SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 6-K/A
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-______________
EXPLANATORY NOTE
----------------
This Report of Foreign Private Issuer on form 6-K amends the report on
form 6-K filed by the Registrant on March 10, 2006 (the "Original 6-K") to
replace the Auditor's Report of the Registrant, dated March 7, 2006, with a
revised Auditor's Report, dated March 16, 2006.
The revised Auditor's Report added that the Auditor's have completed
their review of the Registrant's financial statements in accordance with the
standards of the Public Company Accounting Oversight Board.
No other amendments or changes, except the above mentioned, have been
made to the Original 6-K or to the Registrant's financial statements included
therein.
Attached hereto as Exhibit 1 and incorporated herein by reference are
the Registrant's audited consolidated financial statements for the year ended
December 31, 2005, including the revised Auditor's Report.
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 17, 2006
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
1. Registrant's audited consolidated financial statements.
EXHIBIT 1
---------
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 and the standards of the Public Company
Accounting Oversight Board (United States). 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 16, 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 16, 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