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 August 2004
-----------------------
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 August 12, 2004 with respect to the
Registrant's results of operations for the quarter ended June 30, 2004.
Attached hereto as Exhibit 2 and incorporated herein by reference is
the Registrant's Management Discussion with respect to the Registrant's results
of operations for the quarter ended June 30, 2004.
Attached hereto as Exhibit 3 and incorporated herein by reference are
the Registrant's unaudited condensed consolidated financial statements for the
quarter ended June 30, 2004.
Attached hereto as Exhibit 4 and incorporated herein by reference is
the Interim Report of Neusiedler Hadera Paper Ltd. with respect to the quarter
ended June 30, 2004.
Attached hereto as Exhibit 5 and incorporated herein by reference are
the unaudited condensed interim consolidated financial statements of
Hogla-Kimberly Ltd. and subsidiaries with respect to the quarter ended June 30,
2004.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ISRAELI PAPER MILLS LTD.
(Registrant)
By: /s/ Lea Katz
-----------------------------------
Name: Lea Katz
Title: Corporate Secretary
Dated: August 12, 2004.
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
----------- -----------
1. Press release dated August 12, 2004.
2. Registrant's management discussion.
3. Registrant's unaudited condensed consolidated
financial statements.
4. Interim report of Neusiedler Hadera Paper Ltd.
5. Unaudited condensed interim consolidated
financial statements of Hogla-Kimberly Ltd. and
subsidiaries.
EXHIBIT 1
AMERICAN ISRAELI PAPER MILLS LTD.
REPORTS FINANCIAL RESULTS FOR SECOND QUARTER AND SIX MONTHS
- DECLARES CASH DIVIDEND -
Hadera, Israel, August 12, 2004 - American Israeli Paper Mills Ltd. (ASE:AIP)
(the "Company" or "AIPM") today reported financial results for the second
quarter and first six months ended June 30,2004.
Pursuant to the directives of Standard No.12 of the Accounting Israeli Standards
Board ("Standard 12"), the Company began to report in nominal New Israeli
Shekels (NIS) as of January 1, 2004. In the past, the Company's reports were in
NIS, adjusted to changes in the exchange rate of the US dollar against the NIS.
The comparison figures with the corresponding periods last year and with all of
2003 are the dollar figures, as reported in the past, multiplied by the exchange
rate of the US dollar as of December 31, 2003, the day of the transition to
NIS-based reporting pursuant to Standard 12 ($1 = NIS 4.379).
Since the Company's share in the earnings of associated companies constitutes a
material component in the Company's statement of income (primarily on account of
its share in the earnings of Neusiedler Hadera Paper (NHP) and Hogla-Kimberly
(H-K) that were consolidated in the past, until the transfer of control over
these companies to the international strategic partners), we also present the
aggregate data which include the results of all the companies in the AIPM Group
(including the associated companies whose results appear in the financial
statements under "earnings from associated companies"), net of intercompany
sales and irrespective of the percentage of holding.
Aggregate group sales in the first six months of 2004(January - June 2004)
totaled NIS 1,337.9 million compared with NIS 1,144.5 million in the
corresponding period last year (January - June 2003). Aggregate sales in the
second quarter of 2004 (April - June 2004) totaled NIS 655.3 million, compared
with NIS 565.3 million in the corresponding quarter last year(April - June
2003).
Aggregate operating profit in the first six months of 2004 totaled NIS 106.0
million compared with NIS 74.8 million in the corresponding period last year.
Aggregate operating profit in the second quarter of 2004 totaled NIS 49.6
million, compared with NIS 37.4 million in the corresponding quarter last year.
The consolidated data below does not include the results of operations of NHP,
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 six months of 2004 totaled NIS 238.2 million
compared with NIS 232.7 million in the corresponding period last year.
Consolidated sales in the second quarter of the year totaled NIS 119.1 million,
compared with NIS 115.0 million in the corresponding quarter last year.
Operating profit in the first six months of 2004 totaled NIS 27.3 million
compared with NIS 23.1 million in the corresponding period last year. Operating
profit in the second quarter of 2004 totaled NIS 13.8 million, compared with NIS
10.0 million in the corresponding quarter last year.
Profit after taxes and before the Company's share in the profits of associated
companies in the reported period amounted to NIS 15.2 million (not including an
extraordinary tax benefit of NIS 5.8 million - see below), compared with NIS 9.9
million in the corresponding period last year (not including NIS 1 million
non-recurring capital gain).
In June this year a law was passed in Israel, effective retroactively from
January 1, 2004, which gradually lowers the corporate tax rate (before the
amendment - 36%) to 35% in 2004 and gradually down to 30% in 2007. The effect of
this change on the Company's deferred taxes (in the consolidated report)
amounted to NIS 5.8 million (mainly due to the decrease in future tax
liabilities which were deferred in respect of timing differences in
depreciation, which was taken at a faster pace in the tax reports).
The tax benefits including our share in the tax benefit of the associated
companies amounted to NIS 10.2 million.
Net profit totaled NIS 42.6 million during the six months period this year, as
compared with NIS 31.4 million in the corresponding period last year. Net profit
in the reported period includes the above mentioned tax benefits. Net profit in
the 2003 period included approximately NIS 1.0 million in net non-recurring
capital gains.
Earnings per share (EPS) (before non-recurring gains) in the first six months of
2004 totaled NIS 8.01 ($1.78 per share) compared with NIS 7.58 ($1.73 per share)
for the corresponding period last year. Earnings per share in the first six
months of 2004, including special earnings, amounted to NIS 10.53 ($2.34 per
share).
The inflation rate in the first six months of 2004 was 1.4% as compared with
negative inflation rate of -0.5% in the corresponding period last year.
The exchange rate of the NIS was devaluated against the U.S. dollar in the first
six months of 2004 by approximately 2.7% as compared with a revaluation of 9.0%
in the corresponding period last year.
Mr. Yaacov Yerushalmi, Chairman of the Company's Board of Directors, said that
a certain recovery in the Israeli economy has been felt in recent months,
reflected in higher growth percentages and an increase in private consumption,
following several years of a severe recession that resulted in negative growth,
lower demand, greater competition and increased unemployment.
Pulp prices have been rising since the beginning of 2004 and there are signs of
stabilization in the third quarter of the year. Concurrently, weak demand for
paper, particularly in Europe, is causing the erosion of margins and the
shutting down of paper machines over the world.
The consolidated gross margin as a percentage of sales reached 23% in the first
six months of 2004 as compared with 22.3% in the corresponding period last year.
The improved gross margin compared to the corresponding period last year
resulted from increased production of the machines, efficiency measures and a
decrease in energy prices as a result of an average decrease of approximately 5%
compared with the corresponding period last year (when fuel oil prices rose
dramatically following the tension leading up to the war in Iraq). This
improvement was partially offset by an increase of raw materials prices mainly
in the field of collection of paper waste for recycling.
The Company's share in the earnings of associated companies in the reported
period amounted to NIS 21.6 million (including NIS 4.4 million representing our
share in a non-recurring benefit recorded in respect of the change in the
corporate tax rate), compared with NIS 20.4 million in the corresponding periods
last year.
The following principal changes were recorded in the Company's share in the
earnings of the main associated companies (this year - not including the
aforementioned tax benefit), in relation to the corresponding period last year:
o The Company's share in the net earnings of NHP fell by NIS 2.2 million.
Most of the change in the net earnings of NHP is associated with higher
financial expenses this year at NHP as a result of repayment of
shareholders' loans, which led to an increase in NHP's debt balance, and
the 2.7% devaluation (as a result of the transition to reporting in NIS in
accordance with Standard 12, due to a surplus of dollar liabilities).
o The Company's share in the earnings of H-K Israel increased by about NIS
1.4 million, primarily due to the ongoing improvement in operating profit
at H-K Israel compared with the corresponding period last year. The
increase was partially offset by lower financial revenues this year
compared with last year, due to transition to reporting in NIS pursuant to
Standard 12 and the effects of depreciation-revaluation on its linkage
balance sheet. Due to the effects of the change in the exchange rate on
the financial expenses, as aforesaid, the net earnings of H-K Israel in
the second quarter of the year amounted to NIS 15.2 million, compared with
NIS 22.1 million in the second quarter of 2003.
The Company's share in the net earnings of Ovisan (Turkey) fell by NIS 5.7
million despite the increase in output and the expansion of operations,
and was mainly due to the effects of the sharp devaluation (of the Turkish
lira against the dollar), particularly in the second quarter of the year,
both on the costs of raw materials, which are purchased mainly in dollars,
and on financial expenses. The results were also influenced by the intense
competition, reflected in an increase in advertising expenses along with
erosion of prices.
o The Company's share in the net earnings of the Carmel Group increased by
NIS 1.6 million, due to the continued improvement in the operating profit.
The improvement resulted from the comprehensive efficiency measures being
implemented by Carmel, coupled with the growth in the volume of
operations.
o The Company's share in the earnings of TMM increased by NIS 0.2 million,
as a result of improved operating profit and a certain decrease in the
high financial expenses of the company during the reported period, as
compared with the corresponding period last year, due mainly to the
decrease in the interest rate between the periods.
A total of 5,403 shares were issued during the reported period (0.1% dilution),
as a result of the exercise of 17,985 option warrants as part of the Company's
employee stock option plans.
The Board of Directors of the Company declared yesterday a cash dividend in a
total amount of NIS 100 million (approximately $22.11 million), or NIS
25.12425($5.55478) per share. The dividend will be paid on September 9, 2004 to
shareholders of record on August 25, 2004. The foregoing dollar value of the
cash dividend is calculated based on the exchange rate in effect on August 10,
2004 of NIS 4.523 to $1.00. The exact dollar payment per each share will be
determined on the record date, based on the exchange rate on such date.
In case of change in the issued share capital of the Company until the record
date the dividend per share shall be adjusted accordingly.
The ex-dividend date on the American Stock Exchange is August 23, 2004. The
ex-dividend date on the Tel Aviv Stock Exchange is August 26, 2004.
No Ordinary Share transfers between the Company's US and Israeli registers will
be permitted from August 23, 2004 through and including August 26, 2004, in
order to avoid any confusion that may result from the different ex-dividend
dates on the American Stock Exchange and the Tel Aviv Stock Exchange. The
temporary suspension of transfers between registers will not affect the trading
of the Company's Ordinary Shares on either the American Stock Exchange or the
Tel Aviv Stock Exchange.
The dividend is subject to a 25% tax imposed by the State of Israel.
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.
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF RESULTS
------------------
(UNAUDITED)
-----------
NIS IN THOUSANDS(1)
EXCEPT PER SHARE AMOUNTS
------------------------
SIX MONTHS ENDED JUNE 30,
-------------------------
2004 2003
==== ====
Net sales 238,244 232,697
Net earnings 42,630* 31,354*
Earnings per share 10.53* 7.84*
THREE MONTHS ENDED JUNE 30,
---------------------------
2004 2003
==== ====
Net sales 119,062 114,998
Net earnings 25,195* 18,233
Earnings per share 6.22* 4.56
* The net earnings of the 6 months and 3 months ended June 30, 2004
include a non- recurring tax benefit of about NIS 10.2 million (see
above). The net earnings in the 6 months ended June 30, 2003 included a
non-recurring net capital gain of about NIS 1.0 million.
(1) New Israeli Shekel amounts are reported according to Accounting
Standard No. 12 of the Israeli Accounting Standard Board (hereafter -
Standard No. 12) - "Discontinuance of Adjusting Financial Statements
for Inflation". The reported NIS under Standard No. 12 are nominal NIS,
for transactions made after January 1, 2004. The amounts of the
corresponding period last year have been adjusted to reflect changes in
the rate of exchange between the U.S. dollar and the New Israeli Shekel
until the end of December 2003 (date of transition to Standard No. 12).
EXHIBIT 2
August 11, 2004
I. MANAGEMENT DISCUSSION
---------------------
We are honored to present the consolidated financial statements of the American
Israeli Paper Mills Ltd. Group ("AIPM") for the first six months of the year
2004.
A. A SUMMARIZED DESCRIPTION OF THE GROUP AND ITS BUSINESS ENVIRONMENT
------------------------------------------------------------------
1. GENERAL
-------
AIPM is the leading Israeli group (the "Group") in the manufacture of
paper and paper products. The Group produces and markets a wide range
of paper types, household paper products, hygiene products, disposable
baby diapers, absorbent products for the incontinent, office supplies,
corrugated board packaging and consumer packaging. The Group is also
engaged in recycling operations in the fields of paper and plastics as
well as in the treatment of solid waste.
The company's securities are traded on the Tel Aviv Stock Exchange and
on the American Stock Exchange (AMEX).
2. THE BUSINESS ENVIRONMENT
------------------------
A certain recovery in the Israeli economy has been felt in recent
months, reflected in higher growth percentages and an increase in
private consumption, following several years of a severe recession
that resulted in negative growth, lower demand, greater competition
and increased unemployment.
Pulp prices have been rising since the beginning of 2004 and there are
signs of price stabilization in the third quarter of the year.
Concurrently, weak demand for paper, particularly in Europe, is
eroding margins and causing shutting down of paper machines all over
the world.
Pursuant to the directives of Standard No. 12 of the Accounting
Standards Board ("Standard 12"), the Company began to make its reports
in nominal New Israeli Shekels (NIS), as of January 1, 2004. In the
past, the Company's reports were in NIS, adjusted to changes in the
exchange rate of the US dollar against the NIS. The comparison figures
with the corresponding period last year and with the whole of 2003 are
the dollar figures, as reported in the past, multiplied by the
exchange rate of the US dollar as at December 31, 2003, the day of the
transition to NIS-based reporting pursuant to Standard 12 ($1 = NIS
4.379).
During the reported period (January-June 2004), the exchange rate of
the NIS in relation to the US dollar was devaluated by approximately
2.7%, as compared with a revaluation of 9.0% in the corresponding
period last year (January-June 2003).
The inflation rate during the reported period was 1.4%, as compared
with a negative inflation rate of -0.5% 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 Neusiedler
Hadera Paper ("NHP") 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") net of
inter-company sales and without considering the holding percentage of
AIPM in such companies.
Aggregate sales in the first half of the year amounted to NIS 1,337.9
million, as compared with NIS 1,144.5 million in the corresponding
period last year.
The aggregate operating profit totaled NIS 106.0 million during the
reported period, as compared with NIS 74.8 million in the
corresponding period last year.
Aggregate sales in the second quarter of the year (April-June 2004)
amounted to NIS 655.3 million, compared with NIS 565.3 million in the
corresponding quarter last year (April-June 2003).
Aggregate operating profit in the second quarter of the year amounted
to NIS 49.6 million, compared with NIS 37.4 million in the
corresponding quarter last year.
2. CONSOLIDATED DATA
-----------------
Sales during the reported period amounted to NIS 238.2 million, as
compared with NIS 232.7 million in the corresponding period last year.
Operating profit totaled NIS 27.3 million during the reported period,
as compared with NIS 23.1 million in the corresponding period last
year.
Sales in the second quarter of the year amounted to NIS 119.1 million,
compared with NIS 115.0 million in the corresponding quarter last
year.
Operating profit in the second quarter amounted to NIS 13.8 million,
compared with NIS 10.0 million in the corresponding period last year.
The financial expenses amounted to NIS 4.5 million during the reported
period, as compared with NIS 12.0 million in the corresponding quarter
last year (see section C5 below).
Profit after taxes and before the Company's share in the profits of
associated companies in the reported period amounted to NIS 15.2
million (not including an extraordinary tax benefit in the
consolidated report of NIS 5.8 million - see below), compared with NIS
9.9 million in the corresponding period last year (not including a
non-recurring capital gain).
Profit after taxes and before the Company's share in the profits of
associated companies in the second quarter of the year amounted to NIS
7.7 million (not including the aforementioned tax benefit), compared
with NIS 3.6 million in the corresponding quarter last year.
3. NET EARNINGS AND EARNINGS PER SHARE
-----------------------------------
Net profits totaled NIS 42.6 million during the reported period, as
compared with NIS 31.4 million in the corresponding period last year.
Net profits in the reported period includes profit resulting from the
effect of the corporate tax rate reduction (from 36% to 30% until
2007) on the deferred tax reserve (in the consolidated report, and our
share in associated companies), which amounted to NIS 10.2 million
(see C6 below).
Net earnings in the corresponding period last year included a
non-recurring net capital gain of approximately NIS 1.0 million.
Net earnings before non-recurring gains in the reported period
amounted to NIS 32.4 million, compared with NIS 30.3 million in the
corresponding period last year.
Earnings Per Share in the reported period (before non-recurring gains)
amounted to NIS 801 per NIS 1 par value ($1.78 per share), as compared
with NIS 758 per NIS 1 par value ($1.73 per share) in the
corresponding period last year.
Earnings Per Share including special earnings in the reported period
amounted to NIS 1,053 per NIS 1 par value ($2.34 per share).
The return on shareholders' equity in annual terms (before special
earnings) amounted to 10.6% during the reported period, as compared
with 9.6% in the corresponding period last year.
C. ANALYSIS OF OPERATIONS AND PROFITABILITY
----------------------------------------
The analysis set forth below is based on the consolidated data.
1. SALES
-----
The consolidated sales during the reported period amounted to NIS
238.2 million, as compared with NIS 232.7 million in the corresponding
period last year.
The increase in sales is primarily attributed to a quantitative
increase in the sales of packaging paper and a slight improvement in
the average price of fluting and of wastepaper.
2. COST OF SALES
-------------
The cost of sales amounted to NIS 183.4 million - or 77.0% of sales -
during the reported period, as compared with NIS 180.8 million - or
77.7% of sales - in the corresponding period last year. The gross
margin as a percentage of sales reached 23.0% during the reported
period, as compared with 22.3% in the corresponding period last year.
The improved gross margin in relation to the corresponding period last
year, resulted from increased output production of the machines,
efficiency measures and a decrease in energy prices by an average of
5% compared with the corresponding period last year (when fuel oil
prices rose dramatically as a result of the tension leading up to the
war in Iraq). It is noted that fuel oil prices rose in the second
quarter of the year and it seems that prices are still rising in the
third quarter. The said improvement was partially offset by the higher
prices of raw materials, primarily in the field of collection of paper
waste for recycling.
WAGES
Wages as part of the cost of sales and selling, general and
administrative expenses amounted to NIS 72.4 million in the reported
period, resembling the corresponding period last year.
However, since in the corresponding period the data were adjusted to
the dollar and taking into account the effects of changes in the
exchange rate of the dollar on the reporting last year, with the
transition to reporting in accordance with Standard 12, the adjusted
cost of wages last year is presented at about NIS 3 million less than
the nominal cost as was at that time.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses (including wages)
amounted to NIS 27.5 million in the reported period - or 11.6% of
sales - compared with NIS 28.9 million - or 12.4% of sales - in the
corresponding period last year.
4. OPERATING PROFIT
----------------
Operating profit totaled NIS 27.3 million during the reported period
(11.5% of sales), as compared with NIS 23.1 million (9.9% of sales) in
the corresponding period last year.
5. FINANCIAL EXPENSES
------------------
Financial expenses amounted to NIS 4.5 million during the reported
period, as compared with NIS 12.0 million in the corresponding period
last year.
Financial expenses in the corresponding period last year were affected
by the revaluation of the shekel against the dollar (9.0%), which
caused a significant increase in the financial expenses in that
period, when financial reporting was adjusted to the dollar.
With the transition to reporting in nominal shekels in accordance with
Standard 12, the financial expenses of the Company have decreased in
the reported period this year, as a result of the effects of the
devaluation in the period (2.7%) on the surplus dollar assets of the
Company.
6. TAXES ON INCOME
---------------
Taxes on income from current operations amounted to NIS 7.7 million in
the reported period, as compared with NIS 1.1 million in the
corresponding period last year.
The principal reasons for the increase in tax expenses in the reported
period as compared with the corresponding period last year, are the
growth in pre-tax earnings (about NIS 12 million) and the benefit
recorded last year (when the reports were dollar-adjusted) due to the
effect of the sharp revaluation on tax expenses (erosion of the tax
reserve).
In June 2004 a law was passed in Israel, effective retroactively from
January 1, 2004, which lowers the corporate tax rate (before the
amendment - 36%) to 35% in 2004 and gradually down to 30% in 2007. The
effect of this change on the Company's deferred taxes (in the
consolidated report) amounted to NIS 5.8 million (mainly due to the
decrease in future tax liabilities which were deferred in respect of
timing differences in depreciation, which was taken at a faster pace
in the tax reports) and brought tax expenses down to only NIS 1.9
million.
7. EARNINGS AFTER TAX AND BEFORE THE COMPANY'S SHARE IN THE EARNINGS OF
--------------------------------------------------------------------
ASSOCIATED COMPANIES
--------------------
Earnings after tax and before the Company's share in the earnings of
associated companies and non-recurring gains in the reported period
amounted to NIS 15.2 million, compared with NIS 9.9 million in the
corresponding period last year (this year - not including a tax
benefit in respect of the change in corporate tax totaling NIS 5.8
million in the consolidated report, last year - not including a
non-recurring capital gain of approximately NIS 1 million).
8. THE COMPANY'S SHARE IN THE EARNINGS OF ASSOCIATED COMPANIES
-----------------------------------------------------------
The companies whose earnings are reported under this item (according
to AIPM's holdings therein), include primarily NHP, Hogla-Kimberly,
Carmel and TMM Integrated Recycling Industries.
The Company's share in the earnings of associated companies in the
reported period amounted to NIS 21.6 million (including NIS 4.4
million our share in a non-recurring benefit recorded in respect of
the change in the corporate tax rate), compared with NIS 20.4 million
in the corresponding periods last year.
The following principal changes were recorded in the Company's share
in earnings of the main associated companies (this year - not
including the aforementioned tax benefit), in relation to the
corresponding period last year:
o The Company's share in the net earnings of NHP, fell by NIS 2.2
million. Most of the change in the net earnings is associated
with higher financial expenses this year at NHP as a result of
repayment of shareholders' loans, which led to an increase in
NHP's debt balance, and the 2.7% devaluation of the NIS (as a
result of the transition to reporting in NIS in accordance with
Standard 12, due to a surplus of dollar liabilities).
o The Company's share in the earnings of Hogla-Kimberly Israel
increased by about NIS 1.4 million, primarily due to the ongoing
improvement in operating profit at Hogla-Kimberly Israel compared
with the corresponding period last year. This improvement was
achieved mainly by continuing efficiency measures, both in
logistics and in production, and particularly as a result of the
increased production of Huggies diapers in Afula. The increase
was partially offset by lower financial revenues this year
compared with last year, due to transition to reporting in NIS
pursuant to Standard 12 and the effects of
depreciation-revaluation on its linkage balance sheet. Due to the
effects of the change in the exchange rate on financial expenses,
as aforesaid, the net earnings of Hogla-Kimberly Israel in the
second quarter of the year amounted to NIS 15.2 million, compared
with NIS 22.1 million in the corresponding quarter last year.
The Company's share in the net earnings of Ovisan (Turkey) fell
by NIS 5.7 million despite the increase in output and the
expansion of operations and mainly due to the effects of the
sharp devaluation (of the Turkish Lira against the dollar),
particularly in the second quarter of the year, both on the costs
of raw materials, which are purchased mainly in dollars, and on
financial expenses. The results were also influenced by the
intense competition, reflected in an increase in advertising
expenses along with erosion of prices.
o The Company's share in the net earnings of the Carmel Group
increased by NIS 1.6 million, due to the continued improvement in
the operating profit. The improvement resulted from the
comprehensive efficiency measures being implemented by the
company, coupled with the growth in the volume of operations.
o The Company's share in the net earnings of TMM increased by NIS
0.2 million, as a result of improved operating profit and a
certain decrease in the high financial expenses of the company
during the reported period, as compared with the corresponding
period last year, due mainly to the decrease in the interest rate
between the periods.
D. LIQUIDITY AND INVESTMENTS
-------------------------
1. ACCOUNTS RECEIVABLE - TRADE
---------------------------
Accounts Receivable as at June 30, 2004, amounted to NIS 146.9
million, as compared with NIS 144.5 million on June 30, 2003. The
increase in accounts receivable resulted primarily from the growth in
the volume of operations. Credit terms remained as they have been at
December 2003.
2. CASH FLOWS
----------
The cash flows from operating activities totaled NIS 19.8 million
during the reported period, as compared with negative cash flows of
NIS 13.1 million in the corresponding period last year (before
dividend from an associated company in the sum of 16.4 million.
Including the said dividend the cash flows from operating activities
last year was positive and reached a total of NIS 3.2 million). The
improvement in cash flows from current operations in the reported
period is derived mainly from a smaller increase in operating working
capital in the reported period compared with last year, when there was
a significant increase, mainly of a one-time nature.
3. INVESTMENTS IN FIXED ASSETS
---------------------------
Investments in fixed assets totaled NIS 12.1 million in the reported
period, as compared with NIS 11.5 million in the corresponding period
last year, and included investment in production, marketing and
conveying processes as well as expansion of operations in confidential
data destruction in Israel.
4. FINANCIAL LIABILITIES
---------------------
The long-term liabilities (including current maturities) amounted to
NIS 270.9 million as at June 30, 2004, as compared with NIS 76.5
million on June 30, 2003.
Most of the increase in long-term liabilities is attributed to raising
NIS 200 million in loans through an issue of notes (Series 2) from
institutional investors on December 21, 2003. Some of the proceeds
from the issue of the notes served for the repayment of short-term
credit, while the rest was invested primarily in deposits and in
short-term financial assets.
The balance of short-term credit, as at June 30, 2004 amounted to NIS
135.5 million, as compared with NIS 142.5 million on June 30, 2003.
Credit balances remained similar to the balances in the corresponding
period last year, despite the special dividend paid to the
shareholders (NIS 75 million), due to a positive cash flow from
current operations and the use of some of some of the proceeds of the
issue for partial repayment of the short-term credit as aforesaid.
E. EXPOSURE AND MANAGEMENT OF MARKET RISKS
---------------------------------------
In continuation to the Management Discussion dated December 31, 2003, in
which the essence of the exposure to market risks and its management, as
determined by the Board of Directors, was outlined, the following is an
update, as at June 30, 2004:
The Company's CPI-linked liabilities (net of deposits) amount to a net
overall sum of approximately NIS 183 million, at interest no higher than
the market rate. If inflation were to rise significantly, a loss might be
generated in the Company's financial statements due to a surplus of
CPI-linked liabilities. Therefore, in January 2004, the Company entered
into a forward transaction, with a term of one year, to hedge the sum of
NIS 200 million against a rise in the CPI (at a cost of 0.92% per year).
REPORT OF LINKAGE BASES
-----------------------
The following are the balance sheet items, according to linkage bases, as
at December 31, 2003 and updated for June 30, 2004:
IN NIS MILLION UNLINKED CPI-LINKED IN FOREIGN NON-MONETARY TOTAL
CURRENCY, OR ITEMS
LINKED THERETO
(PRIMARILY $)
ASSETS
------
CASH AND CASH EQUIVALENTS 61.3 8.5 69.8
SHORT-TERM DEPOSITS AND
INVESTMENTS 61.1 45.7 106.8
ACCOUNTS RECEIVABLE AND
DEBIT BALANCES 233.0 2.2 47.4 9.6 292.2
INVENTORIES 88.8 88.8
INVESTMENTS IN ASSOCIATED
COMPANIES 12.6 11.1 15.8 361.7 401.2
DEFERRED TAXES ON INCOME 3.9 3.9
FIXED ASSETS, NET 323.5 323.5
DEFERRED EXPENSES, NET OF
AMORTIZATION 1.2 1.2
----- ---- ---- ----- -------
TOTAL ASSETS 368.0 59.0 71.7 788.7 1,287.4
----- ---- ---- ----- -------
LIABILITIES
-----------
CREDIT FROM BANKS 135.5 135.5
ACCOUNTS PAYABLE AND CREDIT
BALANCES 153.6 6.0 8.9 168.5
DEFERRED TAXES ON INCOME 54.8 54.8
NOTES 235.8 235.8
OTHER LIABILITIES 32.8 2.3 35.1
SHAREHOLDERS' EQUITY 657.7 657.7
----- ---- ---- ----- -------
TOTAL LIABILITIES AND EQUITY 321.9 241.8 11.2 712.5 1,287.4
----- ----- ---- ----- -------
SURPLUS FINANCIAL ASSETS
(LIABILITIES) AS AT
JUNE-30-2004 46.1 (182.8) 60.5 76.2 -
SURPLUS FINANCIAL ASSETS
(LIABILITIES) AS AT
DECEMBER 31, 2003 69.4 (229.2) 65.2 94.6 -
ASSOCIATED COMPANIES
--------------------
Hogla-Kimberly, an associated company, has a subsidiary operating in
Turkey. The impact of the exposure of this subsidiary to the economic
situation in Turkey - and especially to fluctuations in the exchange rate
of the Turkish lira in relation to the US dollar - might affect the Group's
financial statements in the Company's share in the earnings of associated
companies.
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 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 are beyond the control of the Company. The Company undertakes
no obligation to publicly update such forward-looking statements,
regardless of whether the updates originate from new information, future
events or any other reason.
G. DIVIDEND
--------
The Board of Directors of the Company declared on August 11, 2004 a cash
dividend for the year 2004 in a total amount of approximately NIS 100
million (NIS 25.12 per share), which will be paid to shareholders of the
Company.
H. MISCELLANEOUS
-------------
In the second quarter of the year, the Company began operating in the
confidential data destruction sector in Switzerland, through the operation
of mobile shredder trucks at customer sites, as part of a test case for
entering this field in Europe.
I. DONATIONS AND CONTRIBUTIONS
---------------------------
As part of its business and social commitment, the AIPM Group devotes
efforts and resources to community assistance and support, focusing on
providing help to the weaker echelons of Israeli society - primarily
teenagers - as part of a desire to build and contribute to the shaping the
human fabric of Israeli society. As part of this policy, the Company makes
contributions to various institutions that are active in these areas, while
also participating, through its employees, in volunteer work in the
community for promoting these same objectives.
Moreover, student scholarships amounting to NIS 90 thousand were awarded in
the reported period, through the Shenkar Foundation, which was established
by the Company together with its Austrian strategic partner in NHP.
J. GENERAL
-------
5,403 shares were issued during the reported period (0.1% dilution), on
account of the exercise of 17,985 options as part of the Company's senior
employee stock option plans.
----------------------------------- --------------------------------
Y. Yerushalmi Zvi Livnat
Chairman of the Board of Directors Director
EXHIBIT 3
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF CONSOLIDATED BALANCE SHEETS
--------------------------------------
NIS IN THOUSANDS (see note 1c)
------------------------------
JUNE 30, 2004 JUNE 30, 2003 DEC. 31, 2003
(UNAUDITED) (UNAUDITED) (AUDITED)
------------- --------------- ---------------
CURRENT ASSETS:
---------------
Cash and cash equivalents 69,752 18,334 158,706
Short-term deposits and investments 106,753 20,000
Receivables :
Trade 146,883 144,536 140,996
Other 145,382 150,485 128,246
Inventories 88,782 83,611 90,654
------------- --------------- ---------------
Total current assets 557,552 396,966 538,602
INVESTMENTS AND LONG TERM RECEIVABLES:
--------------------------------------
Investments in associated companies 401,214 370,257 383,879
Deferred income taxes 3,885 3,985
------------- --------------- ---------------
405,099 370,257 387,764
FIXED ASSETS
------------
Cost 961,693 940,708 953,656
Less - accumulated depreciation 638,163 617,960 628,015
------------- --------------- ---------------
323,530 322,748 325,641
Deferred charges -
net of accumulated amortization 1,215 506 1,267
------------- --------------- ---------------
1,287,396 1,090,477 1,253,274
------------- --------------- ---------------
CURRENT LIABILITIES:
--------------------
Credit from banks 135,516 142,511 144,989
Current maturities of long-term notes 6,668 6,814 6,590
Payables and accured liabilities :
Trade 81,395 84,911 84,602
Other 87,105 66,847 73,010
------------- --------------- ---------------
Total current liabilities 310,684 301,083 309,191
LONG-TERM LIABILITIES
---------------------
Deferred income taxes 54,753 58,889 61,801
Loans from banks and other liabilities
(net of current maturities):
Notes 229,181 34,158 233,039
Other liabilities 35,075 35,521 35,013
------------- --------------- ---------------
Total long term liabilities 319,009 128,568 329,853
Total liabilities 629,693 429,651 639,044
SHAREHOLDERS' EQUITY:
---------------------
Share capital 125,257 125,256 125,257
Capital surplus 90,060 90,060 90,060
Currency adjustments in respect of financial
statements of associated companies (279) 100 (1,122)
Retained earnings 342,665 445,410 400,035
Dividend declared after balance sheet date 100,000
------------- --------------- ---------------
657,703 660,826 614,230
------------- --------------- ---------------
1,287,396 1,090,477 1,253,274
------------- --------------- ---------------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------
NIS IN THOUSANDS (see note 1c)
------------------------------
SIX-MONTH PERIOD THREE-MONTH PERIOD YEAR ENDED
ENDED JUNE 30 ENDED JUNE 30 DEC. 31
2004 2003 2004 2003 2003
==== ==== ==== ==== ====
(UNAUDITED) (UNAUDITED) (AUDITED)
----------- ----------- ---------
Net sales 238,244 232,697 119,062 114,998 465,092
Cost of sales 183,374 180,779 91,557 89,701 362,185
-------------- -------------- ------------- -------------- --------------
Gross profit 54,870 51,918 27,505 25,297 102,907
-------------- -------------- ------------- -------------- --------------
Selling and marketing, administrative and
general expenses :
Selling and marketing 15,904 15,094 7,559 7,568 31,324
Administrative and general 11,628 13,763 6,151 7,684 24,999
-------------- -------------- ------------- -------------- --------------
27,532 28,857 13,710 15,252 56,323
-------------- -------------- ------------- -------------- --------------
Income from ordinary operations 27,338 23,061 13,795 10,045 46,584
-------------- -------------- ------------- -------------- --------------
Financial expenses - net 4,471 12,017 2,427 8,440 15,989
Gain from realization of assets 1,606 1,609
-------------- -------------- ------------- -------------- --------------
Income before taxes on income 22,867 12,650 11,368 1,605 32,204
-------------- -------------- ------------- -------------- --------------
Taxes on income (tax benefit) (see note 2) 1,876 1,658 (2,124) (1,958) 7,706
Income from operations of the company
and the consolidated subsidiaries 20,991 10,992 13,492 3,563 24,498
-------------- -------------- ------------- -------------- --------------
Share in profits of associated companies - net 21,639 20,362 11,703 14,670 35,549
-------------- -------------- ------------- -------------- --------------
Net income for the period 42,630 31,354 25,195 18,233 60,047
-------------- -------------- ------------- -------------- --------------
NET INCOME PER NIS 1 PAR VALUE OF SHARES (IN N.I.S) 1,053 784 622 456 1,494
--------------------------------------------------- -------------- -------------- ------------- -------------- --------------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
========================================================
NIS IN THOUSANDS (see note 1c)
==============================
ADJUSTMENTS
DUE TO THE
TRANSLATION
OF FINANCIAL DIVIDEND
STATEMENTS DECLARED AFTER
SHARE CAPITAL OF ASSOCIATED RETAINED AFTER BALANCE
CAPITAL SURPLUS COMPANIES EARNINGS SHEET DATE TOTAL
--------- ---------- ------------ ---------- --------------- ---------
Balance at January 1, 2004 (audited) 125,257 90,060 (1,122) 400,035 614,230
====================================
Changes during the six month period
ended June 30, 2004 (unaudited) :
Net income 42,630 42,630
Dividend declared after balance sheet date (100,000) 100,000
Exercise of employees options into shares * *
Adjustments due to the translation respect
of financial statements of associated companies 843 843
--------- ---------- ------------ ---------- --------------- ---------
Balance at June 30, 2004 (unaudited) 125,257 90,060 (279) 342,665 100,000 657,703
==================================== --------- ---------- ------------ ---------- --------------- ---------
Balance at January 1, 2003 (audited) 125,256 90,060 (3,482) 439,116 650,950
====================================
Changes during the six month period ended June 30,
2003 (unaudited) :
Net income 31,354 31,354
Dividend distributed (25,060) (25,060)
Exercise of employees options into shares * *
Adjustments due to the translation respect of
financial statements of associated companies 3,582 3,582
--------- ---------- ------------ ---------- ---------
Balance at June 30, 2003 (unaudited) 125,256 90,060 100 445,410 660,826
==================================== --------- ---------- ------------ ---------- ---------
Balance at April 1, 2004 (unaudited) 125,257 90,060 (62) 417,470 632,725
====================================
Changes during the three month period ended
June 30, 2004 (unaudited):
Net income 25,195 25,195
Dividend declared after balance sheet date (100,000) 100,000
Exercise of employees options into shares * *
Adjustments due to the translation respect of
financial statements of associated companies (217) (217)
--------- ---------- ------------ ---------- --------------- ---------
Balance at June 30, 2004 (unaudited) 125,257 90,060 (279) 342,665 100,000 657,703
==================================== --------- ---------- ------------ ---------- --------------- ---------
Balance at April 1, 2003 (unaudited) 125,256 90,060 (2,772) 428,032 640,576
====================================
Changes during the three month period ended
June 30, 2003 (unaudited):
Net income 18,233 18,233
Erosion of the dividend proposed in March 2003 (855) (855)
Exercise of employees options into shares * *
Adjustments due to the translation respect of
financial statements of associated companies 2,872 2,872
--------- ---------- ------------ ---------- ---------
Balance at June 30, 2003 (unaudited) 125,256 90,060 100 445,410 660,826
==================================== --------- ---------- ------------ ---------- ---------
Balance at January 1, 2003 (audited) 125,256 90,060 (3,482) 439,116 650,950
------------------------------------
Changes during the year ended December 31,
2003 (audited):
Net income 60,047 60,047
Dividend distributed (99,128) (99,128)
Exercise of employees options into shares 1 1
Adjustments due to the translation respect of
financial statements of associated companies 2,360 2,360
--------- ---------- ------------ ---------- ---------
Balance at December 31, 2003 (audited) 125,257 90,060 (1,122) 400,035 614,230
-------------------------------------- --------- ---------- ------------ ---------- ---------
* Represents a sum under 1,000 NIS.
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
---------------------------------
SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------
NIS IN THOUSANDS (see note 1c)
------------------------------
SIX-MONTH SIX-MONTH THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003 DEC. 31, 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (AUDITED)
--------------- -------------- -------------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES :
--------------------------------------
Net income for the period 42,630 31,354 25,195 18,233 60,047
Adjustments to reconcile net income to net cash
provided by operating activities (*): (22,856) (28,110) (15,518) (37,002) (7,396)
--------------- -------------- -------------- -------------- ---------------
Net cash provided by operating activities 19,774 3,244 9,677 (18,769) 52,651
--------------- -------------- -------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES :
--------------------------------------
Purchase of fixed assets (12,119) (11,475) (5,614) (6,999) (29,247)
Short-term deposits and investments - net (86,999) (30,000) (20,000)
Associated companies :
Investment in associated companies and
loans granted (779) (1,735) (420) (1,735) (8,241)
Repayment of loans 6,882 15,327 6,882 6,569 21,895
Proceeds from sale of fixed assets 438 1,991 16 82 3,332
--------------- -------------- -------------- -------------- ---------------
Net cash provided by (used in) investing
activities (92,577) 4,108 (29,136) (2,083) (32,261)
--------------- -------------- -------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
--------------------------------------
Notes Issuance, net of issuance expenses of
NIS 800,000 198,909
Consideration in respect of the exercise of
options by employees 1
Repayment of long-term loans from banks and others (383) (381) (383) (381) (762)
Redemption of Notes (6,666) (6,770) (6,666) (6,770) (6,770)
Dividend paid (25,060) (25,060) (99,128)
Short-term bank credit and loans - net (9,102) 37,733 (4,885) 68,601 40,606
--------------- -------------- -------------- -------------- ---------------
Net cash provided by (used in) financing activities (16,151) 5,522 (11,934) 36,390 132,856
--------------- -------------- -------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents (88,954) 12,874 (31,393) 15,538 153,246
Balance of cash and cash equivalents at beginning
of period 158,706 5,460 101,145 2,796 5,460
--------------- -------------- -------------- -------------- ---------------
Balance of cash and cash equivalents at end of period 69,752 18,334 69,752 18,334 158,706
--------------- -------------- -------------- -------------- ---------------
(*) Adjustments to reconcile net income to net
cash provided by operating activities:
INCOME AND EXPENSES NOT INVOLVING CASH FLOWS:
---------------------------------------------
Associated companies:
Share in profits of associated companies - net (21,639) (20,363) (11,703) (14,670) (35,549)
Dividend received from those companies 16,391 16,391
Depreciation and amortization 14,078 14,186 7,039 7,184 28,247
Deferred income taxes - net (7,493) (1,952) (6,546) (2,469) 3,471
Capital (gains) losses on sale of fixed assets (234) (1,011) 8 71 (2,054)
Income from short-term deposits and investments,
not realized yet 246 361
Linkage differences (erosion) of principal of
long-term loans from banks and others - net 74 91 (3) 76 79
Exchange and linkage differences on Notes 2,886 4,161 2,965 3,562 3,110
Erosion of long-term loans to associated companies (956) (1,377) (183) (1,130) (1,101)
Linkage differences on long term capital note to
an associated company 2,986 2,662 2,477
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in receivables (22,578) (38,138) (12,414) (10,442) (18,195)
Decrease (increase) in inventories 1,872 6,883 4,453 5,088 (159)
Increase (decrease) in payables and accrued
liabilities 10,888 (9,967) 505 (26,934) (4,113)
--------------- -------------- -------------- -------------- ---------------
(22,856) (28,110) (15,518) (37,002) (7,396)
--------------- -------------- -------------- -------------- ---------------
The accompanying notes are an integral part of the financial statements.
AMIRICAN ISRAELI PAPER MILLS LTD.
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004
(Unaudited)
NOTE 1 - GENERAL
a. The interim financial statemenA. as of June 30, 2004 and for the six and
three month periods then ended (hereafter - the interim financial
statements) were drawn up in condensed form, in accordance with Accounting
Standard No. 14 of the Israel Accounting Standards Board (hereafter - the
IASB) and in accordance with the Securities (Preparation of Periodic and
Immediate Financial Statements) Regulations , 1970.
b. The accounting principles applB.d in preparation of the interim statements
are consistent with those applied in the annual financial statements,
except for the adoption for the first time of standard No. 12 of the IASB -
" Discontinuaunce of adjusting Financial statements of inflation", see c
hereafter. Nevertheless, the interim statements do not include all the
information and explanations required for the annual financial statements.
Costs unevenly incurred during the year are brought forward or deferred for
interim reporting purposes if, and only if, such costs may be brought
forward or deferred in the annual reporting.
c. Transition to nominal-historicC. financial reporting:
With effect from January 1, 2004, the company has adopted the provisions of
Standard No. 12 -"Discontinuance of Adjusting Financial Statements for
Inflation" - of the IASB and, pursuant thereto, the company has
discontinued, from the aforesaid date, the practice of adjusting its
financial statements for the effects of changes in the exchange rate of the
U.S. dollar (hereafter - "the dollar").
Through December 31, 2003, the company prepared its financial statements on
the basis of historical cost adjusted for the changes In the general
purchasing power of Israeli currency (hereafter - "NIS"), based upon
changes in the exchange rate of the dollar, in accordance with
pronouncements of the Institute of Certified Public Accountants in Israel
(hereafter - "the Israeli Institute"). The adjusted amounts, as above,
presented in the financial statements as of December 31, 2003 (hereafter -
"the transition date"), are used as the opening balances for the
nominal-historical financial reporting in the following periods. Additions
made after the transition date have been included in the financial
statements at their nominal values
The comparative figures included in these financial statements are based on
the adjusted financial statements for the prior reporting periods, as
previously presented, after adjustment to the exchange rate for December
31, 2003 (the exchange rate in effect at the transition date).
The amounts reported for periods after the transition date are composed as
follows: all the amounts originating from the period prior to the
transition date are composed of their adjusted amount at the transition
date, with the addition of amounts in nominal values that were added after
the transition date, and net of amounts that were deducted after the
transition date (the retirement of such sums is effected at their adjusted
values as of transition date, their nominal values, or a combination of the
two, according to the circumstances). All the amounts originating from the
period after the transition date are included in the financial statements
at their nominal values.
Follwing are the changes in exchange rate of the dollar and in the Israeli
consumer price index (the "CPI"):
EXCHANGE RATE
CPI OF THE DOLLAR
% %
Increase (decrease) in the six months ended June 30:
2004 1.4 2.7
2003 (0.5) (9.0)
Increase (decrease) in the three months ended June 30:
2004 1.5 (0.7)
2003 (1.3) (8.0)
Increase in the year ended December 31, 2003 (1.9) (7.6)
The dollar exchange rate as of June 30, 2004 is: $1=NIS 4.497
AMIRICAN ISRAELI PAPER MILLS LTD.
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2004
(Unaudited)
NOTE 2 - REDUCTION OF CORPORATE TAX RATE
On June 29, 2004, the Israeli Knesset passed the Income Tax Ordinance
Amendment (No. 140 and Ad Hoc Provision) law, 2004 (hearafter - the
amendment), which provides for the gradual reduction - commencing from
January 1, 2004 - in the rate of corporate tax from 36% to 30%, in the
following manner: the rate for 2004 will be 35%, in 2005 - 34%, in 2006 -
32% and in 2007 and thereafter - 30%. The amendment was signed at the
beginning of July 2004 by the officials authorized by the state of Israel
to approve it, and was published in the Official Gazette of the Government
of Israel on July 11,2004. As a result of the amendment the tax expenses in
the statement of income were reduced by NIS 5,824 millions in the periods
of 6 months and 3 months ended June 30, 2004, on account of of the
company's deferred income taxes.
NOTE 3 - SEGMENT INFORMATION
Data on segment activity - In NIS in thousands:
For the period of 6 monthes
Paper and recycling Marketing of office supplies Total
---------------------- ---------------------------- ---------------------------
Jan-June Jan-June Jan-June Jan-June Jan-June Jan-June
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Sales - net (1) 180,186 166,635 58,058 66,062 238,244 232,697
Income (loss) from operations 30,198 23,127 (2,860) (66) 27,338 23,061
For the period of 3 monthes
Paper and recycling Marketing of office supplies Total
------------------------ ----------------------------- ---------------------------
April-June April-June April-June April-June April-June April-June
2003 2004 2003 2004 2003 2004
---- ---- ---- ---- ---- ----
Sales - net (1) 91,634 84,721 27,428 30,277 119,062 114,998
Income (loss) from operations 15,540 10,386 (1,745) (341) 13,795 10,045
(1) Represents sales to external customers.
---------------------------
---------------------------------------------------
---------------------------
[GRAPHIC OMITTED]
Enclosed please find the financial reports of the following associated
companies:
- Neusiedler Hadera Paper 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.
[GRAPHIC OMITTED]
EXHIBIT 4
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
TABLE OF CONTENTS
-----------------
PAGE
----
ACCOUNTANTS' REVIEW REPORT 1
CONDENSED FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to the Financial Statements 6-8
The Board of Directors of
Neusiedler Hadera Paper Ltd.
RE: REVIEW OF UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2004
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Neusiedler Hadera Paper Ltd.
("the Company") and its subsidiaries, as follows:
- Balance sheet as of June 30, 2004.
- Statements of operations for the six months and three months ended June 30,
2004.
- Statements of changes in shareholders' equity for the six months and three
months ended June 30, 2004.
- Statements of cash flows for the six months and three months ended June 30,
2004
The financial statements for the three-month period ended March 31, 2004, were
reviewed by other accountants. In addition, the comparative figures as of
December 31, 2003 and for the year then ended were audited by other auditors,
and the comparative figures as of June 30, 2003 and for the six months and three
months then ended were reviewed by other accountants. Those other auditors and
accountants issued unqualified reports on all those financial statements.
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, August 10, 2004
1
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands)
June 30, December 31,
------------------------------ ------------
2004 2003 2003
----------- ----------- ------------
Reported Adjusted Adjusted
Amounts (1) Amounts (2) Amounts (2)
----------- ----------- ------------
(Unaudited)
A S S E T S
Current Assets
Cash and cash equivalents 14,768 60,666 31,678
Trade receivables 159,301 138,942 147,748
Other receivables 9,564 18,705 (*) 16,218 (*)
Inventories 84,823 75,765 89,231
----------- ----------- ------------
Total current assets 268,456 294,078 284,875
----------- ----------- ------------
Fixed Assets
Cost 135,916 127,473 132,692
Less - accumulated depreciation 28,392 21,545 25,381
----------- ----------- ------------
107,524 105,928 107,311
----------- ----------- ------------
Other Assets - Goodwill 4,113 4,733 4,423
----------- ----------- ------------
Total assets 380,093 404,739 396,609
=========== =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank credit 3,158 -- --
Current maturities of long-term bank loans 15,567 14,897 15,108
Trade payables 85,748 76,663 104,097
American Israeli Paper Mills Group, net 60,820 67,069 52,968
Other payables and accrued expenses 18,603 18,933 (*) 17,604 (*)
----------- ----------- ------------
Total current liabilities 183,896 177,562 189,777
----------- ----------- ------------
Long-Term Liabilities
Long-term bank loans 45,025 66,420 51,725
Capital notes to shareholders 31,479 56,927 43,790
Deferred taxes 25,154 28,026 29,247
Accrued severance pay, net 145 145 145
----------- ----------- ------------
Total long-term liabilities 101,803 151,518 124,907
----------- ----------- ------------
Shareholders' Equtiy
Share capital 1 1 1
Capital reserves 43,352 43,352 43,352
Retained ernings 51,041 32,306 38,572
----------- ----------- ------------
94,394 75,659 81,925
----------- ----------- ------------
Total liabilities and shareholders' equity 380,093 404,739 396,609
=========== =========== =============
(*) Reclassified.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of December
31, 2003.
-------------------------- ------------------------ --------------------------
E. Amar A. Solel Y. Yerushalmi
Chief Financial Officer General Manager Vice Chairman of the
Board of Directors
Approval date of the interim financial statements: August 10 ,2004.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
2
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands, except per share data)
Year ended
Six months ended June 30, Three months ended June 30, December 31,
---------------------------- ----------------------------- ------------
2004 2003 2004 2003 2003
----------- ----------- ----------- ----------- ------------
Reported Adjusted Reported Adjusted Adjusted
Amounts (1) Amounts (2) Amounts (1) Amounts (2) Amounts (2)
----------- ----------- ----------- ----------- ------------
(Unaudited) (Unaudited)
---------------------------- ----------------------------- ------------
SALES, NET 350,186 325,584 169,828 151,348 642,140
COST OF SALES 303,719 280,539 (*) 146,910 130,586 (*) 556,890
----------- ----------- ----------- ----------- ------------
GROSS PROFIT 46,467 45,045 22,918 20,762 85,250
----------- ----------- ----------- ----------- ------------
OPERATING COSTS AND EXPENSES
Selling expenses 23,245 21,168 10,587 10,510 42,892
General and administative expenses 3,907 3,855 (*) 2,204 2,018 (*) 8,425 (*)
----------- ----------- ----------- ----------- ------------
27,152 25,023 12,791 12,528 51,317
----------- ----------- ----------- ----------- ------------
OPERATING PROFIT 19,315 20,022 10,127 8,234 33,933
FINANCING EXPENSES, NET (7,641) (2,190) (1,872) (1,188) (4,681)
OTHER INCOME (LOSS), NET 34 (31)(*) 34 48 (*) (215)(*)
----------- ----------- ----------- ----------- ------------
INCOME BEFORE INCOME TAXES
(TAX BENEFITS) 11,708 17,801 8,289 7,094 29,037
INCOME TAXES (TAX BENEFITS) (761) 5,548 (1,876) 1,992 10,518
----------- ----------- ----------- ----------- ------------
NET INCOME FOR THE PERIOD 12,469 12,253 10,165 5,102 18,519
=========== =========== =========== =========== ============
BASIC EARNINGS PER ORDINARY SHARE
EARNINGS PER ORDINARY SHARE (IN NIS) 12,469 12,253 10,165 5,102 18,519
=========== =========== =========== =========== ============
Number of shares used in computation 1,000 1,000 1,000 1,000 1,000
=========== =========== =========== =========== ============
(*) RECLASSIFIED.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
NEUSIEDLER HADERA PAPER LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
Share Capital Retained
capital reserves earnings Total
--------- ---------- ---------- ---------
Six months ended June 30, 2004
(Unaudited) (Reported Amounts (1))
Balance - January 1, 2004 1 43,352 38,572 81,925
Net income for the period 12,469 12,469
--------- ---------- ---------- ---------
Balance - June 30, 2004 1 43,352 51,041 94,394
========= ========== ========== =========
Six months ended June 30, 2003
(Unaudited) (Adjusted Amounts (2))
Balance - January 1, 2003 1 43,352 20,053 63,406
Net income for the period 12,253 12,253
--------- ---------- ---------- ---------
Balance - June 30, 2003 1 43,352 32,306 75,659
========= ========== ========== =========
Three months ended June 30, 2004
(Unaudited) (Reported Amounts (1))
Balance - April 1, 2004 1 43,352 40,876 84,229
Net income for the period 10,165 10,165
--------- ---------- ---------- ---------
Balance - June 30, 2004 1 43,352 51,041 94,394
========= ========== ========== =========
Three months ended June 30, 2003
(Unaudited) (Adjusted Amounts (2))
Balance - April 1, 2003 1 43,352 27,204 70,557
Net income for the period 5,102 5,102
--------- ---------- ---------- ---------
Balance - June 30, 2003 1 43,352 32,306 75,659
========= ========== ========== =========
Year ended December 31, 2003
(Adjusted Amounts (2))
Balance - January 1, 2003 1 43,352 20,053 63,406
Net income for the year 18,519 18,519
--------- ---------- ---------- ---------
Balance - December 31, 2003 1 43,352 38,572 81,925
========= ========== ========== =========
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands)
Year ended
Six months ended June 30, Three months ended June 30, December 31,
------------------------- -------------------------- -----------
2004 2003 2004 2003 2003
----------- ----------- ----------- ----------- -----------
Reported Adjusted Reported Adjusted Adjusted
Amounts (1) Amounts (2) Amounts (1) Amounts (2) Amounts (2)
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
------------------------- --------------------------
CASH FLOWS - OPERATING ACTIVITIES
Net income for the period 12,469 12,253 10,165 5,102 18,519
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Income and expenses
not involving cash flows:
Depreciation and amortization 4,485 4,265 2,251 2,142 8,626
Deferred taxes, net (843) 5,547 (1,739) 1,991 10,438
Increase in liability for
severance pay, net -- 12 -- 8 14
Capital loss (gain) from sale of fixed assets (34) 92 (34) 9 215
Exchange rate differences of long-term bank loans 1,328 2,251 (61)(*) 1,916 1,460
Exchange rate differences of long-term capital
notes to shareholders 1,453 -- (37) -- --
Changes in assets and liabilities:
Decrease (increase) in trade receivables (11,553) 16,056 (4,425) 238 7,247
Decrease (increase) in other receivables 3,404 705 (*) 4,569 (*) 1,234 (*) (479)(*)
Decrease (increase) in inventories 4,408 3,932 (3,565) 941 (9,533)
Increase (decrease) in trade payables (18,349) 13 (12,047) (8,101) 27,447
Increase (decrease) in American
Israeli Paper Mills Group, net 7,852 12,384 (2,273) (2,229) (1,717)
Increase (decrease) in other payables
and accrued expenses 999 (4,690)(*) (1,207)(*) (1,143)(*) (6,020)(*)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 5,619 52,820 (8,403)(*) 2,108 56,217
----------- ----------- ----------- ----------- -----------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of fixed assets (4,440) (3,472) (2,190) (1,214) (9,339)
Proceeds from sale of fixed assets 86 324 64 87 635
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (4,354) (3,148) (2,126) (1,127) (8,704)
----------- ----------- ----------- ----------- -----------
CASH FLOWS - FINANCING ACTIVITIES
Short-term bank credit, net 3,158 (18) 3,158 -- (18)
Repayment of long-term loans (7,569) (7,424) (1,309)(*) (1,347) (21,116)
Repayment of long-term
capital notes to shareholders (13,764) (30,653) (13,764) (13,137) (43,790)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities (18,175) (38,095) (11,915)(*) (14,484) (64,924)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (16,910) 11,577 (22,444) (13,503) (17,411)
Cash and cash equivalents - beginning of period 31,678 49,089 37,212 74,169 49,089
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents - end of period 14,768 60,666 14,768 60,666 31,678
(*) Reclassified.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as
of June 30, 2004 and for the six months and three months then ended
("interim financial statements") of Neusiedler Hadera Paper 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, 2003 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
the dates and for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of
the results to be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
The interim financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") in Israel,
in a condensed format in accordance with GAAP applicable to the
preparation of interim period financial statements, including
those under Standard No. 14, "Interim Financial Reporting".
B. NEW ACCOUNTING STANDARDS
The accounting principles applied in the preparation of
these interim financial statements are consistent with those
principles applied in the preparation of the most recent
annual audited financial statements with the exception of
the following:
(1) CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE
TO REPORTING IN REPORTED AMOUNTS - STANDARD NO. 12
(A) DEFINITIONS:
Adjusted Amount - historical nominal amount
adjusted for changes in the exchange rate of the
U.S dollar as of December 31, 2003, in accordance
with Opinion No. 36 of the Institute of Certified
Public Accountants in Israel.
Reported Amount - Adjusted Amount plus amounts in
nominal terms added subsequent to December 31,
2003, and less amounts subtracted after that date.
6
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. NEW ACCOUNTING STANDARDS (CONT.)
(1) Cessation of Financial Statement Adjustment and Change to
Reporting in Reported Amounts - Standard No. 12 (cont.)
(B) In January 2004, Israeli Accounting Standard No. 12
"Cessation of Financial Statements Adjustment" came
into effect. Following the initial implementation of
Standard No. 12, commencing January 1, 2004, the Group
ceased the presentation of its financial statements
based on nominal historical cost adjusted for the
changes in the exchange rate of the US Dollar in
relation to the NIS. Effective with the interim
financial statements as of March 31, 2004 and for the
reporting periods thereafter, the Group's financial
statements are prepared and presented in Reported
Amounts.
Comparative figures included in the interim financial
statements relating to December 31, 2003 and June 30,
2003 and for the year and six-month and three-month
periods respectively then ended, are presented in
Adjusted Amounts.
(C) REPORTED AMOUNTS ARE DETERMINED AS FOLLOWS:
Balance Sheet Items
Monetary items (items whose balance sheet amount
reflects their current value or realization value at
the balance sheet date) are presented at their nominal
value as of the balance sheet date.
Non-monetary items are presented at their Adjusted
Amounts plus additions and dispositions occurring
during the reporting period. Additions made subsequent
to December 31, 2003 and dispositions of items added
subsequent to such date, are presented at their
historical nominal value. Dispositions of items added
prior to December 31, 2003 are presented at their
Adjusted Amount.
Statement of Operation Items
Income and expenses reflecting transactions, and
financial income and expenses, are presented at their
nominal value.
Income and expenses deriving from non-monetary items
(mainly depreciation and amortization) were presented
in a manner corresponding to the presentation of the
related non-monetary balance sheet item, as illustrated
above.
(D) The amounts at which non-monetary items are presented
in these interim financial statements do not
necessarily represent their realization value or
economic value, but solely their Reported Amount.
7
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. NEW ACCOUNTING STANDARDS (CONT.)
(2) AMORTIZATION OF GOODWILL - STANDARD NO. 20
In March 2004, the Israeli Accounting Standard Board issued
Standard No. 20 "The Amortization Period of Goodwill".
Standard No. 20 calls for the amortization of goodwill over
its useful life, based on a systematic method that should
reflect the estimated expected period in which the goodwill
is to contribute economic benefits. The amortization period
shall not exceed 20 years from the date on which the
goodwill was initially recognized. Standard No. 20 is in
effect for reporting periods commencing January 1, 2004, and
its provisions are to be applied on a prospective basis. The
implementation of Standard No. 20 did not, and is not
expected to, affect the Group's financial position and
results of operations.
C. Following are the changes in the representative exchange
rate of the U.S. dollar vis-a-vis the NIS and in the Israeli
Consumer Price Index ("CPI").
REPRESENTATIVE
EXCHANGE CPI
RATE OF THE DOLLAR "IN RESPECT OF"
(NIS PER $1) (IN POINTS)
------------------ ---------------
AS OF:
June 30, 2004 4.497 181.09
June 30, 2003 4.312 181.09
December 31, 2003 4.379 178.58
Increase (decrease) during the: % %
Six months ended June 30, 2004 2.7 1.4
Six months ended June 30, 2003 (9.0) (0.5)
Three months ended June 30, 2004 (0.7) 1.5
Three months ended June 30, 2003 (8.0) (1.3)
Year ended December 31, 2003 (7.6) (1.9)
NOTE 3 - REDUCTION OF CORPORATE TAX RATE
In June 2004, the Israeli Knesset passed Amendment No. 140 to the
Income Tax Ordinance, according to which the corporate income-tax rate
would gradually be reduced from the current 36% to 30% by 2007
(2004-35%, 2005-34%, 2006-32%, 2007-30%). The effect of this change on
the Group's current and deferred income tax provisions is reflected by
a reduction of NIS 4,655 thousand in income tax expense for the
six-month and three-month periods ended June 30, 2004.
8
EXHIBIT 5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
TABLE OF CONTENTS
-----------------
PAGE
ACCOUNTANTS' REVIEW REPORT 1
CONDENSED FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4-5
Statements of Cash Flows 6-7
Notes to the Financial Statements 8-11
The Board of Directors of
Hogla-Kimberly Ltd.
-------------------
RE: REVIEW OF UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2004
-----------------------------------------------------------
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 June 30, 2004.
- Statements of operations for the six months and three months ended
June 30, 2004.
- Statements of changes in shareholders' equity for the six months and
three months ended June 30, 2004.
- Statements of cash flows for the six months and three months ended
June 30, 2004.
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, August 5, 2004
1
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS IN THOUSANDS)
JUNE 30, DECEMBER 31,
---------------------------------- -----------
2 0 0 4 2 0 0 3 2 0 0 3
----------- ----------- -----------
REPORTED ADJUSTED ADJUSTED
AMOUNTS (1) AMOUNTS (3) AMOUNTS (3)
----------- ----------- -----------
CURRENT ASSETS (UNAUDITED)
----------------------------------
Cash and cash equivalents 80,369 9,838 37,340
Current maturities of long-term deposits 8,095 1,313 7,882
Trade receivables 261,448 208,967 229,979
Other receivables 19,310 12,905 14,222
Inventories 113,139 100,506 92,664
----------- ----------- -----------
482,361 333,529 382,087
----------- ----------- -----------
LONG-TERM INVESTMENTS
Long-term deposits 71,952 77,947 70,064
Capital note of shareholder 32,770 33,279 32,770
----------- ----------- -----------
104,722 111,226 102,834
----------- ----------- -----------
FIXED ASSETS
Cost 480,793 473,042 479,744
Less - accumulated depreciation 212,210 202,533 210,176
----------- ----------- -----------
268,583 270,509 269,568
----------- ----------- -----------
OTHER ASSETS - GOODWILL 28,435 30,457 29,073
----------- ----------- -----------
884,101 745,721 783,562
=========== =========== ===========
CURRENT LIABILITIES
Short-term bank credit - 12,065 1,087
Current maturities of long-term bank loans 19,261 23,875 15,147
Trade payables 191,509 131,151 139,555
Other payables and accrued expenses 42,454 30,959 37,632
----------- ----------- -----------
253,224 198,050 193,421
----------- ----------- -----------
LONG-TERM LIABILITIES
Long-term bank loans 103,880 86,266 96,338
Deferred taxes 30,827 24,873 29,428
----------- ----------- -----------
134,707 111,139 125,766
----------- ----------- -----------
MINORITY INTEREST 52,887 47,612 51,394
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Share capital 28,788 28,788 28,788
Capital reserves 156,799 156,799 156,799
Translation adjustments relating to
foreign held autonomous Subsidiary (2) 1,690 - -
Retained earnings 256,006 203,333 227,394
----------- ----------- -----------
443,283 388,920 412,981
----------- ----------- -----------
884,101 745,721 783,562
=========== =========== ===========
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of
December 31, 2003.
------------------------ ------------------------ -------------------------
T. DAVIS A. MAGID A. BRENNER
Chairman of the Financial Manager Managing Director
Board of Directors
Approval date of the interim financial statements: August 5, 2004.
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)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
----------------------------- ---------------------------- ------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3 2 0 0 3
----------- ----------- ----------- ----------- ------------
REPORTED ADJUSTED REPORTED ADJUSTED ADJUSTED
AMOUNTS (1) AMOUNTS (2) AMOUNTS (1) AMOUNTS (2) AMOUNTS (2)
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
----------------------------------------------------------------
Net sales 524,924 404,625 258,158 207,872 868,671
Cost of sales 363,809 292,518 178,772 144,898 621,014
----------- ----------- ----------- ----------- ------------
GROSS PROFIT 161,115 112,107 79,386 62,974 247,657
Selling expenses 94,782 60,581 49,139 (*)33,036 130,670
General and
administrative expenses 20,494 19,383 10,574 (*)9,342 39,046
----------- ----------- ----------- ----------- ------------
OPERATING PROFIT 45,839 32,143 19,673 20,596 77,941
Financing income
(expenses), net (6,322) 9,592 (8,402) 11,220 5,517
Other income, net 1,257 227 1,170 78 496
----------- ----------- ----------- ----------- ------------
INCOME BEFORE INCOME
TAXES 40,774 41,962 12,441 31,894 83,954
Income taxes 10,669 6,416 (189) 2,868 20,566
----------- ----------- ----------- ----------- ------------
INCOME AFTER INCOME
TAXES 30,105 35,546 12,630 29,026 63,388
Minority interest in
earnings of Subsidiary (1,493) (3,354) (331) (2,297) (7,135)
----------- ----------- ----------- ----------- ------------
NET INCOME FOR THE
PERIOD 28,612 32,192 12,299 26,729 56,253
=========== =========== =========== ============ ============
EARNINGS PER SHARE
(IN NIS) 3.46 3.90 1.49 3.23 6.81
=========== =========== =========== ============ ============
NUMBER OF SHARES
USED IN COMPUTATION 8,263,473 8,263,473 8,263,473 8,263,473 8,263,473
=========== =========== =========== ============ ============
(*) Reclassified.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS IN THOUSANDS)
TRANSLATION
ADJUSTMENTS
RELATING TO DIVIDEND
FOREIGN HELD DECLARED AFTER
SHARE CAPITAL AUTONOMOUS RETAINED BALANCE SHEET
CAPITAL RESERVES SUBSIDIARY EARNINGS DATE TOTAL
--------- ---------- ------------- ---------- ----------------- -------
SIX MONTHS ENDED
JUNE 30, 2004 (UNAUDITED)
(REPORTED AMOUNTS (1))
Balance - January 1, 2004 28,788 156,799 - 227,394 - 412,981
Translation adjustments
relating to foreign held
autonomous Subsidiary (2) 1,690 1,690
Net income for the period 28,612 28,612
--------- ---------- ------------- ---------- ----------------- ---------
Balance - June 30, 2004 28,788 156,799 1,690 256,006 - 443,283
========= ========== ============= ========== ================= =========
SIX MONTHS ENDED
JUNE 30, 2003 (UNAUDITED)
(ADJUSTED AMOUNTS (3))
Balance - January 1, 2003 28,788 156,799 - 171,141 32,843 389,571
Dividend paid (32,843) (32,843)
Net income for the period 32,192 32,192
--------- ---------- ------------- ---------- ----------------- ---------
Balance - June 30, 2003 28,788 156,799 - 203,333 - 388,920
========= ========== ============= ========== ================= =========
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
HOGLA-KIMBERLY LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS IN THOUSANDS)
TRANSLATION
ADJUSTMENTS
RELATING TO DIVIDEND
FOREIGN HELD DECLARED AFTER
SHARE CAPITAL AUTONOMOUS RETAINED BALANCE SHEET
CAPITAL RESERVES SUBSIDIARY EARNINGS DATE TOTAL
--------- ---------- ------------- ---------- ----------------- -------
THREE MONTHS ENDED
JUNE 30, 2004 (UNAUDITED)
(REPORTED AMOUNTS (1))
Balance - April 1, 2004 28,788 156,799 2,124 243,707 - 431,418
Translation adjustments
relating to foreign held
autonomous Subsidiary (2)
(434) (434)
Net income for the period 12,299 12,299
--------- ---------- ------------- ---------- ----------------- --------=
Balance - June 30, 2004 28,788 156,799 1,690 256,006 - 443,283
========= ========== ============= ========== ================= =========
THREE MONTHS ENDED
JUNE 30, 2003 (UNAUDITED)
(ADJUSTED AMOUNTS (3))
Balance - April 1, 2003 28,788 156,799 - 176,604 - 362,191
Net income for the period 26,729 26,729
--------- ---------- ------------- ---------- ----------------- ---------
Balance - June 30, 2003 28,788 156,799 - 203,333 - 388,920
========= ========== ============= ========== ================= =========
YEAR ENDED
DECEMBER 31, 2003
(ADJUSTED AMOUNTS (3))
Balance - January 1, 2003 28,788 156,799 - 171,141 32,843 389,571
Dividend paid (32,843) (32,843)
Net income for the year 56,253 56,253
--------- ---------- ------------- ---------- ----------------- ---------
Balance - December 31, 2003 28,788 156,799 - 227,394 - 412,981
========= ========== ============= ========== ================= ==========
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS IN THOUSANDS)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
--------------------------- --------------------------- ------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3 2 0 0 3
----------- ----------- ----------- ----------- ------------
REPORTED ADJUSTED REPORTED ADJUSTED ADJUSTED
AMOUNTS (1) AMOUNTS (3) AMOUNTS (1) AMOUNTS (3) AMOUNTS (3)
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
----------------------------------------------------------
CASH FLOWS - OPERATING ACTIVITIES
Net income for the period 28,612 32,192 12,299 26,729 56,253
Adjustments to reconcile net
income to net cash provided by
operating activities
(Appendix A) 10,651 (17,015) 5,504 (24,276) 4,190
----------- ----------- ----------- ----------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 39,263 15,177 17,803 2,453 60,443
----------- ----------- ----------- ----------- ------------
CASH FLOWS - INVESTING ACTIVITIES
Withdrawal of long-term bank
deposits - 7,882 - 7,882 9,195
Acquisition of fixed assets (6,117) (17,159) (2,659) (7,783) (26,953)
Proceeds from sale of fixed assets 1,827 531 1,328 150 1,092
----------- ----------- ----------- ----------- ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (4,290) (8,746) (1,331) 249 (16,666)
----------- ----------- ----------- ----------- ------------
CASH FLOWS - FINANCING ACTIVITIES
Dividend paid - (32,843) - - (32,843)
Long-term loans received 13,603 10,737 9,176 7,672 28,949
Repayment of long-term loans (4,421) (7,882) - (7,882) (24,960)
Short-term bank credit (1,087) 12,065 - (4,575) 1,087
----------- ----------- ----------- ----------- ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 8,095 (17,923) 9,176 (4,785) (27,767)
----------- ----------- ----------- ----------- ------------
TRANSLATION ADJUSTMENTS OF CASH
AND CASH EQUIVALENTS OF
FOREIGN HELD AUTONOMOUS
SUBSIDIARY (2) (39) - (164) - -
----------- ----------- ----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 43,029 (11,492) 25,484 (2,083) 16,010
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 37,340 21,330 54,885 11,921 21,330
----------- ----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS -
END OF PERIOD 80,369 9,838 80,369 9,838 37,340
=========== =========== =========== =========== ============
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
6
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
APPENDICES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS IN THOUSANDS)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
------------------------- ------------------------- ------------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3 2 0 0 3
---------- ---------- ---------- ---------- ------------
REPORTED ADJUSTED REPORTED ADJUSTED ADJUSTED
AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS
(1) (2) (1) (2) (2)
---------- ---------- ---------- ---------- ------------
(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 1,493 3,354 331 2,297 7,135
Depreciation and amortization 11,726 12,984 5,674 6,377 25,213
Deferred taxes, net (688) 4,067 (1,131) 1,320 8,251
Gain from sale of fixed assets (1,257) (227) (1,170) (78) (482)
Effect of exchange rate
differences, net (555) (2,986) 43 (2,663) (2,266)
CHANGES IN ASSETS AND
LIABILITIES:
Decrease (increase) in trade
receivables (29,861) (26,744) 8,468 (26,345) (47,933)
Decrease (increase) in other
receivables (2,995) (1,170) 449 (3,919) (2,115)
Increase in inventories (20,113) (14,081) (12,099) (2,647) (6,237)
Increase (decrease) in trade
payables 36,683 (5,659) 8,342 (12,248) 27,544
Net change in balances with
related parties 11,504 14,993 5,275 15,797 (10,050)
Increase (decrease) in other
payables and accrued expenses 4,714 (1,546) (8,678) (2,167) 5,130
---------- ---------- ---------- ---------- ------------
10,651 (17,015) 5,504 (24,276) 4,190
========== ========== ========== ========== ============
B. NON-CASH ACTIVITIES
Acquisition of fixed assets on
credit 3,363 4,366 2,729 4,366 8,661
========== ========== ========== ========== ============
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
7
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as
of June 30, 2004 and for the six months and three months then ended
("interim financial statements") of Hogla-Kimberly Ltd. ("the
Company") and subsidiaries should be read in conjunction with the
audited consolidated financial statements of the Company and
subsidiaries as of December 31, 2003 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
the dates and for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of
the results to be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
The interim financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") in Israel,
in a condensed format in accordance with GAAP applicable to the
preparation of interim period financial statements, including
those under Standard No. 14, "Interim Financial Reporting".
B. NEW ACCOUNTING STANDARDS
The accounting principles applied in the preparation of these
interim financial statements are consistent with those principles
applied in the preparation of the most recent annual audited
financial statements with the exception of the following:
(1) CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE TO
REPORTING IN REPORTED AMOUNTS - STANDARD NO. 12
(A) DEFINITIONS:
ADJUSTED AMOUNT - historical nominal amount
adjusted for changes in the exchange rate of the
U.S dollar as of December 31, 2003, in accordance
with Opinion No. 36 of the Institute of Certified
Public Accountants in Israel.
REPORTED AMOUNT - Adjusted Amount plus amounts in
nominal terms added subsequent to December 31,
2003, and less amounts subtracted after that date.
8
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. NEW ACCOUNTING STANDARDS (cont.)
(1) CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE TO
REPORTING IN REPORTED AMOUNTS - STANDARD NO. 12 (cont.)
(B) In January 2004, Israeli Accounting Standard No.
12 "Cessation of Financial Statements Adjustment"
came into effect. Following the initial
implementation of Standard No. 12, commencing
January 1, 2004, the Group ceased the presentation
of its financial statements based on nominal
historical cost adjusted for the changes in the
exchange rate of the US Dollar in relation to the
NIS. Effective with the interim financial
statements as of March 31, 2004 and for the
reporting periods thereafter, the Group's
financial statements are prepared and presented in
Reported Amounts.
Comparative figures included in the interim
financial statements relating to December 31, 2003
and June 30, 2003 and for the year and six-month
and three-month periods respectively then ended,
are presented in Adjusted Amounts.
(C) REPORTED AMOUNTS ARE DETERMINED AS FOLLOWS:
BALANCE SHEET ITEMS
Monetary items (items whose balance sheet amount
reflects their current value or realization value
at the balance sheet date) are presented at their
nominal value as of the balance sheet date.
Non-monetary items are presented at their Adjusted
Amounts plus additions and dispositions occurring
during the reporting period. Additions made
subsequent to December 31, 2003 and dispositions
of items added subsequent to such date, are
presented at their historical nominal value.
Dispositions of items added prior to December 31,
2003 are presented at their Adjusted Amount.
Minority interest in a Subsidiary is presented
based on the interim financial statements of that
Subsidiary prepared according to the guidance of
Standard No. 12.
STATEMENT OF OPERATION ITEMS
Income and expenses reflecting transactions, and
financial income and expenses, are presented at
their nominal value.
Income and expenses deriving from non-monetary
items (mainly depreciation and amortization) were
presented in a manner corresponding to the
presentation of the related non-monetary balance
sheet item, as illustrated above.
Minority interest in earnings of a Subsidiary is
determined based on the interim financial
statements of that Subsidiary prepared according
to the guidance of Standard No. 12.
9
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. NEW ACCOUNTING STANDARDS (cont.)
(1) CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE TO
REPORTING IN REPORTED AMOUNTS - STANDARD NO. 12 (cont.)
(D) The amounts at which non-monetary items are presented
in these interim financial statements do not
necessarily represent their realization value or
economic value, but solely their Reported Amount.
(2) TRANSLATION OF FOREIGN OPERATIONS' FINANCIAL STATEMENTS -
STANDARD NO. 13
(A) In January 2004, Israeli Accounting Standard No. 13
"Effect of Changes in Foreign Exchange Rates" came into
effect. This Standard addresses the translation of
transactions denominated in foreign currency, as well
as the translation of financial statements of a foreign
entity, for inclusion in the financial statements of
the reporting company. Standard No. 13 supersedes
Clarifications No. 8 and 9 to Opinion No. 36 of the
Institute of Certified Public Accountants in Israel,
which were nullified on the date on which Accounting
Standard No. 12 came into effect, as described in (1)
above.
(B) A FOREIGN ENTITY CLASSIFIED AS A FOREIGN HELD
AUTONOMOUS SUBSIDIARY
o Following the implementation of Standard No. 13,
commencing January 2004 goodwill derived from an
investment made in another entity is to be treated
as one of that entity's assets. Accordingly, the
goodwill associated with the Group's investment in
Ovisan (a Subsidiary located in Turkey) is
translated to NIS at the closing rate, rather than
at the exchange rate at the date in which said
investment was made, as was previously required
under the applicable accounting literature in
effect through December 31, 2003.
o Monetary and non-monetary assets and liabilities
of the foreign entity are translated at the
closing rate.
o Operating and cash flow items of the foreign
entity are translated, in general, by the average
exchange rate for the reporting period, rather
than by the closing rate as was previously
required under the applicable accounting
literature prior to the date in which Standard No.
13 came into effect (January 1, 2004).
o All differences resulting from the translation of
the foreign entity's financial statements by the
method described above, are included in a separate
component of shareholders' equity as "Translation
adjustments relating to foreign held autonomous
Subsidiary".
10
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. NEW ACCOUNTING STANDARDS (cont.)
(3) AMORTIZATION OF GOODWILL - STANDARD NO. 20
In March 2004, the Israeli Accounting Standard Board issued
Standard No. 20 "The Amortization Period of Goodwill".
Standard No. 20 calls for the amortization of goodwill over
its useful life, based on a systematic method that should
reflect the estimated expected period in which the goodwill
is to contribute economic benefits. The amortization period
shall not exceed 20 years from the date on which the
goodwill was initially recognized. Standard No. 20 is in
effect for reporting periods commencing January 1, 2004, and
its provisions are to be applied on a prospective basis. The
implementation of Standard No. 20 did not, and is not
expected to, affect the Group's financial position and
results of operations.
C. During the six months ended June 30, 2004, the representative
exchange rate of the US Dollar vis-a-vis the NIS increased by
2.7%, the exchange rate of the Turkish Lira vis-a-vis the NIS
increased by 3.1%, the Israeli Consumer Price Index increased by
1.4%. During the three months ended June 30, 2004, the
representative exchange rate of the US Dollar vis-a-vis the NIS
decreased by 0.7%, the exchange rate of the Turkish Lira
vis-a-vis the NIS increased by 13.7%, the Israeli Consumer Price
Index increased by 1.5%.
NOTE 3 - REDUCTION OF CORPORATE TAX RATE
In June 2004, the Israeli Knesset passed Amendment No. 140 to the
Income Tax Ordinance, according to which the corporate income-tax rate
would gradually be reduced from the current 36% to 30% by 2007
(2004-35%, 2005-34%, 2006-32%, 2007-30%). The effect of this change on
the Group's current and deferred income tax provisions is reflected by
a reduction of approximately NIS 4.3 million in income tax expense for
the six-month and three-month periods ended June 30, 2004.
11