SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the Month of March 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 March 11, 2004.
Attached hereto as Exhibit 2 and incorporated herein by reference is
the Registrant's Management Discussion with respect to the results of operations
of the Registrant for the year ended December 31, 2003.
Attached hereto as Exhibit 3 and incorporated herein by reference is
the Registrant's consolidated audited financial statements for the year ended
December 31, 2003.
Attached hereto as Exhibit 4 and incorporated herein by reference is
the annual report of the Registrant's subsidiary Neusiedler Hadera Paper Ltd.
for the year ended December 31, 2003.
Attached hereto as Exhibit 5 and incorporated herein by reference are
the financial statements of the Registrant's subsidiary Hogla-Kimberly Ltd. for
the year ended December 31, 2003.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ISRAELI PAPER MILLS LTD.
(Registrant)
By: /s/ Lea Katz
--------------------------
Name: Lea Katz
Title: Corporate Secretary
Dated: March 11, 2004.
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
1. Press release dated March 11, 2003.
2. Management Discussion.
3. Financial Statements of the Registrant.
4. Annual Report of Neusiedler Hadera Paper Ltd.
5. Financial Statements of Hogla-Kimberly Ltd.
1
EXHIBIT 1
---------
NEWS
Client: AMERICAN ISRAELI
PAPER MILLS LTD.
Agency Contact: PHILIP Y. SARDOFF
For Release: IMMEDIATE
AMERICAN ISRAELI PAPER MILLS LTD. REPORTS FINANCIAL RESULTS
OF FISCAL YEAR ENDED DECEMBER 31, 2003
Hadera, Israel, March 11, 2004 - American Israeli Paper Mills Ltd. (ASE: AIP)
(the "Company") today reported its results for the year ended December 31, 2003.
All amounts are in New Israeli Shekels ("NIS") adjusted to changes in the U.S.
dollar exchange rate.
Since the Company's share in the profits of associated companies constitutes an
essential part of the profit and loss statement of the Company, mainly due to
its share in the profits of Neusiedler Hadera Paper (NHP) and Hogla-Kimberly
(H-K), which were formerly consolidated until the transfer of control to the
international strategic partners (Neusiedler AG and Kimberly-Clark) the
aggregate data (including the associated companies, whose results are included
in the financial statements as "earnings of associated companies", without
considering the holding percentage of AIPM in such companies and net of
inter-company sales) is presented as follows.
Aggregate group sales in 2003 totaled NIS 2,359.4 million, compared with NIS
2,171.1 million in 2002 ($538.8 million as compared with $495.8 million).
Aggregate operating profit in 2003 totaled NIS 164.7 million, compared with NIS
125.7 million in 2002 ($37.6 million as compared with $ 28.7 million).
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 2003 totaled NIS 465.1 million, compared with NIS 455.8
million in 2002 ($106.2 million, compared with $104.1 million). Consolidated
sales in 2002 included NIS 7.9 million ($1.8 million) on account of an
operation which was discontinued in September 2002.
The growth in sales is attributed primarily to a quantitative increase of 6% in
sales of packaging papers.
Operating profit in 2003 totaled NIS 46.6 million, compared with NIS 36.5
million in 2002 ($10.6 million, compared with $8.3 million).
1
Net profit in 2003 totaled NIS 60.0 million, compared with NIS 37.5 million in
2002 ($13.7 million, compared with $8.6 million). Net profit in 2003 includes
approximately NIS 1.0 million ($0.2 million) in net capital gains, resulting
from the sale of apartments owned by the Company, which had previously been used
by the Company's employees and NIS 1.6 million ($0.4 million) tax benefit
resulting from the exercise of option warrants by employees. Net profit in 2002
included approximately NIS 0.4 million ($0.1 million) in non-recurring income,
net, from the realization of assets and from taxes on account of preceding
years.
Earnings per share (EPS) for 2003 totaled NIS 14.94 ($3.41), compared with NIS
9.47 ($2.16) for 2002.
The inflation rate in 2003 was negative and amounted to -1.9%, compared with an
inflation rate of 6.5% in 2002.
The exchange rate of the NIS was revaluated by approximately 7.6% against the
U.S. dollar during 2003 as compared with a devaluation of 7.3% in 2002.
Mr. Yaacov Yerushalmi, Chairman of the Company's Board of Directors said that
the severe recession that has been plaguing the Israeli economy over the past
several years, as part of the global economic crisis, accompanied by security
events and terrorist attacks, has resulted in negative growth during this
period, along with a considerable rise in unemployment, lower domestic demand
(due to the lower purchasing power of the public and due to the significant
decrease in incoming tourism), coupled with a significant escalation in
competition in all sectors.
The global economic crisis - especially in Europe - has also affected the paper
industry and resulted in a supply surplus and consequently in continuing import
of low-priced paper into Israel. These imports have led to increased
competition, especially in fine paper, accompanied by a decrease in selling
prices. Since pulp prices have risen during the same period, this has led to a
decrease in the margin between selling prices and pulp prices.
Pulp prices rose by an average of approximately 10% in 2003, as compared with
2002. These prices are estimated to continue to rise moderately in the first
half of 2004.
Despite the difficult business environment, the group has managed to maintain
its operations at full capacity throughout 2003, while expanding its operations
in overseas markets.
Signs of a recovery in the Israeli economy began appearing toward the end of
2003, as reflected by low, albeit positive, growth (although no growth was
recorded in 2003 in per capita terms), coupled with a certain positive change in
the business atmosphere in the economy.
Mr. Yerushalmi said that the gross margin as a percentage of consolidated sales
reached 22.1% in 2003, as compared with 20.2% in 2002. The improved gross margin
compared to 2002, was achieved due to the Company's ongoing improvement and
increased efficiency. The said efficiency was expressed by the increased output
of the machines, by less work hours per ton and a decrease in the consumption of
energy per ton produced, coupled with the continued reduction of various
manufacturing costs.
2
The financial expenses totaled NIS 16.0 million in 2003, as compared with NIS
3.0 million in 2002 ($3.7 million as compared with $0.7 million). This increase
was primarily the result of the influence of the dollar revaluation in 2003 over
the Company's net surplus of NIS-denominated financial liabilities, whereas in
2002, the devaluation led to lower financial expenses (a difference of 15%
between 2003 and 2002).
It should nevertheless be stated that the cash-flow-related financial expenses
in 2003 (interest expenses net of revenues) amounted to NIS 8.8 million ($2.0
million), an amount similar to that spent in 2002.
The Company's share in the earnings of the associated companies - NHP, H-K,
Carmel and TMM - amounted to NIS 35.5 million in 2003, as compared with NIS 16.7
million in 2002 ($8.1 million as compared with $3.8 million).
The following are changes in the earnings of the main associated companies in
2003 as compared to 2002:
- The Company's share in the net profit of NHP grew by NIS 1.2
million ($0.3 million) as a result of the continuing
improvement in operating profitability, that was attained
primarily due to efficiency measures and the reorganization of
operations and marketing at the division. The improved
profitability was impaired by a certain decrease in operating
profit in the second half of 2003, as compared with the
preceding quarters of 2003 (due to the lower margins and the
competition against imports), coupled with the increase in
financial expenses, primarily on account of the repayment of
some of the loans that were received from the shareholders
when the Company was founded.
- The Company's share in the net earnings of H-K grew by NIS
19.0 million ($4.3 million), as a result of the improved
operating profit at H-K as compared with last year. This is
primarily attributed to the improved efficiency in logistics
following the relocation to the central warehouse in Tzrifin
and the gradual transition toward the local manufacture of
HUGGIES diapers in Afula. Efficiency measures were also
initiated at Ovisan (H-K's subsidiary in Turkey) and resulted
in a significant improvement in the operating profit. The net
profit also grew compared to 2002 on account of financial
revenues that were recorded at H-K and at Ovisan in 2003, due
to the effects of the revaluation in the NIS and in the
Turkish lira, as compared with the U.S. dollar.
The financial liabilities bearing interest, net, grew by approximately NIS 65
million ($ 14.9 million) in 2003. The increase originates primarily from the
dividends paid to the shareholders (totaling NIS 100 million, or $22.6 million),
as well as from the repayment of long-term debts. The increase was partially
offset by the dividends and by the repayment of a loan obtained from associated
companies.
3
In March 2003, the Company announced the distribution of a dividend for 2002, in
the amount of NIS 25.9 million (NIS 6.61 per share). The dividend was paid in
April 2003.
In August 2003, the Company announced the distribution of a special dividend for
2003 in the amount of NIS 75 million (NIS 19.04 per share). The dividend was
paid in September 2003.
On December 21, 2003, the company issued notes - through tender by private
placement in the amount of NIS 200 million, to institutional investors. These
notes carry an interest rate of 5.65% per annum (a margin of 1.45% above
government notes with a comparable average maturity). The principal will be
repaid in seven equal annual installments between the years 2007-2013 (average
maturity of 6 years), with both the principal and the interest being linked to
the CPI. The notes are not convertible into company shares and shall not be
registered for trade on the stock exchange.
49,585 shares were issued during the reported period (1.3% dilution), on account
of the exercise of 116,175 option warrants as part of the Company's employee
option plans.
This press release contains various forward-looking statements, based upon the
Company's Board of Directors' present expectations and estimates regarding the
operations of the Company and its business environment. The Company does not
guarantee that the future results of operations will coincide with the
forward-looking statements and such future results may 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 outside
the control of the Company. The Company undertakes no obligation to publicly
update 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
(AUDITED)
Adjusted NIS in
thousands except per share amounts
YEAR ENDED DEC. 31,
-------------------
2003 2002
---- ----
Net sales 465,092 455,775
Net earnings 60,047 37,460
Earnings per share 14.94 9.47
THREE MONTHS ENDED DEC. 31,
---------------------------
2003 2002
---- ----
Net sales 115,104 123,384
Net earnings 15,095 9,293
Earnings per share 3.76 2.35
Adjusted NIS amounts have been adjusted to reflect changes in the rate of
exchange between the U.S. dollar and the NIS as at the end of December 2003. The
representative exchange rate at December 31, 2003 was N.I.S. 4.379 = $1.00
4
EXHIBIT 2
---------
1
March 10, 2004
MANAGEMENT DISCUSSION
We present the consolidated financial statements of the American Israeli Paper
Mills Ltd. Group ("AIPM" or the "Company") for the year 2003.
I. A SUMMARIZED DESCRIPTION OF THE GROUP AND ITS BUSINESS ENVIRONMENT
1. GENERAL
AIPM is the leading Israeli group (the "Group") in the manufacturing
of paper and paper products. The Group produces and markets a wide
range of paper types, household paper products, hygienic 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.
AIPM's securities are traded on the Tel Aviv Stock Exchange and on the
American Stock Exchange (AMEX).
2. THE BUSINESS ENVIRONMENT
The severe recession that has been plaguing the Israeli economy over
the past several years, as part of the global economic crisis, has
been accompanied by security events and terrorist attacks and has
resulted in negative growth of the Israeli economy during this period,
along with a considerable rise in unemployment, lower domestic demand
(due to the lower purchasing power of the public and due to the
significant decrease in incoming tourism), coupled with a significant
escalation in competition in all sectors.
The said global economic crisis - especially in Europe - has also
affected the paper industry and resulted in a supply surplus and
consequently in continuing the importing of low-priced paper into
Israel. These imports have led to increased competition, especially in
fine paper, accompanied by a decrease in selling prices. As a result
of the rise in pulp prices during the same period, the margin between
selling prices and pulp prices has decreased as well.
Pulp prices rose by an average of approximately 10% in 2003, as
compared with 2002. These prices are estimated to continue to rise
moderately in the first half of 2004.
2
Despite the difficult business environment, the Group has managed to
maintain its operations at full capacity throughout this period, while
expanding its operations in overseas markets.
Signs of a recovery in the Israeli economy began appearing toward the
end of 2003, as reflected by low, albeit positive growth (although no
growth was recorded in 2003 in per capita terms), coupled with a
certain positive change in the business atmosphere in the economy.
The exchange rate of the NIS compared to the U.S. dollar was
revaluated by 7.6% in 2003, as compared with a devaluation of 7.3% in
2002.
Inflation was negative in 2003, at -1.9%, as compared with an
inflation rate of 6.5% in 2002.
The negative inflation enabled the Bank of Israel to significantly
lower the interest rates, by approximately 3.7% in 2003. This has led
to a lowering of the Prime rate at the commercial banks in 2003, from
10.4% to 6.7%.
II. 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
includes the results of all the companies in the AIPM Group (including
the associated companies whose results appear in the financial
statements under "earnings from associated companies"), without
consideration of the rate of holding in such associated companies and
net of mutual sales.
The aggregate sales in 2003 amounted to NIS 2,359.4 million (NIS - New
Israeli Shekels adjusted to changes in the dollar exchange rate), as
compared with NIS 2,171.1 million in 2002 ($538.8 million, as compared
with $495.8 million).
The aggregate operating profit totaled NIS 164.7 million in 2003, as
compared with NIS 125.7 million in 2002 ($37.6 million, as compared
with $28.7 million).
2. CONSOLIDATED DATA
-----------------
Excluding the results of operations of NHP, Hogla-Kimberly, Carmel and
TMM - which appear in the Company's share in the earnings of
associated companies.
Sales in 2003 totaled NIS 465.1 million, as compared with NIS 455.8
million in 2002 ($106.2 million as compared with $104.1 million).
3
The operating profit in 2003 amounted to NIS 46.6 million, as compared
with NIS 36.5 million in 2002 ($10.6 million, as compared with $8.3
million).
The financial expenses in 2003 amounted to NIS 16.0 million, as
compared with NIS 3.0 million in 2002 ($3.7 million, as compared with
$0.7 million).
The increased expenses are primarily attributed to the impact of the
revaluation on the net monetary balances (see analysis below - Chapter
III, Section 5).
3. NET INCOME AND EARNINGS PER SHARE
---------------------------------
Net profit in 2003 amounted to NIS 60.0 million, as compared with NIS
37.5 million in 2002 ($13.7 million, as compared with $8.6 million).
Net profit in 2003 includes NIS 1.0 million ($0.2 million) in net
capital gains, resulting from the sale of apartments that were owned
by the Company and that served Company employees in the past, coupled
with a NIS 1.6 million ($0.4 million) tax benefit, on account of the
exercise of employee option warrants. The net profit in 2002 included
approximately NIS 0.4 million ($0.1 million) in non-recurring income,
net, from the realization of assets and from taxes on account of
preceding years.
The Earnings Per Share in 2003 amounted to NIS 1,494 per NIS 1 par
value ($3.41 per share), as compared with NIS 947 per NIS 1 par value
($2.16 per share) in 2002.
The return on shareholders' equity amounted to 9.2% in 2003, as
compared with 5.9% in 2002.
III. ANALYSIS OF OPERATIONS AND PROFITABILITY
----------------------------------------
The analysis set forth below is based on the consolidated data.
1. SALES
-----
The consolidated sales totaled NIS 465.1 million in 2003, as compared
with NIS 455.8 million in 2002 ($106.2 million as compared with $104.1
million).
The 2002 consolidated sales included a sum of NIS 7.9 million ($1.8
million) on account of the Shafir operation that was discontinued as
of September 2002.
The NIS 17.2 million ($3.9 million) increase in sales - net of
Shafir's sales in 2002 - originated primarily from a quantitative
increase of approximately 6% in packaging paper.
2. COST OF SALES
-------------
The cost of sales amounted to NIS 362.2 million in 2003 -77.9% of
sales - as compared with NIS 363.8 million -79.8% of sales - in 2002
($82.7 million, as compared with $83.1 million).
4
The gross margin as a percentage of sales reached 22.1% in 2003, as
compared with 20.2% in 2002.
The improved gross margin compared to 2002, was achieved due to the
Company's ongoing improvements and increased efficiency. The said
efficiency was expressed by the increased output of the machines, by
less work hours per ton and a decrease in the consumption of energy
per ton produced, coupled with the continued reduction of various
manufacturing costs.
The improved gross margin was achieved despite a sharp increase in
energy prices, following an average increase of approximately 21% in
fuel oil prices compared to 2002 (energy expenses grew by NIS 4.8
million ($1.1 million), also on account of the transition to
low-sulfur fuel oil, due to the demands of the Ministry of the
Environment). Furthermore a 23% increase was recorded in water prices.
LABOR WAGES
-----------
The labor wages recorded in the cost of sales, in the selling expenses
and in the general and administrative expenses, totaled NIS 137.0
million in 2003, as compared with NIS 125.5 million in 2002 ($31.3
million as compared with $28.7 million).
The increase in labor expenses originated primarily from an increase
in wages in dollar terms, due to the change in the average exchange
rate between the two periods, coupled with the updating of wages, to
prevent a decrease in real wages as a result of the rise in the CPI in
2002 (as mentioned above, the CPI rose by 6.5% in 2002).
The said increase in wages was partially offset by the decrease in
personnel (as a result of efficiency measures and the shutting down of
Shafir).
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
The selling, general and administrative expenses (including wages)
amounted to NIS 56.3 million in 2003 (12.1% of sales), as compared
with NIS 55.5 million (12.2% of sales) in 2002 ($12.9 million as
compared with $12.7 million).
The increase in selling, general and administrative expenses
originated primarily from an increase in NIS-denominated expenses
(including wages), in dollar terms (due to the low dollar exchange
rate, as compared with 2002).
4. OPERATING PROFIT
----------------
The operating profit amounted to NIS 46.6 million - 10.0% of sales -
in 2003, as compared with NIS 36.5 million - 8% of sales - in 2002
($10.6 million, as compared with $8.3 million).
5
5. FINANCIAL EXPENSES
------------------
The financial expenses totaled NIS 16.0 million in 2003, as compared
with NIS 3.0 million in 2002 ($3.7 million as compared with $0.7
million).
The Company possesses a surplus of NIS-denominated financial
liabilities over financial assets (consisting primarily of notes and
short-term bank credit, denominated in NIS). Consequently, whereas a
devaluation serves to lower the financial expenses, a revaluation
leads to an increase in the financial expenses.
Elevated financial expenses were recorded by the Company in 2003,
originating primarily from the dollar revaluation, whereas in 2002,
the devaluation led to lower financial expenses (a difference of 15%
between the current year and in 2002).
It should nevertheless be stated that the cash-flow-related financial
expenses in 2003 (interest expenses net of revenues) amounted to NIS
8.8 million ($2.0 million), similar to the amount spent in 2002.
6. TAXES ON INCOME
---------------
The expenditure for taxes on income totaled NIS 7.7 million in 2003,
as compared with NIS 9.8 million in 2002 ($1.8 million as compared
with $2.2 million).
The principal factor behind the decrease in tax expenses in 2003, as
compared with 2002, is the difference between the real-term
revaluation in 2003 and the real term devaluation in 2002. This
devaluation served to decrease the protection on shareholders' equity
(measured for tax purposes according to the changes in the Consumer
Price Index) and increased the expenditure on taxes in 2002. A high
real-term revaluation was recorded in 2003, that contributed to
lowering the tax expenditure.
7. PROFIT AFTER TAXES AND BEFORE THE COMPANY'S SHARE IN THE EARNINGS OF
----------------------------------------------------------------------
ASSOCIATED COMPANIES
--------------------
The profit after taxes and before the Company's share in the earnings
of associated companies amounted to NIS 24.5 million in 2003, as
compared with NIS 20.7 million in 2002 ($5.6 million, as compared with
$4.7 million).
8. COMPANY'S SHARE IN EARNINGS OF ASSOCIATED COMPANIES
---------------------------------------------------
The companies whose earnings are reported under this item (according
to AIPM's holdings therein), include primarily: NHP, Hogla-Kimberly,
Carmel and TMM.
The Company's share in the earnings of associated companies amounted
to NIS 35.5 million in 2003, as compared with NIS 16.7 million in 2002
($8.1 million, as compared with $3.8 million).
The following principal changes were recorded in the Company's share
in the earnings of associated companies, in relation to the preceding
year:
- The Company's share in the net profit of NHP grew by NIS 1.2
million ($0.3 million) as a result of the continuing improvement
in operating profitability, that was attained primarily due to
efficiency measures and
6
the reorganization of operations and marketing at the division.
The improved profitability was impaired by a certain decrease in
operating profit in the second half of 2003, as compared with the
preceding quarters of 2003 (due to the lower margins and the
competition against imports), coupled with the increase in
financial expenses, primarily on account of the repayment of some
of the loans that were received from the shareholders when the
Company was founded.
- The Company's share in the net earnings of Hogla-Kimberly grew by
NIS 19.0 million ($4.3 million), as a result of the improved
operating profit at Hogla-Kimberly as compared with 2002. This is
primarily attributed to the improved efficiency in logistics
following the relocation to the central warehouse in Tzrifin and
the gradual transition toward the manufacturing of HUGGIES
diapers in Afula. Efficiency measures were also initiated at
Ovisan (the subsidiary in Turkey) and were expressed by a
significant improvement in the operating profit. The net profit
also grew compared with 2002 on account of financial revenues
that were recorded at Hogla-Kimberly and at Ovisan in 2003, due
to the effects of the revaluation (in the NIS and in the Turkish
lira, as compared with the U.S. dollar).
- The Company's share in the net profit of the Carmel Group grew by
NIS 2.5 million ($0.6 million) due to the transition from an
operating loss in the preceding quarters, to an operating profit
starting with the third quarter of 2003. This improvement is
attributed to the comprehensive efficiency measures that are
being initiated by Carmel.
- The Company's share in the net profit of TMM decreased by NIS 2.3
million ($0.5 million), as a result of higher financial expenses
in 2003, as compared with 2002. This is attributed to an increase
in credit (as a result of an increase in customer debts primarily
local municipalities coupled by strategic investments in the
development of the Company that were financed using bank credit)
and to the real-term interest in CPI terms, that was higher in
2003 than it was in 2002.
IV. LIQUIDITY AND INVESTMENTS
-------------------------
1. ACCOUNTS RECEIVABLE - TRADE
---------------------------
Accounts receivable totaled NIS 141.0 million as at December 31, 2003,
as compared with NIS 131.7 million at December 31, 2002 ($32.2
million, as compared with $30.1 million).
The increase in accounts receivable in 2003 as compared with 2002
originates from the growth in the volume of operations, the
revaluation of the dollar exchange rate and the increase in the days
of receivables credit, as a result of the economic situation.
2. CASH FLOWS
----------
The cash flows from operating activities amounted to NIS 52.7 million
in 2003, as compared with NIS 77.2 million in 2002 ($12.0 million, as
compared with $17.6 million). The decrease in the cash flows from
operating activities in 2003, despite the improvement in the net
profit, originated primarily from the increase in operating working
capital in 2003, that is non-recurring for the most part. This
7
increase stemmed primarily from the increase in customer debts, on the
one hand, and from the decrease in the supplier debt, on the other
hand (originated primarily from a change in the days of payables
credit, as part of price update agreements).
3. INVESTMENTS IN FIXED ASSETS
---------------------------
The investments in fixed assets amounted to NIS 29.2 million in 2003,
as compared with NIS 46.8 million in 2002 ($6.7 million, as compared
with $10.7 million). The investments in 2003 included investments in
environmental issues (approximately $0.6 million), an investment in
expanding the output of the packaging paper machine (approximately
$0.6 million), as well as investments in equipment, transportation and
IT.
4. FINANCIAL LIABILITIES
---------------------
The long-term liabilities (including current maturities) amounted to
NIS 275.0 million as at December 31, 2003, as compared with NIS 77.2
million as at December 31, 2002 ($62.8 million as compared with $17.6
million).
Most of the increase in the long-term liabilities is attributed to
loans raised through notes (Series 2) from institutional entities, in
the amount of NIS 200 million ($45.6 million), at December 21, 2003
(see Section IX, below).
Some of the proceeds from the notes were used for the repayment of
short-term credit.
The short-term credit balance totaled NIS 144.6 million at December
31, 2003, as compared with NIS 104.0 million at December 31, 2002
($33.0 million, as compared with $23.8 million).
The increase in the credit balances in 2003 originates primarily from
the dividends paid to the shareholders (totaling NIS 100 million, or
$22.6 million), as well as from the repayment of long-term debts. The
increase in the credit balances was partially offset by dividends and
by the repayment of a loan from associated companies, coupled with
part of the proceeds from the notes, as stated above.
Most of the credit for financing the Company's operations is
denominated in NIS. Due to the said increase in liabilities, the
surplus of net financial liabilities denominated in NIS grew from NIS
104.9 million at December 31, 2002 to NIS 159.8 million at December
31, 2003 (from $24.0 million to $36.5 million).
V. EXPOSURE AND MANAGEMENT OF MARKET RISKS
---------------------------------------
Due to its operations, the Company is exposed to market risks, consisting
primarily of changes in interest rates - on both short and long-term loans
- changes in exchange rates (primarily NIS/$) and changes in raw material
prices, which are denominated primarily in foreign currency. These changes
influence the Company's results.
The Company's Board of Directors determines the policy according to which
financial instruments are employed and defines the objectives to be
attained, taking into account the
8
Group's linkage balance sheet and the impact of various changes in
currencies and in the Consumer Price Index on the Company's balance sheets
and on its financial statements.
Mr. Israel Eldar, the Company's Controller, is in charge of the management
of market risks. He conducts calculations of the Company's exposure every
month and examines the compliance with the policy determined by the Board
of Directors.
Furthermore, limited use is made of derivative financial instruments, which
the Company employs for hedging the cash flows in dollars, originating from
the existing assets and liabilities.
Such transactions are conducted primarily through currency options and
forward transactions opposite Israeli banking institutions. The Company
therefore believes that the inherent credit risk of these transactions is
slight.
The Company possesses CPI-linked long-term loans (notes and loans) in the
total sum of NIS 240 million ($54.8 million), with the interest thereupon
being no higher than the market interest rate. In the event that the
inflation rate increases and is considerably high, this could lead to a
loss being recorded in the Company's financial statements as a result of a
surplus of CPI-linked liabilities.
At December 31, 2003, the Company was not involved in any forward
transactions.
In January 2004, the Company entered into a forward transaction, with a
term of one year, to hedge a sum of NIS 200 million against a rise in the
CPI.
CREDIT RISKS
------------
Most of the Group's sales are made in Israel to a large number of customers
and the exposure to customer-related credit risks is consequently generally
limited. The Group regularly analyzes - through credit committees that
operate within the various companies - the quality of the customers, their
credit limits and the relevant collateral required, as the case may be.
The financial statements include provisions for doubtful debts, based on
the existing risks on the date of the statements.
The cash, cash equivalents and fixed-term deposits are by and large
deposited with large Israeli banking institutions or foreign banks
controlled by the said institutions.
9
REPORT OF LINKAGE BASES
-----------------------
The following are the balance sheet items, according to linkage bases, at
December 31, 2003 (including comparison numbers for December 31, 2002):
IN NIS MILLION UNLINKED CPI-LINKED IN FOREIGN CURRENCY, NON-MONETARY TOTAL
OR LINKED THERETO ITEMS
(PRIMARILY $)
ASSETS
------
CASH AND CASH EQUIVALENTS 150.1 8.6 158.7
SHORT-TERM DEPOSIT 20.0 20.0
OTHER ACCOUNTS RECEIVABLE 210.6 0.2 48.5 9.9 269.2
INVENTORIES 90.7 90.7
INVESTMENTS IN ASSOCIATED COMPANIES 12.2 10.6 21.9 339.2 383.9
DEFERRED TAXES ON INCOME 3.9 3.9
FIXED ASSETS, NET 325.6 325.6
DEFERRED EXPENSES, NET OF ACCRUED
AMORTIZATION 1.3 1.3
TOTAL ASSETS 392.9 10.8 79.0 770.6 1,253.3
----- ---- ---- ----- -------
LIABILITIES
-----------
CREDIT FROM BANKS 144.6 144.6
LOANS FROM BANKS 0.4 0.4
ACCOUNTS PAYABLE 146.1 11.6 157.7
DEFERRED TAXES ON INCOME 61.8 61.8
NOTES 239.6 239.6
OTHER LIABILITIES 32.8 2.2 35.0
SHAREHOLDERS' EQUITY, 614.2 614.2
TOTAL LIABILITIES AND EQUITY 323.5 240.0 13.8 676.0 1,253.3
----- ----- ---- ----- -------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AT
DECEMBER 31, 2003 69.4 (229.2) 65.2 94.6 -
SURPLUS FINANCIAL ASSETS (LIABILITIES) AT
DECEMBER 31, 2002 (69.1) (35.8) 65.2 39.7 -
ASSOCIATED COMPANIES
--------------------
Hogla-Kimberly, an associated company, owns a subsidiary that operates 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 compared to the U.S. dollar - might affect the Group's
financial statements within the framework of the Company's share in the
earnings of associated companies.
10
VI. 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 Company and its business environment. The Company does
not guarantee that the future results of operations will coincide with the
forward-looking statements and these may in fact considerably differ from
the present forecasts as a result of factors that may change in the future,
such as changes in costs and market conditions, failure to achieve
projected goals, failure to achieve anticipated efficiencies and other
factors which lie outside the control of the Company. The Company
undertakes no obligation to publicly update such forward-looking
statements, regardless of whether these updates originate from new
information, future events or any other reason.
VII. DONATIONS AND CONTRIBUTIONS
---------------------------
The AIPM Group, within the framework of its business and social commitment,
invests efforts and resources in community assistance and support, while
focusing on providing help to the weaker echelons of Israeli society - and
primarily teenagers - as part of a desire to build and contribute to
shaping the human fabric of Israeli society. As part of this policy, the
Company makes contributions to various institutions, primarily those that
are active in the said areas (these contributions amounted to an adjusted
sum of NIS 151 thousand in 2003, in the consolidated financial statements).
Through its employees, the Company also participates in volunteer
activities in the community, for promoting these same objectives.
In addition, a sum totaling NIS 120 thousand was granted for student
scholarships and social projects in 2003 through the Schenker Foundation,
that was established by the Company together with its Austrian strategic
partner in NHP.
VIII. MEMBERS OF THE BOARD OF DIRECTORS POSSESSING FINANCIAL SKILLS
-------------------------------------------------------------
The minimum appropriate number of directors possessing accounting and
financial skills (according to the Israeli securities regulations) was
determined to be two for the company, in consideration of the nature of the
accounting and financial issues that are raised in the preparation of the
Company's financial statements, in view of the Company's areas of operation
and in consideration of the composition of the board of directors as a
whole, that includes individuals possessing business, management and
professional experience that enables them to deal effectively with the
tasks of managing the company, including reporting duties. The minimum
number was also set while taking into account the close accounting
counseling that is provided by the Company's Auditors, including their
participation in board meetings discussing accounting issues and their
availability to answer any question put forth by the board of directors.
11
The members of the Company's board of directors who possess accounting and
financial qualifications and skills are:
Nochi Dankner - Chairman and Chief Business Officer of IDB
Holdings Ltd., Chairman of IDB Development Ltd.,
Discount Investments Ltd. and of Clal Industries
and Investments Ltd. Serves or served as Chairman
and Director in public and private companies of
Ganden Group, IDB Group and Bank Hapoalim, where
he served as Chairman of the Credit Committee of
the Board. Holds L.L.B in Law.
Avi Yehezkel - Holds B.A. in economics. External director at Bank
Yahav. Served as a Knesset member between
1992-2003, during these years alternately, served
as Chairman of the Economics Committee, Chairman
of the Defense Budget Committee, Chairman of the
Capital Market Sub-Committee, Chairman of the
Banking Sub-Committee and member of the Finance
Committee.
Yaacov Yerushalmi - Chief Executive Officer of the Company between
1990 and March 2003; Chairman of the Company since
1999; Chairman or Deputy Chairman at various of
the Company's subsidiaries or associated
companies, including publicly-traded companies.
Oren Lieder - Holds B.A. in economics and statistics. Serves as
Senior Vice President and Chief Financial Officer
of Discount Investments Ltd. Serves as director at
various companies, including publicly-traded
companies. Formerly served as Chief Financial
Officer of Bezeq, the Israeli Telecom Company Ltd.
Miri Lent-Sharir - Holds B.A. in economics and an MBA. Served as
director and member of the Audit Committee at
various companies whose shares are publicly-traded
in Israel and overseas.
Isaac Manor - Holds an MBA. Serves as director at various
publicly-traded and privately-held companies
within the IDB Group; Chairman of companies in the
David Lubinsky Group Ltd.; member of the Accounts
Committee at Israel Union Bank Ltd.
Amos Mar-Haim - Holds a first degree in economics and an MBA.
Formerly served and currently serves as Chairman
or Deputy Chairman or director at publicly-traded
or privately-held companies.
Gezi Kaplan - Holds B.A. in economics. Chief Executive Officer
of Tivall (1993) Ltd. Deputy Chief Executive
Officer of Osem Investments and Chairman of the
board of various companies in the Osem Group.
Leon Recanati - Holds an MBA. Until May 2003 Chairman of the board
of IDB Holdings Ltd., Clal Industries and
Investments Ltd., Discount Investments Ltd. and
director at various publicly-traded and
privately-held companies within the IDB Group.
12
IX. GENERAL
-------
o In March 2003, the Company announced the distribution of a dividend
for 2002, in the amount of NIS 25.9 million (NIS 6.61 per share). The
dividend was paid in April 2003.
o In August 2003, the company announced the distribution of a special
dividend for 2003, in the amount of NIS 75 million (NIS 19.04 per
share). The dividend was paid in September 2003.
o At December 21, 2003, the Company issued notes - through tender by
private placement - in the amount of NIS 200 million, to institutional
investors. These notes carry an interest rate of 5.65% per annum (a
margin of 1.45% above government notes with a comparable average
maturity). The principal will be repaid in seven equal annual
installments between the years 2007-2013 (average maturity of 6
years), with both the principal and the interest being linked to the
CPI. The notes are not convertible into company shares and shall not
be registered for trade on the stock exchange.
o Avi Patir, who was appointed the Company's General Manager on April 1,
2003, resigned his position on February 10, 2004, due to circumstances
that do not need to be reported to the public.
o 49,585 shares were issued during the reported period (1.3% dilution),
on account of the exercise of 116,175 option warrants as part of the
Company's employee option plans.
---------------- ----------------
Y. Yerushalmi Zvika Livnat
Chairman of the Board of Directors Director
EXHIBIT 3
---------
AMERICAN ISRAELI PAPER MILLS LIMITED
2003 CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ISRAELI PAPER MILLS LIMITED
2003 CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
AUDITORS' REPORT 2
CONSOLIDATED FINANCIAL STATEMENTS -
IN ADJUSTED NEW ISRAELI SHEKELS (NIS):
Balance sheets 3-4
Statements of income 5
Statements of changes in shareholders' equity 6
Statements of cash flows 7-8
Notes to financial statements 9-39
SCHEDULE - DETAILS OF SUBSIDIARIES AND
ASSOCIATED COMPANIES 40
---------------
-------------------------------
---------------
AUDITORS' REPORT
To the shareholders of
AMERICAN ISRAELI PAPER MILLS LIMITED
We have audited the consolidated balance sheets of American Israeli Paper Mills
Limited (hereafter - the Company) and its subsidiaries as of December 31, 2003
and 2002 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Company's board of directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We did not audit the financial statements of certain associated companies, the
Company's interest in which as reflected in the balance sheets as of December
31, 2003 and 2002 is adjusted NIS 299.3 million and adjusted NIS 285.2 million,
respectively, and the Company's share in excess of profits over losses of which
is a net amount of adjusted NIS 28.2 million, adjusted NIS 10.2 million and
adjusted NIS 19.0 million for the years ended December 31, 2003, 2002 and 2001,
respectively. The financial statements of those companies were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to amounts included for those companies, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the United States, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 1973. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the Company's board of
directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company and its subsidiaries as of
December 31, 2003 and 2002 and the consolidated results of operations, changes
in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted ("GAAP") in Israel. Furthermore, in our opinion, the financial
statements referred to above have been prepared in accordance with the Israeli
Securities (Preparation of Annual Financial Statements) Regulations, 1993.
As explained in note 1b, the financial statements referred to above are
presented in values adjusted based on the changes in the exchange rate of the
U.S. dollar, in accordance with the pronouncements of the Institute of Certified
Public Accountants in Israel.
Tel-Aviv, Israel
March 10, 2004
2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
December 31
--------------------------
Note 2003 2002
---- ---- ----
In thousands
----------------------------
A s s e t s 9
CURRENT ASSETS: 8
Cash and cash equivalents 1o 158,706 5,460
Short-term deposit 10a 20,000
Accounts receivable: 10b
Trade 140,996 131,736
Other 128,246 131,890
Inventories 10c 90,654 90,495
--------- ---------
T o t a l current assets 538,602 359,581
--------- ---------
INVESTMENT AND LOAN TERM RECEIVALES:
Investments in associated companies 2;8 383,879 366,156
Deferred income taxes 7g 3,885
--------- ---------
387,764 366,156
--------- ---------
FIXED ASSETS: 3
Cost 953,656 930,563
L e s s - accumulated depreciation 628,015 604,726
--------- ---------
325,641 325,837
--------- ---------
DEFERRED CHARGES,
net of accumulated amortization 1h 1,267 549
--------- ---------
T o t a l assets 1,253,274 1,052,123
========= =========
) Chairman of the
------------------------------------------- ) Board of Directors
Yaki Yerushalmi
)
------------------------------------------- ) Director
Zvika Livnat
)
------------------------------------------- ) Controller
Israel Eldar
Date of approval of the financial statements: March 10, 2004.
3
December 31
-------------------
Note 2003 2002
---- -------------------
In thousands
-------------------
Liabilities and shareholders' equity
CURRENT LIABILITIES: 8
Credit from banks 10d 144,989 104,711
Current maturities of long-term notes 4b 6,590 6,214
Accounts payable and accruals:
Trade 84,602 99,255
Other 10e 73,010 62,470
--------- ---------
T o t a l current liabilities 309,191 272,650
--------- ---------
LONG-TERM LIABILITIES:
Deferred income taxes 7g 61,801 58,266
Loans and other liabilities
(net of current maturities): 4;8
Loans from banks 355
Notes 233,039 37,366
Other liabilities 35,013 32,536
--------- ---------
T o t a l long-term liabilities 329,853 128,523
--------- ---------
COMMITMENTS 9
T o t a l liabilities 639,044 401,173
--------- ---------
SHAREHOLDERS' EQUITY: 6
Share capital (ordinary shares of NIS 0.01 par value: 125,257 125,256
authorized - 20,000,000 shares; issued and paid:
December 31, 2003 and 2002 - 3,968,295 and
3,918,710 shares, respectively)
Capital surplus 90,060 90,060
Currency adjustments in respect of financial statements
of associated companies (1,122) (3,482)
Retained earnings 400,035 439,116
--------- ---------
614,230 650,950
--------- ---------
T o t a l liabilities and shareholders' equity 1,253,274 1,052,123
========= =========
The accompanying notes are an integral part of the financial statements.
4
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
IN ADJUSTED NEW ISRAELI SHEKELS
Note 2003 2002 2001
---- ---- ---- ----
In thousands
----------------------------------
SALES - net 10f;14 465,092 455,775 469,709
COST OF SALES 10g 362,185 363,771 383,824
------- ------- -------
GROSS PROFIT 102,907 92,004 85,885
------- ------- -------
SELLING, MARKETING, ADMINISTRATIVE
AND GENERAL EXPENSES: 10h
Selling and marketing 31,324 29,167 31,918
Administrative and general 24,999 26,382 33,441
------- ------- -------
56,323 55,549 65,359
------- ------- -------
INCOME FROM ORDINARY OPERATIONS 46,584 36,455 20,526
FINANCIAL INCOME (EXPENSES) - net 10j (15,989) (2,988) 5,102
OTHER INCOME (EXPENSES) 10i 1,609 (2,942) 1,095
------- ------- -------
INCOME BEFORE TAXES ON INCOME 32,204 30,525 26,723
TAXES ON INCOME 7 7,706 9,792 7,287
------- ------- -------
INCOME FROM OPERATIONS OF THE
COMPANY AND ITS SUBSIDIARIES 24,498 20,733 19,436
SHARE IN PROFITS OF ASSOCIATED
COMPANIES - net 2 35,549 16,727 15,011
------- ------- -------
NET INCOME FOR THE YEAR 60,047 37,460 34,447
======= ======= =======
Adjusted NIS
----------------------------------
NET INCOME PER NIS 1 OF PAR VALUE
OF SHARES 1p;11 1,494 947 873
======= ======= =======
The accompanying notes are an integral part of the financial statements.
5
AMERICAN ISRAELI PAPER MILLS LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN ADJUSTED NEW ISRAELI SHEKELS
Currency
adjustments in
respect of financial
Share Capital statements of Retained
capital surplus associated companies earnings Total
------- ------- -------------------- -------- -----
In thousands
-------------------------------------------------------------------------
BALANCE AT JANUARY 1, 2001 125,256 90,060 387,885 603,201
CHANGES IN 2001:
Net income 34,447 34,447
Exercise of employee options into shares * *
Currency adjustments in respect of financial
statements of associated companies (3,175) (3,175)
------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 2001 125,256 90,060 (3,175) 422,332 634,473
CHANGES IN 2002:
Net income 37,460 37,460
Dividend paid (20,676) (20,676)
Currency adjustments in respect of financial
statements of associated companies (307) (307)
------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 2002 125,256 90,060 (3,482) 439,116 650,950
CHANGES IN 2003:
Net income 60,047 60,047
Dividend paid (99,128) (99,128)
Exercise of employee options into shares 1 1
Currency adjustments in respect of financial
statements of associated companies 2,360 2,360
------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 2003 125,257 90,060 (1,122) 400,035 614,230
======= ====== ====== ======= =======
* Represents an amount less than adjusted NIS 1,000.
The accompanying notes are an integral part of the financial statements.
6
(Continued) - 1
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
2003 2002 2001
---- ---- ----
In thousands
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year 60,047 37,460 34,447
Adjustments to reconcile net income to
net cash provided by operating activities (*) (7,396) 39,718 (15,133)
------- ------- ------
Net cash provided by operating activities 52,651 77,178 19,314
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (29,247) (46,807) (30,031)
Short-term deposit (20,000)
Associated companies:
Granting of loans (8,241) (3,302) (4,067)
Collection of loans 21,895 2,464
Proceeds from sale of fixed assets 3,332 9,792 1,436
------- ------- ------
Net cash used in investing activities (32,261) (40,380) (30,198)
------- ------- ------
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 (762) (1,038) (1,069)
Redemption of notes (6,770) (5,960) (6,696)
Dividend paid (99,128) (20,676)
Short-term credit from banks - net 40,606 (7,219) 17,955
------- ------- ------
Net cash provided by (used in) financing activities 132,856 (34,893) 10,190
------- ------- ------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 153,246 1,905 (694)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 5,460 3,555 4,249
------- ------- ------
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF YEAR 158,706 5,460 3,555
======= ======= ======
7
(Concluded) - 2
AMERICAN ISRAELI PAPER MILLS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
2003 2002 2001
---- ---- ----
In thousands
--------------------------------
(*) Adjustments to reconcile net income to net cash provided by operating
activities:
Income and expenses not involving cash flows:
Share in profits of associated companies - net (35,549) (16,727) (15,011)
Dividend received from associated company 16,391 21,852
Depreciation and amortization 28,247 26,809 29,363
Deferred income taxes - net 3,471 3,703 7,287
Capital losses (gains) on:
Sale of fixed assets (2,054) (137) 22
Termination of activities and disposal of assets - net 1,345
Gain on issuance of shares in an associated company to a
third party - net (1,095)
Linkage and exchange differences on (erosion of) principal of
long-term loans from banks - net 79 (17) (175)
Linkage differences on (erosion of) principal of Notes 3,110 (524) (3,899)
Erosion of (linkage differences on) principal of
long-term loans to associated companies (1,101) 153 755
Appreciation (erosion) of a long-term capital note granted to
an associated company 2,477 (2,202) (3,015)
------- ------- -------
15,071 34,255 14,232
------- ------- -------
Changes in operating asset and liability items:
Decrease (increase) in trade receivables (9,260) (15,064) 24,101
Decrease (increase) in other receivables (8,935) 3,394 (120)
Decrease (increase) in inventories (159) 22,060 (4,308)
Increase (decrease) in trade payables (14,653) 11,180 (31,637)
Increase (decrease) in other payables and accruals 10,540 (16,107) (17,401)
------- ------- -------
(22,467) 5,463 (29,365)
------- ------- -------
(7,396) 39,718 (15,133)
======= ======= =======
Supplementary cash flow information = cash paid during the year for:
Taxes on income 11,553 26,711 8,801
======= ======= =======
Interest 11,335 9,839 10,519
======= ======= =======
The accompanying notes are an integral part of the financial statements.
8
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies, applied on a consistent basis,
are as follows. As to the adoption for the first time in 2003 of the
accounting for impairment of assets, see g. below:
a. General:
1) Activities of the Group
American Israeli Paper Mills Limited (hereafter - the
Company) and its subsidiaries and associated companies
(hereafter - the Group) are engaged in the production and
sale of paper and paper products, including paper recycling
activities and handling solid waste. Certain companies are
engaged in the marketing of office supplies and in the sale
of products produced by others (some of which are not paper
or paper products). Most of the Group's sales are made to
the local market (Israel). As to information by operating
segments, see note 14.
2) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues
and expenses during the reporting years. Actual results
could differ from those estimates.
3) Definitions:
Subsidiaries - companies over which the Company has control
and over 50% of the ownership, the financial statements of
which have been consolidated with the financial statements
of the Company.
Associated companies - investee companies, which are not
subsidiaries, over whose financial and operational policy
the Company exerts material influence, the investment in
which is presented by the equity method. Material influence
is deemed to exist when the percentage of holding in said
company is 20% or more, unless there are circumstances that
contradict this assumption.
Interested parties - as defined in the Israeli Securities
(Preparation of Annual Financial Statements) Regulations,
1993.
b. Adjusted financial statements:
1) The Company and its subsidiaries maintain their accounts in
nominal new Israeli shekels ("NIS") and in U.S. dollars
(hereafter - dollar). All the figures in the financial
statements are presented in values adjusted for the changes
in the exchange rate of the dollar (rather than the changes
in the Israeli consumer price index; hereafter - Israeli
CPI), as permitted by Opinion 36 of the Institute of
Certified Public Accountants in Israel (hereafter - the
Israeli Institute), for companies whose securities are
traded on a foreign stock exchange; the Company's shares are
traded on the American Stock Exchange ("AMEX"). As to the
discontinuance of adjusting financial statements for the
effects of inflation, with effect from January 1, 2004, see
q. below.
9
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
The adjusted NIS data are the product of the data in dollar terms
multiplied by the representative exchange rate of the dollar at
December 31, 2003 - $1 = NIS 4.379 (see also note 8b).
2) Non-monetary balance sheet items (mainly fixed assets,
inventories and deferred charges, and shareholders' equity
items originating in cash flow from shareholders) have been
adjusted on the basis of the changes in the exchange rate of
the dollar since the related transactions were carried out.
The income statement components relating to these
non-monetary balance sheet items have been adjusted on the
same basis as the related balance sheet items.
Investments in some of the associated companies (the
activities of which are an integral part of the Company's
activities) and the Company's share in their operating
results have been determined based on their financial
statements, which are adjusted on the basis of changes in
the exchange rate of the dollar. As to associated companies
the financial statements of which are adjusted on the basis
of the changes in the Israeli CPI, see (4) below.
The components of the statements of income (except
financing) relating to transactions carried out in the
reported year - sales, purchases, labor costs, etc. - have
been adjusted on the basis of the exchange rates in effect
on transaction dates.
Financial income and expenses represent such income and
expenses in real terms and the erosion of balances of
monetary items during the year.
3) The amounts of non-monetary items do not necessarily
represent realizable value or any other economic value, but
only their original historical values adjusted on basis of
the changes in the exchange rate of the dollar. In these
financial statements, the term "cost" signifies cost in
adjusted NIS.
4) Associated companies whose financial statements are adjusted
on the basis of the changes in the Israeli CPI
For purposes of inclusion on the equity basis, the amounts
included in the financial statements of the above associated
companies operating independently were treated as follows:
Balance sheet items at the end of the year and the results
of operations for the year reflect the amounts presented in
the financial statements of such companies. Balance sheet
items at the beginning of the year and changes in
shareholders' equity items during the year were adjusted on
the basis of the changes in the exchange rate of the dollar
at the beginning of the year or at the date of each change,
respectively, through the end of the year. Any differences
resulting from the treatment described above were carried to
the adjusted shareholders' equity under a separate item
("currency adjustments in respect of financial statements of
associated companies").
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
c. Principles of consolidation:
1) The consolidated financial statements include the accounts
of the Company and its subsidiaries. A list of the main
subsidiaries is presented in a schedule to the financial
statements.
2) Intercompany transactions and balances, as well as
intercompany profits on sales which have not yet been
realized outside the Group, have been eliminated.
d. Inventories
Raw materials and supplies, finished goods, purchased products
and maintenance and sundry stores are valued at the lower of cost
or market (net of processing costs and after deduction of a
provision for obsolescence, where appropriate); cost is
determined on the moving average basis.
e. Investments in associated companies:
1) The investments in these companies are accounted for by the
equity method.
2) Profits on intercompany sales, not yet realized outside the
Group, have been eliminated according to the percentage of
the Company's holding in such companies.
3) With effect from the interim financial statements for the
3-month period ended March 31, 2003, the Company reviews
whether any events have occurred or changes in circumstances
have taken place, which might indicate that there has been
an impairment of its investments in associated companies -
see g. below.
4) The excess of cost of the investment in associated companies
over the equity in net assets at time of acquisition
("excess of cost of investment") or the excess of equity in
net assets of associated companies at time of acquisition
over the cost of their acquisition ("negative excess of cost
of investment") represent the amounts attributed to specific
assets upon acquisition, at fair value. The excess of cost
of investment and the negative excess of cost of investment
are presented at their net amount and are amortized over the
remaining useful life of the assets. The average rate of
amortization is 10%.
f. Fixed assets:
1) Fixed assets are stated at cost, net of related investment
grants.
2) Fixed assets of own manufacture are stated at cost, based on
the direct costs with the addition of an appropriate portion
of related production costs.
3) Borrowing costs in respect of credit applied to finance the
construction of the fixed assets - during the period until
construction is completed - are charged to cost of such
assets.
10
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
4) The assets are depreciated by the straight-line method on
basis of their estimated useful life, as follows:
Years
-----------------------
Buildings 10-50 (mainly 33)
Machinery and equipment 7-20 (mainly 10 and 20)
Vehicles 5-7 (mainly 7)
Office furniture and equipment
(including computers) 3-17 (mainly 4)
g. Impairment in value of Long-Lived Assets
In February 2003, Accounting Standard No. 15 of the Israeli
Accounting Standard Board (hereafter - IASB) - "Impairment of
Assets", became effective. This standard requires a periodic
review to evaluate the need for a provision for the impairment of
the company's non-monetary assets - mainly fixed assets as well
as investments in associated companies.
Accordingly, commencing with the interim financial statements for
the 3-month period ended March 31, 2003, the Company assesses -
at each balance sheet date - whether any events have occurred or
changes in circumstances have taken place, which might indicate
that there has been an impairment of one or more of the above
assets. When such indicators of impairment are present, the
Company evaluates whether the carrying value of the asset .
The recoverable value of an asset is determined according to the
higher of the net selling price of the asset or its value in use
to the Company. The value in use is determined according to the
present value of anticipated cash flows from the continued use of
the asset, including those expected at the time of its future
retirement and disposal. When it is not possible to assess
whether an impairment provision is required for a particular
asset on its own, the need for such a provision is assessed in
relation to the recoverable value of the cash generating unit to
which that asset belongs.
Through December 31, 2002, the Company and its subsidiaries
applied the provisions for assessing and recording impairment of
assets, prescribed by the U.S. standard, FAS 121. The adoption of
Standard 15 for the first time has not had any effect on the
Company and its subsidiaries.
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
h. Deferred charges
The item represents notes issuance costs, which are amortized
over the period of the notes (see note 4b).
i. Deferred income taxes:
1) Deferred taxes are computed in respect of differences
between the amounts presented in these statements and those
taken into account for tax purposes. As to the main factors
in respect of which deferred taxes have been included - see
note 7g. Deferred tax balances are computed at the tax rate
expected to be in effect at time of release to income from
the deferred tax accounts. The amount of deferred taxes
presented in the income statements reflects changes in the
above balances during the reporting years.
2) Taxes which would apply in the event of disposal of
investments in subsidiaries and associated companies have
not been taken into account in computing the deferred taxes,
as the Company intends to hold these investments, not to
realize them.
3) The Group may incur an additional tax liability in the event
of intercompany dividend distribution derived from "approved
enterprises" profits - see note 7a. No account was taken of
this additional tax, since it is the Group's policy not to
cause distribution of dividend which would involve an
additional tax liability to the Group in the foreseeable
future.
j. Revenue recognition
Revenue from sale of products to the local market, net of
discounts granted, is recognized upon shipment to the customer
(which represents the point at which the title transfers).
Revenue from sale of products for export, net of discounts, is
recognized as the products are delivered to the customer in the
target country.
k. Shipping and handling fees costs
Shipping and handling costs are classified as component of
selling and marketing expenses.
l. Advertising expenses
Advertising expenses are charged to income as incurred (as to the
amount of the expenses, see note 10h).
m. Allowance for doubtful accounts
The allowance is determined mainly in respect of specific debts
doubtful of collection (see note 13b).
11
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
n. Derivative financial instruments
Gains or losses on and cash flows from derivatives that are
hedging existing assets or liabilities are recognized in income
and cash flows statements and cash flows statements commensurate
with the results from those assets or liabilities.
o. Cash equivalents
The Group considers all highly liquid investments, which include
short-term bank deposits that are not restricted as to withdrawal
or use, the period to maturity of which did not exceed three
months at time of deposit, to be cash equivalents.
p. Net income per NIS 1 of par value of shares
Net income per NIS 1 of par value of shares is computed in
accordance with Opinion 55 of the Israeli Institute; as to the
data used in the per share computation - see note 11.
q. Recently issued pronouncement
In October 2001, the IASB issued Israel Accounting Standard No.
12 - "Discontinuance of Adjusting Financial Statements for
Inflation", which provided for the discontinuance of adjusting
financial statements for the effects of inflation, as of January
1, 2003. In December 2002, Accounting Standard No. 17 was issued
that postponed the date from which Accounting Standard No. 12 is
to be applied until January 1, 2004.
Since the Company's financial statements are drawn up in NIS
adjusted for the changes in the dollar (as allowed by section
29(b) of Opinion 36 of the Israeli Institute), and based on the
provisions in paragraph 4 to Israeli Accounting Standard No. 13,
with effect from January 1, 2004, the Company will no longer be
able to measure its operations in dollars, and will have to
resume measuring its operations in NIS. The inflation-adjusted
NIS amounts as of December 31, 2003, as presented in these
financial statements, will be the base for the nominal-historical
financial reporting as of January 1, 2004.
The implementation of Standard No. 12 will mainly affect the
financial income and expenses items.
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES:
a. The Company has a number of investments in associated companies,
which are held either directly or through associated companies.
The financial statements of significant associated companies
(Neusiedler Hadera Paper Ltd. and Hogla-Kimberly Ltd.) are
attached to these financial statements.
12
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
b. Composed as follows:
December 31
------------------
2003 2002
---- ----
Adjusted NIS
in thousands
------------------
Cost:
Shares 54,241 54,241
Excess of cost of investment - net 2,086 2,086
L e s s - accumulated amortization (3,068) (3,375)
Gain on issuance of shares of an associated
company to a third party 40,241 40,241
Currency adjustments (1,122) (3,482)
Share in profits accumulated since acquisition - net 246,864 228,013
------- -------
339,242 317,724
Long-term loans and capital notes
(December 31, 2002 - net of current maturities)* 44,637 48,432
------- -------
383,879 366,156
======= =======
* Classified by linkage terms, the total amounts of the loans
and capital notes are as follows:
December 31
---------------------
2003 2002
---- ----
Adjusted NIS
in thousands
---------------------
Linked to the dollar 21,897 43,790
Linked to the Israeli CPI 10,553 8,790
Unlinked capital note 12,187 4,610
------ ------
44,637 57,190
L e s s - current maturities 8,758
------ ------
44,637 48,432
====== ======
These loans and capital notes do not bear interest.
As of December 31, 2003, the repayment dates of the balance of
the loans and capital notes have not yet been determined.
13
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
c. The changes in the investments during 2003 are as follows:
Adjusted NIS
in thousands
------------
Balance at beginning of year 366,156
Changes during the year:
Share in profits of associated companies - net 35,549
Dividend received from an associated company (16,391)
Currency adjustments 2,360
Decrease in balance of long-term loans and capital notes - net (3,795)
-------
Balance at end of year 383,879
=======
d. Neusiedler Hadera Paper Ltd. (hereafter - N.H.P.)
N.H.P. is held to the extent of 49.9% by the Company and also by
Neusiedler AG (hereafter - Neusiedler), under an agreement dated
November 21, 1999. According to said agreement, N.H.P. purchased
the Group's activities in the field of printing and writing
paper, and issued to Neusiedler 50.1% of its shares. As part of
the said agreement, Neusiedler was granted an option to sell to
the Company its holdings in N.H.P., at a price which is 20% lower
than the value (as defined in the agreement). The understanding
between the parties is that the option would only be exercised
under continued extraordinary circumstances that preclude the
operation of N.H.P. in Israel. The Company believes that the
likelihood of such circumstances is very remote.
e. Investment in Carmel Container Systems Limited (hereafter -
Carmel)
The investment in shares includes, as of December 31, 2003 and
2002, an investment of adjusted NIS 29,475,000 and adjusted NIS
28,717,000, respectively, investment in Carmel, which is held to
the extent of 26.25%. Carmel's shares are traded in the United
States on the "AMEX" Stock Exchange. The market value of the
Company's holding in these shares as of December 31, 2003 and
2002 is adjusted NIS 9,656,000.
The financial statements of Carmel are drawn up on the basis of
historical cost, adjusted for the changes in the general
purchasing power of Israeli currency measured on the basis of the
Israeli CPI. For purposes of inclusion in these financial
statements, Carmel's financial statements were adjusted on the
basis of the changes in the exchange rate of the dollar.
14
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN ASSOCIATED COMPANIES (continued):
The Company's management believes that the low market value of these
shares is not representative of the economic value, as the trade in
Carmel's shares is very weak. At the beginning of 2003, the Company
used the services of an outside appraiser in determining the value in
use to the Company.
The Company's management believes, based on the abovementioned and
current developments in 2003, that the investment should not be
written down.
f. Investment in T.M.M Integrated Recycling Industries Ltd.
(hereafter - T.M.M.)
In 2000, the Company and Compagnie Generale D'Entreprises
Automobiles (hereafter - CGEA), an international French group in
the field of environmental services - through a jointly held
company (Barthelemi Holdings Ltd., in which the Company holds
33.9% interest; hereafter - Barthelemi) - acquired shares of
T.M.M. from its controlling shareholders.
In addition, T.M.M was merged with Amnir Industries and
Environmental Services Ltd. (in which the Company and CGEA held
49% and 51%, respectively; hereafter - Amnir Environment) in such
a manner that Amnir Environment became a wholly-owned subsidiary
of T.M.M.
In August 2003, Barthelemi acquired approximately 7% of the share
capital of T.M.M off the stock exchange.
As of December 31, 2003, the Company's share in T.M.M. (directly
and through Barthelemi) aggregates 41.6%.
The excess of equity in net assets of T.M.M. shares, over the
cost of investment therein - adjusted NIS 1,581,000 is amortized
over a period of ten years.
The amount invested in shares includes adjusted NIS 15,759,000
(December 31, 2002 - adjusted NIS 15,567,000), which was directly
invested in T.M.M. (17.8%), the shares of which are traded on the
Tel Aviv Stock Exchange; the market value of these shares
aggregates adjusted NIS 13,713,000 as of December 31, 2003
(December 31, 2002 - adjusted NIS 7,300,000).
The Company's management examined the value of its investment in
T.M.M. for impairment which is not temporary in nature. At the
beginning of 2003, the Company used the services of an outside
appraiser in determining the value in use to the Company.
The Company's management believes, based on the abovementioned
and current developments in 2003, that the investment should not
be written down.
15
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS:
a. Composition of assets, grouped by major classifications, and
changes therein during 2003, are as follows:
Cost
--------------------------------------------------------
Balance at Additions Retirements Balance at
beginning during during end of
of year the year the year year
---------- --------- ----------- ----------
Adjusted NIS in thousands
--------------------------------------------------------
Land and buildings on the land 182,205 3,534 64 185,675
Machinery and equipment 643,549 11,619 1,962 653,206
Vehicles 33,102 2,886 4,128 31,860
Office furniture and equipment
(including computers) 64,185 1,384 65,569
Payments on account of
machinery and equipment 7,522 9,824 17,346
------- ------ ----- -------
930,563 29,247 6,154 953,656
======= ====== ===== =======
Accumulated depreciation
-------------------------------------------------------- Depreciated balance
Balance at Additions Retirements Balance at -------------------
beginning during during end of December 31
of year the year the year year 2003 2002
---------- --------- ----------- ---------- ---- ----
Adjusted NIS
Adjusted NIS in thousands in thousands
-------------------------------------------------------- -------------------
Land and buildings on the land 100,760 3,477 104,237 81,438 81,445
Machinery and equipment 432,181 18,873 1,528 449,526 203,680 211,368
Vehicles 23,003 2,702 3,348 22,357 9,503 10,099
Office furniture and equipment
(including computers) 48,782 3,113 51,895 13,674 15,403
Payments on account of
machinery and equipment 17,346 7,522
------- ------ ----- ------- ------- -------
604,726 28,165 4,876 628,015 325,641 325,837
======= ====== ===== ======= ======= =======
16
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS (continued):
b.
December 31
---------------------
2003 2002
---- ----
Adjusted NIS
in thousands
---------------------
The item is net of investment grants in respect
of investments in "approved enterprises"
(see notes 7a and 9a):
Cost 490 490
Accumulated depreciation 459 458
c. The Group's real estate is partly owned and partly leased - to
the extent of adjusted NIS 44.5 million, in respect of which
lease fees of approximately adjusted NIS 25.8 million have been
capitalized. The leasehold rights are for 49-year periods ending
in the years 2008 to 2059, with options to extend for an
additional 49 years.
d. As of December 31, 2003 and 2002, the cost of fixed assets
includes borrowing costs of adjusted NIS 1,007,000 capitalized to
the cost of machinery and equipment.
e. Depreciation expenses amounted to adjusted NIS 28,165,000,
adjusted NIS 26,726,000 and adjusted NIS 29,278,000, for the
years ended December 31, 2003, 2002 and 2001, respectively.
f. As to pledges on assets - see note 9a.
NOTE 4 - LONG-TERM LOANS AND OTHER LONG-TERM LIABILITIES:
a. Loans from banks:
Composed as follows:
December 31
----------------------
2003 2002
---- ----
Adjusted NIS
in thousands
----------------------
Linked to the Israeli CPI* 372 1,056
L e s s - current maturities 372 701
--- -----
-,- 355
=== =====
* The weighted average annual interest rate as of December 31,
2003 is 4.9%.
17
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - LONG-TERM LOANS AND OTHER LONG-TERM LIABILITIES (continued):
b. Notes
The item represents two series of notes issued to institutional
investors as follows:
December 31
----------------------------
2003 2002
------------------ ------
Adjusted NIS in thousands
----------------------------
Series II Series I
----------- ----------------
Balance 200,000 39,629 43,580
L e s s - current maturities 6,590 6,214
------- ------ ------
200,000 33,039 37,366
======= ====== ======
(1) Series I - May 1992
The balance of the notes as of December 31, 2003 is
redeemable in six installments, due in June of each of the
years 2004-2009, each installment amounting to 6.66% of the
original par value of the notes, which is adjusted NIS
98,925,000; the unpaid balance of the notes bears annual
interest of 3.8%, payable each June. The notes - principal
and interest - are linked to the Israeli CPI of February
1992.
(2) Series II - December 2003
In December 2003, the Company made a private issuance to
institutional investors of notes with a par value of NIS 200
million. The notes are redeemable in seven equal annual
installments, due in December of each of the years
2007-2013. The unpaid balance of the notes bears annual
interest of 5.65%, payable in annual installments at
December of each year. The notes - principal and interest -
are linked to the Israeli CPI of November 2003.
c. Other liabilities:
December 31
-------------------------
2003 2002
---- ----
Adjusted NIS in thousands
-------------------------
Capital note to an associated company (1) 32,770 30,293
Other liability (2) 2,243 2,243
------ ------
35,013 32,536
====== ======
(1) The capital note is unlinked and interest free. No repayment
date has been fixed, but the associated company does not
intend to demand the repayment of the capital note before
January 1, 2005.
(2) The loan was received from a supplier in 2000, to finance
acquisition of machinery and equipment in the amount of
adjusted NIS 2,409,000. The loan is linked to the dollar. No
repayment date has yet been fixed. The Company believes that
the repayment is not probable before January 1, 2005.
18
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - EMPLOYEE RIGHTS UPON RETIREMENT:
a. Israeli labor laws and agreements require the company and its
subsidiaries to pay severance pay to employees dismissed or
leaving their employ under certain circumstances, computed on the
basis of the number of years of service and, generally, the
latest pay rate (one month's pay for each year of service) or a
pension upon retirement.
To cover the liability for employee rights upon retirement,
pursuant to labor agreements in force and based on salary
components which, in management's opinion, create entitlement to
severance pay, deposits are made by the Company and its
subsidiaries with various provident funds (including pension
funds) or insurance policies for the benefit of employees.
The severance pay and pension liability and the amounts funded as
above are not reflected in the financial statements, as the
pension and severance pay risks have been irrevocably transferred
to the pension funds and the insurance companies, as allowed by
the Severance Pay Law.
b. The expenses relating to employee rights upon retirement, which
reflect the amounts that were deposited during the reported years
with provident funds, pension funds and various insurance
policies, are adjusted NIS 8,515,000, adjusted NIS 5,786,000 and
adjusted NIS 6,315,000 in 2003, 2002, and 2001, respectively.
NOTE 6 - SHAREHOLDERS' EQUITY:
a. Share capital
Composed of ordinary registered shares of NIS 0.01 par value, as
follows:
December 31
------------------------
2003 2002
---- ----
Authorized Issued and paid
---------- ---------------
Number of shares 20,000,000 3,968,295 3,918,710
========== ========= =========
Amount in NIS 200,000 39,683 39,187
========== ========= =========
The shares are traded on stock exchanges in Tel-Aviv and in the
U.S. The quoted prices per share, as of December 31, 2003 are NIS
239 and $ 53.5 (NIS 234.3), respectively.
b. Employee stock option plans:
1) The 1998 plan for senior officers in the Group
On January 11, 1998, the board of directors approved a stock
option plan for senior officers in the Group ("the 1998 plan
for senior officers").
19
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
In 2000, 1999 and 1998, 51,330, 51,335 and 52,833 options,
respectively, were granted under the 1998 plan for senior
officers (including 10,667 options in 2000 and 1999 and
10,666 options in 1998, to an employee who is an interested
party). All together, 155,498 options were granted.
The exercise price of the options granted as above, was
fixed at NIS 134.38. The exercise price is linked to the
dollar and is subject to adjustments in respect of the
distribution of dividends by the Company.
Each batch can be exercised within three years after two
years from the date of grant.
Notwithstanding the above, the number of shares resulted
from exercise of the options and the actual exercise price
were fixed as follows: Upon the receipt of an exercise
request from an option holder, a computation was made of the
difference between the quoted price of the Company's shares
at the beginning of that trading day and the exercise price;
that difference was then multiplied by the number of
exercisable options (hereafter - the benefit). The number of
shares that the Company actually issued to the option holder
was the number of shares the market value of which was equal
to the amount of the benefit computed as above. In
consideration for the shares, the option holder paid their
par value only.
The ordinary shares issued upon exercise of the options
conferred upon their holders the same rights as all other
ordinary shares, upon issuance.
In 2003, 2001 and 2000, 56,663, 46,002 and 51,335 options,
respectively, were exercised under the 1998 plan for senior
officers. 28,693, 28,149 and 35,990 shares of NIS 0.01 were
issued following the exercise, respectively. The unexercised
balance of 1,498 options granted expired in 2003.
The above plan was carried out according to the principles
set out in Section 102 of the Income Tax Ordinance, which
stipulates, inter-alia, the terms for recognition of the
expense to the Company and for determining the employees'
tax liability in respect of the profits attributed thereto
as benefits arising from the above plan.
The aforementioned expense is recognized in the tax year
that the benefit is credited to the employee.
20
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
b. Employee stock option plans (continued):
2) The 2001 plan for senior officers in the Group
On April 2, 2001, the Company's board of directors approved
a stock option plan for senior officers in the Group
(hereafter - the 2001 plan for senior officers). Under this
plan, 194,300 options were allotted on July 5, 2001 without
consideration. Each option is exercisable in purchase of one
ordinary share of NIS 0.01 par value of the Company. The
options will be exercisable in four equal annual batches.
The blocking period of the first batch is two years,
commencing on the date of grant; the blocking period of the
second batch is three years from the date of grant, and so
forth. Each batch is exercisable within two years from the
end of the blocking period.
The exercise price of the options granted as above was set
at NIS 217.00, linked to the CPI, on the basis of the CPI as
of April 2, 2001. The exercise price for each batch is
determined as the lesser of the aforementioned exercise
price or the average price of the Company's shares as quoted
on the Tel-Aviv Stock Exchange (hereafter - the Stock
Exchange) during thirty trading days preceding to the
effective date of each batch, less 10%. As stipulated by the
2001 plan for senior officers, the exercise price is to be
adjusted, following dividend distributions. Accordingly, the
exercise price as of December 31, 2003 is adjusted NIS
200.73 for the first batch, adjusted NIS 93.07 for the
second batch and adjusted NIS 148.97 for the third batch and
adjusted NIS 200.73 for the fourth batch.
The quoted price of the Company's shares on the Tel Aviv
Stock Exchange close to the time of the board of directors'
resolution to grant the options, was NIS 204.00. Prior to
the granting of the options, the price was NIS 185.8.
The fair value of each option - computed on the basis of the
Black-Scholes option-pricing model - as prescribed by the
regulations of the Tel-Aviv Stock Exchange - was
approximately adjusted NIS 56.69 on the date of grant.
Notwithstanding the above, the number of shares resulting
from exercise of the options and the actual exercise price
will be determined as follows: when an exercise request is
received from an option holder, a computation will be made
of the difference between the quoted price of the Company's
shares at the beginning of that trading day and the exercise
price; that difference is to be multiplied by the number of
exercisable options, as of the date of the exercise
(hereafter - the benefit). The number of shares that the
Company will actually issue to the option holder will be the
number of shares the market value of which is equal to the
amount of the benefit computed as above. In consideration
for the shares, the option holder will pay their par value
only.
The ordinary shares issued upon exercise of the options will
confer upon their holders the same rights as all other
ordinary shares, upon issuance.
In 2003, 1,550 options were exercised under the 2001 plan
for senior officers. 227 shares of NIS 0.01 were issued
following the exercise. The unexercised balance of the
options granted is 192,750.
21
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
The above plan is carried out according to the principles
set out in Section 102 of the Income Tax Ordinance, which
stipulates, inter-alia, the terms for recognition of the
expense to the Company and for determining the employees'
tax liability in respect of the profits attributed thereto
as benefits arising from the above plan.
The aforementioned expense will be recognized in the tax
year that the benefit is credited to the employee.
3) The 2001 employee plan
On August 29, 2001, the Company's board of directors
approved a stock option plan for employees in the Group,
according to a specification (hereafter - the 2001 employee
plan). Under this plan, up to 125,000 options will be
allotted without consideration. Each option is exercisable
in purchase of one ordinary share of NIS 0.01 par value of
the Company. The blocking period of the options is two years
from the date of grant. Each option is exercisable within
three years from the end of the blocking period.
On November 4, 2001, 81,455 options were granted under the
2001 employee plan.
The exercise price of all the options granted as above was
set at NIS 160.99, linked to the CPI, on the basis of the
CPI as of August 29, 2001. This price represents the average
price of the Company's shares as quoted on the Tel-Aviv
Stock Exchange during thirty trading days prior to the date
of the board of directors' approval, less 10%. As stipulated
by the 2001 employee plan, the exercise price has been
adjusted, following a dividend distribution and is adjusted
NIS 137.09 as of December 31, 2003.
The quoted price of the Company's shares on the Tel Aviv
Stock Exchange close to the time of the board of directors'
resolution to grant the options, was NIS 171.20. Prior to
the granting of the options, the price was NIS 138.80.
The fair value of each option - computed on the basis of the
Black-Scholes option-pricing model - as prescribed by the
regulations of the Tel-Aviv Stock Exchange - was
approximately adjusted NIS 64.11 on the date of grant.
Notwithstanding the above, the number of shares resulting
from exercise of the options and the actual exercise price
will be fixed as follows: when an exercise request is
received from an option holder, a computation will be made
of the difference between the quoted price of the Company's
shares at the beginning of that trading day and the exercise
price; that difference is to be multiplied by the number of
exercisable options, as of the date of the exercise
(hereafter - the benefit). The number of shares the that
Company will actually issue to the option holder will be the
number of shares the market value of which is equal to the
amount of the benefit computed as above. In consideration
for the shares, the option holder will pay their par value
only.
The ordinary shares issued upon exercise of the options will
confer upon their holders the same rights as all other
ordinary shares, upon issuance.
22
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHAREHOLDERS' EQUITY (continued):
In 2003, 57,962 options were exercised under the 2001
employee plan. 20,665 shares of NIS 0.01 were issued
following the exercise. The unexercised balance of the
options granted is 23,493.
The above plan is carried out according to the principles
set out in Section 102 of the Income Tax Ordinance, which
stipulates, inter-alia, the terms for recognition of the
expense to the Company and for determining the employees'
tax liability in respect of the profits attributed thereto
as benefits arising from the above plan.
The aforementioned expense will be recognized in the tax
year that the benefit is credited to the employee.
NOTE 7 - TAXES ON INCOME:
a. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959 (hereafter - the law)
Under the law, by virtue of the "approved enterprise" status
granted to certain of their production facilities, certain
subsidiaries are entitled to various tax benefits (mainly reduced
tax rates).
During the period of benefits - mainly 7 years commencing in the
first year in which the companies earn taxable income from the
approved enterprises, provided the maximum period to which it is
restricted by law has not elapsed - reduced tax rates or
exemption from tax apply, as follows:
1) Corporate tax rate of 25%, instead of the regular tax rate
(see d. below).
2) Tax exemption on income from certain approved enterprises in
respect of which the companies have elected the "alternative
benefits" (involving waiver of government guaranteed loans);
the length of the exemption period is 4 years, after which
the income from these enterprises is taxable at the rate of
25% for 3 years.
The part of the taxable income which is entitled to the tax
benefits is determined on the basis of the ratio of the turnover
attributed to the "approved enterprise" to the total turnover of
these companies, taking into account the ratio of the "approved
enterprise" assets to total assets of these companies. The
turnover that is attributed to the "approved enterprise" is
generally computed on the basis of the ratio of the increase in
turnover to the "basic" turnover stipulated in the instrument of
approval.
The period of benefits in respect of the "approved enterprises"
of these companies expired at the end of 2003.
The entitlement to the above benefits is conditional upon the
companies' fulfilling the conditions stipulated by the law,
regulations published thereunder and the instruments of approval
for the specific investments in "approved enterprises". In the
event of failure to comply with these conditions, the benefits
may be cancelled and the companies may be required to refund the
amount of the benefits, in whole or in part, with the addition of
linkage differences to the CPI and interest.
23
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
b. Measurement of results for tax purposes under the Income Tax
(Inflationary Adjustments) Law, 1985 (hereafter - the
inflationary adjustments law)
Under the inflationary adjustments law, results for tax purposes
are measured in real terms, having regard to the changes in the
Israeli CPI. The Israeli companies in the Group are taxed under
this law.
As stated in note 1b, the financial statements are drawn up in
NIS adjusted on the basis of the changes in the exchange rate of
the dollar. The difference between the change in the Israeli CPI
and the change in the exchange rate of the dollar - on an annual
and cumulative basis - creates differences between the taxable
income and the income reflected in the financial statements.
c. The Law for the Encouragement of Industry (Taxation), 1969
The Company and certain subsidiaries are "industrial companies"
as defined by this law. These companies claimed, depreciation at
accelerated rates on equipment used in industrial activity as
stipulated by regulations published under the inflationary
adjustments law.
The Company files consolidated tax returns with certain
subsidiaries.
d. Tax rates applicable to income not derived from "approved
enterprises"
Income not eligible for the approved enterprise benefits
mentioned in a. above is taxed at the regular rate - 36%.
e. Reform of the Israeli tax system
In 2003, the provisions of the Amendment to the Income Tax
Ordinance (No. 132), 2002 (hereafter - the tax reform law) came
into effect. The tax reform law comprehensively reforms certain
parts of the Israeli tax system. Certain provisions of the tax
reform law and anticipated supplementary provisions will only be
applied from later dates.
In accordance with the provisions of the tax reform law, as from
January 1, 2003, capital gains will be taxed at a reduced rate of
25%, instead of the regular rate of 36% at which they were taxed
until the aforementioned date; with regard to the sale of assets
acquired prior to January 1, 2003, the reduced tax rate will be
applicable only for the gain allocated to capital gains earned
after the implementation of that law, which will be calculated as
prescribed by the tax reform law. Furthermore, the tax reform law
stipulates that carryforward capital losses may be utilized
against capital gains without any time restriction (the time
limitation for the utilization has been removed in respect of
capital losses which arose in the tax year 1996 and thereafter).
f. Carryforward tax losses
Carryforward tax losses of certain subsidiaries are adjusted NIS
14,002,000 and adjusted NIS 12,198,000 as of December 31, 2003
and 2002, respectively. Under the inflationary adjustments law,
carryforward losses are linked to the Israeli CPI, and may be
utilized indefinitely.
24
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
g. Deferred income taxes
The composition of the deferred taxes, and the changes therein
during 2003 and 2002, are as follows:
Among Among As a
current non-current non-current
assets (1) assets (2) liability (3) Total
---------- ---------- ------------- -----
Adjusted NIS in thousands
--------------------------------------------------------
Balance at January 1, 2002 (9,261) 52,876 43,615
Changes in 2002 -
amounts carried to income (1,687) 5,390 3,703
------ ------ ------ ------
Balance at December 31, 2002 (10,948) 58,266 47,318
Changes in 2003:
Reclassification 3,885 (3,885)
Amounts carried to income (64) 3,535 3,471
------ ------ ------ ------
Balance at December 31, 2003 (7,127) (3,885) 61,801 50,789
====== ====== ====== ======
(1) In respect of inventories and provisions for doubtful
accounts, vacation and recreation pay and carryforward tax
losses.
(2) In respect of carryforward tax losses.
(3) Mainly in respect of depreciable fixed assets.
The deferred taxes are computed at the rate of 36%.
h. Taxes on income included in the income statements:
1) As follows*:
2003 2002 2001
---- ---- ----
Adjusted NIS in thousands
For the reported year:
Current 4,235 4,702
Deferred, see g. above 3,471 3,703 7,287
----- ----- -----
7,706 8,405 7,287
For prior years - current 1,387
----- ----- -----
7,706 9,792 7,287
* The tax expenses, for all reported years, originate in
Israel.
25
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
2) Following is a reconciliation of the "theoretical" tax
expense, assuming all income is taxed at the regular rate,
as stated in d. above, and the actual tax expense:
2003 2002 2001
------------------- -------------------- -------------------
Adjusted Adjusted Adjusted
NIS in NIS in NIS in
% thousands % thousands % thousands
--- --------- --- --------- --- ---------
Income before taxes on income, as reported
in the statements of income 100.0 32,204 100.0 30,525 100.0 26,723
===== ====== ===== ====== ===== ======
Theoretical tax on the above amount 36.0 11,593 36.0 10,989 36.0 9,620
Tax benefits arising from reduced tax rate
for approved enterprises (1.5) (487) (1.0) (305) (1.2) (327)
----- ------ ----- ------ ----- ------
34.5 11,106 35.0 10,684 34.8 9,293
Increase in taxes resulting from computation
of deferred taxes at a rate which is
different from the theoretical rate 0.9 230
Tax deduction in respect of options
exercised by employees according to
section 102 of the Israeli
Income Tax Ordinance (5.0) (1,607) (6.2) (1,883) (14.5) (3,884)
Other - net (5.6) (1,793) (1.3) (396) 6.1 1,648
----- ------ ----- ------ ----- ------
Taxes on income for the reported year 23.9 7,706 27.5 8,405 27.3 7,287
----- ------ ----- ------ ----- ------
i. Tax assessments
The Company and most of its subsidiaries have received final tax
assessments through the year ended December 31, 2000.
26
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES:
a. As follows:
December 31, 2003 December 31, 2002
---------------------------- ----------------------------
In, or linked Linked In, or linked Linked
to, foreign to the to, foreign to the
currency Israeli currency Israeli
(mainly dollar) CPI Unlinked (mainly dollar) CPI Unlinked
------ ------- ------- ------ ------ -------
Adjusted NIS in thousands Adjusted NIS in thousands
---------------------------- ----------------------------
Assets:
Current assets:
Cash and cash equivalents 8,561 150,145 2,833 2,627
Short-term deposit 20,000
Receivables 48,457 215 210,560 48,865 191,629
Investments in associated companies - long-term
loans (2002 - including current maturities) 21,897 10,553 12,187 43,790 8,790 4,610
------ ------- ------- ------ ------ -------
78,915 10,768 392,892 95,488 8,790 198,866
====== ======= ======= ====== ====== =======
Liabilities:
Current liabilities:
Short-term credit from banks 144,617 24,872 79,138
Accounts payables and accruals 11,579 146,033 3,184 158,541
Long-term liabilities (including current maturities):
Loans from banks 372 1,056
Notes 239,629 43,580
Other liabilities 2,243 32,770 2,243 30,293
------ ------- ------- ------ ------ -------
13,822 240,001 323,420 30,299 44,636 267,972
====== ======= ======= ====== ====== =======
As to exposures relating to fluctuations in foreign currency exchange rates and
the use of derivatives for hedging purposes - see note 13a.
27
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES (continued):
b. Data regarding the exchange rate and the Israeli CPI:
Exchange rate of
one dollar CPI*
---------- ----
NIS Points
At end of year:
2003 4.379 178.6
2002 4.737 182.0
2001 4.416 170.9
2000 4.041 168.5
Change in the year:
2003 (7.6%) (1.9%)
2002 7.3% 6.5%
2001 9.3% 1.4%
* Based on the index for the month ending on each balance sheet
date, on the basis of 1993 average = 100.
NOTE 9 - COMMITMENTS AND LIABILITIES SECURED BY PLEDGES:
a. In respect of investment grants
Under the Law for the Encouragement of Capital Investments, 1959,
certain subsidiaries and an associated company have received
investment grants from the State of Israel. In the event of
failure to comply with the terms attached to the receipt of the
grants, the companies may be required to refund the amount of the
grants, in whole or in part, with linkage differences and
interest from the date of receipt.
The abovementioned subsidiaries have registered floating charges
on all their assets in favor of the State of Israel as security
for compliance with the terms of the investment grants received.
In respect of the grant received by the associated company, the
Company has provided a guarantee, with another associated
company, for the repayment of the grant. As of December 31, 2003,
the guarantee amounts to adjusted NIS 491,000.
b. In 1996, an associated company received a grant amounting to
adjusted NIS 2,067,000 from the Fund for Preparation for Exposure
of the Ministry of Industry and Trade. With respect to this
grant, the Company has provided a bank guarantee of adjusted NIS
2,018,000 in favor of the State of Israel.
c. The Company has provided guarantees of adjusted NIS 2,189,000 in
favor of an associated company, in connection with the latter's
participation in a tender. If the associated company does not win
the tender, the guarantee will become null and void.
d. A subsidiary has provided a guarantee of adjusted NIS 1,291,000
to a bank in respect of a loan extended to an associated company.
28
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMITMENTS AND LIABILITIES SECURED BY PLEDGES (continued):
e. On May 7, 2001, the Company's board of directors resolved to
carry out a plan, which was approved by the shareholders'
meeting, to remunerate the Company's chairman of the board of
directors. According to the plan, a remuneration will be granted,
equal to the increase in the value of 50,000 shares of the
Company in the period from May 7, 2001 (share price - NIS 194.37,
linked to the terms of the plan) to May 7, 2008. The remuneration
will be spread over the period commencing two years from the
resolution of the board of directors, until the end of seven
years from said resolution. As of December 31, 2003 one quarter
of the remuneration is exercisable. A liability was included in
the financial statements in respect of the above plan, under
current liabilities.
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
Balance sheets:
a. Short-term deposit
The deposit is for a period of one year, unlinked, and bears
annual interest (payable monthly) at the rate of 5.5%.
December 31
------------------
2003 2002
------- -------
Adjusted NIS
in thousands
------------------
b. Receivables:
1) Trade:
Open accounts 128,021 119,927
Checks collectible 12,975 11,809
------- -------
140,996 131,736
The item is:
Net of allowance for doubtful accounts 13,696 12,752
Includes associated companies 26,594 19,863
2) Other:
Employees and employee institutions 3,060 2,336
Associated companies ( 2002 - including current
maturities) 89,691 96,047
Prepaid expenses 2,883 3,427
Advances to suppliers 9,365 7,214
Deferred income taxes, see note 7g 7,127 10,948
Income tax authority 12,005 6,235
Interest receivable 257 19
Sundry 3,858 5,664
------- -------
128,246 131,890
======= =======
c. Inventories:
For industrial activities:
Finished goods 14,819 13,168
Raw materials and supplies 10,426 10,387
------- -------
25,245 23,555
For commercial activities - purchased products 18,817 20,810
------- -------
44,062 44,365
Maintenance and sundry stores 46,592 46,130
------- -------
90,654 90,495
======= =======
29
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
d. Credit from banks:
1) As follows:
December 31
------------------
2003 2002
------- -------
Adjusted NIS
in thousands
------------------
Short-term credit 144,617 104,010
Current maturities of long-term loans, see note 4a 372 701
------- -------
144,989 104,711
======= =======
2) Classified by currency of repayment, linkage terms and
interest rates, the amounts of short-term credit from banks
are as follows:
Weighted average
interest rate
at December 31
December 31, ------------------
2003 2003 2002
------- ------- -------
% Adjusted NIS
- in thousands
------- -------
Unlinked 6.0 144,617 79,138
In dollars 24,872
------- -------
144,617 104,010
======= =======
e. Accounts payable and accruals - other:
December 31
----------------
2003 2002
------ ------
Adjusted NIS
in thousands
----------------
Payroll and related expenses 37,324 30,628
Institutions in respect of employees 12,944 11,320
Customs and value added tax authorities 728 1,262
Associated company 521 469
Accrued interest 2,127 953
Accrued expenses 7,825 5,728
Sundry 11,541 12,110
------ ------
73,010 62,470
====== ======
30
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
Statements of income:
2003 2002 2001
------- ------- -------
Adjusted NIS in thousands
--------------------------------
f. Sales - net (1):
Industrial activities (2) 326,825 310,628 312,751
Commercial activities 138,267 145,147 156,958
------- ------- -------
465,092 455,775 469,709
======= ======= =======
(1) Including sales to associated companies 115,505 104,864 114,345
======= ======= =======
(2) Including sales to export 44,175 40,645 26,044
======= ======= =======
g. Cost of sales:
Industrial activities:
Materials consumed 72,292 61,649 69,267
Payroll and related expenses 85,419 78,903 93,195
Depreciation 22,739 21,182 22,807
Other manufacturing costs 80,709 77,765 89,330
Decrease (increase) in inventory of
finished goods (1,651) 12,585 (7,019)
------- ------- -------
259,508 252,084 267,580
Commercial activities - cost of products sold 102,677 111,687 116,244
------- ------- -------
362,185 363,771 383,824
======= ======= =======
Including purchases from associated
companies 26,374 29,423 32,036
======= ======= =======
h. Selling, marketing, administrative and
general expenses:
Selling and marketing:
Payroll and related expenses 15,225 14,692 16,986
Packaging, transport and shipping 5,719 5,689 5,842
Advertising 872
Commissions 2,733 1,605 902
Depreciation 1,595 1,659 1,410
Other 6,052 5,522 5,906
------- ------- -------
31,324 29,167 31,918
======= ======= =======
Administrative and general:
Payroll and related expenses 36,360 31,927 38,166
Office supplies, rent and maintenance 1,938 1,750 2,526
Professional fees 486 1,010 1,174
Depreciation 2,814 3,884 4,865
Doubtful accounts and bad debts 944 1,791 766
Other 5,858 10,148 8,830
------- ------- -------
48,400 50,510 56,327
Less - rent and participation from
associated companies 23,401 24,128 22,886
------- ------- -------
24,999 26,382 33,441
======= ======= =======
31
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
2003 2002 2001
----- ------ -----
Adjusted NIS in thousands
--------------------------
i. Other income (expenses):
From the sale of apartments (1) 1,609
From termination of an activity and
disposal of assets(2) (2,942)
From the issuance of shares of an associated
company to a third party 1,095
----- ------ -----
1,609 (2,942) 1,095
===== ====== =====
1) In 2003, the Company sold apartments that it previously held
for the use of its employees.
2) In 2002, the Company terminated operations at some of its
sites, as follows:
a) At the Molett site in Nahariya, the operation of the
old household paper machine was terminated, following
the introduction of a new tissue machine by
Hogla-Kimberly Ltd., an associated company.
Subsequently, the old paper machine was sold to a third
party (overseas).
b) In order to comply with the requirements of the
Ministry of Environment, the operation of the old paper
machines at the Shafir site in Tel-Aviv were
terminated. The termination included dismissal of
employees, sale of maintenance stores, sale of the
machines to a third party (overseas) and other related
costs (including closing inventories).
c) The Company sold real estate that it owned in Ashdod.
The effects of the restructuring resulting from the
termination of the operations are as follows:
2002
-----
Adjusted NIS
in thousands
-----
Severance pay expenses (2,334)
Other expenses, net of sale proceeds (4,475)
Gain on sale of real estate in Ashdod 3,867
-----
(2,942)
======
32
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
2003 2002 2001
------- ------ -----
Adjusted NIS in thousands
-------------------------------
j. Financial income (expenses) - net*:
Expenses:
In respect of long-term loans - net 1,607
In respect of notes - including amortization
of deferred charges 5,031 1,291
Erosion of operating monetary balances,
net of related hedges 2,289 1,502
In respect of short-term balances - net
(2002 -net of borrowing costs capitalized to
the cost of fixed assets) 16,917 1,506
------- ------ -----
23,555 5,086 1,502
------- ------ -----
Income:
In respect of long-term loans - net 2,098 2,290
In respect of notes - including amortization
of deferred charges 1,892
In respect of increase in value of operating
monetary balances, net of related hedges 7,566
In respect of short-term balances - net 2,422
------- ------ -----
7,566 2,098 6,604
------- ------ -----
(15,989) (2,988) 5,102
======= ====== =====
* Including financial income (expenses) in respect
of loans to associated companies (1,376) 2,207 2,260
======= ====== =====
NOTE 11 - NET INCOME PER NIS 1 OF PAR VALUE OF SHARES:
a. The weighted average par value of shares used in computation of
per share data is as follows:
NIS
---
Year ended December 31:
2003 40,197
======
2002 39,557
======
2001 39,474
======
b. In the reported years, plans for granting stock options to
employees in the Group were taken into account in computing per
share data, having regard to the quoted price of the Company's
share at the end of each year.
33
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - INTERESTED PARTIES - TRANSACTIONS AND BALANCES:
a. Transactions:
1) Income (expenses):
2003 2002 2001
------ ------ -------
Adjusted NIS in thousands
------------------------------
Sales 38,715 36,030 35,469
====== ====== =======
Costs and expenses (7,009) (6,038) (14,373)
====== ====== =======
The amounts presented above represent transactions that the
Company carried out in the ordinary course of business with
interested parties (companies which are held by the
Company's principal shareholder), at terms and prices
similar to those applicable to non-affiliated customers and
suppliers.
2) Benefits to interested parties:
2003 2002 2001
------ ----- -----
Payroll to interested parties employed
by the Company - adjusted NIS
in thousands *3,364 2,000 1,699
====== ===== =====
Number of people to whom
the benefits relate 2 1 1
====== ===== =====
Remuneration of directors who are not
employed by the Company -
adjusted NIS in thousands 444 324 477
====== ===== =====
Number of people to whom
the benefits relate 13 9 11
====== ===== =====
* In 2003, includes the Chief Executive Officer
(hereafter - CEO) payroll (who was appointed in
April 2003), in addition to the payroll of the
Chairman of the Board of Directors (who served
earlier as the CEO).
3) In 2003, 2001 and 2000, an interested party employed by the
Company exercised 15,999, 5,334 and 10,666 options,
respectively, granted to him under the 1998 plan for senior
officers, into 8,529, 3,263 and 7,476 shares, respectively,
of NIS 0.01 par value each, upon payment of their par value.
4) As to the plan for the remuneration of the Company's
Chairman of the Board of Directors - see note 9e.
34
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - INTERESTED PARTIES - TRANSACTIONS AND BALANCES (continued):
b. Balances with interested parties:
December 31
----------------
2003 2002
------ -----
Adjusted NIS
in thousands
----------------
Accounts receivable - commercial activity* 10,440 8,942
====== =====
Accounts payables and accruals 2,430 88
====== =====
* There were no significant changes in the balance during the year.
NOTE 13 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
a. Derivative financial instruments
The Company has only limited involvement with derivative
financial instruments. The Company uses these instruments as
hedges. The Company utilizes derivatives, mainly forward exchange
contracts and currency options, to protect its dollar cash flows
in respect of existing assets and liabilities. As the
counter-parties to these derivatives are Israeli banks, the
Company considers the inherent credit risks remote. As at
December 31, 2003 and 2002, there are no balances in respect of
transactions in derivative financial instruments.
In January 2004, the Company entered into a forward transaction
for a period of one year, in order to hedge an amount of adjusted
NIS 200 million against increases in the Israeli CPI.
b. Credit risks
The Company and its subsidiaries' cash and cash equivalents and
the short-term deposit as of December 31, 2003 are deposited
mainly with major Israeli banks or with foreign banks controlled
by those Israeli banks. The Company and its subsidiaries
considers the credit risks in respect of these balances to be
remote.
Most of these companies sales are made in Israel, to a large
number of customers. The exposure to credit risks relating to
trade receivables is limited due to the relatively large number
of customers. The Group performs ongoing credit evaluations of
its customers to determine the required amount of allowance for
doubtful accounts. An appropriate allowance for doubtful accounts
is included in the financial statements.
35
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):
c. Fair value of financial instruments
The fair value of the financial instruments included in working
capital of the Group is usually identical or close to their
carrying value. The fair value of loans and other liabilities
also approximates the carrying value, since they bear interest at
rates close to the prevailing market rates, except as described
below.
The Company does not disclose the fair value of long-term loans
and capital notes included under investments in associated
companies as of December 31, 2003, aggregating adjusted NIS
44,637,000 (see note 2b) and of a capital note to an associated
company in the amount of adjusted NIS 32,770,000 (see note
4c(1)), since their value cannot be reliably determined so long
as they have no repayment dates.
NOTE 14 - SEGMENT INFORMATION:
a. Activities of the Company and its subsidiaries:
1) Manufacturing and marketing of paper and paper products
(packaging and household paper), including collection and
recycling of paper waste. The manufacturing of paper relies
mainly on paper waste as raw material.
2) Marketing of office supplies and paper, mainly to
institutions.
Most of the Group's sales are to the local market (Israel)
and of its assets are located in Israel.
36
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 - SEGMENT INFORMATION (continued):
b. Business segment data:
Paper and recycling Marketing of office supplies
--------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
------- ------- ------- ------- ------- -------
Adjusted NIS in thousands
----------------------------------------------------------------------
Sales - net(1) 332,124 314,636 316,375 132,968 141,139 153,334
======= ======= ======= ======= ======= =======
Income (loss) from ordinary operations 46,282 37,488 21,646 302 (1,033) (1,120)
======= ======= ======= ======= ======= =======
Financial income (expenses), net
Other income (expenses)
Income before taxes on income
Segment assets (at end of year) 497,811 482,833 478,144 59,480 65,234 67,774
Unallocated assets (at end of year) (2)
Consolidated total assets (at end of year)
Segment liabilities (at end of year) 58,906 66,325 58,034 25,696 32,930 30,041
Unallocated liabilities (at end of year)
Consolidated total liabilities (at end of year)
Depreciation and amortization 25,523 24,422 27,068 2,724 2,387 2,295
======= ======= ======= ======= ======= =======
(1) Represents sales to external customers.
(2) Including investments in associated companies.
Total
---------------------------------
2003 2002 2001
--------- --------- -------
Adjusted NIS in thousands
--------- --------- -------
Sales - net(1) 465,092 455,775 469,709
========= ========= =======
Income (loss) from ordinary operations 46,584 36,455 20,526
Financial income (expenses), net (15,989) (2,988) 5,102
Other income (expenses) 1,609 (2,942) 1,095
--------- --------- ---------
Income before taxes on income 32,204 30,525 26,723
========= ========= =========
Segment assets (at end of year) 557,291 548,067 545,918
Unallocated assets (at end of year) (2) 695,983 504,056 506,224
--------- --------- ---------
Consolidated total assets (at end of year) 1,253,274 1,052,123 1,052,142
========= ========= =========
Segment liabilities (at end of year) 84,602 99,255 88,075
Unallocated liabilities (at end of year) 554,442 301,918 329,594
--------- --------- ---------
Consolidated total liabilities (at end of year) 639,044 401,173 417,669
========= ========= =========
Depreciation and amortization 28,247 26,809 29,363
========= ========= =========
(1) Represents sales to external customers.
(2) Including investments in associated companies.
---------------
-------------------------------
---------------
37
Schedule
AMERICAN ISRAELI PAPER MILLS LIMITED
Details of Subsidiaries and Associated Companies
At December 31, 2003
Percentage of direct and
indirect holding in shares
conferring equity and
voting rights
--------------------------
%
-----
Main subsidiaries:
Amnir Recycling Industries Limited 100.00
Graffiti Office Supplies and Paper Marketing Ltd. 100.00
Attar Marketing Office Supplies Ltd. 100.00
American Israeli Paper Mills Paper Industry (1995) Ltd. 100.00
Main associated companies:
Hogla-Kimberly Ltd. 49.90
Subsidiaries of Hogla-Kimberly Ltd.:
Hogla-Kimberly Marketing Limited 49.90
Molett Marketing Limited 49.90
Shikma Ltd. 49.90
Ovisan Sihhi Bez Sanai Ve Ticavet A.S 49.90
Hogla-Kimberly Holdings A.S 49.90
H-K Overseas (Holland) B.V 49.90
Neusiedler Hadera Paper Ltd. 49.90
Subsidiaries of Neusiedler Hadera Paper Ltd.:
Grafinir Paper Marketing Ltd. 49.90
Yavnir (1999) Ltd. 49.90
Neusiedler Hadera Paper Marketing (1999) Ltd. 49.90
Mitrani Paper Marketing 2000 (1998) Ltd. 49.90
Carmel Container Systems Limited 26.25
C.D. Packaging Systems Limited* 63.20
Barthelemi Holdings Ltd. 33.91
T.M.M. Integrated Recycling Industries Ltd.** 41.60
* C.D. Packaging Systems Limited is partly held through Carmel Container
Systems Limited (an associated company); the holding in voting shares of
C.D. Packaging Systems Limited is 63.05%.
** T.M.M Integrated Recycling Industries Ltd. is partly held directly and
partly through Barthelemi Holdings Ltd.
38
[AIPM LOGO] Meizer street
Industrial Zone, P.O. Box 142
Hadera 38101, Israel
Tel: 972-4-6349402
Fax: 972-4-6339740
E-Mail: chq@aipm.co.il
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.
[LOGO][LOGO]
EXHIBIT 4
---------
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
2003 ANNUAL REPORT
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
2003 ANNUAL REPORT
TABLE OF CONTENTS
PAGE
AUDITORS' REPORT 2
FINANCIAL STATEMENTS - OF THE COMPANY AND
CONSOLIDATED - IN ADJUSTED NEW ISRAELI SHEKELS (NIS):
Balance sheets 3-4
Statements of income (loss) 5
Statements of changes in shareholders' equity 6
Statements of cash flows 7-9
Notes to financial statements 10-35
APPENDIX - DETAILS OF INVESTEE COMPANIES 36
--------------------
-----------------------------
--------------------
AUDITORS' REPORT
To the shareholders of NEUSIEDLER HADERA PAPER LTD.
We have audited the financial statements of Neusiedler Hadera Paper Ltd.
(hereafter - the Company) and the consolidated financial statements of the
Company and its subsidiaries: balance sheets as of December 31, 2003 and 2002
and the related statements of income (loss), changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2003.
These financial statements are the responsibility of the Company's board of
directors and management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the United States, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 1973. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the Company's board of
directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position - of the
Company and consolidated - as of December 31, 2003 and 2002 and the results of
operations, the changes in shareholders' equity and the cash flows - of the
Company and consolidated - for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in Israel. Furthermore, in our opinion, the financial statements referred to
above are prepared in accordance with the Israeli Securities (Preparation of
Annual Financial Statements) Regulations, 1993.
As explained in note 1b, the financial statements referred to above are
presented in values adjusted for the changes in the exchange rate of the U.S.
dollar, in accordance with pronouncements of the Institute of Certified Public
Accountants in Israel.
Tel-Aviv, Israel
March 10, 2004
2
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
-------------------- --------------------
DECEMBER 31 DECEMBER 31
-------------------- --------------------
NOTE 2003 2002 2003 2002
------ ------- ------- ------- -------
IN THOUSANDS
----------------------------------------------
ASSETS
CURRENT ASSETS: 8
Cash and cash equivalents 1l 31,678 49,089 20,034 45,629
Accounts receivable: 10a
Trade 147,748 154,995 2,811
American Israeli Paper Mills Limited
and its subsidiaries - net 1a(3) 134,659 70,559
Subsidiaries 8,815
Other 11,296 12,796 13,458 13,732
Inventories 10b 89,231 79,698 62,650 64,595
------- ------- ------- -------
Total current assets 279,953 296,578 230,801 206,141
------- ------- ------- -------
INVESTMENT IN INVESTEE
COMPANIES 2 6,932 7,505
------- -------
FIXED ASSETS: 3
Cost 132,692 124,815 127,617 118,802
Less - accumulated depreciation 25,381 17,993 22,701 15,611
------- ------- ------- -------
107,311 106,822 104,916 103,191
------- ------- ------- -------
GOODWILL, net of accumulated amortization 4,423 5,049
------- ------- ------- -------
Total assets 391,687 408,449 342,649 316,837
======= ======= ======= =======
Date of approval of the financial statements: March 10, 2004
)
-------------------------------------------
GUNTHER HASSLER ) CHAIRMAN OF THE BOARD OF DIRECTORS
)
-------------------------------------------
YAKI YERUSHALMI ) VICE CHAIRMAN OF THE BOARD OF DIRECTORS
)
-------------------------------------------
ELIAZ AMAR ) CHIEF FINANCIAL OFFICER
3
CONSOLIDATED THE COMPANY
----------------------- -----------------------
DECEMBER 31 DECEMBER 31
----------------------- -----------------------
NOTE 2003 2002 2003 2002
------ ------- ------- ------- ------
IN THOUSANDS
------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: 8
Credit from banks 10c 15,108 14,670 15,108 14,652
Current maturities of long-term
capital note 5 17,516 17,516
Accounts payable and accruals: 10d
Trade - open accounts 104,097 76,650 53,397 44,771
American Israeli Paper Mills Limited
and its subsidiaries - net 1a(3) 52,968 54,685
Subsidiaries 52,671
Other 12,682 19,933 12,049 12,863
------- ------- ------- -------
Total current liabilities 184,855 183,454 133,225 89,802
------- ------- ------- -------
LONG-TERM LIABILITIES:
Loans from bank 4 51,725 71,837 51,725 71,837
Capital notes from shareholders (2002 - net
of current maturities) 5 43,790 70,064 43,790 70,064
Deferred income taxes 7e 29,247 19,557 29,247 19,574
Excess of losses of subsidiaries
over the investments therein 2 2,592 2,058
Liability for employee rights upon
retirement 6 145 131 145 96
------- ------- ------- -------
Total long-term liabilities 124,907 161,589 127,499 63,629
------- ------- ------- -------
COMMITMENTS 9
------- ------- ------- -------
Total liabilities 309,762 345,043 260,724 253,431
------- ------- ------- -------
SHAREHOLDERS' EQUITY:
Share capital (ordinary shares of NIS 1 par
value: authorized - 38,000 shares;
issued and paid - 1,000 shares) 1 1 1 1
Capital surplus 43,352 43,352 43,352 43,352
Retained earnings 38,572 20,053 38,572 20,053
------- ------- ------- ------
81,925 63,406 81,925 63,406
------- ------- ------- ------
Total liabilities and
shareholders' equity 391,687 408,449 342,649 316,837
======= ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF INCOME (LOSS)
IN ADJUSTED NEW ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
---------------------------------- --------------------------------
NOTE 2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------ ------
IN THOUSANDS
-------------------------------------------------------------------------
SALES - net 10e 642,140 575,607 557,576 462,654 421,413 398,150
COST OF SALES 10f 556,890 *489,962 *505,476 391,492 *359,129 *369,944
------- --------- -------- ------- --------- --------
GROSS PROFIT 85,250 85,645 52,100 71,162 62,284 28,206
------- --------- -------- ------- --------- --------
SELLING, MARKETING,
ADMINISTRATIVE AND
GENERAL EXPENSES: 10g
Selling and marketing 42,892 *42,481 *40,418 32,330 *26,747 *25,189
Administrative and general 8,640 10,321 9,671 6,065 4,335 4,272
------- --------- -------- ------- --------- --------
51,532 52,802 50,089 38,395 31,082 29,461
------- --------- -------- ------- --------- --------
INCOME (LOSS) FROM
ORDINARY OPERATIONS 33,718 32,843 2,011 32,767 31,202 (1,255)
FINANCIAL EXPENSES - net 10h 4,681 5,232 13,115 2,713 4,387 11,615
------- --------- -------- ------- --------- --------
INCOME (LOSS) BEFORE
TAXES ON INCOME 29,037 27,611 (11,104) 30,054 26,815 (12,870)
TAXES ON INCOME (TAX
BENEFIT) 7 10,518 11,534 (3,272) 10,275 9,800 (3,299)
------- --------- -------- ------- --------- --------
INCOME (LOSS) AFTER
TAXES ON INCOME 18,519 16,077 (7,832) 19,779 17,015 (9,571)
SHARE IN PROFITS (LOSSES)
OF INVESTEE COMPANIES,
net 2 (369) (1,260) (938) 1,370
------- --------- -------- ------- --------- --------
NET INCOME (LOSS) FOR
THE YEAR 18,519 16,077 (8,201) 18,519 16,077 (8,201)
======= ========= ======== ======= ========= ========
ADJUSTED NIS
NET INCOME (LOSS) PER
NIS 1 OF PAR VALUE OF
SHARES 1m 18,519 16,077 (8,201) 18,519 16,077 (8,201)
======= ========= ======== ======= ========= ========
* Reclassified.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN ADJUSTED NEW ISRAELI SHEKELS
SHARE CAPITAL
------------------- CAPITAL RETAINED
NUMBER OF AMOUNT SURPLUS EARNINGS TOTAL
SHARES ------- ------- ------ -------
----- IN THOUSANDS
-----------------------------------------------------
BALANCE AT JANUARY 1, 2001 1,000 1 43,352 12,177 55,530
CHANGES DURING 2001 -
loss (8,201) (8,201)
----- ------ ------ ------ ------
BALANCE AT DECEMBER 31, 2001 1,000 1 43,352 3,976 47,329
CHANGES DURING 2002 -
net income 16,077 16,077
----- ------ ------ ------ ------
BALANCE AT DECEMBER 31, 2002 1,000 1 43,352 20,053 63,406
CHANGES DURING 2003 -
net income 18,519 18,519
----- ------ ------ ------ ------
BALANCE AT DECEMBER 31, 2003 1,000 1 43,352 38,572 81,925
===== ====== ====== ====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
(Continued) - 1
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
--------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------
IN THOUSANDS
-------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) for the year 18,519 16,077 (8,201) 18,519 16,077 (8,201)
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities (a) 37,698 31,659 55,377 29,887 26,772 51,770
------ ------ ------ ------ ------ ------
Net cash provided by operating
activities 56,217 47,736 47,176 48,406 42,849 43,569
------ ------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of a subsidiary consolidated
for the first time (b) (2,208) (2,208)
Purchase of fixed assets (9,339) (16,305) (12,746) (9,339) (16,086) (11,714)
Proceeds from sale of fixed assets 635 800 101 244 357 19
------ ------ ------ ------ ------ ------
Net cash used in investing activities (8,704) (15,505) (14,853) (9,095) (15,729) (13,903)
------ ------ ------ ------ ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term loans (21,116) (7,266) (21,116) (7,266)
Repayment of long-term capital notes
from shareholders (43,790) (43,790)
Short-term credit from banks - net (18) (4,147) (5,257) (4,646)
------ ------ ------ ------ ------ ------
Net cash used in financing
activities (64,924) (11,413) (5,257) (64,906) (7,266) (4,646)
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (17,411) 20,818 27,066 (25,595) 19,854 25,020
BALANCE OF CASH AND CASH
EQUIVALENTS AT THE
BEGINNING OF YEAR 49,089 28,271 1,205 45,629 25,775 755
------ ------ ------ ------ ------ ------
BALANCE OF CASH AND CASH
EQUIVALENTS AT END OF YEAR 31,678 49,089 28,271 20,034 45,629 25,775
====== ====== ====== ====== ====== ======
7
(Continued) - 2
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CASH FLOWS
IN ADJUSTED ISRAELI SHEKELS
CONSOLIDATED THE COMPANY
--------------------------------- ----------------------------------
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------
IN THOUSANDS (EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------
(A) ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Income and expenses not
involving cash flows:
Share in losses (profits) of
investee companies - net 369 1,260 938 (1,370)
Depreciation and amortization 8,626 8,077 6,501 7,252 6,484 5,156
Deferred income taxes - net 10,438 11,483 (2,538) 10,275 9,893 (2,572)
Liability for employee
rights upon retirement 14 5 (6) 49 19 (5)
Capital losses (gains) on
sale of fixed assets - net 215 84 189 118 37 (8)
Linkage differences on (erosion of)
long-term bank loans 1,460 (134) (2,138) 1,460 (134) (2,138)
Erosion of (linkage differences
on) long-term loans to
investee company 112 (153) 14 180
------ ------ ------ ------ ------ ------
20,753 19,515 2,489 20,261 17,251 (757)
------ ------ ------ ------ ------ ------
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable:
Trade 7,247 (696) 22,674 2,811 (2,455) 165
American Israeli Paper Mills
Limited and its
subsidiaries - net (41,232) (29,326)
Subsidiaries 33,473 104,264
Other 752 9,025 (1,678) (328) 7,983 (2,213)
Decrease (increase) in inventories (9,533) 13,010 61,105 1,945 5,744 42,191
Increase (decrease) in accounts
payable and accruals:
Trade 27,447 6,043 (3,953) 8,626 1,716 6,106
American Israeli Paper Mills
Limited and its
subsidiaries - net (1,717) (18,799) (18,479) (64,100) (65,388)
Subsidiaries 61,486
Other (7,251) 3,561 (6,781) (814) 4,292 (3,272)
------ ------ ------ ------ ------ ------
16,945 12,144 52,888 9,626 9,521 52,527
------ ------ ------ ------ ------ ------
37,698 31,659 55,377 29,887 26,772 51,770
====== ====== ====== ====== ====== ======
8
(Concluded) - 3
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
STATEMENTS OF CASH FLOWS
IN ADJUSTED ISRAELI SHEKELS
CONSOLIDATED
AND THE COMPANY
---------------
2001
---------------
IN THOUSANDS
---------------
(b) ACQUISITION OF A SUBSIDIARY CONSOLIDATED FOR THE FIRST TIME: Fair
value of assets and liabilities acquired, at acquisition date:
Working capital deficiency (excluding cash and cash equivalents) - net 3,887
Fixed assets (1,228)
Liability for employee rights upon retirement 51
Deferred income taxes - net (2,142)
Investment in the associated company at acquisition date* 2,087
Goodwill arising on acquisition** (6,141)
------
(3,486)
Less - amount recorded against debit balance of the former shareholder,
see supplementary information (2) below 1,278
------
(2,208)
======
* See note 2a(2).
** Including goodwill balance at acquisition date.
CONSOLIDATED THE COMPANY
------------------------------ -------------------------------
2003 2002 2001 2003 2002 2001
----- ----- ----- ----- ----- -----
IN THOUSANDS
SUPPLEMENTARY CASH FLOW
INFORMATION:
Interest paid 3,757 3,582 4,664 3,757 3,582 4,664
===== ===== ===== ===== ===== =====
Income taxes paid - net (480) 164 666 513
===== ===== ===== =====
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING
CASH FLOWS:
1) In July 2001, the long-term shareholders' loans were converted into capital
notes. This conversion is not reflected among financing activities.
2) On April 1, 2001 the Company increased its holdings in the associated
company, from 33.3% to 100%. Part of the consideration - adjusted NIS
1,278,000 - which was recorded against debit balance of the former
shareholder (which is included among the current account of subsidiaries as
of December 31, 2001), is not reflected among investing activities.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies, applied on a consistent basis,
are as follows. As to the adoption for the first time in 2003 of the
accounting for impairment of assets, see k. below.
a. GENERAL:
1) Incorporation and operations
Neusiedler Hadera Paper Ltd. (hereafter - the Company) was
incorporated and commenced operations on January 1, 2000.
The Company and its subsidiaries (hereafter - the Group),
are engaged in the production and sale of paper and paper
products - mainly in Israel, see also note 13.
Effective as of January 1, 2003, as part of a change in the
organizational structure of the Group, all marketing and
selling activities were transferred to one subsidiary with
three logistics sites. In the past, the Group's operations
in marketing were executed by four subsidiaries.
Accordingly, those subsidiaries' employees are now employed
by the Company and its inventories were transferred to the
remaining subsidiary.
Those subsidiaries continued operating in 2003,mainly for
collecting old debts.
As to agreements with AIPM (see (3) below), see note 11a(2).
2) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at balance sheet date and
the reported amounts of revenues and expenses during the
reported year. Actual results could differ from those
estimates.
3) Definitions:
The ultimate parent company - Anglo American Plc.
Subsidiaries - companies over which the Company has control
and over 50% of the ownership, the financial statements of
which have been consolidated with the financial statements
of the Company.
The associated company - Miterani Paper Marketing 2000
(1998) Ltd..
Investee companies - subsidiaries and the associated
company.
Shareholders - Neusiedler AG and American Israeli Paper
Mills Limited (hereafter - AIPM) which hold 50.1% and 49.9%
of the Company's share capital, respectively.
Interested parties - as defined in the Israeli Securities
(Preparation of Annual Financial Statements) Regulations,
1993.
10
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
Affiliated company - companies in which AIPM exerts material
influence. Material influence is deemed to exist when the percentage
of holding in said company is 20% or more, unless there are
circumstances that contradict this assumption.
Goodwill - the difference between the cost of investment in an
investee company and the Company's share in the fair value of its net
underlying assets at time of acquisition, net of applicable taxes.
B. ADJUSTED FINANCIAL STATEMENTS:
1) The Company and its subsidiaries maintain their accounts in
nominal new Israeli shekels ("NIS") and in U.S. dollars
("dollars"). All figures in the financial statements are
presented in NIS adjusted for the changes in the exchange
rate of the dollar (rather than the changes in the Israeli
consumer price index; hereafter - Israeli CPI).
As for discontinuance of adjusting financial statements for
the effects of inflation, with effect from January 1, 2004,
see also o. hereafter.
The adjusted NIS data are the product of the data in dollar
terms, multiplied by the representative exchange rate of the
dollar at December 31, 2003 - $1 = NIS 4.379 (see also note
8b).
Condensed nominal Israeli currency data of the Company are
presented in note 14.
2) Non-monetary balance sheet items have been adjusted on the
basis of the changes in the exchange rate of the dollar
since the related transactions were carried out. The income
statement components relating to these non-monetary balance
sheet items have been adjusted on the same basis as the
related balance sheet items.
The investment in the associated company and the Company's
share in its operating results have been determined based on
its financial statements, adjusted on the basis of the
changes in the exchange rate of the dollar. Income statement
components (except financing) relating to transactions
carried out in the reported year - sales, purchases, labour
costs, etc. - have been adjusted on the basis of the
exchange rates in effect on transaction dates.
Financial income and expenses represent such income and
expenses in real terms and the erosion of balances of
monetary items during the year.
3) The amounts of non-monetary items do not necessarily
represent realization value or any other economic value, but
only their original historical values adjusted on the basis
of the changes in the exchange rate of the dollar. In these
financial statements, the term "cost" signifies cost in
adjusted NIS.
11
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
c. PRINCIPLES OF CONSOLIDATION:
1) The consolidated financial statements include the accounts
of the Company and its subsidiaries. A list of the
subsidiaries is presented in the appendix to the financial
statements.
2) Intercompany transactions and balances, as well as
intercompany profits on sales which have not been realized
outside the Group, have been eliminated.
3) As to goodwill, see e(2) below.
d. INVENTORIES
Raw materials and supplies, finished goods and goods in process,
and purchased products are valued at the lower of cost or market
(net of processing costs, where appropriate and after deduction
of a provision for obsolescence), cost is determined on the
moving average basis.
e. INVESTMENTS IN INVESTEE COMPANIES:
1) The investments in these companies (in the financial
statements of the Company) are accounted for by the equity
method.
2) Goodwill is amortized in equal annual installments, over a
period of 10 years, commencing in the year of acquisition.
f. FIXED ASSETS:
1) Fixed assets are stated at cost.
2) The assets are depreciated by the straight-line method on
basis of their estimated useful life, as follows:
YEARS
-----
Machinery and equipment 7-20 (mainly 10 and 20)
Vehicles 5-7 (mainly 7)
Office furniture and equipment
(including computers) 3-5 (mainly 4)
Leasehold improvements are amortized by the straight-line method over
the expected term of the lease, which is shorter than the estimated
useful life of the improvements.
12
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
g. DEFERRED INCOME TAXES:
1) Deferred taxes are computed in respect of differences
between the amounts presented in these statements and those
taken into account for tax purposes. As to the main factors
in respect of which deferred taxes have been included - see
note 7e. Deferred tax balances are computed at the tax rate
expected to be in effect at time of release to income from
the deferred tax accounts. The amount of deferred taxes
presented in the income statements reflects changes in the
above balances during the reported years.
2) Taxes which would apply in the event of disposal of
investments in the investee companies have not been taken
into account in computing the deferred taxes, as the Company
intends to hold these investments, not to realize them.
h. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is determined mainly for
specific debts doubtful of collection (see note 12b).
i. REVENUE RECOGNITION
Revenue from sale of products, net of discounts granted, is
recognized upon shipment (date of transfer of title). Revenue
from sale of products for export, net of discounts granted, is
recognized upon shipment from port.
j. DERIVATIVES FINANCIAL INSTRUMENTS
Gains and losses on and cash flows from derivatives that are
hedging existing assets or liabilities are recognized in income
and cash flows statements commensurate with the results from
those assets and liabilities.
Gains and losses related to derivatives that are hedging firm
commitments are deferred, and ultimately recognized in income as
part of the measurement of the results of the underlying hedged
transactions.
k. IMPAIRMENT IN VALUE OF LONG-LIVED ASSETS
In February 2003, Accounting Standard No. 15 of the Israeli
Accounting Standards Board - (hereafter - IASB) "Impairment of
Assets", became effective. This standard requires a periodic
review to evaluate the need for a provision for the impairment of
the company's non-monetary assets - fixed assets and identifiable
intangibles, including goodwill, as well as investments in
associated companies.
Accordingly, commencing with the interim financial statements for
the 3-month period ended March 31, 2003, the company assesses -
at each balance sheet date - whether any events have occurred or
changes in circumstances have taken place, which might indicate
that there has been an impairment of one or more of the above
assets. When such indicators of impairment are present, the
company evaluates whether the carrying value of the asset in the
company's accounts can be recovered from the cash flows
anticipated from that asset.
13
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
The recoverable value of an asset is determined according to the
higher of the net selling price of the asset or its value in use
to the Company. The value in use is determined according to the
present value of anticipated cash flows from the continued use of
the asset, including those expected at time of its future
retirement and disposal.
When it is not possible to assess whether an impairment provision
is required for a particular asset on its own, the need for such
a provision is assessed in relation to the recoverable value of
the cash generating unit to which that asset belongs.
Through December 31, 2002, the Group applied the provisions for
assessing and recording impairment of assets, prescribed by the
U.S. standard, FAS 121. The adoption of this standard has not had
any effect on the Group.
l. CASH EQUIVALENTS
The Group considers all highly liquid investments, which include
short-term bank deposits (up to three months from date of
deposit) that are not restricted as to withdrawal or use, to be
cash equivalents.
m. NET INCOME (LOSS) PER NIS 1 OF PAR VALUE OF SHARES
Net income (loss) per NIS 1 of par value of shares is computed in
accordance with Opinion 55 of the Israeli Institute.
The par value of shares used in computation of per share data is
NIS 1,000.
n. ADVERTISING EXPENSES
Advertising expenses are charged to income as incurred (as to the
amount of the expenses, see note 10g).
o. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In October 2001, the IASB issued Israel Accounting Standard No.
12 - Discontinuance of Adjusting Financial Statements for
Inflation, which provided for the discontinuance of adjusting
financial statements, as of January 1, 2003. In December 2002,
Accounting Standard No. 17 was issued that postponed the date
from which Accounting Standard No. 12 is to be applied until
January 1, 2004. The inflation-adjusted amounts as of December
31, 2003, as presented in these financial statements, will be the
base for the financial reporting in the following periods.
The Company is currently assessing the effect, if any, of the
adoption of this standard, thus, it expects the implementation of
Standard No. 12 will mainly affect financing income and expenses
items.
14
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 - INVESTMENTS IN INVESTEE COMPANIES:
A. COMPOSED AS FOLLOWS:
THE COMPANY
----------------------
DECEMBER 31
----------------------
2003 2002
------ ------
ADJUSTED NIS
IN THOUSANDS
----------------------
Shares:
Cost 4,338 4,338
Share in accumulated losses (2,476) (1,216)
------ ------
1,862 3,122
Long-term loan (1) 2,478 2,325
------ ------
4,340 5,447
The investment is presented in the balance sheets as follows:
Among investments 6,932 7,505
Among long-term liabilities (2,592) (2,058)
------ ------
4,340 5,447
(1) The loan is linked to the Israeli CPI and is interest
free. Repayment date has not yet been fixed.
(2) On April 1, 2001, the Company increased its holdings
in the associated company and reached control and
ownership of 100%.
B. The changes in the investments during 2003 are as follows:
THE COMPANY
------------
ADJUSTED NIS
IN THOUSANDS
------------
Balance at beginning of year 5,447
Changes during the year:
Share in losses, net (1,260)
Erosion of long-term loans 153
------
Balance at end of year 4,340
15
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 3 - FIXED ASSETS
Composition of assets, grouped by major classifications, and changes
therein during 2003, are as follows:
COST
-----------------------------------------------
CHANGES DURING THE YEAR
-----------------------------------------------
BALANCE AT
BEGINNING BALANCE AT
OF END OF
YEAR ADDITIONS RETIREMENTS YEAR
------- ----- ----- -------
ADJUSTED NIS IN THOUSANDS
-----------------------------------------------
CONSOLIDATED:
Machinery and equipment 111,743 7,620 820 118,543
Vehicles 2,421 6 642 1,785
Office furniture and
equipment
(including computers) 2,426 367 2,793
Leasehold improvements 3,668 56 3,724
Payments on account of
machinery and equipment 4,557 1,290 5,847
------- ----- ----- -------
124,815 9,339 1,462 132,692
======= ===== ===== =======
THE COMPANY:
Machinery and equipment 110,130 7,620 508 117,242
Vehicles 81 6 16 71
Office furniture and equipment
(including computers) 1,462 367 1,829
Leasehold improvements 2,595 56 2,651
Payments on account of
machinery and equipment 4,534 1,290 5,824
------- ----- ----- -------
118,802 9,339 524 127,617
======= ===== ===== =======
ACCUMULATED DEPRECIATION
-------------------------------------------------------------
CHANGES DURING THE YEAR
------------------------------------------------------------
BALANCE AT BALANCE AT DEPRECIATED BALANCE
BEGINNING END OF DECEMBER 31
OF YEAR 2003 2002
YEAR ADDITIONS RETIREMENTS ---- ---- ----
------ ----- --- ADJUSTED NIS
ADJUSTED NIS IN THOUSANDS ADJUSTED NIS IN THOUSANDS IN THOUSANDS
----------------------------------- ------------------------- -----------------
CONSOLIDATED:
Machinery and equipment 15,058 6,883 238 21,703 96,840 96,685
Vehicles 1,214 375 374 1,215 570 1,207
Office furniture and
equipment
(including computers) 682 354 1,036 1,757 1,744
Leasehold improvements 1,039 388 1,427 2,297 2,629
Payments on account of
machinery and equipment 5,847 4,557
------ ----- --- ------ ------- -------
17,993 8,000 612 25,381 107,311 106,822
====== ===== === ====== ======= =======
THE COMPANY:
Machinery and equipment 14,463 6,721 151 21,033 96,209 95,667
Vehicles 38 11 11 38 33 43
Office furniture and equipment
(including computers) 333 257 590 1,239 1,129
Leasehold improvements 777 263 1,040 1,611 1,818
Payments on account of
machinery and equipment 5,824 4,534
------ ----- --- ------- ------- -------
15,611 7,252 162 22,701 104,916 103,191
====== ===== === ======= ======= =======
16
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 - LOANS FROM BANK:
WEIGHTED
AVERAGE CONSOLIDATED AND THE
INTEREST RATES COMPANY
-------------- --------------------
DECEMBER 31
--------------------
2003 2002
--------------------
ADJUSTED NIS
------------------- ---------------------
% IN THOUSANDS
------------------- ---------------------
a) Composed as follows:
Linked to the dollar 3.08 44,755 63,175
Linked to the Israeli CPI 6.55 22,078 23,314
---- ------ ------
66,833 86,489
Less - current maturities 15,108 14,652
------ ------
51,725 71,837
====== ======
b) The non-current portion of the loans matures as follows:
Second year 15,297 14,817
Third year 15,497 14,994
Fourth year 11,332 15,183
Fifth year 3,655 11,006
Sixth year and thereafter 5,944 15,837
------ ------
51,725 71,837
====== ======
c) The Company is required, inter alia, to fulfill certain
operational conditions and to maintain certain financial
ratios. If the Company defaults on the covenants, the banks
are entitled to demand early repayment of the loans - in
whole or in part. The Company believes that it is in
compliance with all covenants stipulated by the banks.
d) As to a "negative pledge agreement" signed by the Company,
see note 9c.
NOTE 5 - CAPITAL NOTES
The capital notes, from shareholders, are linked to the dollar and
bear no interest. Repayment date have not been fixed. In 2003, the
Company paid the shareholders an aggregate amount of NIS 43,790,000 in
respect of capital notes.
17
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 6 - EMPLOYEE RIGHTS UPON RETIREMENT:
a. Israeli labor laws and agreements require the Group to pay
severance pay to employees dismissed or leaving their employ
under certain circumstances, computed on the basis of the number
of years of service and, generally, the latest pay rate (one
month's pay for each year of service) or of a pension upon
retirement.
To cover the liability for employee rights upon retirement,
pursuant to labor agreements currently in force and based on
salary components which, in management's opinion, create
entitlement to severance pay, deposits are made with various
provident funds (including pension funds) or insurance policies
in the name of the employees.
The severance pay and pension liabilities and the amounts funded
as above are not reflected in the financial statements, as the
significant pension and severance pay risks have been irrevocably
transferred to the pension funds and the insurance companies, as
allowed by the Severance Pay Law.
The liability presented in the balance sheets represents the
severance pay liability in respect of temporary employees.
b. The expenses relating to employee rights upon retirement, which
reflect the amounts that were deposited during the reported years
with provident funds, pension funds and various insurance
policies in respect of permanent employees, and severance
payments made in respect of temporary employees, together amount
to adjusted NIS 3,827,000, adjusted NIS 2,356,000 and adjusted
NIS 2,497,000 in 2003, 2002 and 2001 respectively.
NOTE 7 - TAXES ON INCOME:
a. MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME TAX
(INFLATIONARY ADJUSTMENTS) LAW, 1985 (hereafter - the
inflationary adjustments law)
Under the inflationary adjustments law, results for tax purposes
are measured in real terms, having regard to the changes in the
Israeli CPI. The companies in the Group are taxed under this law.
As stated in note 1b, the financial statements are drawn up in
NIS adjusted on the basis of the changes in the exchange rate of
the dollar. The difference between the change in the Israeli CPI
and the change in the exchange rate of the dollar - on an annual
and cumulative basis - creates differences between the taxable
income and the income reflected in the financial statements.
b. THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXATION), 1969
The Company is an "industrial company" as defined by this law. As
such, it is entitled to claim, and has in fact claimed,
depreciation at accelerated rates on equipment used in industrial
activity as stipulated by regulations published under the
inflationary adjustments law.
18
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
c. REFORM OF THE ISRAELI TAX SYSTEM
In 2003, the provisions of the Amendment to the Income Tax
Ordinance (No. 132), 2002 (hereafter - the tax reform law) came
into effect. The tax reform law comprehensively reforms certain
parts of the Israeli tax system. Certain provisions of the tax
reform law and anticipated supplementary provisions will only be
applied from later dates.
In accordance with the provisions of the tax reform law, as from
January 1, 2003, capital gains will be taxed at a reduced rate of
25%, instead of the regular rate of 36% at which they were taxed
until the aforementioned date; with regard to the sale of assets
acquired prior to January 1, 2003, the reduced tax rate will be
applicable only for the gain allocated to capital gains earned
after the implementation of that law, which will be calculated,
as prescribed by the tax reform law.
Furthermore, the tax reform law stipulates that carryforward
capital losses may be utilized against capital gains, without any
time restriction (the time limitation for the utilization has
been removed in respect of capital losses which arose in the tax
year 1996 and thereafter).
d. CARRYFORWARD TAX LOSSES
Carryforward tax losses of the Group and the Company are adjusted
NIS 14,997,000 and 14,528,000 at December 31, 2003, respectively.
(December 31, 2002 - adjusted NIS 39,037,000). Under the
inflationary adjustments law, the carryforward losses are linked
to the Israeli CPI.
19
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
e. Deferred income taxes:
1) Composition of the deferred taxes, and the changes therein
during 2003 and 2002, are as follows:
PROVISIONS FOR EMPLOYEE
RIGHTS
---------------------
VACATION ALLOWANCE
AND FOR IN RESPECT OF
DEPRECIABLE SEVERANCE RECREATION DOUBTFUL CARRYFORWARD
FIXED ASSETS INVENTORIES PAY PAY ACCOUNTS TAX LOSSES TOTAL
------------ ----------- --------- ---------- -------- ------------ -------
ADJUSTED NIS IN THOUSANDS
----------------------------------------------------------------------------------------
CONSOLIDATED:
Balance at January 1, 2002 (18,879) (1,379) 44 1,636 1,281 18,571 1,274
Changes in 2002 -
amounts carried to income (8,214) 1,274 4 (226) 197 (4,518) (11,483)
------- ------ -- ----- ----- ----- -------
Balance at December 31, 2002 (27,093) (105) 48 1,410 1,478 14,053 (10,209)
Changes in 2003 -
amounts carried to income (2,206) 649 4 108 (170) (8,823) (10,438)
------- ------ -- ----- ----- ----- -------
Balance at December 31, 2003 (29,299) 544 52 1,518 1,308 5,230 (20,647)
======= ====== == ===== ===== ===== =======
20
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
e. Deferred income taxes (continued):
PROVISIONS FOR EMPLOYEE
RIGHTS
---------------------
VACATION
AND IN RESPECT OF
DEPRECIABLE SEVERANCE RECREATION CARRYFORWARD
FIXED ASSETS INVENTORIES PAY PAY TAX LOSSES TOTAL
------------ ----------- --------- ---------- ------------ -------
ADJUSTED NIS IN THOUSANDS
--------------------------------------------------------------------------------
THE COMPANY:
Balance January 1, 2002 (18,879) (1,113) 27 1,354 16,644 (1,967)
Changes in 2002 -
amounts carried to income (8,214) 1,074 7 (169) (2,591) (9,893)
------- --- -- ----- ----- -------
Balance at December 31, 2002 (27,093) (39) 34 1,185 14,053 (11,860)
Changes in 2003 -
amounts carried to income (2,206) 403 18 333 (8,823) (10,275)
------- --- -- ----- ----- -------
Balance at December 31, 2003 (29,299) 364 52 1,518 5,230 (22,135)
======= === == ===== ===== =======
The deferred taxes are computed at the rate of 36%.
21
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
e. Deferred income taxes (continued):
2) Deferred taxes are presented in the balance sheets, as
follows:
CONSOLIDATED THE COMPANY
--------------------------------- ---------------------------------
AMONG AS A AMONG AS A
CURRENT NON-CURRENT CURRENT NON-CURRENT
ASSETS(1) LIABILITY(2) TOTAL ASSETS(1) LIABILITY (2) TOTAL
----- ------- ------- ----- ------- -------
ADJUSTED NIS IN THOUSANDS ADJUSTED NIS IN THOUSANDS
--------------------------------- ---------------------------------
Balance at January 1, 2002 1,533 (259) 1,274 241 (2,208) (1,967)
Changes in 2002 7,815 (19,298) (11,483) 7,473 (17,366) (9,893)
----- ------- ------- ----- ------- -------
Balance at December 31, 2002 9,348 (19,557) (10,209) 7,714 (19,574) (11,860)
Changes in 2003 (748) (9,690) (10,438) (602) (9,673) (10,275)
----- ------- ------- ----- ------- -------
Balance at December 31, 2003 8,600 (29,247) (20,647) 7,112 (29,247) (22,135)
===== ======= ======= ===== ======= =======
(1) In respect of inventories, allowance for doubtful accounts,
carryforward tax losses, vacation and recreation pay.
(2) In respect of depreciable fixed assets, severance pay and
carryforward tax losses.
(3) The deferred taxes are computed at the rate of 36%.
22
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
f. Taxes on income included in the statements of income (loss):
1) As follows:
CONSOLIDATED THE COMPANY
---------------------------------- ---------------------------------
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ----- ------
ADJUSTED NIS IN THOUSANDS
---------------------------------------------------------------------------
For the reported year:
Current 80 51 (93)
Deferred, see d
above 10,438 10,220 (1,761) 10,275 9,893 (1,792)
------ ------ ------ ------ ----- ------
10,518 10,271 (1,761) 10,275 9,800 (1,792)
------ ------ ------ ------ ----- ------
For previous years:
Current (733) (729)
Deferred 1,263 (778) (778)
------ ------ ------ ------ ----- ------
10,518 11,534 (3,272) 10,275 9,800 (3,299)
====== ====== ====== ====== ===== ======
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - TAXES ON INCOME (continued):
f. Taxes on income included in the statements of income (loss)
(continued):
2) Following is a reconciliation of the theoretical tax amount,
assuming all income (loss) is taxed at the regular rate, and
the actual tax amount:
CONSOLIDATED
-------------------------------------------------------
2003 2002 2001
-------------- -------------- ----------------
ADJUSTED ADJUSTED ADJUSTED
NIS NIS NIS
IN IN IN
% THOUSANDS % THOUSANDS % THOUSANDS
----- ------ ----- ------ ------ -------
Income (loss) before taxes on income, as
reported in the statements of income (loss) 100.0 29,037 100.0 27,611 (100.0) (11,104)
===== ====== ===== ====== ====== =======
Theoretical tax (tax benefit) on the above amount 36.0 10,453 36.0 9,940 (36.0) (3,997)
Changes in taxes resulting from:
Differences between Israeli CPI
Adjusted tax returns and dollar-adjusted
financial statements - net (see a above) 0.2 65 0.7 186 20.0 2,212
Other - net 0.5 145 0.2 24
----- ------ ----- ------ ------ -------
Taxes on income (tax benefit) for the
reported year 36.2 10,518 37.2 10,271 (15.8) (1,761)
===== ====== ===== ====== ====== =======
THE COMPANY
-------------------------------------------------------
2003 2002 2001
-------------- -------------- ----------------
ADJUSTED ADJUSTED ADJUSTED
NIS NIS NIS
IN IN IN
% THOUSANDS % THOUSANDS % THOUSANDS
----- ------ ----- ------ ------ -------
Income (loss) before taxes on income, as
reported in the statements of income (loss) 100.0 30,054 100.0 26,815 (100.0) (12,870)
===== ====== ===== ====== ===== ======
Theoretical tax (tax benefit) on the above amount 36.0 10,819 36.0 9,653 (36.0) (4,633)
Changes in taxes resulting from:
Differences between Israeli CPI
Adjusted tax returns and dollar-adjusted
financial statements - net (see a above) 1.8 (544) 0.3 78 22.0 2,774
Other - net 0.3 69 0.1 67
----- ------ ----- ------ ------ ------
Taxes on income (tax benefit) for the
reported year 34.2 10,275 36.6 9,800 (14) (1,792)
===== ====== ===== ====== ====== ======
g. Tax assessments
The Company and its subsidiaries have not been assessed for
tax purposes since incorporation.
23
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES:
a. As follows:
CONSOLIDATED
-------------------------------------------------
DECEMBER 31, 2003
-------------------------------------------------
IN, OR LINKED
TO, FOREIGN
CURRENCY (MAINLY LINKED TO THE
THE DOLLAR) ISRAELI CPI UNLINKED
----------- ----------- --------
ADJUSTED NIS IN THOUSANDS
-------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents 24,492 7,186
Accounts receivable:
Trade 34,213 113,535
Other 970
------- ------ -------
Long-term loan to subsidiary
58,705 121,691
======= =======
Liabilities:
Current liabilities -
accounts payable and accruals:
Trade 85,386 18,711
AIPM and its subsidiaries - net 52,968
Other 2,881 9,543
Long-term liabilities:
Loans from bank (including current maturities) 44,755 22,078
Capital notes from shareholders (including
current maturities) 43,790
-------- ------ -------
176,812 22,078 81,222
======== ====== =======
THE COMPANY
-------------------------------------------------
DECEMBER 31, 2003
-------------------------------------------------
IN, OR LINKED
TO, FOREIGN
CURRENCY (MAINLY LINKED TO THE
THE DOLLAR) ISRAELI CPI UNLINKED
----------- ----------- --------
ADJUSTED NIS IN THOUSANDS
-------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents 12,896 7,138
Accounts receivable:
AIPM and its subsidiaries - net 134,659
Other 5,448
Long-term loan to subsidiary 2,478
------- ----- --------
12,896 2,478 147,245
======= ===== ========
Liabilities:
Current liabilities -
accounts payable and accruals: 37,826 15,571
AIPM and its subsidiaries - net 52,671
Subsidiaries 2,881 9,168
Other
Long-term liabilities: 44,755 22,078
Loans from bank (including current maturities)
Capital notes from shareholders (including
current maturities) 43,790
------- ----- --------
129,252 22,078 77,410
======= ===== ========
24
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - LINKAGE TERMS OF MONETARY BALANCES (continued):
b. Data regarding the exchange rate and the Israeli CPI:
EXCHANGE RATE OF
ONE DOLLAR CPI*
---------------- ------
NIS POINTS
--- ------
At end of year:
2003 NIS 4.379 178.6
2002 NIS 4.737 182.0
2001 NIS 4.416 170.9
2000 NIS 4.041 168.5
Increase (decrease) during the year:
2003 (7.6%) (1.9%)
2002 7.3% 6.5%
2001 9.3% 1.4%
* Based on the index for the month ending on each
balance sheet date, on the basis of the 1993 average
= 100.
NOTE 9 - COMMITMENTS AND LIABILITIES SECURED BY PLEDGES:
a. The subsidiaries entered into operating lease agreements for the
buildings they use. The agreements are for periods ending through
2008. The projected annual rental payments for the next four
years, based on rates in effect as of December 31, 2003,
approximate adjusted NIS 1,579,000.
b. As to a lease agreement relating to the Company, see note 11a(2).
c. To secure bank loans and credits (the balance of which at
December 31, 2003 is adjusted NIS 66,833,000), the Company signed
a "negative pledge agreement," under which it is committed not to
pledge its assets (of all kinds), excluding fixed pledges
relating to assets financed by others.
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
Balance sheets:
a. Accounts receivable:
CONSOLIDATED THE COMPANY
DECEMBER 31 DECEMBER 31
------------------ -------------------
2003 2002 2003 2002
------- ------- ------- -----
ADJUSTED NIS IN THOUSANDS
--------------------------------------------
1) Trade:
Composed as follows:
Open accounts 111,796 119,080 2,811
Cheques receivable 35,952 35,915
------- ------- -----
147,748 154,995 2,811
======= ======= =====
The item includes (is net of):
Neusiedler AG, see note 1a(3) 18,957 34,200
= == ======= =======
Affiliated company 2,811 2,811
======== =====
Allowance for doubtful accounts 3,630 4,106
======= =======
25
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
--------------- ----------------
DECEMBER 31 DECEMBER 31
--------------- ----------------
2003 2002 2003 2002
----- ------ ------ ------
ADJUSTED NIS IN THOUSANDS
-----------------------------------
2) Other:
Institutions 201 716 363
Customs and value added tax
(VAT) authorities* 4,922 3,695
Prepaid expenses 990 504 329 250
Advances to suppliers 736 451 569 451
Amounts accrued in respect of
forward transactions, see
note 12c 505 505
Deferred income taxes, see note 7e 8,600 9,348 7,112 7,714
Sundry 769 1,272 526 754
------ ------ ------ ------
11,296 12,796 13,458 13,732
====== ====== ====== ======
* Consolidated VAT returns are filed by the Group
b. Inventories:
For industrial activities:
Finished goods and goods in process 32,584 38,317 31,262 36,561
Raw materials and supplies 31,389 28,034 31,388 28,034
------ ------ ------ ------
63,973 66,351 62,650 64,595
For commercial activities - purchased products 25,258 13,347
------ ------ ------ ------
89,231 79,698 62,650 64,595
====== ====== ====== ======
The item is net of provision for obsolescence 906 1,375 530 941
====== ====== ====== ======
c. Credit from banks:
Composed as follows:
Short-term credit 18
Current maturities of loans from bank, see note 4 15,108 14,652 15,108 14,652
------ ------ ------ ------
15,108 14,670 15,108 14,652
====== ====== ====== ======
Unutilized credit lines 87,580 87,765 87,580 87,580
====== ====== ====== ======
In 2003 and 2002, the Company and its subsidiaries entered into an
agreement for a bank credit facility, pursuant to which the Company and
its subsidiaries may, from time to time, borrow an aggregate principal
amount of up to adjusted NIS 87,580,000. Under the terms of the
agreement, the credit facility has no time limit.
26
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
d. Accounts payable and accruals:
1) Trade:
CONSOLIDATED THE COMPANY
------------ -----------
DECEMBER 31 DECEMBER 31
----------- -----------
2003 2002 2003 2002
---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
--------------------------------------------
The item includes:
Neusiedler AG 7,803 1,502 1,423 557
====== ====== ====== ======
Affiliated company 1,733 3,943 467
====== ====== ======
2) Other:
Payroll and related expenses 1,914 1,594 1,918 1,541
Provision for vacation and recreation pay 4,226 3,897 4,228 3,294
Customs and value added tax (VAT)
authorities* 368 1,008
Interest payable 2,882 3,416 2,882 3,416
Advances from customers 258 5,032
Neusiedler AG 552 1,901 552 1,901
Sundry 2,482 3,085 2,469 2,711
------ ------ ------ ------
12,682 19,933 12,049 12,863
====== ====== ====== ======
* Consolidated VAT returns are filed by the Group.
Statements of income (loss):
CONSOLIDATED THE COMPANY
------------ -----------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
-----------------------------------------------------------------
e. Sales - net (1):
Industrial activities (2) 455,927 424,195 406,035 462,654 421,413 398,150
Commercial activities 186,213 151,412 151,541
------- ------- ------- ------- ------- -------
642,140 575,607 557,576 462,654 421,413 398,150
======= ======= ======= ======= ======= =======
(1) Including sales to:
Investee companies 13,991 462,654 421,413 398,150
======= ======= ======= =======
Shareholders
and its subsidiaries 170,811 154,765 119,516
======= ======= =======
Affiliated company 320 832 1,278
======= ======= =======
(2) Including export, see
note 13 157,303 149,260 126,059
======= ======= =======
27
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
---------------------------------- ---------------------------------
2003 2002 2001 2003 2002 2001
------- -------- -------- ------- -------- --------
ADJUSTED NIS IN THOUSANDS
-----------------------------------------------------------------------
f. Cost of sales:
Industrial activities:
Materials consumed 271,334 251,070 253,333 271,332 251,070 253,333
Payroll and related expenses 30,482 **25,608 **29,373 30,482 **25,608 **29,373
Energy costs 43,166 36,539 34,335 43,164 36,539 34,335
Depreciation 7,243 6,464 5,131 7,243 6,464 5,131
Other manufacturing
costs and
expenses (including rent) 34,758 **29,181 **33,580 33,972 **27,739 **32,040
Decrease (increase) in inventories
of finished goods
and goods in process
in process (7,269) 18,975 *30,719 5,299 11,709 *15,732
------- -------- -------- ------- -------- --------
379,714 367,837 386,471 391,492 359,129 369,944
Commercial activities - cost of
products sold 177,176 122,125 119,005
------- -------- -------- ------- -------- --------
556,890 489,962 505,476 391,492 359,129 369,944
======= ======== ======== ======= ======== ========
* After deduction of adjusted NIS 8,625,000 - amounts refunded from insurance companies.
** Reclassified.
28
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
---------------------------------- ------------------------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
-----------------------------------------------------------------------------
g. Selling, marketing, administrative and general expenses:
Selling and marketing:
Payroll and related
expenses 16,913 *18,190 *18,922 16,913 *12,033 *11,139
Packaging and
shipping 17,460 14,740 11,709 9,714 9,419 9,822
Office and warehouse
rent and maintenance 4,144 *6,148 *6,094 4,139 *3,941 *3,210
Equipment and vehicle
maintenance 1,178 1,427 2,098 399 315 345
Advertising 180 153 245 180 116 145
Commissions 1,865 176 298 176 298
Subsistence and travel 337 311 153 337 311 153
Depreciation 670 880 789 44 20 25
Other 145 456 110 604 416 52
------ ------ ------ ------ ------ ------
42,892 42,481 40,418 32,330 26,747 25,189
====== ====== ====== ====== ====== ======
Administrative and general:
Payroll and related
expenses 3,821 3,310 3,841 3,821 2,090 2,124
Office supplies, rent
and maintenance 1,496 2,339 1,843 933 635 630
Professional fees and
and maintenance fee 1,594 2,227 2,189 1,152 1,549 1,509
Depreciation and
amortization 652 733 581
Doubtful accounts and
bad debts 679 1,475 955
Other 398 237 262 159 61 9
------ ------ ------ ------ ------ ------
8,640 10,321 9,671 6,065 4,335 4,272
====== ====== ====== ====== ====== ======
* Reclassified.
29
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
CONSOLIDATED THE COMPANY
-------------------------------- ----------------------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
-----------------------------------------------------------------------------
h. Financial income expenses) - net:
Expenses:
In respect of long-term
loans 3,254 4,208 5,771 3,254 4,206 5,771
Erosion of operating
monetary balances,
net of related hedges 634 4,946 1,608 1,423 7,110
In respect of interest
and exchange differences
on customer's balances - net 3,770 1,147 875
In respect of short-term
balances - net 1,253 753
Other 270 186
------ ------ ------- ------ ------ -------
(7,024) (5,989) (13,115) (4,862) (5,629) (13,820)
------ ------ ------- ------ ------ -------
Income:
In respect of increase
in value of cash
balances relating to
operating activity 2,205
Erosion of operating
monetary balances, net of 350
related hedges
In respect of
short-term balances - net 1,993 473 2,149 950
Other 284 292
------ ------ ------- ------ ------ -------
2,343 757 2,149 1,242 2,205
------ ------ ------- ------ ------ -------
(4,681) (5,232) (13,115) 2,713 (4,387) (11,615)
====== ====== ======= ====== ====== =======
30
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 11 - "INTERESTED PARTIES" - TRANSACTIONS AND BALANCES:
a. Transactions - expenses (income):
1) As follows:
CONSOLIDATED THE COMPANY
------------------------------- ---------------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
-----------------------------------------------------------------
Sales (171,131) (155,599) (120,795)
======= ======= =======
Costs and expenses 73,414 71,750 79,072 73,112 66,215 73,392
======= ======= ======= ====== ====== ======
Financial - net 13,759 (3,722) (3,681) 858 (298) 3,166
======= ======= ======= ====== ====== ======
2) The Company leases its premises from AIPM and uses services
(including electricity, water, maintenance and professional
services) rendered under agreements which are renewed every
year. The expenses in respect of the above agreements are
presented in (1) above.
3) The transactions as above represent transactions carried out
in the ordinary course of business, at terms and prices as
with non-affiliated customers and suppliers.
b. Balances with interested parties:
CONSOLIDATED THE COMPANY
------------------- ---------------------
DECEMBER 31 DECEMBER 31
------------------- ---------------------
2003 2002 2003 2002
---- ---- ---- ----
ADJUSTED NIS IN THOUSANDS
--------------------------------------------------
Current assets - accounts
receivable 18,957 37,011 134,659 73,370
====== ====== ======= ======
Current liabilities - accounts
payable and accruals 62,504 62,578 1,900 3,004
====== ====== ======= ======
Capital notes and current maturities
of long-term capital notes 43,790 87,580 43,790 87,580
====== ====== ======= ======
31
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 12 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
a. Derivative financial instruments
The Company has only limited involvement with derivative
financial instruments. The Company uses these instruments as
hedges. The Company utilizes derivatives, mainly forward exchange
contracts to protect its dollar cash flows in respect of existing
assets and liabilities. As the counter-parties of these
derivatives are Israeli banks, the Company considers the interest
credit risks remote. As of December 31, 2003 there are no
balances in respect of transactions in derivatives financial
instruments.
b. Credit risks
The Group's cash and cash equivalents are deposited mainly with
major Israeli banks.
Most of the Group's sales are made in Israel and Europe, to a
large number of customers. The exposure to credit risks relating
to trade receivables is limited due to the relatively large
number of customers. The Group performs ongoing credit
evaluations of its debtors and requires collaterals when
appropriate. An appropriate allowance for doubtful accounts is
included in the financial statements.
c. Fair value of financial instruments
The financial instruments of the Group consist mainly of
non-derivative assets and liabilities (which include working
capital items, long-term loans to investee companies, long-term
loans received and capital notes) and of some derivatives (see a.
above).
In view of their nature, the fair value of the financial
instruments included in working capital of the Group is usually
identical or close to their carrying value. The fair value of the
long-term loans also approximates the carrying value, since they
bear interest at rates close to the prevailing market rates.
The Company does not disclose the fair value of capital notes
from shareholders, included under current liabilities and
long-term liabilities aggregating adjusted NIS 43,790 in
thousands (see note 5), since their value cannot be reliably
determined prior to determining their repayment dates.
The fair value and the carrying value of derivatives at December
31, 2002, is approximately adjusted NIS 505,000, and generally
reflects the estimated amounts that the Group would receive or
pay to terminate the contracts at the reporting dates.
32
NOTE 13 - BUSINESS AND GEOGRAPHICAL SEGMENTS
Following are data regarding the distribution of the Group's
consolidated sales by geographical market, regardless of where the
goods were produced:
2003 2002 2001
---- ---- ----
ADJUSTED NIS IN THOUSANDS
--------------------------------------
Europe 139,791 129,416 110,005
Israel 484,837 426,347 431,516
Other 17,512 19,844 16,054
------- ------- -------
642,140 575,607 557,575
======= ======= =======
33
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 14 - NOMINAL DATA OF THE COMPANY:
a. Balance sheet data:
NOMINAL NIS
------------------------
IN THOUSANDS
DECEMBER 31
------------------------
2003 2002
------- -------
A S S E T S
Current assets:
Cash and cash equivalents 20,034 49,359
Accounts receivable:
Trade 3,041
American Israeli Paper Mills Limited and its
subsidiaries - net 134,659 76,327
Subsidiaries 9,536
Other 6,328 6,454
Inventories 63,651 69,751
------- -------
224,672 214,468
------- -------
Investments in investee companies 6,592 7,252
------- -------
Fixed assets:
Cost 123,564 114,341
L e s s - accumulated depreciation 21,749 14,853
------- -------
101,815 99,488
------- -------
333,079 321,208
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Credit from banks 15,108 15,850
Current maturities of long-term capital loans 18,948
Accounts payable and accruals:
Trade 53,397 48,432
Subsidiaries 52,671
Other 12,049 13,915
------- -------
133,225 97,145
Long-term liabilities:
Loans from bank 51,725 77,710
Capital notes from shareholders (net of
current maturities) 43,790 75,792
Excess of losses of subsidiaries over the
investments therein 3,738 4,325
Liability for employee rights upon retirement 145 104
------- -------
99,398 157,931
------- -------
T o t a l liabilities 232,623 255,076
------- -------
Shareholders' equity, see c. below:
Share capital 1 1
Capital surplus 41,125 41,125
Retained earnings 59,330 25,006
------- -------
100,456 66,132
------- -------
333,079 321,208
======= =======
34
NEUSIEDLER HADERA PAPER LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 14 - NOMINAL DATA OF THE COMPANY (continued):
b. Operating results data:
NOMINAL NIS IN THOUSANDS
--------------------------------------
2003 2002 2001
---- ---- ----
Sales - net 480,764 452,986 382,166
Cost of sales 406,930 *378,990 *351,317
------- ------- -------
Gross profit 73,834 73,996 30,849
------- ------- -------
Selling, marketing, administrative and
general expenses:
Selling and marketing 33,455 *28,769 *24,205
Administrative and general 9,173 4,639 4,120
------- ------- -------
42,628 33,408 28,325
------- ------- -------
Income from ordinary operations 31,206 40,588 2,524
Financial income (expenses) - net (3,152) 11,957 22,130
------- ------- -------
Income (loss) before taxes on income 34,358 28,631 (19,606)
Tax benefit, see d. below (669)
------- ------- -------
Income (loss) after taxes on income 34,358 28,631 (18,937)
Share in losses of investee companies, net 34 385 559
------- ------- -------
Net income (loss) for the year - nominal 34,324 28,246 (19,496)
======= ======= =======
* Reclassified.
c. Changes in shareholders' equity:
NOMINAL NIS IN THOUSANDS
-----------------------------------------------------
SHARE CAPITAL ACCUMULATED
CAPITAL SURPLUS DEFICIT TOTAL
------- ------- ------- -----
Balance at January 1, 2001 1 41,125 16,256 57,382
Changes during 2001 -
loss (19,496) (19,496)
------ ------ ------ -------
Balance at January 1, 2001 1 41,125 (3,240) 37,886
Changes during 2002 -
net income 28,246 28,246
------ ------ ------ -------
Balance at December 31, 2002 1 41,125 25,006 66,132
Changes during 2003 -
net income 34,324 34,324
------ ------ ------ -------
Balance at December 31, 2003 1 41,125 59,330 100,456
====== ====== ====== =======
d. For practical reasons, no deferred taxes are created in the
nominal accounts.
---------------
-------------------------------
---------------
35
APPENDIX
NEUSIEDLER HADERA PAPER LTD.
DETAILS OF INVESTEE COMPANIES
AT DECEMBER 31, 2003
PERCENTAGE OF
HOLDING
IN SHARES CONFERRING
PROFIT AND
VOTING RIGHTS
--------------------------
%
-------
SUBSIDIARIES:
Grafinir Paper Marketing Ltd. 100.00
Yavnir (1999) Ltd. 100.00
Neusiedler Hadera Paper Marketing (1999) Ltd. 100.00
Miterani Paper Marketing 2000 (1998) Ltd. 100.00
36
EXHIBIT 5
---------
HOGLA-KIMBERLY LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7-29
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
HOGLA-KIMBERLY LTD.
We have audited the accompanying balance sheets of HOGLA-KIMBERLY LTD. ("the
Company") as of December 31, 2003 and 2002, and the consolidated balance sheets
as of those dates, and the related statements of operations, changes in
shareholders' equity and cash flows - of the Company and on a consolidated basis
- for each of the two years in the period ended December 31, 2003. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audit.
The statements of operations, changes in shareholders' equity and cash flows -
of the Company and on a consolidated basis - for the year ended December 31,
2001 were audited by other auditors whose report, dated March 4, 2002, expressed
an unqualified opinion on those financial statements.
We conducted our audit in accordance with generally accepted auditing standards
in the United States and in Israel, including those prescribed by the Israeli
Auditors' Regulations (Mode of Performance), 1973. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the Board of Directors and
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position - of the Company and on a
consolidated basis - as of December 31, 2003 and 2002, and the results of
operations, changes in shareholders' equity and cash flows - of the Company and
on a consolidated basis - for each of the two years in the period then ended, in
accordance with generally accepted accounting principles in Israel. In addition,
in our opinion, the financial statements referred to above are prepared in
accordance with the Israeli Securities Regulations (Preparation of Annual
Financial Statements), 1993.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
the financial position and results of operations as of the dates and for the
years presented to the extent summarized in Note 26.
As explained in Note 2A, the financial statements have been prepared on the
basis of historical cost adjusted for changes in the exchange rate of the U.S.
dollar in relation to the NIS, in accordance with pronouncements of the
Institute of Certified Public Accountants in Israel.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, March 8, 2004
-1-
HOGLA-KIMBERLY LTD.
BALANCE SHEETS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
---------------------- ----------------------
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
NOTE 2003 2002 2003 2002
---- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------- ----------------------
CURRENT ASSETS
Cash and cash equivalents 3 37,340 21,330 31,645 10,832
Current maturities of long-term bank deposits 7 7,882 9,195 7,882 9,195
Trade receivables 4 229,979 182,568 74,668 41,176
Other receivables 5 14,222 10,574 7,879 6,719
Inventories 6 92,664 86,427 58,539 42,292
------- ------- ------- -------
382,087 310,094 180,613 110,214
======= ======= ======= =======
LONG-TERM INVESTMENTS
Long-term deposits 7 70,064 77,946 - 7,882
Capital note of shareholder 8 32,770 30,294 32,770 30,294
Investments in Subsidiaries 9 - - 196,037 158,619
------- ------- ------- -------
102,834 108,240 228,807 196,795
======= ======= ======= =======
FIXED ASSETS 10
Cost 479,744 464,144 380,774 368,011
Less - accumulated depreciation 210,176 193,428 164,163 151,639
------- ------- ------- -------
269,568 270,716 216,611 216,372
======= ======= ======= =======
OTHER ASSETS - GOODWILL 9B 29,073 31,841 - -
------- ------- ------- -------
783,562 720,891 626,031 523,381
======= ======= ======= =======
CURRENT LIABILITIES
Short-term bank credit 1,087 - 1,087 -
Current maturities of long-term bank loans 13 15,147 24,960 - -
Trade payables 11 139,555 127,629 174,580 95,570
Other payables and accrued expenses 12 37,632 32,502 10,645 21,648
------- ------- ------- -------
193,421 185,091 186,312 117,218
======= ======= ======= =======
LONG-TERM LIABILITIES
Long-term bank loans 13 96,338 82,326 - -
Deferred taxes 22 29,428 19,644 26,738 16,592
------- ------- ------- -------
125,766 101,970 26,738 16,592
======= ======= ======= =======
COMMITMENTS AND CONTINGENT LIABILITIES 15
MINORITY INTEREST 51,394 44,259 - -
======= ======= ======= =======
SHAREHOLDERS' EQUITY
Share capital 16 28,788 28,788 28,788 28,788
Capital reserves 156,799 156,799 156,799 156,799
Retained earnings 227,394 171,141 227,394 171,141
Dividend declared
after balance sheet date - 32,843 - 32,843
------- ------- ------- -------
412,981 389,571 412,981 389,571
------- ------- ------- -------
783,562 720,891 626,031 523,381
======= ======= ======= =======
-------------------- -------------------- -------------------- --------------------
T. DAVIS Y. YERUSHALMI A. MAGID A. BRENNER
Chairman of the Board of Vice-Chairman of the Board of Financial Manager Managing Director
Directors Directors
Approval date of the financial statements: March 8, 2004.
The accompanying notes are an integral part of the financial statements.
-2-
HOGLA-KIMBERLY LTD.
STATEMENTS OF OPERATIONS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
------------------------------------ -------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------ -------------------------------------
NOTE 2003 2002 2001 2003 2002 2001
---- --------- ---------- ----------- --------- --------- ---------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------------------------ -------------------------------------
Net sales 17 868,671 766,549 821,264 377,117 285,442 331,109
Cost of sales 18 621,014 554,763 559,173 322,558 233,096 243,591
--------- ---------- ----------- --------- --------- ---------
GROSS PROFIT 247,657 211,786 262,091 54,559 52,346 87,518
Selling expenses 19 130,670 (*)123,955 (*) 131,133 7,538 5,373 5,352
General and
administrative expenses 20 39,046 (*)29,941 (*) 33,379 4,381 5,368 6,172
--------- ---------- ----------- --------- --------- ---------
OPERATING PROFIT 77,941 57,890 97,579 42,640 41,605 75,994
Financing income
(expenses), net 21 5,517 (13,425) (17,420) (12,268) (4,622) 293
Other income (expenses), net 496 78 (550) 238 714 406
--------- ---------- ----------- --------- --------- ---------
INCOME BEFORE INCOME
TAXES 83,954 44,543 79,609 30,610 37,697 76,693
Income taxes 22 20,566 19,232 36,477 11,775 16,076 28,378
--------- ---------- ----------- --------- --------- ---------
INCOME AFTER INCOME TAXES 63,388 25,311 43,132 18,835 21,621 48,315
Equity in net earnings (losses)
of Subsidiaries - - - 37,418 1,091 (6,714)
Minority interest in
earnings of Subsidiary (7,135) (2,599) (1,531) - - -
--------- ---------- ----------- --------- --------- ---------
NET INCOME FOR THE YEAR 56,253 22,712 41,601 56,253 22,712 41,601
========= ========== =========== ========= ========= =========
EARNINGS PER SHARE (IN NIS) 6.81 2.75 5.03 6.81 2.75 5.03
========= ========== =========== ========= ========= =========
NUMBER OF SHARES USED IN
COMPUTATION 8,263,473 8,263,473 8,263,473 8,263,473 8,263,473 8,263,473
========= ========= ========= ========= ========= =========
(*) Reclassified.
The accompanying notes are an integral part of the financial statements.
-3-
HOGLA-KIMBERLY LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
DIVIDEND
DECLARED
AFTER
SHARE CAPITAL RETAINED BALANCE SHEET
CAPITAL RESERVES EARNINGS DATE TOTAL
-------------- -------------- ----------- ---------------- --------------
NIS IN THOUSANDS
BALANCE - JANUARY 1, 2001 28,788 156,799 183,461 - 369,048
CHANGES DURING 2001:
Dividend declared
after balance-sheet date (43,790) (43,790)
Net income for the year 41,601 41,601
-------------- -------------- ----------- ---------------- --------------
BALANCE - DECEMBER 31, 2001 28,788 156,799 181,272 - 366,859
CHANGES DURING 2002:
Dividend declared
after balance-sheet date (32,843) 32,843 -
Net income for the year 22,712 22,712
-------------- -------------- ----------- ---------------- --------------
BALANCE - DECEMBER 31, 2002 28,788 156,799 171,141 32,843 389,571
CHANGES DURING 2003:
Dividend paid (32,843) (32,843)
Net income for the year 56,253 56,253
-------------- -------------- ----------- ---------------- --------------
BALANCE - DECEMBER 31, 2003 28,788 156,799 227,394 - 412,981
The accopanying notes are an integral part of the financial statements.
-4-
HOGLA-KIMBERLY LTD.
STATEMENTS OF CASH FLOWS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
--------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------- ----------------------------------
2003 2002 2001 2003 2002 2001
------- ------- -------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------- ----------------------------------
CASH FLOWS - OPERATING ACTIVITIES
Net income 56,253 22,712 41,601 56,253 22,712 41,601
Adjustments to reconcile net income
to net cash provided by operating
activities (Appendix A) 4,190 14,324 18,657 7,188 80,535 16,087
------- ------- -------- ------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 60,443 37,036 60,258 63,441 103,247 57,688
======= ======= ========= ======= ======= =======
CASH FLOWS - INVESTING ACTIVITIES
Investment in short-term bank deposit - - (57,069) - - -
Withdrawal of short-term bank deposit - 57,069 - - - -
Investment in long-term bank deposits - - (13,575) - - (13,575)
Withdrawal of long-term bank deposits 9,195 8,759 - 9,195 8,759 -
Acquisition of fixed assets (26,953) (76,523) (47,729) (20,351) (66,375) (41,520)
Proceeds from sale of fixed assets 1,092 456 1,321 284 161 955
------- ------- -------- ------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (16,666) (10,239) (117,052) (10,872) (57,455) (54,140)
======= ======= ========= ======= ======= =======
CASH FLOWS - FINANCING ACTIVITIES
Dividend paid (32,843) (43,790) - (32,843) (43,790) -
Long-term loans received 28,949 11,386 13,575 - - -
Repayment of long-term loans (24,960) - - - - -
Short-term bank credit 1,087 - - 1,087 - -
------- ------- -------- ------- ------- -------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (27,767) (32,404) 13,575 (31,756) (43,790) -
======= ======= ========= ======= ======= =======
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 16,010 (5,607) (43,219) 20,813 2,002 3,548
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 21,330 26,937 70,156 10,832 8,830 5,282
------- ------- -------- ------- ------- -------
CASH AND CASH EQUIVALENTS
- END OF YEAR 37,340 21,330 26,937 31,645 10,832 8,830
======= ======= ========= ======= ======= =======
The accompanying notes are an integral part of the financial statements.
-5-
HOGLA-KIMBERLY LTD.
APPENDICES TO STATEMENTS OF CASH FLOWS
(Adjusted for changes in the U.S. dollar vis-a-vis the NIS)
CONSOLIDATED COMPANY
------------------------------- --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------------------- --------------------------------
A. ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
INCOME AND EXPENSES ITEMS
NOT INVOLVING CASH FLOWS:
Minority interest in
earnings of Subsidiary 7,135 2,599 1,531 - - -
Equity in net losses
(earnings) of Subsidiaries - - - (37,418) (1,091) 6,714
Depreciation and amortization 25,213 22,086 21,262 14,789 12,093 11,153
Deferred taxes, net 8,251 1,072 3,028 10,417 1,046 2,508
Loss (gain) from sale of fixed assets (482) 81 (373) (208) (29) (385)
Effect of exchange rate
differences, net (2,266) 2,202 3,015 (2,476) 2,202 3,015
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in trade receivables (47,933) (14,411) (2,026) (4,930) (455) 446
Decrease (increase) in other receivables (2,115) 4,860 (7,055) (1,431) (1,395) (2,098)
Decrease (increase) in inventories (6,237) (16,362) 9,927 (16,247) (10,406) 13,558
Increase (decrease) in trade payables 27,544 18,343 (1,057) 13,628 15,495 (8,035)
Net change in balances with
related parties (10,050) 7,731 3,411 42,067 71,830 13,603
Increase (decrease) in other
payables and accrued expenses 5,130 (13,877) (13,006) (11,003) (8,755) (24,392)
------ ------ ------ ------ ------ ------
4,190 14,324 18,657 7,188 80,535 16,087
====== ====== ====== ====== ====== ======
B. NON-CASH ACTIVITIES
Dividend declared 43,790 43,790
====== ======
Acquisition of fixed assets on credit 8,661 13,707 2,382 8,460 13,707 2,382
====== ====== ====== ====== ====== ======
The accompanying notes are an integral part of the financial statements.
-6-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. DESCRIPTION
Hogla Kimberly Ltd. ("the Company") and its Subsidiaries are
engaged principally in the production and marketing of paper and
hygienic products. The Company's results of operations are
affected by transactions with shareholders and affiliated
companies (see Note 23).
The Company is presently owned by Kimberly Clark Corp. ("KC" or
the "Parent Company") (50.1%) and American-Israeli Paper Mills
Ltd. ("AIPM") (49.9%).
B. DEFINITIONS:
THE COMPANY - Hogla-Kimberly Ltd.
THE GROUP - the Company and its Subsidiaries, a
list of whom is provided in Note 9D.
SUBSIDIARIES - companies in which the Company
exercises over 50% ownership and
control, directly or indirectly, and
whose financial statements are fully
consolidated with those of the
Company.
RELATED PARTIES - as defined by Opinion No. 29 of the
Institute of Certified Public
Accountants in Israel.
INTERESTED PARTIES - as defined in the Israeli Securities
Regulations (Presentation of
Financial Statements), 1993.
CONTROLLING SHAREHOLDER - as defined in the Israeli Securities
Regulations (Presentation of
Transactions between a Corporation
and its Controlling Shareholder in
the Financial Statements), 1996.
NIS - New Israeli Shekel.
CPI - the Israeli consumer price index.
DOLLAR - the U.S. dollar.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
-7-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following are the principal accounting policies applied in the
preparation of the financial statements in a manner consistent with
previous years:
A. ADJUSTED FINANCIAL STATEMENTS
(1) GENERAL
In accordance with pronouncements of the Institute of
Certified Public Accountants in Israel, the financial
statements, including comparative figures for previous
years, are presented on the basis of nominal historical cost
adjusted for changes in the exchange rate of the U.S. dollar
in relation to the NIS.
The adjusted amounts of non-monetary items presented in the
financial statements reflect their cost adjusted for changes
in the exchange rate of the U.S. dollar vis-a-vis the NIS,
and do not necessarily reflect realization or current
economic value of these items.
The term "cost" in these financial statements refers to
adjusted cost, unless otherwise indicated. The term "NIS"
refers to adjusted NIS, unless otherwise stated.
The Company's condensed financial statements in nominal
values, on the basis of which the adjusted financial
statements were prepared, are presented in Note 26.
(2) PRINCIPLES OF ADJUSTMENT
a. BALANCE SHEET ITEMS
Non-monetary items (items whose balances reflect
historical value at acquisition or upon establishment)
have been adjusted in accordance with the changes in
the exchange rate of the U.S. dollar from the date of
acquisition/establishment through December 31, 2003.
Investments in Subsidiaries and minority interest were
determined based on the dollar adjusted financial
statements of these companies.
Monetary items (items whose balance sheet amounts
represent current or realization value at the balance
sheet date) are presented in the December 31, 2003
balance sheet at their nominal value as of that date.
b. STATEMENT OF OPERATIONS ITEMS
Income and expenses reflecting transactions, other than
financial income and expenses, were adjusted for
changes in the exchange rate of the U.S. dollar from
the date of the transaction to the balance sheet date.
Income and expenses arising from non-monetary items
(mainly depreciation, amortization, deferred taxes and
changes in inventory) were adjusted in a manner
corresponding to the adjustment of the related balance
sheet items.
Financing income (expenses), net reflect income and
expenses in real terms and include exchange rate
differences derived from monetary items.
The Company's share and the minority interest in the
results of Subsidiaries were determined based on the
dollar adjusted financial statements of these
companies.
-8-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. ADJUSTED FINANCIAL STATEMENTS (cont.)
(2) PRINCIPLES OF ADJUSTMENT (cont.)
c. ADJUSTMENT AND TRANSLATION OF FOREIGN SUBSIDIARIES
FINANCIAL STATEMENTS
The financial statements of Subsidiaries operating
abroad, which act as an integral operation of the
Group, are prepared in U.S. dollars and translated into
NIS based on the exchange rate of the U.S. dollar on
the balance sheet date.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include consolidation of
the consolidated financial statements of all Subsidiaries.
Material inter-company balances and transactions of and between
Subsidiaries have been fully eliminated.
The data included in the consolidated financial statements is
based on audited financial statements of the Subsidiaries
included therein.
The excess cost of an investment in a Subsidiary in Turkey over
the net book value upon acquisition of that Subsidiary is
allocated to fixed assets and is amortized at the rate applicable
to those assets, or upon their realization. The unallocated
excess cost reflects goodwill, which is presented in the balance
sheet as "other assets" and amortized by the straight-line method
over 15 years due to the unique economic conditions relating to
that Subsidiary and the expected economic benefit period from its
acquisition.
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits, available for
immediate withdrawal, as well as unrestricted short-term deposits
with maturities of less than three months from the date of
deposit.
D. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is generally computed as
percentage from the relevant balances, on the basis of historical
experience, with the addition of a specific provision in respect
of accounts, which on management estimate are doubtful of
collection.
E. INVENTORIES
Inventories are presented at the lower of cost or market, with
cost determined as follows:
Finished products - Based on actual production cost.
Raw, auxiliary
materials and other - Based on moving-average basis.
-9-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
F. INVESTMENTS IN SUBSIDIARIES
Investments in Subsidiaries are presented using the equity method
based on their audited financial statements. In relation to
excess cost of investment in Subsidiary in Turkey, see B above.
G. FIXED ASSETS
Fixed assets are presented at cost less accumulated depreciation
and amortization. Depreciation is calculated using the
straight-line method at rates considered adequate to depreciate
the assets over their estimated useful lives. Amortization of
leasehold improvements is computed over the shorter of the term
of the lease, including any option period, where the Company
intends to exercise such option, or their useful life.
The annual depreciation and amortization rates are: %
-
Buildings 2.5-4
Leasehold improvements 10-25
Machinery and equipment 5-10
Motor vehicles 15-20
Office furniture and equipment 10-33
IMPAIRMENT OF LONG-LIVED ASSETS
Management reviews long-lived assets on a periodic basis, as well
as when such a review is required based upon relevant
circumstances, to determine whether events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. According to the Israeli Accounting
Standards Board's Standard No.15, "Impairment of Assets", an
asset's recoverable value is the higher of the asset's net
selling price and the asset's value in use, the latter being
equal to the asset's discounted expected cash flows. If
applicable, an impairment loss is recorded at the amount in which
the carrying amount of the asset exceeds its recoverable value.
The adoption of Standard No. 15, which came effective commencing
January 1, 2003, had no impact on the Group's financial position
and results of operations.
H. OTHER ASSETS - GOODWILL
Goodwill derived from the acquisition of Subsidiary in Turkey is
amortized based on the straight line method over 15 years (see
also B above). Impairment examinations and recognition are
performed and determined based on the accounting policy outlined
in G above.
I. DEFERRED INCOME TAXES
The Group records deferred taxes in respect of temporary
differences between the carrying values of assets and liabilities
in the financial statements and their values for tax purposes,
including depreciation differences on leased property and fixed
assets. The Group records deferred-tax assets in respect of
temporary difference as well as in respect of carry-forward tax
losses so long as it is probable that those assets will be
realized in the foreseeable future. The deferred taxes are
computed by the tax rates expected to be in effect at
realization, as they are known at the balance sheet date.
-10-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
I. DEFERRED INCOME TAXES (cont.)
The computation of deferred taxes has not taken into account
taxes that would have been applicable in case of future
realization of investments in Subsidiaries, since the Group does
not contemplate such realization in the foreseeable future.
Moreover, the computation also excludes deferred taxes in respect
of dividends distribution within the Group for cases in which
such dividend distributions are expected to be tax-exempt.
J. DIVIDENDS
Dividends proposed or declared subsequent to the balance-sheet
date, but prior to the financial statements approval date, are
presented as a separate component of shareholders' equity.
K. REVENUE RECOGNITION
Revenues are recognized upon shipment, when title has been
transferred and collectibility is reasonably assured.
Revenues are net of sales incentives, primarily: bonuses granted
to chains as a percentage of their purchases (target bonus);
volume discounts; and coupons distributed to customers entitling
price discounts.
An accrual for estimated returns and sales incentives, computed
primarily on the basis of historical experience, is recorded at
the time revenues are recognized and deducted from revenues.
L. EARNINGS PER SHARE
Earnings per share are computed based on the weighted average
number of paid up capital shares during the year.
M. EXCHANGE RATES AND LINKAGE BASIS
(1) Balances in foreign currency or linked thereto are included
in the financial statements based on the representative
exchange rates, as published by the Bank of Israel, that
were prevailing at the balance sheet date.
(2) Following are the changes in the representative exchange
rate of the U.S. dollar vis-a-vis the NIS and the Turkish
Lira, and in the CPI:
REPRESENTATIVE TURKISH LIRA EXCHANGE CPI
EXCHANGE RATE WITH THE U.S. "IN RESPECT
RATE OF THE DOLLAR DOLLAR OF"
AS OF (NIS PER $1) (TL'000 PER $1) (IN POINTS)
------------ --------------- -----------
December 31, 2003 4.379 1,393 178.58
December 31, 2002 4.737 1,640 182.02
December 31, 2001 4.416 1,447 170.91
INCREASE (DECREASE)
DURING THE YEAR ENDED: % % %
------------ --------------- -----------
December 31, 2003 (7.6) (15.0) (1.9)
December 31, 2002 7.3 13.3 6.5
December 31, 2001 9.3 115.3 1.4
(3) Exchange-rate differences are charged to operations as
incurred.
-11-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
N. RECLASSIFICATION
Certain amounts in prior years' financial statements have been
reclassified in order to conform to the 2003 presentation.
O. SUPPLIER DISCOUNTS
Ongoing discounts granted by suppliers, as well as year end
discounts, in respect of which no commitments to meet given
targets are required by the Group, are included in the financial
statements upon the execution of purchases that grant the Group
said discounts. Supplier discounts contingent upon the Group's
fulfillment of certain targets, such as meeting a minimal annual
volume (in quantities or amount), or an increase in purchases
over previous periods, are included in the financial statements
in proportion to Group's purchases from suppliers during the
reported period, which advance the Group towards the stated
targets, only if it is expected that those targets will be
reached and the discounts can reasonably be estimated. The
estimate of meeting the targets is based, inter-alia, on
historical experience, Group's relationships established with the
suppliers and the estimated volume of purchases during the
remaining reported period.
P. RECENT ACCOUNTING STANDARDS - CESSATION OF FINANCIAL STATEMENTS
ADJUSTMENT, AND EFFECT OF CHANGES IN EXCHANGE RATES
In October 2001, the Israeli Accounting Standards Board issued
Standard No. 12, Cessation of Financial Statements Adjustment.
According to this Standard, as amended by Standard No. 17 in
November 2002, the adjustment of financial statements for
inflation or exchange rate of foreign currency will cease for
reporting periods commencing January 1, 2004. Through December
31, 2003, the Group prepared dollar-linked financial statements,
in accordance with the pronouncements of the Institute of
Certified Public Accountants in Israel. The adjusted amounts
presented in the December 31, 2003 balance-sheet will serve as
the opening nominal balances as of January 1, 2004.
In October 2001, the Israeli Accounting Standards Board issued
Standard No. 13, Effect of Changes in Foreign Currency Exchange
Rates. This Standard addresses the translation of transactions
denominated in foreign currency, as well as the translation of
financial statements of a foreign operation, for inclusion in the
financial statements of the reporting company. Standard No. 13,
as amended by Standard No. 17 in November 2002, will become
effective for reporting periods subsequent to December 31, 2003.
The implementation of Standards No. 12 and 13 will mainly affect
financing income and expenses items.
-12-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - CASH AND CASH EQUIVALENTS
CONSOLIDATED COMPANY
------------------ ------------------
DECEMBER 31,
------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------ ------------------
In NIS 527 597 520 596
In foreign currencies (primarily the
U.S. dollar) 36,813 20,733 31,125 10,236
------ ------ ------ ------
37,340 21,330 31,645 10,832
------ ------ ------ ------
NOTE 4 - TRADE RECEIVABLES
CONSOLIDATED COMPANY
-------------------- -------------------
DECEMBER 31,
----------------------------------------------
2003 2002 2003 2002
------- ------- ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------- -------------------
COMPOSITION:
Domestic
Open accounts 154,617 133,529 - -
Checks receivable 34,421 29,827 - -
Related parties 348 359 60,820 33,392
------- ------- ------ ------
189,386 163,715 60,820 33,392
Foreign
Open accounts 47,697 23,016 5,699 778
Related parties 206 717 8,191 7,057
------- ------- ------ ------
237,289 187,448 74,710 41,227
Less - allowance for doubtful accounts 7,310 4,880 42 51
------- ------- ------ ------
229,979 182,568 74,668 41,176
======= ======= ====== ======
The Company's products are marketed principally by its Subsidiaries.
NOTE 5 - OTHER RECEIVABLES
CONSOLIDATED COMPANY
------------------ ------------------
DECEMBER 31,
------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------ ------------------
Deferred taxes (Note 22D) 5,518 3,985 1,769 2,040
Prepaid expenses 2,908 3,021 1,570 1,373
Advances to suppliers 3,074 837 2,128 837
Value added taxes 236 - - -
Income tax advances, net 1,467 1,226 878 -
Loans to supplier and employees 477 1,077 262 915
Other 542 428 1,272 1,554
------ ------ ------ ------
14,222 10,574 7,879 6,719
====== ====== ===== =====
-13-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INVENTORIES
CONSOLIDATED COMPANY
------------------ ------------------
DECEMBER 31,
------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------ ------------------
Raw and auxiliary materials 48,482 36,708 34,293 22,428
Finished goods 29,087 38,546 10,969 9,786
Spare parts and other 15,095 11,173 13,277 10,078
------ ------ ------ ------
92,664 86,427 58,539 42,292
====== ====== ====== ======
NOTE 7 - LONG-TERM DEPOSITS
CONSOLIDATED COMPANY
--------------------- ---------------------
DECEMBER 31,
INTEREST ----------------------------------------------
RATE 2003 2002 2003 2002
-------- ------- -------- ------ ---------
% (*) NIS IN THOUSANDS NIS IN THOUSANDS
-------- --------------------- ---------------------
A. COMPOSITION
Linked to the U.S. dollar 1.16-2.69 77,946 87,141 7,882 17,077
Less - current maturities 7,882 9,195 7,882 9,195
------ ------ ----- -----
70,064 77,946 - 7,882
====== ====== ===== =====
(*) Annual average interest rate as of December 31, 2003.
-14-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEPOSITS (cont.)
B. The balance of the long-term deposits as of December 31, 2003 is
repayable as follows:
NIS IN
THOUSANDS
---------
2004 - current maturities 7,882
Thereafter - see D below 70,064
------
77,946
C. The deposits are held as collateral for long-term loans received
by Subsidiaries (see Note 15C).
D. The deposit is linked to the U.S. dollar and bears interest at a
rate of 0.994% as of December 31, 2003. The deposit is subject to
re-deposit every two years.
NOTE 8 - CAPITAL NOTE OF SHAREHOLDER
The capital note of AIPM, denominated in NIS, is not linked and does
not bear interest. Repayment date will be mutually agreed upon. The
erosion or increase in value of the capital note was charged to
capital reserves until March 31, 2000 (the date on which AIPM ceased
to be the controlling shareholder).
NOTE 9 - INVESTMENTS IN SUBSIDIARIES
COMPANY
---------------------------
DECEMBER 31,
---------------------------
2003 2002
------- -------
NIS IN THOUSANDS
---------------------------
A. COMPOSITION
Cost of shares 972 972
Equity in post-acquisition earnings, net 190,860 153,442
Capital notes (*) 4,205 4,205
------- -------
196,037 158,619
======= =======
(*) The non-interest bearing capital notes, denominated in U.S.
dollar, are considered part of the Company's investments in
the Subsidiaries. Repayment dates have not yet been
determined. For purpose of the adjusted financial statements
(see Note 2A), the capital notes are treated as a
non-monetary item.
-15-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INVESTMENTS IN SUBSIDIARIES (cont.)
CONSOLIDATED
---------------------------
DECEMBER 31,
---------------------------
2003 2002
------- -------
NIS IN THOUSANDS
---------------------------
B. GOODWILL:
Cost 41,532 41,532
Less - accumulated amortization 12,459 9,691
------ ------
29,073 31,841
====== ======
C. INVESTMENT IN OVISAN
As of December 31, 2003, the Group's investment in the Turkish
Subsidiary amounted to NIS 66,933 thousand (including goodwill in
the net amount of NIS 29,073 thousand).
D. CONSOLIDATED SUBSIDIARIES
The consolidated financial statements as of December 31, 2003,
include the financial statements of the following Subsidiaries:
OWNERSHIP AND
CONTROL AS OF
DECEMBER 31,
2003
------------
%
Rakefet Marketing and Trade Services Ltd. ("Rakefet") (*) 79.7
Subsidiaries of Rakefet:
Hogla-Kimberly Marketing Ltd. ("Marketing") (**) 99.5
Shikma Ltd. ("Shikma") (**) 99.0
Mollet Marketing Ltd. ("Mollet") 100.0
H-K Overseas (Holland) B.V 100.0
Subsidiaries of H-K Overseas (Holland) B.V.:
Ovisan Sihhi Bez Sanai ve Ticaret Anonim Sirketi ("Ovisan") 100.0
Hogla-Kimberly Holding Anonim Sirketi 100.0
(*) The remaining ownership and control of Rakefet are held by
AIPM group (10.1%) and by KC (10.2%).
(**) The remaining ownership and control of Marketing and Shikma
are held by the Company.
-16-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - FIXED ASSETS
OFFICE
MACHINERY FURNITURE
LEASEHOLD AND MOTOR AND
CONSOLIDATED BUILDINGS (1) IMPROVEMENTS EQUIPMENT VEHICLES EQUIPMENT TOTAL (2)
------ ----- ------- ------ ------ -------
NIS IN THOUSANDS
COST:
Balance - January 1, 2003 54,619 8,941 367,463 21,168 11,953 464,144
Changes during 2003:
Additions 250 517 19,452 588 1,100 21,907
Dispositions - (190) (2,297) (2,708) (1,112) (6,307)
------ ----- ------- ------ ------ -------
Balance - December 31, 2003 54,869 9,268 384,618 19,048 11,941 479,744
====== ===== ======= ====== ====== =======
ACCUMULATED DEPRECIATION:
Balance - January 1, 2003 14,855 4,771 150,568 14,651 8,583 193,428
Changes during 2003:
Additions 530 514 17,947 2,749 705 22,445
Dispositions - (188) (2,024) (2,417) (1,068) (5,697)
------ ----- ------- ------ ------ -------
Balance - December 31, 2003 15,385 5,097 166,491 14,983 8,220 210,176
====== ===== ======= ====== ====== =======
NET BOOK VALUE:
December 31, 2003 39,484 4,171 218,127 4,065 3,721 269,568
====== ===== ======= ====== ====== =======
December 31, 2002 39,764 4,170 216,895 6,517 3,370 270,716
====== ===== ======= ====== ====== =======
COMPANY
COST:
Balance - January 1, 2003 25,209 5,893 330,217 3,688 3,004 368,011
Changes during 2003:
Additions - 219 14,631 53 201 15,104
Dispositions - - (1,759) (582) - (2,341)
------ ----- ------- ------ ------ -------
Balance - December 31, 2003 25,209 6,112 343,089 3,159 3,205 380,774
====== ===== ======= ====== ====== =======
ACCUMULATED DEPRECIATION:
Balance - January 1, 2003 11,812 3,518 130,439 3,492 2,378 151,639
Changes during 2003:
Additions - 215 14,189 153 232 14,789
Dispositions - - (1,696) (569) - (2,265)
------ ----- ------- ------ ------ -------
Balance - December 31, 2003 11,812 3,733 142,932 3,076 2,610 164,163
====== ===== ======= ====== ====== =======
NET BOOK VALUE:
December 31, 2003 13,397 2,379 200,157 83 595 216,611
====== ===== ======= ====== ====== =======
December 31, 2002 13,397 2,375 199,778 196 626 216,372
====== ===== ======= ====== ====== =======
(1) Buildings include industrial buildings on lands leased by the Company
from AIPM (until 2004).
(2) The major fixed assets of the Group are located in Israel.
-17-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - TRADE PAYABLES
CONSOLIDATED COMPANY
-------------------- --------------------
DECEMBER 31,
----------------------------------------------
2003 2002 2003 2002
------- ------- ------- ------
NIS IN THOUSANDS NIS IN THOUSANDS
-------------------- --------------------
In Israeli currency
Open accounts 78,509 66,279 34,206 30,159
Related parties 13,682 10,840 114,455 46,310
In foreign currency
Open accounts 37,294 26,509 20,804 15,953
Related parties 10,070 24,001 5,115 3,148
------- ------- ------- ------
139,555 127,629 174,580 95,570
======= ======= ======= ======
NOTE 12 - OTHER PAYABLES AND ACCRUED EXPENSES
CONSOLIDATED COMPANY
--------------- --------------
DECEMBER 31,
--------------------------------
2003 2002 2003 2002
------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
--------------- --------------
Accrued income taxes,
net of advances 8,663 9,042 - 9,817
Accrued payroll and related expenses 20,531 19,925 10,474 11,713
Value Added Tax 4,779 547 - -
Advances from customers 1,085 1,610 32 30
Other 2,574 1,378 139 88
------ ------ ------ ------
37,632 32,502 10,645 21,648
====== ====== ====== ======
NOTE 13 - LONG-TERM BANK LOANS
INTEREST CONSOLIDATED
RATE DECEMBER 31,
------ -------------------
% (*) 2003 2002
------ ------ ------
NIS IN THOUSANDS
-------------------
A. COMPOSITION
In U.S. dollar (**) 1.74 108,858 107,286
In Euro 3.75 2,627 -
Less - current maturities 15,147 24,960
------ ------
96,338 82,326
====== ======
(*) Annual average interest rate as of December 31,
2003
(**) As of December 31, 2003, NIS 38,794 thousand bear
interest based on Libor plus 1.55%.
B. MATURITIES (NIS in thousands)
2004 - current maturities 15,147
2005 26,274
Thereafter - see C below 70,064
-------
111,485
=======
C. Subject to renewal every two years - see Note 7D.
D. Liens - see Note 15C.
-18-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - SEVERANCE PAY
Obligations of the Group for severance pay to its employees are
covered by current payments to pension and severance funds.
Accumulated amounts in the pension and severance funds are not under
the control or administration of the Group, and accordingly, neither
those amounts nor the corresponding accruals are reflected in the
financial statements.
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
A. COMMITMENTS
(1) The Group is obligated to pay royalties to a shareholder -
see Note 23B.
(2) The Company and its Subsidiaries lease certain of their
facilities under operating leases for varying periods with
renewal options. Future minimum lease rentals as of December
31, 2003 are as follows:
CONSOLIDATED COMPANY
----------- -------
NIS IN THOUSANDS
---------- -------
2004 13,918 6,477
2005 6,430 -
2006 6,430 -
2007 6,430 -
2008 and thereafter 28,936 -
---------- -------
62,144 6,477
========== =======
B. GUARANTEES
(1) The Company is contingently liable in respect of a guarantee
securing bank loans provided to a Subsidiary, the balance of
which as of December 31, 2003 amounted to NIS 33,280
thousand.
(2) As part of their normal course of business, the Subsidiaries
provided third parties with bank guarantees for contract
performance, the balance of which as of December 31, 2003
amounted to NIS 2,022 thousand.
C. LIENS
As a collateral for long-term loans given to Subsidiaries, the
Group recorded a lien on its bank deposits, in the amount of NIS
77,946 thousand as of December 31, 2003.
D. LEGAL ISSUES
In December 2003, certain customers filed a class action
complaint against the Company, alleging that the Company reduced
the number of items in each certain product packages. The Company
has filed a detailed defense motion, presenting its arguments for
denying the lawsuit from being recognized as a class action. As
of the approval date of the financial statements, court hearings
have not yet begun. Based on the opinion of the Company's legal
counsel for this matter, due to the very preliminary stage of the
proceedings, management is unable, at this stage, to estimate the
possible outcome of the lawsuit. However, based on the legal
counsels, management believes that the Company has valid
arguments to oppose the lawsuit and reasonable basis for denying
it from being recognized as a class action.
-19-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - SHARE CAPITAL
A. As of December 31, 2003 and 2002, share capital is composed of
ordinary shares of NIS 1.00 par value each. Authorized -
11,000,000 shares; issued and paid up - 8,263,473 shares.
B. Holders of ordinary shares are entitled to participate equally in
the payment of cash dividends and bonus share (stock dividend)
distributions and, in the event of the liquidation of the
Company, in the distribution of assets after satisfaction of
liabilities to creditors. Each ordinary share is entitled to one
vote on all matters to be voted on by shareholders.
NOTE 17 - NET SALES
CONSOLIDATED
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001
---- ---- ----
% % %
---- ---- ----
A. SALES TO MAJOR CUSTOMERS
Customer A 8.9 11.1 11.9
Customer B 10.1 11.8 12.0
NIS NIS NIS
---- ---- ----
IN THOUSANDS
---------------------------------------------------
B. SALES FROM COMMERCIAL OPERATIONS 376,974 311,360 319,277
======= ======= =======
C. FOREIGN SALES (PRINCIPALLY TURKEY) 106,935 80,184 84,979
======= ====== ======
NOTE 18 - COST OF SALES
CONSOLIDATED COMPANY
------------------------------------- -------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------- -------------------------------------
2003 2002 2001 2003 2002 2001
------- ------- ------- ------- ------- -------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------------------------- -------------------------------------
Purchases (*) 446,008 425,365 441,782 178,339 122,861 130,930
Salaries and related expenses 67,516 55,999 57,349 56,812 46,389 49,618
Manufacturing expenses 79,810 55,834 51,245 73,281 51,229 47,662
Depreciation 18,221 14,207 12,764 15,309 11,423 10,739
------- ------- ------- ------- ------- -------
611,555 551,405 563,140 323,741 231,902 238,949
Change in finished
goods inventory 9,459 3,358 (3,967) (1,183) 1,194 4,642
------- ------- ------- ------- ------- -------
621,014 554,763 559,173 322,558 233,096 243,591
======= ======= ======= ======= ======= =======
(*) The purchases of the Company are related to manufacturing operations.
Consolidated purchases in excess of Company purchases relate principally to
commercial operations.
-20-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 19 - SELLING EXPENSES
CONSOLIDATED COMPANY
--------------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------- -------------------------------
2003 2002 2001 2003 2002 2001
------- ---------- ---------- ----- ----- -----
NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------- -------------------------------
Salaries and related expenses 46,887 (*)39,656 (*)43,049 - 16 744
Maintenance and
transportation expenses 26,596 24,332 22,966 5,810 3,868 2,703
Advertising and sales promotion 30,371 38,591 41,337 86 46 168
Commissions to distributors 4,571 2,007 3,644 - 453 629
Royalties to a shareholder 15,642 12,220 12,158 1,500 673 561
Depreciation 3,778 4,188 4,741 142 317 547
Other 2,825 2,961 3,238 - - -
------- ---------- ---------- ----- ----- -----
130,670 (*)123,955 (*)131,133 7,538 5,373 5,352
======= ========== ========== ===== ===== =====
(*) Reclassified
NOTE 20 - GENERAL AND ADMINISTRATIVE EXPENSES
CONSOLIDAD COMPANY
------------------------------ -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------ -----------------------------
2003 2002 2001 2003 2002 2001
------ --------- --------- ----- ----- -----
NIS IN THOUSANDS NIS IN THOUSANDS
------------------------------ -----------------------------
Salaries and related expenses 18,283 (*)13,481 (*)15,913 2,567 2,423 2,404
Administrative and computer
services 6,287 6,210 7,380 1,190 1,188 1,636
Services provided by
Shareholder 1,161 1,161 1,180 215 736 818
Office maintenance 5,376 2,990 2,961 207 228 254
Depreciation 718 588 751 2 4 4
Goodwill amortization 2,768 2,768 2,768 - - -
Other 4,453 2,743 2,426 200 789 1,056
------ --------- --------- ----- ----- -----
39,046 (*)29,941 (*)33,379 4,381 5,368 6,172
====== ========= ========= ===== ===== =====
(*) Reclassified.
NOTE 21 - FINANCING INCOME (EXPENSES), NET
CONSOLIDATED COMPANY
--------------------------------- --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
----- ------ ------ ----- ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------- --------------------------------
Long-term loans (2,111) (2,794) (4,821) - - -
===== ====== ====== ===== ====== ======
Exchange rate differences
derived from capital note 2,476 (2,202) (3,015) 2,476 (2,202) (3,015)
===== ====== ====== ===== ====== ======
Long-term and
short-term deposits 1,357 1,804 8,504 486 31 1,445
===== ====== ====== ===== ====== ======
-21-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - INCOME TAXES
A. The Company and its Israeli Subsidiaries are subject to the Income Tax Law
(Inflationary Adjustments), 1985. Non-Israeli Subsidiaries are subject to
income tax provisions of their home country. The Company is an industrial
company in conformity with the Law for the Encouragement of Industry
(Taxes), 1965. The principal benefit that the Company is entitled to under
this law is accelerated depreciation rates and reduced tax rates.
During 2002, the Company's program for the establishment of a new facility
for manufacturing paper was granted Approved Enterprise status in
accordance with the Law for the Encouragement of Capital Investments, 1959,
under "alternative benefits" track. The approval program is for total
investments of approximately NIS 80 million. According to the terms of the
program, income derived from the Approved Enterprise will be tax-exempt for
a period of 10 years commencing in the year in which the program is
substantially completed. Distribution of dividends from tax exempt profits
of the Approved Enterprise will be subject to income tax at a rate equal to
the income tax rate of the Approved Enterprise had the Company not elected
the alternative benefits track. The Company completed the investments
relating to the new facility and commenced its operations during 2003.
CONSOLIDATED COMPANY
--------------------------------- ---------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------- ---------------------------------
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------
B. COMPOSITION NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------- ---------------------------------
Current taxes 10,878 18,904 34,150 - 15,774 26,421
Taxes in
respect of prior years 1,437 (744) (701) 1,358 (744) (551)
Deferred taxes 8,251 1,072 3,028 10,417 1,046 2,508
------ ------ ------ ------ ------ ------
20,566 19,232 36,477 11,775 16,076 28,378
====== ====== ====== ====== ====== ======
-22-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - INCOME TAXES (cont.)
C. RECONCILIATION OF THE STATUTORY TAX RATE TO THE EFFECTIVE TAX RATE:
CONSOLIDATED COMPANY
---------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------- ----------------------------------
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------------------- ----------------------------------
Income before
income taxes 83,954 44,543 79,609 30,610 37,697 76,693
====== ====== ====== ====== ====== ======
Tax computed by
statutory tax rate (36%) 30,223 16,035 28,659 11,020 13,570 27,609
TAX INCREMENTS
(SAVINGS)DUE TO:
Reduced tax rate (mainly
for approved enterprise( (1,185) (1,397) (2,882) (918) (1,397) (2,882)
Non-deductible expenses 1,874 (*)1,840 (*)2,586 434 248 262
Non-taxable income (65) (*)(2,198) (*)(3,348) - - -
Unrecorded deferred
taxes in connection
with tax loss carry forward - (*)1,074 (*)2,397 - - -
Utilization of prior
years unrecorded
deferred taxes in
connection with tax loss
carry forward (3,471) - - - - -
Unrecorded deferred
taxes in connection
with submitting
consolidated tax
returns - - - 2,053 - -
Differences arising from
basis of measurement (**) (7,629) 3,883 7,449 (1,753) 3,737 2,615
Income taxes for prior years 1,437 (744) (701) 1,358 (744) (551)
Other differences, net (618) 739 2,317 (419) 662 1,325
------ ------ ------ ------ ------ ------
20,566 19,232 36,477 11,775 16,076 28,378
====== ====== ====== ====== ====== ======
(*) Reclassified.
(**) U.S. dollar for financial reporting purposes vis-a-vis the Consumer
Price Index in Israel and the Turkish Lira for tax purposes.
-23-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 22 - INCOME TAXES (cont.)
D. DEFERRED INCOME TAXES
CONSOLIDATED COMPANY
---------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------- ----------------------------------
2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
---------------------------------- ----------------------------------
Balance as of
beginning of year 15,659 14,587 11,559 14,552 13,506 10,998
Changes during the year 8,251 1,072 3,028 10,417 1,046 2,508
------ ------ ------ ------ ------ ------
Balance as
of end of year 23,910 15,659 14,587 24,969 14,552 13,506
====== ====== ====== ====== ====== ======
CONSOLIDATED COMPANY
------------------- --------------------
DECEMBER 31,
-----------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------- --------------------
DEFERRED TAXES ARE PRESENTED IN THE
BALANCE SHEETS AS FOLLOWS:
Long-term liabilities (in respect of
depreciable assets) 29,428 19,644 26,738 16,592
Other receivables and prepayments
(in respect of temporary
differences) - Note 5 (5,518) (3,985) (1,769) (2,040)
------ ------ ------ ------
23,910 15,659 24,969 14,552
====== ====== ====== ======
Deferred taxes are computed at rates between 32% and 36%.
E. The Company and one of its subsidiaries, are "Industrial Companies" as
defined in the Israeli Law for the Encouragement of Industry (Taxes)-1969.
Based on this Law, the Company and that subsidiary file consolidated tax
returns.
F. The Company and its Israeli Subsidiaries possess final tax assessments
through 2001.
NOTE 23 - RELATED PARTIES AND INTERESTED PARTIES
A. BALANCES WITH RELATED PARTIES
CONSOLIDATED COMPANY
------------------- --------------------
DECEMBER 31,
-----------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
------------------- --------------------
Trade receivables (*) 554 1,076 8,354 242
====== ====== ====== ======
Capital note - shareholder 32,770 30,294 32,770 30,294
====== ====== ====== ======
Capital notes - Subsidiaries - - 4,205 4,205
====== ====== ====== ======
Trade payables (*) 23,752 34,841 24,097 15,965
====== ====== ====== ======
(*) Company - excludes Subsidiaries
-24-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 23 - RELATED PARTIES AND INTERESTED PARTIES (cont.)
B. TRANSACTIONS WITH RELATED PARTIES AND SUBSIDIARIES
CONSOLIDATED COMPANY
--------------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------- -------------------------------
2003 2002 2001 2003 2002 2001
------- ------- ------- ------ ------ ------
NIS IN THOUSANDS NIS IN THOUSANDS
--------------------------------- -------------------------------
Sales to related parties 6,103 17,646 23,026 4,169 15,247 21,713
Sales to Subsidiaries - - - 358,767 266,614 302,669
Cost of sales 169,469 224,682 207,087 61,703 63,723 51,671
Royalties 15,642 12,220 12,158 1,500 673 561
Other selling expenses (*) - 2,413 3,578 - 451 630
General and
administrative expenses (*) 8,201 7,380 8,435 1,428 2,167 2,454
Financing income, net (*) 3,314 2,076 2,339 2,526 1,381 1,268
(*) Company - excludes Subsidiaries
(**) The sales to and purchases from related parties
are in the ordinary course of business at market
prices and customary credit terms.
NOTE 24 - DISCLOSURE AND PRESENTATION OF FINANCIAL INSTRUMENTS
A. CREDIT RISK
The revenues of the Group's principal Subsidiaries are derived from two
major customers and a large number of smaller customers. Management
regularly monitors the balance of trade receivables and the financial
statements include an allowance for doubtful accounts based on management's
estimation. Taking the aforementioned into consideration, the exposure to
credit risk from trade receivables is immaterial.
Cash and cash equivalents and long-term deposits (including amounts in
foreign currency) are deposited with major banks in Israel and abroad.
Therefore, it is not expected that such banks will fail to meet their
obligations.
B. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments (cash and cash equivalents,
deposits, receivables, trade and other payables) did not materially differ
from their fair value, unless stated otherwise.
-25-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 25 - RECONCILIATION TO US GAAP
The consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles
applicable in Israel (Israeli GAAP). The following describes the
effects on the Company's financial statements had the Company prepared
its financial statements in accordance with accounting principles
generally accepted in the United States of America (US GAAP).
A. BALANCE SHEETS
According to Israeli GAAP, goodwill is to be amortized over the
expected estimated economic life of the asset acquired, while
according to US GAAP (SFAS 142), commencing January 2002 goodwill
is no longer amortized but rather is reviewed annually (or more
frequently if impairment indicators arise) for impairment.
Following are the corresponding balance-sheet items presented
according to US GAAP with regard to the goodwill associated with
the acquisition of Ovisan (see Note 9B) and the other GAAP
differences outlined in B. below:
As of December 31, 2003
-----------------------------------
AS AS PER
REPORTED ADJUSTMENT US GAAP
-------- ---------- -------
NIS IN THOUSANDS
-----------------------------------
Other assets - Goodwill 29,073 5,536 34,609
Shareholders' equity 412,981 (3,003) 409,978
As of December 31, 2003
-----------------------------------
AS AS PER
REPORTED ADJUSTMENT US GAAP
-------- ---------- -------
NIS IN THOUSANDS
-----------------------------------
Other assets - Goodwill 31,841 2,768 34,609
Shareholders' equity 389,571 13,060 402,631
B. STATEMENTS OF OPERATIONS
CONSOLIDATED AND COMPANY
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
2003 2002 2001
------ ------ ------
NIS IN THOUSANDS
----------------------------------
Net income under Israeli GAAP 56,253 22,712 41,601
Effect of material differences between
Israeli GAAP and US GAAP:
Change in basis of measurement
from adjusted NIS to nominal NIS (5,694) 19,321 19,601
Amortization of goodwill 2,768 2,768 -
Deferred taxes (4,458) (1,016) (483)
------ ------ ------
Net income under US GAAP 48,869 43,785 60,719
====== ====== ======
-26-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 25 - RECONCILIATION TO US GAAP (cont.)
C. CHANGES IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP
NIS IN THOUSANDS
----------------
Shareholders' equity under US GAAP as of January 1, 2003 402,631
Dividend (36,499)
Translation adjustments (5,023)
Net income for the year under US GAAP 48,869
-------
Shareholders' equity under US GAAP as of December 31, 2003 409,978
=======
NOTE 26 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES
A. BALANCE SHEETS
COMPANY
--------------------
DECEMBER 31,
--------------------
2003 2002
------- -------
CURRENT ASSETS NIS IN THOUSANDS
--------------------
Cash and cash equivalents 31,645 11,718
Current maturities of long-term bank deposits 7,882 9,947
Trade receivables 74,668 44,542
Other receivables 6,139 5,085
Inventories 58,539 45,749
------- -------
178,873 117,041
======= =======
LONG-TERM INVESTMENTS
Long-term deposit - 8,527
Capital note from shareholder 32,770 32,770
Investments in Subsidiaries 189,340 159,658
------- -------
222,110 200,955
======= =======
FIXED ASSETS, NET 203,572 200,933
======= =======
604,555 518,929
======= =======
CURRENT LIABILITIES
Short-term bank credit 1,087 -
Trade payables 174,580 103,384
Other payables and accrued expenses 10,645 23,418
------- -------
186,312 126,802
======= =======
SHAREHOLDERS' EQUITY 418,243 392,127
------- -------
604,555 518,929
======= =======
-27-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 26 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES (cont.)
B. STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------
2003 2002 2001
------- ------- -------
NIS IN THOUSANDS
------------------------------------
Net sales 387,019 308,566 318,000
Cost of sales 334,764 245,936 229,517
------- ------- -------
GROSS PROFIT 52,255 62,630 88,483
Selling expenses 7,827 6,038 5,151
General and administrative expenses 4,327 5,762 6,035
------- ------- -------
OPERATING PROFIT 40,101 50,830 77,297
Financing income (expenses), net (5,995) 3,676 8,283
Other income, net 255 254 515
------- ------- -------
INCOME BEFORE INCOME TAXES 34,361 54,760 86,095
Income taxes 1,428 16,344 25,154
------- ------- -------
INCOME AFTER INCOME TAXES 32,933 38,416 60,941
Equity in net earnings
of Subsidiaries 29,682 8,881 1,080
------- ------- -------
NET INCOME FOR THE YEAR 62,615 47,297 62,021
======= ======= =======
-28-
HOGLA-KIMBERLY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 26 - COMPANY'S FINANCIAL STATEMENTS IN NOMINAL VALUES (cont.)
C. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
DIVIDEND
DECLARED
AFTER
SHARE CAPITAL RETAINED BALANCE
CAPITAL RESERVES EARNINGS SHEET DATE TOTAL
----- ------- ------- ------ -------
NIS IN THOUSANDS
-------------------------------------------------------------
BALANCE - JANUARY 1, 2001 8,263 132,127 189,116 - 329,506
CHANGES DURING 2001:
Dividend declared (44,160) (44,160)
Net income for the year 62,021 62,021
----- ------- ------- ------ -------
BALANCE - DECEMBER 31, 2001 8,263 132,127 206,977 - 347,367
CHANGES DURING 2002:
Dividend declared after
balance-sheet date (35,528) 35,528 -
Exchange rate differences of prior
year declared dividend (2,537) (2,537)
Net income for the year 47,297 47,297
----- ------- ------- ------ -------
BALANCE - DECEMBER 31, 2002 8,263 132,127 216,209 35,528 392,127
CHANGES DURING 2003:
Dividend paid (35,528) (35,528)
Exchange rate differences of prior
year declared dividend (971) (971)
Net income for the year 62,615 62,615
----- ------- ------- ------ -------
BALANCE - DECEMBER 31, 2003 8,263 132,127 277,853 - 418,243
===== ======= ======= ====== =======
-29-