
B. GUARANTEES
(1) The Company is contingently liable in respect of a guarantee
securing bank loans provided to a Subsidiary, the balance of
which as of December 31, 2005 amounted to NIS 87,273 thousand.
(2) As part of their normal course of business, the Subsidiaries
provided third parties with bank guarantees for contract
performance, the balance of which as of December 31, 2005
amounted to NIS 2,636 thousand.
C. LEGAL PROCEEDINGS
(1) The Company received on December 7, 2003 a claim and a
petition that was filed in the Tel-Aviv district court for the
approval of a class action against the Company. According to
the petition the Company has reduced the number of units of
diapers in a package and thus misled the public according to
the Israeli Consumer Protection Act. The plaintiffs estimate
the scope of the class action to be NIS 18 million. The
Company rejects the claim and intends to defend itself against
the action. Based on the opinion of the Company's legal
counsel for this matter, the Company's management is unable,
at this stage, to estimate the possible outcome of the
lawsuit. However, based on the legal counsels' opinion, the
Company's management estimates that the Company has valid
arguments to oppose the lawsuit and reasonable basis for
denying it from being recognized as a class action. Therefore,
no provision was recorded in the financial statements in
respect of this claim.
-23-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
C. LEGAL PROCEEDINGS (cont.)
(2) In February 2004, a former customer filed a lawsuit against
the Company. This lawsuit is a part from multi-suppliers
lawsuit, filed by the customer claiming for one billion NIS
from the Company and each other supplier for alleged damages.
The customer asked for discharge from legal fee and the
request was denied. Due to the preliminary stage of the
proceedings, management is unable to estimate the possible
outcome of the lawsuit. However, based on the Company's legal
counsels, management estimates that the Company has valid
arguments to oppose the lawsuit. Therefore, no provision was
recorded in the financial statements relating to this lawsuit.
(3) 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 is 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. In December 2005,
the Court approved a creditors settlement submitted by the
trustees, according to which, amongst other matters, the
Company is to receive 51% of Clubmarket's debt to the Company.
The settlement is subject to various conditions, including
reaching an understanding between the trustees and the Company
about the exact amount Clubmarket is to pay the Company, and
crystallizing certain material issues between the trustees and
the Israeli Tax Authorities. Due to said uncertainties
relating to the exact amounts to be paid, and based on the
opinions of the Company's legal advisors for this matter,
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
December 31, 2005, that is in excess of the doubtful accounts
provision recorded in the financial statements, is
approximately NIS 5.3 million (excluding VAT), which
represents approximately 25% of the balance as of such date.
NOTE 16 - SHARE CAPITAL
A. COMPOSITION OF SHARE CAPITAL IN NOMINAL NIS AS OF DECEMBER 31, 2005 AND
2004:
NUMBER OF SHARES
----------------------------
ISSUED AND
AUTHORIZED FULLY PAID UP
---------- -------------
Ordinary Shares of NIS 1.00 par value 11,000,000 8,263,473
---------- ---------
B. In connection with the Company's approved enterprise program, following
the Company's Board of Directors decision in September 2004, the
Company's issued its shareholders in 2004, 250,000 bonus shares with a
premium of NIS 94.46 for each share.
-24-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
C. Holders of ordinary shares are entitled to participate equally in the
payment of cash dividends and bonus share (stock dividend)
distributions and, in the event of the liquidation of the Company, in
the distribution of assets after satisfaction of liabilities to
creditors. Each ordinary share is entitled to one vote on all matters
to be voted on by shareholders.
-25-
NOTE 17 - NET SALES
CONSOLIDATED
YEAR ENDED DECEMBER 31,
----------------------------------------
2 0 05 2 0 0 4 2 0 0 3
------ ------- -------
REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS
-------- -------- --------
NIS IN THOUSANDS
----------------------------------------
A. SALES FROM COMMERCIAL OPERATIONS 227,960 238,989 251,433
======= ======= =======
B. FOREIGN SALES (PRINCIPALLY IN TURKEY) 173,966 96,128 106,935
======= ======= =======
C. SALES TO MAJOR CUSTOMERS % % %
--- --- ---
(as percentage from total net sales)
Customer A 9.8 9.9 9.9
Customer B 10.7 11.0 11.3
NOTE 18 - COST OF SALES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Purchases (*) 614,281 558,155 446,008 276,319 239,402 178,339
Salaries and related expenses 88,175 85,167 67,516 67,792 62,870 56,812
Manufacturing expenses 100,371 87,201 79,810 93,487 84,717 73,281
Depreciation 18,757 17,244 18,221 15,568 14,674 15,309
------- ------- ------- ------- ------- -------
821,298 747,767 611,555 453,166 401,663 323,741
Change in finished
goods inventory (583) (27,785) 9,459 (472) (7,760) (1,183)
------- ------- ------- ------- ------- -------
820,715 719,982 621,014 452,694 393,903 322,558
======= ======= ======= ======= ======= =======
(*) The purchases of the Company are related to manufacturing operations.
Consolidated purchases in excess of Company purchases relate principally
to commercial operations.
-26-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 19 - SELLING EXPENSES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Salaries and related expenses 61,574 57,003 46,887 - - -
Maintenance and
transportation expenses 40,153 42,283 26,596 8,925 7,206 5,810
Advertising and sales promotion 49,375 59,264 30,482 2,577 6,373 86
Commissions to distributors 19,067 5,130 4,571 - - -
Royalties to a shareholder 22,703 21,318 15,891 2,157 1,679 1,500
Depreciation 3,022 3,687 3,778 38 28 142
Other 5,789 5,016 2,825 11 - -
------- ------- ------- ------ ------ -----
202,683 193,701 130,670 13,708 15,286 7,538
======= ======= ======= ====== ====== =====
NOTE 20 - GENERAL AND ADMINISTRATIVE EXPENSES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Salaries and related expenses 19,927 15,837 18,283 2,699 2,387 2,567
Administrative and computer
services 9,189 10,150 6,287 1,417 1,640 1,190
Services provided by
Shareholder 1,194 1,188 1,161 199 238 215
Office maintenance 4,804 4,632 5,376 198 230 207
Depreciation 560 522 718 - - 2
Goodwill amortization 3,030 2,832 2,768 - - -
Provision for doubtful accounts
(see Note 15C(3)) 10,327 2,144 1,562 - - -
Other 7,252 3,724 2,891 527 490 200
------- ------- ------- ------ ------ -----
56,283 41,029 39,046 5,040 4,985 4,381
======= ======= ======= ====== ====== =====
-27-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 21 - FINANCING INCOME (EXPENSES), NET
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Interest on long-term bank loans (6,330) (2,673) (2,111) - - -
======= ======= ======= ====== ====== =====
Exchange rate differences 3,092 - 2,476 2,308 - 2,476
======= ======= ======= ====== ====== =====
Interest from long-term and
short-term bank deposits 3,929 1,464 1,357 1,300 463 486
======= ======= ======= ====== ====== =====
The majority of the remaining balances of the consolidated financial income
(expenses) for each of the periods presented are comprised of exchange rate
differences.
NOTE 22 - INCOME TAXES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
A. COMPOSITION
Current taxes 32,267 16,258 10,878 17,866 9,952 -
Taxes in respect of
prior years - (1,003) 1,437 - (837) 1,358
Deferred taxes - D.
below (12,740) (5,011) 8,251 1,029 8,512 10,417
------ ------ ------ ------ ------ ------
19,527 10,244 20,566 18,895 17,627 11,775
====== ====== ====== ====== ====== ======
B. The Company and its Israeli Subsidiaries are subject to the Income Tax
Ordinance and the Income Tax Law (Inflationary Adjustments), 1985.
Non-Israeli Subsidiaries are subject to income tax provisions of their
home country. The Company is an industrial company in conformity with
the Law for the Encouragement of Industry (Taxes), 1969. The principal
benefit that the Company is entitled to under this law is accelerated
depreciation rates and reduced tax rates.
During 2002, the Company's program for the establishment of a new
facility for manufacturing paper was granted Approved Enterprise status
in accordance with the Law for the Encouragement of Capital
Investments, 1959, under "alternative benefits" track. The approval
program is for total investments of approximately NIS 80 million.
According to the terms of the program, income derived from the Approved
Enterprise will be tax-exempt for a period of 10 years commencing in
the year in which the program was substantially completed. Distribution
of dividends from tax exempt profits of the Approved Enterprise will be
subject to income tax at a rate equal to the income tax rate of the
Approved Enterprise had the Company not elected the alternative
benefits track. The Company completed the investments relating to the
new facility and commenced its operations during 2003.
-28-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - INCOME TAXES (cont.)
C. RECONCILIATION OF THE STATUTORY TAX RATE TO THE EFFECTIVE TAX RATE:
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Income before income taxes 67,228 40,270 83,954 68,747 60,815 30,610
------ ------- ------- ------- ------- -------
Statutory tax rate (see
E below) 34% 35% 36% 34% 35% 36%
Tax computed by statutory tax
rate- 22,858 14,095 30,223 23,374 21,285 11,020
TAX INCREMENTS (SAVINGS) DUE TO:
Income in reduced tax rate 1,112 (161) (1,185) - (2,433) (918)
Non-deductible expenses 4,352 1,454 1,874 40 6 434
Non-taxable income (1,144) (455) (65) - (87) -
Unrecorded deferred taxes in
connection with tax loss carry
forward 450 - - - - -
Utilization of prior years
unrecorded deferred taxes in
connection with tax loss carry
forward - - (3,471) - - -
Unrecorded deferred taxes in
connection with submitting
consolidated tax returns - - - - - 2,053
Reduction in corporate tax rates
(E. below) (5,361) (1,594) - (5,476) (1,573) -
Differences arising from
basis of measurement (*) (1,664) (2,821) (7,629) 813 537 (1,753)
Income taxes for prior years - (1,003) 1,437 - (837) 1,358
Other differences, net (1,076) 729 (618) 144 729 (419)
------ ------- ------- ------- ------- -------
19,527 10,244 20,566 18,895 17,627 11,775
====== ======= ======= ======= ======= =======
(*) For 2005 and 2004 - In Israel, Reported Amounts (NIS) for
financial reporting purposes vis-a-vis the consumer price
index for tax purposes; In Turkey - U.S. dollar for financial
reporting purposes vis-a-vis the Turkish Lira for tax
purposes.
For 2003 - U.S. dollar for financial reporting purposes
vis-a-vis the Consumer Price Index in Israel and the Turkish
Lira in Turkey for tax purposes.
-29-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - INCOME TAXES (cont.)
D. DEFERRED TAXES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Balance as of
beginning of year 17,669 23,910 15,659 33,481 24,969 14,552
Changes during the year (7,473) (3,417) 8,251 6,505 10,085 10,417
Adjustment due to
change in income
tax rates (5,361) (1,594) - (5,476) (1,573) -
Foreign currency
translation adjustments (1,035) (1,230) - - - -
------ ------ ------ ------ ------ ------
Balance as of end of year 3,800 17,669 23,910 34,510 33,481 24,969
====== ====== ====== ====== ====== ======
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
DEFERRED TAXES ARE PRESENTED IN THE
BALANCE SHEETS AS FOLLOWS:
Long-term liabilities (in respect of
depreciable assets) 38,566 37,388 36,003 35,013
Other receivables (in respect of
temporary differences) - Note 5 (8,207) (4,611) (1,493) (1,532)
Other assets (26,559) (15,108) - -
------ ------ ------ ------
3,800 17,669 34,510 33,481
====== ====== ====== ======
For 2005 - Deferred taxes were computed at rates between 26.5%-33%,
primarily - 26.5%.
For 2004 - Deferred taxes were computed at rates between 30%-34%,
primarily - 30%.
E. REDUCTION OF CORPORATE TAX RATES
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.
For the effect of the reduction in tax rates, see D. above.
F. The Company and one of its subsidiaries are "Industrial Companies" as
defined in the Israeli Law for the Encouragement of Industry
(Taxes)-1969. Based on this Law, the Company and that subsidiary file
consolidated tax returns.
G. The Company and its Israeli Subsidiaries possess final tax assessments
through 2001.
-30-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 23 - RELATED PARTIES AND INTERESTED PARTIES
A. BALANCES WITH RELATED PARTIES
CONSOLIDATED COMPANY
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
2 0 0 5 2 0 0 4 2 0 0 5 2 0 0 4
------- ------- ------- -------
REPORTED REPORTED REPORTED REPORTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
Trade receivables (*) 1,450 1,373 - 18,731
====== ====== ====== ======
Capital note - shareholder 32,770 32,770 32,770 32,770
====== ====== ====== ======
Loans - Subsidiaries - - 46,114 -
====== ====== ====== ======
Capital notes - Subsidiaries - - 70,405 4,205
====== ====== ====== ======
Trade payables (*) 29,536 39,055 22,090 31,251
====== ====== ====== ======
(*) Company - excludes Subsidiaries in Israel. See also Notes 4
and 11.
B. TRANSACTIONS WITH RELATED PARTIES AND SUBSIDIARIES
CONSOLIDATED COMPANY
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 5 2 0 0 4 2 0 0 3
------- ------- ------- ------- ------- -------
REPORTED REPORTED ADJUSTED REPORTED REPORTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------------------------- --------------------------------------
Sales to related parties 13,793 12,565 6,103 8,289 9,903 4,169
======= ======= ======= ======= ======= =======
Sales to Subsidiaries - - - 508,355 454,289 358,767
======= ======= ======= ======= ======= =======
Cost of sales 157,073 162,096 169,469 73,951 58,254 61,703
======= ======= ======= ======= ======= =======
Royalties 23,703 21,318 15,891 2,157 1,679 1,500
======= ======= ======= ======= ======= =======
General and administrative
expenses (*) 9,381 8,969 8,201 1,615 1,878 1,428
======= ======= ======= ======= ======= =======
Financing income, net (*) - - 2,548 - - -
======= ======= ======= ======= ======= =======
(*) Company - excludes Subsidiaries in Israel.
-31-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 24 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS
A. CREDIT RISK
The revenues of the Group's principal Subsidiaries are derived from two
major customers and a large number of smaller customers. Management
regularly monitors the balance of trade receivables and the financial
statements include an allowance for doubtful accounts based on
management's estimation. Taking the aforementioned into consideration,
the exposure to credit risk from trade receivables is immaterial.
Cash and cash equivalents and long-term deposits are deposited with
major banks in Israel and abroad. Therefore, it is not expected that
such banks will fail to meet their obligations.
B. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Group consist primarily of
non-derivative assets and liabilities. Non-derivative assets include
cash and cash equivalents, receivables and other current assets.
Non-derivative liabilities include trade payables and other current
liabilities. Due to the nature of these financial instruments, their
fair value, generally, is identical or close to the value at which they
are presented in the financial statements, unless stated otherwise.
Due to the fact that as of December 31, 2005, the terms of the capital
note of shareholder do not include determined payment dates, fair value
based on present values cannot be established. Accordingly, the fair
value of the capital note is not disclosed in the financial statements.
-32-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 25 - COMPANY'S FINANCIAL INFORMATION IN NOMINAL VALUES FOR TAX PURPOSES
A. BALANCE SHEETS
COMPANY
-----------------------
DECEMBER 31,
-----------------------
2 0 0 5 2 0 0 4
------- -------
NIS IN THOUSANDS
-----------------------
CURRENT ASSETS
Cash and cash equivalents 25,831 109,717
Trade receivables 120,427 113,448
Other receivables 12,739 12,360
Inventories 76,840 71,185
------- -------
235,837 306,710
------- -------
LONG-TERM INVESTMENTS
Capital note of shareholder 32,770 32,770
Investments in Subsidiaries 276,289 169,303
------- -------
309,059 202,073
------- -------
FIXED ASSETS, NET 229,378 220,520
------- -------
774,274 729,303
======= =======
CURRENT LIABILITIES
Short-term bank credit - -
Trade payables 303,710 265,546
Other payables and accrued expenses 16,115 12,249
------- -------
319,825 277,795
------- -------
SHAREHOLDERS' EQUITY 454,449 451,508
------- -------
774,274 729,303
======= =======
-33-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 25 - COMPANY'S FINANCIAL INFORMATION IN NOMINAL VALUES FOR TAX
PURPOSES (cont.)
B. STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------------
2 0 0 5 2 0 0 4 2 0 0 3
------- ------- -------
NIS IN THOUSANDS
-----------------------------------------
Net sales 540,002 479,320 387,019
Cost of sales 451,703 392,376 334,764
------- ------- -------
GROSS PROFIT 88,299 86,944 52,255
Selling expenses 13,861 15,283 7,827
General and administrative expenses 5,040 4,985 4,327
------- ------- -------
OPERATING PROFIT 69,398 66,676 40,101
Financing income (expenses), net (189) (4,541) (5,995)
Other income, net (153) 282 255
------- ------- -------
INCOME BEFORE INCOME TAXES 69,740 62,417 34,361
Income taxes 17,866 9,115 1,428
------- ------- -------
INCOME AFTER INCOME TAXES 51,874 53,302 32,933
Equity in net earnings
of Subsidiaries (9,466) 16,660 29,682
------- ------- -------
NET INCOME FOR THE YEAR 42,408 36,642 62,615
-34-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 25 - COMPANY'S FINANCIAL INFORMATION IN NOMINAL VALUES FOR TAX
PURPOSES (cont.)
C. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
TRANSLATION DIVIDEND
ADJUSTMENTS DECLARED
RELATING TO AFTER
FOREIGN HELD BALANCE
SHARE CAPITAL AUTONOMOUS RETAINED SHEET
CAPITAL RESERVES SUBSIDIARY EARNINGS DATE TOTAL
------- -------- ---------- -------- --------- -----
NIS IN THOUSANDS
------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2002 8,263 132,127 - 216,209 35,528 392,127
CHANGES DURING 2003:
Dividend paid (35,528) (35,528)
Exchange rate differences of
prior year declared dividend
(971) (971)
Net income for the year 62,615 62,615
------- ------- ------ ------- ------- -------
BALANCE - DECEMBER 31, 2003 8,263 132,127 - 277,853 - 418,243
CHANGES DURING 2004:
Dividend paid
Distribution of bonus shares 250 23,615 (23,865) -
Translation adjustments
relating to foreign held
autonomous Subsidiary (3,377) (3,377)
Net income for the year 36,642 36,642
------- ------- ------ ------- ------- -------
BALANCE - DECEMBER 31, 2004 8,513 155,742 (3,377) 290,630 - 451,508
CHANGES DURING 2005:
Dividend paid (43,619) (43,619)
Translation adjustments
relating to foreign held
autonomous Subsidiary 3,995 3,995
Net income for the year 42,409 42,409
------- ------- ------ ------- ------- -------
BALANCE - DECEMBER 31, 2005 8,513 155,742 618 289,575 - 454,449
======= ======= ====== ======= ======= =======
-35-