SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the Month of May 2006
-----------------------
AMERICAN ISRAELI PAPER MILLS LTD.
(Translation of Registrant's Name into English)
P.O. Box 142, Hadera, Israel
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
|X| Form 20-F |_| Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): |_|
NOTE: Regulation S-T Rule 101(b)(1) only permits the submission in paper of
a Form 6-K if submitted solely to provide an attached annual report to
security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): |_|
NOTE: Regulation S-T Rule 101(b)(7) only permits the submission in paper of
a Form 6-K submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the
laws of the jurisdiction in which the registrant is incorporated, domiciled
or legally organized (the registrant's "home country"), or under the rules
of the home country exchange on which the registrant's securities are
traded, as long as the report or other document is not a press release, is
not required to be and has not been distributed to the registrant's
security holders, and, if discussing a material event, has already been the
subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934:
|_| Yes |X| No
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-______________
Attached hereto as Exhibit 1 and incorporated herein by reference is the
Registrant's press release dated May 18, 2006 with respect to the Registrant's
results of operations for the quarter ended March 31, 2006.
Attached hereto as Exhibit 2 and incorporated herein by reference is the
Registrant's Management Discussion with respect to the Registrant's results of
operations for the quarter ended March 31, 2006.
Attached hereto as Exhibit 3 and incorporated herein by reference are the
Registrant's unaudited condensed consolidated financial statements for the
quarter ended March 31, 2006.
Attached hereto as Exhibit 4 and incorporated herein by reference are the
unaudited condensed interim consolidated financial statements of Mondi Business
Paper Hadera Ltd. and subsidiaries with respect to the quarter ended March 31,
2006.
Attached hereto as Exhibit 5 and incorporated herein by reference are the
unaudited condensed interim consolidated financial statements of Hogla-Kimberly
Ltd. and subsidiaries with respect to the quarter ended March 31, 2006.
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: May 22, 2006.
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1. Press release dated May 18, 2006.
2. Registrant's management discussion.
3. Registrant's unaudited condensed consolidated financial
statements.
4. Unaudited condensed interim consolidated financial
statements of Mondi Business Paper Hadera Ltd. and
subsidiaries.
5. Unaudited condensed interim consolidated financial
statements of Hogla-Kimberly Ltd. and subsidiaries.
EXHIBIT 1
NEWS
Client: AMERICAN ISRAELI
PAPER MILLS LTD.
Agency Contact: PHILIP Y. SARDOFF
For Release: IMMEDIATE
AMERICAN ISRAELI PAPER MILLS LTD.
REPORTS FINANCIAL RESULTS FOR FIRST QUARTER
Hadera, Israel, May 18, 2006 - American Israeli Paper Mills Ltd. (ASE:AIP) (the
"Company" or "AIPM") today reported financial results for the first quarter
ended March 31, 2006. (The Company, its subsidiaries and associated companies -
the "Group").
Since the Company's share in the earnings of associated companies constitutes a
material component in the Company's statement of income (primarily on account of
its share in the earnings of Mondi Business Hadera Paper (Mondi Hadera) and
Hogla-Kimberly (H-K), the Company also presents the aggregate data which include
the results of all the companies in the AIPM Group (including the associated
companies whose results appear in the financial statements under "earnings from
associated companies"), net of intercompany sales and without considering the
rate of holding.
Aggregate group sales in the first quarter of 2006(January - March 2006) totaled
NIS 783.2 million compared with NIS 685.7 million in the corresponding quarter
last year (January - March 2005)and NIS 692.2 million in the last quarter of
2005 (October - December 2005).
Aggregate operating profit in the first quarter of 2006 totaled NIS 37.7 million
compared with NIS 36.1 million in the corresponding quarter last year and NIS
23.8 million in the last quarter of 2005.
The consolidated data below does not include the results of operations of Mondi
Hadera, H-K, Carmel Container Systems and TMM Integrated Recycling Industries,
which are included in the Company's share in results of associated companies.
Consolidated sales in the first quarter of 2006 totaled NIS 131.5 million
compared with NIS 121.8 million in the corresponding quarter last year and NIS
117.6 million in the last quarter of 2005.
Operating profit in the first quarter of 2006 totaled NIS 13.3 million compared
with NIS 14.5 million in the corresponding quarter last year and NIS 11.3
million in the last quarter of 2005.
Net profit in the first quarter of 2006, before cumulative effect, totaled NIS
8.2 million compared with NIS 14.0 million in the corresponding quarter last
year and NIS 8.6 million in the last quarter of 2005. Due to the adjustment of
the accounts receivable balance at an associated company as at January 1,2006,
according to the directives of Accounting Standard No. 25, a loss of 0.5 million
was recorded in item "Cumulative effect as of the beginning of the period on
account of a change in accounting principles" at an associated company,
representing the company's share in the said loss. Due to the adoption of the
standard, the net profit during the reported period, after accounting for the
cumulative effect at beginning of period as mentioned above, totaled NIS 7.7
million.
Earnings per share (EPS) in the first quarter of 2006 totaled NIS 1.92 compared
with NIS 3.51 for the corresponding quarter last year.
According to the directives of Accounting Standard 20 ("Goodwill and Intangible
Assets") that was adopted for the first time during the reported period, the
company allocated to the retained earnings at the beginning of the reported
period, a sum of NIS 1.0 million as a result of the deletion of a negative
goodwill balance.
The inflation rate in the first quarter of 2006 was 0.6% as compared with a
negative inflation rate of -0.6% in the corresponding quarter last year.
The exchange rate of the NIS in the first quarter of 2006 was devaluated by
approximately 1.3% against the U.S. dollar as compared with a devaluation of
1.2% in the corresponding quarter last year.
Mr. Avi Brener, Chief Executive Officer of the Company said that following the
economic recovery in the Israeli market in 2005, the economic growth continued
as well into the first quarter of 2006, along with a certain rise in activity
and in demand for the Company's products. A partial recovery has also been
recorded in the global economy.
The increase in energy prices (especially fuel oil and diesel) during 2005
continued in the first quarter of 2006 as well. This rise, which amounted to an
average rise of 29% in diesel prices for transportation and a 78% rise in fuel
oil prices, as compared with the first quarter of 2005, significantly affected
the Group's operations and its financial results.
The rise in energy prices increased the Group's costs in the first quarter of
the year by NIS 14 million in relation to the first quarter of 2005.
Furthermore, the prices of the Group's principal raw materials - in its various
operations -continued to rise and led to additional costs to the Group of NIS 25
million in the first quarter this year, as compared with the corresponding
quarter last year.
The financial expenses during the reported period amounted to NIS 4.2 million,
as compared with NIS 3.3 million in the corresponding period last year.
The cost of the transaction for hedging the CPI-linked liabilities against a
rise in the CPI has risen to 1.8% per annum in 2006, as compared with 1.3% per
annum in 2005 and resulted in an increase in costs related to the bonds.
Nevertheless, since the Consumer Price Index rose by an actual 0.6% during the
first three months of the year, the hedging transaction rendered it possible to
save additional financing costs of NIS 0.3 million.
2
These influences, in addition to the rise in the average interest rate due to
rising interest rates in the economy, net of the impact of the devaluation
during the reported period, resulted in a 30% increase in financial expenses in
relation to the corresponding period last year.
The Company's share in the earnings of associated companies totaled NIS 1.8
million during the reported period, as compared with NIS 5.8 million in the
corresponding period last year and as compared with NIS 1.9 million in the
fourth quarter of 2005.
The following principal changes were recorded in the Company's share in the
earnings of associated companies, in relation to the corresponding period last
year:
- The Company's share in the net profit of Mondi Hadera (49.9%)
decreased by NIS 2.9 million. Most of the change in the profit
originates from the NIS 6.5 million decrease in operating
profit over the years, which originated from the rise in raw
material, energy and water prices, the erosion of prices of
imported paper due to fierce competition with imports and
relatively low output capacity due to the rebuilding of the
machine last year.
- The Company's share in the net profit of H-K Israel (49.9%)
decreased by NIS 1 million. H-k's operating profit grew from
NIS 22.5 million to NIS 29.0 million this year, as a result of
higher sales, coupled with improved efficiency. This was
partially offset by the sharp rise in input prices (raw
materials and energy). H-k's net profit from current
operations grew by NIS 2.5 million in relation to last year,
although due to an additional provision for taxes in the sum
of NIS 4.5 million that was made at H-k this year, due to tax
assessments for previous years received by the company, the
Company's share in the earnings of Hogla Israel decreased by
NIS 1.0 million in relation to the corresponding quarter last
year.
- The Company's share in the loss of KCTR Turkey (formerly
Ovisan) (49.9%) fell by NIS 0.5 million, primarily due to the
increased operating loss (NIS 2 million in relation to the
corresponding quarter last year), resulting from expenses
associated with the launch of KC premium products in the
Turkish market (Kotex and Huggies), in line with the strategic
plan for expanding operations in Turkey that began last year.
The Kotex launch began in the first quarter and is progressing
according to plan. The launch of Huggies diapers manufactured
by the company in Turkey began in the second quarter.
- The Company's share in the net profit of the Carmel Group
(26.25%) grew by NIS 1.0 million. This increase resulted
primarily from an increase in the operating profit as a result
of a quantitative increase in sales, the rise in selling
prices and the improved gross margin, which was partially
offset by the rise in raw material and energy prices. Net
profit also included capital gains from the sale of a real
estate asset in Netanya that did not serve the operation in
the last several years.
- The company's share in the loss of TMM (43.05%) grew by NIS
0.8 million, as a result of a provision for impairment of
loans and long-term receivables in the sum of NIS 1.6 million,
made by TMM during the reported period. The company's share in
this provision amounts to NIS 0.5 million.
3
Moreover, in accordance with the directives of Accounting
Standard 25, TMM has reduced its trade receivable balance as
at January 1, 2006, by approximately NIS 1.1 million, as a
result of its presentation in present value. The company's
share in this adjustment amounts to NIS 0.5 million. TMM
recorded an operating profit of NIS 0.3 million in the first
quarter of the year, due to the significant rise in
transportation costs(resulting from the significant 29%
average increase in diesel prices as compared with the
corresponding quarter last year) that were offset by the
growth in operations and improved efficiency.
In April 2006, Maalot (the Israeli Securities Rating Company Ltd., an affiliate
of Standard and Poor's, the entity responsible for credit rating in the Israeli
market) had decided to re-affirm the existing rating of (AA-) to the series of
notes issued by the Company in the past.
On March 7, 2006, TMM (an associated company) announced that the Israeli
Securities Authority had addressed TMM with regard to an investigation the
authority is conducting. At this stage, TMM is unable to estimate the impact of
the investigation on the company.
A total of 18,350 ordinary shares were issued during the reported period (0.5%
dilution), as a result of the exercise of 31,940 options as part of the
Company's employee stock option plans.
Mr. Zvi Livnat was nominated as Chairman of the Board as of April 2, 2006. Mr.
Livnat replaced Mr. Yerushalmi who has retired.
The Board of Directors decided that the Annual General Meeting of Shareholders
will be held at the registered office of the Company on June 21, 2006. If the
meeting is postponed, it will be held on June 28, 2006.
This report contains various forward-looking statements based upon the Board of
Directors' present expectations and estimates regarding the operations of the
Group and its business environment. The Company does not guarantee that the
future results of operations will coincide with the forward-looking statements
and these may in fact differ considerably from the present forecasts as a result
of factors that may change in the future, such as changes in costs and market
conditions, failure to achieve projected goals, failure to achieve anticipated
efficiencies and other factors which lie outside the control of the Company. The
Company undertakes no obligation for publicly updating the said forward-looking
statements, regardless of whether these updates originate from new information,
future events or any other reason.
4
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF RESULTS
(UNAUDITED) except per
share amounts
Three months ended March 31,
NIS IN THOUSANDS(1)
2006 2005
---- ----
Net sales 131,488 121,778
Net earnings 7,700* 14,031
Basic Earnings per share 1.92* 3.51
Fully diluted earnings per share 1.91* 3.48
(1) New Israeli Shekel amounts are reported according to Accounting Standard No.
12 of the Israeli Accounting Standard Board (hereafter - Standard No. 12) -
"Discontinuance of Adjusting Financial Statements for Inflation". The
reported NIS under Standard No. 12 are nominal NIS, for transactions made
after January 1, 2004.
* Including accumulated effect resulting from initially application of new
accounting standards of NIS 461 thousands at net earning and NIS 0.11 at
earning per share.
The representative exchange rate at March 31, 2006 was N.I.S. 4.665 = $1.00.
(sec-Pres-21612)
5
EXHIBIT 2
May 17, 2006
MANAGEMENT DISCUSSION
We are honored to present the consolidated financial statements of the American
Israeli Paper Mills Ltd. Group ("AIPM" or the "Company") for the first three
months of the year 2006. The Company, its subsidiaries and associated companies
- the "Group".
A. A DESCRIPTION OF THE GROUP'S BUSINESS
-------------------------------------
1. GROUP DESCRIPTION
-----------------
AIPM deals in the manufacture and sale of paper, in the recycling of
paper waste and in the marketing of office supplies - through
subsidiaries. The Company also holds associated companies that deal in
the manufacture and marketing of fine paper, in the manufacture and
marketing of household paper products, hygiene products, disposable
diapers and complementary kitchen products, corrugated board
containers, packaging for consumer goods and the handling of solid
waste.
The company's securities are traded on the Tel Aviv Stock Exchange and
on the American Stock Exchange (AMEX).
2. THE BUSINESS ENVIRONMENT
------------------------
Following the economic recovery in the Israeli market in 2005, the
economic growth continued as well into the first quarter of 2006,
along with a certain rise in activity and in demand. A partial
recovery has also been recorded in the o global economy.
The rise in energy prices (especially fuel oil and diesel) that
characterized 2005 continued in the first quarter of 2006 as well.
This rise, which amounted to an average rise of 29% in diesel prices
for transportation, and a 78% rise in fuel oil prices, as compared
with the first quarter of 2005 significantly affected the Group's
operations and its financial results.
THE RISE IN ENERGY PRICES INCREASED THE GROUP'S COSTS IN THE FIRST
QUARTER OF THE YEAR BY NIS 14 MILLION IN RELATION TO THE FIRST QUARTER
OF 2005. FURTHERMORE, THE PRICES OF THE GROUP'S PRINCIPAL RAW
MATERIALS - IN ITS VARIOUS OPERATIONS -CONTINUED TO RISE AND LED TO
ADDITIONAL COSTS OF NIS 25 MILLION IN THE FIRST QUARTER THIS YEAR, AS
COMPARED WITH THE CORRESPONDING QUARTER LAST YEAR.
In the European paper industry a positive change is being noted,
reflected by a better balance between the demand and supply of paper,
which renders it possible for paper companies to increase their
selling prices, as compensation for higher raw material and energy
prices, that severely affected their profitability.
1
This improvement, if it lasts, will serve to narrow the impact of
competing imports and will enable the Group to realize higher price
hikes in response to the rising raw material and energy prices.
3. GENERAL
-------
In parallel to the Group's efforts to increase the selling prices, the
Group is also continuing to work toward improving the synergies
obtained by several measures in the area of procurement, which are
intended to decrease the Group`s total costs.
The Group is also working to promote organization-wide plans: The
Talent Management program has already passed the first stages of role
definition. In parallel, personal objectives and indexes have been
determined and an incentive program is being formulated in order to
increase motivation and improve performance. The program to maximize
the added value of the companies in the eyes of the customers ("WOW")
is currently in various stages of implementation at the various
companies. Kimberly-Clark's global program, which is intended to
improve the efficiency of manufacturing lines (Center-lining program),
is also being implemented at the Group companies.
These measures, along with the continuing cost-cutting plans and
higher selling prices, rendered it possible to deal with the higher
costs, higher input prices and the need to contend with competing
imports.
During the reported period (January-March 2006), the exchange rate of
the NIS in relation to the US dollar was devaluated by approximately
1.3%, as compared with a devaluation of 1.2% in the corresponding
period last year (January-March 2005).
The inflation rate during the reported period amounted to 0.6%, as
compared with a negative inflation rate of -0.6% in the corresponding
period last year.
B. RESULTS OF OPERATIONS
---------------------
1. AGGREGATE DATA
--------------
Since the Company's share in the earnings of associated companies
constitutes a material component in the company's statement of income
(primarily on account of its share in the earnings of Mondi Business
Hadera Paper Ltd. ("Mondi Hadera") and Hogla-Kimberly that were
consolidated in the past, until the transfer of control over these
companies to the international strategic partners), the aggregate data
appearing below include the results of all the companies in the AIPM
Group (including the associated companies whose results appear in the
financial statements under "earnings from associated companies"),
without considering the rate of holding and net of mutual sales.
The aggregate sales amounted to NIS 783.2 million during the reported
period, as compared with NIS 685.7 million in the corresponding period
last year and NIS 692.2 million in the fourth quarter of 2005.
2
The growth in the aggregate sales during the reported period, as
compared with the corresponding period last year, originated from the
quantitative growth in sales and the improved selling prices.
The aggregate operating profit amounted to NIS 37.7 million during the
reported period, as compared with NIS 36.1 million in the
corresponding period last year and NIS 23.8 million in the fourth
quarter of 2005.
The improvement in the operating profit was rendered possible -
despite the unusual increase in input prices - primarily due to the
improvement in selling prices, the quantitative growth in sales and
the improved efficiency.
2. CONSOLIDATED DATA
-----------------
The information set forth below does not include the results of
operation of Mondi Hadera, Hogla-Kimberly, Carmel and TMM Integrated
Recycling Industries.
The sales amounted to NIS 131.5 million during the reported period, as
compared with NIS 121.8 million in the corresponding period last year
and NIS 117.6 million in the fourth quarter of 2005.
The operating profit amounted to NIS 13.3 million during the reported
period, as compared with NIS 14.5 million in the corresponding period
last year and NIS 11.3 million in the fourth quarter of 2005.
3. NET PROFIT AND EARNINGS PER SHARE
---------------------------------
The net profit- before cumulative influence- amounted to NIS 8.2
million during the reported period, as compared with NIS 14.0 million
in the corresponding period last year and NIS 8.6 million in the
fourth quarter of 2005.
Due to the adjustment of the accounts receivable balance at an
associated company as at January 1, 2006, according to the directives
of Accounting Standard No. 25, a loss of 0.5 million was recorded in
item "Cumulative effect as of the beginning of the period on account
of a change in accounting principles" at an associated company,
representing the company's share in the said loss. Due to the adoption
of the standard, the net profit during the reported period, after
accounting for the cumulative effect at beginning of period as
mentioned above, totals NIS 7.7 million
The Basic Earnings Per Share in the reported period amounted to NIS
1.92 per share ($0.41 per share), as compared with NIS 3.51 per share
($0.79 per share) in the corresponding period last year.
The Diluted Earnings Per Share in the reported period amounted to NIS
1.91 per share ($0.41 per share), as compared with NIS 3.48 per share
($0.78 per share) in the corresponding period last year.
According to the directives of Accounting Standard 20 ("Goodwill and
Intangible Assets") that was adopted for the first time during the
reported period, the company allocated to the retained earnings at the
beginning of the reported period, a sum of NIS 1.0 million as a result
of the deletion of a negative goodwill balance.
3
The return on shareholders' equity in annual terms amounted to 6.0%
during the reported period, as compared with 9.1% for all of 2005.
C. ANALYSIS OF OPERATIONS AND PROFITABILITY
----------------------------------------
The analysis set forth below is based on the consolidated data.
1. SALES
-----
The consolidated sales amounted to NIS 131.5 million during the
reported period, as compared with NIS 121.8 million in the
corresponding period last year and NIS 117.6 million in the fourth
quarter of 2005.
The growth in sales originated from a certain quantitative growth and
increase in selling prices of some products.
2. COST OF SALES
-------------
The cost of sales amounted to NIS 103.8 million - or 79.0% of sales -
during the reported period, as compared with NIS 93.6 million - or
76.8% of sales - in the corresponding period last year and as compared
with NIS 94.6 million - or 80.5% of sales in the fourth quarter of
2005.
The gross margin as a percentage of sales reached 21.0% during the
reported period, as compared with 23.2% in the corresponding period
last year and 19.5% in the fourth quarter of 2005.
The decrease in the gross margin in relation to the corresponding
period last year originated primarily from an increase in raw material
prices (12% in paper waste), an extraordinary increase in energy
prices (78% in fuel oil) and water prices (12%) and was partially
offset by quantitative growth in sales, higher selling prices and the
continuing efficiency measures in all areas of operation.
Labor Wages
-----------
Wages in the cost of sales and in the selling, general and
administrative expenses amounted to NIS 40.4 million in the reported
period, as compared with NIS 37.5 million in the corresponding period
last year.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
The selling, general and administrative expenses (including wages)
amounted to NIS 14.3 million in the reported period - or 10.9% of
sales - as compared with NIS 13.7 million - or 11.3% of sales - in the
corresponding period last year.
4
4. OPERATING PROFIT
----------------
The operating profit amounted to NIS 13.3 million - or 10.1% of sales
- during the reported period, as compared with NIS 14.5 million - or
11.9% of sales - in the corresponding period last year and as compared
with NIS 11.3 million - or 9.6% of sales in the fourth quarter of
2005.
5. FINANCIAL EXPENSES
------------------
The financial expenses during the reported period amounted to NIS 4.2
million, as compared with NIS 3.3 million in the corresponding period
last year.
The total average of the Company's net interest-bearing liabilities
grew by approximately NIS 100 million, between the periods. This
growth is primarily attributed to dividend payments of NIS 50 million
at the end of 2005 and an additional NIS 50 million during the
reported period, in addition to investments in fixed assets, net of
the current cash flows from operating activities.
Moreover, the cost of the transaction for hedging the CPI-linked
liabilities against a rise in the CPI has risen to 1.8% per annum in
2006, as compared with 1.3% per annum in 2005 and resulted in an
increase in costs related to the bonds.
Nevertheless, since the Consumer Price Index rose by an actual 0.6%
during the first three months of the year, the hedging transaction
rendered it possible to save additional financing costs of NIS 0.3
million.
These influences, in addition to the rise in the average interest rate
due to rising interest rates in the economy, net of the impact of the
devaluation during the reported period (which increased the revenues
from dollar-denominated assets held by the company), resulted in a 30%
increase in financial expenses in relation to the corresponding period
last year.
6. TAXES ON INCOME
---------------
Taxes on income amounted to NIS 2.7 million in the reported period, as
compared with NIS 3.0 million in the corresponding period last year.
The decrease in tax expenses in relation to the preceding year
originated primarily from the decrease in pre-tax earnings.
7. COMPANY'S SHARE IN EARNINGS OF ASSOCIATED COMPANIES
---------------------------------------------------
The companies whose earnings are reported under this item (according
to AIPM's holdings therein), include primarily: Mondi Hadera,
Hogla-Kimberly, Carmel and TMM.
The company's share in the earnings of associated companies totaled
NIS 1.8 million during the reported period, as compared with NIS 5.8
million in the corresponding period last year and as compared with NIS
1.9 million in the fourth quarter of 2005.
5
The following principal changes were recorded in the Company's share
in the earnings of associated companies, in relation to the
corresponding period last year:
- The Company's share in the net profit of Mondi Hadera (49.9%)
decreased by NIS 2.9 million. Most of the change in the profit
originates from the NIS 6.5 million decrease in operating profit
over the years, which originated from the rise in raw material,
energy and water prices, the erosion of prices of imported paper
due to fierce competition with imports and relatively low output
capacity due to the rebuilding of the machine last year. This
impact was partially offset by the quantitative growth in export
sales and the price hike that was implemented during the reported
period. The financial expenses also grew due to the higher
interest rate.
- The Company's share in the net profit of Hogla-Kimberly Israel
(49.9%) decreased by NIS 1 million. Hogla's operating profit grew
from NIS 22.5 million to NIS 29.0 million this year, as a result
of higher sales (due to improved selling prices and a greater
proportion of premium products in the total sales mix), coupled
with improved efficiency. This was partially offset by the sharp
rise in input prices (raw materials and energy). Hogla-Israel's
net profit from current operations grew by NIS 2.5 million in
relation to last year, although due to an additional provision
for taxes in the sum of NIS 4.5 million that was made at Hogla
this year, due to tax assessments for previous years received by
the company, the Company's share in the earnings of Hogla Israel
decreased by NIS 1.0 million in relation to the corresponding
quarter last year.
- The company's share in the net loss of KCTR Turkey (formerly
Ovisan) (49.9%) fell by NIS 0.5 million, primarily on account of
the increased operating loss (NIS 2 million in relation to the
corresponding quarter last year), originating primarily from
expenses associated with the launch of premium KC products in the
Turkish market (Kotex and Huggies), including advertising
expenses, sales promotion and listing fees for shelf space at the
large chains, in line with the strategic plan for expanding
operations in Turkey, that began last year.
The Kotex launch began in the first quarter and is progressing
according to plan, while generating positive initial responses -
from both consumers and chains. The launch of Huggies diapers
manufactured by the company in Turkey began in the second
quarter.
- The company's share in the net earnings of the Carmel Group
(26.25%) grew by NIS 1.0 million. This increase originated
primarily from an increase in the operating profit as a result of
a quantitative increase in sales, the rise in selling prices and
the improved gross margin. This increase was partially offset by
the rise in raw material and energy prices. The net profit also
included capital gains from the sale of a real-estate asset in
Netanya that did not serve the operation in the past several
years.
- The company's share in the loss of TMM (43.05%) grew by NIS 0.8
million, as a result of a provision for impairment of loans and
long-term receivables in the sum of NIS 1.6 million, made by TMM
during the reported period. The company's share in this provision
amounts to NIS 0.5 million.
6
Moreover, in accordance with the directives of Accounting
Standard 25, TMM has reduced its trade receivable balance as at
January 1, 2006, by approximately NIS 1.1 million, as a result of
its presentation in present value. The company's share in this
adjustment amounts to NIS 0.5 million. TMM recorded an operating
profit of NIS 0.3 million in the first quarter of the year, due
to the significant rise in transportation costs (resulting from
the significant 29% average increase in diesel prices as compared
with the corresponding quater last year) that were offset by the
growth in operations and improved efficiency.
D. LIQUIDITY AND INVESTMENTS
-------------------------
1. ACCOUNTS RECEIVABLE
-------------------
The accounts receivable item for March-31-06 totaled NIS 155.3
million, as compared with NIS 143.2 million on March 31, 2005 and as
compared with NIS 150.4 million on December 31, 2005.
The increased accounts receivable item is primarily attributed to the
growth in the volume of operations, whereas no significant change was
recorded in the actual days of customer credit.
2. CASH FLOWS
----------
The cash flows from operating activities totaled NIS 16.9 million
during the reported period, as compared with NIS 28.2 million in the
corresponding period last year.
A significant decrease was recorded in the first quarter last year in
the operating working capital, as compared with this year (NIS 14.8
million as compared with NIS 4.5 million during the reported period).
This decrease originated primarily from a payment that was scheduled
to be received at the end of 2004 and was actually received in early
2005.
3. INVESTMENTS IN FIXED ASSETS
---------------------------
The investments in fixed assets amounted to NIS 13.9 million during
the reported period, as compared with NIS 5.7 million during the
corresponding period last year. The investments this year included
advance payments on the investment in converting energy systems to
operate based on using natural gas, coupled with current investments
in storage and compaction equipment, in compactors, in machines,
equipment and transportation equipment.
4. FINANCIAL LIABILITIES
---------------------
The long-term liabilities (including current maturities) amounted to
NIS 266.7 million as at March 31, 2006, as compared with NIS 267.2
million as at March 31, 2005.
7
The long-term liabilities include primarily two series of debentures:
Series 1 - NIS 27.1 million, for repayment until 2009.
Series 2 - NIS 206.8 million, for repayment between 2007 and 2013.
According to the directives of Accounting Standard No. 22, commencing
on January 1st 2006, the debenture balances are presented net of
deferred expenses thereon in the sum of NIS 0.9 million.
The balance of short-term credit, as at March 31, 2006, amounted to
NIS 135.9 million, as compared with NIS 51.7 million at March 31,
2005.
The short-term credit balances have increased in relation to the
balances in the corresponding period last year, primarily on account
of the payment of NIS 100 million in dividends to the shareholders
(NIS 50 million in September 2005 and an additional NIS 50 million in
January 2006), net of the positive cash flows for the period.
E. EXPOSURE AND MANAGEMENT OF MARKET RISKS
---------------------------------------
The following is an update, as at March 31, 2006, to the Management
Discussion dated December 31, 2005, that outlined the essence of the
exposure and management of market risks, as set forth by the board of
directors:
The Company possesses CPI-linked liabilities (net of deposits) in the net
overall sum of NIS 234 million, with the interest thereupon being no higher
than the market interest rate. In the event that the inflation rate shall
rise significantly, a loss may be recorded in the Company's financial
statements, due to the surplus of CPI-linked liabilities. The company
consequently entered into a forward transaction, with a term of one year -
until the end of 2006, to hedge a sum of NIS 230 million against a rise in
the CPI (at a cost of 1.8% per annum).
8
REPORT OF LINKAGE BASES
-----------------------
The following are the balance sheet items, according to linkage bases, as
at December 31, 2005 and updated for March 31, 2006:
---------------------------------------------- ----------- ------------ --------------- ------------ --------------
IN NIS MILLIONS UNLINKED CPI-LINKED IN FOREIGN NON-MONETARY TOTAL
CURRENCY, OR ITEMS
LINKED THERETO
(PRIMARILY US$)
---------------------------------------------- ----------- ------------ --------------- ------------ --------------
ASSETS
------
CASH AND CASH EQUIVALENTS 1.6 2.5 4.1
SHORT-TERM DEPOSITS AND INVESTMENTS 11.5 11.5
OTHER ACCOUNTS RECEIVABLE 215.1 0.2 48.6 10.7 274.6
INVENTORIES 62.4 62.4
INVESTMENTS IN ASSOCIATED COMPANIES 63.2 9.3 359.7 432.2
DEFERRED TAXES ON INCOME 5.7 5.7
FIXED ASSETS, NET 385.8 385.8
---------------------------------------------- ----------- ------------ --------------- ------------ --------------
TOTAL ASSETS 291.4 0.2 60.4 824.3 1,176.3
----- --- ---- ----- -------
LIABILITIES
-----------
SHORT-TERM CREDIT FROM BANKS 135.9 135.9
ACCOUNTS PAYABLE 187.4 7.2 194.6
DEFERRED TAXES ON INCOME 45.0 45.0
NOTES (BONDS) - INCLUDING CURRENT MATURITIES 234.0 234.0
OTHER LIABILITIES - INCLUDING CURRENT 32.8 32.8
MATURITIES
SHAREHOLDERS' EQUITY, FUNDS AND RETAINED 534.0 534.0
EARNINGS
---------------------------------------------- ----------- ------------ --------------- ------------ --------------
TOTAL LIABILITIES AND EQUITY 356.1 234.0 7.2 579.0 1,176.3
----- ----- --- ----- -------
---------------------------------------------- ----------- ------------ --------------- ------------ --------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
MARCH 31,2006 (64.7) (233.8) 53.2 245.3 -
---------------------------------------------- ----------- ------------ --------------- ------------ --------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
DECEMBER 31, 2005 (73.1) (235.3) 59.2 249.2 -
---------------------------------------------- ----------- ------------ --------------- ------------ --------------
ASSOCIATED COMPANIES
--------------------
AIPM is exposed to various risks associated with operations in Turkey,
where Hogla-Kimberly is active through its subsidiary, KCTR. These risks
originate from concerns regarding economic instability and elevated
interest rates that characterized the Turkish economy in the past and that
may recur and harm the KCTR operations.
9
F. FORWARD-LOOKING STATEMENTS
--------------------------
This report contains various forward-looking statements, based upon the
Board of Directors' present expectations and estimates regarding the
operations of the Group and its business environment. The Company does not
guarantee that the future results of operations will coincide with the
forward-looking statements and these may in fact differ considerably from
the present forecasts as a result of factors that may change in the future,
such as changes in costs and market conditions, failure to achieve
projected goals, failure to achieve anticipated efficiencies and other
factors which lie outside the control of the Company. The Company
undertakes no obligation to publicly update such forward-looking
statements, regardless of whether these updates originate from new
information, future events or any other reason.
G. UPDATE REGARDING THE DESCRIPTION OF THE COMPANY'S BUSINESS IN THE
-----------------------------------------------------------------
PERIODICAL REPORT FOR 2005
--------------------------
o The existing rate of the Company's notes - Series I and II - AA- was
re-affirmed by Maalot in April 2006.
o TMM Integrated Recycling Industries Ltd. (an associated company)
announced on March 7, 2006 that the Israeli Securities Authority had
addressed it regarding an investigation pertaining to the company. At
this stage, TMM is unable to estimate the impact of this investigation
on the company.
o 18,350 shares were issued during the reported period (0.5% dilution),
on account of the exercise of 31,940 options as part of the Company's
employee option plans.
o On April 2, 2006, Tzvika Livnat was appointed Chairman of the Board of
Directors of the Company, replacing Yaki Yerushalmi who has retired.
H. PEER GROUP SURVEY
-----------------
The Securities Authority published a directive based on Section 36a of the
Securities Law (1968) on July 28th 2005, regarding disclosure pertaining to
the granting of agreement to conduct a peer group survey whose objective is
- according to the said directive - to put in motion a process whereby the
auditing process performed by the firms will be controlled, to contribute
to the existence of an advanced capital market. The Company's Board of
Directors views this as a positive process, although the process itself
raises several issues, including legal issues, that have yet to be resolved
and that are related, inter alia, to safeguarding the confidential
information belonging to the company and the Group companies, to prevent
conflicts of interest and to promote responsibility for damages that may be
incurred in relation to the process. The Company's Board of Directors has
therefore agreed, in principle, to cooperate in this process, pursuant to a
satisfactory resolution of the various issues that have yet to be resolved,
as stated above.
------------------------------ ----------------------------------
Tzvika Livnat Avi Brenner
Chairman of the Board of Directors General Manager
10
EXHIBIT 3
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF CONSOLIDATED BALANCE SHEETS
--------------------------------------
NIS IN THOUSANDS
----------------
MARCH 31,2006 MARCH 31,2005 DEC. 31,2005
(UNAUDITED) (UNAUDITED) (AUDITED)
------------ ------------ ------------
Current assets :
----------------
Cash and cash equivalents 4,062 6,873 8,318
Short-term deposits and investments 11,512 22,145 11,416
Accounts receivables :
Trade 155,313 143,195 150,409
Other 119,311 95,982 106,124
Inventories 62,392 * 64,507 63,999
------------ ------------ ------------
Total current assets 352,590 332,702 340,266
Investments and long term receivables:
--------------------------------------
Investments in associated companies 432,217 441,651 428,957
Deferred income taxes 5,655 6,511 5,655
------------ ------------ ------------
437,872 448,162 434,612
Fixed assets
------------
Cost 1,071,413 * 996,826 1,057,911
Less - accumulated depreciation 685,613 656,310 677,977
------------ ------------ ------------
385,800 340,516 379,934
Deferred charges -
net of accumulated amortization - 1,066 946
============ ============ ============
1,176,262 1,122,446 1,155,758
============ ============ ============
Current liabilities:
--------------------
Credit from banks 135,924 51,691 93,171
Current maturities of long-term notes 6,833 6,628 6,827
Payables and accured liabilities :
Trade 87,077 79,293 90,512
Dividend payable 50,093
Other 107,533 81,765 85,407
------------ ------------ ------------
Total current liabilities 337,367 219,377 326,010
Long-term liabilities
---------------------
Deferred income taxes 44,987 51,665 45,783
Loans and other liabilities (net of current maturities):
Notes 227,126 227,817 227,811
Other liabilities 32,770 32,770 32,770
------------ ------------ ------------
Total long term liabilities 304,883 312,252 306,364
Total liabilities 642,250 531,629 632,374
Shareholders' equity :
----------------------
Share capital 125,257 125,257 125,257
Capital surplus 90,060 90,060 90,060
Capital surplus on account of tax benefit from
exercise of employee options 1,635 174 401
Currency adjustments in respect of financial
statements of associated company and a subsidiary (181) (1,508) (813)
Retained earnings 317,241 376,834 308,479
============ ============ ============
534,012 590,817 523,384
============ ============ ============
1,176,262 1,122,446 1,155,758
============ ============ ============
* Reclassified
The accompanying notes are an integral part of the financial statements.
10
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------
NIS IN THOUSANDS
----------------
THREE-MONTH PERIOD YEAR ENDED
ENDED MARCH 31 DEC. 31
2006 2005 2005
----------- -------------- --------------
(UNAUDITED) (AUDITED)
=========== =========
Sales - net 131,488 121,778 482,461
Cost of sales 103,826 93,556 383,179
----------- -------------- --------------
Gross profit 27,662 28,222 99,282
Selling and marketing, administrative and general expenses:
Selling and marketing 7,923 7,347 30,482
Administrative and general 6,407 6,399 21,018
----------- -------------- --------------
14,330 13,746 51,500
Income from ordinary operations 13,332 14,476 47,782
Financial expenses - net 4,241 3,260 12,490
----------- -------------- --------------
Income before taxes on income 9,091 11,216 35,292
Taxes on income 2,700 3,000 5,991
Income from operations of the company ----------- -------------- --------------
and the consolidated subsidiaries 6,391 8,216 29,301
Share in profits of associated companies 1,770 5,815 16,414
Income before cumulative effect at beginning
of period in profits of associated companies ----------- -------------- --------------
as a result of accounting changes 8,161 14,031 45,715
Cumulative effect at beginning of period in profits of
associated companies 461
----------- -------------- --------------
Net income for the period 7,700 14,031 45,715
=========== ============== ==============
Basic net earning before accumulated effect per share (in N.I.S) 2.03 * 3.51 * 11.43
Cumulative effect at beginning of year, in profits of associated
companies, as a result of accounting changes 0.11
----------- -------------- --------------
Basic net earning per share (in N.I.S) 1.92 * 3.51 * 11.43
=========== ============== ==============
Fully diluted earning before accumulated effect per share (in N.I.S) 2.02 * 3.48 * 11.35
Cumulative effect at beginning of year, in profits of associated
companies, as a result of accounting changes 0.11
----------- -------------- --------------
Fully diluted earning per share (in N.I.S) 1.91 * 3.48 * 11.35
=========== ============== ==============
Number of shares used to compute the basic earnings
per share (in N.I.S) 4,017,683 * 3,997,695 * 3,999,867
=========== ============== ==============
Number of shares used to compute the fully diluted earnings
per share (in N.I.S) 4,036,704 * 4,028,967 * 4,028,107
=========== ============== ==============
* After retrospective application of accounting change - see note 2 (3).
The accompanying notes are an integral part of the financial statements.
11
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
DIFFERENCES
FROM
TRANSLATION
CAPITAL OF
SURPLUS FOREIGN
RESULTING CURRENCY
FROM RESULTING
TAX FROM
BENEFIT FINANCIAL
SUMMARY OF STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ON STATEMENTS
-------------------------------------------------------- EXERCISE OF OF
NIS IN THOUSANDS SHARE CAPITAL EMPLOYEE ASSOCIATED RETAINED
---------------- CAPITAL SURPLUS OPTIONS COMPANIES EARNINGS- TOTAL
--------- --------- ------------ ---------- ---------- ---------
Balance at December 31, 2005 (audited) 125,257 90,060 401 (813) 308,479 523,384
Adjusments as at January 1, 2006, resulting from
initially application of new accounting
standards (unaudited) (see note 2)
Negative goodwill balance carried to the balance of
retained earnings 1,062 1,062
Balance at January 1, 2006 after initially --------- --------- --------- -------- -------- --------
application of new accounting standards (unaudited) 125,257 90,060 401 (813) 309,541 524,446
Balance at January 1, 2006 after initially --------- --------- --------- -------- -------- --------
Changes during the three month period
ended March 31, 2006 (unaudited)
Net income 7,700 7,700
Exercise of employee options into shares * 1,234 1,234
Differences from currency translation resulting
from translation of financial statements of
associated companies 632 632
--------- --------- --------- -------- -------- --------
Balance at March 31, 2006 (unaudited) 125,257 90,060 1,635 (181) 317,241 534,012
--------- --------- --------- -------- -------- --------
Balance at January 1, 2005 (audited) 125,257 90,060 (2,807) 362,803 575,313
Changes during the three month period
ended March 31, 2005 (unaudited)
Net income 14,031 14,031
Exercise of employee options into shares 174 174
Differences from currency translation resulting
from translation of financial statements of
associated companies 1,299 1,299
--------- --------- --------- -------- -------- --------
Balance at March 31, 2005 (unaudited) 125,257 90,060 174 (1,508) 376,834 590,817
--------- --------- --------- -------- -------- --------
Balance at January 1, 2005 (audited) 125,257 90,060 (2,807) 362,803 575,313
Changes during the year ended
December 31, 2005 (audited)
Net income 45,715 45,715
Dividend paid (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 (audited) 125,257 90,060 401 (813) 308,479 523,384
--------- --------- --------- -------- -------- --------
* Less than 1,000 NIS.
The accompanying notes are an integral part of the financial statements.
12
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------
NIS IN THOUSANDS
----------------
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED YEAR ENDED
MARCH 31, 2006 MARCH 31, 2005 DEC. 31, 2005
(UNAUDITED) (UNAUDITED) (AUDITED)
--------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES :
--------------------------------------
Net income for the period 7,700 14,031 45,715
Adjustments to reconcile net income to net cash provided by
operating activities (a) 9,186 14,148 42,845
--------------- ---------------- ----------------
Net cash provided by operating activities 16,886 28,179 88,560
--------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES :
--------------------------------------
Purchase of fixed assets (13,925) (5,705) (71,080)
Short-term deposits and investments - 40,163 51,003
Granting of loans to associated companies - (2,739) (2,744)
Proceeds from sale of subsidiary consolidated in the past (B) 2,004
Proceeds from sale of fixed assets 123 155 6,532
--------------- ---------------- ----------------
Net cash provided by (used in) investing activities (13,802) 31,874 (14,285)
--------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES :
--------------------------------------
Receipt of long-term loans from others 1,746
Repayment of long-term loans from banks (277)
Redemption of Notes (6,680)
Dividend paid (50,093) (49,946)
Short-term bank credit - net 42,753 (60,993) (18,613)
--------------- ---------------- ----------------
Net cash used in financing activites (7,340) (60,993) (73,770)
--------------- ---------------- ----------------
Increase (decrease) in cash and cash equivalents (4,256) (940) 505
Balance of cash and cash equivalents at beginning of period 8,318 7,813 7,813
--------------- ---------------- ----------------
Balance of cash and cash equivalents at end of period 4,062 6,873 8,318
--------------- ---------------- ----------------
(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 (1,770) (5,815) (16,414)
Dividend received from associated company 21,761
Depreciation and amortization 7,997 7,691 31,604
Deferred income taxes - net (1,839) (1,681) (7,671)
Capital gains on:
Sale of fixed assets (61) (113) (3,570)
Sale of subsidiary consolidated in the past (B) (874)
Lose (income) from short-term deposits and investments, not realized yet (96) 156 45
Linkage differences on principal of long-term loans from
banks and others - net - (111)
Linkage differences on (erosion of) Notes 267 (702) 6,171
Linkage differences on loans to associated companies (257) (153) (975)
Cumulative effect at beginning of period as a result
of accounting changes in associated companies 461
Changes in operating assets and liabilities:
Decrease (Increase) in receivables (17,048) 6,829 (8,749)
Decrease (increase) in inventories 1,607 615 (1,612)
Increase in payables and accruals liabilities 19,925 7,321 23,240
--------------- ---------------- ----------------
9,186 14,148 42,845
--------------- ---------------- ----------------
(b) Proceeds from sale of subsidiary consolidated in the past
-------------------------------------------------------------
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
----------------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
AT MARCH 31, 2006
NOTE 1 - GENERAL:
a. The interim financial statements as of March 31, 2006 and
for the three-month period then ended (hereafter - the
interim statements) were drawn up in condensed form, in
accordance with Accounting Standard No. 14 of the Israel
Accounting Standards Board (hereafter - the IASB) and in
accordance with Chapter D of the Securities (Periodic and
Immediate Reports) Regulations, 1970.
b. The accounting principles applied in the preparation of the
interim statements are consistent with those applied in the
preparation of the annual financial statements, except for
the change in the accounting policies that relate to the
recognition and classification of financial instruments, to
the recognition of revenue, to the recognition and treatment
of goodwill and intangible assets originating from the
acquisition of an investee company, and after taking into
account, by means of retrospective application, the change
in the accounting policy with regard to the computation of
earnings per share, which result from the initial adoption
of new IASB accounting standards, as detailed in note 2.
However, the interim statements do not include all the
information and explanations required for the annual
financial statements. Costs incurred unevenly during the
year are brought forward or deferred, for interim reporting
purposes if, and only if, such costs may be brought forward
or deferred in the annual reporting.
Taxes on income for the interim periods are included based
on the best estimate of the anticipated average annual tax
expense for the entire year; changes in said estimate, as
well as changes in the amount of the tax saving to be
utilized in the following years, are included as an expense
for the current quarter.
c. On March 7, 2006, an associated company (T.M.M. - Integrated
Recycling Industries Ltd. - hereafter - T.M.M.) announced
that that the Securities Authority was conducting an
investigation whose subject matter was not given to T.M.M.,
which therefore has no knowledge of the details relating to
said investigation. The Company's management is unable to
assess the effect of the aforesaid, if any, on the Company
and its financial statements.
d. The Company draws up and presents its financial statements
in Israeli currency (hereafter - NIS) in accordance with the
provisions of Accounting Standard No. 12 -"Discontinuance of
Adjusting Financial Statements for Inflation" - of the IASB,
which set transitional provisions for financial reporting on
a nominal basis, commencing January 1, 2004. Accordingly,
the amounts of non-monetary assets, mainly fixed assets and
other assets (including depreciation and amortization in
respect of those assets), and the shareholders' equity
components included in the financial statements, originating
from the period that preceded the transition date, are based
on their adjusted to December 2003 shekel amount.
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
AT MARCH 31, 2006
NOTE 1 - GENERAL (continued):
e. Following are the changes in the exchange rate of the U.S.
dollar (hereafter - the dollar) and in the consumer price
index during the reported period:
Exchange rate of Consumer price
one dollar index
---------------- --------------
% %
3 months ended March 31:
2006 1.3 0.6
2005 1.2 (0.6)
Year ended December 31, 2005 6.8 2.4
The exchange rate of the dollar as of March 31, 2006 is: $ 1= NIS 4.665.
NOTE 2 - ACCOUNTING CHANGES:
Adoption of new accounting standards that became effective on January
1, 2006:
Commencing with the financial statements for the 3-month period ended
March 31, 2006, the Company applies the following new accounting
standards:
1) Accounting Standard No. 22 - "Financial Instruments: Disclosure
and Presentation"
This standard, which is based on International Accounting
Standard No. 32, prescribes the rules for the presentation of
financial instruments and the proper disclosure required
therefor, and - on becoming effective - revoked Opinion 48 -
"Accounting Treatment of Option Warrants", and Opinion 53 -
"Accounting Treatment of Convertible Liabilities" of the
Institute of Certified Public Accountants in Israel (hereafter -
the Israeli Institute).
The standard is to be applied prospectively and, accordingly,
does not change the classification and presentation of financial
instruments included in the comparative figures. In accordance
with the transitional provisions of the standard, effective from
January 1, 2006, the following changes have been included in the
Company's financial statements:
The balance of deferred issuance costs, which at December 31,
2005 amounted to NIS 946,000 has been reclassified and presented
as a deduction from the amount of the liability to which such
expenses relate. Commencing January 1, 2006, these expenses are
amortized according to the interest method. Through December 31,
2005, deferred issuance costs were presented among "other assets"
and were amortized according to the straight-line method. The
change in the method of amortization, as referred to above, does
not have a material effect on the operating results of the
reporting period.
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
AT MARCH 31, 2006
NOTE 2 - ACCOUNTING CHANGES (continued):
2) Accounting Standard 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. The new standard is applicable
to transactions where under the 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.
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 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 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 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 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 made on the
date of the grant and recognized as a liability in the Company's
balance sheet; thereafter, the liability is 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.
The standard includes transitional provisions with regard to its
application to grants made prior to January 1, 2006. Pursuant to
these provisions, taking into account the fact that the Company
has not made any equity grants subsequent to March 15. 2005 and
has not made any modifications to existing grants subsequent to
that date, the standard's measurement rules do not apply to the
equity grants made by the Company in the past and their
implementation does have any effect on the comparative figures
included in these financial statements. The Company also has a
liability relating to liability grants, for which the
retrospective application of the provisions of the standard will
not have a material effect, either with regard to individual
years or cumulatively.
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
AT MARCH 31, 2006
NOTE 2 - ACCOUNTING CHANGES (continued):
3) Accounting Standard No. 21 - "Earnings per Share"
This standard, which is based on International Accounting
Standard No. 33, supersedes Opinion 55 of the Israeli Institute
on this topic, and provides new rules for the computation of
earnings per share data and their presentation in the financial
statements.
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. In contrast to Opinion 55, 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 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).
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.
The standard also changes the manner in which the data are
presented: the earnings or loss is presented per ordinary share,
instead of per NIS 1 par value of the share, as was required
previously.
The earnings per share data included in the comparative figures
in these financial statements are after the retrospective
application of the computation directives of the new standard.
4) Accounting Standard No. 25 - "Revenue"
This standard, which is based on International Accounting
Standard No. 18, 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).
In accordance with the standard, revenue from the sale of goods
is 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.
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
AT MARCH 31, 2006
NOTE 2 - ACCOUNTING CHANGES (continued):
As of January 1, 2006, the associated company reduced the balance
of trade receivables at the beginning of the period by an amount
of NIS 1.1 million, thereby presenting the balance of its present
value in accordance with the provisions of the standard.
The Company's share in the effect of said adjustment is NIS 0.5
million, and was included as loss for the three-month period that
ended on March 31, 2006, under "cumulative effect at the
beginning of period of an accounting change in associated
company".
5) Accounting Standard No. 20 (Amended) - "The Accounting Treatment
of the Goodwill and Intangible Assets on the Acquisition of
Investee Companies"
This standard, which supersedes the provisions of Israel
Accounting Standard No. 20 - "The Amortization Period of
Goodwill", prescribes for the first time criteria for the
identification and recognition of intangible assets included in
business acquisition transactions, and their separation from
goodwill; the standard also prescribes rules regarding the way in
which such assets are to be amortized. Pursuant to the standard,
intangible assets that are identified as having a finite life are
amortized over their economic life, while goodwill and intangible
assets that are identified as having an infinite life are no
longer amortized; instead, an annual (or more frequent)
impairment test of these assets is required to be performed in
order to establish the existence of events or circumstances
indicating a possible impairment in the value of such assets.
The abovementioned provisions of the standard, other than the
annual impairment test, also apply with regard to identifying
intangible assets and goodwill, and the manner of their
amortization, included in acquisition transactions of investments
in associated companies, the investment in which is accounted for
according to the equity method.
The negative goodwill balance, which was included in the
financial statements as of December 31, 2005, in the amount of
NIS 1.1 million, and results from the associated company's
acquisition of investments in associated companies, was carried
to the balance of retained earnings on January 1, 2006.
The discontinuance of amortizing goodwill and intangible assets
with an unlimited life, as referred to above, resulted in an
increase in the equity profits of the Company in the 3-month
period that ended on March 31, 2006, of approximately NIS
1,000,000.
9
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
AT MARCH 31, 2006
NOTE 3 - BUSINESS SEGMENTS:
Data (in thousands of NIS) according to business segments are as
follows:
For the 3-month period:
-----------------------
Paper and recycling Office supplies marketing Total
--------------------- ------------------------- --------------------
January-March January-March January-March
--------------------- ------------------------- --------------------
2006 2005 2006 2005 2006 2005
------- ------ ------ ------ ------- -------
Sales - Net (1) 100,240 94,957 31,248 26,821 131,488 121,778
Operating profit (loss) 13,799 14,939 (467) (463) 13,332 14,476
For 2005:
Paper and recycling Office supplies marketing Total
--------------------- ------------------------- --------------------
2005 2005 2005
--------------------- ------------------------- --------------------
Sales - Net (1) 368,884 113,577 482,461
Operating profit (loss) 48,662 (880) 47,782
(1) Represents sales to external customers.
[LETTERHEAD OF AMERICAN ISRAELI PAPER MILLS LTD.]
Enclosed please find the financial reports of the following associated
companies:
- Mondi Business Paper Hadera Ltd.
- Hogla-Kimberly Ltd.
The financial report of the following associated companies are not included:
- Carmel Containers Systems Ltd., according to section 44(c) of the
Securities (Periodic and Immediate Reports) Regulations.
- TMM Integrated Recycling Industries Ltd., a reporting corporation.
Exhibit 4
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2006
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2006
TABLE OF CONTENTS
-----------------
Page
----
Accountants' Review Report 1
Condensed Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to the Financial Statements 6-7
The Board of Directors of
Mondi Business Paper Hadera Ltd.
--------------------------------
Re: Review of Unaudited Condensed Interim Consolidated
Financial Statements for the Three Months Ended March 31, 2006
--------------------------------------------------------------
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Mondi Business Paper Hadera Ltd.
("the Company") and its subsidiaries, as follows:
- Balance sheet as of March 31, 2006.
- Statement of operations for the three months ended March 31, 2006.
- Statement of changes in shareholders' equity for the three months ended
March 31, 2006.
- Statement of cash flows for the three months ended March 31, 2006.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention, which indicates that
material adjustments are required to the aforementioned interim financial
statements for them to be deemed financial statements prepared in conformity
with generally accepted accounting principles in Israel and in accordance with
the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, May 8, 2006
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands; Reported Amounts)
Three months ended Year ended
----------------------------- ------------
March 31, December 31,
----------------------------- ------------
2006 2005 2005
------------ ----------- ------------
(Unaudited)
-----------------------------
ASSETS
Current Assets
Trade receivables 178,290 156,046 160,875
Other receivables 6,145 8,251 10,872
Inventories 131,976 98,351 116,859
------- ------- -------
Total current assets 316,411 262,648 288,606
------- ------- -------
Fixed Assets
Cost 205,817 167,174 202,469
Less - accumulated depreciation 45,836 35,365 43,132
------- ------- -------
159,981 131,809 159,337
------- ------- -------
Other Assets - Goodwill 3,177 3,644 3,177
------- ------- -------
Total assets 479,569 398,101 451,120
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank credit 70,333 11,066 85,887
Current maturities of long-term bank loans 17,422 15,273 16,242
Capital notes to shareholders 4,665 -- 18,412
Trade payables 133,847 111,458 102,984
American Israeli Paper Mills Group, net 69,453 63,911 69,854
Other payables and accrued expenses 21,158 21,529 20,202
------- ------- -------
Total current liabilities 316,878 223,237 313,581
------- ------- -------
Long term liabilities
Long-term bank loans 42,472 30,318 21,807
Capital notes to shareholders 13,995 17,444 --
Deferred taxes 13,989 25,683 19,900
Accrued severance pay, net 51 87 51
------- ------- -------
Total long-term liabilities 70,507 73,532 41,758
------- ------- -------
Shareholders' Equtiy
Share capital 1 1 1
Premium 43,352 43,352 43,352
Retained earnings 48,831 57,979 52,428
------- ------- -------
92,184 101,332 95,781
------- ------- -------
Total liabilities and shareholders' equity 479,569 398,101 451,120
======= ======= =======
__________________ _______________ _____________
D. Muhlgay A. Solel A. Brener
Financial Director General Manager Director
Approval date of the interim financial statements: May 8, 2006.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
2
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands; Reported Amounts)
Three months ended Year ended
March 31, December 31,
-------------------------- ------------
2006 2005 2005
----------- ----------- ------------
(Unaudited)
--------------------------
NET SALES 182,985 164,060 663,338
COST OF SALES 170,723 146,296 609,752
-------- -------- --------
GROSS PROFIT 12,262 17,764 53,586
-------- -------- --------
OPERATING COSTS AND EXPENSES
Selling expenses 11,102 9,598 45,268
General and administative expenses 1,946 2,595 7,301
-------- -------- --------
13,048 12,193 52,569
-------- -------- --------
OPERATING PROFIT (LOSS) (786) 5,571 1,017
FINANCING EXPENSES, NET (4,230) (1,906) (12,868)
OTHER INCOME, NET -- 76 65
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (5,016) 3,741 (11,786)
TAX BENEFITS (INCOME TAXES) 1,419 (1,596) 8,380
-------- -------- --------
NET INCOME (LOSS) FOR THE PERIOD (3,597) 2,145 (3,406)
======== ======== ========
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
MONDI BUSINESS PAPER HADERA LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
Share Retained
capital Premium earnings Total
------- ------- -------- -----
Three months ended March 31, 2006
(Unaudited)
Balance - January 1, 2006 1 43,352 52,428 95,781
Loss for the period (3,597) (3,597)
------- ------- ------- -------
Balance - March 31, 2006 1 43,352 48,831 92,184
======= ======= ======= =======
Three months ended March 31, 2005
(Unaudited)
Balance - January 1, 2005 1 43,352 55,834 99,187
Net income for the period 2,145 2,145
------- ------- ------- -------
Balance - March 31, 2005 1 43,352 57,979 101,332
======= ======= ======= =======
Year ended December 31, 2005
Balance - January 1, 2005 1 43,352 55,834 99,187
Loss for the year (3,406) (3,406)
------- ------- ------- -------
Balance - December 31, 2005 1 43,352 52,428 95,781
======= ======= ======= =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
Three months ended Year ended
March 31, December 31,
---------------------- ------------
2006 2005 2005
--------- --------- ------------
(Unaudited)
----------------------
CASH FLOWS - OPERATING ACTIVITIES
Net income (loss) for the period (3,597) 2,145 (3,406)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Income and expenses
not involving cash flows:
Depreciation and amortization 2,710 2,348 10,722
Deferred taxes, net (1,419) 1,276 (8,470)
Decrease in liability for
severance pay, net -- -- (36)
Capital gain from
sale of fixed assets -- (76) (65)
Effect of exchange rate and linkage differences
of long-term bank loans 419 343 (738)
Effect of exchange rate differences
of long-term capital notes to shareholders 248 211 1,179
Changes in assets and liabilities:
Decrease (increase) in trade receivables (17,415) 1,769 (3,060)
Decrease (increase) in other receivables 235 (1,686) (345)
Increase in inventories (15,117) (7,960) (26,468)
Increase (decrease) in trade payables 30,528 6,439 (4,235)
Increase (decrease) in American
Israeli Paper Mills Group, net (401) (1,122) 4,821
Increase (decrease) in other payables
and accrued expenses 956 (1,603) (2,930)
------- ------- -------
Net cash provided by (used in)
operating activities (2,853) 2,084 (33,031)
------- ------- -------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of fixed assets (3,171) (17,905) (51,323)
Proceeds from sale of fixed assets 152 76 248
------- ------- -------
Net cash used in investing activities (3,019) (17,829) (51,075)
------- ------- -------
CASH FLOWS - FINANCING ACTIVITIES
Short-term bank credit, net (15,554) 11,066 87,004
Repayment of long-term bank loans (6,574) (6,125) (13,702)
Proceeds of long-term bank loans 28,000 -- --
------- ------- -------
Net cash provided by financing activities 5,872 4,941 73,302
------- ------- -------
Decrease in cash and cash equivalents -- (10,804) (10,804)
Cash and cash equivalents - beginning of period -- 10,804 10,804
------- ------- -------
Cash and cash equivalents - end of period -- -- --
======= ======= =======
Non-cash activities
Acquisitions of fixed assets on credit 853 1,142 3,342
======= ======= =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as
of March 31, 2006 and for the three months then ended ("interim
financial statements") of Mondi Business Paper Hadera Ltd. ("the
Company") and subsidiaries should be read in conjunction with the
audited consolidated financial statements of the Company and
subsidiaries as of December 31, 2005 and for the year then ended,
including the notes thereto.
In the opinion of management, the interim financial statements
include all adjustments necessary for a fair presentation of the
financial position and results of operations as of March 31, 2006
and for the interim period presented. The results of operations for
the interim period are not necessarily indicative of the results to
be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
(1) The significant accounting policies applied in the interim
consolidated financial statements are consistent with those
applied in the audited consolidated financial statements as of
December 31, 2005 and for the year then ended, except for the
initial application of Accounting Standard No. 22, "Financial
Instruments: Disclosure and Presentation" and Accounting
Standard No. 25, "Revenues". The affect of initially applying
these standards on the Company's financial position and
results of operations is not material
(2) For the affect of initial application of Accounting Standard
No. 20 (Revised) "Accounting Treatment of Goodwill and Other
Intangibles upon the Acquisition of an Investee ", see 2 B
below.
(3) The interim financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") in Israel, in a condensed format in accordance with
GAAP applicable to the preparation of interim period financial
statements, including those under Standard No. 14, "Interim
Financial Reporting" and in accordance with Paragraph D of the
Israeli Securities Regulations (Periodic and Immediate
Reports), 1970.
B. APPLICATION OF STANDARD NO. 20 (REVISED) - "ACCOUNTING TREATMENT OF
GOODWILL AND OTHER INTANGIBLES UPON THE ACQUISITION OF AN INVESTEE"
In March 2006 the Israeli Accounting Standards Board ("the Board")
published Standard No. 20 (Revised) "Accounting Treatment of
Goodwill and Other Intangibles upon the Acquisition of an Investee",
which applies to financial statements for periods commencing January
1, 2006 ("the Effective Date") or thereafter.
According to the Standard, the excess of acquisition cost of an
investment in an investee over the holding company's share in the
fair value of the investee's identifiable assets, including
intangibles, net of the fair value of identifiable liabilities
(after tax allocation) at acquisition date, constitutes goodwill.
Intangible asset will be recognized only if it satisfies the
criteria established in this standard.
6
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. APPLICATION OF STANDARD NO. 20 (REVISED) - "ACCOUNTING TREATMENT OF
GOODWILL AND OTHER INTANGIBLES UPON THE ACQUISITION OF AN INVESTEE"
(cont.)
Goodwill acquired in a business combination shall not be amortized
but rather will be examined for impairment annually, or more
frequently if events or changes in circumstances indicate that it
might be impaired.
The standard distinguishes between intangible assets, which have
defined useful lives and those that do not, stating that the former
should be amortized while the latter should not, while rather
examined for impairment annually, or more frequently if events or
changes in circumstances indicate that it might be impaired.
Comparative figures for periods ended prior to the Effective Date
should not be restated and goodwill presented in the balance sheet
as of December 31, 2005 will no longer be amortized, including
goodwill presented in the investment account of an affiliate.
As a result of the application of the standard, the Company ceased
amortizing the goodwill, whose balance as of January 1, 2006 is NIS
3,177 thousands. The amortization of goodwill recorded in the year
ended December 31, 2005 and in the three months ended March 31, 2005
is NIS 623 thousands and NIS 156 thousands, respectively.
C. Following are the changes in the representative exchange rates of
the Euro and the U.S. dollar vis-a-vis the NIS and in the Israeli
Consumer Price Index ("CPI"):
Representative Representative
exchange rate exchange rate CPI
of the Euro of the dollar "in respect of"
As of: (NIS per (euro)1) (NIS per $1) (in points)
--------------------- ------------------ ------------------
March 31, 2006 5.662 4.665 186.12
March 31, 2005 5.649 4.361 179.66
December 31, 2005 5.446 4.603 185.05
Increase (decrease) during the: % % %
----------------------- ------------------ --------------------
Three months ended March 31, 2006 4.0 1.3 0.6
Three months ended March 31, 2005 (3.9) 1.2 (0.6)
Year ended December 31, 2005 (7.3) 6.8 2.4
7
EXHIBIT 5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2006
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2006
TABLE OF CONTENTS
-----------------
Page
----
Accountants' Review Report 1
Condensed Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7-8
43
The Board of Directors of
Hogla-Kimberly Ltd.
-------------------------------------
RE: REVIEW OF UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2006
--------------------------------------------------------------
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Hogla-Kimberly Ltd. ("the
Company") and its subsidiaries, as follows:
- Balance sheet as of March 31, 2006.
- Statement of operations for the three months ended March 31,
2006.
- Statement of changes in shareholders' equity for the three months
ended March 31, 2006.
- Statement of cash flows for the three months ended March 31,
2006.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention, which indicates that
material adjustments are required to the aforementioned interim financial
statements for them to be deemed financial statements prepared in conformity
with generally accepted accounting principles in Israel and in accordance with
the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, May 8, 2006
-1-
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands; Reported Amounts)
March 31, December 31,
------------------------------- ------------
2 0 0 6 2 0 0 5 2 0 0 5
------- ------- ------------
(Unaudited)
-------------------------------
Current Assets
Cash and cash equivalents 20,035 122,904 35,551
Trade receivables 281,723 220,288 257,899
Other receivables 59,271 36,191 59,805
Inventories 174,311 125,112 148,077
------- ------- -------
535,340 504,495 501,332
------- ------- -------
Long-Term Investments
Long-term bank deposits - 69,776 -
Capital note of shareholder 32,770 32,770 32,770
------- ------- -------
32,770 102,546 32,770
------- ------- -------
Fixed Assets
Cost 551,197 509,763 542,377
Less - accumulated depreciation 241,157 226,759 235,144
------- ------- -------
310,040 283,004 307,233
------- ------- -------
Other Assets
Goodwill 25,070 25,503 24,737
Deferred taxes 30,920 19,079 26,559
------- ------- -------
55,990 44,582 51,296
------- ------- -------
934,140 934,627 892,631
======= ======= =======
Current Liabilities
Short-term bank credit 109,315 - 66,559
Current maturities of long-term bank loans - 73,941 20,714
Trade payables 212,432 196,677 215,772
Other payables and accrued expenses 65,762 43,164 51,920
------- ------- -------
387,509 313,782 354,965
------- ------- -------
Long-Term Liabilities
Long-term bank loans - 78,497 -
Deferred taxes 39,093 38,630 38,566
------- ------- -------
39,093 117,127 38,566
------- ------- -------
Minority Interest 59,708 55,173 58,916
------- ------- -------
Shareholders' Equity
Share capital 29,038 29,038 29,038
Capital reserves 180,414 180,414 180,414
Translation adjustments relating to
foreign held autonomous Subsidiary 1,884 (897) 618
Retained earnings 236,494 196,380 230,114
Dividend declared after balance sheet date - 43,610 -
------- ------- -------
447,830 448,545 440,184
------- ------- -------
934,140 934,627 892,631
======= ======= =======
------------------------- ----------------------------- ----------------------
T. Davis O. Argov A. Schor
Chairman of the Board Chief Financial Officer Chief Executive Officer
of Directors
Chief Executive Officer
Approval date of the interim financial statements: May 8, 2006.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
2
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands; except per share data Reported Amounts)
Three months ended Year ended
March 31, December 31,
-------------------------------- ------------
2 0 0 6 2 0 0 5 2 0 0 5
--------- --------- ------------
(unaudited)
--------------------------------
Net sales 309,825 274,147 1,145,981
Cost of sales 210,503 199,834 820,715
--------- --------- ---------
Gross profit 99,322 74,313 325,266
Selling expenses 66,827 49,372 202,683
General and administrative expenses 12,582 10,236 56,283
--------- --------- ---------
Operating profit 19,913 14,705 66,300
Financing income (expenses), net (3,477) (828) 752
Other income, net 748 - 176
--------- --------- ---------
Income before income taxes 17,184 13,877 67,228
Income taxes 9,924 3,663 19,527
--------- --------- ---------
Income after income taxes 7,260 10,214 47,701
Minority interest in earnings of Subsidiary (880) (681) (4,425)
--------- --------- ---------
Net income for the period 6,380 9,533 43,276
========= ========= =========
Basic earnings per ordinary share
Earnings per share (in NIS) 0.75 1.12 5.08
========= ========= =========
Number of shares used in computation 8,513,473 8,513,473 8,513,473
========= ========= =========
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
HOGLA-KIMBERLY LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
Translation Dividend
adjustments declared
relating to after
foreign held balance
Share Capital autonomous Retained sheet
capital reserves Subsidiary earnings date Total
------ ------- --------- ------- -------- -------
Three months ended
March 31, 2006 (unaudited)
Balance - January 1, 2006 29,038 180,414 618 230,114 - 440,184
Translation adjustments
relating to foreign held
autonomous Subsidiary 1,266 1,266
Net income for the period 6,380 6,380
------ ------- ------ ------- -------- -------
Balance - March 31, 2006 29,038 180,414 1,884 236,494 - 447,830
====== ======= ====== ======= ======== =======
Three months ended
March 31, 2005 (unaudited)
Balance - January 1, 2005 29,038 180,414 (3,377) 230,457 - 436,532
Translation adjustments
relating to foreign held
autonomous Subsidiary 2,480 2,480
Dividend declared after
balance sheet date (43,610) 43,610 -
Net income for the period 9,533 9,533
------ ------- ------ ------- -------- -------
Balance - March 31, 2005 29,038 180,414 (897) 196,380 43,610 448,545
====== ======= ====== ======= ======== =======
Year ended December 31, 2005
Balance - January 1, 2005 29,038 180,414 (3,377) 230,457 - 436,532
Translation adjustments
relating to foreign held
autonomous Subsidiary 3,995 3,995
Dividend paid (43,619) (43,619)
Net income for the year 43,276 43,276
------ ------- ------ ------- -------- -------
Balance - December 31, 2005 29,038 180,414 618 230,114 - 440,184
====== ======= ====== ======= ======== =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
Three months ended Year ended
March 31, December 31,
----------------------------- -----------
2 0 0 6 2 0 0 5 2 0 0 5
-------- -------- -----------
(unaudited)
-----------------------------
Cash flows - operating activities
Net income for the period 6,380 9,533 43,276
Adjustments to reconcile net income to net cash
provided by operating activities (Appendix A) (36,090) (25) (37,622)
-------- -------- --------
Net cash provided by
(used in) operating activities (29,710) 9,508 5,654
-------- -------- --------
Cash flows - investing activities
Withdrawal of long-term bank deposits - - 73,648
Acquisition of fixed assets (7,603) (6,150) (44,634)
Proceeds from sale of fixed assets 174 - 293
-------- -------- --------
Net cash provided by
(used in) investing activities (7,429) (6,150) 29,307
-------- -------- --------
Cash flows - financing activities
Dividend paid - (43,619)
Long-term loan received - 3,056 -
Repayment of long-term loan (20,714) (3,056) (94,437)
Short-term bank credit 41,797 - 21,475
-------- -------- --------
Net cash provided by
(used in) financing activities 21,083 - (116,581)
-------- -------- --------
Translation adjustments of cash and
cash equivalents and operations of
foreign held autonomous Subsidiary 540 2,182 (193)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (15,516) 5,540 (81,813)
Cash and cash equivalents - beginning of period 35,551 117,364 117,364
-------- -------- --------
Cash and cash equivalents - end of period 20,035 122,904 35,551
======== ======== ========
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
APPENDICES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts )
Three months ended Year ended
March 31, December 31,
---------------------------- ------------
2 0 0 6 2 0 0 5 2 0 0 5
------- ------- ------------
(unaudited)
----------------------------
A. Adjustments to reconcile net income to
net cash provided by operating activities
Income and expenses not involving
cash flows:
Minority interest in earnings of Subsidiary 880 681 4,425
Depreciation and amortization 6,125 6,109 25,162
Deferred taxes, net (3,123) (2,499) (12,740)
Gain from sale of fixed assets (159) - (293)
Effect of exchange rate differences, net (137) 71 20
Changes in assets and liabilities:
Increase in trade receivables (23,533) (6,043) (41,401)
Decrease (increase) in other receivables 631 (424) (18,974)
Decrease (increase) in inventories (25,736) 18,411 (2,357)
Increase (decrease) in trade payables (2,850) (18,882) 6,167
Net change in balances with related parties (2,059) (1,915) (10,515)
Increase in other payables
and accrued expenses 13,871 4,466 12,885
------- ------- -------
(36,090) (25) (37,622)
======= ======= =======
B. Non-cash activities
Acquisition of fixed assets on credit 8,141 2,996 37,617
======= ======= =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
6
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2006
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as of
March 31, 2006 and for the three months then ended ("interim financial
statements") of Hogla-Kimberly Ltd. ("the Company") and subsidiaries
should be read in conjunction with the audited consolidated financial
statements of the Company and subsidiaries as of December 31, 2005 and
for the year then ended, including the notes thereto. In the opinion of
management, the interim financial statements include all adjustments
necessary for a fair presentation of the financial position and results
of operations as of March 31, 2006 and for the interim period
presented. The results of operations for the interim period are not
necessarily indicative of the results to be expected on a full-year
basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
(1) The significant accounting policies applied in the interim
consolidated financial statements are consistent with those
applied in the audited consolidated financial statements as of
December 31, 2005 and for the year then ended, except for the
initial application of Accounting Standard No. 21, "Earnings
Per Share", Accounting Standard No. 22, "Financial
Instruments: Disclosure and Presentation" and Accounting
Standard No. 25, "Revenues". The affect of initially applying
these standards on the Company's financial position and
results of operations is not material.
(2) For the affect of initial application of Accounting Standard
No. 20 (Revised) "Accounting Treatment of Goodwill and Other
Intangibles upon the Acquisition of an Investee", - See 2 B
below.
(3) The interim financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") in Israel, in a condensed format in accordance with
GAAP applicable to the preparation of interim period financial
statements, including those under Standard No. 14, "Interim
Financial Reporting" and in accordance with Paragraph D of the
Israeli Securities Regulations (Periodic and Immediate
Financial Statements), 1970.
B. APPLICATION OF STANDARD NO.20 - "ACCOUNTING TREATMENT OF
GOODWILL AND OTHER INTANGIBLES UPON THE ACQUISITION OF AN
INVESTEE"
In March 2006 the Israeli Accounting Standards Board ("the
Board") published Standard No.20 (revised) "Accounting
Treatment of Goodwill and Other Intangibles upon the
Acquisition of an Investee", which applies to financial
statements for periods commencing January 1, 2006 ("the
Effective Date") or thereafter.
According to the standard, the excess of acquisition cost of
an investment in an investee over the holding company's share
in the fair value of the investee's identifiable assets,
including intangibles, net of the fair value of identifiable
liabilities (after tax allocation) at acquisition date,
constitutes goodwill. Intangible asset will be recognized only
if it satisfies the criteria established in this standard.
7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. Application of Standard No. 20 (Revised) - "Accounting
Treatment of Goodwill and Other Intangibles upon the
Acquisition of an Investee" (cont.)
Goodwill acquired in a business combination shall not be
amortized but rather will be examined for impairment
annually, or more frequently if events or changes in
circumstances indicate that it might be impaired.
The Standard distinguishes between intangible assets, which
have defined useful lives and those that do not, stating
that the former should be amortized while the latter should
not, but rather examined for impairment annually, or more
frequently if events or changes in circumstances indicate
that it might be impaired.
Comparative figures for periods ended prior to the
Effective Date should not be restated and goodwill
presented in the balance sheet as of December 31, 2005 will
no longer be amortized, including the one presented in the
investment account of an affiliate.
As a result of the initial application of this Standard the
Company ceased amortizing the goodwill associated with its
investment in KCTR, the net balance of which as of January
1, 2006 is NIS 24,737 thousand. The amortization of
goodwill recorded in the year ended December 31, 2005 and
in the three months ended March 31, 2005 is NIS 2,850
thousands and NIS 693 thousands, respectively.
C. During the reporting period, the representative exchange
rate of the US Dollar vis-a-vis the NIS and the exchange
rate of the Turkish Lira vis-a-vis the NIS increased by
1.3% and 1.7%, respectively, while the Israeli Consumer
Price Index increased by 0.6%.
NOTE 3 - SUPLEMENTAL DATA
A. Following a tax assessment of the company's tax return,
performed by the tax authorities in respect of tax-years
2003 and 2002, the company recorded additional provision
for tax expenses, which, according to management
assessment, reflects the increase in the tax expenses in
respect of prior years.
B. The Company has provided additional guarantee securing
loans in the amount of NIS 21,083 thousands, provided by
banks to a Subsidiary in Turkey in the three-month ended
March 31, 2006.
8