As filed with the Securities and Exchange Commission on June 14, 2002
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
Annual Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Commission file number 1-9178
KOOR INDUSTRIES LTD.
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(Exact name of Registrant as specified in its charter and translation of
Registrant's name into English)
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Israel
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(Jurisdiction of incorporation or organization)
21 Ha'arbaa Street, Tel Aviv 64739, Israel
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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American Depositary Shares, Each New York Stock Exchange
Representing 0.20 Ordinary
Shares, Par Value NIS 0.001 Per Share
Securities registered or to be registered pursuant to Section 12(g) of the Act:
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None
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(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
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(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the
annual report:
15,882,405 Ordinary Shares, Par Value NIS 0.001 Per Share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes X No
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Indicate by check mark which financial statements the registrant has
elected to follow:
Item 17 X Item 18
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PRELIMINARY NOTE
This annual report contains historical information and
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995 with respect to Koor's business, financial
condition and results of operations. The words "anticipate," "believe,"
"estimate," "expect," "intend," "may," "plan," "project" and "should" and
similar expressions, as they relate to Koor or its management, are intended
to identify forward-looking statements. Such statements reflect the current
views and assumptions of Koor with respect to future events and are subject
to risks and uncertainties. Many factors could cause the actual results,
performance or achievements of Koor to be materially different from any
future results, performance or achievements that may be expressed or
implied by such forward-looking statements, including, among others,
changes in general economic and business conditions, changes in currency
exchange rates and interest rates, inability to meet efficiency and cost
reduction objectives, changes in business strategy and various other
factors, both referenced and not referenced in this annual report. These
risks are more fully described under Item 3, "Key Information - Risk
Factors" of this annual report. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected, intended, planned or
projected. Koor does not intend or assume any obligation to update these
forward-looking statements.
In this annual report, unless otherwise specified or unless the
context otherwise requires, all references to "Koor," "we," "us," or "our"
are to Koor Industries Ltd., a company organized under the laws of the
State of Israel, and its consolidated subsidiaries.
In this annual report, unless otherwise specified or unless the
context otherwise requires, all references to "$" or "dollars" are to U.S.
dollars and all references to "NIS" are to New Israeli Shekels. Unless
otherwise stated, certain amounts reported in adjusted NIS on Koor's
consolidated financial statements for the year ended December 31, 2001 have
been translated into U.S. dollars for the convenience of the reader at the
exchange rate of the dollar on December 31, 2001 (NIS 4.416 = $1.00), as
published by the Bank of Israel (see Note 2B(1) to our consolidated
financial statements included elsewhere in this annual report). Therefore,
it is possible to compute the dollar equivalent of any of the figures in
adjusted NIS by dividing such NIS by the rate of exchange at December 31,
2001.
In this document, all references to Koor's percentage of equity
ownership in its subsidiaries are prior to having taken into account the
possible dilution that may be caused by the exercise of options granted to
executive officers of certain subsidiaries or of other convertible
securities.
i
TABLE OF CONTENTS
Item 1. Identity of Directors, Senior Management and Advisers.................................1
Item 2. Offer Statistics and Expected Timetable...............................................1
Item 3. Key Information.......................................................................1
Item 4. Information on the Company...........................................................14
Item 5. Operating and Financial Review and Prospects.........................................43
Item 6. Directors, Senior Management and Employees...........................................62
Item 7. Major Shareholders and Related Party Transactions....................................74
Item 8. Financial Information................................................................76
Item 9. The Offer and Listing................................................................82
Item 10. Additional Information...............................................................84
Item 11. Quantitative and Qualitative Disclosures About Market Risk...........................97
Item 12. Description of Securities Other than Equity Securities...............................99
Item 13. Defaults, Dividend Arrearages and Delinquencies.....................................100
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds........100
Item 15. [Reserved]..........................................................................100
Item 16. [Reserved]..........................................................................100
Item 17. Financial Statements................................................................101
Item 18. Financial Statements................................................................101
Item 19. Exhibits............................................................................101
Index to Consolidated Financial Statements......................................................F-1
ii
PART I
Item 1 Identity of Directors, Senior Management and Advisers.
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Not Applicable.
Item 2. Offer Statistics and Expected Timetable.
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Not Applicable.
Item 3. Key Information.
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Selected Financial Data
The following selected consolidated financial data as of December
31, 2000 and 2001 and for the years ended December 31, 1999, 2000 and 2001
has been derived from our audited consolidated financial statements. These
financial statements have been prepared in accordance with generally
accepted accounting principles in Israel, or Israeli GAAP, which differ in
certain respects from U.S. GAAP (see Note 28 to our consolidated financial
statements included elsewhere in this annual report), and audited by KPMG
Somekh Chaikin, independent certified public accountants in Israel. The
consolidated selected financial data as of December 31, 1997, 1998 and 1999
and for the years ended December 31, 1997 and 1998 have been derived from
other audited consolidated financial statements not included in this annual
report and have also been prepared in accordance with Israeli GAAP and
audited by KPMG Somekh Chaikin. The selected consolidated financial data
set forth below should be read in conjunction with and are qualified by
reference to "Item 5, Operating and Financial Review and Prospects" and the
consolidated financial statements and notes thereto and other financial
information included elsewhere in this annual report.
The financial data amounts are expressed in adjusted NIS or in
dollars. For the convenience of the reader, the 2001 data contains
translation of NIS into dollars. No representation is made that NIS amounts
have been, could have been or can be converted into dollars at the
prevailing rate on December 31, 2001, or at any other rate. All figures
have been adjusted to reflect the increase in the Israeli Consumer Price
Index, or CPI, and are accordingly all expressed in terms of the purchasing
power as of December 31, 2001, and not in the figures as originally
reported.
1
Year Ended December, 31
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1997 1998 1999 2000 2001 2001
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(In thousands, except share and per share data)
Adjusted NIS as of December 31, 2001 US Dollars
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Operating Data:
Israeli GAAP:
Net sales........................... 11,117,519 11,306,802 9,364,373 7,935,888 7,142,904 1,617,505
Gross profit........................ 2,729,422 2,744,352 2,341,708 2,004,807 1,624,824 367,940
Operating earnings.................. 844,497 644,676 716,876 682,862 343,043 77,682
Financial expense, net.............. 118,210 215,396 321,483 309,176 413,866 93,720
Other income (expense), net......... 143,263 (5,560) 224,265 160,820 (595,920) (134,946)
Minority interest, net.............. 262,502 278,381 (8,161) (51,778) 8,008 1,813
Net earnings (loss) from continuing
activities........................ 456,752 (17,669) 589,625 54,285 (2,509,062) (568,176)
Result of discontinued
activities, net................... 88,173 65,455 (32,751) 217,182 (28,021) (6,345)
Net earnings (loss)................. 544,925 47,786 556,874 271,467 (2,537,083) (574,521)
Basic earnings (loss) per share..... 34.53 3.11 35.39 17.65 (167.04) (37.83)
Weighted average number of shares
used in computing basic earnings
(loss) per share.................. 15,438,487 15,723,996 15,737,564 15,384,206 15,188,463 15,188,463
Diluted earnings (loss) per share... 34.53 3.11 35.05 17.56 (167.04) (37.83)
Weighted average number of shares
used in computing diluted
earnings (loss) per share......... 16,332,927 15,723,996 16,062,126 15,597,253 15,188,463 15,188,463
U.S. GAAP:
Income (loss) before extraordinary
item.............................. 484,850 41,957 539,943 254,235 (2,512,193) (568,884)
Net income (loss)................... 487,529 43,800 545,495 254,235 (2,512,193) (568,884)
Basic earnings (loss) per ordinary
share............................. 32.48 2.81 34.67 16.52 (165.40) (37.46)
Basic earnings (loss) per ADS....... 6.50 0.56 6.93 3.30 (33.08) (7.49)
Diluted earnings (loss) per
ordinary share.................... 31.37 2.80 34.33 16.45 (165.40) (37.46)
Diluted earnings (loss) per ADS..... 6.27 0.56 6.87 3.29 (33.08) (7.49)
Balance Sheet Data:
Israeli GAAP:
Working capital..................... 3,088,398 3,536,286 922,984 1,002,463 1,780,101 403,103
Total assets........................ 15,063,051 18,036,718 17,615,910 15,030,234 12,882,945 2,917,334
Short-term debt..................... 2,217,744 2,769,371 3,609,275 2,733,576 1,733,852 392,629
Long-term debt...................... 2,133,006 4,762,116 4,127,816 3,367,394 4,722,885 1,069,493
Shareholder's equity................ 4,596,210 4,133,479 4,446,635 4,367,063 2,101,525 475,889
U.S. GAAP:
Total assets........................ 15,349,921 18,240,904 17,808,687 15,186,593 13,362,772 3,025,990
Shareholder's equity................ 4,017,533 4,100,357 4,484,710 4,255,288 2,043,383 462,723
Number of shares as of
December 31, 2001................. 15,307,569 15,723,327 15,730,971 15,192,374 15,168,884 15,168,884
2
Exchange Rate Information
The following table shows, for each of the months indicated, the
high and low exchange rates between New Israeli Shekels and U.S. dollars,
expressed as shekels per U.S. dollar and based upon the daily
representative rate of exchange as reported by the Bank of Israel:
Month High (NIS) Low (NIS)
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December 2001.............................. 4.416 4.220
January 2002............................... 4.637 4.437
February 2002.............................. 4.744 4.588
March 2002................................. 4.716 4.622
April 2002................................. 4.904 4.740
May 2002................................... 4.968 4.829
The following table shows, for periods indicated, the average
exchange rate between New Israeli Shekels and U.S. dollars, expressed as
shekels per U.S. dollar, calculated based on the average of the exchange
rates on the last day of each month during the relevant period as reported
by the Bank of Israel:
Year Average (NIS)
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1997....................................................... 3.465
1998....................................................... 3.810
1999....................................................... 4.153
2000....................................................... 4.068
2001....................................................... 4.203
On June 10, 2002, the exchange rate was NIS 4.978 per U.S. dollar
as reported by the Bank of Israel.
The effect of exchange rate fluctuations on our business and
operations is discussed in "Item 5. Operating and Financial Review and
Prospects."
Dividends
In determining whether to declare a dividend, our Board of
Directors may take into consideration, among other things, our profits,
business and financial condition, economic circumstances and other
conditions, as deemed appropriate by our Board of Directors.
We did not pay or declare any dividend for 2001. We paid final
dividends of NIS 14.30 per share and NIS 3.85 per share for 1999 and 2000,
respectively.
3
Risk Factors
Risks Related to Koor
We depend on our subsidiaries and affiliates for dividends and
management fees.
We conduct our business primarily through our wholly and partially
owned subsidiaries, and are partially dependent upon management fees and
cash distributions from our subsidiaries and affiliates as a source of cash
flow for funding our corporate level activities. We received management
fees in the amount of NIS 33 million and NIS 40 million in 2001 and 2000,
respectively, pursuant to management agreements between us and several of
our subsidiaries and affiliates. In addition, in 2001, we received NIS 20
million in dividends from Makhteshim-Agan Industries Ltd., or MA
Industries. In 2000, we received NIS 357 million in dividends from
subsidiaries and affiliates, of which NIS 229 million was received from
Telrad Networks Ltd., or Telrad, and NIS 58 million was received from Koor
Properties Ltd, or Koor Properties. In recommending dividends and approving
management fees, the directors and applicable committees of each of our
subsidiaries must take into consideration the legal, tax, and financial
effects of such dividends and management fees, as well as the best
interests of each such subsidiary. In addition, several of our subsidiaries
and affiliates are subject to dividend payment restrictions derived from
their organizational documents, credit agreements and tax considerations.
If we were to experience a substantial reduction in the level of payments
of dividends and management fees, there can be no assurance that
alternative sources of cash flow, including bank loans and asset sales,
would be available for us to carry out our investment plans, pay dividends
on our capital stock and service our debt.
In addition, all of our unsecured indebtedness is effectively
subordinated to all liabilities, including trade payables of our
subsidiaries and affiliates. Any right we have to receive assets of our
subsidiaries and affiliates upon their liquidation or reorganization (and
the consequent right of the holders of our indebtedness to participate in
those assets) will be effectively subordinated to the claims of that
subsidiary's or affiliate's creditors (including trade creditors), except
to the extent that we are recognized as a creditor of such subsidiary or
affiliate, in which case our claims would still be subordinate to any
security interests in the assets of such subsidiary or affiliate and any
indebtedness of such subsidiary or affiliate senior to that held by us.
Under Israeli law, certain indebtedness of a company under liquidation,
including certain indebtedness resulting from an employment relationship or
tenancy, and certain indebtedness resulting from governmental and municipal
tax liabilities, may rank senior to other unsecured indebtedness.
Continuing adverse conditions in the telecommunications industry
and in the market for telecommunications equipment have led to decreased
demand for our products and have harmed and may continue to harm our
business, financial condition and results of operations.
For the years ended December 31, 2001 and 2000, our telecommunication
equipment business accounted for approximately 16.3% and 28.1%, respectively,
of our consolidated net sales. Our business in this industry is primarily
conducted through our consolidated subsidiary Telrad Networks Ltd., or
Telrad. We also own approximately 30% of ECI Telecom Ltd., or ECI, a publicly
traded company engaged in the telecommunication equipment business. Telrad's
4
systems and ECI's systems are used by telecommunications carriers and service
providers. Many telecommunications carriers and service providers in markets
throughout the world have experienced, and are continuing to experience,
substantial declines in sales and revenues and have incurred significant
operating losses. In addition, many carriers and service providers have
stopped deploying new networks or have ceased operations completely and are
no longer potential users of Telrad's products or ECI's products. The general
worldwide economic downturn has curtailed the ability of existing and
prospective carriers and service providers to finance purchases of products
such as Telrad's and ECI's, leading to a sharp decline in orders for new
telecommunications equipment. Also, we expect the number of carriers and
service providers to remain small because of the substantial capital
requirements involved in establishing networks.
For these reasons, Telrad and to a lesser extent ECI, have
experienced severe declines in sales since the beginning of 2001 and were
forced to take serious measures to reduce expenses during 2001, including
the reduction in manpower, streamlining of operations and sale of non-core
businesses. As a result of the losses incurred by ECI during 2001, we
wrote-off the excess goodwill relating to our investment in ECI. The
writing-off of goodwill in ECI, together with our share in ECI's losses and
the losses recorded by Telrad, represented nearly 80% of our consolidated
losses for the year ended December 31, 2001.
If these industry-wide conditions persist, they will likely have
an adverse impact, which may be material, on our business, financial
condition and results of operations. In addition, market perception that
these conditions could have an impact upon us may harm the trading price of
our ordinary shares, whether or not our business or results of operations
are actually affected.
We need to develop and introduce new products in the
telecommunication equipment and defense electronics businesses in order to
remain competitive in those industries. We are also partially dependent on
licensed technology.
For the years ended December 31, 2001 and 2000, our telecommunication
equipment and defense electronics businesses accounted for approximately
35.2% and 42.8%, respectively, of our consolidated net sales, and 63.54%
and 72.32%, respectively, of our total consolidated research and
development expenses. In addition, for the years ended December 31, 2001
and 2000, our investment in ECI accounted for 59.7% and 76.5%,
respectively, of our total investments in the telecommunications equipment
industry. The businesses and markets in these segments are characterized by
rapid technological development. Consequently, the ability to anticipate
changes in technology and to develop and introduce new and enhanced
products incorporating such new technologies on a timely basis will be
significant factors in the ability of these businesses to grow and remain
competitive. We cannot assure you that we will be able to develop new
products and technologies on a timely basis in order to remain competitive
in the telecommunication equipment and defense electronics industries. In
addition, one of our objectives is to continue to seek to apply several of
the advanced technologies developed in our defense electronic businesses to
new commercial products. However, we cannot assure you that such
technologies will be successfully applied or that markets will develop for
such products.
Generally, our subsidiaries in these industries, including Telrad,
Elisra Electronic Systems Ltd., or Elisra, as well as ECI establish their own
research and development priorities and budgets. However, several of
5
Telrad's products have been based on technology licensed from Nortel
Networks Ltd., or Nortel. As a result, our ability to introduce new and
enhanced products was partially dependent on Nortel continuing to provide
advanced technology to Telrad. Following the establishment of Nortel Israel
and the related change in Telrad's business, however, such reliance has
been substantially reduced.
Telrad, one of our significant subsidiaries, depends on one key
supplier.
Telrad, one of our significant subsidiaries, is substantially
dependent upon its relationship with Nortel as a key supplier of technology
and as a key customer of Telrad's products. For the years ended December
31, 2001 and 2000, approximately 9.0% and 15.0%, respectively, of our
consolidated net sales and 71.7% and 61.2%, respectively, of Telrad's sales
were derived from sales to Nortel. Accordingly, Telrad's sales volume is
directly influenced by Nortel's sales forecasts and actual purchases.
Although we and Telrad believe that the relationship with Nortel is
generally good, if such relationship was to be terminated or diminished for
any reason, it could have a material adverse affect on Telrad's business,
financial condition or results of operation, which may have an adverse
effect on our business as a whole.
We rely on the expiration of patents and depend on regulatory
approval in the agrochemicals industry.
For the years ended December 31, 2001 and 2000, our agrochemicals
business accounted for approximately 54.95% and 44.22%, respectively, of
our consolidated net sales. Several of our subsidiaries specialize in the
improvement and production of generic agrochemical products, which are
products that are based on expired patents. Development of new generic
products requires substantial expenditures for research and development,
product registration, construction of production lines and marketing in
support of new product introduction. An important component for the growth
of the agrochemicals business is the successful introduction of new generic
chemical products to the market in a timely manner (promptly after patents
expire). Reintroduction of any new legislation to extend the life of
patents on chemical products could adversely affect the ability of the
agrochemicals business to introduce new products.
Patent protection in Europe is valid for 20 years from the date of
application. During the beginning of any patent term, the companies that
own patents deal in licensing products in various countries. In February
1997, offices of the European Authority approved an extension of the
validity of patents filed for registration since 1985. The extension of the
patent term for an additional period ensures patent owners an additional
period of exclusivity of 15 years from the date of receipt of first
license, provided that the addition may not be greater than 5 years. In
most countries, marketing of new products is conditional upon obtaining
licensing from the competent authority. The obtaining of licenses is a
lengthy process with substantial costs. A possible delay in the development
of new products or in obtaining requisite licenses could have a negative
effect on our results of operation and financial status.
Most countries require us to obtain regulatory approval prior to
selling newly introduced products, which is both time consuming and expensive.
Any delay in the development or introduction of new products or in obtaining
regulatory approval from the countries in which our agrochemicals business
markets its products may have a material adverse effect on our results of
6
operations and financial condition. In addition, new developments in the
field of trans-genetic plant species that are toxic to insects, and plant
species that are resistant to fungal disease, may have an adverse effect on
our agrochemicals business.
Our investments in hi-tech companies involves a high degree of risk.
Through Koor Corporate Venture Capital, or Koor CVC, we invest
from time to time in venture capital funds and start-up companies. As of
December 31, 2001, we had invested, through Koor CVC, approximately $126
million in such venture capital funds and start-up companies and had
committed to invest an additional $52 million in these venture capital
funds. During the first quarter of 2002, through Koor CVC, we invested in,
and made loans to, startup companies and portfolio venture capital funds
(Pitango and Carmel) in the amount of $6 million as part of our commitment
to invest in these funds, leaving the remaining obligation for investment
in these portfolio funds at $45 million to be drawn upon by the funds over
the next 6-8 years, based on their needs. Our investment in hi-tech and
venture capital companies carries with it a high level of risk. The main
risk factors are:
o The uncertainty involved in advanced technological developments
in the fields of internet and telecommunications, and the lack
of certainty that a product will actually be developed or, if
and when it is developed, that a market will be found for it, as
well as the high marketing costs and intense competition in
these fields;
o The uncertainty existing on the date of commencement of projects
as to the total investment required for developing a product and
the lack of certainty that funding will be found for the
continued development and marketing of products, if developed;
o The rapid technological changes that characterize the industries
of the companies in which we have invested could reduce or
cancel demand for products developed by such companies;
o The dependence of start-up companies, including those in which
we have invested, on their founders or on key personnel,
especially in the areas of management and development;
o The lack of certainty regarding the ability of the companies in
which we have invested to recruit appropriate personnel, in
particular when faced with increasing competition for quality
personnel;
o The lack of intellectual property protection for internet
products and increased competition in this area; and
o The lack of ability to control and manage a company in which we
hold a minority stake.
7
Our operations are exposed to environmental risks and are subject
to environmental regulation.
The operations of several of our subsidiaries are exposed to the
risk of harming the environment, as they manufacture, use, transmit, store
and sell toxic and other materials. We believe that these subsidiaries are
in compliance with applicable environmental laws and regulations and we
have born considerable costs and investments in order to ensure such
compliance. We cannot estimate the size or impact of additional
expenditures that may be required in the event of amendments to applicable
environmental laws or adverse decisions of applicable regulatory
authorities. In addition, the risks of causing environmental damage are not
insurable risks.
We are under investigation by the Israeli Office of Restrictive
Trade Practices.
On December 13, 1998, the Investigations Department of the Israeli
Office of Restrictive Trade Practices (Israeli Antitrust Authority)
announced in a press release that it had concluded the investigation
regarding allegations of illegal restrictive arrangements between us,
Tadiran Telecommunication Ltd., or TTL (a former subsidiary of Tadiran
which merged with ECI in 1999), Telrad, The Israel Telecommunications
Corporation Limited, or Bezeq, and Bezeqcall Communications Ltd. in the
field of the supply of public switches and in the Network Termination
Point, or N.T.R, area. According to the press release, the investigators
recommended indicting some of the examinees as a result of the
investigation of several allegations, and the Legal Department of the
Israeli Antitrust Authority will decide if offenses were in fact committed
and if there is sufficient evidential basis for trial.
On March 4, 2002, Tadiran Ltd., or Tadiran (which committed to
indemnify ECI on any damage resulting from the issues under review by the
Israeli Antitrust Authority), TTL and Telrad received notice from the
Israeli Antitrust Authority that the Israeli Antitrust Authority is
considering the possibility of bringing each of these companies to trial
for offenses against the Law for Restrictive Trade Practices, 1988 (Israeli
Antitrust Law), as a result of the actions of these companies with regard
to the supply of public switches between the years of 1993 and 1997. The
Israeli Antitrust Authority's notice states that the allegations against
Telrad and Tadiran in the field of N.T.R. are still being reviewed by the
commissioner of the Israeli Antitrust Authority. See also note 18A to our
consolidated financial statements included elsewhere in this annual report.
Under the Israeli Antitrust Law, penalties may be imposed against
an entity which has violated the law. In addition, should it be proven that
violations were committed, civil lawsuits may be filed against us and we
may be subject to civil penalties, if damages can be proven as a result of
a violation of the law. At this early stage, it is not possible to predict
the likelihood that any fines will be imposed on us or any civil lawsuits
will be filed against us, nor whether any such fines or lawsuits would have
an adverse effect on our business, financial condition or results of
operations.
8
Several of our subsidiaries are exposed to fluctuations in prices
of raw materials and commodities.
Several of our subsidiaries, primarily those in the agrochemical
industry, have exposure to risks stemming from fluctuations in prices of
raw materials and agricultural commodities. An increase in raw material
prices or a decrease in commodity prices (which could lower the selling
prices of our products) could lower the profitability of our business.
Reduction in worldwide spending for military products may
adversely affect our profit.
For the years ended December 31, 2001 and 2000, sales of military
products accounted for approximately 18.93% and 14.65%, respectively, of
our consolidated net sales. Around the world and in Israel demand for
military products has been generally declining during the past few years.
Since the beginning of 2001, however, worldwide demand for high tech
military equipment and products has increased as many countries are
improving their existing military equipment with new technology and
investing in new products while reducing their expenditures on traditional
military equipment. In Israel, there has been a strengthening of the upward
trend in demand for defense electronic products as reflected in the size
and rate of receipt of orders, and the increase in backlog which was
approximately NIS 3.2 billion and NIS 2.6 billion as of December 31, 2001
and 2000, respectively. This trend is likely to have a positive influence
on the profitability and financial condition of our defense electronic
business. However, in the event that general military expenditures continue
to decline worldwide and are reduced in Israel for systems or projects of
the type we produce or perform, and are not offset by greater foreign sales
or other new systems or products, there will be a reduction in the volume
of contracts or subcontracts we are awarded. Such reductions may result in
a material adverse effect on our results of operations and financial
condition.
A continuation of the recent political and economic crisis in
Argentina could have a negative impact on our agrochemicals business.
A serious deterioration in the political and economic situation in
Argentina occurred in December 2001, followed the Argentine government
declaring the official default on Argentina's foreign debt payments. In the
beginning of 2002, the Argentine government announced the end of the parity
of the Argentine Peso to the U.S. dollar which has resulted in the peso
losing more than two-thirds of its value as of April 30, 2002 and may
continue to lose value. As a result of the devaluation, the assets of MA
Industries' operations in Argentina, which consisted primarily of trade and
other receivables, were decreased by $15 million. In view of the economic
and political situation in Argentina, MA Industries recorded a net one-time
write-off of $22 million, primarily in respect of bad debts. In addition,
MA Industries and several of its subsidiaries have guaranteed indebtedness
to banks of its Argentine subsidiary in a total amount of $17 million. For
the year ended December 31, 2001 and 2000, sales by MA Industries'
Argentine operations represented approximately 2.5% and 4.3%, respectively,
of MA Industries' total sales those years. A continuation of this recession
in the Argentine economy, including the high inflation levels and the rapid
devaluation of the Argentine Peso against the dollar could adversely affect
MA Industries' results of operations.
9
Risks Related to Israel
Exchange rate fluctuations and inflation in Israel impact our business.
A significant portion of the sales of our major subsidiaries and
affiliates are made outside Israel in dollars or other non-Israeli
currencies while these companies incur significant portions of their
expenses in NIS. Alternatively, some subsidiaries and affiliates whose
sales are principally in NIS incur expenses in dollars or in other
non-Israeli currencies. For example, a significant portion of the sales of
our telecommunication equipment, defense electronics and the agrochemicals
businesses are in dollars, whereas a significant portion of these
businesses expenses are incurred in NIS and are generally linked to the
Israeli CPI. In addition, certain borrowings are linked to the dollar or
other non-Israeli currencies or to the CPI. The rate of inflation in Israel
over the past few years, however, has gradually declined. During the
calendar years 1999, 2000 and 2001, the annual rate of inflation was
approximately 1.3%, 0% and 1.4%, respectively while the NIS was devalued
against the dollar by approximately -0.2%, -2.7% and 9.3%, respectively.
Consequently, during the calendar years 1999, 2000 and 2001, the annual
rate of inflation as adjusted for devaluation was approximately 1.5%, 2.7%
and -7.2%, respectively. In 2000, inflation reached 0% for the first time
ever, due to a reduction in prices worldwide and as a result of the high
NIS interest rate. The inflation rate in 2001 reached 1.4%. Continued
deflation in Israel or a delay in or lack of any devaluation of the NIS in
relation to the dollar or other currencies may have a material adverse
effect on our results of operations and financial condition.
To compensate for inflation in Israel and changes in the relative
value of Israeli currency compared to the dollar and other currencies, we
have adopted financial strategies, including entering into foreign currency
transactions with respect to certain specific commitments and general
hedging transactions with respect to monetary assets and liabilities
denominated in non-Israeli currencies (including Brazilian currency). There
can be no assurance, however, that such activities, or others that we may
undertake from time to time, will eliminate the negative financial impact
of such fluctuations.
Conditions in Israel may affect our operations.
We and our principal subsidiaries and affiliates are incorporated
under the laws of the State of Israel, where our principal offices and a
substantial portion of our operations are located. We are directly
influenced by the political, economic and military conditions affecting
Israel. Accordingly, any major hostilities involving Israel, the
interruption or curtailment of trade between Israel and its present trading
partners, a significant increase in inflation or a significant downturn in
the economic or financial condition of Israel could have a material adverse
effect on our business, our results of operations and our financial
condition. In addition, there are a number of countries, particularly in
the Middle East, which restrict business with Israel or Israeli companies.
There can be no assurance that restrictive laws or policies directed toward
Israel or Israeli businesses will not have an adverse impact on the
expansion of our business.
10
The increased hostilities in the West Bank and Gaza Strip affect
tourism and other businesses.
Since September 2000, there has been an escalation of violence in
the West Bank and Gaza Strip and increased terrorist activities within
Israel, causing a sharp decrease in tourism to Israel and a further
deceleration in all aspects of the Israeli economy. The areas of tourism
and aviation have been most affected by the increased hostilities, and the
recession in the Israeli real estate market has become more entrenched.
Many of our directors, officers and employees are obligated to
perform military reserve duty in Israel.
Generally, Israeli adult male citizens and permanent residents
through the age of 48 are obligated to perform up to 39 days of military
reserve duty annually. Some of our directors, officers and employees are
currently obligated to perform annual reserve duty. Additionally, under
emergency circumstances, all such persons are subject to being called to
active duty at any time. We have operated effectively under these
requirements since we began operations. No assessment can be made, however,
as to the full impact of these requirements on our workforce or business if
conditions should change and we cannot predict the effect on us of any
expansion or reduction of these obligations.
Israel's economy may be destabilized.
Israel's economy has been subject to a number of destabilizing
factors. These include a period of severe inflation in the early to
mid-1980s, low foreign exchange reserves, fluctuations in world commodity
prices, military conflicts and civil unrest. For these and other reasons,
the Government of Israel has intervened in different sectors of the
economy. Such intervention has included employing fiscal and monetary
policies, import duties, foreign currency restrictions and controls of
wages, prices and foreign currency exchange rates. The Israeli government
has periodically changed its policies in all of these areas. Changes in
these policies may make it more difficult for us to operate our business as
we have in the past.
Service and enforcement of legal process on us and our directors
and officers may be difficult to obtain.
Service of process upon our directors and officers and the Israeli
experts named herein, all of whom reside outside the United States, may be
difficult to obtain within the United States. Furthermore, since
substantially all of our assets, all of our directors and officers and the
Israeli experts named in this prospectus, are located outside the United
States, any judgment obtained in the United States against us or these
individuals or entities may not be collectible within the United States.
There is doubt as to the enforceability of civil liabilities under
the Securities Act of 1933, as amended, or Securities Act, and the
Securities Exchange Act of 1934, as amended, or the Exchange Act, in
original actions instituted in Israel. However, subject to certain time
limitations and other conditions, Israeli courts may enforce final
judgments of United States courts for liquidated amounts in civil matters,
including judgments based upon the civil liability provisions of the
Securities Act and the Exchange Act.
11
We depend on the availability of certain government benefits and
programs.
We derive and expect to continue to derive benefits from various
programs and laws in Israel including tax benefits relating to our
"approved enterprise" programs and grants from the Office of the Chief
Scientist, or OCS, for research and development. For the years ended
December 31, 2001 and 2000, our consolidated companies benefited from
government investment grants of approximately NIS 40 million and NIS 15
million, respectively, and received government grants in the fields of
research and development of approximately NIS 38 million and NIS 30
million, respectively. To be eligible for these grants, programs and tax
benefits, we must continue to meet certain conditions, including making
certain specified investments in fixed assets from our equity. From time to
time, the Israeli government has discussed reducing or eliminating the
availability of these grants, programs and benefits. A change in government
policy in these areas would likely have a negative affect on our results of
operation and financial condition.
Under this program, by virtue of the "approved enterprise" status
granted to several of our subsidiaries and several of the companies in
which we have invested, these companies are entitled to various tax
benefits. The income derived from these companies during a period of up to
10 years, from the year in which these companies first had taxable income
(limited to 12 years from commencement of production or 14 years from the
date of the approval, whichever is earlier), is subject to a corporate tax
rate ranging from 0-25%. These companies with "approved enterprise" status
are also entitled to an accelerated amortization deduction over five years
for fixed assets serving these companies.
In the event that one of our subsidiaries or investee companies
distributes a dividend to shareholders out of income attributable to
revenues from an approved enterprise which has received a tax exemption,
the company that distributes the dividend is taxed at a rate of 25% of the
profit distributed. Deferred taxes in respect of income from approved
enterprises were not distributed as a dividend, since it is our policy not
to initiate a distribution of a dividend that involves an additional tax
liability to us.
Benefits are conditional upon the fulfillment of terms set forth
by law or in deeds of approval. Non-fulfillment of such terms could cause
cancellation of the approved enterprise benefits, in whole or in part, and
the return of previously provided benefits plus interest and linkage
differentials. As of December 31, 2001, our subsidiaries and the companies
in which we have invested which have been granted "approved enterprise"
status have complied with the terms set forth above.
As security for the implementation of the approved projects and
compliance with the conditions of the approval, a charge has been
registered on the above subsidiaries' assets in favor of the State of
Israel.
Risks Related to Our Ordinary Shares
Our share price may be volatile and may decline.
Numerous factors, some of which are beyond our control, may cause
the market price of our ADSs or ordinary shares to fluctuate significantly.
These factors include, among other things, announcements of technological
12
innovations, earnings releases by us or our competitors, market conditions
in the industry and the general state of the securities markets (in
particular the technology and Israeli sectors of the securities markets).
Our operating results in one or more future periods may fluctuate
significantly and may cause our share price to be volatile.
Our quarterly operating results may be subject to significant
fluctuations due to various factors, including divestitures of companies,
competitive pressures and general economic conditions. Because a
significant portion of our overhead consists of fixed costs, our quarterly
results may be adversely impacted if sales fall below management's
expectations. As a result, our results of operations for any quarter may
not be indicative of results for any future period. Due to all of the
foregoing factors, in some future quarters our sales or operating results
may not meet the expectations of public market analysis or investors. In
such event, the market price of our ADSs and ordinary shares would likely
be materially adversely affected.
13
Item 4. Information on the Company.
---------------------------
We are a company limited by shares organized and existing under
the laws of the State of Israel. We were initially incorporated in 1944 and
our full legal and commercial name is Koor Industries Ltd.
The address of our registered office is 21 Ha`arbaa Street, Tel
Aviv 64739, Israel, and our telephone number is 972-3-623-8333. The address
of our Internet website is: www.koor.com. Our ADSs are listed on the New
York Stock Exchange and our ordinary shares and convertible debentures are
listed on the Tel-Aviv Stock Exchange.
General
We are a diversified investment holding company. We are engaged,
through our direct and indirect wholly and partially owned subsidiaries and
affiliates, in the following core businesses: telecommunication equipment,
defense electronics and agrochemicals as well as in other businesses. We
are also engaged in seeking out new investment opportunities in high
technology and life science businesses. For the years ended December 31,
2001 and 2000, international sales represented approximately 80.4% and
76.5%, respectively, of our consolidated net sales. A majority of our sales
are derived from businesses in which we are the leading producer or
provider of such goods and services in Israel. For the year ended December
31, 2001, we reported consolidated net sales of NIS 7,143 million ($1.6
billion), consolidated operating profit of NIS 343 million ($78 million)
and a consolidated net loss of NIS 2,537 million ($575 million).
Business Overview
Strategy
In October 1997, as a result of several transactions, the Claridge
Group (comprised of Claridge Israel Ltd. (Claridge) and affiliated
entities) became our largest shareholder, holding of record, as of June 10,
2002, 35.5% of our outstanding ordinary shares. Beginning in July 1998, we
initiated an extensive corporate restructuring program, designed to
transform Koor into a diversified investment holding company with
controlling stakes in leading high-growth, export-oriented Israeli
companies. Based on these criteria, we have made the strategic decision to
focus on three businesses: telecommunication equipment, defense electronics
and agrochemicals. We believe that our holdings in these businesses have
the potential to grow internally, as well as through mergers and
acquisitions.
We have implemented key elements of our strategy to date,
including a substantial capital reallocation process, in which proceeds
from the sale of low growth domestic businesses have been re-invested to
increase our stakes in our core businesses. In this regard, since 1999, we
have continued to divest of non-core holdings, including our interests in
Koor Insurance Agency, Koor Finance, Contahal, Merhav, the Switching
Division of Tadiran Telecommunications, Tekem, Tadiran Information Systems,
Koor Metals, Phoenicia, Yonah, Tadiran Com, Tadiran Telematics, Mashav,
Merkavim Metal Works Ltd., Middle East Tube Co. Ltd. and the Q Group PLC.
We also sold real estate assets of Koor Properties for approximately NIS 48
million in 2001 and real estate assets of Tadiran for approximately NIS 270
million in March 2002.
14
In addition, as part of our strategy, we are seeking out new
investment opportunities in high growth potential businesses in the fields
of telecommunications technologies and services located in Israel and
around the world. We also invest in Internet ideas and technology through
investments in leading funds, and we recently established a joint venture
to invest in biotechnology and life science companies in Israel.
Our Telecommunication Equipment Business
Our telecommunication equipment business is conducted primarily
through ECI and Telrad. Until 1999, our telecommunication equipment
business also included the activities of Tadiran Telecommunications Ltd.,
or TTL, which was merged into ECI in January 1999.
Our telecommunication equipment business generated NIS 1,165
million and NIS 2,232 million of sales in 2001 and 2000, respectively,
representing 16.3% and 28.1%, respectively, of our consolidated net sales
for such years. International sales accounted for 85.3% and 78.6% of our
telecommunication equipment business' sales for 2001 and 2000,
respectively.
A substantial portion of the sales made by our telecommunication
equipment business, other than sales of ECI, which were not consolidated in
our results of operations in 2001 and 2000, are made to one principal
customer: Nortel. In 2001 and 2000, sales to Nortel represented 55% and
53%, respectively, of our telecommunication equipment business' sales. In
May 2000, we, Telrad and Nortel entered into an agreement to establish a
new company under the name Nortel Israel. This venture, in which Nortel is
the majority shareholder and we own 28%, acquired and operates Telrad's
public switching and TX1 Systems businesses, which currently comprise the
majority of Telrad's sales to Nortel.
The principal companies in our telecommunication equipment
business are:
Percentage
Of Equity
Ownership Principal Products and Services
--------- -------------------------------
ECI Telecom Ltd. 30.29%(1) Telecommunication equipment and systems
Telrad Networks Ltd. 100.00% Telecommunication equipment and systems
(1) As of December 31, 2001, our interest in ECI was 34.61%; however, in
February 2002, ECI completed a $50 million private placement of
approximately 12.3% of its ordinary shares, as a result of which our
interest in ECI was reduced to 30.29%. ECI is not consolidated in our
financial statements and is not included in our backlog data. ECI's
ordinary shares are quoted on the Nasdaq National Market (NNM: ECIL).
ECI Telecom Ltd. (ECI)
ECI is a provider of advanced telecommunications solutions.
Focused mainly on the metropolitan optical and access markets, ECI enables
leading service providers and carriers worldwide to maximize their capital
investment and reduce operating expenses while providing voice, data, video
and multimedia services to their customers. ECI maintains a global sales
and customer support network. Its solutions are an integral part of more
than 500 telecommunications networks in over 145 countries.
15
In 2000, following the appointment of new senior management, ECI
announced a new strategic plan designed to focus its operations on key
product growth areas, including broad band access, transport systems and
media gateways.
ECI is in the process of implementing a reorganization plan that
it announced in 2000. The principal goal of the reorganization plan was a
horizontal split of the five main business units of ECI, in order
ultimately to turn them into separate public companies directly owned by
the current shareholders of ECI. The separation was also expected to
improve the performance of each unit through increased entrepreneurship and
independence. At the end of 2001, as a result of industry conditions,
feedback from customers, and capital market conditions, ECI decided that it
would no longer pursue separate public offerings for each of its
subsidiaries, however, ECI decided that it would continue to pursue and
complete its separation from four main subsidiaries through a transfer of
assets, thus creating wholly owned, separate, private companies.
On January 1, 2001, the five main business units of ECI
transferred the employees of various operational departments and split into
the following five wholly-owned subsidiaries of ECI, consisting of four
newly set up subsidiaries and one existing subsidiary:
1. Enavis Networks Ltd. (formerly the Transport Networks division
of ECI), which provides cross-connect and network management
systems and other products that enable telecommunications
service providers and large business networks to construct
communications networks in an efficient manner;
2. Inovia Telecoms Ltd. (formerly the Access Networks division of
ECI), which provides broadband access products, based on xDSL
technology and products that increase the line capacity for
the local subscriber loop;
3. Lightscape Networks Ltd. (formerly the Optical Networks
division of ECI), which provides SDH/SONET (Synchronous
Digital Hierarchy/Synchronous Optical Network) and optical
networking products that comply with a number of international
transmission standards;
4. InnoWave Ltd. (has always been maintained as a separate
subsidiary), which provides wireless access solutions for the
local subscriber loop; and
5. ECI Telecom - NGTS Ltd. (formerly the NGTS (Next Generation
Telephony Solutions) division of ECI), which provides products
intended to increase the transmission capacity of satellite
communication, optical cables, microwave and coaxial cables,
including VoIP Media-gateways.
The plan of reorganization is to be effectuated by ECI
transferring the relevant assets and liabilities of the business to be
conducted by each subsidiary to that subsidiary. As of May 31, 2002, the
transfer of assets and liabilities is in the process of being implemented
with respect to ECI's three main subsidiaries (Enavis, Lightscape, Inovia).
The plan contemplates that ECI will continue to operate its existing
manufacturing business, will continue to hold its shares in ECtel Ltd., a
publicly traded company in which ECI holds a 59% interest, and various
start-up companies, and will perform, on an interim basis, management,
technology, administrative and other services for its subsidiaries.
16
The transfer of the holding in these subsidiaries to ECI's
shareholders was postponed, mainly due to the slowdown in the global
telecommunications market and the decrease in demand for ECI's products.
For the year ended December 31, 2001, ECI reported revenues of
$1,015 million, a gross profit of $189 million, a loss from continuing
operations of $415 million and a net loss of $412 million. ECI is included
in our financial statements on an equity basis only.
As of December 31, 2001, we had increased our stake in ECI to
34.61% through the following transactions: the exercise of a call option to
purchase an additional 5% interest in ECI from Clal Electronics on February
8, 1999 for NIS 593 Million ($142 Million); the merger between ECI and TTL
pursuant to which Tadiran received a 12.5% interest in ECI; the
effectuation of an open market stock buyback program by ECI in 2000; the
purchase by us of all ECI shares held by Tadiran in the first quarter of
2001; and additional open market purchases by us of ECI shares during the
second quarter of 2001. Recently, in February 2002, ECI completed a $50
million private placement of approximately 12.3% of its ordinary shares, as
a result of which our interest in ECI has been reduced to 30.29%.
Since the second half of 2000, the worldwide demand for
telecommunications products, including those produced by ECI, has steadily
declined. As a result, ECI's management decided to undertake a series of
efficiency measures during 2001 which included the discontinuation of
production and marketing of certain products, the termination of research
and development operations in the United States purchased by ECI in the
second quarter of 2000, and a reduction of ECI's workforce by approximately
2,000 employees.
As a result of the continuing drop in global demand for
communications products, including ECI's products, the uncertainty with
regard to the recovery of the market, the significant reduction in ECI's
sales forecasts and the considerable decrease in the fair value of ECI
based on the valuation of an independent appraiser we commissioned during
2001, we decided to write-off the balance of the goodwill of the investment
in ECI by an aggregate of NIS 1,067 million, to approximately NIS 1,094
million as of December 31, 2001. The write-off is presented in our
financial statements as "Group's equity in the operating results of
affiliates, net."
As a result of the updated revenues forecast, and a drop in demand
for InnoWave's products, InnoWave commissioned a fair valuation of its
intangible assets. As a result of this valuation, ECI recorded in its
financial statements, during the first quarter of 2002, a loss of
approximately $53 million, for impairment of intangible assets.
For a discussion of material legal proceedings relating to ECI,
please see "Item 8, Financial Information - Legal Proceedings."
Telrad Networks Ltd.
Telrad is a leading Israeli company in today's telecommunications
market. Its primary activities are developing and building advanced systems
in the telecommunications field and the development, manufacturing and
selling of advanced OEM (Original Equipment Manufacturer) products to the
international markets. In addition, Telrad sells to the local and international
17
markets its own brand of Private Automatic Branch Exchanges (PABXs). Telrad's
operations are divided into the following three independent market-oriented
divisions:
o Nortel Telecom Solutions (NTS) - This division is responsible
for research and development as well as sales and support of OEM
products to Nortel;
o Advanced Operations Solution (AOS) - This division is
responsible for all Telrad production and operates both directly
and indirectly through subcontractors;
o Public Networks Resellers (PNR) - This recently created division
is responsible for the sale of products based on Nortel
technology and related services to carriers in countries in
which Nortel does not intend to operate, subject to the terms
and conditions of the license and distribution agreements signed
between Telrad and Nortel. Telrad is currently negotiating
several additional agreements with Nortel.
In addition, Telrad has established several independent
subsidiaries (see "Start-Up and new subsidiaries" below).
Reorganization plans
In November 1998, Telrad's board of directors approved a
reorganization plan. According to Telrad's new organizational structure,
Telrad's operations were divided in 1999 into three independent
market-oriented divisions. At the end of 1999, Telrad's board of directors
approved an additional restructuring program which provides for the release
of additional employees. In connection with this program, Telrad wrote an
expense of NIS 90 million (pre-tax). This plan is in addition to the first
plan that was provided for in 1998 at a cost of NIS 226 million (pre-tax).
By December 31, 1999, Telrad's work force had been reduced by approximately
950 employees without disturbances to labor relations mainly through
voluntary resignations and early retirement, and approximately 100 more
employees retired by the end of the first quarter of 2000. In 2000, Telrad
included in its financial statements an expense of NIS 261 million
(pre-tax) following the approval of Telrad's board of directors of a plan
to reduce its work force by another 388 employees. In 2001, Telrad's board
of directors approved an additional retirement plan at a cost of NIS 87
million (pre-tax) for the reduction of approximately 150 employees.
As part of Telrad's reorganization plan, in 1999 and 2000, Telrad
effected the spin-off of several of its technology and development
divisions and formed them into separate start-up subsidiary companies, in
order to provide Telrad with new sources of proprietary technology-based
growth in the telecommunications fields.
Start-ups and new subsidiaries
During the period starting at the end of 1999 until mid-2000,
Telrad effected the spin-off and established several start-up companies.
Be Connected Ltd. Be Connected is involved in the development and
marketing of next generation integrated broadband access solutions to
support all types of services (narrowband and broadband) for the
telecommunications market.
18
During 2000, Be Connected raised $15 million from Cisco Systems
Inc., an international communications company, at a post-money value of $140
million.
At the beginning of 2002, Be Connected concluded its first
commercial sale of its products.
Com-Match Ltd. Com-Match is a pioneer IP-to-PSTN and IP-IP access
solutions provider. Its carrier-grade HW and SW integrated set of solutions
offers full interoperability between current PSTN and Next-Gen IP networks.
Com-Match's sales in 2001 totaled NIS 17.2 million.
Telrad Hawk Net_I Ltd. (Net_I). Net_I is a provider of fraud and
security management systems for IP and NGN designed to meet evolving market
needs.
In October 2001, Telrad sold its entire holdings in Net_I to Ectel
Ltd., a publicly traded subsidiary of ECI, in return for shares and options
in ECtel.
Firebit Ltd. Firebit provides network based security and resource
sharing solutions through a broadband ready service delivery platform
operated by service providers/operators.
Telrad Tenecs Ltd. (Tenecs) On April 2001, Telrad effected a
spin-off of its "Digital-Keybox" line of products and established Telrad
Tenecs Ltd. In 2000, the sales from this product line totaled $43 million.
The sale of its products to the U.S. market is performed by its U.S.
subsidiary, Telrad Tenecs Inc.
On March 11, 2002, an agreement was signed between Telrad, Tenecs
and Congruency Inc. (Congruency), pursuant to which Tenecs merged with
Congruency, a company established in 1998 and which is engaged in the
development and manufacture of PABX telephony equipment, based on VOIP
technology. Following the closing of this transaction, Telrad held 52% of
the merged company.
At the beginning of 2001, Telrad closed two of its subsidiaries,
Galaxtel and Aptonix, as part of its program to reduce costs.
On January 31, 2001 Telrad sold Felix Telecom, its subsidiary in
Romania, for $1.8 million.
Relationship with Nortel
Telrad held licenses to the know-how underlying the digital
switching and transmission systems utilized in its public and private
switches pursuant to agreements with Nortel.
In January 1995, Telrad entered into a cooperation agreement with
Nortel that enabled Telrad to market Nortel products in Israel and other
specified territories and to sell products developed by Telrad to Nortel.
In January 1997, Nortel exercised an option, granted in 1995, to
purchase 20% of Telrad's ordinary shares for $45 million. According to the
shareholders agreement, Nortel had a put option to sell its Telrad shares.
19
In January 1997, Telrad licensed the right to use certain existing and
future know-how from Nortel for a ten-year period, for which Telrad was
unconditionally required to pay Nortel NIS 62 million ($15 million).
However, all of the foregoing agreements with Nortel have been
changed due to the implementation of the following agreements concerning
the establishment of Nortel Israel.
In May 2000, we, Telrad and Nortel signed an agreement to
establish a new company under the name of "Nortel Networks Israel (Sales
and Marketing) Ltd," or Nortel Israel. Nortel holds 72% of this new
venture, and we hold 28% together with Telrad.
Nortel Israel acquired from Telrad the sales, marketing and support
functions of its public switching and TX1 systems businesses and Telrad's
operations in these fields in Israel and in several export markets. In
addition, Nortel Israel represents all of Nortel's activities in Israel.
We invested approximately $5.6 million in the share capital of
Nortel Israel and we provided it with a shareholder's loan of $42 million.
The loan is repayable in 2003, and bears interest at 6% per year.
The transactions contemplated by the agreement closed on August 31,
2000 and Telrad sold these businesses to Nortel Israel for approximately $90
million as well as the value of the transferred assets. The business
operations that Telrad sold to Nortel Israel constituted about 40% of
Telrad's business.
Telrad retained its proprietary key system business known as SBS and
its telecommunications start-up businesses and continued to manufacture
directly and through outsourcing arrangements. In addition, Telrad undertakes
research and development for Nortel and Nortel Israel.
As part of the overall agreement, we acquired Nortel's 20% stake in
Telrad for $45 million and invested, together with Telrad, $49 million in
shares and loans to Nortel Israel.
In addition, we and Telrad were granted a put option to sell our
holdings in Nortel Israel to Nortel and we gave Nortel a call option to buy
our holdings in Nortel Israel. These options are exercisable in August 2003,
at a price which reflects the sum of our investment in Nortel Israel, plus a
yield based on a formula set forth in the agreement.
Through these agreements, the parties established the terms on which
Telrad will supply certain products to Nortel Israel and to other Nortel
entities.
On April 23, 2002, Nortel and Telrad signed license and distribution
agreements, allowing Telrad to sell products based on Nortel know-how and
technology to a defined list of carriers in countries in which Nortel does
not intend to conduct business and/or in which its activities are limited.
Telrad is currently negotiating several additional agreements with Nortel.
20
Credit Risk Exposure
As part of the above mentioned agreement with Nortel, Telrad
retained the receivables from the related sales that typically include
extended credit terms to customers in countries that involve certain risks
in light of their political and economic conditions. These countries
include Ethiopia, Papua New Guinea, Myanmar, the Palestinian Authority,
Chile, Bolivia and Georgia.
As of December 31, 2001 and 2000, Telrad's long-term credit risk
exposure from these agreements amounted to NIS 62 million and NIS 155
million, respectively.
Cost Reduction Plan
A major decline in the international communications industry began
at the end of the year 2000. Due to the decline, Nortel decided to reduce
significantly its purchases from Telrad.
As a result of the sharp decline in its sales, the management of
Telrad decided, at the beginning of the year 2001, to take several steps to
minimize the damage. In addition to the reorganization plan and retirement
plans discussed above, Telred implemented cost reduction measures,
including shutting down two start-up subsidiaries and pausing all
recruitment of new personnel, as well as cutting costs in the areas of
advertising, travel and exhibitions.
Telrad's Backlog
As of December 31, 2001 and December 31, 2000, Telrad had no
aggregate backlog of confirmed orders, due to the decline of the
telecommunications market, compared to an aggregate backlog of confirmed
orders of NIS 1,265 million as of December 31, 1999. Since the beginning of
2001, Telrad has primarily operated in accordance with forecasts submitted
to it by its customers.
Our Defense Electronics Business
Our defense electronics business is conducted through various
former subsidiaries of Tadiran Ltd. (Tadiran), including Elisra Electronic
Systems Ltd. (Elisra), Tadiran Electronic Systems Ltd. (Tadiran Electronic)
and Tadiran Spectralink Ltd. (Tadiran Spectralink), all of which are
collectively referred to as "the Elisra Group." Our defense electronics
business principally involves the design, manufacture, distribution and
support of a wide range of advanced electronic systems, primarily for
military purposes. For the years ended December 31, 2000 and 2001, our
defense electronics business had sales of NIS 1,163 million and NIS 1,352
million, respectively, representing 14.7% and 18.9%, respectively, of our
consolidated net sales during these periods. In 2001, the majority of sales
of our defense electronic business were made to defense-related customers.
In 2001, the Elisra Group's sales to the Israeli Ministry of
Defense (IMDF) represented 18% of the Elisra Group's sales.
21
The principal companies in our defense electronics business are:
Percentage
Of Equity
Ownership Principal Products and Services
--------- -------------------------------
Elisra Electronic Systems Ltd. 100.0 Electronic warfare, equipment and systems
Tadiran Electronic Systems Ltd. 100.0 Command, control, communications and intelligence
systems for defense applications
Tadiran Spectralink Ltd. 100.0 Advanced data and video links for military use
BVR Systems (1998) Ltd. 46.2(1) Advanced military training and simulation systems
(1) The ordinary shares of BVR are quoted on Nasdaq (Nasdaq: BVRS).
On January 20, 2000, in an effort to simplify our corporate
structure, we, Tadiran and Elisra entered into an agreement pursuant to
which Tadiran transferred all of its holdings in Elisra to us free of
charge, effective as of January 1, 2000. In addition, Tadiran transferred
its shares in Tadiran Electronic and Tadiran Spectralink to Elisra, also
free of charge. On June 28, 2000, upon receipt of the relevant approvals,
the share transfers were completed.
Elisra Electronic Systems Ltd. (Elisra)
Elisra designs, develops and produces electronic warfare and
surveillance systems for military purposes, as well as a range of
electronic and microwave components for the commercial market. Elisra
offers a diversified range of combat-proven electronic warfare (EW)
systems, including radar warning systems, active countermeasure systems,
comprehensive self-protection systems, electronic intelligence (ELINT)
systems and sophisticated communication links, complemented by extremely
light-weight components. Elisra also develops a wide range of active and
passive microwave components. Microwave and RF components are essential to
nearly all intricate electronic equipment, as well as microwave
telecommunication and satellite systems.
On April 8, 2002, we announced that we are in advanced
negotiations to sell between 24% - 30% of Elisra's shares to Elbit Systems
(Nasdaq: ELST) based on a valuation of Elisra of over $300 million. A
definitive agreement was expected to be signed by the end of May 2002,
subject to due diligence review and other approvals. However, on June 7,
2002 we announced that in light of our failure to reach agreement with
Elbit Systems, the negotiations for the sale have been discontinued. The
exclusivity period for negotiations between us and Elbit expired on May 17,
2002
On June 7, 2002, we signed a binding Heads of Agreement for the
sale of 30% of Elisra's shares to Elta Electronic Industries Ltd., or Elta
(a subsidiary of Israel Aircraft Industries), on the basis of a valuation
of Elisra of approximately $330 million. In addition, we granted an option
to Elta to acquire an additional 8% of Elisra, at the same valuation, until
the earlier of December 31, 2003 or an initial public offering by Elisra.
The signing of a definitive agreement is subject to the completion of due
diligence by Elta, and the receipt of approvals from Israel's anti-trust
authority and other necessary approvals. In the event this transaction is
22
completed, we expect to record a capital gain of over 60 million dollars,
after tax, in the second half of 2002.
As of December 31, 2001, our defense electronics business had an
aggregate backlog of confirmed orders of NIS 3,210 million ($727 million)
compared to NIS 2,527 million ($617 million) as of December 31, 2000. In
the first quarter of 2002, our defense electronics business received new
orders of approximately $32 million.
Tadiran Electronic Systems Ltd. (Tadiran Electronic)
Tadiran Electronic is engaged in providing solutions for a variety
of customers in the field of C4I (Command, Control, Communication,
Computing Intelligence), electronic warfare COMINT systems and spectrum
management and control systems.
An array of electronic hardware and computer software is
incorporated into the C4I systems, which enable the collection, processing,
analysis and display of large quantities of information to facilitate
effective dissemination and accelerate decision making for better Battle
Management capabilities.
Tadiran Electronic has developed a simulator for a Tactical
Ballistic Missile (TBM), Defense Battle Management Center for the U.S.
Ballistic Missile Defense Organization (BMDO) and the Israeli Ministry of
Defense. The simulator is currently operating and providing information for
both organizations.
In March 2001, a fire broke out at the plants of Tadiran
Electronic and Tadiran Spectralink, both of which are now wholly-owned by
Elisra. The managements of these two companies estimate, on the basis of,
among other things, the opinion of their legal advisers in this matter,
that the indemnity value which will be received from the insurance
companies will not be less than the amount of the fire damages. This
indemnity estimate did not include amounts relating to the loss of interim
profits of approximately $1.3 million which were recognized in earlier
periods in respect of "works in progress" which were damaged by the fire.
As of December 31, 2001, we had received advances from the insurance
companies amounting to approximately $10 million.
Tadiran Electronic is also a supplier of the Battle Management
Center of the Israeli Arrow Defense weapons system.
Tadiran Electronic's activities in the field of electronic warfare
systems involve the design, development and distribution of a broad range
of strategic and tactical electronic warfare systems for ground, naval and
airborne platforms. Passive electronic warfare systems analyze and display
incoming signals and weapons information, while active electronic warfare
systems render hostile communication ineffective through electronic
countermeasure techniques.
Based on electronic warfare technology, a new range of commercial
applications has evolved in the area of spectrum management control.
Integrated spectrum management and monitoring systems provide nationwide
solutions to various telecommunication administrations.
23
Tadiran Spectralink Ltd. (Tadiran Spectralink)
Tadiran Spectralink develops and manufactures data and video links
for a variety of applications, including unmanned aerial vehicles, guided
weapons and satellite communications. Based on these links, command and
control systems for airborne and naval applications are developed.
BVR Systems (1998) Ltd. (BVR)
As part of our strategy to focus on the defense electronics
business, we and Elisra acquired a 28.6% interest in BVR in 1999. BVR is a
diversified world leader in advanced military training and simulation
systems, offering highly efficient and cost effective solutions for the
simulation, training and debriefing needs of modern air, sea and ground
forces. We acquired our interest in BVR through open market share purchases
at various prices with an aggregate cost of NIS 20 million, and through the
acquisition by Elisra of shares in BVR in a private placement transaction
for an aggregate consideration of NIS 14 million. In connection with these
share acquisitions, we received the right to appoint three out of seven
nominees to BVR's board of directors.
During 2000, Elisra acquired shares of BVR from several third
parties and through a private placement for approximately $10 million.
Elisra also purchased all the shares held by us in BVR. During the third
quarter of 2000, a provision of approximately NIS 41 million was recorded
for the write-off of part of the goodwill, due to a decrease in the value
of the shares that is not of a temporary nature. In 2001, Elisra bought an
additional 22,300 shares of BVR in the open market (representing
approximately 0.2% of BVR's outstanding shares). As December 31, 2001,
Elisra's holdings in BVR amounted to 46.2%. Elisra has the right to appoint
five out of nine nominees to BVR's board of directors. BVR has been
consolidated in our financial statements since September 30, 2000.
During the first quarter of 2001, the management of Elisra decided
to write-off $8.3 million from the balance of goodwill of BVR based on,
among other things, its business operations, order backlog and updated
evaluations regarding its marketing potential.
Our Agrochemicals Business
Our agrochemicals business is conducted primarily through the
direct and indirect subsidiaries of Makhteshim-Agan Industries Ltd. (MA
Industries), which are Makhteshim Chemical Works Ltd. (Makhteshim), Agan
Chemical Manufacturers Ltd. (Agan) and Milenia Agro Ciensias S.A.
(Milenia), all of which are collectively referred to as "the MA Group."
These companies are leading international suppliers of generic crop
protection products. Makhteshim and Agan are Israel's largest producers of
insecticides, fungicides and herbicides. Agan is also a manufacturer of
synthetic aroma chemicals. For the years ended December 31, 2001 and 2000,
our agrochemicals business had sales of NIS 3,925 million and NIS 3,509
million, respectively, representing 54.9% and 44.2%, respectively, of our
consolidated net sales during such periods. International activities,
primarily sales in Europe, North America and Latin America, accounted for
90.6% and 89.2% of our agrochemicals business' sales in 2001 and 2000,
respectively.
24
The principal companies in our agrochemicals business are:
Percentage
Of Equity
Ownership Principal Products and Services
--------- -------------------------------
Makhteshim-Agan Industries Ltd. 52.56(1) Holding Company
Makhteshim Chemical Works Ltd. 100.0 (2) Insecticides and fungicides and other chemicals
Agan Chemical Manufacturers Ltd. 100.0 (2) Herbicides and synthetic aroma chemicals
Milenia Agro Ciensias S.A. 100.0 (2) Formulation and distribution of crop
protection chemicals
(1) The ordinary shares of MA Industries are traded on the TASE.
(2) Indicates the percentage of direct ownership by MA Industries.
The Agrochemicals Business Environment in 2001
2001 was a difficult year for agrochemicals, during which the
world market shrank by about 8% to a volume of 25.6 billion dollars.
General economic markets in most regions of the world also declined, for a
number of reasons including those detailed below. The fourth quarter of
2001 was overshadowed by the severe financial and economic crisis in
Argentina. During the fourth quarter, usually characterized by strong sales
in the southern hemisphere, Argentina experienced selective sales by many
companies in reaction to the ongoing uncertainty in this important
agricultural country which traditionally represents an estimated market of
$500-$600 million per year. The crisis in Argentina has also affected
neighboring Brazil, where the market decreased in size by about 10%. Most
of this impact was felt in the first nine months of 2001 with the erosion
of the exchange rate of the Brazilian real from approximately 1.9 reals to
the dollar to approximately 2.85 reals to the dollar. This trend reversed
itself in the fourth quarter, and the Brazilian real appreciated to an
average of 2.5 reals to the dollar. The financial crisis in Argentina and
the devaluation in Brazil brought down the annual volume of sales in the
Latin American region by roughly 14.5% in nominal US dollar terms. In
addition market volumes decreased considerably in Western Europe by 8.2% as
a result of the ongoing policy of reducing agricultural areas and the
continued use of methods for reducing the use of agrochemicals (such as
Integrated Pest Management-IPM). The Far East market, primarily in Japan,
shrank as well due to a weak pest year in the rice market and the weakening
yen which led to a decrease in dollar terms.
As a result of a number of mergers in the agrochemicals industry
in 1999 and 2000 as part of a move towards consolidation among the major
multinational companies, many of these companies were forced to divest of
several of their products as a condition for approval of the mergers by
anti-trust authorities. These divestitures have provided opportunities for
other companies in the industry to enhance their product base. We believe
that our alertness and ability to react quickly led to our winning several
tenders. At the instruction of the anti-trust commissioner, Syngenta was
obliged to sell several products as a condition for approval of the merger
between Novartis and Zeneca. After evaluating all the products offered for
sale, and their suitability to the MA Group's strategy, we participated in
three tenders, and won them all.
25
Details on the products the MA Group acquired from Syngenta during
the first quarter of 2001 are presented below:
o Propaquizafop is a herbicide used on weeds in broad-leaved
crops such as cotton, rapeseed, soya, potatoes, peanuts, green
beans and various other vegetables. This product is protected
by patents that were transferred to a subsidiary as part of
the transaction, and is intended mainly for the markets of
Western Europe.
o Tau Fluvalinate is an insecticide used against aphids. It is a
"green" product (environmentally friendly) and is used mainly
in grains and stone fruits, in orchards and in flowers. This
product is intended mainly for the markets of Western Europe.
o In addition, the MA Group acquired the distribution rights for
a group of products in Scandinavian countries that contain 5
fungicides formulated to treat grain crops: Corbel, Tilt Top,
Tilt, Stereo and Tern. We believe that these products are
considered leaders in their fields.
In addition, in January 2001, the MA Group completed the
acquisition of the following products from Aventis:
o Guazatine, also known by the commercial name "Panoctine," is a
material used to disinfect grain and cotton seeds, and is
formulated to prevent diseases from developing in the seed or
the soil, mainly the disease Fusarium spp. The material
constitutes an excellent marketing platform for joining with
the MA Group's existing products for the seed treatment
market. This product is sold mainly in Northern and Western
Europe.
o Clofentezine, which is also known by its commercial name
"Apollo," is a product formulated to protect plants from
mites, which infest mainly orchards, citrus, vines and
rapeseed. This is a relatively new product that is considered
environmentally friendly. Apollo is one of the most important
materials in its field. We believe that it is synergetic with
the MA Group's existing product portfolio, and will contribute
to strengthen the MA Group's marketing position. The product's
principal target markets are the U.S., Japan and Western
Europe.
All of these acquisitions are strategic to MA Group, and their
objective is to strengthen its distribution and marketing position,
particularly in Western Europe, while taking full advantage of production
synergies. The year 2001 was the first year of operation for these
products.
Bayer's acquisition of Aventis Crop Science in 2001 has led to
expectations of demand for the sale of some of their products as a
condition for the approval of the transaction by the European Anti-Trust
Commissioner. We believe that this will lead to opportunities to expand the
MA Group's product portfolio, and will generate additional future potential
for supply by the outsourcing demand resulting from decreasing production
sites.
We estimate that in the coming year, mergers within the
agrochemicals industry will offer additional sales opportunities. We will
focus on identifying and acquiring products and distribution channels which
will enable us to strengthen our market presence, particularly in Europe
and North America.
26
As our portfolio strengthens, we are examining the possibility of
penetrating markets in which our presence today is marginal, including
Germany, Scandinavia, the United States and Poland. This can be achieved
with the support of the acquired products, for which there is a market in
those countries, along with attempts to identify and acquire suitable
distribution companies.
In view of the declining agrochemicals market, the MA Group decided
at the end of 1999 to implement an internal restructuring plan, which
includes consolidating manufacturing facilities, both in Israel and abroad;
reducing the number of employees, particularly among administration and
management; across-the-board cost-cutting measures; focusing on the MA
Group's essential businesses; and improving the MA Group's operating
cash-flow to take advantage of opportunities within the industry as they
arise. Specifically, the MA Group consolidated its manufacturing plants in
Brazil, closed down its Be'er Sheva-based production facilities and relocated
production to the MA Group's main plant in Ramat Hovav. During 2001, savings
of approximately $15 million were achieved, by significantly reducing fixed
expenses and cutting manpower. Also during 2001, the MA Group continued the
process of optimizing working capital, as a result of the measures taken with
regard to customer credit, inventories and supplier credit. Consequently, for
the third running year, there is significant improvement in cash flows from
operating activities, which totaled $134 million.
Crop Protection
Generic agrochemicals offer an alternative source for widely
utilized chemicals previously manufactured under patents by larger
research-based chemical manufacturers. Research-based chemical
manufacturers often focus their resources on developing new agrochemicals
and supply of additional chemicals by generic manufacturers, such as
Makhteshim and Agan, to supplement their capacity. In the next few years,
as a result of decreased resources committed to research and development of
new agrochemicals products and the expiration of existing patents, a
significant number of widely used agrochemicals are expected to lose patent
protection in many geographic regions (primarily South America),
substantially increasing the available market for sales by generic
manufacturers. The off patent component of the agrochemical industry is
expected to grow from about 55% today to over 70% of the agrochemical
market by 2004. In addition, the modernization of the agricultural
industries of Eastern Europe and other developing countries offers
increasing sales opportunities for both research-based and generic
agrochemical manufacturers.
The major competitors in the international market for
agrochemicals are major international research-based chemical producers.
These major international chemical producers have significant influence on
the prices of most of Makhteshim's and Agan's products. In the Israeli
market, Makhteshim and Agan compete with importers with respect to most of
their products, and Makhteshim competes with both importers and Israeli
producers with respect to non-pesticide products.
The development of new generic products requires significant
investment for research, licensing, establishment of production and
marketing facilities. The MA Group typically focuses on products that
require a high degree of sophistication in process development and
production, and are, therefore, less susceptible to extensive competition.
27
Their prices, therefore, tend to be relatively higher than sectors where
competition is more prevalent. For many of these products, the MA Group is
the world's second largest manufacturer, with the original research-based
chemical company maintaining the majority share. We believe that the MA
Group's ability to compete with major international research-based chemical
companies and other generic chemical manufacturers is based upon their
flexible manufacturing facilities, advanced research and development
capabilities, fulfillment of stringent registration and licensing
requirements of various countries, compliance with environmental
regulations, material purity and worldwide marketing and cooperation with
certain multinational companies with respect to the production and
marketing of numerous products. An essential component of the MA Group's
ability to maintain its market share on the worldwide market is the
successful introduction of new generic products immediately after the
expiration of the patents validity. In 1998, an amendment was passed to
Israeli Patents Law 1967, which has certain beneficial ramifications for
the Israeli agrochemical industry. Under this amendment, (i) subject to
certain conditions, research activities on a patent during the patent
period for the purposes of production deployment after the patent
expiration will not constitute misuse of an invention, and (ii) the period
of patents in the agrochemical industry cannot be extended. These changes
should facilitate the introduction of new products by the MA Group.
The MA Group plans to develop, over the next several years
additional agrochemical products, including fungicides, insecticides,
herbicides and biotechnological products, based primarily on a substantial
number of patents held by other parties expiring within the next few years.
The MA Group's total average investment program for the next several years
for internally developed products and acquisition of businesses could reach
an estimated yearly budget of $100 million and includes substantial
investments in these products. Recently, the MA Group purchased the right
to manufacture and market certain new agrochemical products from the
developers of such products.
New research and developments in the field of trans-genetic plant
species that can tolerate insects and in plant species that are resistant to
fungal diseases may have an adverse impact on the demand for the MA Group
products during the next few years, depending upon the success of such
developments.
Makhteshim and Agan market their crop protection chemicals primarily
to foreign manufacturers, which use such chemicals in the formulation of a
wide range of products and sell the formulations to distributors and end
users. Agan manufactures over 20 different active ingredients, which are sold
as technical grade materials and "ready" formulations. These technical grade
materials are used in the formulation of a wide range of herbicides and plant
growth regulators. The "ready" formulations are sold to distributors. Agan
sells its synthetic aroma chemicals principally to the detergent, soap and
cosmetics industries. No single product manufactured and sold by Makhteshim
and Agan accounted for more than 10% of Makhteshim's and Agan's total sales
in 2001 and 2000.
Foreign Activities
As part of our strategy to focus on our core businesses and
increase market penetration in the agrochemicals industry, we have
continued to expand our agrochemicals business abroad.
28
In December 1998, the MA Group acquired a 45% interest in
Productos Fitosanitarios Proficol El Carmen S.A. (Proficol), one of the
leading agrochemicals distribution companies in Colombia. In December 2000,
the MA Group acquired another 12.5% of Proficol (Colombia), achieving an
aggregate stake of 57.5%. We believe that Proficol constitutes a
significant anchor for the MA Group activities in the Paco-Andeau region
(the northern South American countries).
In the beginning of 1999, Milenia Particapacoes S.A. (Milenia), MA
Industries' majority-owned consolidated subsidiary in Brazil, established a
joint venture with Kasba S.A., a leading marketer of agricultural inputs
(including fertilizers, seeds and crop protection chemicals) in Paraguay.
In August 2000, MA Industries acquired the outstanding minority
interest (approximately 28.5%) in Milenia from its minority shareholders
and, thereby, obtained full ownership of Milenia. Pursuant to the
acquisition agreement, MA Industries paid approximately $22 million in cash
and 12.4 million shares of MA Industries stock valued at $28 million, with
respect to 8.9 million of which it granted a Put option to be exercised in
January 2002, as well as a future payment based on Milenia's profits in
2000 and 2001. In December 2001, MA Industries negotiated and signed a
supplementary agreement with the minority shareholders in order to settle
the continuing obligations of MA industries under the original agreement.
Pursuant to the supplementary agreement, MA Industries purchased 5.9
million shares of its stock from minority shareholders for approximately
$15 million pursuant to an early exercise of the Put option, with the
remaining 3 million shares subject to the Put option being waived by the
minority shareholders. In addition, MA Industries paid approximately $8.3
million to the minority shareholders in cash in satisfaction of its payment
obligations based on Milenia's profits in 2000 and 2001. In August 2001, we
sold 19,383,000 shares of MA Industries for approximately NIS 170 million
(based on a stock market price of NIS 8.80).
In October 2001, MA Industries and several of its subsidiaries
entered into a securitization transaction, pursuant to which the
subsidiaries agreed to sell all their accounts receivable to several
foreign companies which were established for this purpose, but which are
not owned or controlled by MA Industries or its subsidiaries. The
acquisition of the accounts receivable by these companies was financed by
Kitty Hawk Funding Corp., a United States corporation and an affiliate of
the Bank of America Group. The volume expected to be at the disposal of the
companies purchasing the accounts receivable is approximately $150 million,
on a current basis, so that the considerations received from the customers
whose debts were sold will be used to purchase new debts. Under the terms
of the securitization agreements, MA Industries will handle collection of
the sold debts for these companies in consideration of a fee, which is to
be determined in accordance with such agreements. The debts of customers of
MA industries' South American subsidiaries were not sold under this
securitization transaction. As of December 31, 2001, MA industries received
cash proceeds of approximately $96 million from this securitization
transaction.
Our Venture Capital Business
As part of our strategic plan, we are exploring new investment
opportunities in high growth potential businesses located in Israel and
around the world in the fields of telecommunications and wireless,
semiconductors, enterprise software, biotechnology and life sciences.
29
In January 2000, we and a wholly-owned subsidiary established a
registered partnership called "Koor Corporate Venture Capital" (Koor CVC),
within which we are concentrating our investment activities in venture
capital funds and in high-tech companies with growth potential. The action
was taken to implement our strategic decision to increase our investments
in those areas.
Within this context, Koor CVC joined, as a limited partner, and
committed to invest up to a total of $73 million in, a number of venture
capital funds, including Pitango Venture Capital Fund III L.P. (formerly
Polaris Venture Capital Fund III L.P originating in Israel), BRM Capital
Fund L.P., Genesis Partners II (Israel) L.P., Carmel Software Fund (Israel)
and Synergy Ventures Partner (BVI) LT, Star Management of Investment No II
(2000) L.P. and Delta Ventures (Ltd.). Koor CVC is entitled to permanent
representation on the advisory committees of several of these funds.
Koor CVC also signed agreements with various start-up companies to
invest up to a total of $106 million in them directly.
During 2001, Koor CVC invested $33 million in new and current
portfolio start-up companies, such as Wanwall, Comsys, Medgenics,
Proficiency and Simbionix.
During 2001, Scopus Ltd., a subsidiary of Koor CVC, issued
preferred shares to third parties for a total consideration of $17.4
million. Following the issuance, the percentage of Koor CVC's holding in
Scopus decreased to 49.4% and its consolidation into our results of
operation was terminated beginning with the fourth quarter of 2001, with
the investment in Scopus Ltd. being reflected in our consolidated balance
sheets under the line "Investments in affiliates."
In May 2001, Koor CVC sold, free of charge, all of its holdings
(50%) in SigmaOne Communications (SigmaOne), which it acquired for $5
million in 2000, to the KL-LLC group, the other shareholders of SigmaOne.
In the sale transaction, we and the buyers transferred $2 million to
SigmaOne, to ensure its operation as a going concern. We also replaced the
existing debt of SigmaOne owed to us with new debt, which includes an
option to convert the debt to shares of SigmaOne, representing
approximately 15% of the capital as of the transaction date.
As a result of these transactions, we wrote off the investment of
$5 million in SigmaOne and we recorded a provision in our financial
statements in the amount of our investment in SigmaOne, including the loans
which we extended to it, of approximately $10 million.
During 2001, Koor CVC made $40 million of provisions for several
of its portfolio companies and transactions, including the SigmaOne
transaction. These provisions were as a result of depreciation in value and
closures in some of the companies, as well as precautionary provisions in
other portfolio companies in light of changes in their respective business
environments and business plans.
30
As of December 31, 2001, we had invested, through Koor CVC,
approximately $126 million in such venture capital funds and start-up
companies, including $8 million to acquire Tadiran Scopus Ltd. from Tadiran
Ltd.
On December 31, 2001, Koor CVC had a commitment to invest an
additional $52 million in portfolio companies and venture capital funds.
During the first quarter of 2002, Koor CVC invested in, and made
loans to startup companies and portfolio venture capital funds (Pitango and
Carmel) in the amount of $7 million as part of its commitment to invest in
these funds, leaving the remaining obligation for investment in portfolio
funds at $45 million to be drawn upon by the funds over the next 6-8 years,
based on their needs.. During the first quarter of 2002, Koor CVC made $3
million of provisions due to changes in valuations of portfolio companies
and portfolio funds.
Our Other Businesses
We have an interest in certain service industries, mainly tourism,
real estate, aviation and trading. In previous years, our "other
businesses" segment also included construction and infrastructures,
electrical appliances, software, food, consumer products and metal
products, as well as the production of batteries.
The principal companies in our other businesses are:
Percentage
Of Equity
Ownership Principal Products and Services
--------- -------------------------------
Sheraton Moriah (Israel) Ltd. 55.0 Hotel chain
Knafaim-Arkia Holdings Ltd. 28.3(1) Aviation and tourism services
Koor Properties Ltd. 100.0 Real estate
Koor Trade Ltd. 100.0 International trade
(1) Not consolidated in our financial statements and not included in our business data.
The ordinaryshares of Knafaim are traded on the TASE.
Tourism
Our interests in Israel's tourism industry include ownership and
management of hotels and resorts, and other tourism-related services, such
as airlines. For the years ended December 31, 2001 and 2000, our tourism
business had sales of NIS 426 million and NIS 630, respectively.
Sheraton Moriah (Israel) Ltd. (Sheraton)
On January 24, 1999, we and Sheraton International Inc. won a
public tender for the purchase of a 100% interest in Sheraton Moriah. On
April 12, 1999 the transaction was completed based on a value of NIS 270
million ($63.5 million). In October 1999, we completed the sale of a 20%
interest in Sheraton Moriah to a subsidiary of Bank Hapoalim. Currently, we
have a 55% interest in Sheraton Moriah.
31
On December 30, 1999, we merged our other hotel operations,
including our interest in Herod's Hotel in Eilat, into the Sheraton Moriah
network.
The Sheraton Moriah hotel network consists of approximately 2,800
rooms in 10 owned or leased hotels in major tourist destinations in Israel,
operating under the following brand names: Sheraton (seven hotels), Luxury
Collection (one hotel) and Sheraton Four Points (two hotels), with an
additional two hotels subleased to a third party.
Due the escalation of violence in Israel since October 2000, there
has been a significant decrease in incoming tourism to Israel, which has
caused a decrease in occupancy rates and revenues and the impairment of
operating results.
Knafaim-Arkia Holdings Ltd. (Knafaim)
We hold a 28.3% interest in Knafaim. Knafaim owns a variety of
businesses in the travel and tourism industry, including Arkia Israeli
Airlines Ltd., Israel's largest domestic airline. Arkia also purchases and
leases back aircraft and operates charter flights to Europe. Knafaim also
holds other companies that supply various tourism services, both
domestically and internationally.
Histour Eltiv Ltd. (Histour)
On February 21, 2000, we completed the transfer of our holdings
(51%) in Histour which provides tourist services in Israel for the release
of our guarantees of the liabilities of Histour. In addition, we invested
approximate NIS 16 million in Histour in exchange for preferred shares in
Histour. We sold all our shares for some NIS 2 million during May 2002.
Real Estate
Koor Properties Ltd. (Koor Properties)
Koor Properties, our wholly-owned subsidiary, owns and develops
real estate in Israel. In 1999, Koor Properties assumed the management of
seven Tadiran sites with an aggregate area of 250,000 square meters. Annual
rent from these sites is NIS 47 million ($11.4 million). In addition, as of
December 31, 2001, Koor Properties owned an aggregate of 61,000 square
meters of real property, of which a significant part is undeveloped and the
remainder is in various phases of development. Koor Properties has entered
into several agreements with respect to this property to build industrial
and commercial parks and to build, renovate and lease buildings. The land
is being developed according to market conditions, and the development is
being financed through bank loans secured by the land. Koor Properties also
owns a prefabricated concrete element plant.
In October 2000, Koor Properties entered into a series of agreements
with various companies of the Delek Group. These agreements related to the
rights of Koor Properties in various real estate assets covering a total area
of about 135 dunams or about 34 acres, which are designated as agriculture,
industry and residential properties. In addition, Koor Properties undertook to
build for the Delek Group on certain portions of this land, a logistics center
32
covering about 10,000 square meters. The total consideration for the rights in
the land and for the construction of the building was approximately $20.8
million.
During 2001, a consolidated subsidiary of Koor Properties sold
part of its real estate assets for NIS 48 million (of which approximately
NIS 32 million will be received in 2002). We did not record any profit or
loss from the sale.
Trade
Koor Trade Ltd. (Koor Trade)
Koor Trade, our wholly-owned subsidiary, imports, exports and
distributes a broad range of industrial, agricultural and consumer products
through its worldwide network of offices, including offices in Europe,
Asia, Latin America and Australia. For the years ended December 31, 2001
and 2000, Koor Trade had sales of NIS 149 million and NIS 113 million,
respectively. Koor Trade owns a 49% equity interest in Balton C.P limited,
an English international trading company, which is engaged in trading
activities in seven countries in Africa relating to agricultural,
telecommunications, electromechanical and air-conditioning equipment,
construction and other projects.
Construction and Infrastructures
In 2001, our construction and infrastructures segment discontinued
operations due to the discontinuation of activity of USM, which was
consolidated in the construction and infrastructures segment. See Note 3G to
our consolidated financial statements. In 2000, our construction and
infrastructure segment included Middle East Tubes Co. Ltd. and Mashav
Enterprise and Development Ltd., both of which were sold during 2000. In
1999, this segment included Merhav Building Materials and Ceramics Ltd.,
which was sold during 1999.
United Steel Mills Ltd. (USM)
On November 5, 2001, the Haifa District Court gave a liquidation
order for USM, under which Adv. Ilan Shavit was appointed as special
manager until a permanent liquidator is appointed. Previously, from March
16, 2000 to July 30, 2001, the group was managed under a stay of
proceedings order, and from August 1, 2001 under a temporary liquidation
order.
Due to the liquidation proceeding, which commenced on August 1,
2001, the consolidation of USM in our financial statements was terminated
at the beginning of the third quarter of 2001. In 2001, the operations of
USM constituted the entire activity in the construction and infrastructure
segment in our operations, following the sale of two other companies in
this segment. Accordingly, in our consolidated statement of operations,
including the earnings (loss) per share for the year ended December 31,
2001, operations in the construction and infrastructure segment are
presented as a segment whose operations were discontinued. In addition, our
consolidated statements of operations for previous years were restated in
order to reflect the discontinuation of operations in this segment (see
Note 23(H) in the financial statements).
33
During 2001, in the period when USM was managed under the stay of
proceedings order, we made available, ex gratia and without committing to
it, a special line of credit of about NIS 28 million, which was given
concurrently with credit arrangements given ex gratia by the banks, and was
intended to finance the expenses relating to the workers' retirement
arrangements, as well as the sale of USM plants.
Since we were not a guarantor for the debts of USM to third
parties, we had no share in USM's loss for the first six months of 2001
beyond the amount set forth above.
Mashav Enterprise and Development Ltd. (Mashav)
In January 2000, we sold our entire 50% holding in Mashav to Clal
Industries and Investments Ltd. for approximately NIS 903 million ($214
million). We also received 47.5% of the share capital of Mashal Alumina
Industries Ltd., a former subsidiary of Mashav, whose business is the
development of a process for producing Alumina, an aluminum compound. Our
net capital gain in respect to this transaction amounted to approximately
NIS 237 million (after the allocation of NIS 131 million deferred taxes).
Prior to the sale, on December 30, 1999, we received dividends from Mashav
in the amount of NIS 360 million.
On October 5, 1997 and January 5, 1998, in authorizing our merger
with the Claridge Group, the Controller of Restrictive Trade Practices
imposed certain restrictions on both us and the Claridge Group regarding
our joint holdings with Clal Industries and IDB in Mashav (including
Granite) and in ECI. In accordance with these restrictions, we entered into
an agreement in April 1998 with Clal Industries pursuant to which Clal
Industries received an option to acquire 25% of Mashav's share capital from us.
Other Divestitures
Koor Insurance Agency
In January 2001, we sold all our holdings in Koor Insurance Agency
for consideration of approximately NIS 5 million. The profit from the
transaction was approximately NIS 3 million.
Other Investments
Electric Fuel Corporation Ltd. (EFC)
On March 15, 2000, we entered into an agreement with Electric Fuel
Corporation Ltd. (EFC), a public company whose shares are traded on the
Nasdaq pursuant to which EFC would acquire Tadiran Batteries from Tadiran
and we would invest $10.5 million in EFC in exchange for an allotment of
approximately 14% of EFC common stock to us and Tadiran. In May 2000, the
sale of Tadiran Batteries was cancelled by mutual consent. In May 2000, we
invested $10 million in the share capital of EFC. On June 15, 2000, Tadiran
entered into an agreement to sell its interest in Tadiran Batteries to EFC
for a total consideration of approximately $33 million.
Our investment in EFC shares is presented in our consolidated
balance sheets as of December 31, 2001 as a current investment in listed
securities in the amount of approximately $1.3 million, or approximately
3.2% of EFC's share capital.
34
Nice-Systems Ltd. (Nice)
In 2000, we purchased 648,769 ordinary shares of Nice (or
approximately 5.0%) through open market purchases for $16 million. This
investment is presented in our consolidated balance sheets as of December
31, 2001 as a current investment in listed securities in the amount of
approximately $10 million.
Suppliers
The companies engaged in our businesses purchase the materials and
components used in their products from numerous independent suppliers.
These materials and components are not normally purchased under long-term
contracts. Most of the items purchased by these businesses are obtainable
from a variety of suppliers, and such businesses normally maintain
alternative sources for major items. In some cases these companies have
annual purchasing agreements with their major suppliers, which establish
prices, quality thresholds and delivery schedules.
To date, our businesses have not experienced any significant
difficulty in obtaining timely delivery of supplies, and management
believes these businesses maintain adequate inventories of certain
significant imported components. However, with respect to certain
components, there may be a lengthy period of preparation for production and
adaptation for our businesses' requirements. Accordingly, short-term
shortages may arise in the event that these companies were required to
change suppliers without advance planning. The unavailability of such
components during such change-over period could result in production
delays, which might adversely affect our business.
Research and Development
The companies in our telecommunication equipment, defense
electronics, venture capital investment and in the agrochemicals businesses
are actively engaged in research and development programs intended to
develop new products, manufacturing processes, systems and technologies and
to enhance existing products and processes. Research and development is
conducted through our subsidiaries and affiliates, and is funded by a
combination of our own resources and grants from the Israeli Government
and, in the case of the Elisra Group, the Israel-United States Bi-National
Research and Development Foundation (BIRD-F). We believe our research and
development effort has been an important factor in establishing and
maintaining our competitive position.
The following table sets forth the percentage of gross research
and development expenditures incurred by our principal businesses in 2000
and 2001 as a percentage of the total sales of these businesses:
2000 2001
---- ----
Telecommunications Equipment 9.5% 11.3%
Defense Electronics 4.0% 3.7%
Agrochemicals 2.1% 2.0%
35
Our updated research and development efforts have resulted in an
increase in the sales of internally designed products. We believe that
research and development in high technology areas, such as our
telecommunications equipment, defense electronics and agrochemicals
businesses, is important to our future growth, particularly with respect to
products targeted for export markets. Accordingly, we anticipate that these
businesses will account for a majority of our research and development
efforts in the future. As part of our research and development programs, we
not only seek to develop new products, but also to apply newly developed
technologies to improve our existing products.
In each of the last three fiscal years, we received grants from
the Government of Israel through the Office of the Chief Scientist (OCS)
for the development of certain products. We generally receive from the OCS
20% to 66% of certain research and development expenditures for particular
projects. Under the terms of the Israeli Government participation, a
royalty of 3% to 5% of the net sales of products developed from a project
funded by the OCS is generally required to be paid, beginning with the
commencement of sales of products developed with grant funds and ending
when 100% to 150% of the grant is repaid. We have paid in the past, and
currently pay, royalties on sales of such products. The terms of the
Israeli Government participation also require that the research and
development be conducted by the applicant for the grant as specified in the
grant application and that the manufacturing of products developed with
government grants be performed in Israel, unless a special approval has
been granted. Separate Israeli Government consent is required to transfer
to third parties technologies developed through projects in which the
government participates. Such restrictions, however, do not apply to
exports from Israel of products developed with such technologies. From time
to time the Government of Israel has revised its policies regarding the
availability of grants and participation, and there can be no assurance
that the Government's support of research and development will continue in
the future. In addition, in order to be eligible for the governmental
grants, programs and tax benefits, we must continue to meet certain
additional conditions, including making specified investments in fixed
assets. Should we fail to meet such conditions in the future, we could be
required to refund grants or tax benefits, together with interest and
inflation adjustments. Although we expect that the "Approved Enterprise"
status of our facilities and programs will continue, the termination or
reduction of these grants, programs and tax benefits and in particular,
benefits available to us as a result of the approved enterprise status of
substantially all of our facilities and programs, could have a material
adverse effect on our operations and financial condition. See Note 16G(2)
of Notes to Financial Statements.
In May 1999, the Israeli Ministry of Finance decided to place
limits on the funds OCS grants to Israel's 24 largest companies. The full
extent of this decision is unknown, however it may have a material adverse
effect on our results of operations.
The following table shows, for each of the periods indicated, our
gross research and development expenses, the portion of such expenses that
were funded by the Israeli Government (primarily through the OCS and
BIRD-F) and the net cost to us of our research and development expenses:
36
Year ended December 31,
---------------------------------------------------
1999 2000 2001 2001
-------- --------- --------- --------
($ in
(Adjusted NIS in thousands) thousands)
Gross research and development expenses 449,628 371,858 278,573$ 63,083
Portion funded by the Israeli Government and BIRD-F(1) 15,866 6,969 11,870 2,688
Net research and development expenses 433,762 364,889 266,703 60,395
------------------
(1) Net of royalties.
Competition
In 2001, the majority of our sales from telecommunications
equipment, defense electronics and agrochemicals businesses were derived
from international sales. The companies comprising these businesses are
focusing on developing new markets to increase international sales. The
worldwide marketing of products in each of these businesses is highly
competitive and certain competitors are substantially larger and have
substantially greater financial, production and research and development
resources, more extensive marketing and selling organizations, greater name
recognition and longer selling experience than us. Some of our competitors
are also able to provide their customers with more direct financing or
greater access to long-term, relatively low-cost government loans to
finance equipment purchases.
Patents and Intellectual Property
Several of our subsidiaries and affiliates own and control a
substantial number of patents, trade secrets, confidential information,
trademarks, trade names and copyrights which, in the aggregate, are of
material importance to our business. We are of the opinion that our
business, as a whole, is not materially dependent upon any one of these
assets or any related group of assets. We are also licensed to use certain
patents and technology owned and controlled by others, and other companies
are likewise licensed to use certain patents and technology owned and
controlled by us.
The IMDF retains (and, in certain limited circumstances, certain
of our other customers, including the United States Government, may retain)
certain rights to technologies and inventions resulting from our
performance as a prime contractor or subcontractor under certain contracts
and may disclose such information to third parties, including other defense
contractors who may be our competitors. When the IMDF and, in certain
limited circumstances, certain of our other customers, fund research and
development, they usually acquire rights to data and title to inventions
and we may retain a non-exclusive license for such inventions. In certain
circumstances, the IMDF and some of our other customers are entitled to
receive royalties in connection with the sale of products, the development
of which was financed by those entities. However, if the IMDF or one of our
other customers purchases only the end product, we normally retain the
principal rights to the technology.
37
Regulation
Our diverse businesses are subject to significant statutory and
administrative regulation in the various jurisdictions in which we operate
throughout the world. Among the regulations to which we are subject are
those described below.
Monopoly and Pricing Regulations
In connection with the purchase of our shares by the Claridge
Group, and the application submitted to the Restrictive Trade Practices
Controller (the Controller) regarding our merger with the Claridge Group,
the Controller, in his approval of the merger in October 1997, imposed
several restrictions on us. These restrictions were cancelled following our
sale of our interest in Mashav.
We and our subsidiaries or affiliates may be declared monopolies
or otherwise be subject to certain legal obligations and restrictions
established by the Controller or by the Restrictive Business Practices
Court (the Court) in the event that our market share, or the market share
of our subsidiaries or affiliates, exceeds certain prescribed limits.
Environmental, Health and Safety Matters
General
We are subject to laws and regulations concerning environmental
conditions, product safety, health and safety matters and the regulation of
chemicals in countries where we manufacture and sell our products. These
requirements include regulation of the handling, manufacturing,
transporting and use and disposal of certain materials, as well as
regulation concerning the discharge of pollutants into the environment. In
the normal course of our businesses, we are exposed to risks relating to
the possible release of hazardous substances into the environment, which
may cause environmental or property damage or personal injuries. In Israel,
where we maintain our principal production facilities, losses and damages
relating to continuous environmental pollution are currently uninsurable.
It is our policy to comply with environmental, health, product
safety and other safety requirements, and to provide workplaces for our
employees that are safe and environmentally sound, and that will not
adversely affect the health or environment of the communities in which we
operate. From time to time, our facilities may be subject to environmental
compliance actions and the resolution of such matters has in the past
involved the establishment of certain compliance programs. Israeli
legislation enacted in 1997 amended certain environmental laws by
authorizing the relevant administrative and regulatory agencies to impose
sanctions on non-complying parties, including issuing an order against any
person that violates environmental laws to remove the environmental hazard.
In addition, these laws impose criminal liability on the officers and
directors of a corporation that violates environmental-related laws, and
increases the monetary sanctions that such officers, directors and
corporations may be ordered to pay as a result of such violations. We have
established worker safety programs and procedures in our plants, which we
believe are reasonable under the circumstances. We believe that our
experience relating to worker accidents is generally consistent with
industry-wide experience. Furthermore, we believe that we are not currently
subject to material liabilities for non-compliance with
38
applicable environmental, health and safety laws, although there is a risk
that legislation enacted in the future could create liabilities for past
activities undertaken in compliance with then-current laws or regulations. In
addition, we may be held liable for environmental damage of which we are not
presently aware.
In addition to the specific matters described below, at a number
of locations at which certain of the businesses have conducted
manufacturing operations for many years, it is possible that contamination
may exist as a result of on-site waste disposal, spills, use of wastewater
treatment ponds, or other historical practices. While in recent years,
industrial solid wastes generally have been disposed of at a central
State-authorized disposal facility in Ramat Hovav, this central facility
was not available to Israeli industry during earlier periods of our
operations. It is unclear whether any existing conditions on any
Company-owned property will require significant redemption or cleanup in
the future, and we cannot speculate about the timing or potential costs
associated with any such cleanup. It is possible, however, that material
expenditures could be required with respect to these past practices.
In recent years, the operations of our businesses have become
subject to increasingly stringent legislation and regulation related to
occupational safety and health, product registration and environmental
protection. Such legislation and regulations are complex and constantly
changing, and there can be no assurance that such regulatory changes in the
future will not require us to make significant capital expenditures to
modify, supplement or replace equipment, or to change methods of disposal
or discharge, or the manner in which we manufacture products or operate our
businesses. In Israel, in particular, we anticipate that increasingly
stringent requirements will result in substantial expenditures,
particularly for improvements of environmental controls at older
facilities. We have generally adopted, or intend to adopt in our newer
facilities, environmental control standards comparable to those set by the
German Technische Anleitung Luft air emission regulations. These
regulations set forth strict controls on air emissions from industrial
facilities. The Israeli government has looked to these standards as a basis
for upgrading its air pollution requirements and has applied the standards
to some, but not all, facilities in Israel.
We regularly incur capital expenditures and operating costs to
comply with various environmental, health and safety laws and regulations.
The costs related to environmental matters may increase significantly in
the future if the implementation of new environmental standards in Israel
is more rapid or stringent than currently anticipated by us, or if
contemplated pollution control measures do not achieve the desired results.
Agrochemical Industry
The distribution and use of agricultural chemical products, including
crop protection chemicals such as those produced by the agrochemicals
business, are regulated in most parts of the world, and require extensive
testing, quality control and compliance with registration procedures. The
strictest standards are applied in the United States, where the Environmental
Protection Agency ("EPA") is the leading regulator, and in Japan and Western
Europe. The granting of a registration involves consideration of health,
safety and environmental issues, as well as the performance and benefits of
the product. The registration for an agricultural chemical product in the U.S.
and in Western Europe is often subject to data call-in or process. Usually,
39
updating the registration necessitates the submission of additional data by
the MA Group, our agrochemical division. Re-registrations, which permit the
continued sales of pesticides for an additional period, are frequently granted
as a matter of course, subject to compliance during the term of the
registration period. While the MA Group is not aware of any immediate intent
to cancel any of its registrations, there can be no assurance that the MA
Group will not face a revocation process or encounter difficulties in renewing
the registrations for its products for additional periods.
From time to time, some of the MA Group's agrochemical products
are subject to legislative or other initiatives to curtail or regulate
their use due to environmental, health or safety concerns.
Registration expenditures for the MA Group in 2001 were $11
million compared to $13 million in 2000. The MA Group believes that its
registration expenditures in the future will increase, based on the
stricter standards that are expected to be applied in countries where the
MA Group sells its products. As a result of the foregoing developments and
obligations, virtually all of the MA Group's businesses in recent years
have spent significant amounts on operation and maintenance, as well as
under capital programs to address increasingly stringent requirements with
respect to environmental, safety, and health protection concerns.
Agan expects to invest approximately $20 million over the next
five years in biological wastewater treatment facilities, pollution control
equipment and other environmental related matters.
Pursuant to recent analysis of underground sub-layers in Ramat
Hovav, where one of Makhteshim's plants is located, signs of possible
contamination were discovered. Further surveys are being conducted in
conjunction with other plants in Ramat Hovav by certain university
institutions. At this stage, Makhteshim cannot assess the possible cost it
might incur in respect of the above, should a solution be found and
implemented.
Defense and Government Contracts
Our businesses which sell products to military and governmental
markets are subject to various statutes, regulations and administrative
rules governing defense and government contracts and the manufacture and
sale of defense products in the United States, Israel and other countries,
including the following:
Defense electronics subsidiaries export a number of military
systems and products in accordance with the military export policy of the
State of Israel. Current Israeli policy encourages exports to approved
customers of military systems and products similar to those manufactured by
us, provided that such exports do not run counter to Israeli Government
policy, including national security considerations. A permit is required to
initiate a sale proposal and an export license is necessary for the actual
sale transaction. To date, we have not encountered significant difficulties
in obtaining or retaining the necessary permits or licenses, but no
assurance can be given that we will continue to be able to obtain or retain
such permits or licenses or that one or more permits or licenses will not
be revoked, or that governmental policy with respect to military exports
will not be altered. Difficulties in obtaining or retaining such
40
permits or licenses, if encountered in the future, could have a material
adverse effect upon our business.
In addition, the revocation of a required permit or license, after
having been granted, would likely preclude us from fulfilling our contractual
obligations. In such a case, we might be unable to assert the defense of force
majeure (or a similar defense) relating to any resulting breach of contract
claim and might therefore be held liable for damages, or subject to other
penalties. Substantial damages arising from such a claim could have a material
adverse effect upon our results of operations and financial condition. In
addition, suspension or disbarment of us as a government contractor is among
the possible penalties that could be imposed for defaulting on a contractual
obligation due to the revocation of a license.
Joint Ventures, Subcontracting and Teaming Arrangements
Several of our military projects are conducted through joint
ventures, subcontracting and other "teaming" arrangements pursuant to which we
are responsible for a portion, but less than all, of a project. In certain
instances, we are not permitted to participate, or even assist, in portions of
projects for which we are not responsible. Notwithstanding the foregoing, in
the event of a termination of, or a default under, certain prime contracts or
subcontracts (whether or not we are a party to such prime contract or
subcontract), including a termination for cause or convenience or a default on
the part of a joint venture partner, prime contractor, subcontractor or
"teaming" partner (for which termination or default neither we nor such other
person is responsible and which termination or default may be beyond the
control of us and such other person), we might be held liable for damages, or
subject to other penalties, which could be very substantial and might have a
material adverse effect on our results of operations and financial condition.
Moreover, certain joint ventures, subcontracting or other "teaming" agreements
to which we are a party, deny or limit the right of the non-defaulting party
to seek damages or indemnification from the defaulting party in such
circumstances.
Contract Financing
There are various types of financing terms applicable to defense
contracts (and in some cases, large telecommunications contracts). In some
cases, we receive progress or milestone payments according to the
percentage of progress in our performance or the achievement of specific
milestones. In certain cases, work is performed prior to receipt of any
payment, which means that we finance the project. In other cases, we
receive advance payments prior to incurring the costs of fulfilling a
contract, which creates a positive project cash flow. In this latter case,
the customer normally requires financial guarantees against advance
payments. We often receive substantial advances from our customers. In the
event that a contract under which an advance has been paid is canceled, we
may be required to return all or a portion of such advances to the
customer. If sales have been recognized under such a contract, such
cancellation could cause losses to us that might have a materially adverse
effect on our results of operations and financial condition.
41
Fixed Price Contracts
Approximately 90%-95% of our defense contracts are made on a fixed
price basis. Such contracts are subject to the risk that actual costs may
exceed those anticipated at the time the contracts are executed,
particularly when the products to be sold pursuant to the contracts require
a substantial amount of development.
Organizational Structure
The following is a list of all of our significant subsidiaries and
affiliates, including the name, country of incorporation or residence,
proportion of ownership interest and, if different, proportion of voting
power held.
Percentage Percentage of
Country of of voting power (if
Incorporation ownership different from
Name of Subsidiary/Affiliate or residence interest ownership)
---------------------------- ------------- ---------- ----------------
Koor Corporate Venture Capital Israel 100% *
Elisra Electronic Systems Ltd. Israel 100% *
Makhteshim-Agan Industries Ltd. Israel 52.6% *
ECI Telecom Ltd. Israel 30.3% *
Telrad Networks Ltd. Israel 100% *
Sheraton Moriah (Israel) Hotels Ltd. Israel 55.0% *
Knafaim Arkia Holdings Ltd. Israel 28.3% *
Koor Trade Ltd. Israel 100% *
Property, Plants and Equipment
Our headquarters are located in the Platinum building at 21
Ha`arbaa St., Tel-Aviv, Israel where we own an aggregate of 18,000 square
feet of office space. We purchased this facility in 1998.
The manufacturing facilities of our subsidiaries and affiliates
are located throughout Israel. Major concentrations are in the
Beersheva/Ramat Hovav area in the south of Israel and the Tel Aviv-Petach
Tikva-Lod-Ashdod area in the central part of Israel. We own our major
manufacturing plants, facilities, machinery and equipment. In addition, we
lease certain manufacturing and office facilities.
Most of the industrial land utilized by us is under 49-year leases
from the Israel Lands Authority with options for an additional 49 years in
a significant number of cases. Land rent on uncapitalized leases is
generally equal to 4% of the value of the land per annum and is subject to
revaluation every seven years.
We believe that, in general, we have sufficient plant capacity for
our current level of operations and that we have the ability to expand our
plant capacity as required.
In addition, MA Industries paid approximately $8.3 million to the
minority shareholders in cash in satisfaction of its payment obligations
based on Milenia's profits in 2000 and 2001.
42
Item 5. Operating and Financial Review and Prospects.
---------------------------------------------
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes included elsewhere in this annual report. Our financial
statements have been prepared in accordance with Israeli GAAP, which differ
in significant respects from U.S. GAAP. See Note 28 to our consolidated
financial statements, included elsewhere in this annual report, for a
description of the principal differences between Israeli GAAP and U.S. GAAP
as they relate to us.
Israeli GAAP requires that our consolidated financial statements
recognize the effects of inflation. Consequently, financial data for all
periods in our consolidated financial statements and throughout this annual
report, except as otherwise noted, have been adjusted to reflect changes in
the Israel consumer price index, or CPI, and have been restated in NIS in
terms of the purchasing power as of December 31, 2001. The financial
statements of the MA Group, Elisra Group and ECI are prepared in dollars,
the functional currency of these companies, which are then translated into
NIS at the rate of exchange prevailing at the end of the period. See Note
2B to our consolidated financial statements included elsewhere in this
annual report. For comparative purposes, financial data of prior periods
for these companies are adjusted to reflect changes in the CPI between the
prior periods and the most recent reported period. During periods when the
rate of inflation in Israel differs significantly from the rate of
devaluation of the NIS in relation to the dollar, application of inflation
accounting to our financial statements creates distortions between the
comparative financial data of subsidiaries whose functional currency is the
dollar, as reported in the financial statements of those companies and as
reflected in our financial statements.
Currently, our management is exploring the possibility of
preparing our financial statements in dollars. The presentation in dollars
is subject to approval by Israeli authorities, and is conditioned on
deriving a majority (approximately 75%) of net sales in dollars and other
foreign currencies.
Transactions between our subsidiaries are entered into on an
arm's-length basis and, in management's opinion, generally on terms no less
favorable than those available from third parties.
The following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ
significantly from those projected in the forward-looking statements.
Factors that might cause future results to differ significantly from those
projected in the forward-looking statements include, but are not limited
to, those discussed below and elsewhere in this annual report, particularly
those described above under Item 3, "Key Information - Risk Factors."
Critical Accounting Policies
Our consolidated financial statements included elsewhere in this
annual report have been prepared in accordance with Israeli GAAP, which
differ in significant respects from U.S. GAAP. See Note 28 to our
consolidated financial statements, included elsewhere in this annual report,
43
for a description of the principal differences between Israeli GAAP
and U.S. GAAP as they relate to us.
Pursuant to our application of Israeli GAAP, we have identified below
accounting policies critical to understanding the overall financial reporting
of Koor. A more complete discussion of the significant accounting policies
which we follow in preparing our financial statements is set forth in Note 2
to our financial statements included elsewhere in this annual report.
Adjusted Financial Statements
In accordance with Israeli GAAP, all NIS amounts in our financial
statements included elsewhere in this annual report have been restated in
terms of NIS of identical purchasing power as of December 31, 2001 to account
for the effects of inflation based upon changes in the Israeli Consumer Price
Index, or CPI. The adjustments to our financial statements were made in
accordance with the opinions of the Institute of Certified Public Accountants
in Israel, or ICPAI and are based on the accounting records which are kept in
nominal NIS or in other functional currencies. The amounts of non-monetary
assets do not necessarily represent their realizable or current economic
value, but rather the original historical cost of those assets in terms of
adjusted NIS.
Non-monetary items have been adjusted on the basis of the CPI at the
time the related transactions were effected. Monetary items are included in
the adjusted balance sheet as of December 31, 2001, at their historical
amounts. The components of the statement of operations (except for financing),
relating to transactions carried out during the year have been adjusted
according to the CPI at the time the related transactions were effected. The
components of the statement of operations relating to provisions included in
the balance sheet are based on the changes in the balances of the related
balance sheet items after their related cash flows were taken into account.
The financing item, which is derived from the other items of the financial
statements, reflects real financing income and expenses, as well as the
erosion of monetary balances during the year, the earnings and losses from the
realization of marketable securities and the earnings and losses from
derivative financial instruments. Investments in investee companies and the
equity in their results of operations, as well as the minority interest in
subsidiaries and the share in the results of their, are based on the adjusted
financial statements of those companies.
In addition, the financial statements of our subsidiaries and
affiliates that use dollars as their functional currency are adjusted on the
basis of the exchange rate of the dollar, in accordance with Section 29 of
Opinion 36 of the ICPAI. For these companies, at each balance sheet date, the
figures of the balance sheet and the statements of operations for the year
then ended are translated into shekels at the exchange rate for the dollar
prevailing at the end of the year. Balance sheet items as at the beginning of
the year, and changes in capital during the year, are translated according to
the exchange rate of NIS to dollars at the beginning of the year or at the
date of the change, respectively, and are then adjusted for the changes in the
CPI through December 31, 2001. Differences arising from the translation are
included in a separate item of shareholders' equity under "Cumulative foreign
currency translation adjustments, net."
44
Revenue Recognition
Revenues from product sales and services rendered are recognized upon
delivery of the products and/or when the economic risk of loss passes to the
customer, or upon performance of the services. In special contracts, revenues
from product sales are recognized after performing the work and passing
acceptance tests, as provided in the applicable product delivery contract.
Revenues and costs related to "works in progress" under long-term
contracts are recognized under the "percentage of completion" method
(including revenues and costs in respect of partial deliveries) once
accumulated work has reached 25%. For contracts involving technological
uncertainties, revenues are recognized on the basis of the completed contracts
method. Revenues and costs relating to contracts on a "cost plus" basis (i.e.
cost with the addition of profit at a fixed rate) are recognized when the
costs are incurred. Periodic reporting on revenues and costs from works in
progress covers all turnover periods, including those where it is not possible
to estimate anticipated profits at the reporting stage. However, if the refund
of costs already incurred is anticipated, all costs incurred are attributed to
the statement of operations as offsetting revenues in the amount of such costs.
Inventories
Inventories are stated at the lower of cost or market value. Cost
for raw materials, auxiliary materials and spare parts is determined at
average cost or by the "first-in, first-out" method. Cost for finished
goods and goods in process is determined primarily on the basis of direct
manufacturing costs and, in part, on the basis of average manufacturing
costs with the addition of indirect manufacturing costs. Cost for
merchandise is determined by the "first-in, first-out" method or by the
"moving average method."
Investments in Subsidiaries and Affiliates
Our investments in our subsidiaries and affiliates are presented
using the equity method. Goodwill arising from the acquisition of equity in
a subsidiary or affiliate is generally amortized at equal annual rates
over a 10 year period, commencing from acquisition date.
From time to time we review our investments in our subsidiaries
and affiliates to identify whether there has been a decrease in the value
of such investments which is not of a temporary nature. We would conduct
such reviews when there are signs that the value of permanent investments
has been harmed, including a drop in stock market prices, the subsidiary's
or affiliate's sequential loss, the segment in which the subsidiary or
affiliate operates, the value of the goodwill aggregated in the investment
and other parameters. Following management's assessment of all the relevant
factors, we may make appropriate provisions for the adjustment of the value
of these investments, which would be reflected in our consolidated
statement of operations.
45
Derivative financial instruments
We use derivative financial instruments such as interest rate and
currency swaps, forward contracts, options and futures, in order to reduce
risks associated with changes in the CPI and foreign exchange rates, such
as import commitments for raw materials, export of goods and liabilities
linked to the CPI or foreign currencies. The results of derivative
financial instruments held as a hedge for existing assets and liabilities
are recognized concurrently with the results of the hedged assets and
liabilities. The results of derivative financial instruments held as hedge
for firm commitments are deferred, and are recognized in the same period in
which the results from the hedged transactions are recognized. Derivative
financial instruments, which are not earmarked for hedging purposes, are
presented in the balance sheet based on their fair value. Changes in the
fair value are recorded in the statement of income in the period in which
they occur. The fair value of derivative financial instruments is
determined based on their market value, and in the absence of such a price,
the fair value is determined based on a valuation model.
Impact of Devaluation on Results of Operations and on Monetary Assets
and Liabilities
The following table sets forth, for the periods indicated, certain
information with respect to the rate of inflation in Israel, the rate of
devaluation of the NIS in relation to the dollar and the rate of inflation
in Israel adjusted for the NIS-dollar devaluation:
Annual
Closing Annual Inflation
Year ended Israeli Consumer Israeli Inflation Exchange rate devaluation rate adjusted for
December 31, Price Index (1) Price Rate(2) of the dollar (3) rate (4) devaluation (5)
------------ --------------- ------------- ----------------- ---------------- ---------------
1997 153.10 7.0 NIS 3.536 8.8 (1.8)
1998 166.30 8.6 NIS 4.160 17.6 (9.0)
1999 168.53 1.3 NIS 4.153 (0.2) 1.5
2000 168.53 0.0 NIS 4.041 (2.7) 2.7
2001 170.91 1.4 NIS 4.416 9.3 (7.2)
------------------
(1) For purposes of this table, the CPI figures use 1993 as the base equal
to 100. These figures are based on reports of the Israel Central
Statistics Bureau.
(2) Annual inflation is the percentage change in the CPI in Israel between
December of the year indicated and December of the preceding year.
(3) Closing exchange rate is the rate of exchange between the NIS and the
dollar as of December 31 of the year indicated, as reported by the
Bank of Israel.
(4) Annual devaluation is the percentage increase in the value of the
dollar in relation to the NIS during the year indicated.
(5) Annual inflation adjusted for devaluation is obtained by dividing the
Israeli inflation rate (column 2 plus 1) by the annual devaluation
rate (column 4 plus 1), minus 1.
Since most of our operations are based in Israel, we incur
significant expenses in NIS, which expenses are usually linked, wholly or
partially, to changes in the CPI.
The relationship between our monetary assets and liabilities, and
the extent to which these are linked to a particular currency or price
index, affects our financial results. In the event
46
of a devaluation of the NIS in relation to the dollar, we would report a
financial expense to the extent that our dollar-denominated or dollar-linked
monetary liabilities exceed our dollar-denominated or dollar-linked monetary
assets or, conversely, we would report financial income if our
dollar-denominated or dollar-linked monetary assets exceeded our
dollar-denominated or dollar-linked monetary liabilities. On December 31,
2001, the excess of our foreign currency denominated or linked monetary
liabilities over our foreign currency denominated or linked monetary assets
was NIS 2,616 million (the majority of which was dollar-denominated or
dollar-linked).
In addition, we and certain of our subsidiaries have entered into
financial agreements with major Israeli banks and other financial
institutions in order to reduce the overall exposure of assets and
liabilities denominated in foreign currencies, and commitments for the
purchase of raw materials and the sale of goods in currencies other than
the dollar arising from foreign currency exchange rates. Such agreements
include forward sales, purchase contracts, sale options and swap
transactions. For more details regarding the balance of our hedging
agreements as of December 31, 2001, see note 21 to our consolidated
financial statements included elsewhere in this annual report.
We and our subsidiaries do not hold or issue financial instruments
or derivative financial instruments for trading purposes. See Note 21B to
our consolidated financial statements included elsewhere in this annual
report. The caption "Financial expenses, net" in our consolidated financial
statements includes the impact of these factors on monetary assets and
liabilities, as well as regular interest expense.
47
Results of Operation
The following tables summarize certain recent financial
information relating to each of our businesses. The tables are prepared on
the same basis as that utilized in our consolidated financial statements
included elsewhere in this annual report.
Translation
2000/1999 CPI - adjusted into 2001/2000
CPI - adjusted NIS Changes NIS Dollars Changes
------------------------------------------- ---------- ---------------- ----------- --------
1999 % 2000 % % 2001 % 2001 %
---------- ------- --------- ------- --------- ---------- ------ ----------- --------
(In thousands) (In thousands) (In thousands) (In thousands)
REVENUES FROM SALES
Telecommunication equipment 2,230,766 23.82 2,232,244 28.13 0.06 1,165,118 6.31 263,840 (47.81)
Defense electronics 1,352,525 14.44 1,162,962 14.65 (14.02) 1,351,769 18.93 306,107 16.24
Argochemicals 3,590,927 38.35 3,509,155 44.22 (2.28) 3,925,228 54.95 888,865 11.86
Venture capital investments - - 81,248 1.02 - 83,121 1.16 18,823 2.31
Other 2,190,155 23.39 950,279 11.98 (56.61) 617,668 8.65 139,870 (35.00)
---------- -------- ---------- ------- --------- ---------- -------- ----------- --------
Total 9,364,373 100.00 7,935,888 100.00 (15.25) 7,142,904 100.00 1,617,505 (10.00)
========== ======== ========== ======= ========= ========== ======== =========== ========
OPERATING EARNINGS:
Telecommunication equipment 264,343 31.52 253,128 32.64 (4.24) (203,606) (55.73) (46,107) NA
Defense electronics 70,035 8.35 54,230 6.99 (22.57) 53,773 14.72 12,177 (0.84)
Argochemicals 396,018 47.23 447,584 57.72 13.02 561,840 153.79 127,228 25.53
Venture capital investments - - (5,990) (0.77) - (7,937) (2.17) (1,797) 32.50
Other 108,131 12.90 26,463 3.42 (75.53) (38,751) (10.61) (8,775) NA
--------- -------- -------- -------- -------------------- ------- --------- -------
Total 838,527 100.00 775,415 100.00 (7.53) 365,319 100.00 82,726 (52.89)
Joint general expenses 121,651 92,553 (23.92) 22,276 5,044 (75.93)
Total operating earnings 716,876 682,862 (4.74) 343,043 77,682 (49.76)
========= ======== ======== ======== ======= ========= ====== ========= =======
CAPITAL EXPENDITURES:
Telecommunication equipment 67,998 11.37 101,429 16.74 49.16 57,122 10.22 12,935 (43.68)
Defense electronics 43,494 7.27 31,391 5.18 (27.83) 50,903 9.13 11,527 62.16
Argochemicals 281,464 47.04 322,956 53.32 14.74 412,747 73.90 93,466 27.80
Venture capital investments - - 1,714 0.28 - 2,802 0.50 35 63.48
Other 205,365 34.32 148,257 24.48 (27.81) 34,919 6.25 7,907 (76.45)
---------- ------ --------- ------- -------- --------- ------ --------- -------
Total 598,321 100.00 605,747 100.00 1.24 558,493 100.00 126,470 (7.80)
========== ====== ========= ======= ========= ========= ====== ========= =======
DISCONTINUED ACTIVITY 117,667 2,286 (98.06) 186 42 (91.86)
CORPORATE ASSETS 14,250 772 (94.58) 370 84 (52.07)
---------- ------ --------- ------- -------- --------- ------ --------- -------
730,238 608,805 (16.63) 559,049 126,596 (8.17)
---------- ------ --------- ------- -------- --------- ------ --------- -------
EXPORTS OF KOOR PRODUCTS BY
BUSINESSES (1)
Telecommunication equipment 1,560,979 27.59 1,754,378 31.95 12.39 993,844 19.42 225,055 (43.35)
Defense electronics 773,928 13.68 702,474 12.79 (9.23) 837,433 16.36 189,636 19.21
Argochemicals 2,959,749 52.32 2,884,871 52.53 (2.53) 3,210,750 62.73 727,072 11.30
Venture capital investments - - 78,802 1.43 - 76,211 1.49 17,258 (3.29)
Other 362,884 6.41 71,077 1.30 (80.41) - - - NA
Total 5,657,540 100.00 5,491,602 100.00 (2.93) 5,118,238 100.00 1,159,021 (6.80)
=========== ====== ========== ====== ======== ========= ====== ========= ========
DESTINATIONS (2)
North America 1,622,160 28.67 1,698,885 30.94 4.73 1,163,464 22.73 263,466 (31.52)
Europe 1,730,017 30.58 1,630,778 29.70 (5.74) 1,581,119 30.89 358,043 (3.05)
South America 1,453,313 25.69 1,362,891 24.82 (6.22) 1,380,199 26.97 312,545 1.27
Asia and Austrailia 721,094 12.75 667,563 12.15 (7.42) 864,339 16.89 195,729 29.48
Africa 130,956 2.31 131,485 2.39 0.40 129,117 2.52 29,238 (1.80)
Total 5,657,540 100.00 5,491,602 100.00 (2.93) 5,118,238 100.00 1,159,021 (6.80)
========== ====== ========== ====== ======== ========= ====== ========= ========
-----------------------------
(1) Including foreign industrial operations.
(2) Destination to which shipment is made.
48
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
The following is an analysis of our consolidated results of
operations, followed by an analysis of the results of operations of each of
our businesses.
Net sales. Net sales decreased 10.0% to NIS 7,143 million in 2001
from NIS 7,936 million in 2000. Exports and international operations,
representing 80.4% of our net sales, decreased 5.4% in 2001 compared to
2000, primarily attributable to a decrease of approximately NIS 1,056
million in Telrad's sales as a result of the major decline in the
international telecommunications market. The further decrease in sales
stems from the deconsolidation of divested companies, mainly Tadiran
Batteries which amounted to approximately NIS 99 million. The decrease in
sales in 2001 compared to 2000 of the above-mentioned companies was offset
by the increase in sales over the same period of MA Industries, by NIS 416
million, and of Elisra, by NIS 189 million.
Sales in our telecommunication equipment business decreased by
47.8% in 2001 compared to 2000 while sales in our agrochemicals, defense
electronics and venture capital businesses increased by 11.9%, 16.2% and
2.3%, respectively, over the same period.
Gross profit. For the reasons discussed above, gross profit
decreased 19.0% to 1,625 million in 2001 from 2,005 million in 2000 with a
decrease of approximately NIS 551 million in Telrad's gross profit.
Operating earnings. Operating earnings decreased 49.8% to NIS 343
million in 2001 from NIS 683 million in 2000, primarily due to the sharp
decline of Telrad's sales in 2001. Operating earnings in our
telecommunication equipment business decreased from operating earnings of
NIS 253 million in 2000 to operating losses of NIS 204 million in 2001.
Operating earnings in our other business segment also decreased from
operating earnings of NIS 26 million in 2000 to operating losses of NIS 39
million in 2001. Operating earnings in our defense electronics busines
decreased by 0.8% in 2001 compared to 2000 and operating loss in our
venture capital business increased by 32.5% over the same period. Operating
earnings in our Agrochemicals business increased by 25.5% in 2001 compared
to 2000.
Finance expenses, net. Finance expenses, net increased 33.9% to
NIS 414 million in 2001 from NIS 309 million in 2000. During 2001, the
shekel was devalued against the dollar by 9.3% while the CPI increased by
1.4%, compared to 2000, during which there had been a devaluation of 2.7%
of the shekel against the dollar and no change in the CPI. The increase in
finance expenses in 2001 compared to 2000 occurred primarily at the parent
company level (NIS 46 million), and stems mainly from dollar-linked
financial liabilities. In addition, an increase in finance expenses of NIS
27 million over the same period was recorded at MA Industries, following
the increase in its financial liabilities and the increase in cost of
financing in Brazil due to the volatility of the Brazilian Real exchange
rate. Finance expenses at Sheraton Moriah increased by NIS 19 million in
2001 compared to 2000, and at Elisra by NIS 15 million over the same
period.
Other expenses, net. Other expenses, net amounted to NIS 596
million in 2001 compared with other income, net of NIS 161 million in 2000.
Other expenses, net in 2001 primarily
49
included capital losses of NIS 442 million, compared to a capital gain of NIS
479 million recorded in 2000, primarily as a result of the depreciation of
assets and investments in investee companies in 2001 compared to the
realization of assets and investments in 2000. The other expenses included in
this item include severance pay expenses totaling NIS 79 million in 2001,
which were primarily at Telrad, compared to NIS 281 million in 2000, and the
amortization of goodwill in the amount of NIS 80 million in 2001 compared to
NIS 51 million in 2000.
Taxes on income. Taxes on income decreased 76.0% to NIS 37 million
in 2001 from NIS 155 million in 2000. Taxes on income as a percentage of
income before taxes in 2001 and 2000 were 0.5% and 1.9%, respectively. The
decrease is attributable primarily to Telrad (NIS 105 million), MA
Industries (NIS 14 million) and Koor Properties (NIS 30 million), as a
result of a decrease in their respective sales and operating earnings.
Equity in the operating results of affiliates, net. Equity in the
losses of affiliates, net in 2001 totaled NIS 1,813 million compared with
NIS 274 million in 2000. This item includes mainly our equity share in the
net loss of ECI, in the amount of NIS 1,800 million (including the
provisioning down of the investment in ECI by NIS 1,067 million), compared
with NIS 238 million in 2000.
Minority interest in subsidiaries, net. Minority interest in
subsidiaries, net amounted to a gain of NIS 8 million in 2001 compared with
a loss of NIS 52 million in 2000. The change is primarily attributable to
an increase in our minority interest in Sheraton Moriah and Be-Connected,
both of which reported losses, and a decrease in our minority interest in
M-A Industries, which reported profits.
Results of discontinued activities, net. Our operations in the
construction and infrastructures segment effectively ended with the
termination of the consolidation of USM, and therefore the results of the
segment were reclassified and stated in this item. The loss from
discontinued operations in 2001 amounted to NIS 28 million, compared to a
profit of NIS 217 million in 2000, which included NIS 258 million net
capital gain from the sale of Mashav Building and Construction and Middle
East Tubes Co.
Net income (loss). As a result of the above factors, we reported a
net loss of NIS 2,537 million in 2001, compared to a net income of NIS 271
million in 2000.
Telecommunications Equipment Business
Year Ended December 31,
-----------------------------------------------
2000 2001 2001
----------- -------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales........................... 2,232,244 1,165,118 $ 263,840
Operating earnings (loss)....... 253,128 (203,606) $ (46,107)
Sales from our telecommunication equipment business decreased
47.8% in 2001 to NIS 1,165 million from NIS 2,232 million in 2000. Telrad's
sales decreased by NIS 1,056 million in
50
2001 primarily as a result of the declining telecommunications market and the
sale of its operations to Nortel Israel in 2000.
Sales from our telecommunication equipment business attributable
to sales of telecommunication equipment to Nortel were NIS 640 million in
2001 compared to NIS 1,192 million in 2000, or 54.9% compared to 53.4% of
total telecommunication equipment business sales in 2001 and 2000,
respectively.
Telecommunication equipment business exports amounted to NIS 994
million in 2001 compared to NIS 1,754 million in 2000. The decrease of
export sales resulted primarily in Telrad for the reasons discused above..
Operating profit decreased in our telecommunication equipment
business from a NIS 253 million operating profit in 2000 to a NIS 204
million operating loss in 2001. The decrease resulted from a sharp decrease
in sales at Telrad.
Defense Electronics Business
Year Ended December 31,
-----------------------------------------------
2000 2001 2001
----------- -------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales.................... 1,162,962 1,351,769 $ 306,107
Operating earnings....... 54,230 53,773 $ 12,177
Sales from our defense electronics business increased 16.2% to NIS
1,352 million in 2001 from NIS 1,163 million in 2000 primarily as a result
of the increased demand for high tech military equipment and products as
many countries have focused on improving their existing military equipment
with new technology and investing in new high-tech military products and
equipment.
Operating earnings from our defense electronics business decreased
0.8% in 2001 to NIS 53.8 million from NIS 54.2 million in 2000.
Agrochemicals Business
Year Ended December 31,
-----------------------------------------------
2000 2001 2001
----------- ------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales........................ 3,509,155 3,925,228 $ 888,865
Operating earnings........... 447,584 561,840 $ 127,228
Sales from our agrochemicals business increased 11.9% to NIS 3,925
million in 2001 from NIS 3,509 million in 2000, primarily as a result of
increased sales of the MA group (see below). Approximately 81.8% and 82.2%
of the sales in 2001 and 2000, respectively, were made outside of Israel,
and approximately 36.7% and 37.6% of total sales in 2001 and 2000,
respectively, were to South America.
51
The increase in the MA group's sales was primarily attributable to
sales of new products, increases in sales of existing products and the
reduction of manufacturing expenses as a result of internal restructuring
and a decrease in raw material costs. These positive effects were partially
offset by the reduction in sales to South America, a decrease in sales
prices and the devaluation of the Braziliation Real and the Euro.
Operating earnings for our agrochemicals business increased 25.5%
to NIS 562 million in 2001 from NIS 448 million in 2000 as a result of
increased sales and savings in production costs.
Venture Capital Business
Year Ended December 31,
-----------------------------------------------
2000 2001 2001
----------- -------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales......................... 81,248 83,121 $ 18,823
Operating earnings (loss)..... (5,990) (7,937) $ (1,797)
This segment was established for the first time in 2000, when we
established the Koor Corporate Venture Capital Partnership, or Koor CVC. As
of December 31, 2001, we had invested, through Koor CVC, approximately $126
million in venture capital funds and start-up companies. In addition, Koor
CVC acquired Tadiran Scopus Ltd. (Scopus) from Tadiran Ltd. in 2000. During
2001, Scopus issued preferred shares to third parties, as a result of which
Koor CVC's holding in Scopus decreased to 49.4% and its consolidation was
terminated at the beginning of the fourth quarter of 2001.
Sales from our venture capital business increased 2.3% to NIS 83
million in 2001 from NIS 81 million in 2000, primarily as a result of
increased sales at Scopus. Operating loss increased 32.5% to NIS 8 million
in 2001 from NIS 6 million in 2000.
Other Businesses
Year Ended December 31,
-----------------------------------------------
2000 2001 2001
----------- -------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales.......................... 950,279 617,668 $ 139,870
Operating earnings (loss)...... 26,463 (38,751) $ (8,775)
Sales from our other businesses decreased 35.0% to NIS 618 million
in 2001 from NIS 950 million in 2000. This decrease was primarily
attributable to the divestiture of Tadiran Batteries and other companies as
well as the decline in sales of Sheraton Moriah and Isram as a result of
the sharp decline of tourism in Israel due to increased hostilities in with
the West Bank amd Gaza.
Operating loss of our other businesses was NIS 39 million in 2001
compared to operating earnings of NIS 26 million in 2000, primarily due to
the decrease in sales of Sheraton Moriah and Isram and the divestiture of
Tadiran Batteries and other companies.
52
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The following is an analysis of our consolidated results of
operations, which is followed by an analysis of the results of operations
of each of our businesses.
Net sales. Net sales decreased 15.3% to NIS 7,936 million in 2000
from NIS 9,364 million in 1999, primarly as a result of the divestiture of
Tadiran Appliances, Tadiran Telematics, Merkavim and Phoenica. Exports and
international operations, representing 76.5% of net sales, decreased 3.0%
in 2000, due to divestitures of Koor Metals and others.
Sales in our telecommunication equipment business increased less
than 1% in 2000 compared to 1999 while sales in our agrochemicals, defense
electronics and other businesses decreased by 2.3%, 14.0%, and 56.6%,
respectively, over the same period.
Gross profit. For the reasons discussed above, gross profit
decreased 14.4% to 2,005 million in 2000 from 2,342 million in 1999,
primarily as a result of divestitures of several subsidiaries.
Operating earnings. Operating earnings decreased 4.7% to NIS 683
million from NIS 717 million in 1999. Operating earnings decreased 4.2% in
the telecommunication equipment business and 22.6% in the defense
electronics business. Operating earnings increased 13.0% in the
agrochemicals business.
Finance expenses, net. Finance expenses, net decreased 3.8% to NIS
309 million in 2000 from NIS 321 million in 1999. During 2000, the shekel
was revalued against the dollar by 2.7%, while there was no change in the
CPI, compared to 1999, during which the shekel was revalued against the
dollar by 0.2%, while the CPI increased by 1.3%. The decrease in financing
expenses in 2000 was primarily due to a decrease of NIS 30 million in
financing costs at Telrad and a decrease of NIS 18 million at the parent
company level as a result of dollar-linked financial liabilities. The
termination of the consolidation of companies sold during 2000 contributed
NIS 10 million to this decrease. On the other hand, finance expenses at
Tadiran increased by NIS 27 million and at Sheraton Moriah by NIS 18
million, due to an increase in financial liabilities.
Other income, net. Other income, net amounted to NIS 161 million
in 2000 compared to NIS 224 million in 1999. The increase is primarily
attributable to capital gains in the amount of NIS 540 million from
divestiture of holdings and activities, mainly at Telrad public exchange
operations, the Telrad plant in Maalot, Tadiran Batteries, Carmel Gate and
others, compared with NIS 642 million in 1999, which stemmed mainly from
divestiture of holdings in Tadiran Com, Tekem, Tadiran Information Systems,
Contahal, subsidiaries and affiliates of Telrad Holdings Ltd. (mainly
ISDN-NET), Koor Finance and Phoenicia. The other expenses included in this
item are mainly severance pay expenses totaling NIS 281 million compared
with NIS 204 million last year and amortization of goodwill in the amount
of NIS 51 million compared with NIS 53 million last year. This also
includes other expenses in the sum of NIS 61 million compared with other
expenses in the sum of NIS 215 million last year stemming mainly from
write-off of value of assets, mainly in Sheraton Moriah, Scopus, Batteries,
Tadiran Appliances, and in MA Industries following its internal
reorganization.
53
Taxes on income. Taxes on income increased 6.3% to NIS 155 million
in 2000 from NIS 145 million in 1999. Taxes on income as a percentage of
income before taxes in 2000 and 1999 were 28.93% and 23.48%, respectively.
The increase in the amount of taxes on income resulted from an increase in
the amount of taxes on income at the MA Group in 2000, and an increase in
the amount of taxes on income as a result of the payment of taxes on
capital gains, mainly due to divestiture of assets in Koor Properties.
Equity in the operating results of affiliates, net. Equity in the
operating results of affiliates, net amounted to a loss of approximately
NIS 274 million in 2000 in compared with earnings of NIS 124 million in
1999. This item includes mainly our equity share in the net loss of ECI, in
the amount of NIS 238 million, compared with our equity share in the
profits of ECI at NIS 146 million in 1999, as well as our equity share in
the profits of affiliates of Tadiran, Knafaim Arkia Holdings and Balton CP,
after deduction of our equity share in the loss of BVR in the first three
quarters of 2000 (as of September 30, 2000, BVR was consolidated in the
financial statements of Elisra).
Minority interest in subsidiaries, net. Minority interest in the
profits of subsidiaries, net amounted to NIS 52 million in 2000 compared
with NIS 8 million in 1999. The increase in this item occurred mainly due
to profits of the MA group that was partly offset by the loss at BVR,
Telrad and Sheraton - Moriah.
Results of discontinued activities, net. Results of discontinued
activities, net amounted to earnings of NIS 217 million in 2000 compared
with a loss of NIS 33 million in 1999. The item includes losses from
discontinued operations of NIS 41 million mainly from USM and Middle East
Tubes and a capital gain of NIS 258 million mainly from Mashav.
Net income. As a result of the above factors, net income decreased
to NIS 271 million in 2000 compared to NIS 557 million in 1999. As a
percentage of net sales, net income was 3.4% in 2000 compared to 5.9% in
1999.
Telecommunications Equipment Business
Year Ended December 31,
-----------------------------------------------
1999 2000 2000
----------- -------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales........................ 2,230,766 2,232,244 505,490
Operating earnings........... 264,343 253,128 57,321
Sales from our telecommunication equipment business amounted to
NIS 2,232 million, compared to NIS 2,231million in 1999. Telrad's sales
decreased by NIS 12 million in 2000 following the sale of operations to
Nortel Israel, which was partly compensated for by an increase in sales of
others of Telrad's operations.
Sales from our telecommunication equipment business attributable
to sales of telecommunication equipment to Nortel were NIS 1,192 million in
2000 compared to NIS 848 million in 1999, or 53% compared to 38.0% of the
telecommunication equipment business' sales in 2000 and 1999, respectively.
54
Telecommunication equipment business exports amounted to NIS 1,754
million in 2000 compared to NIS 1,561 million in 1999. The increase of
export sales resulted primarily from Telrad's increased export sales of its
OEM products.
Operating earnings from this business decreased 4.2% in 2000 to
NIS 253 million compared to NIS 264 million in 1999.
Defense Electronics Business
Year Ended December 31,
-----------------------------------------------
1999 2000 2000
----------- ------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales......................... 1,352,525 1,162,962 263,352
Operating earnings............ 70,035 54,230 12,280
Sales from our defense electronics business decreased 14.0% to NIS
1,163 million in 2000 from NIS 1,353 million in 1999. This decrease was
primarily due to the termination of consolidation of Tadiran Com.
Operating earnings from this business decreased 22.6% in 2000 to
NIS 54 million compared to NIS 70 million in 1999. This decrease was
primarily due to the termination of consolidation of Tadiran Com.
Agrochemicals Business
Year Ended December 31,
-----------------------------------------------
1999 2000 2000
----------- -------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales......................... 3,590,927 3,509,155 794,646
Operating earnings............ 396,018 447,584 101,355
Sales from our agrochemicals business decreased 2.3% to NIS 3,509
million in 2000 compared to NIS 3,592 million in 1999, primarily
attributable to decreased sales of the MA group as a result of the
devaluation of the dollar against the shekel during 2000. Approximately
82.2% and 82.4% of the sales in 2000 and 1999, respectively, were made
outside of Israel, and approximately 36% and 36.1% of total sales in 2000
and 1999, respectively, were to South America.
Operating earnings for this business increased 13.0% in 2000 to
NIS 448 million compared to NIS 396 million in 1999. The increase in
operating earnings was primarily attributable to the successful
implementation by the MA group of its restructuring plan.
55
Venture Capital Business
This segment was established for the first time in 2000, when we
established the Koor Corporate Venture Capital Partnership, or Koor CVC. As
of December 31, 2000, we had invested, through Koor CVC, approximately $86
million in venture capital funds and start-up companies. In addition, Koor
CVC acquired Tadiran Scopus Ltd. (Scopus) from Tadiran Ltd. Sales in this
segment in 2000 result from Scopus, in the amount of NIS 81 million. The
operating loss in 2000 was NIS 6 million.
Other Businesses
Year Ended December 31,
-----------------------------------------------
1999 2000 2000
----------- -------------- -----------------
(Adjusted NIS in thousands) ($ in thousands)
Sales......................... 2,190,155 950,279 215,190
Operating earnings............ 108,131 26,463 5,993
Sales of the other businesses in 2000 decreased 56.6% to NIS 950
million compared to NIS 2,190 million in 1999. The decrease was principally
the result of the divestiture of Tadiran Appliances, Koor Metal, Tekem and
others.
Operating earnings in 2000 were NIS 26 million compared to NIS 108
million in 1999, primarily due to the divestiture of the above companies.
Quarterly Results
The following table presents unaudited quarterly financial
information for each of the four quarters of the year ended December 31,
2001. Such information has been prepared on the same basis as our
consolidated financial statements.
Quarter Ended
------------------------------------------------------------------------
March June September 30, December
31, 2001 30, 2001 2001 31, 2001
---------------- --------------- ---------------- -------------------
(in millions of U.S. dollars)
Net sales........................................ 409 365 417 427
Gross profit..................................... 81 87 99 100
Research and development, net.................... 19 17 13 11
Operating income (loss).......................... 9 18 28 23
Net income (loss)................................ (221) (159) (118) (77)
Our operating results may be subject to significant fluctuations
in future periods. Our operating results for any particular quarter are not
necessarily indicative of any future results. Our quarterly operating
results may be subject to significant fluctuations due to various factors,
including the length of the sale cycles, the timing and size of orders and
shipments to customers, variations in distribution channels, mix of
products, new product introductions, competitive pressures and general
economic conditions.
56
Recent Developments
In March 2002, Tadiran's board of directors adopted a resolution
for the voluntary liquidation of Tadiran and the appointment of a
liquidator. As a result of the liquidation, we recorded an expense of
approximately NIS 383 million in our consolidated statements of operations
for the first quarter of 2002 due to the recognition of the cumulative
foreign currency translation adjustments to the value of our investment in
Tadiran. We recorded this expense, which was previously reflected as a
decrease in shareholders' equity, in accordance with Israeli GAAP, which
provides that changes in the value of investments in subsidiaries as a
result of foreign currency adjustments are not recognized until the sale or
liquidation of the subsidiary.
In connection with the liquidation of Tadiran, a substantial
portion of the real estate assets of Tadiran was sold to a group of
investors headed by Denisra International Ltd. and Ranitech Ltd. In March
2002 . The total consideration to be received during the second quarter of
2002, amounted to approximately NIS 271 million, and a capital gain of
about NIS 31 million, after tax, was recorded in the first quarter of 2002.
Effective Corporate Tax Rate
We do not file a consolidated tax return with our subsidiaries,
and we are taxed only on our own income. Each of our subsidiaries files its
own tax return, based on its own taxable income. Our income tax obligations
and our subsidiaries' income tax obligations are based on profits
determined in nominal NIS for Israeli statutory purposes, adjusted for tax
purposes, in terms of end-of-year Israeli currency, in accordance with
changes in the CPI. The tax provision in our financial statements does not
directly relate to income shown on such statements, for the reconciliation
between the theoretical and actual tax expense. Non-Israeli subsidiaries
are taxed based upon tax laws in their respective countries of residence.
The effective corporate tax rate is affected mainly by tax benefits arising
from reduced tax rates applied to approved enterprises, utilization of tax
loss carry forwards for which no deferred taxes were recorded, the effect
of the Inflationary Adjustment Law on Israeli companies, whose functional
currency is the dollar, and the disallowance of provisions for anticipated
losses from the sale of assets. In 2001, we had a loss before taxes of NIS
667 million. See Note 16G(2) to our consolidated financial statements
included elsewhere in this annual report. Our overall effective tax rates
for 1999, 2000 and 2001 were 23.48%, 28.93% and 5.57%, respectively.
Liquidity and Capital Resources
We finance our corporate level activities principally through the
proceeds from divestitures, management fees and dividends we receive from
our subsidiaries and affiliates and through debt financing. In 2001 and
2000, we received management fees in the amount of NIS 33 million and of
NIS 40 million, respectively, and dividends in the amount of NIS 20 million
and NIS 357 million, respectively. The dividends received in 2001 and 2000
include dividends from MAGAM, MA Industries, Koor Properties, Telrad
Networks and Telrad Holdings that represent proceeds from divestitures.
57
Our shareholders' equity at December 31, 2001 decreased 51.9% to
NIS 2,102 million, compared to NIS 4,367 million at December 31, 2000. The
decrease in 2001 was primarily due to our net loss of NIS 2,537 million.
Working capital at December 31, 2001 was NIS 1,780 million,
compared to NIS 1,002 million at December 31, 2000 and NIS 923 million at
December 31, 1999. The increase in 2001 is primarily due to a decrease in
credit from banks due to the loans restructure plan, which turned
short-term loans to long-term loans.
Long-term debt totaled NIS 4,723 million at December 31, 2001, or
36.7% of total assets on that date, compared to NIS 3,367 million at
December 31, 2000, or 22.4% of total assets on that date. The increase in
the balance of long-term debt is attributed mainly to the long-term debt
restructuring plan, which turned short-term loans into long-term loans, and
the issuance of NIS 270 million of convertible debentures by MA industries.
See note 15B(3) to our consolidated financial statements included elsewhere
in this annual report.
Total debt at December 31, 2001 increased 5.8% to NIS 6,457
million, or 50.1% of total assets, compared to NIS 6,101 million, or 40.6%
of total assets, at December 31, 2000. As described above, this increase in
total monetary liabilities is primarily attributable to an increase of
approximately NIS 370 million at our parent company level, an increase of
approximately NIS 259 million at MA Industries, an increase of
approximately NIS 114 million at Telrad and an increase of approximately
NIS 63 at Sheraton Moriah. The increase was partially offset by the
termination of the consolidation of USM (NIS 215 million) and a decrease of
liabilities in Tadiran (NIS 47 million), Elisra (NIS 65 million ), Koor
Properties (NIS 37 million) and Koor Hanpakot (NIS 32 million).
In April 2000, our Board of Directors approved the repurchase,
from time to time, of up to NIS 208 million worth of our shares in the open
market. By September 2000, we had repurchased 538,592 ordinary shares (or
about 3.4% of the ordinary share capital) at a cost of approximately NIS
206 million. This sum was deducted from our shareholders' equity.
58
Summary of our Contractual Obligations and Commercial Commitments
For purposes of presenting the approximate cash flows that will be
required to meet our material contractual obligations, the following table
presents a summary of those obligations, as of December 31, 2001:
Payments Due by Period
---------------------------------------------------------------------------
(In thousands of U.S. Dollars)
Less Than 1-3 4-5 After
Contractual Obligations Total 1 Year Years Years 5 Years
----------------------------------------------------------------------------------------------------------------------
Debt From Banks......................... 1,083,058 103,777 503,385 398,037 77,859
Debentures.............................. 82,937 16,118 8,319 -- 58,500
Operating Lease Obligations............. 45,563 10,491 18,423 11,728 4,921
Other Obligations....................... 23,661 266 7,189 5,063 11,143
Total Contractual Cash Obligations...... 1,235,219 130,652 537,316 414,828 152,423
For purposes of presenting the approximate cash flows that will be
required to meet our other commercial commitments, the following table
presents a summary of those commitments, as of December 31, 2001:
Amount of Commitment Expiration Per Period
-----------------------------------------------------------------------------
(In thousands of U.S. Dollars)
Total
Amounts Less Than 1-3 4-5 After
Other Commercial Commitments Committed 1 Year Years Years 5 Years
----------------------------------------------------------------------------------------------------------------------
Lines of Credit(1).................... 100,000 -- 100,000 -- --
Guarantees(2)......................... 133,136 -- 66,958 25,053 40,000
Commitments for the Purchase of Fixed
Assets(3)............................. 8,003 8,003 -- -- --
Commitments for Investments in Venture
Capital Funds(4)...................... 52,000 -- -- -- 52,000
Total Commercial Commitments.......... 293,139 8,003 166,958 25,053 92,000
(1) In February 2001, we extended a $100 million line of credit to ECI
until February 2003. As of June 10, 2002, ECI had not borrowed any
funds under the line of credit.
(2) Includes: (i) a guarantee Bezeq (Israeli telecommunications company)
received from us in the amount of $63 million; (ii) a guarantees
totaling $58 million issued by Telrad, one of our consolidated
subsidiaries, to financial institutions for credit that its customers
received; and (iii) guarantees by us for affiliates and other non
consolidated companies in the amount $12 million. See note 22F to our
consolidated financial statements included elsewhere in this annual
report.
(3) From time to time, several of our cosolidated subsidiaries enter into
agreements to purchase fixed assets.
(4) This amount represents Koor CVC's remaining obligation for investment
in its portfolio funds, which may be drawn upon by the funds over the
next 6-8 years, based on their needs.
59
Cash Flows
Cash flows from operating activities decreased 9.4% to NIS 426
million in 2001, compared to NIS 470 million in 2000. The decrease in
assets and liabilities items linked to operating activities, particularly
trade and receivables, plus the decrease in suppliers and payables in 2001,
which totaled NIS 537 million, caused an increase of cash flow from
operating activities in comparison to NIS 161 million in 2000. The decrease
in the trade and other receivables item in the sum of NIS 639 million is
attributable primarily to Telrad and MA Industries, resulting from the
securitization of trade receivables in MA Industries. The decrease in
suppliers and payables in the sum of NIS 71 million relates mainly to MA
Industries and Telrad.
Cash flows used for investment activities increased to an outflow
of NIS 1,037 million in 2001 compared to cash generation of NIS 204 million
in 2000. Investments in fixed and other assets, net of investment grants,
totaled NIS 401 million in 2001 compared to NIS 480 in 2000. The principal
investments in fixed assets during 2001 were by the MA Group, Telrad,
Sheraton - Moriah and Elisra.
Investment in intangible assets in 2001 amounted to NIS 551
million, mainly by MA Industries, compared to NIS 79 million in 2000.
Venture capital investments totaled approximately NIS 147 million.
The net proceeds from sale of investments and fixed assets
contributed NIS 173 million to cash flows generated from investment
activities in 2001, compared to NIS 1,963 million generated in 2000. The
2001 net proceeds are mainly from the realization of 5% of MA Industries
and from the realization of fixed assets, mainly from Koor Properties.
In 2001, investment in affiliated companies, net, totaled NIS 45
million compared to NIS 20 million in 2000.
The investment in consolidated subsidiaries totaled NIS 64 million
in 2001 compared to NIS 305 million in 2000. The 2001 investment is
primarily attributed to MA Industries.
Finance activities in 2001 contributed NIS 379 million compared to
consuming NIS 1,149 million in 2000.
The long term loans received during 2001 totaled NIS 2,811
million, compared to NIS 511 million in 2000. The loans were received
mainly at the parent company level as part of our restructuring agreement,
at MA Industries (issue of convertible debentures), and to a lesser extent,
at Telrad and at Sheraton Moriah. Repayment of long-term loans in 2001
totaled NIS 1,839 million compared to 1,102 in 2000. The loans were repaid
mainly at the parent company level due to the restructuring agreement and
at MA Industries and Tadiran.
Short-term debt decreased by NIS 686 million in 2001, compared to
NIS 222 million in 2000. Short-term debt in 2001 decreased mainly in MA
Industries.
60
Impact of Inflation and Currency Fluctuations
The dollar cost of our operations in Israel is influenced by the
extent to which any increase in the rate of inflation in Israel is not
offset (or is offset on a lagging basis) by a devaluation of the NIS in
relation to the dollar. The inflation rate in Israel was 1.4% in 2001 as
compared to 0% in 2000. At the same time, the devaluation of the NIS
against the dollar was 9.3% in 2001 and -2.7% in 2000. The increase in the
dollar cost of our operations in Israel relates primarily to the cost of
salaries in Israel, which are paid in NIS, and constitutes a substantial
portion of our expenses.
Trend Information
Our financial condition and results of operation may be subject to
significant fluctuations in future periods. Our past financial condition
and results of operation are not necessarily indicative of any future
results. Our future financial condition and results of operation may be
subject to significant fluctuations due to various factors, including the
divestiture of subsidiaries or other companies, the length of the sale
cycles, the timing and size of orders and shipments to customers,
variations in distribution channels, mix of products, new product
introductions, competitive pressures and general economic conditions.
61
Item 6. Directors, Senior Management and Employees.
Directors and Senior Management
The following table sets forth, as of May 31, 2002, the name, age
and position of each of our directors and executive officers:
Charles R. Bronfman 71 Chairman of the Board of Directors
Jonathan B. Kolber(l)(3) 40 Vice Chairman of the Board of Directors
and Chief Executive Officer
Dr. Janet Aviad 60 Director
Dan Dankner 41 Director
Moshe Dovrat (2)(4) 57 Director
Yacov Elinav 57 Director
Ron Feinstein(2) 64 Director
Andrew Hauptman(1) 33 Director
Prof. Jacob Hornik(1)(2)(3)(4) 60 Director
Eli Hurwitz 70 Director
Irit Izakson 51 Director
Samuel Minzberg 53 Director
Chemi Peres 44 Director
David Rubner 62 Director
Prof. Gabriela Shalev 60 Director
Danny Biran 59 President
Yuval Yanai 50 Senior Vice President and Chief Financial Officer
Aaron Zuker 57 Vice President
Shlomo Heller 58 General Counsel and Corporate Secretary
Yiftach Atir 53 Vice President
Ran Maidan 32 Vice President
(1) Member of the Executive Committee
(2) Member of the Audit Committee.
(3) Member of the Remuneration Committee.
(4) External Director. Under the Israeli Companies Law, 1999, publicly
held companies in Israel are required to appoint at least two
External Directors. Appointed March 1997. According to the
Companies Law, this appointment expired on March 2002. New
External Directors will be appointed at the next General Meeting
of our Shareholders.
Set forth below is a biographical summary of each of our
above-named directors and executive officers.
62
Charles R. Bronfman has been Chairman of the Board of Directors of
Koor since November 1997. Mr. Bronfman is Chairman of the Board of
Directors of Claridge Israel LLC, and the CRB Foundation. Mr. Bronfman is a
former Co-Chairman of the Seagram Company Ltd.
Jonathan B. Kolber has been Vice Chairman of the Board since
November 1997 and Chief Executive Officer of Koor since July 1, 1998. Mr.
Kolber has been President of Claridge Israel, or its predecessors, since
1989. Mr. Kolber was associated with Cemp Investments from 1985 to 1987 and
was a Vice President of Claridge Inc. from 1986 to 1990. He serves as a
director of Israeli companies, including Makhteshim-Agan Industries Ltd.,
Tadiran Ltd., Knafaim-Arkia Ltd., R.M. Sheraton-Moriah Israel Ltd and
Renaissance Management (1993) Ltd. He has a Bachelor degree in Near Eastern
Languages and Civilizations from Harvard University and a Certificate on
Advanced Arabic from the American University of Cairo.
Dr. Janet Aviad has been a director of Koor since June 2000. Dr.
Aviad serves as Vice President of the Andrea and Charles Bronfman
Philanthropies, a family of private foundations dedicated to Canadian
Heritage and Jewish Peoplehood, and as a director of Keren Karev, the
Israeli branch of the Philanthropies. Dr. Aviad was a Senior Lecturer of
Education at the Hebrew University in Jerusalem for almost twenty years.
Dr. Aviad has an M.A. and a Ph.D. in the Sociology of Religion from
Columbia University and a BHL from the Jewish Theological Seminary.
Dan Dankner has been a director of Koor since November 2001. Mr.
Dankner serves as Vice Chairman of the Board of Directors of Bank Hapoalim,
Co-Chairman of Israel Salt Indutries Ltd., Chairman of the Board of
Directors of Poalim Venture Services Ltd. He also serves as a Director of
Signature Bank, Hapoalim USA Holding Company Inc, Dankner Investments Ltd.,
Elgar-Migdal INvestment Ltd. and Elran (D.D.) investment Ltd. Mr. Dankner
holds a B. Sc. In Business and Economics from the University of
Massachussetts, Boston.
Moshe Dovrat has been an external director of Koor since March
1997. Since 1992 to September 1996, Mr. Dovrat was the General Manager of
the Investment Center of the Ministry of Industry and Trade. Prior thereto,
Mr. Dovrat was the owner of an economic consulting company, before which,
he was the Head of the Economics Division of Kupat Holim, the major health
insurance fund in Israel. Since 1997, Mr. Dovrat has been a director of
Rotlex (1994) Ltd. and Makefet Pension Fund, a Chairman of the Board of
Directors of Kfar Bloom Hotel and an independent director of Etgar
Investments and Development Ltd. and Ortel Ltd.
Yacov Elinav has been a director of Koor since November 2001. Mr.
Elinav is a member of the Board of Management of Bank Hapoalim and Head of
the Holdings in Subsidiaries and Affiliates Division. Mr. Elinav is
Chairman of the Board of Directors of Diur BP Ltd. and Subsidiaries,
Tarshihsh-Hapoalim Holdings and Investment, Hapoalim Nechasim (Menayot)
Ltd. and Hapoalim American-Israeli Ltd. Mr. Elinav also serves as a
Director of Poalim Capital Markets, Amot Invetsment Ltd., Isram (Israel)
Travel Ltd., Mivnat Ltd., The Blue Marina Ltd., Industrial Buildings Ltd.,
Clal Insurance Enterprises Holdings Ltd., Sheraton Moriah (Israel) Ltd.,
Danel Ltd., Poalim Venture Services, Ampal American Israel Coportaion, Gold
Trade Ltd., Tzameret Mimunim and ICTS. Mr. Elinav holds both a BA in
Economics and an MBA from the Hebrew University of Jerusalem.
63
Ron Feinstein has been a director of Koor since October 1991 and
since 1999 he has served as a Chairman of the Board of Directors of
Sheraton Moriah Israel and Tadiran. From 1996 until 1998 Mr. Feinstein
served as a Chairman of the Board of Radisson Moriah Hotels Ltd. Since
1992, Mr. Feinstein has also served as the Chairman of the Board of Tourist
Industry Development Corporation Ltd. Mr. Feinstein was a partner in the
law firm of Glass, Feinstein and Bar-Sela from 1981 through March 1997 and
since then he is a senior partner in the law office and notary of Feinstein
and Feinstein.
Andrew Hauptman has been a director of Koor since November 1997.
During the past five years, he was a Director of Business Development and
Strategic Planning at the Universal Studios Holdings (UK) Ltd. and at
present he is the President of Andell Inc. Mr. Hauptman holds an MBA degree
from Harvard University.
Prof. Jacob Hornik has been an external director of Koor since
March 1997. Prof. Hornik was the Associate Dean and he is a Professor of
Marketing and Advertising at the Leon Recanati Graduate School of Business,
Tel-Aviv University. Prof. Hornik holds a Ph.D. in Business Administration
from Syracuse University, New York. Prof. Hornik acts as a consultant to
various organizations and is an independent director of Supersol Ltd. He
serves on the editorial boards of several academic journals, including the
International Journal of Research in Marketing. Prof. Hornik has also
taught and lectured at a number of universities outside Israel, including,
the University of Chicago, Northwestern University, New York University,
and the University of Washington at Seattle.
Eli Hurwitz has been a director of Koor since November 1997. Mr.
Hurwitz is the President and Chief Executive Officer of Teva Pharmaceutical
Industries Ltd. Mr. Hurwitz serves as a director of Teva Pharmaceutical
Industries Ltd. and Vishay Intertechnology Inc.
Irit Izakson has been a director of Koor since September 2000. She
was previously Head of the Industrial Sector at the Business Division of
Bank Leumi Le-Israel Ltd. She is a director of several financial,
investment and commercial companies including Bank Hapoalim, Israel Corp.
Mehadrin Ltd., Meshulam Levinshtein Ltd., Nisco Industries Ltd., Erison
Holdings (1998) Ltd., and Eurocom Telecomunication Ltd. Mrs. Izakson holds
a B.A. in Economics from the University of Tel Aviv and an M.Sc in
Operational Research from Tel Aviv University.
Samuel Minzberg has been a director of Koor since November 1997.
He is also the CFO of Claridge Inc., the President of Claridge Israel LLC
and a director in HSBC Bank Canada, Reitmans (Canada) Limited and ECI
Telecom Ltd.
Chemi Peres has been a director of Koor since June 2000. He is a
Managing Director and Founder of Pitango Venture Capital (foremerly Polaris
Venture Capital originating in Israel), a venture capital fund. Mr. Peres
is one of the pioneers of the venture capital industry in Israel. In 1992
he founded and managed Mofet Israel Technology Fund, an Israeli venture
capital fund. Mr. Peres is the Chairman of the Board of WebGlide, and
serves as a director in Orckit Communications Ltd., Aladdin Knowledge
Systems Ltd and several other companies. Mr Peres holds a B.Sc. in
industrial engineering and management and a M.B.A. from Tel Aviv
University.
64
David Rubner has been a director of Koor since June 2000. He is
Chairman and CEO of Rubner Technology Ventures Ltd. Mr. Rubner was employed
with ECI from 1970 and was its President and CEO from 1991 to October 1999
and February 2000, respectively. Since November 1999 he has served as Vice
Chairman of the Board of Directors of ECI. He serves as Chairman of the
Board of Ectel Ltd., and director of VPS Ltd., Chekpoint Software Ltd.,
Efcon Ltd., Gigami Inc. and MKID Inc. Mr. Rubner holds a B.Sc. (Hons) in
Engineering from Queen Mary College, University of London and a M.S. from
Carnegie Mellon University. He is a member of the Presidium of the Israel
Manufacturers Association and was a recipient of the Industry Prize for
1995.
Prof. Gabriela Shalev has been a director of Koor since February
1999. Prof. Shalev is a Contracts Law Professor in the Hebrew University in
Jerusalem. Prof. Shalev also serves as a director of several other
companies including Van-Lir Institute and Hadassah Hospital.
Danny Biran has been President of Koor since July 1, 1998. He
serves as Senior Vice President of Claridge Israel and as the Chairman of
the Board of Makhteshim-Agan Industries, Elisra Group, Isrex (94), Koor
Properties, Koor Trade and R.M. Renaissance Management (1993) Ltd. Mr.
Biran is also a director of Knafaim-Arkia Ltd., Telrad Networks Ltd. and
Sheraton-Moriah Israel Ltd. He is a graduate of the Law faculty of the Tel
Aviv University and a member of the Israeli Bar.
Yuval Yanai has been Senior Vice President and Chief Financial
Officer of Koor since October 1, 2000. He served as Senior Vice President
and Chief Financial Officer of NICE Systems Ltd. from April 1998 to
September 2000. From 1991 to 1998 he was the Vice President, Finance and
Chief Financial Officer of Elscint Ltd. and director of several of Elscint
subsidiaries, as well as a director of certain public and private
companies. He joined Elscint in 1985 and served as Corporate Controller and
Corporate Treasurer through 1991. Mr. Yanai is a director of
Makhteshim-Agan Industries, Telrad Networks and BVR Systems Ltd. Mr. Yanai
holds a Bachelor degree in Accounting and Economics from the Tel Aviv
University.
Yiftach Atir joined Koor in July 2000 as head of Koor Corporate
Venture Capital. Prior to that, Mr. Atir was a Managing Partner with
Evergreen Venture Capital between the years 1994 to 2000. Before joining
Evergreen, Mr. Atir served 20 years in the Israel Defense Forces. During
the last three years in the IDF, Mr. Atir served as military attache in
Japan and Korea. Mr. Atir is a director of Telrad Networks, and several of
Koor CVC's portfolio companies. Mr. Atir holds an MBA from the Tel Aviv
University.
Aaron Zuker has been a Vice President of Koor since January 1999.
He serves as Managing Director of R.M. Renaissance Management (1993) Ltd.
Mr. Zuker is a director of Makhteshim-Agan Industries, the Elisra Group
(and its companies) and Telrad Networks. Mr. Zuker is also a director of
Isrex (94) Ltd., Clalcom Ltd.and Barak ITC (1995). Between the years 1990 -
1995, Mr. Zuker served as Chief Financial Officer and then Chief Executive
Officer of The Jerusalem Report Publication.
Ran Maidan has been Vice President in charge of Mergers,
Acquisitions and Taxation since June 2000. Mr. Maidan is a director of
Telrad Networks and the Elisra Group. Prior to this, Mr. Maidan was
Controller of Koor. Mr. Maidan is a Certified Public Accountant.
65
Shlomo Heller has been General Counsel and Corporate Secretary of
Koor since August 1997. Between 1990 and 1997 he was the General Counsel of
United Mizrahi Bank Ltd. He also serves as a director of several other
companies within Koor.
Compensation
The aggregate compensation paid to or accrued on behalf of all our
directors and executive officers as a group (21 persons) during 2001
consisted of approximately $2.7 million, in salaries, fees, bonuses,
commissions and directors' fees and $1.2 million in amounts set aside or
accrued to provide pension, retirement or similar benefits, but excluding
expenses (including business travel, professional and business association
dues and expenses) reimbursed to officers and other fringe benefits
commonly reimbursed or paid to such officers and directors by companies in
Israel.
On October 3, 1995, we entered into an agreement with Bank
Hapoalim, pursuant to which all directors' compensation paid by us to any
member of the Board of Directors associated with Bank Hapoalim, would be
paid directly to Bank Hapoalim. In addition, in connection with the
Claridge Acquisition, three directors associated with Claridge assigned
their directors' compensation to Claridge. All these directors received
compensation, identical to that received by our other directors. All of our
directors received compensation identical to that received by our external
directors as described below.
Compensation and reimbursement for external directors (as
described below) is statutorily determined pursuant to a formula stated by
the Israeli Companies Law, 1999, and we adopted the highest compensation
payable pursuant to the formula. Compensation and reimbursement of all
other directors who do not serve as officers are the same as the statutory
rates paid to external directors according to a decision of the Annual
General Meeting. Directors who serve as our officers do not receive any
compensation for their services on the board. For additional information
concerning the compensation of directors, see Note 25D to our consolidated
financial statements included elsewhere in this annual report.
During 2001, our officers received, in the aggregate, options to
purchase up to 11,404 ordinary shares under the 1998 Plan (as described
below). The options granted under the 1998 Plan have an exercise price of
NIS 101.38 per share and expire July 16, 2006.
Board Practices
Pursuant to our articles of association, the number of directors
serving on the board is required to be not less than 5. The appointment of
members to the board of directors, their replacement and removal, and the
appointment of the chairman of the board of directors requires approval by
our shareholders by ordinary resolution. Each member of the board of
directors remains in office until his/her office is vacated due to any one
of the following events: death, legal incompetency, bankruptcy, resignation
or removal at a shareholders meeting. Our chief executive officer is
appointed by the board of directors. Our executive officers serve at the
discretion of our chief executive officer pursuant to powers delegated to
him by our board of directors.
66
The board may appoint committees of the board and delegate to such
committees the powers of the board as it deems appropriate, unless the
Companies Law restricts it. Notwithstanding the foregoing, the board may,
from time to time, revoke the delegation made to a committee of its powers
and authorities or a portion thereof. The board has appointed an executive
committee, an audit committee, and a remuneration committee.
External Directors
Under the Companies Law, which became effective on February 1,
2000, companies incorporated under the laws of Israel whose shares have
been offered to the public inside or outside of Israel are required to
appoint at least two external directors. This law provides that a person
may not be appointed as an external director if the person or the person's
relative, partner, employer or any entity under the person's control, has,
as of the date of the person's appointment to serve as an external
director, or had during the two years preceding that date, any affiliation
with us or any entity controlling, controlled by or under common control
with us. The term "affiliation" includes:
o an employment relationship;
o a business or professional relationship maintained on a regular
basis;
o control; and
o service as an office holder.
These directors must be residents of Israel. No person may serve
as an external director if the person's position or other business
activities create, or may create, a conflict of interest with the person's
responsibilities as an external director or may otherwise interfere with
the person's ability to serve as an external director.
External directors are to be elected by majority vote at a
shareholders' meeting, provided that either:
(1) The majority of shares voted at the meeting,
including at least one-third of the shares of the non-controlling
shareholders voted at the meeting, vote in favor of election of
the director; or
(2) The total number of shares of non-controlling
shareholders voted against the election of the director does not
exceed one percent of the aggregate voting rights.
The initial term of an external director is three years and may be
extended for an additional three years. Each committee of our board of
directors is required to include at least one external director. We intend
to take all actions required for us to comply with the new Companies Law
and its requirements for external directors.
Our external directors were originally appointed as public
directors under the law in effect prior to the Companies Law. Pursuant to
the terms of the Companies Law, public directors are considered to be
outside directors and may complete their terms of office.
67
The terms of
office of our external directors expired in March 2002. Two new external
directors will be appointed at the next general meeting of our
shareholders.
An external director is entitled to compensation as provided in
the regulations adopted under the Companies Law and is otherwise prohibited
from receiving any other compensation, directly or indirectly, in
connection with service provided as an external director.
Independent Directors
We are subject to the rules of the NYSE applicable to listed
companies. Under the NYSE rules, we are required to appoint a minimum of
three independent directors. The independence standard under the NYSE rules
excludes any person who is a current or former employee of a company or any
of its affiliates, as well as any immediate family member of an executive
officer of a company or any of its affiliates. At least three of our
current directors meet the independence standard of the NYSE rules.
Audit Committee
The Companies Law requires public companies to appoint an audit
committee. The responsibilities of the audit committee under the Companies
Law include identifying irregulari-ties in the management of our business
and approving related party transactions as required by law. Under the
Companies Law, an audit committee must consist of at least three directors,
including at least two external directors. The chairman of the board of
directors, any director employed by or otherwise providing services to us,
and a controlling shareholder or any relative of a controlling shareholder,
may not be a member of the audit committee.
In addition, under NYSE rules we are required to maintain an audit
committee, consisting of at least three independent directors, one member
of which must have accounting or related financial management expertise.
The responsibilities of the audit committee under the NYSE rules include,
among other things, evaluating the independence of a company's external
auditors. We intend to continue to take all actions as may be necessary for
us to maintain our compliance with the applicable NYSE requirements.
Internal Auditor
Under the Companies Law, the board of directors must appoint an
internal auditor, nominated by the audit committee. The role of the
internal auditor is to examine, among other matters, whether our actions
comply with the law and with orderly business procedure. Under the
Companies Law, the internal auditor may be an employee of ours but not an
office holder, or an affiliate, or a relative of an office holder or
affiliate, and may not be our independent accountant or its representative.
We have appointed an internal auditor in accordance with the requirements
of the Companies Law and his reports are submitted to and reviewed by the
Chairman and to the audit committee. The audit committee follows up on the
implementation of the recommendations of the internal auditor.
68
Remuneration Committee
The Board of Directors has appointed a Remuneration Committee
comprised of two directors, one of which is an external director. The
authorities of this committee are to consider and decide matters pertaining
to the conditions of employment of officers employed by us including
personal contracts, bonuses and other remuneration.
Executive Committee
The Board of Directors has appointed an Executive Committee
comprised of three directors, one of which is an external director. The
Executive Vice Chairman chairs this committee. The authority of this
committee is to consider the multi-year strategic target plan and to advise
the board on the committees recommendations, to approve the issue of
debentures in an amount not exceeding $75 million dollars, to obtain loans
and credit up to $75 million and to approve new investments and sale of
assets in amounts not exceeding $50 million.
Employees
At December 31, 2001, we and our consolidated subsidiaries had
approximately 7,297 employees worldwide, which represented a decrease of
16% from year-end 2000. (Employees of companies which were sold or
companies that were not consolidated during 2001, are not included in these
figures.)
The table below sets forth the break down of the geographic
location of the employees in the companies that remained with us, in the
year-end of 1999, 2000, and 2001:
Latin
Israel America USA Europe Others Total
1999 7,729 1,258 413 276 54 9,730
2000 6,663 1,239 413 299 81 8,695
2001 5,447 1,247 336 203 64 7,297
Our future success will depend in part upon our ability to attract
and retain highly skilled and qualified personnel. Although competition for
such personnel in Israel is generally intense, we believe that adequate
personnel resources are currently available in Israel to meet our
requirements.
The collective bargaining agreements of our subsidiaries cover a
term of one to three years, or are for an indefinite period. Upon
expiration of the term of an agreement, and pending negotiations for
extension, the provisions of the agreement remain in force unless one of
the parties gives a notice of termination or a new collective agreement is
entered into. Management believes that, upon expiration of such existing
agreements, its subsidiaries will be able to negotiate, without material
disruptions to our business, satisfactory new agreements. However, there
can be no guarantee that satisfactory agreements will be reached in each
subsidiary or that the negotiation of such agreements will not generate
material disruptions to our business. In addition, we are subject to
certain labor related statutes, and to certain provisions of the collective
bargaining agreements between the Histadrut (General Federation of Labor in
Israel) and the Coordinating Bureau of Economic Organizations (including
the Industrialists'
69
Association of Israel) that are applicable to our
Israeli employees by order of the Israeli Ministry of Labor and Welfare.
These statutes and provisions principally concern the length of the workday
and the workweek, minimum wages for workers, contributions to a pension
fund, insurance for work-related accidents, determination of severance pay
and other conditions of employment. Furthermore, pursuant to such
provisions, the wages of most of our employees are automatically adjusted
based on changes in the Israeli consumer price index, or CPI. The amount
and frequency of these adjustments are modified from time to time.
Israeli law generally requires the payment by employers of
severance upon the death of an employee, his retirement or upon termination
of employment by the employer without due cause. We currently fund our
ongoing severance obligations by making monthly payments to approved
severance funds or insurance policies. In addition, according to the
National Insurance Law, Israeli employers and employees are required to pay
predetermined sums to the National Insurance Institute, an organization
similar to the United States Social Security Administration. These
contributions entitle the employees to benefits in periods of unemployment,
work injury, maternity leave, disability, reserve military service and
bankruptcy or winding-up of the employer. Since January 1, 1995, such
amount also includes payments for national health insurance. The payments
to the National Insurance Institute are equal to approximately 14.5% of an
employee's wages (up to a specified amount), of which the employee
contributes approximately 66% and the employer contributes approximately
34%.
Labor Relations
We are subject to various Israeli labor laws, collective
bargaining agreements, Israeli labor practices, as well as orders extending
certain provisions of collective bargaining agreements between the
Histadrut (currently the largest labor organization in Israel) and the
Coordinating Bureau of Economic Organizations (the federation of employers'
organizations). Such laws, agreements and orders have a wide scope,
including minimum employment standards (including, among other things,
working hours, minimum wages, vacation and severance pay), and special
issues, such as equal pay for equal work, equal opportunity in employment,
and employment of women, youth and army veterans. Currently, most of our
employees have individual employment agreements with us.
According to the National Insurance Law, Israeli employers and
employees are required to pay predetermined sums to the National Insurance
Institute, an organization similar to the United States Social Security
Administration. These contributions entitle the employees to benefits
during periods of unemployment, work injury, maternity leave, disability,
reserve military service, and bankruptcy or the winding-up of the employer,
in addition to health insurance. The National Health Insurance Law 1994
imposes a health tax at a rate of 4.8% of an employee's base wage.
The collective bargaining agreements of our subsidiaries cover a
term of one to three years, or are for an indefinite period. Upon
expiration of the term of an agreement, and pending negotiations for
extension, the provisions of the agreement remain in force unless one of
the parties gives a notice of termination or a new collective agreement is
entered into. Management believes that, upon expiration of such existing
agreements, its subsidiaries will be able to negotiate, without material
disruptions to our businesses, satisfactory new agreements.
70
However, there
can be no guarantee that satisfactory agreements will be reached in each
subsidiary or that the negotiation of such agreements will not generate
material disruptions to our businesses.
In 2001 our total labor costs (including temporary employees)
amounted to approximately NIS 1,638 million, which represented
approximately 22.9% of our total net sales as compared to NIS 1,865 million
in 2000. The majorities of our labor costs are denominated in NIS and are
affected by the periodic changes in the inflation rate in Israel.
Our future success will depend significantly upon our ability to
attract and retain highly skilled and qualified personnel. Although
competition for such personnel is generally intense, we believe adequate
personnel resources are currently available in Israel.
Share Ownership
Our directors and executive officers who are deemed to have
beneficial ownership of more than 1% of our outstanding ordinary shares are
Mr. Charles R. Bronfman, Mr. Jonathan Kolber and Mr. Andrew Hauptman, all
of whom are related to the Claridge Group, our major shareholder. For
details please see "Item 7. Major Shareholders and Related Party
Transactions", Footnote 3.
As of June 10, 2002, our executive officers, in the aggregate,
held options under our stock option plans to purchase up to 443,581
ordinary shares. 36,321 of these options, which were granted under the 1997
Plan, have an exercise price of $101.38 and expire five years from the
vesting date. 105,263 of these options, which were granted under the 1998
Plan have an exercise price of $112.5 per share and expire in July 2002.
166,997 of these options, which were granted under the 1998 Plan, have an
exercise price of $101.38 and expire five years from the vesting date. The
remaining 135,000 of these options, which were granted under the 2000 Plan,
have an exercise price of $101.38 per share and expire 5 years from the
vesting date.
Employee Benefit Plans
As of June 10, 2002, options granted, or approved for grant, to
all our employees to purchase up to 605,359 ordinary shares were
outstanding.
The 1997 Stock-Based Compensation Plan
On May 27, 1997, 134,547 stock options were allotted under this
plan, and on November 6, 1997 another 54,421 stock options were allotted.
On March 22, 2000, our Board of Directors resolved to amend the
plan so that for an employee who resigned and who held stock options for
which the date of entitlement to exercise arrived before his resignation,
their exercise period would be until the end of the five years from the
date of the inception of the plan.
On August 6, 2000, our Board of Directors resolved that for our
employees who are not interested parties and who did not resign before the
end of 2000, the exercise period of each stock option would be extended to
the end of 5 years from the date of its entitlement.
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On November 15, 2001, our Board of Directors resolved that for our
employees on the date of the resolution who are not interested parties, the
exercise price of their stock options would be amended to $101.38 per
share. For the other stock option holders under this plan, the exercise
price would remain as it was (for some of the stock options $90.989 and for
others $98.747 per share). Our Board of Directors also resolved that the
technical method of exercise would be the "Bonus Component Method" (see
below, The 1998 Stock Based Compensation Plan).
As of June 10, 2002, the following 120,938 options under the 1997
plan were outstanding: 61,478 options with an exercise price of $90.989 and
an expiration date of May 2002, 23,139 options with an exercise price of
$98.747 and an expiration date of November 2002, 5,039 options with an
exercise price of $101.38 and an expiration date of May 2005 and 31,282
options with an exercise price of $101.38 and an expiration date of
November 2005.
The 1998 Stock-Based Compensation Plan
On August 30, 1998, at an extraordinary general meeting of
shareholders, our shareholders approved a private placement of 400,000
stock options, free of charge, to our employees. The options are
exercisable for up to 400,000 ordinary shares of a par value of NIS 0.001
each (hereinafter - "the Plan"). All stock options under this Plan were
allotted on different dates, and after expiration following retirement of
some options and exercise of others, 349,421 options remained outstanding
for exercise, of which 105,263 were allotted to our CEO.
Under the terms of the Plan, each stock option is theoretically
exercisable for one share, subject to adjustments. However, in practice,
offerees who exercise the options will not be allotted the full quantity of
shares underlying each option, but only shares which reflect the amount of
the monetary bonus inherent in their option, computed on the date of
exercise. Accordingly, the exercise price of each stock option is intended
only for computation of the bonus component (above and hereafter - the
"Bonus Component Method").
On March 22, 2000, our Board of Directors approved, with reference
to stock option holders, under this Plan, who are not interested parties,
the amendment of the exercise period for employees who resign. Our Board of
Directors also resolved that for these option holders, the exercise price
would be adjusted in respect to the distribution of a dividend for all the
options, even if the date of entitlement to exercise fell before the
entitlement to the dividend.
On October 6, 2000, our Board of Directors approved the amendment
of extension of the exercise period for our employees who are not
interested parties and who did not retire before the end of 2000.
On November 15, 2001 our Board of Directors approved the amendment
of the exercise price to $101.38 per share for our employees on the date of
the resolution and who are not interested parties.
As of June 10, 2002, 361,421 options to purchase our ordinary
shares were outstanding as follows: 105,263 options with an exercise price
of $112.50 and an expiration date of July 2002, 77,161 options with an
exercise price of $108.90 and an expiration date of July 2003, and 166,997
options with an exercise price of $101.38 and an expiration date of July 2006.
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The 2000 Stock Based Compensation Plan
On August 6, 2000, our Board of Directors approved the 2000 stock
options plan, which was previously approved on June 14, 2000 by the
Executive Committee of our Board of Directors. The main points of the plan
are as follows:
A framework was approved for the allotment of 400,000 stock
options exercisable for up to 400,000 of our ordinary shares, i.e. about
2.5% of our issued share capital.
The options will be exercised for shares in a quantity reflecting
the amount of the monetary bonus inherent in the options, according to the
Bonus Component Method.
The exercise price of each stock option pursuant to the amendment
by our Board of Directors on November 15, 2001, will be $101.38 per share.
The options are designated for our employees who are not
interested parties and will not become interested parties as a result of
allotment of the stock options.
Exercise of the stock options is divided into three groups, so
that at the end of the first year from the later of the determining date
(June 14, 2000) or the date on which the employee first started working
forus, the entitlement to exercise one third of the quantity allotted will
come into being, and the remaining two thirds of the quantity are allotted
at the end of each of the following two years. The exercise period of each
option that comes into being is 5 years from the date on which the
entitlement comes into being. On October 5, 2000, the total quantity of
400,000 stock options was allotted to a trustee.
As of June 10, 2002, there are 135,000 options outstanding under
this plan.
Option Plans of Certain Subsidiaries
In April 2001, the Board of Directors of our subsidiary M-A
Industries decided to distribute options to employees of M-A Industries and
its consolidated companies. According to this plan, during 2002 and 2003,
17,400,000 options will be allocated, exercisable into 17,400,000 ordinary
shares of NIS 1.00 par value each of M-A Industries (as of December 31,
2001, 12,500,000 options were allocated).
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Item 7. Major Shareholders and Related Party Transactions.
Major Shareholders
The following table sets forth certain information with respect to
the beneficial ownership of our ordinary shares as of June 10, 2002 with
respect to each person known to us to be the beneficial owner of 5% or more
of our outstanding ordinary shares. None of our major shareholders has any
different voting rights than any other shareholder.
Number of Percentage of
Ordinary Outstanding Ordinary
Shares Shares
Beneficially Beneficially
Name Owned Owned (1) (2)
--------------------- ------------------------
Claridge Group (3).............................................. 5,389,573 35.48%
Hapoalim Properties (Shares) Ltd.
(a subsidiary of Bank Hapoalim)(4).............................. 3,180,279 20.93%
All officers and directors as a group (20 persons).............. 515,401 (5) 3.39%
-----------------------
(1) Based upon 15,189,176 ordinary shares issued and outstanding
on June 10, 2002, which amount excludes 624,577 ordinary
shares owned by Koor Trusts (1995) Ltd. that do not confer
voting or distribution rights (See Note 20A(5) to our
consolidated financial statements included elsewhere in this
annual report), and excludes 693,229 ordinary shares held by
us as treasury stock purchased in the open market during
year 2001-2000 (See Note 20B to our consolidated financial
statements included elsewhere in this annual report) and
according to Companies Law do not confer voting or
distribution rights while held directly by us. The
respective numbers of ordinary shares listed as beneficially
owned in the table above, and the percentage of outstanding
ordinary shares represented thereby, do not give effect to
(i) the conversion of NIS 46,870,224 aggregate principal
amount of Series F convertible debentures into 142,030
ordinary shares, and (ii) ordinary shares issuable upon
exercise of options granted pursuant to the 1997, 1998 and
2000 Plans, which are exercisable within 60 days of this
Annual Report. See "Item 6. Directors, Senior Management and
Employees", and Note 20 to our consolidated financial
statements included elsewhere in this annual report
(2) As of June 10, 2002, one of our subsidiaries held an
aggregate of 15,799 of our ordinary shares and 12,950,864 of
our deferred shares, par value NIS 0.001 per share. Holders
of Deferred Shares are only entitled to receive the nominal
paid-up value of the Deferred Shares in the event of the
winding up of our company, subject to prior payment of the
nominal paid-up value of the ordinary shares to the holders
of ordinary shares. The holders of the Deferred Shares do
not have any voting rights and they are not entitled to
participate in the distribution of dividend of any kind.
74
(3) The Claridge Group holdings are comprised as follows:
a) Claridge Israel L.L.C., a Delaware limited liability
company, which holds 4,542,333 ordinary shares. Claridge
Israel L.L.C. is owned by the following two different
trusts, whose beneficiaries are relatives of Charles R.
Bronfman, our Chairman of the Board:
I. Charles Bronfman Trust - a trust established
under the laws of the U.S. primarily for the
benefit of Charles R. Bronfman and Ellen J.
Bronfman Hauptman and her issue. Mr. Andrew
Hauptman, one of our directors is the husband of
Mrs. Ellen J. Bronfman Hauptman;
II. Charles R. Bronfman Trust - a trust established
under the laws of the U.S. primarily for the
benefit of Charles R. Bronfman and Stephen R.
Bronfman and his issue.
b) Anfield Ltd., a company registered in Israel, which holds
847,240 ordinary shares. Anfield Ltd. is owned by Jonathan
Kolber, our Chief Executive Officer and Vice Chairman of the
Board of Directors.
The holdings of the Claridge Group in our shares were pledged in
favor of Bank Hapoalim as a guarantee for a loan that was given to the
Claridge Group by Bank Hapoalim.
Pursuant to certain restrictions under an amendment to the Banking
(Licensing) Law 1981, with respect to non bank-holdings held by banking
corporations, on July 12, 1998, the Claridge Group and Bank Hapoalim, on
behalf of Hapoalim Properties (Shares) Ltd., entered into certain
agreements concerning their holdings in us, the principles of which are:
(i) Bank Hapoalim was granted a put option to sell to the
Claridge Group its holdings in us which are in the excess of
20%. The Bank exercised the put option with respect to
364,038 shares and the Claridge Group acquired such shares
in December 1999.
(ii) The Claridge Group was granted a right of first
refusal in respect of Bank Hapoalim's holdings in us of up
to 20% ("the remaining shares of Bank Hapoalim"). Should the
Claridge Group not exercise the above right, and Bank
Hapoalim desires to sell its remaining shares to any third
party, Bank Hapoalim will have the right to demand that the
Claridge Group sell to that particular third party up to 5%
of its holdings in our shares, to the extent these holdings
exceed 32.5% of our capital, in order to enable that
particular third party to purchase a total of up to 25% of
our shares. In that case, the price per Ordinary Share owned
by the Claridge Group will be the higher of $142.50 or the
price at which Bank Hapoalim sells its remaining shares to
that particular third party. Such right will expire should
Bank Hapoalim's holdings in our shares be lower than 19%,
under circumstances stipulated in the agreements; and
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(iii) As long as the Claridge Group has the power to
nominate the majority of the members of our board of
directors, and as long as Bank Hapoalim holdings in us will
not fall below 5%, then the Claridge Group is committed to
vote for the appointment of members recommended by Bank
Hapoalim to our board of directors, at graduated rates of
10%-25% of the members.
(4) Two members of our board of directors (Dan Dankner and Irit
Izakson) are members of the board of Bank Hapoalim, and one
member of our board of directors (Yacov Elinav) is a senior
employee of Bank Hapoalim. See "Item 6. Directors, Senior
Management and Employees".
(5) Includes options to purchase ordinary shares held by certain
officers and directors, exercisable within 60 days of the
date of this Annual Report and 40 shares held by one
director, and does not include ordinary shares held by the
Claridge Group and Hapoalim Properties (Shares) Ltd. which
may be deemed beneficially owned by certain officers and
directors as described in footnotes 3 and 4 above.
As of May 31, 2002, we had 147 ADS holders of record in the United
States, holding approximately 4% of its outstanding ordinary shares, as
reported by The Bank of New York, the depositary for our ADSs.
To our knowledge, (A) we are not directly or indirectly owned or
controlled (i) by another corporation or (ii) by any foreign government and
(B) there are no arrangements, the operation of which may at a subsequent
date result in a change in control of our company.
Related Party Transactions
For details regarding transactions and loans between us and
related parties, please see Note 25 to our consolidated financial
statements included elsewhere in this annual report.
Item 8. Financial Information.
Consolidated Statements and Other Financial Information
See "Item 17. Financial Statements" and pages F-1 through F-118
Legal Proceedings
Claims against ECI
In June 2001, several putative shareholder class action lawsuits
were filed against ECI, its former Chairman of the Board, its former CFO
and its present CEO. The claims were filed in the United States Federal
District Court in Virginia in the name of all persons who acquired
securities of ECI during the period from May 2, 2000 to February 14, 2001.
The plaintiffs allege that ECI and the individual defendants made false and
misleading statements about ECI's financial condition, revenues, expenses
and results of operations, in violation of federal securities laws and the
plaintiffs seek damages in an unspecified amount. In August 2001, the court
consolidated the complaints into a single action and in September 2001, the
court appointed the
76
lead plaintiff. In October 2001, the lead plaintiff
filed the first consolidated class action, which was dismissed by the
court. In December 2001, the lead plaintiff filed a second amended
consolidated class action against ECI, its present CEO and former CFO,
which were not dismissed by the court. ECI believes that the plaintiffs'
claims have no basis and intends to vigorously defend the actions. At this
preliminary stage of the proceedings, ECI cannot predict the outcome of the
litigation, nor can it make any estimate of the amount of damages, if any,
for which it may be held responsible in the event of a negative conclusion
to the litigation.
On May 20, 2002, ECI announced that it has agreed to settle the
consolidated securities class action lawsuit. Under the terms of the
agreement, ECI and the plaintiffs will negotiate and seek court approval of
the definitive settlement. This includes the establishment of a fund to
cover the settlement to be paid by ECI's insurance carriers, and the
dismissal of all claims without any liability or wrongdoing attributed to ECI.
In addition, and also subject to court approval, the plaintiffs
have agreed to drop their claims against the Chief Executive Officer of
ECI, and against ECI's former Chief Financial Officer, the individual
defendants in the class action lawsuit, without any liability or wrongdoing
attributed to the individual defendants.
Claims against Telrad
(a) In October 1994, a claim was filed by the Engineers Union
against Telrad, for an unspecified amount. The claim pertains to the
recognition and applicability to Telrad engineers of the salary tables
included in the general collective bargaining agreements, which were signed
in 1994 and 1995 between the Engineers Union and the employers in the
public service sector.
On January 31, 1996, a ruling was handed down by the Tel-Aviv
District Labor Court completely rejecting the claims of the Engineers Union.
The Engineers Union has appealed the decision to the National
Labor Court. At the opening of the hearing of the appeal, the Histadrut
submitted a petition that we be added as a party to the proceedings. We
contested the petition. On November 6, 2000, the National Labor Court
handed down its decision whereby our petition was granted and we were not
added as a party to the proceedings. However, the claim of the Engineers
Union against Telrad was accepted.
Telrad has filed a petition to the High Court of Justice asking
for recission of the judgment of the National Labor Court.
In April 1996, the Lod Workers Council, on behalf of Telrad's
Committee of Monthly Workers, filed in the Regional Labor Court a claim
concerning the application of wage tables applicable in the public service
sector to Telrad monthly employees. The parties to the litigation agreed to
stay the proceedings until the National Labor Court decides on the appeal
of the Engineering Workers.
(b) In 1999, a claim was filed against Telrad by our employees who
are members of our workers' committee. They are suing for accounts so that
the plaintiffs can examine the calculation of the distribution of profits
to employees. They are also suing for a declaratory
77
judgment which will determine that Telrad is obliged to draw up new
accounts for the distribution of profits. In addition, an application was
filed to recognize the plaintiffs as the representatives of all of Telrad's
workers and employees. The court rejected the application for a
representative claim. A statement of defense has been filed.
Restrictive Trade Practices
TTL/Telrad
During October 1997, following the publication of a newspaper
article containing details about alleged violations of the Israeli
Antitrust Law regarding price coordination and lack of competition between
Tadiran Telecommunication Ltd., or TTL (a former subsidiary of Tadiran
which merged with ECI in 1999) and Telrad, the Antitrust Commissioner
conducted an examination at the offices of TTL and Telrad and at our
offices during which documents were confiscated, employees were questioned
and additional information was requested and provided.
On December 13, 1998, the Investigations Department of the Israeli
Office of Restrictive Trade Practices (Israeli Antitrust Authority)
announced in a press release that it had concluded the investigation
regarding allegations of illegal restrictive arrangements between us, TTL,
Telrad, The Israel Telecommunications Corporation Limited, or Bezeq, and
Bezeqcall Communications Ltd. in the field of the supply of public switches
and in the Network Termination Point, or N.T.R, area. According to the
press release, the investigators recommended indicting some of the
examinees as a result of the investigation of several allegations, and the
Legal Department of the Israeli Antitrust Authority will decide if offenses
were in fact committed and if there is sufficient evidential basis for
trial.
On March 4, 2002, Tadiran Ltd., or Tadiran (which committed to
indemnify ECI on any damage resulting from the issues under review by the
Israeli Antitrust Authority), and Telrad received notice from the Israeli
Antitrust Authority that the Israeli Antitrust Authority is considering the
possibility of bringing each of these companies to trial for offenses
against the Law for Restrictive Trade Practices, 1988 (Israeli Antitrust
Law), as a result of the actions of these companies with regard to the
supply of public switches between the years of 1993 and 1997. The Israeli
Antitrust Authority's notice states that the allegations against Telrad and
Tadiran in the field of N.T.R. are still being reviewed by the commissioner
of the Israeli Antitrust Authority. See also note 18A to our consolidated
financial statements included elsewhere in this annual report.
Under the Israeli Antitrust Law, penalties may be imposed against
an entity which has violated the law. In addition, should it be proven that
violations were committed, civil lawsuits may be filed against us and we
may be subject to civil penalties, if damages can be proven as a result of
a violation of the law. At this early stage, it is not possible to predict
the likelihood that any fines will be imposed on us or any civil lawsuits
will be filed against us, nor whether any such fines or lawsuits would have
an adverse effect on our business, financial condition or results of
operations.
78
Claridge
Pursuant to the directives of the Antitrust Commissioner, as
conditions to granting permission for our merger with Claridge Group,
various restrictions were imposed on us and the Claridge Group. With the
completion of the sale of our holding in Mashav Enterprise and Development
Ltd. these restrictions were cancelled.
TTL/ECI Merger
Within the framework of the merger agreement among ECI, Tadiran
and TTL, Tadiran undertook to indemnify ECI for any damage it incurred as a
result of the matters listed below:
o Taxes imposed on TTL and its consolidated companies over and
above the provisions included in the financial statement.
o Breach of the obligations of Tadiran and TTL in the merger
agreement concerning agreements with related parties.
o Any subject connected with the matters being investigated by the Israeli
antitrust commissioner.
The indemnity items cover losses, in excess of the deductible, of
between $1.5 million to $10 million (contingent upon each section
separately) and/or are restricted to 81.67% of the loss incurred.
For indemnity purposes only, the representations made by TTL
remain valid for one year from the date of the merger. Tadiran's indemnity
with regards to the matters or facts being investigated by the Israeli
antitrust commissioner, remain valid for a period of seven years from the
date of the merger and are extendible for an additional period as long as
these matters are under investigation. All other remaining representations
made by Tadiran or TTL did not remain valid after the date of the merger.
Environmental
One of MA Industries' plants is located in Ramat Hovav, along with
other chemical plants, since the Government decided that the geological
layers in that particular area are completely impenetrable to liquid or
pollution. The Ministry of the Environment conducted examinations, which
determined that there is data indicating subterranean pollution in Ramat
Hovav. The examiners recommended the taking of measures to prevent the
continuation of leakages from active and inactive plants, which are liable
to constitute a source of pollution of the water table, in the area. At
this stage, MA Industries cannot estimate the costs involved of
implementing a solution, if, as a result of the research that will be
carried out, a solution will be found. Furthermore, the local Municipality
at Ramat Hovav is continuing to take rehabilitation steps relating to past
incidents.
79
Claims filed against Tadiran and its subsidiaries
(a) Employees of a plant of Tadiran, which has been closed since
1990, filed actions against us, alleging that they sustained injuries and
suffered related illnesses as a result of exposure to certain substances
during their employment.
Tadiran has insurance policies that cover possible damages as a
result of these claims, and, consequently, no provisions have been made
with respect to the claims. Tadiran recorded provisions with respect to
possible damages which have been covered by an insurance company currently
in the process of liquidation.
(b) In October 1999, Bezeq lodged a claim against Tadiran
asserting various losses incurred by Bezeq due to delays in the performance
of works which were ordered under development and application contracts
originally entered into between Bezeq and TTL in the amount of
approximately $8.6 million.
Alternatively, Bezeq is suing for the balance of arrearage
penalties to which it alleges is entitled pursuant to the same contracts,
and which were not paid in full, in the amount of approximately $1.7 million.
In an arbitration judgment handed down on February 17, 2000, all
of Bezeq's arguments regarding TTL's liability for the principal claim were
dismissed. The arbitration judgment determined that pursuant to the
engagement contracts between the parties Bezeq is entitled to compensation
within the framework of arrearage penalties only. The parties are in
intensive negotiations to reach a settlement. In the opinion of the
management of Tadiran, based on the opinions of its legal counsel, Tadiran
will not bear additional substantial expenses over and above the
allocations contained in the financial statements.
Claims filed against MA Industries and its foreign subsidiaries
A claim was filed against MA Industries, one of our subsidiaries
in Brazil, alleging that the MA Industries copied a certain process, which
is a protected trade secret that is owned by the claimant. Accordingly, the
subsidiary is being sued to indemnify the claimant for unfair competition,
in the amount of $14 million (based on a calculation involving the amount
of materials used). In addition, the claimant has requested that a fine of
$40 per day be levied against the subsidiary for the unlawful exploitation
of trade secrets. MA Industries' management estimates that the claim has no
validity and, therefore, no provision has been included in the financial
statements in respect thereto.
A claim was filed against several parties including a MA
Industries subsidiary in Brazil, for an aggregate amount of $30 million, by
a group that acquired the rights to two banks that had declared bankruptcy.
MA Industries' subsidiary is requested to repay a loan of $1 million, out
of the aforementioned amount, which the claimants maintain had been granted
directly to the subsidiary. With respect to the balance of the claim, the
subsidiary has been sued as the guarantor of debts of agricultural
cooperatives, which were its former shareholders.
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The subsidiary's management estimates that there is a reasonable
likelihood that its defense against the claim will be accepted and,
therefore, no provision has been included in the financial statements in
respect thereto.
Claims and other monetary demands have been filed against MA
Industries' subsidiary in Brazil, in the aggregate amount of $18 million.
Pursuant to the amendment of the Employment of Workers by Human
Resources Contractors Law 1996, passed in July 2000, human resources
employees are entitled to identical working conditions as those provided to
workers employed directly by employers beginning in 2001. The management of
MA Industries estimates that the amendment to this law shall not have any
significant influence on the results of its activities in the coming years.
A number of claims have been filed against certain other companies
concerning various matters arising in the normal course of business,
including taxes, customs and VAT liabilities. The management of these
companies believes, based on the opinion of the legal counsel handling the
claims, that appropriate provisions in light of the circumstances have been
included in the financial statements.
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Item 9. The Offer and Listing.
Trading in our ADSs
In the United States, our American Depositary Shares, or ADSs,
have been traded on the NYSE since our initial public offering in October
1995 under the symbol "KOR" and are evidenced by ADRs. Each ADS represents
0.20 fully paid ordinary shares. In addition, the ADSs are quoted on the
Stock Exchange Automated Quotation System operated by the International
Stock Exchange of the United Kingdom and the Republic of Ireland Limited
(SEAQ). The following table sets forth, for the periods indicated, the high
and low last reported sale prices for our ADSs.
ADSs
-------------------
High Low
---------- -------
Annual $ $
1997.......................................... 21.6271 15.0853
1998.......................................... 24.4077 12.0580
1999.......................................... 24.0805 15.4596
2000.......................................... 22.0625 13.0000
2001.......................................... 13.9375 4.1400
Quarterly 2000
First Quarter................................. 21.3926 17.7233
Second Quarter................................ 22.0000 16.7318
Third Quarter................................. 22.0625 18.6875
Fourth Quarter................................ 19.3750 13.0000
Quarterly 2001
First Quarter................................. 13.9375 7.5200
Second Quarter................................ 8.3300 6.3100
Third Quarter................................. 7.3300 6.2500
Fourth Quarter................................ 6.7700 4.1400
Monthly 2001/2002
December...................................... 6.7700 5.7500
January....................................... 7.2700 5.9000
February...................................... 5.9300 4.4500
March......................................... 5.2600 4.5000
April......................................... 4.8500 4.0500
May........................................... 5.2100 4.2000
On June 10, 2002, the last reported sale price of our ADSs was
$5.20 per ADS.
The ADSs are issued pursuant to a Deposit Agreement entered into
between us and the Bank of New York, as depository. The Bank of New York's
address is 101 Barclay Street, New York, New York 10286.
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Trading in our Ordinary Shares
Our securities have been listed on the TASE since 1956. Our
ordinary shares have been listed on the TASE since 1991. The ordinary
shares are not listed on any other stock exchange and have not been
publicly traded outside of Israel (other than through ADSs as noted above).
The table below sets forth the high and low last reported prices of our
ordinary shares (in NIS and dollars) on the TASE. The translation into
dollars is based on the average period rate of exchange published by the
Bank of Israel.
Ordinary Shares
---------------------------- --------------------------
High Low
---------------------------- --------------------------
NIS $ NIS $
----------- ----------- ---------- ----------
Annual
1997..............................................416.25 120.13 281.27 81.17
1998..............................................481.00 126.25 270.00 70.87
1999..............................................504.00 121.00 348.00 83.55
2000..............................................455.00 111.85 255.50 62.81
2001..............................................281.20 67.08 89.80 20.34
Quarterly 2000
First Quarter.....................................453.00 111.74 373.00 92.00
Second Quarter....................................450.30 109.83 345.90 84.37
Third Quarter.....................................455.00 112.07 385.00 94.83
Fourth Quarter....................................393.80 96.05 255.50 62.32
Quarterly 2001
First Quarter.....................................281.20 67.08 157.00 37.45
Second Quarter....................................172.30 41.37 131.80 31.65
Third Quarter.....................................153.30 35.20 95.00 21.81
Fourth Quarter....................................149.20 33.79 89.80 20.34
Monthly 2001/2002
December..........................................149.20 33.79 121.40 27.50
January...........................................166.60 36.20 136.80 29.73
February..........................................142.40 30.80 104.40 22.58
March.............................................121.80 26.10 104.50 22.39
April.............................................116.50 23.81 101.30 20.70
May...............................................126.60 25.75 102.10 20.77
As of June 10, 2002, the last reported price of our ordinary
shares on the TASE was NIS 127.00 (or $25.51) per share.
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Item 10. Additional Information.
Memorandum and Articles of Association
Organization and Register
We are a public company organized in the State of Israel under the
Companies Law. We are registered with the Registrar of Companies of the
State of Israel and we have been assigned company number 52-001414-3.
Objects and Purposes
Our objects and purposes include a wide variety of business
purposes, including many types of investments, borrowing and lending,
owning and transacting in real estate, and are set forth in detail in
Section 2 of our memorandum of association.
Directors
Pursuant to our articles of association, the number of directors
serving on the board is required to be not less than five. The appointment
of members to the Board of Directors, their replacement and removal, and
the appointment of the Chairman of the Board of Directors requires approval
by our shareholders by ordinary resolution. Each member of the Board of
Directors remains in office until his/her office is vacated due to any one
of the following events: death, legal incompetency, bankruptcy or
resignation or upon removal at a shareholders meeting. Our chief executive
officer is appointed by the Board of Directors. Our executive officers
serve at the discretion of our chief executive officer pursuant to powers
delegated to him by our Board of Directors. The board is authorized to
appoint additional directors (whether to fill a vacancy or create new
directorship) to serve until the next annual shareholders meeting, provided
that the total number of directors does not exceed the maximum set by the
general meeting. Compensation of the Board of Directors is fixed by the
general meeting and directors are not required to hold qualifying shares
A meeting of the board may be called at the request of each
director. The quorum required for a meeting of the board consists of a
majority of directors holding office, for the time being, and entitled
under any law to attend and vote at such meeting, provided that the quorum
is not less than three. In lieu of a board meeting a resolution may be
adopted by written consent.
The board may appoint a committee of the board and delegate to
such committee all or any of the powers of the board, as it deems
appropriate. Notwithstanding the foregoing, the board may, from time to
time, revoke the delegation made to a committee of its powers and
authorities or portion thereof. The board has appointed an audit committee,
which has four members, a remuneration committee, which has three members
and an executive committee, which has four members.
The board has borrowing powers that may be exercised in accordance
with our articles of association. Our articles of association are silent
with regards to the retirement age of directors and directors' involvement
in matters to which they are materially interested.
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Approval of Certain Transactions
The Companies Law codifies the fiduciary duties that "office
holders," including directors and executive officers, owe to a company. An
office holder's fiduciary duties consist of a duty of care and a duty of
loyalty. The duty of loyalty includes avoiding any conflict of interest
between the office holder's position in Koor and his personal affairs,
avoiding any competition with Koor, avoiding exploiting any business
opportunity of Koor in order to receive personal advantage for himself or
others, and revealing to Koor any information or documents relating to
Koor's affairs which the office holder has received due to his position as
an office holder. Under the Companies Law, all arrangements as to
compensation of office holders who are not directors require approval of
the board of directors. Arrangements regarding the compensation of
directors also require audit committee and shareholder approval.
The Companies Law requires that an office holder of Koor promptly
disclose any personal interest that he or she may have and all related
material information known to him or her, in connection with any existing
or proposed transaction by Koor. In addition, if the transaction is an
extraordinary transaction as defined under Israeli law, the office holder
must also disclose any personal interest held by the office holder's
spouse, siblings, parents, grandparents, descendants, spouse's descendants
and the spouses of any of the foregoing. In addition, the office holder
must also disclose any interest held by any corporation in which the office
holder is a 5% or greater shareholder, director or general manager or in
which he or she has the right to appoint at least one director or the
general manager. An extraordinary transaction is defined as a transaction
other than in the ordinary course of business, otherwise than on market
terms, or that is likely to have a material impact on Koor's profitability,
assets or liabilities.
In the case of a transaction which is not an extraordinary
transaction, after the office holder complies with the above disclosure
requirement, only board approval is required unless our articles of
association provide otherwise. The transaction must not be adverse to our
interest. Furthermore, if the transaction is an extraordinary transaction,
then, in addition to any approval stipulated by the articles of
association, it also must be approved by our audit committee and then by
the board of directors, and, under certain circumstances, by a meeting of
our shareholders. An office holder who has a personal interest in a matter
that is considered at a meeting of the board of directors or the audit
committee may not be present at this meeting or vote on this matter.
The Companies Law applies the same disclosure requirements to a
controlling shareholder of a public company, which includes a shareholder
that holds 25% or more of the voting rights if no other shareholder owns
more than 50% of the voting rights in Koor. Extraordinary transactions with
a controlling shareholder or in which a controlling shareholder has a
personal interest, and the terms of compensation of a controlling
shareholder who is an office holder, require the approval of the audit
committee, the board of directors and our shareholders. The shareholder
approval must include at least one-third of the shareholders who have no
personal interest in the transaction and are present, in person or by
proxy, at the meeting or, alternatively the total shareholdings of those
who have no personal interest in the transaction who vote against the
transaction must not represent more than one percent of the voting rights
in Koor.
85
In addition, a private placement of securities that will increase
the relative holdings of a shareholder that holds five percent or more of
our outstanding share capital (assuming the exercise or conversion of all
securities held by such person that are exercisable for or convertible into
shares) or that will cause any person to become, as a result of the
issuance, a holder of more than five percent of our outstanding share
capital, requires approval by the board of directors and our shareholders.
Certain types of resolutions, called special or extraordinary
resolution, such as resolutions amending a company's articles of
association and regarding changes in capitalization, mergers,
consolidations, windings up, or authorizing a class of shares with special
rights, require approval of the holders of 75% of the shares represented at
the meeting and voting thereon. Under the provisions of the Companies Law,
the shareholders of a company may decide to amend such company's articles
of association to reduce the percentage required for a special resolution
to as low as a simple majority or eliminate the distinction between
ordinary and special resolutions completely; such an amendment must be
adopted by a 75% majority.
Under the Companies Law, our shareholders have a duty to act in
good faith towards us and our shareholders and to refrain from abusing his
or her power in Koor including, among other things, while voting in a
general meeting of shareholders on the following matters:
o Any amendment to the articles of association,
o An increase of our authorized share capital,
o A merger,
o Approval of interested party transactions which require
shareholders approval.
In addition, any controlling shareholder, any shareholder who
knows that it possesses power to determine the outcome of a shareholder
vote and any shareholder who, pursuant to the provisions of a company's
articles of association, has the power to appoint or prevent the
appointment of an office holder in Koor, is under a duty to act with
fairness towards us. The Companies Law does not describe the substance of
this duty.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, an Israeli company may not exempt an
office holder from liability with respect to a breach of his duty of
loyalty, but may exempt, in advance, an office holder from his liability to
us, in whole or in part, with respect to a breach of his duty of care.
Under the Companies Law, a company may not indemnify an office holder, nor
enter into an insurance contract, which would provide coverage for any
monetary liability incurred as a result of any of the following:
o A breach by the office holder of his duty of loyalty unless
the office holder acted in good faith and had a reasonable
basis to believe that the act would not prejudice the
Company;
o A breach by the office holder of his duty of care if such
breach was done intentionally or in disregard of the
circumstances of the breach or its consequences;
86
o Any act or omission done with the intent to derive an
illegal personal benefit; or
o Any fine levied against the office holder as a result of a
criminal offense.
Office Holder Insurance
Our articles of association provide that, subject to the
provisions of the Companies Law, we may enter into a contract for the
insurance of the liability of any of our office holders with respect to:
o A breach of an office holder's duty of care to us or to
another person;
o A breach of an officer holder's fiduciary duty to us,
provided that the office holder acted in good faith and had
reasonable cause to assume that his act would not adversely
affect the best interests of Koor;
o A financial liability imposed upon an office holder in favor
of another person concerning an act performed by him in his
capacity as an office holder;
o Additional circumstances for which it is permissible, under
the law, to enter into a contract for the insurance of the
liability of any of our office holders.
Indemnification of Office Holders
Our articles of association provide that we may indemnify an
office holder against:
o A financial liability imposed on an office holder in favor
of another person by any judgment given in the scope of a
compromise or an arbiter's award approved by a court
concerning an act performed in the office holder's capacity
as an office holder;
o Reasonable litigation expenses, including attorneys' fees,
expended by the office holder, in proceedings instituted
against him by us or by another person, or in a criminal
charge from which he was acquitted, or a criminal charge in
which judgment is given in his favor or in respect of which
he is acquitted, in relation to any act done by him in his
capacity as an office holder; and
o Additional circumstances for which it is permissible, under the
law, to indemnify officer holders.
Required Approvals
In addition, under the Companies Law, indemnification of, and
procurement of insurance coverage for, our office holders must be approved
by our audit committee and board of directors and, in specified
circumstances, by our shareholders.
Description of Koor's Deferred Shares
Holders of Deferred Shares are only entitled to receive the
nominal paid-up value of the Deferred Shares in the event of the winding up
of Koor, subject to prior payment of the nominal paid-up value of the
ordinary shares to the holders of ordinary shares. The holders of the
87
Deferred Shares do not have any voting rights and they are not entitled to
participate in the distribution of dividend of any kind.
Description of Koor's Ordinary Shares
The par value of our ordinary shares is NIS 0.001 per share, and
all issued and outstanding ordinary shares are fully paid and
non-assessable. Holders of paid-up ordinary shares are entitled to
participate equally in the payment of dividends and other distributions
and, in the event of liquidation, in all distributions after the discharge
of liabilities to creditors. Our shareholders do not have preferential
rights to purchase new shares in Koor.
Voting is on the basis of one vote per share. An ordinary
resolution (for example, resolutions for the approval of final dividends or
the appointment of auditors) requires the affirmative vote of a majority of
shares voting in person or by proxy. A special resolution (for example,
resolutions amending the articles of association or authorizing changes in
capitalization or in the rights of shareholders) requires the affirmative
vote of at least 75% of the shares voting in person or by proxy.
Under the articles of association, if at anytime the share capital
is divided into various classes, we may, by way of special resolution
consented to in writing by the holders of three quarters of our issued
shares or a special resolution passed at an extraordinary meeting, alter
the previous benefits restrictions and provisions applicable to that class.
We shall also be entitled, by special resolution, to amend our share
capitalization.
The Board of Directors has the power to set aside our cash profits
to pay a final dividend after making appropriations for capital reserves;
such a dividend must be approved at a general meeting. No dividend shall be
declared at a general meeting which is greater than that recommended by the
Board of Directors. The Board of Directors is also entitled to pay
shareholders an interim divided if it is justified in light of our
financial position. All ordinary shares represented by ADRs will be issued
in registered form only. Ordinary shares do not entitle their holders to
preemptive rights.
Meetings of Shareholders
Under the Companies Law, we are required to hold an annual meeting
every year no later than fifteen months after the previous annual meeting.
In addition, under the Companies Law, we are required to hold a special
meeting in the following circumstances:
o At the direction of the Board of Directors;
o If so requested by two directors or 1/4 of the serving
directors; or
o Upon the request of one or more shareholder who have at
least 5% of the issued share capital and at least 1% of the
voting rights or more shareholders who have at least 5% of
the voting rights.
88
If the Board of Directors receives a demand to convene a special
meeting, it must publicly announce the scheduling of the meeting within 21
days after the demand is delivered. The meeting must then be held no later
than 35 days after notice was made public.
Under the Companies Law, the agenda at an annual meting is
determined by the Board of Directors. The agenda must also include the
proposals for which the convening of a special meeting was called, as well
as any proposal requested by one or more shareholder who holds no less than
1% of the voting rights, as long as the proposal is one suitable for
discussion at an annual meeting.
Under the Companies Law, a notice of an annual meeting must be
made public (and delivered to every shareholder registered in the
shareholders register, unless it is stated otherwise in the articles of the
company as it is with Koor) at least 21 days before the meeting is
convened. The shareholders entitled to participate and vote at the meeting
are the shareholders as of the record date set at the time of the decision
to convene the meeting, provided that the record date is not more than 40
days, and not less than four days, before the date of the meeting.
A quorum is represented by at least two holders of ordinary shares
personally, or by proxy, who together hold at least 1/3 of the voting
rights of Koor. If such quorum is not present, the meeting stands adjourned
until the same day of the following week. At the adjourned meeting, two
members, irrespective of their percentage holding of voting rights, shall
constitute a quorum.
Under the Companies Law, a shareholder who intends to vote at a
meeting must demonstrate that he owns shares in accordance with the
regulations. Under these regulations, a shareholder whose shares are
registered with a member of a stock exchange (such as NYSE or the TASE)
must provide us with an authorization from such member regarding his
ownership as of the record date.
Right of Non-Israeli Shareholders to Vote
Our memorandum of association, the articles of association, and
the laws of the State of Israel do not restrict in any way the ownership or
voting of our ordinary shares by nonresidents or persons who are not
citizens of Israel, except with respect to citizens or residents of
countries that are in a state of war with Israel.
Change of Control
Under the Companies Law, a merger requires approval by the Board
of Directors and by the shareholders of each of the merging companies. In
approving a merger, the Board of Directors must determine that there is no
reasonable expectation that, as a result of a merger, the merged company
will not be able to meet its obligations to its creditors. Creditors may
also seek a court order to enjoin or delay the merger if there is such an
expectation that the merged company will not be able to meet its
obligations to its creditors. A court may also issue other instructions for
the protection of the creditors' rights in connection with a merger.
Under the Companies Law, a control share acquisition of a public
company is prohibited unless a special purchase offer is made to all
shareholders. Such a special purchase offer
89
requires, among other things, that the Board of Directors either recommend
that shareholders participate in the purchase offer or state why it cannot
do so.
Material Contracts
Merger of ECI Telecom Ltd. (ECI) and Tadiran Telecommunication Ltd. (TTL)
On March 16, 1999, ECI and TTL announced the completion of a
merger between them effective January 1, 1999. As a result of the merger,
we no longer consolidate TTL in our financial statements, and the goodwill
balance increased by approximately NIS 179 million. See note 3.A. to our
consolidated financial statements included elsewhere in this annual report.
Divestiture of Mashav Enterprise and Development Ltd. (Mashav)
In January 2000, we sold our holdings (50%) in Mashav to Clal
Industries Ltd. ("Clal") for consideration of NIS 903 million and 47.5% of
the shares of Mashal Alumina Industries Ltd. and we recorded a capital gain
of NIS 368 million (NIS 237 after tax). On December 1999, Mashav
distributed a dividend to us and Clal of NIS 720 million. See note 3.D. to
our consolidated financial statements included elsewhere in this annual report.
Sale of certain of Telrad's Businesses to Nortel Israel
In May 2000, we, along with Telrad and Nortel Networks Ltd.
("Nortel"), established a new company under the name of "Nortel Networks
Israel (Sales and Marketing) Ltd." ("Nortel Israel"), of which Nortel holds
72%. We hold the remaining 28% with Telrad without voting rights. However,
together we have the right to appoint one director out of six.
On May 25, 2000, several agreements, including an Asset Purchase
Agreement and a Shareholders Agreement, were entered into by and among
Koor, Telrad, Nortel and Nortel Israel, in connection with the sale by
Telrad to Nortel Israel of Telrad's sales, marketing and support functions
of its public switching and TX1 systems businesses and Telrad's operations
in these fields in Israel and in several export markets. Under the
agreement, Telrad received approximately $90 million for the transaction,
as well as the book value of the transferred businesses. These businesses
in 1999 and the eight months ended August 31, 2000, constituted
approximately 43.5% and 31.3% of Telrad's sales respectively.
Pursuant to the agreements, Telrad will serve as a subcontractor
of Nortel Israel for the manufacturing of public switching and TX1 business
exchanges, which will be marked by Nortel Israel for a period of time set
forth in the agreement, and will perform research and development work
relating to the exchanges. In addition, earlier agreements regarding
commitments made by Telrad to purchase know-how and pay royalties to Nortel
were cancelled by mutual consent.
In connection with the transaction, which closed on August 31,
2000, we invested approximately $5.6 million in the share capital of Nortel
Israel and provided a shareholder's loan of $42 million. The loan is
repayable in 2003, and bears interest at 6% per annum. In addition, we
acquired Nortel's 20% stake in Telrad for $45 million, thereby making
Telrad our wholly owned subsidiary. Also in connection with the
transaction, we were granted a Put option to sell our holdings in Nortel
Israel to Nortel and gave Nortel a Call option to purchase such holding.
90
These options can be exercised in 2003, at a price that reflects the amount
of our investment in Nortel Israel plus the yield stipulated in the
agreements which is based on the performance of Nortel Israel.
As a result of these transactions, we recorded a capital gain
(after tax) in the third quarter of 2000 of approximately NIS 261 million.
See note 3.E. to our consolidated financial statements included elsewhere
in this annual report.
Divestiture of Tadiran Com. Ltd
On November 10, 1999, Tadiran sold its holdings (100%) in Tadiran
Com. Ltd. ("Com") to Shemrock and others for $149 million. We recorded net
capital gain of NIS 164 million. See note 3.B. to our consolidated
financial statements included elsewhere in this annual report.
Exchange Controls
Holders of ADSs are able to convert dividends and liquidation
distributions into freely repairable non-Israeli currencies at the rate of
exchange prevailing at the time of repatriation, pursuant to a general
permit issued by the Controller of Foreign Exchange at the Bank of Israel,
or Controller, under the Currency Control Law, 1978, or Currency Control
Law, as modified by certain reforms in May 1998, provided that Israeli
income tax has been withheld by us with respect to such amounts.
Our ADSs may be freely held and traded pursuant to the General
Permit and the Currency Control Law. The ownership or voting of ADSs by
non-residents of Israel, except with respect to citizens of countries that
are in a state of war with Israel, are not restricted in any way by our
memorandum of association or articles of association or by the laws of the
State of Israel.
Pursuant to the reforms, the Bank of Israel has issued a new
"general permit." Under such general permit, foreign currency transactions
are generally permitted, except for transactions described in the permit
that are specifically restricted. Among these restricted transactions are
foreign currency transactions by institutional investors, including
investments outside of Israel by pension funds and insurers, as well as
futures contracts by foreign residents for periods of more than one month.
All foreign currency transactions must be reported to the Bank of Israel
under the new general permit.
Certain changes in Israeli tax legislation are expected as a
result of the reforms. No assurance can be given that such legislative
changes will be forthcoming in any particular time frame, or at all.
Taxation
The following is a discussion of Israeli and United States tax
consequences material to our United States shareholders. The discussion is
not intended, and should not be construed, as legal or professional tax
advice and does not exhaust all possible tax considerations.
91
Holders of our ADSs should consult their own tax advisors as to
the United States, Israeli or other tax consequences of the purchase,
ownership and disposition of our ADSs, including, in particular, the effect
of any foreign, state or local taxes.
Israeli Tax Considerations
The following discussion represents a summary of certain Israeli
tax laws affecting U.S. and other non-Israeli shareholders, for general
information only and is not intended to substitute for careful or specific
tax planning. To the extent that the discussion is based on legislation yet
to be judicially or administratively interpreted, there can be no assurance
that the views expressed herein will accord with any such interpretation in
the future. This discussion is not intended, and should not be construed,
as legal or professional tax advice, and does not cover all possible tax
considerations. Each investor should consult his or her own tax advisor as
to the particular tax consequences of an investment in the ordinary shares
including the effects of applicable Israeli or foreign or other tax laws
and possible changes in the tax laws.
Capital Gains and Income Taxes Applicable to Non-Israeli Shareholders
Under current law, sales of ADSs or our ordinary shares are exempt
from Israeli capital gains tax so long as they are listed on the TASE or on
a stock exchange, such as the NYSE, recognized by the Israeli Ministry of
Finance and as long as the holder of such securities is an individual or a
company wholly-owned by individuals which did not receive trading income in
the relevant tax year or which has not claimed a financial expenses
deduction in such year. The latter condition with respect to a company
wholly-owned by individuals was added as a result of an amendment from
October 1998 to the Income Tax (Adjustment for Inflation) Law 1985, which
extended the applicability of such law to include companies, including
non-resident companies which are not wholly-owned by individuals. Taxpayers
to whom the Inflationary Adjustment Law does not apply are exempt from tax
on profits deriving from the sale of listed securities, as described above.
As a result of the amendment, taxpayers to whom the Inflationary Adjustment
Law applies will be liable to tax on the real gain accruing to them at the
time of sale of securities. The base cost for calculating the gain will be
the market value of the securities on December 31, 1998. Notwithstanding
the foregoing, dealers in securities in Israel are taxed at applicable tax
rates to ordinary income.
Non-residents of Israel are subject to income tax on income
accrued or derived from sources in Israel or received in Israel. Such
sources of income include passive income such as dividends, royalties and
interest, as well as non-passive income from services rendered in Israel.
On distributions of dividends by us other than bonus shares (stock
dividends), income tax at the rate of 25% is generally withheld at source,
unless a different rate is provided in a treaty between Israel and the
shareholder's country of residence.
U.S.-Israel Tax Treaty
Pursuant to the Convention Between the Government of the United
States of America and the Government of Israel with Respect to Taxes on
Income, as amended (the "U.S.-Israel Tax Treaty"), which became effective
as of January 1, 1995, the sale, exchange or disposition of ADSs or
ordinary shares by a person who qualifies as a resident of the United
States within the
92
meaning of the U.S.-Israel Tax Treaty and who is entitled
to claim the benefits afforded to such resident by the U.S.-Israel Tax
Treaty ("Treaty U.S. Resident") will generally not be subject to Israeli
capital gains tax unless such Treaty U.S. Resident held, directly or
indirectly, shares representing 10% or more of our voting power during any
part of the 12-month period preceding such sale, exchange or disposition,
subject to certain conditions. A sale, exchange or disposition of ADSs or
ordinary shares by a Treaty U.S. Resident who held, directly or indirectly,
shares representing 10% or more of our voting power at any time during such
preceding 12-month period would be subject to such Israeli tax, to the
extent applicable; however, under the U.S.-Israel Tax Treaty, such Treaty
U.S. Resident would be permitted to claim a credit for such taxes against
the U.S. income tax imposed with respect to such sale, exchange or
disposition, subject to the limitations in U.S. laws applicable to foreign
tax credits.
Israeli Tax Reform Proposals
During May 2000, the Public Committee regarding Changes in the Tax
System in Israel (Ben Bassat Committee) published various recommendations
to reform the tax laws, including recommendations that deal with tax relief
on earned income and with taxation income derived from capital and from
capital market operations.
According to the recommendations, capital gain from quoted
securities of an Israeli company, realized by an individual or a company,
to which the Inflationary Adjustment Law does not apply, will be taxable at
the rate of 25%. However, according to a clarification which the Ministry
of Finance published on May 9, 2000, residents of countries with whom
Israel has signed a Treaty for the Prevention on Double Taxation (such as
the United States) will be tax-exempt on gains from securities of companies
that are listed on a stock exchange (such as our ordinary shares and
ADR's). In the case of controlling shareholders who according to provision
of the Treaty are liable to capital gains tax in Israel, those person will
have to report their income in Israel.
These recommendations are currently under review and there can be
no assurance as to whether or not such recommendations will be adopted or
whether the final form will differ from the proposals.
Under the amendment to the Inflationary Adjustment Law, non
Israeli corporations might be subject to Israeli taxes on the sale to
traded securities of an Israeli company, subject to the provisions of any
applicable double taxation treaty.
U.S. Federal Income Tax Considerations
The following is a summary of certain material U.S. Federal income
tax consequences that apply to U.S. Holders who hold ADSs as capital
assets. This summary is based on U.S. Federal income tax laws, regulations,
rulings and decisions in effect as of the date of this annual report, all
of which are subject to change at any time, possibly with retroactive
effect. This summary does not address all tax considerations that may be
relevant with respect to an investment in ADSs. This summary does not
account for the specific circumstances of any particular investor such as
93
o broker-dealers;
o financial institutions;
o certain insurance companies;
o investors liable for alternative minimum tax;
o tax-exempt organizations;
o investors that actually or constructively own 10 percent or
more of our voting shares;
o investors holding ADSs as part of a straddle or a hedging or
conversion transaction; and
o investors that are treated as partnerships or other pass
through entities for U.S. federal income tax purposes.
This summary does not address the effect of any U.S. Federal
taxation other than U.S. Federal income taxation. In addition, this summary
does not include any discussion of state, local or foreign taxation.
You are urged to consult your tax advisors regarding the foreign
and United States Federal, state and local tax considerations of an
investment in ADSs.
For purposes of this summary, a U.S. Holder is:
o an individual who is a citizen or, for U.S. Federal income
tax purposes, a resident of the United States;
o a corporation or other entity taxable as a corporation
created or organized in or under the laws of the United
States or any political subdivision thereof;
o an estate whose income is subject to U.S. Federal income tax
regardless of its source; or
o a trust if:
(a) a court within the United States is able to exercise primary
supervision over administration of the trust; and
(b) one or more United States persons have the authority to
control all substantial decisions of the trust.
Taxation of Dividends
Subject to the discussion below under "passive foreign investment
companies," the gross amount of any distributions that you receive with
respect to ADSs, including the amount of any Israeli taxes withheld from
these distributions, will constitute dividends for U.S. Federal income tax
purposes, to the extent of our current and accumulated earnings and profits
as determined for U.S. Federal income tax principles. You will be required
to include this amount of dividends in
94
gross income as ordinary income on the date such dividend is actually or
constructively received. Distributions in excess of our earnings and
profits will be treated as a non-taxable return of capital to the extent of
your tax basis in the ADSs and, to the extent in excess of your tax basis,
will be treated as capital gain. See "--Dispositions of ADSs" below for the
discussion on the taxation of capital gains. Dividends generally will not
qualify for the dividends-received deduction available to corporations.
Dividends that we pay in NIS, including the amount of any Israeli
taxes withheld from these dividends, will be includible as income to you in
a U.S. dollar amount calculated by reference to the exchange rate in effect
on the day such dividends are distributed. If you convert dividends paid in
NIS into U.S. Dollars on the day the dividends are distributed, you
generally should not be required to recognize foreign currency gain or loss
with respect to such conversion. Any gain or loss resulting from a
subsequent exchange of such NIS generally will be treated as U.S. source
ordinary income or loss.
Subject to certain conditions and limitations, you may elect to
claim a credit against your U.S. Federal income tax liability for Israeli
tax withheld from dividends received in respect of the ADSs. Dividends
generally will be treated as foreign-source passive income or financial
services income for United States foreign tax credit purposes. The rules
relating to the determination of the foreign tax credit are complex, and
you should consult your personal tax advisors to determine whether and to
what extent you would be entitled to this credit. Alternatively, you may
elect to claim a U.S. tax deduction, instead of a foreign tax credit, for
such Israeli tax, but only for a year in which you elect to do so with
respect to all foreign income taxes.
Dispositions of ADSs
If you sell or otherwise dispose of your ADSs, you will recognize
gain or loss for U.S. Federal income tax purposes in an amount equal to the
difference between the amount realized on the sale or other disposition and
your adjusted tax basis in your ADSs. Subject to the discussion below under
the heading "--Passive Foreign Investment Companies," such gain or loss
generally will be capital gain or loss and will be long-term capital gain
or loss if you had held the ADSs for more than one year at the time of the
sale or other disposition. The maximum Federal income tax rate on long-term
capital gains for individual taxpayers is 20 percent. Under most
circumstances, any gain that you recognize on the sale or other disposition
of ADSs will be U.S.-source for purposes of the foreign tax credit
limitation; and losses recognized will be allocated against U.S. source
income.
Passive Foreign Investment Companies
For U.S. Federal income tax purposes, we will be considered a
passive foreign investment company, or PFIC, for any taxable year in which
either 75% or more of our gross income is passive income, or at least 50%
of the average value of all of our assets for the taxable year produce or
are held for the production of passive income. For this purpose, passive
income includes dividends, interest, royalties, rents, annuities and the
excess of gain over losses from the disposition of assets which produce
passive income. If we were determined to be a PFIC for U.S.
95
Federal income tax purposes, highly complex rules would apply to U.S.
Holders owning ADSs. Accordingly, you are urged to consult your tax
advisors regarding the application of such rules.
If we are treated as a PFIC for any taxable year,
o you would be required to allocate income recognized upon
receiving certain dividends or gain recognized upon the
disposition of ADSs ratably over your holding period for
such ADSs,
o the amount allocated to each year during which we are
considered a PFIC other than the year of the dividend
payment or disposition would be subject to tax at the
highest individual or corporate tax rate, as the case may
be, and an interest charge would be imposed with respect to
the resulting tax liability allocated to each such year,
o gain recognized upon the disposition of ADSs would be
taxable as ordinary income and
o you would be required to make an annual return on IRS Form
8621 regarding distributions received with respect to ADSs
and any gain realized on your ADSs.
One method to avoid the aforementioned treatment is to make a
timely mark-to-market election in respect of your ADSs. If you elect to
mark-to-market your ADSs, you will generally include in income any excess
of the fair market value of the ADSs at the close of each tax year over
your adjusted basis in the ADSs. If the fair market value of the ADSs had
depreciated below your adjusted basis at the close of the tax year, you may
generally deduct the excess of the adjusted basis of the ADSs over its fair
market value at that time. However, such deductions generally would be
limited to the net mark-to-market gains, if any, that you included in
income with respect to ADSs in prior years. Income recognized and
deductions allowed under the mark-to-market provisions, as well as any gain
or loss on the disposition of ADSs with respect to which the mark-to-market
election is made, is treated as ordinary income or loss.
Based on our income, assets and activities for the year 2001, we
believe that we were not a PFIC for that year, nor do we expect to become a
PFIC in the foreseeable future. However, there can be no assurances that we
will not be treated as a PFIC for that year or any taxable year. If we are
or become a PFIC for any taxable year included in your holding period, we
generally will remain a PFIC for all subsequent taxable years with respect
to your holding of our ADSs.
You are urged to consult your tax advisor regarding the
possibility of us being classified as a PFIC and the potential tax
consequences arising from the ownership and disposition (directly or
indirectly) of an interest in a PFIC.
Backup Withholding and Information Reporting
Dividend payments made with respect to ADSs and proceeds received
in connection with the sale or other disposition of ADSs may be subject to
information reporting to the U.S. Internal Revenue Service (the "IRS") and
backup withholding. Backup withholding will not apply, however, if a U.S.
Holder (i) is a corporation or comes within certain other exempt categories
96
and, when required, demonstrates such fact or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable backup withholding
rules. Persons required to establish their exempt status generally must
provide such certification on IRS Form W-9 or Form W-8BEN (as applicable).
Amounts held as backup withholding may be credited against a U.S. Holder's
U.S. federal income tax liability, and a U.S. Holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing
the appropriate claim for refund with the IRS and furnishing any required
information.
Documents on Display
We are subject to certain of the information reporting
requirements of the Securities and Exchange Act of 1934, as amended. We, as
a "foreign private issuer" are exempt from the rules and regulations under
the Securities Exchange Act prescribing the furnishing and content of proxy
statements, and our officers, directors and principal shareholders are
exempt from the reporting and "short-swing" profit recovery provisions
contained in Section 16 of the Securities Exchange Act, with respect to
their purchase and sale of our shares. In addition, we are not required to
file reports and financial statements with the Securities and Exchange
Commission as frequently or as promptly as U.S. companies whose securities
are registered under the Securities Exchange Act. However, we will file
with the Securities and Exchange Commission an annual report on Form 20-F
containing financial statements audited by an independent accounting firm.
We will also furnish quarterly reports on Form 6-K containing unaudited
financial information after the end of each of the first three quarters.
You may read and copy any document we file with the SEC at its
public reference facilities at, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SEC's regional offices at 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC.
The address of this web site is http://www.sec.gov. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public
reference facilities.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
General
Our market risk represents the risk of changes in the value of
financial instruments caused by fluctuations in foreign exchange rates,
interest rates and equity prices. Our hedging arrangements against market
risk are not in material amounts and, as a matter of policy; we do not
enter into transactions of a speculative or trading nature. Foreign
currency exchange rate and interest rate exposures are monitored by
tracking actual and projected commitments and through the use of
sensitivity analysis. We do not believe that it is exposed to any material
market risk with regard to market risk sensitive instruments.
97
Market risk related to foreign currency exchange rates
As of December 2001, we have financial liabilities denominated in
various currencies (primarily dollars). A fluctuation in currency prices is
liable to affect our financing expenses.
We have consolidated foreign currency-linked financial liabilities
of NIS 5,814 million, of which NIS 4,898 million is dollar-linked and the
rest, NIS 916 million, is linked to other currencies (mainly the Brazilian
Real).
Net financial liabilities in foreign currency total NIS 2,616
million, of which total dollar-linked financial liabilities are NIS 2,965
million, and net financial assets linked to other foreign currencies
(mainly the Brazilian real) amount to NIS 349 million. A portion of the
currency exposure also stems from the export sales included in our
consolidated statements, which include NIS 5,118 million - constituting 72%
of our total consolidated sales, while a considerable portion of the
expenses included in the consolidated statements are stated in Israeli
currency.
Our policy regarding hedging against exposure to fluctuations in
currency prices is that each subsidiary will hedge according to the needs
and markets in which it operates; there is no policy of engaging in
currency hedging over the entire consolidated balance sheet.
Our consolidated statements of December 2001 include transactions
with financial instruments that serve mainly as a hedge against currency
exposure for the subsidiary companies.
We bought dollars in exchange for other currencies in future
trades, call options, and swaps, totaling NIS 484,144 and NIS 183 million,
respectively. At the same time, we had consolidated sales of dollars in
exchange for other currencies through future trades, call options, and
swaps totaling NIS 165,12 and NIS 183 million, respectively. For a detailed
description of transactions with financial instruments, see Note 21 to our
consolidated financial statements included elsewhere in this annual report.
Market risk related to interest rates
Some of our financial loans are denominated in variable interest
rates that are liable to fluctuate from time to time. Our policy regarding
exposure to interest rates is that each company manages its own exposure.
In December 2001, the consolidated balance sheet contained loans
and other liabilities in foreign currency (mainly in U.S. dollars) totaling
NIS 5,814 million, and non-index linked shekel loans totaling NIS 1,061
million. The consolidated balance sheets contain financial assets in
foreign currency (mainly in U.S. dollars) totaling NIS 3,198 million and
non-index linked shekel assets totaling NIS 792 million. Net financial
liabilities exposed to LIBOR interest rate fluctuations reached NIS 4,027
million, while net financial liabilities exposed to interest rate
fluctuations in Israel amounted to NIS 264 million.
Some of the companies engage in hedge transactions against
interest rate fluctuations in amounts totaling NIS 397 million.
98
Our net liabilities exposed to fluctuations in the LIBOR interest
rate amount to NIS 1,400 million. Should the LIBOR interest rate rise by
2%, our financing expenses as a company will increase by NIS 28 million.
The net total of our loans exposed to fluctuations in the interest
rate in Israel is NIS 35 million. Should the interest rate in Israel rise
by 2%, our financing expenses as a company will increase by NIS 1 million.
We believe that a 2% increase in the LIBOR interest rate and in
the shekel interest rate in Israel constitutes a reasonable increase for
examining the impact of exposure to interest rates on our financing
expenses, in view of the changes that have occurred in recent years and
those that are forecast for the coming year.
From time to time, we examine the market conditions for engaging
in hedge transactions against exposure to interest rate fluctuations. In
2001, we engaged in hedge transactions against interest rate fluctuations
totaling NIS 331.
Market risk related to equity prices
We had equity marketable short-term securities at December 31,
2001 of approximately NIS 116 million. Market risk was estimated as the
potential hypothetical decrease of 20% in the prices of these securities.
Assuming such a decrease, the fair value of the equity marketable
securities would decrease by approximately NIS 23 million.
In addition, we have long-term equity holdings in several
subsidiaries whose securities are traded on the Tel Aviv Stock Exchange and
Nasdaq. Ordinary fluctuations in the prices of these subsidiaries'
securities would not affect our financial statements; however, significant
fluctuations may have an adverse affect on our financial statements.
Item 12. Description of Securities Other than Equity Securities.
Not Applicable.
99
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not Applicable.
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds.
Not Applicable.
Item 15. [Reserved]
Item 16. [Reserved]
100
PART III
Item 17. Financial Statements.
See pages F-1 through F-140, incorporated herein by reference.
Item 18. Financial Statements.
Not Applicable.
Item 19. Exhibits.
Exhibit No. Description
----------- -----------
1.1 Memorandum of Association of Koor Industries Ltd.
(together with an English translation thereof).*
1.2 Articles of Association of Koor Industries Ltd. (together
with an English translation thereof).*
2.1 Form of Ordinary Share Certificate.*
2.2 Form of Deposit Agreement including Form of American
Depositary Receipt.**
4.1 Agreement and Plan of Merger, dated December 22, 1998,
among ECI Telecom Ltd., Tadiran Telecommunications Ltd.
and Tadiran Ltd.****
4.2 Agreement dated December 31, 1999 between Koor and Clal
Industries and Investments Ltd. for the sale of Koor's
holdings in Mashav.***
4.3 Agreement dated November 10, 1999 between Tadiran and the
Shamrock Group for the sale of 4.3 Tadiran's interest in
Tadiran Com.***
4.4 Asset Purchase Agreement, dated May 25, 2000, by and
among Telrad Networks Ltd., Nortel Networks Ltd., Koor
Industries Ltd. and Nortel Networks Israel (Sales and
Marketing) Ltd.****
4.5 Shareholders Agreement, dated May 25, 2000, by and among
Nortel Networks Ltd., Nortel Communications Holdings
(1997) Ltd., Koor Industries Ltd., Telrad Networks Ltd.
and Nortel Networks Israel (Sales and Marketing) Ltd.****
8.1 List of significant subsidiaries.*****
_________________
* Incorporated herein by reference to Koor Industries Ltd.'s
Registration Statement on Form F-1 (Registration No. 333-97732)
filed with the Securities and Exchange Commission on October 3, 1995.
** Incorporated herein by reference to Koor Industries Ltd.'s
Registration Statement on Form F-6 (Registration No. 333-97758)
filed with the Securities and Exchange Commission on October 4, 1995.
*** Incorporated herein by reference to Koor Industries Ltd.'s Annual
Report on Form 20-F for the fiscal year ended December 31, 1999
(File No. 001-09178) filed with the Commision on May 26, 2000.
**** Incorporated herein by reference to Koor Industries Ltd.'s Annual
Report on Form 20-F for the fiscal year ended December 31, 2000
(File No. 001-09178) filed with the Commision on July 2, 2001.
***** Filed herewith.
101
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this annual report
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Tel Aviv, State of Israel, on the 13th day of June, 2002.
KOOR INDUSTRIES LTD.
By: /s/ Jonathan B. Kolber
----------------------------------------
Jonathan B. Kolber
Chief Executive Officer and
Vice Chairman of the Board of Directors
Koor Industries Ltd. (an Israeli Corporation)
-------------------------------------------------------------------------------
Financial Statements as of and for the year ended December 31, 2001
Contents
Page
Auditors' Report............................................................F-2
Financial Statements:
Consolidated Balance Sheets.................................................F-4
Company Balance Sheets......................................................F-6
Consolidated Statements of Operations.......................................F-8
Company Statements of Operations............................................F-9
Statement of Shareholders' Equity..........................................F-10
Consolidated Statements of Cash Flows......................................F-14
Company Statements of Cash Flows...........................................F-20
Notes to the Financial Statements..........................................F-22
Reports of Other Auditors' (for which financial statements
are not separately presented).............................................F-119
F-1
KPMG
Somekh Chaikin
Auditors' Report to the Shareholders of
Koor Industries Ltd.
We have audited the accompanying balance sheets of Koor Industries Ltd.
(hereinafter - the "Company" or Koor) as at December 31, 2001 and 2000, and
the consolidated balance sheets of the Company and its subsidiaries as at
such dates, and the related statements of operations, shareholders' equity,
and cash flows, for each of the three years, the last of which ended
December 31, 2001. These financial statements are the responsibility of the
Company's Board of Directors and of its 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 subsidiaries,
including those consolidated by the proportionate consolidation method,
whose assets constitute 46% and 49 % of the total consolidated assets as at
December 31, 2001 and 2000 respectively, and whose revenues constitute 48%,
50% and 16% of the total consolidated revenues for the years ended December
31, 2001, 2000, and 1999 respectively. The financial statements of those
subsidiaries were audited by other auditors whose reports thereon were
furnished to us. Our opinion, insofar as it relates to amounts emanating
from the financial statements of such subsidiaries, is based solely on the
said reports of the other auditors. Furthermore, the data included in the
financial statements relating to the net asset value of the Company's
investments in affiliates and to its share in their operating results is
based on the financial statements of such affiliates, some of which were
audited by other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audits, and reports of the
other auditors, provide a reasonable basis for our opinion.
In our opinion, based on our audits and on the reports of the
above-mentioned other auditors, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Company and the consolidated financial position of the Company and its
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations, the changes in shareholders' equity and their cash flows for
each of the three years, the last of which ended December 31, 2001, in
conformity with accounting principles generally accepted in Israel.
F-2
Accounting principles generally accepted in Israel vary in certain
significant respects from accounting principles generally accepted in the
United States. Application of accounting principles generally accepted in
the United States would have affected results of operations for each of the
years in the three-year period ended December 31, 2001 and stockholders'
equity as of December 31, 2001 and 2000, to the extent summarized in Note
28 to the consolidated financial statements.
As explained in Note 2B, the above-mentioned financial statements are
presented in values adjusted for the changes in the general purchasing
power of the Israeli currency, in accordance with opinions of the Institute
of Certified Public Accountants in Israel.
As discussed in Note 18A(1) to the financial statements, relating to an
investigation by the Restrictive Trade Practices Authority, concerning the
alleged coordination of prices in the Koor Group with respect to the
products of its subsidiaries, Tadiran Ltd. and Telrad Networks Ltd.
(formerly - "Telrad Industries and Telecommunications Ltd."), and to that
stated in Note 3A(7) to the financial statements regarding legal procedures
against the subsidiary, ECI Telecom Ltd.
/s/Somekh Chaikin
Somekh Chaikin
Certified Public Accountants (Isr.)
March 18, 2002
F-3
Consolidated Balance Sheets as at December 31
------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
December 31 --------------
-------------------------- December 31
2001 2000 2001
--------- ----------- --------------
Note NIS thousands US $ thousands
---- ------------------------- --------------
Assets
Current assets
Cash and cash equivalents 805,004 982,713 182,293
Short-term deposits and investments 4 603,145 640,952 136,582
Trade receivables 5 2,108,775 2,697,858 477,531
Other receivables 6 544,784 456,656 123,364
Assets designated for sale 3B(3) 265,979 - 60,231
Inventories and work in progress, net
of customer advances 7 1,756,461 1,786,064 397,749
--------- --------- ---------
Total current assets 6,084,148 6,564,243 1,377,750
--------- --------- ---------
Investments and long-term
receivables
Investments in affiliates 8 1,350,425 3,043,262 305,803
Other investments and receivables 9 1,086,244 1,181,256 245,979
--------- --------- -------
2,436,669 4,224,518 551,782
--------- --------- ---------
Fixed assets 10
Cost 5,700,083 6,831,250 1,290,780
Less - accumulated depreciation 2,711,948 3,516,169 614,119
--------- --------- ---------
2,988,135 3,315,081 676,661
Intangible assets and deferred
expenses after amortization 11 1,373,993 * 926,392 311,140
--------- --------- ---------
12,882,945 15,030,234 2,917,333
========== ========== =========
F-4
Koor Industries Ltd. (An Israeli Corporation)
--------------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
December 31 --------------
-------------------------- December 31
2001 2000 2001
--------- ----------- --------------
Note NIS thousands US $ thousands
---- ------------------------- --------------
Liabilities and Shareholders Equity
Current liabilities
Credits from banks and others 12 1,733,852 2,733,576 392,629
Trade payables 13 1,281,113 1,433,574 290,107
Other payables 14 1,009,201 1,092,750 228,533
Customer advances, net of work in progress 7 279,881 301,880 63,379
--------- --------- --------
Total current liabilities 4,304,047 5,561,780 974,648
--------- --------- --------
Long-term liabilities
Net of current maturities: 15,21
Bank loans 4,324,503 3,067,964 979,280
Other loans 103,310 191,515 23,394
Debentures - 34,427 -
Convertible debentures 295,072 73,488 66,819
Customer advances 69,150 105,882 15,659
Deferred taxes 16F 184,786 * 175,029 41,845
Liability for employee severance benefits, net 17 191,654 293,036 43,400
--------- --------- --------
Total long-term liabilities 5,168,475 3,941,341 1,170,397
--------- --------- --------
Liability for acquisition of
subsidiaries' shares - 81,654 -
--------- --------- --------
Contingent liabilities and commitments 18
Minority Interest 1,308,898 1,078,396 296,399
--------- --------- --------
Shareholders' Equity 20 2,101,525 4,367,063 475,889
--------- --------- --------
12,882,945 15,030,234 2,917,333
========== ========== =========
* Reclassified
-------------------------------- --------------------------------
March 18, 2002 Jonathan Kolber Ron Feinstein
CEO and Vice Chairman Member of the Board of Directors
of the Board of Directors
The accompanying notes are an integral part of the financial statements.
F-5
Company Balance Sheets as at December 31
-------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
December 31 --------------
-------------------------- December 31
2001 2000 2001
--------- ----------- --------------
Note NIS thousands US $ thousands
---- ------------------------- --------------
Assets
Current assets
Cash and cash equivalents 58,721 23,047 13,297
Short-term deposits and investments 4 476,951 472,986 108,005
Short-term loans and current maturities
of loans to investee companies 66,202 48,573 14,991
Receivables:
Investee companies 14,598 12,144 3,304
Others 6 14,885 22,132 3,373
--------- --------- ---------
Total current assets 631,357 578,882 142,970
--------- --------- ---------
Investments and long-term receivables
Investments in investees 8 4,482,262 6,092,146 1,015,005
Other investments and receivables 9 553,718 544,354 125,389
--------- --------- ---------
5,035,980 6,636,500 1,140,394
Fixed assets 10
Cost 41,089 41,026 9,305
Less - accumulated depreciation 4,857 3,375 1,100
--------- --------- ---------
36,232 37,651 8,205
Cost of raising of capital, net of
amortization 11 - 548 -
--------- --------- ---------
5,703,569 7,253,581 1,291,569
========= ========= =========
F-6
Koor Industries Ltd. (An Israeli Corporation)
------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
December 31 --------------
-------------------------- December 31
2001 2000 2001
--------- ----------- --------------
Note NIS thousands US $ thousands
---- ------------------------- --------------
Liabilities and Shareholders' Equity
Current liabilities
Credit from banks and others 12 384,791 957,884 87,13
Trade payables 179 293 41
Other payables:
Investee companies 397,114 82,265 89,926
Others 14 62,495 96,585 14,152
--------- --------- ---------
Total current liabilities 844,579 1,137,027 191,254
--------- --------- ---------
Long-term liabilities
Net of current maturities: 15, 21
Bank loans 2,633,432 1,653,925 596,339
Other loans 84,676 18,725 19,175
Convertible debentures 36,736 73,488 8,319
Liability for employee severance
benefits, net 17 2,621 3,353 593
--------- --------- ---------
Total long-term liabilities 2,757,465 1,749,491 624,426
--------- --------- ---------
Contingent liabilities and commitments 18
--------- --------- ---------
Shareholders' equity 20 2,101,525 4,367,063 475,889
--------- --------- ---------
--------- --------- ---------
5,703,569 7,253,581 1,291,569
========= ========= =========
------------------------------ ---------------------------------
March 18, 2002 Jonathan Kolber Ron Feinstein
CEO and Vice Chairman Member of the Board of Directors
of the Board of Directors
The accompanying notes are an integral part of the financial statements.
F-7
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Operations *
-----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
--------------
Year ended December 31 Year ended
---------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ --------------
Note NIS thousands US $ thousands
---- ---------------------------------------------- --------------
Income from sales
and services 23A 7,142,904 7,935,888 9,364,373 1,617,505
Cost of sales and services 23B 5,518,080 5,931,081 7,022,665 1,249,565
----------- ---------- --------- ---------
Gross profit 1,624,824 2,004,807 2,341,708 367,940
----------- ---------- --------- ---------
Selling and marketing expenses 23C 780,097 783,468 961,337 176,652
General and administrative
expenses 23D 501,684 538,477 663,495 113,606
----------- ---------- --------- ---------
Operating earnings 343,043 682,862 716,876 77,682
Financing expenses, net 23E 413,866 309,176 321,483 93,720
----------- ---------- --------- ---------
(70,823) 373,686 395,393 (16,038)
Other income (expenses), net 23F (595,920) 160,820 224,265 (134,946)
----------- ---------- --------- ---------
Earnings (loss) before income tax (666,743) 534,506 619,658 (150,984)
Income tax 16G 37,162 154,624 145,474 8,415
----------- ---------- --------- ---------
(703,905) 379,882 474,184 (159,399)
Group's equity in the operating
results of affiliates, net 23G (1,813,165) (273,819) 123,602 (410,590)
----------- ---------- --------- ---------
(2,517,070) 106,063 597,786 (569,989)
Minority interest in
subsidiaries, net 8,008 (51,778) (8,161) 1,813
----------- ---------- --------- ---------
Net earnings (loss) from
continuing activities (2,509,062) 54,285 589,625 (568,176)
Result of discontinued
activities, net 24H (28,021) 217,182 (32,751) (6,345)
----------- ---------- --------- ---------
Net earnings (loss) for the year (2,537,083) 271,467 556,874 (574,521)
=========== ========== ========= =========
NIS NIS NIS US$
----------- ---------- --------- ---------
Basic earnings (loss)
per NIS 1 par value
of ordinary shares: 26
Continuing activities (165,195) 3,529 37,470 (37,410)
Discontinued activities (1,845) 14,117 (2,085) (418)
----------- ---------- --------- ---------
(167,040) 17,646 35,385 (37,828)
Diluted earnings (loss)
Per NIS 1 par value of
ordinary shares: 26
Continuing activities (165,195) 3,512 37,108 (37,410)
Discontinued activities (1,845) 14,052 (2,061) (418)
----------- ---------- --------- ---------
(167,040) 17,564 35,047 (37,828)
=========== ========== ========= =========
* Restated (See Note 23H)
The accompanying notes are an integral part of the financial statements.
F-8
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Operations *
------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
--------------
Year ended December 31 Year ended
---------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ --------------
Note NIS thousands US $ thousands
---- ---------------------------------------------- --------------
Income
Management services 23A 32,694 40,128 66,041 7,403
Others, net 23F - 9,768 687 -
--------- --------- --------- ---------
Total income 32,694 49,896 66,728 7,403
--------- --------- --------- ---------
Expenses
General and administrative
expenses 23D 40,258 62,470 67,104 9,116
Others, net 23F 49,673 - - 11,248
Financing, net 23E 189,926 143,901 162,741 43,009
----------- --------- --------- ---------
Total expenses 279,857 206,371 229,845 63,373
----------- --------- --------- ---------
Loss before income tax (247,163) (156,475) (163,117) (55,970)
Income tax - - 102,933 -
----------- --------- --------- ---------
Loss after income tax (247,163) (156,475) (60,184) (55,970)
Koor's equity in the
operating results of
investee companies, net 23G (2,261,899) 210,760 649,809 (512,206)
Results of discontinued
activities, net 24H (28,021) 217,182 (32,751) (6,345)
----------- --------- --------- ---------
Net earnings (loss) for the
year (2,537,083) 271,467 556,874 (574,521)
=========== ========= ========= =========
NIS NIS NIS US$
----------- --------- --------- ---------
Basic earnings (loss )
per NIS 1 par value of
ordinary shares : 26
Continuing activities (165,195) 3,529 37,470 (37,410)
Discontinued activities (1,845) 14,117 (2,085) (418)
----------- --------- --------- ---------
(167,040) 17,646 35,385 (37,828)
=========== ========= ========= =========
Diluted earnings
(loss) per NIS 1 par
value of ordinary shares: 26
Continuing activities (165,195) 3,512 37,108 (37,410)
Discontinued activities (1,845) 14,052 (2,061) (418)
----------- --------- --------- ---------
(167,040) 17,564 35,047 (37,828)
=========== ========= ========= ---------
* Restated (see Note 23H)
The accompanying notes are an integral part of the financial statements.
F-9
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity
----------------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by the currency
shares (1) company and translation
subsidiaries adjustments
----------- -------- ---------- ------------ ----------- ------------ ----------
NIS thousands
-----------------------------------------------------------------------------
Balance at January 1, 1999 15,723,327 540,272 2,449,113 (54,399) (565,434) 1,763,924 4,133,476
Changes during 1999:
Net income - - - - - 556,874 556,874
Exercise of stock options granted
to Israeli banks - *- 420 - - - 420
Interim dividend - - - - - (59,050) (59,050)
Interim dividend - - - - - (43,540) (43,540)
Interim dividend - - - - - (125,780) (125,780)
Erosion of dividend proposed in 1998 - - - - - (447) (447)
Cumulative foreign currency translation
adjustments, net - - - - (19,623) - (19,623)
Dividend from company shares held
by subsidiaries - - - - - 2,446 2,446
Conversion of debentures into shares 2,171 *- 1,074 - - - 1,074
Capital reserve in respect of salary
related benefit to employees in
connection with options granted
by controlling interests - - 785 - - - 785
Other adjustments 5,473 *- - - - - -
----------- -------- ---------- ------------ ----------- ------------ ----------
Balance at 31 December, 1999 15,730,971 540,272 2,451,392 (54,399) (585,057) 2,094,427 4,446,635
=========== ======== ========== ============ =========== ============ ==========
* Represents an amount lower than NIS 1,000.
(1) Net of the Company holdings and its subsidiaries' holdings.
The accompanying notes are an integral part of the financial statements.
F-10
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity (cont'd)
-----------------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by the currency
shares (1) company and translation
subsidiaries adjustments
----------- -------- ---------- ------------ ----------- ------------ ----------
NIS thousands
-----------------------------------------------------------------------------
Balances at January 1, 2000 15,730,971 540,272 2,451,392 (54,399) (585,057) 2,094,427 4,446,635
Changes during 2000:
Net income - - - - - 271,467 271,467
Exercise of stock options granted
to Israeli banks - *- 140 - - - 140
Interim dividend - - - - - (59,351) (59,351)
Acquisition of "treasury stock" (538,592) - - (206,358) - - (206,358)
Premium received in respect of
issuance of option exercisable
for company shares - - 1,905 - - - 1,905
A capital reserve in respect of
conversion of notes in affiliate
by a controlling shareholder - - 408 - - - 408
Erosion of dividend proposed in 1999 - - - - - (1,156) (1,156)
Cumulative foreign currency
translation adjustments, net - - - - (87,281) - (87,281)
Dividend from company shares
held by subsidiaries - - - - - 654 654
----------- -------- ---------- ------------ ----------- ---------- ----------
Balance at 31 December, 2000 15,192,379 540,272 2,453,845 (260,757) (672,338) 2,306,041 4,367,063
============ ======== ========== ============ =========== ========== ==========
* Represents an amount lower than NIS 1,000.
(1) Net of the Company holdings and its subsidiaries' holdings.
The accompanying notes are an integral part of the financial statements.
F-11
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity (cont'd)
----------------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by the currency
shares (1) company and translation
subsidiaries adjustments
------------ -------- ---------- ------------ ----------- ------------ ----------
NIS thousands
------------------------------------------------------------------------------
Balances at January 1, 2001 15,192,379 540,272 2,453,845 (260,757) (672,338) 2,306,041 4,367,063
Changes during 2001:
Net loss - - - - - (2,537,083) (2,537,083)
Exercise of stock options
granted to Israeli banks - * - 141 - - - 141
Expiring options granted to
Israeli banks (23,495) - - - - - -
Cumulative foreign currency
translation adjustments, net - - - - 271,404 - 271,404
------------ -------- ---------- ----------- ----------- ----------- ----------
Balance at 31 December, 2001 15,168,884 540,272 2,453,986 (260,757) (400,934) (231,042) 2,101,525
============ ======== ========== =========== =========== =========== ==========
* Represents an amount lower than NIS 1,000.
(1) Net of the Company holdings and its subsidiaries' holdings.
The accompanying notes are an integral part of the financial statements.
F-12
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity (cont'd)
----------------------------------------------------------------------------------------------------------------------------------
Convenience translation into US Dollars (Note 2B)
Number Share Capital Company Cumulative Retained Total
of capital reserves shares held foreign earnings
ordinary by the currency
shares (1) company and translation
subsidiaries adjustments
----------- -------- ---------- ------------ ----------- ---------- ---------
NIS thousands
------------------------------------------------------------------------------
Balance at January 1, 2001 15,192,379 122,344 555,671 (59,048) (152,250) 522,201 988,918
Changes during 2001:
Net loss - - - - - (574,521) (574,521)
Exercise of stock options
granted to Israeli banks - * - 32 - - - 32
Expiring options granted
to Israeli banks (23,495) - - - - - -
Cumulative foreign currency
translation adjustments, net - - - - 61,460 - 61,460
----------- -------- ---------- ----------- ----------- ---------- ----------
Balance at 31 December, 2001 15,168,884 122,344 555,703 (59,048) (90,790) (52,320) 475,889
=========== ======== ========== =========== =========== ========== ==========
* Represents an amount lower than $ 1,000.
(1) Net of the Company holdings and its subsidiaries' holdings.
The accompanying notes are an integral part of the financial statements.
F-13
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statement of Cash Flows
------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------ December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------ ---------------
Cash flows generated by operating activities:
Net earnings (loss) (2,537,083) 271,467 556,874 (574,521)
Adjustments to reconcile net earnings to net
cash flows generated by operating activities (A) 2,963,004 198,681 173,929 670,971
----------- ---------- ----------- ----------
Net cash inflow generated by operating
activities 425,921 470,148 730,803 96,450
----------- ---------- ----------- ----------
Cash flows generated by investing activities:
Purchase of fixed assets (441,122) (495,146) (663,938) (99,892)
Investment grants in respect of fixed assets 39,788 15,304 45,686 9,010
Amounts charged to intangible assets
and deferred expenses (550,843) (78,701) (108,808) (124,738)
Additional investments in subsidiaries (64,203) (305,431) (120,547) (14,539)
Payment of liabilities for purchase of
consolidated companies - (113,715) - -
Acquisition of initially-consolidated
subsidiaries (B) - (17,163) (237,742) -
Investments in affiliates (44,282) (19,460) (899,509) (10,028)
Investments in loans to affiliates (1,442) (959) (5,994) (326)
Repayment of loans from affiliates 306 153 106 69
Proceeds from realization of investments
in formerly consolidated subsidiaries,
net of cash in those subsidiaries at the
time they ceased being consolidated (c) (136,009) 1,290,711 515,319 (30,799)
Proceeds from realization of activities (d) 33,859 481,364 - 7,667
Purchase of consolidated companies'
shares by their consolidated companies (65,975) - (118,142) (14,940)
Proceeds from disposal of investments
in investee companies 197,020 54,032 142,258 44,615
Proceeds from sale of fixed assets 77,743 136,963 188,518 17,605
Investment in venture capital companies (147,036) (334,708) - (33,296)
Decrease (increase) in other investments 15,628 (214,436) (352,086) 3,539
(Increase) decrease in short-term deposits
and investments, net 49,976 (195,270) (153,094) 11,317
----------- ---------- ----------- ----------
Net cash inflow (outflow) generated by
investing activities (1,036,592) 203,538 (1,767,973) (234,736)
----------- ---------- ----------- ----------
The accompanying notes are an integral part of the financial statements.
F-14
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------- ---------------
Cash flows generated by financing activities:
Proceeds from exercise of stock options
granted to Israeli banks 141 140 420 32
Acquisition of "treasury stock" - (206,358) - -
Premium received in respect of issuance of
options exercisable for Company shares - 1,905 - -
Dividend paid - (227,357) (146,450) -
Issuance of shares to minority in subsidiaries 55,262 48,910 13,743 12,514
Issue of preferred shares to minority
interest of subsidiary 58,217 62,217 - 13,183
Dividend paid to minority in subsidiaries (20,981) (12,688) (13,076) (4,751)
Payment of suppliers credit received
for the purchase of fixed assets - - (1,249) -
Issuance of convertible debentures in subsidiary 246,400 - 63,099 55,797
Proceeds from principal of long-term
loans and other long-term liabilities 2,564,132 510,637 774,717 580,645
Repayment of long-term loans, debentures
and other long-term liabilities (1,838,617) (1,101,916) (615,060) (416,353)
Credit from banks and others, net (685,678) (221,774) 926,811 (155,271)
----------- ----------- ---------- ---------
Net cash inflow (outflow) generated by
financing activities 378,876 (1,146,284) 1,002,955 85,796
----------- ----------- ---------- ---------
Translation differences in respect of cash
balances of autonomous foreign investee
companies 54,086 (13,851) (9,054) 12,248
----------- ----------- ---------- ---------
Decrease in cash and cash equivalents (177,709) (486,449) (43,269) (40,242)
Balance of cash and cash equivalents
at beginning of year 982,713 1,469,162 1,512,431 222,535
----------- ----------- ---------- ---------
Balance of cash and cash equivalents
at end of year 805,004 982,713 1,469,162 182,293
=========== =========== ========== =========
The accompanying notes are an integral part of the financial statements.
F-15
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------- ---------------
A. Adjustments to reconcile net earnings
to cash flows generated by operating
activities:
Income and expenses not involving cash flows:
Minority interest in subsidiaries, net (8,691) 16,073 (2,507) (1,968)
Dividend received from affiliates net of equity
in the operating results (equity in operating
results of affiliates, net of dividend received
therefrom) 1,813,165 299,410 (75,751) 410,590
Depreciation and amortization 399,325 378,945 578,119 90,427
Deferred taxes, net (35,632) 129,088 (157,881) (10,069)
Increase (decrease) in liabilities in respect of
employee severance benefits, net (106,663) 41,326 60,909 (24,153)
Net capital losses (gains) from realization:
Fixed assets 5,824 (6,941) 3,035 1,318
Investments in formerly consolidated
subsidiaries 5,540 (517,775) (407,555) 1,255
Loss (profit) from realization of activities 26,475 (282,096) - 5,995
Investments in investee companies 51,309 (27,887) (48,232) 11,619
Inflationary erosion of principal of
long-term loans and other liabilities 127,777 (80,493) (44,433) 28,935
Inflationary erosion of principal of
credit from banks and others 7,170 (5,160) - 1,624
Inflationary erosion of value of investments,
deposits and loans receivable (31,124) 25,772 (2,656) (7,048)
Changes in value of assets and investments 171,672 67,202 265,935 38,875
Salary related benefit to employees in
connection with options granted by
controlling interests - - 785 -
--------- -------- --------- ---------
2,426,147 37,464 169,768 547,400
--------- -------- --------- ---------
The accompanying notes are an integral part of the financial statements
F-16
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------- ---------------
A. Adjustments to reconcile net
earnings to cash flows generated
by operating activities (cont'd)
Changes in operating asset and liability items:
Decrease (increase) in trade receivables
and other receivables (after taking into
account non-current receivables) 638,997 187,235 (369,065) 144,701
Increase in inventories, work in progress and
customer advances (including long-term
customer advances and deposits) (31,016) (63,223) (31,467) (7,024)
Increase (decrease) in trade payables
and other payables (71,124) 37,205 404,693 (14,106)
--------- --------- ---------- ---------
536,857 161,217 4,161 123,571
--------- --------- ---------- ---------
2,963,004 198,681 173,929 670,971
========= ========= ========== =========
B. Acquisition of initially
consolidated subsidiaries
Assets and liabilities of the subsidiaries
at date of acquisition:
Working capital deficit (surplus),
excluding cash and cash equivalents - (8,409) 139,300 -
Fixed assets and investments - (16,518) (820,382) -
Long-term liabilities - 4,144 195,139 -
Minority interest in subsidiaries - 43,583 62,813 -
Excess of cost over net asset value
upon acquisition - (146,709) (38,456) -
Investment in affiliates - 106,746 110,130 -
Liability for acquisition of subsidiaries - - 113,714 -
--------- ---------- ----------- ---------
- (17,163) (237,742) -
========= ========== =========== =========
The accompanying notes are an integral part of the financial statements
F-17
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------- ---------------
C. Proceeds from realization of
investments in formerly
consolidated subsidiaries, net of cash
in those subsidiaries at the time
they ceased being consolidated:
Assets and liabilities of the formerly
consolidated subsidiaries at the
time they ceased being consolidated:
Working capital surplus (deficit), excluding
cash and cash equivalents (242,644) (89,123) 619,436 (54,946)
Fixed assets and investments 26,498 1,458,006 1,008,491 6,001
Long-term liabilities (51,556) (489,106) (237,087) (11,675)
Minority interest in the subsidiary as at date
of the sale (56,960) (133,139) (246,597) (12,899)
Investments in affiliated companies
(year 1999 prior to the merger), net (2,204) 26,298 (1,036,479) (499)
Consideration not yet received from
consolidation of companies (12,218) - - (2,767)
Deficiency in capital of subsidiary without
guarantee 208,615 - - 47,241
Capital gain (loss) on sale of investments
in subsidiaries (5,540) 517,775 407,555 (1,255)
--------- --------- --------- ----------
(136,009) 1,290,711 515,319 (30,799)
========= ========= ========= ==========
D. Proceeds from realization of activities
Working capital surplus excluding cash and
cash equivalents 3,483 153,338 - 789
Fixed assets 65,235 52,002 - 14,772
Accrued income - long-term - 21,227 - -
Realization proceeds receivable (8,384) (27,299) - (1,899)
Capital gain (loss) from realization of activities (26,475) 282,096 - (5,995)
--------- --------- --------- ----------
33,859 481,364 - 7,667
========= ========= ========= ==========
The accompanying notes are an integral part of the financial statements
F-18
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------- ---------------
E. Non-cash transactions:
Purchase of fixed assets 24,004 43,078 5,890 5,436
========= ========= ========= ==========
Purchase of other assets - 926 8,423 -
========= ========= ========= ==========
Purchase of switching division - - 4,001 -
========= ========= ========= ==========
Proceeds from sale of fixed assets, in formerly
consolidated subsidiaries and investee
companies 45,928 32,269 - 10,400
========= ========= ========= ==========
Investment in initially consolidated
subsidiaries - - 113,715 -
========= ========= ========= ==========
Proposed dividend to minority shareholders 5,450 - - 1,234
========= ========= ========= ==========
Interim dividend - - 167,504 -
========= ========= ========= ==========
Conversion of convertible debentures into -
shares of the Company and of subsidiaries - 1,034 -
========= ========= ========= ==========
Investment in subsidiaries 2,663 55,393 - 603
========= ========= ========= ==========
Proceeds from realization of affiliated
company in marketable securities - 27,295 - -
========= ========= ========= ==========
The accompanying notes are an integral part of the financial statements.
F-19
Koor Industries Ltd. (An Israeli Corporation)
-----------------------------------------------------------------------------------------------------------------------------
Company Statements of Cash Flows
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------- ---------------
Cash flows generated by operating activities:
Net income (loss) (2,537,083) 271,467 556,874 (574,521)
Adjustments to reconcile net income to net cash
flows generated by operating activities (A) 2,264,432 (112,939) (327,175) 512,779
Net cash inflow (outflow) generated by
operating activities (272,651) 158,528 229,699 (61,742)
Cash flows generated by investing activities:
Investee companies - acquisition of shares,
payments on account of shares, loans granted
and non-current accounts (179,900) (527,911) (1,114,460) (40,738)
Purchase of fixed assets (369) (772) (14,250) (84)
Increase in investments and other receivables, net 10,146 (159,730) (360,480) 2,298
Proceeds from sale of fixed assets 117 399 962 26
Proceeds from realization of investments
in investee companies, net 170,022 1,017,614 180,898 38,502
Dividend received from an investee companies - - 1,468,592 -
Investment in short-term deposits and
investments, net (3,965) (182,730) (87,973) (898)
----------- ---------- ---------- ----------
Net cash inflow (outflow) generated by
investing activities (3,949) 146,870 73,289 (894)
----------- ---------- ---------- ----------
Cash flows generated by financing activities:
Proceeds from exercise of stock options 141 140 420 32
Premium received in respect of issuance
of options exercisable for company shares - 1,905 - -
Acquisition of "treasury stock" - (206,358) - -
Dividend paid - (229,826) (148,031) -
Receipt of long-term loans and other
long-term liabilities 1,643,072 99,297 108,574 372,072
Payments of long-term loans and
other long-term liabilities (1,354,295) (729,041) (92,101) (306,679)
Credit from banks and others, net 23,356 45,936 243,839 5,289
----------- ----------- ---------- ----------
Net cash inflow (outflow) generated by
financing activities 312,274 (1,017,947) 112,701 70,714
----------- ----------- ---------- ----------
Increase (decrease) in cash and cash
equivalents 35,674 (712,549) 415,689 8,078
Balance of cash and cash equivalents at
beginning of year 23,047 735,596 319,907 5,219
----------- ----------- ---------- ----------
Balance of cash and cash equivalents at
end of year 58,721 23,047 735,596 13,297
=========== =========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-20
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Cash Flows (cont'd)
-------------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 2001
Convenience
translation
(Note 2B)
---------------
Year ended December 31 Year ended
------------------------------------------------- December 31
2001 2000 1999 2001
------ ------ ------ ---------------
NIS thousands US $ thousands
------------------------------------------------- ---------------
(A) Adjustments to reconcile net earnings
to cash flows generated by
operating activities:
Income and expenses not involving cash flows:
Dividend received from investee companies net of
equity in their operating results (equity in
operating results of investee companies, net of
dividend received therefrom) 2,268,075 244,500 (209,317) 513,604
Depreciation and amortization 2,222 2,712 2,467 503
Deferred taxes, net - 130,821 (130,821) -
Decrease in liability in respect of employee
severance benefits, net (732) (3,253) (10,702) (166)
Net capital losses (gains) from realization:
Fixed assets (2) (9) 1,684 -
Investment in investee companies 51,418 (396,201) (45,330) 11,643
Decrease (increase) in value of deposits
and other erosions, net (19,771) (3,610) 1,219 (4,477)
Exchange rate differences and erosion of
principal of long-term loans and other liabilities 105,957 (63,347) (19,600) 23,994
Erosion of principal of credit from banks
and others 10,390 (2,038) - 2,353
Salary related benefit to employees in connection
with options granted by controlling interests - - 785 -
Adjustment in value of investments - (79,198) 156,163 -
--------- ---------- ----------- ---------
2,417,557 (169,623) (253,452) 547,454
--------- ---------- ----------- ---------
Changes in operating assets and liability items:
Decrease (increase) in current accounts of
investee companies, net (136,446) 93,181 (90,166) (30,898)
Decrease (increase) in receivables 8,500 4,410 (11,162) 1,925
Increase (decrease) in other payables (25,179) (40,907) 27,605 (5,702)
--------- ---------- ----------- ---------
(153,125) 56,684 (73,723) (34,675)
--------- ---------- ----------- ---------
2,264,432 (112,939) (327,175) 512,779
========= ========== =========== =========
(B) Significant non-cash transactions:
Interim dividend - - 169,320 -
========= ========== =========== =========
Proceeds from realization of affiliated
company in capital note - 21,240 - -
========= ========== =========== =========
Investments in investee companies against
current account of investee company,
dividend and capital note 960,882 - - 217,591
========= ========== =========== =========
Purchase of company shares from investee
company 22,562 - - 5,109
========= ========== =========== =========
The accompanying notes are an integral part of the financial statements.
F-21
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 1 - General
Koor Industries Ltd. is a holding company, which operates in the
fields of telecommunications, defense electronics, agro-chemicals
and other chemicals and venture capital investment, through its
subsidiaries, proportionately consolidated companies and
affiliates (hereinafter - the "Koor Group" or the "Group").
The Company's shares are traded both on the Tel Aviv Stock
Exchange and on the New York Stock Exchange.
Note 2 - Significant Accounting Policies
The financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Israel, which
differ in certain respects from those followed in the United
States, as described in Note 28.
The significant accounting policies, which were applied on a
consistent basis, are as follows:
A. Definitions:
In these financial statements:
1. The Company - Koor Industries Ltd. (hereinafter - "Koor" or
the "Company").
2. Subsidiaries - companies, including partnership companies,
whose statements are fully consolidated, directly or
indirectly with those of the Company.
3. Proportionately consolidated companies - jointly controlled
companies, which are consolidated by the proportionate
consolidation method in Koor's financial statements.
4. Affiliate companies - companies in which Koor has voting or
equity rights which give it significant influence over the
operating and financial policies of these companies, and
which are not fully or proportionately consolidated. Such
companies are included on the equity basis.
5. Investee companies - subsidiaries, proportionately
consolidated companies or affiliates.
6. Other companies - companies in which the investment does not
give the Company significant influence are included by the
cost method.
F-22
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
A. Definitions (cont'd):
7. Related parties - as defined in Paragraph (1) to Definition
"related parties") in Item 1 to Securities law, including
related parties as defined in Opinion 29 of the Institute of
Certified Public Accountants in Israel - (hereinafter - "ICPAI").
8. Controlling shareholders - as defined in the Israeli
Securities Regulations (Presenting Transactions Between a
Company and its Controlling Shareholder in Financial
Statements), 1996.
9. Venture capital fund - as defined in Standard No. 1 of
Israel Accounting Standards Board.
10. Consumer Price Index - The Consumer Price Index (hereinafter
- "CPI") published by the Central Bureau of Statistics.
11. Dollar - United States Dollar (hereinafter - "Dollar").
B. Adjusted financial statements:
1. a) All NIS amounts in the financial statements are
included in terms of NIS of identical purchasing power
(NIS of December 2001); the required adjustments are
based upon the changes in the Israeli Consumer Price
Index.
b) The adjustments of the financial statements of the Koor
Group is in accordance with the opinions of the ICPAI and
is based on the accounting records which are kept in
nominal NIS or in other functional currencies.
c) The amounts of non-monetary assets do not necessarily
represent their realizable or current economic value, but
rather the original historical cost of those assets in
terms of adjusted NIS. The term "cost" in these financial
statements means cost in adjusted NIS.
2. The following principles of adjustment relate to those
companies of the Koor Group whose financial statements were
adjusted on the basis of the CPI:
a) Non-monetary items (mainly fixed assets, inventory, work
in progress and related customer advances, intangible
assets and deferred expenses), have been adjusted on the
basis of the CPI at the time when the related
transactions were carried out.
The components of the statement of operations relating to
non-monetary items (mainly changes in inventory and work
in progress, depreciation and amortization) have been
adjusted on the same basis as that used for the
adjustment of the related balance sheet items.
b) Investments in investee companies and the equity in their
results of operations for the current year, as well as
the minority interest in subsidiaries and their share in
the results of their operations for the current year, are
based on the adjusted financial statements of those
companies.
F-23
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
B. Adjusted financial statements (cont'd):
c) Monetary items (items whose amounts in the balance sheet
reflect current or realizable values at balance sheet
date) are included in the adjusted balance sheet as at
December 31, 2001, at their historical amounts
(comparative figures are also adjusted in terms of
shekels of December 2001).
d) The components of the statement of operations (except for
financing), relating to transactions carried out during
the year - sales, purchases, labor costs, etc., have been
adjusted according to the CPI at the time the related
transactions were effected. The erosion of monetary
balances relating to the aforesaid transactions has been
included in the financing item.
e) The components of the statement of operations relating to
provisions included in the balance sheet, such as
liability in respect of employee severance benefits,
provision for vacation pay, etc., are based on the
changes in the balances of the related balance sheet
items after their related cash flows were taken into
account.
f) The financing item, which is derived from the other items
of the financial statements, reflects real financing
income and expenses, as well as the erosion of monetary
balances during the year, the earnings and losses from
the realization of marketable securities and the earnings
and losses from derivative financial instruments (see
also item 2U as follow)
g) Current income tax expense includes also the expense
resulting from the erosion in value of payments on
account of income tax from the payment date to the end of
the year.
3. Adjustment of financial statements on the basis of the
exchange rate of the Dollar:
The financial statements of certain subsidiaries and
affiliates are adjusted on the basis of the exchange rate of
the Dollar, in accordance with Section 29 of Opinion 36 of the
ICPAI.
According to the requirements of Interpretation No. 8 to
Opinion 36 of the ICPAI, at each balance sheet date, the
figures of the balance sheet and the statements of operations
for the year then ended are translated into shekels at the
exchange rate prevailing at the end of the year, of the
foreign currency in which the financial statements of those
companies were prepared. Balance sheet items as at the
beginning of the year, and changes in capital during the year,
were translated according to the exchange rate of NIS at the
beginning of the year or at the date of the change,
respectively, and were then adjusted for the changes in the
CPI until December 2001. This treatment is relevant both to
the autonomous foreign investee companies and to the Israeli
companies whose functional currency is the Dollar.
Differences arising from the translation were included in a
separate item of shareholders' equity under "Cumulative
foreign currency translation adjustments, net".
F-24
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
C. Principles of consolidation:
1. The consolidated financial statements include the accounts of
Koor, all its subsidiaries and proportionately consolidated
companies.
2. Consolidation of financial statements of proportionately
consolidated companies:
In accordance with generally accepted accounting principles in
Israel, the financial statements of companies that are jointly
controlled, are included in Koor's consolidated financial
statements according to the proportionate consolidation
method.
3. Goodwill deriving from the acquisition of an investment, which
represents the excess of acquisition cost or the investment in
subsidiaries over the fair value of identifiable assets less
the fair value of identifiable liabilities upon acquisition,
is amortized at equal annual rates over 10 years commencing
from the acquisition date, except for goodwill arising from
the acquisition of some subsidiaries, which is amortized over
a period of 20 years. The amortization of goodwill is included
in "other expenses" item.
Differences resulting from changes in holding rates are charged
to the statement of operations as incurred, except for changes
deriving from the exchange of homogenous assets, which are
debited / credited in the goodwill and are not charged to the
statement of operations.
4. Excess cost of assets and liabilities is charged to the
relevant items in the balance sheet.
5. Significant inter-company transactions and balances items are
eliminated upon consolidation.
6. Koor's shares, which were purchased by the Company and
subsidiaries, are accounted for as treasury stock.
7. To the extent that sale and/or exercise of convertible
securities issued by investee companies is probable (including
stock options to employees), in accordance with the criteria
set forth in Opinions 48 and 53 of the ICPAI, and if the
percentage of Koor's holdings of such subsidiaries is expected
to decrease upon their conversion or exercise, following which
Koor will incur a loss, an appropriate provision is included
for such an anticipated loss.
D. Use of estimates:
The financial statements, which were prepared in accordance with
generally accepted accounting principles, include numbers based on
estimates and assumptions of the Management, which take the factor
of materiality into consideration, and on the Opinion dealing with
assets and contingent liabilities, as well as income and expenses in
the reported period. Actual results may differ from such estimates.
F-25
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
E. Cash equivalents:
Cash equivalents are considered by the Company to be highly liquid
investments which include short-term bank deposits with an
original maturity of three months or less and which are not
encumbered .
F. Marketable Securities:
(1) Marketable securities
---------------------
Investments in marketable securities designated for sale in the
short term are included at market value in the stock market as
at the balance sheet date. Investments in marketable
securities, which are permanent investments, are included at
cost (debentures - including accrued interest), as long as
there has not been a decrease in value, which is not of a
temporary nature (see also section (3) below). The changes in
the value of the securities are charged in full to the
statement of operations.
(2) Non-marketable securities
-------------------------
Included at the cost, which Management believes does not exceed
the realization value (see also section (3) below).
(3) Decrease in investment value
----------------------------
From time to time the Company reviews its permanent
investments in other companies to identify if there has been a
decrease in their value, which is not of a temporary nature.
Such a review will be carried out where there are signs that
the value of permanent investments has been harmed, including
a drop in stock market prices, the investee company's
business, the segment in which the investee company operates
and other parameters. The provisions for adjustment of the
value of these investments are charged to the statement of
operations, and follow the Management's assessment, which took
into account all the relevant factors, which are not of a
temporary nature.
G. Provision for doubtful debts:
The financial statements include specific provisions for doubtful
debts, which the Management believes fairly reflect the loss
inherent in debts whose collection is doubtful.
The provision is determined partly in respect of specific debts
whose collection is doubtful, and partly as a percentage of the
balance of trade receivables.
H. Inventory:
Inventory is included at the lower of cost or market value. Cost is
determined as follows:
Raw materials, auxiliary materials and spare parts - at average
cost or by the "first-in, first-out" method.
Finished goods and goods in process - mainly on the basis of
direct manufacturing costs and, in part, on the basis of average
manufacturing costs with the addition of indirect manufacturing costs.
Merchandise - by the "first-in, first-out" method or by the "moving
average method".
F-26
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
I. Work in progress:
Work in progress is valued at direct production cost, plus
allocated indirect expenses, all of which are on an average basis.
The cost of work in progress under long-term contracts also
includes allocation of general expenses, as well as interest at an
average rate for external financing. Interest is calculated in
respect of the excess of the cost of work in progress over
customer advances received for each order or in respect of the
excess of customer advances received for each order over the cost
of work in progress.
The excess of the investment in inventory and work in progress,
over related advances received, is included in current assets,
while the excess of advances received over investment in work in
progress is included in current liabilities.
Work in progress and customer advances in respect of long-term
contracts include amounts in respect of contracts the execution of
which exceeds over one year. Where a loss is anticipated from
work, a provision is made for the entire anticipated loss up to
completion of the work.
J. Venture Capital Investments:
Investment in a corporation whose principal business is research
or development and at least 90% of its funding comes from owners'
capital, support from State authorities or research grants.
The holdings of venture capital funds in venture capital
investments are represented by their cost after provisions for
drop in value, if a drop in value, of a permanent nature, occurs.
K. Investments in investee companies:
The investments in investee companies (consolidated balance sheet
- investments in affiliates) are presented using the equity
method. Goodwill arising from the acquisition of investments is
amortized at equal annual rates over a 10 year period, commencing
from acquisition date, other than goodwill in a subsidiary, which
is amortized over 20 years in light of the evaluation that
requires that the prior knowledge and experience accumulated serve
it at least for this period, and other than the goodwill for
purchase of part of the minority in another subsidiary, which is
also amortized over 20 years.
F-27
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
K. Investments in investee companies (cont'd):
From time to time the Company reviews its investments to identify
if there has been a decrease in their value which is not of a
temporary nature. Such a review will be carried out where there
are signs that the value of permanent investments has been harmed,
including a drop in stock market prices, the investee company's
sequential loss, the segment in which the investee company
operates, the value of the goodwill aggregated in the investment
and other parameters. The provisions for adjustment of the value
of these investments are charged to the statement of operations,
and follow the Management's assessment, which took into account
all the relevant factors that are not of a temporary nature.
L. Long-term receivables and liabilities:
Long-term receivables and liabilities bearing interest rates lower
than the accepted market rates at date of inception, are recorded
at their present values.
M. Fixed assets:
1. The assets are included at cost, after deduction of related
investment grants.
2. Cost includes interest capitalized during the period of
construction of the assets, calculated according to the
interest rates applicable to the sources used to finance the
investment.
3. Improvements are attributed to the cost of assets, while costs
of maintenance and repair are attributed to the operating
statement when they occur.
4. Depreciation is computed using the straight-line method, on
the basis of the estimated useful lives of the assets.
The annual depreciation rates used are as follows:
%
--------
Buildings and leasehold rights 1-10 (mainly 2%)
Machinery, equipment and installations 5-20 (mainly 10%)
Vehicles and forklifts 10-20 (mainly 15%)
Office furniture and equipment 6-33 (mainly 6% and 25%)
N. Intangible assets and deferred expenses:
1. Intangible assets - know-how, software and patents purchased
and payments for licensing of products abroad - are included
at cost and are amortized in 5 to 10 annual installments
beginning with the commencement of the utilization thereof.
2. Intangible assets in the purchase of goods - are presented at
cost and are amortized over 20 years.
3. Deferred expenses - debenture issuance costs: These costs are
amortized over the life of the debentures, taking into account
the dates of redemption.
4. See Note 2C(3) regarding goodwill deriving from the
acquisition of companies.
F-28
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
O. Convertible securities:
1. Debentures, whose conversion is not expected in the
foreseeable future, are included at their liability value as
at balance sheet date, in accordance with the provision of
Opinion 53 of the ICPAI, and are included as long-term
liabilities.
2. In accordance with Opinions 48 and 53 of the ICPAI, the
provision for anticipated loss on the drop, in the percentage
of holdings in investee companies, is included in the item
"Minority interest in subsidiaries", in the consolidated
balance sheet and in the item "Investment in investee
companies" in the Company balance sheet.
P. Deferred taxes:
1. Deferred taxes are computed in respect of temporary
differences between the amounts included in the adjusted
financial statements and those to be considered for tax
purposes. As for the main components in respect of which
deferred taxes have been created - see Note 16F.
2. Deferred tax balances are computed at the tax rate expected to
be in effect at the time these taxes will be charged to the
statement of operations. The amount included in the statement
of operations represents the changes in the said balances
during the current year.
3. In calculating deferred taxes, taxes that would have applied
in the event of exercise of investments in subsidiaries the
sale of which is not expected in the foreseeable future, have
not been included.
No deferred taxes have been created for taxes to apply when
distributing profits by subsidiaries, in accordance with the
policy of the company not to distribute taxable dividends in
the foreseeable future.
Q. Revenue recognition:
1. Work in progress:
Revenues and costs related to work in progress under long-term
contracts are recognized under the percentage of completion
method, once accumulated work has reached 25%.
For contracts involving technological uncertainties, revenues
are recognized on the basis of the completed contracts method.
Revenues and costs relating to contracts on a "cost plus"
basis (i.e. cost with the addition of profit at a fixed rate)
are recognized when the costs are incurred.
F-29
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
Q. Revenue recognition (cont'd):
Periodic reporting on revenues and costs from work in progress
covers all turnover periods, including those where it is not
possible to estimate anticipated profits at the reporting
stage, however, it may be included that the refund of costs
already incurred is anticipated. In such circumstances, all
the costs incurred are attributed to the statement of
operations as against revenues in the amount of such costs
("Zero interval presentation").
Full provision is made for anticipated losses.
2. Sale of products and rendering of services:
Revenues from sales and services are recognized upon delivery
of the products and transfer of the main risks and rewards
involved in ownership of the products, or upon performance of
the services. In special contracts, the sales are recognized
after performing the work and passing acceptance tests, as
defined in the product delivery contract.
R. Sale of customer debts
The Company recognizes sale of customer debts as a sale only in
the instance where the control and the risks of the financial
asset are transferred to the purchaser.
S. Presentation of transactions between the Company and the
controlling shareholder
Transactions between the Company and the controlling shareholder
of the Company are included in accordance with the Securities
Regulations (Presenting Transactions Between a Company and its
Controlling Shareholder in Financial Statements), 1996.
Accordingly, the difference between the price paid to the
controlling shareholder for the sale of an asset and the book
value of the asset in the books of the controlling shareholder, is
included in the item Shareholders' equity of the Company.
In addition, the amount of the loan erosion without interest and
linkage differentials and without a repayment date, received from
the controlling shareholder and which the parties do not intend to
repay, is included in the item Shareholders' equity.
T. Research and development:
Research and development costs, net of participations (mainly from
the Government of Israel), are charged to the statement of
operations, as incurred. Research and development costs financed
by the customer are charged to the cost of work in progress, and
are included in the statement of operations as part of the
recognition in results from such work in progress.
F-30
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
U. Derivative financial instruments:
Koor and its subsidiaries enter into Option contracts and forward
transactions that are designated to reduce the specific risks
(i.e. commitments for the import of raw materials, export of
goods, liabilities linked to the CPI or foreign currency) involved
in the exposure to fluctuations in the exchange rates of foreign
currency and changes in the CPI.
The results of Option contracts and forward transactions for the
purchase or sale of foreign currency, which are designated to
Hedge the proceeds from export and the cost of imports against
changes in foreign currency (hedging transactions), are recorded
in the statement of operations, concurrently with the recording of
the related import and export results.
The results of Option contracts and forward transactions for the
purchase or sale of foreign currency intended to hedge certain net
assets, but not classified as hedging transactions, are recorded
in the statement of operations as financing expenses in the period
of the change in the exchange rate of the hedged balances.
The fair value of derivative financial instruments is established
according to their market values, and when such do not exist,
according to the evaluation model.
V. Earnings per share:
Earnings per share data are computed in accordance with Opinion 55
of the ICPAI.
W. Data regarding the CPI and the exchange rate of foreign
currency:
Israeli Exchange rate
CPI* of one Dollar
----------- -------------
Points NIS
----------- -------------
For the year ended:
December 2001 170.9 4.416
December 2000 168.5 4.041
December 1999 168.5 4.153
% %
----------- -------------
Changes during:
2001 1.4 9.3
2000 - (2.7)
1999 1.3 (0.2)
%
-----------
Real increase (decrease) in the CPI relative to the
exchange rate of the Dollar during the year:
2001 7.9
2000 2.7
1999 1.5
(*) According to the CPI in respect of the balance
sheet date (1993 average basis = 100).
F-31
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
W. Data regarding the CPI and the exchange rate of foreign
currency (cont'd):
Assets and liabilities in foreign currency or linked thereto
are included in the financial statements according to the
representative exchange rate, as published by Bank of Israel
near the balance sheet date.
Assets and liabilities linked to the CPI are included in the
financial statements according to the latest index published
in the balance sheet month.
X. Influence of new accounting standards prior to their
application
In the account period, the Israel Accounting Standards Board
published the following new standards:
1. Accounting Standard No. 7 - Post balance sheet events. The new
standard determines when a corporation must make adjustments
to its financial statements for events that occurred after the
balance sheet date, and the disclosure required of a
corporation concerning the date on which the financial
statements were approved for publication and concerning events
after the balance sheet date. This standard will apply to
financial statements for periods starting after December 31,
2001.
According to this standard, the liability relating to a
dividend proposed or announced after the balance sheet date
will be reflected in the financial statements only when
announced. This does not correspond to the Securities
Regulations (Preparing Financial Statements), 1993, which have
not been amended accordingly. For this reason, the Company has
not complied with the standard, and the dividend announced
after December 31, 2001 is included under Current liabilities.
2. Accounting Standard No. 8 - Discontinued operations. The
standard sets out rules for the separate statement of
information relating to an essential business operation which
is terminated by a corporation, from information relating to
ongoing operations, and also determines the minimum disclosure
of information concerning a discontinued operation. This
standard will apply to financial statements for periods
starting after January 1, 2002.
3. Accounting Standard No. 11 - Segment reporting. The standard
requires the inclusion of information in respect of business
segment and geographical segment, and also gives detailed
guidelines for the identification of business and geographical
segments This standard will apply to financial statements for
periods starting after January 1, 2002.
F-32
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
X. Influence of new accounting standards prior to their
application (cont'd)
4. Accounting Standard No. 12 - Termination of adjustment of
financial statements. According to this standard, the
adjustment of financial statements will commence on January 1,
2003.
Until December 31, 2002, the Company will continue to prepare
adjusted financial statements in accordance with Opinion 36 of
the ICPAI. The adjusted amounts included in the financial
statements as at December 31, 2002 will serve as the starting
point for nominal reporting starting from January 1, 2003. The
standard could influence the reported results of the Company.
The extent depends on the rate of inflation and the financing
resources of the Company.
5. Accounting Standard No. 13 - Effects of changes in foreign
currency exchange rates. The standard deals with the
translation of foreign currency transactions and the
translation of financial statements of overseas operations,
for the purpose of their integration in the financial
statements of the reporting corporation. The standard
supersedes the provisions of Clarifications 8 and 9 to Opinion
36, which will be voided when Accounting Standard No. 12,
referred to above, takes effect. This Standard will apply to
financial statements for periods starting after January 1, 2003.
Note 3 - Information Regarding Certain Investee Companies
A. ECI Telecom Ltd. (hereinafter: "ECI") - An Affiliated Company
1. On November 7, 2000, the board of directors of ECI approved
a resolution made in August 2000 for a division plan to split
ECI into five separate companies, which were to deal with the
following separate areas: access products, transmission,
optical fiber networks, next generation telephony solutions,
wireless communications and ECI Industries - which would be a
holding company and subcontractor for the new companies. The
de-merger plan was divided into two stages: in the first
stage, the relevant assets and liabilities and business
operations would be transferred to each company. In the second
stage, the board of directors would consider the transfer of
holdings in the companies, or some of them, to the
shareholders.
On January 1, 2001, five subsidiaries were set up and took on
the employees of the various operational departments. The
subsidiaries are operating as branches of the company until
transfer of the assets (including intangible assets) and
liabilities to their legal ownership.
Pursuant to a resolution of the Board of Directors of ECI on
May 22, 2001, implementation of the second stage of the plan
to split the company was postponed, mainly due to the slowdown
in the global telecommunications market and the decline in
demand for the company's products. ECI received approval from
the tax authorities for the plan to split the company and for
a tax exemption for transfer of operations to the new
companies. This is subject to several terms outlined in the
tax authorities approval and the law. During 2001, ECI
received the tax authorities' approval to merge, in a tax
exempt transaction, an ECI subsidiary with ECI. According to
this approval, ECI is limited from bringing in private
investors to an amount higher than 20% of the companies
outstanding capital as at end 2002.
F-33
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
A. ECI Telecom Ltd. (hereinafter: "ECI") - An Affiliated Company
(cont'd)
2. In the second half of 2000, the world demand for
telecommunications products, including those of ECI products
declined, this trend continued during 2001. As a result of
this, the management of ECI decided to undertake a series of
efficiency measures which include, discontinuation of
production and marketing of certain products, termination of
development operations in the USA which were purchased in the
second quarter of 2000 and a reduction of manpower by
approximately 2,000 employees. Accordingly, ECI recorded in
its financial statements in 2001 a provision of approximately
108 million Dollars for decrease in value of inventories, and
a provision of approximately 166 million Dollars for the
amortization of the goodwill, intangible assets and fixed
assets used for the terminated operations and for the
reorganization costs.
3. In the first quarter of 2001, the decline in global demand for
telecommunications products including those of ECI was
continuing and ECI's sales forecasts were revised downwards.
In addition, there were other indications in that period of a
change in the fair value of ECI. These indications included,
inter alia, valuations made by an independent outside
appraiser for ECI, and related to the value of four of ECI's
business units, discussions concerning the sale of Lightscape
Networks (hereinafter "LSN"), which is one of ECI's main
business units, and another indication concerning the value of
LSN which derived from the assessments of an investment bank
regarding the value of LSN, which it prepared for examining
the possibility of raising capital by way of a private
placement.
In view of the aforesaid, the management of Koor decided in
the first quarter, to reduce the book value of the investment
in ECI in respect of a decrease in value not of a temporary
nature, by approximately NIS 211 million, to NIS 2,234 million
as at March 31, 2001.
During the second quarter of 2001, since the negative trends
in the telecommunications sector were continuing, and
particularly in light of the uncertainty as to the recovery of
this market, Koor's management decided to commission an
overall valuation of ECI from the same appraiser who had
prepared the previous valuations for ECI. The fair value of
ECI according to the findings of the valuation, ranges from
985 million Dollars to some 1,230 million Dollars, and
therefore the fair value of Koor's investment in ECI was
between 340 million Dollars and 420 million Dollars.
Based on the above, the Board of Directors of the Company
decided to reduce the book value of the investment in ECI in
respect of decrease in value not of a temporary nature, by
approximately NIS 593 million (in addition to the reduction
made in the first quarter of the year). The balance of Koor's
investment in ECI as at June 30, 2001, was approximately NIS
1,555 million.
F-34
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
A. ECI Telecom Ltd. (hereinafter: "ECI") - An Affiliated Company
(cont'd)
3. (cont'd)
The results of ECI's operations and other indications
including valuation from the same appraiser served Koor's
management for the valuation of its investment in ECI in the
third quarter of 2001. In view of the data available to the
Koor management, as well as the ongoing slowdown in the
markets in which ECI operates, the Board of Directors of Koor
decided to write off the balance of the goodwill allocated to
the investment in ECI, in the amount of NIS 263 million. Thus,
the write-offs of goodwill in the account period amounted to
approximately NIS 1,067 million. The provisions were included
in the Statement of Operations under the item "Group equity in
the operating results of affiliates, net". The balance of the
investment in ECI as at September 30, 2001 was NIS 1,206
million.
4. During the second quarter of 2001, Koor purchased 1,613,478
shares of ECI (which is about 1.7% of ECI shares) from a third
party, at a cost of approximately NIS 34 million.
5. On 6 December 2001 a private allotment agreement was signed
between ECI and a group of investors, whereby 12.5% of the
share capital of ECI will be allotted to those investors in
consideration of approximately 50 million Dollars. The
transaction was closed in February 2002, after which Koor's
holding in ECI decreased from 34.6% to 30.3%. In its financial
statements for the fourth quarter of the year, Koor recorded a
loss of NIS 67 million in respect of the allotment, presented
in the statement of Operations under the item "Group's equity
in operating results of affiliates, net".
On December 31, 2001 the balance of the investment in ECI is
approximately NIS 1,094 million.
6. The Board of Directors of Koor decided to give its approval
for Koor's management to extend a credit line to ECI until
February 2003, should ECI be in need of such credit, up to the
sum of 100 million Dollars, on terms not inferior to market
terms on the date of opening the credit line.
7. In June 2001, shareholder class actions were filed in the name
of various shareholders against ECI and some of its officers:
the previous Chairman of the Board (who also serves as the CEO
of Koor), the CEO and the former CFO. The claims were filed in
the Federal Court in Virginia, USA, based on the Securities
Exchange Act of 1934 in the name of all the shareholders who
bought shares in ECI between May 2, 2000 and February 14, 2001
(the "Purchasers"). The plaintiffs allege that ECI and the
aforementioned officers defrauded the Purchasers, made false
representations and published misleading financial statements,
which harmed the purchasers. Based on their allegations, the
plaintiffs are seeking, inter alia, compensation for their
damages, or alternatively, restitution of the sum they lost as
a result of the decrease in the value of their shares (no sum
has yet been stipulated by the plaintiffs).
F-35
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
A. ECI Telecom Ltd. (hereinafter: "ECI") - An Affiliated Company
(cont'd)
7. (cont'd)
At the stage of the preliminary procedural hearing in the US
Federal Court, an amended class action was filed, against
which ECI and the other defendants filed an application for
dismissal of the claim in limine. The Federal Court struck the
action against the previous Chairman of the Board, but left
the claim against the other defendants as is, i.e. against ECI
and the other officers. The management of ECI believes that
there is no basis for the allegations of the plaintiffs, and
it intends to oppose the action.
8. Some of the current and future liabilities of ECI to banks are
secured by certain liens on certain assets and rights, as well
as an unlimited negative pledge on the company's assets. As a
condition for further bank credit and in accordance with the
terms of the negative pledge, ECI undertook to comply with a
certain financial ratio, such as total shareholders' equity,
shareholders' equity to assets, current ratio and operating
income to sales, which would be in effect starting from fiscal
year 2002.
9. Adjustment of the net loss of ECI as reported according to US
GAAP, to the net loss according to Israeli GAAP - see Note
28A(18).
B. Tadiran Ltd. (hereinafter: "Tadiran") - Consolidated company
1. On March 4, 2001, Tadiran sold its shareholding in ECI to Koor
at the market price on the date of sale. The transaction was
handled according to the Securities Regulations (Presentation
of Transactions between a Corporation and its Controlling
Shareholder in Financial Statements), 1996.
2. In 2000 an agreement was signed between Tadiran, the Company
and Elisra Electronic Systems Ltd. (hereinafter - "Elisra"),
whereby Tadiran transferred its entire holdings (100%) in
Elisra to the Company, free of charge, effective from January
1, 2000. Immediately after transfer of the shares, Elisra
received shares in Tadiran Spectralink Ltd. and in Tadiran
systems Ltd. (wholly controlled subsidiaries of Tadiran), free
of charge. The share transfer is conducted under the tax
exemption conferred by section 104 of the Income Tax Law in
Israel.
3. After the balance sheet date, agreements were signed to sell
most of Tadiran's real estate (See Note 27B) as part of the
liquidation of Tadiran Ltd.. Tadiran's remaining real estate
will be sold during 2002, therefore Tadiran's real estate was
classified in the financial statements under "assets
designated for sale".
F-36
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
C. Makhteshim Agan Industries Ltd. (hereinafter: "M-A
Industries") - Consolidated company
1. Consolidated companies of M-A Industries have agreements with
banks whereby the consolidated companies sold certain customer
debts to the banks. As at December 31, 2001 the customer
balance in respect of debts sold decreased by 10 million
Dollars (as at December 31, 2000 - approximately 40 million
Dollars). The difference between the book balance of debts
sold and the consideration received is allocated to the
statement of operations. Under the agreements, the
consolidated companies undertook to indemnify the banks in
certain cases defined in the agreements, in which the sold
debts are not repaid.
In October 2001 M-A Industries and some of its consolidated
companies (hereinafter: "the Selling Companies"), entered into
an agreement which replaced the existing plan. Under the new
agreement, the Selling Companies signed an agreement for a
securitization transaction whereby, on the final date of
closing the agreement, they sold all their customer balances
without right of restitution (except for commercial disputes),
to foreign companies which established for this purpose, which
are not owned or controlled by M-A Industries (hereinafter
"the Purchasing Companies"). Purchase of the debts was
financed by an American company from the Bank of America
Group. The volume expected to be at the disposal of the
Purchasing Companies is approximately 150 million Dollars, on
a current basis, so that the considerations received from the
customers whose debts were sold will be used to purchase new
debts. M-A Industries will handle collection of the sold debts
for the Purchasing Companies in consideration of a fee, which
will be determined. Under the securitization agreement, the
debts of customers of South American companies were not sold.
(See also Note 5).
As at balance sheet date, the cash proceeds received from the
securitization transaction were 96 million Dollars. See also
Note 5.
2. During 2001, consolidated companies of M-A Industries acquired
four new agrochemical products, as well as the marketing and
distribution rights for a package of products in Scandinavian
countries, from Aventis and Syngenta.
The cost of the acquisition was approximately 105 million
Dollars, and is included under item "Intangible assets and
deferred expenses". The sum of approximately 20 million
Dollars was allocated to the costs of registration and
licenses and is depreciated over 20 years, and approximately
2.5 million Dollars was allocated to the acquisition of
agreements with third parties and depreciated over 10 years.
The depreciations are included in the item "Selling and
marketing expenses". The balance of the cost is allocated to
purchase of a product as an ongoing concern, including:
Intellectual property rights, trademark, brand, technological
know-how, customer information, raw material suppliers etc.
which represent goodwill amortized over 20 years in the item
"Other income (expenses), net". Under the agreements, if sales
of some of the products exceed certain volumes in the coming
three years, an additional consideration will be paid, which
is likely to reach some 8.3 million Dollars. As at the date of
approval of the financial statements, M-A Industries estimates
that the additional consideration will not be paid, therefore
no provision has been included in the financial statement.
F-37
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
C. Makhteshim Agan Industries Ltd. (hereinafter: "M-A
Industries") - Consolidated company (cont'd)
3. During May 2001, the Board of Directors of M-A Industries
decided to adopt a policy of distributing a dividend of
between 15% and 30% of the annual net profit, starting from
2001. An interim dividend will be distributed each year as an
advance on account of the annual dividend, depending on the
quarterly profit with the aforesaid limitation. Implementation
of the policy is subject to the existence of profits worthy of
distribution, on the relevant dates, subject to the provisions
of any law relevant to dividend distribution, to specific
resolutions of the Board of Directors of M-A Industries and to
any other resolution which the Board of Directors is
authorized to adopt at any time, including in the matter of
another designation for the company's profits and a change in
the policy.
Pursuant to this policy, the Board of Directors of M-A
Industries decided on distribution of an interim dividend of
8.5 million Dollars.
After the balance sheet date, the Board of Directors of M-A
Industries decided to distribute an additional interim
dividend for 2001, of 3 million Dollars which have been paid
on February 14, 2002. This dividend to the minority was
presented as a liability in the financial statements. See Note
2(X)(1).
4. In August 2000 an agreement was signed between a company from
M-A Industries Group and the outside shareholders of a
consolidated company of M-A Industries in Brazil (hereinafter:
"Millenia"), for the purchase of about 28.5% of the shares of
Millenia (hereinafter: "the Minority Shares").
The minority shareholders proceeds for the purchase of their
shares included the following components: immediate cash
payment of about 22 million Dollar, receipt of 12.4 million
shares of M-A Industries (some of which will be given in April
2002) which are owned by another subsidiary of M-A Industries,
the market value of the shares on the date of transaction was
approximately 28 millions Dollars, and future payment based on
the accumulated profits of Millenia.
For 8.9 million of these shares the minority shareholders were
granted a PUT option granting them, on certain terms, the
right to sell the shares to the other subsidiary of M-A
Industries on January 31, 2002, in consideration of 2.57
Dollar per share (being 2.24 Dollar plus interest at a rate of
10% p.a. for the option period).
F-38
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
C. Makhteshim Agan Industries Ltd. (hereinafter: "M-A
Industries") - Consolidated company (cont'd)
In December 2001 an agreement was signed (hereinafter:
"Supplementary Agreement") between the consolidated company
and the minority shareholders in Millenia, concerning
completion of purchase of their shares in Millenia and a
change in several of the terms in the original agreements, as
follows:
a. Under the Supplementary Agreement, the consolidated
company paid 7.7 million Dollars to the main minority
shareholder, and an additional payment of approximately
0.6 million Dollars to be paid by the end of March 2002
to the other minority shareholders in respect of M-A
Industries undertaking to pay an additional sum according
to the profits of Millenia in 2000 and 2001.
b. In respect of the PUT option granted to the minority
shareholders, which grants them the right to sell 8.9
million shares of M-A Industries, the main minority
shareholders exercised the PUT option for approximately
5.9 million shares of M-A Industries in consideration of
14,940 thousand Dollars, and waived the PUT option for
the balance of M-A Industries shares he still held.
c. The right of the minority shareholders to receive
2,000,000 M-A Industries shares in April 2002 was
cancelled.
The goodwill created in this purchase, approximately 35
million Dollars, is amortized over 20 years, which the
management of M-A Industries deems proper. Among the
circumstances justifying the amortization of goodwill over 20
years: in the area of operation of Millenia, no significant
technological changes are expected to occur in the future,
Millenia's customers are characterized by low turnover, the
agro-chemicals market in Brazil is the third largest in the
world and the only one enjoying growth.
5. On August 15, 2001, Koor sold 19,383,000 shares of M-A
Industries in consideration of approximately NIS 170 million
(the stock market price - NIS 8.80). The capital gain recorded
in the third quarter of 2001 was approximately NIS 13 million.
6. During the year Koor acquired 2,100,00 par value shares of M-A
Industries for NIS 21 million.
7. In April 2001, the Board of Directors of M-A Industries
decided to distributes Options to employees of M-A Industries
and its consolidated companies. According to this plan, during
the next two years, 17,400,000 options will be allocated,
exercisable into 17,400,000 ordinary shares of NIS 1 par value
each of M-A Industries (as at the balance sheet date,
12,500,000 options were allocated).
F-39
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
C. Makhteshim Agan Industries Ltd. (hereinafter: "M-A
Industries") - Consolidated company (cont'd)
8. In November 2001 M-A Industries issued convertible debentures
and options under a prospectus, as follows:
NIS 270,000,000 par value of registered debentures (series A)
(issued at a discount of 2.2%), payable in one payment on
November 20, 2007, bearing interest at 2.5% p.a. and linked
(principal and interest) to the representative exchange rate
of the Dollar. Starting on the date of listing the debentures
(series A) for trading and until November 20, 2007
(inclusive), the debentures (series A) will be convertible on
any trading day at a conversion rate of NIS 10.68 par value of
debentures (series A) for one ordinary share of a par value of
NIS 1.
18,000,000 registered options (series 1), exercisable for
18,000,000 ordinary shares of a par value of NIS 1 each of the
company, on any trading day starting from the date of their
listing for trading until November 20, 2005 (inclusive), so
that each option (series 1) can be exercised for one ordinary
shares of a par value of NIS 1 (subject to adjustments),
against a cash payment of the exercise price, which is NIS
10.68, linked to the representative exchange rate of the
Dollar. In any case the exercise price shall not be less than
NIS 10.68. An option (series 1) that is not exercised by
November 20, 2005 (inclusive) will be void, and will not grant
its holder any right in the company.
The net proceeds from the issue were approximately NIS 264
million. The Company registered the Options at fair value
based on the Black and Scholes model (approximately NIS 17
million). The balance of the proceeds (approximately NIS 247
million) was attributed to the fair value of the convertible
debenture. As at December 31, 2001, the debentures are not
expected to be converted and the options are not expected to
be exercised.
9. In December 2001, a sudden deterioration in the economic and
political situation in Argentina led to the paralysis of the
country's political and economic systems, along with almost
complete uncertainty about the future. As a result of these
events, the trading in foreign currency was temporarily
delayed. In January 2002, the Congress granted the President
legal authority to devalue the Argentina peso (hereinafter:
"peso") against the Dollar (to which the peso had been linked
for about 10 years), following which the government of
Argentina announced a devaluation of about 29% (i.e. 1.4 peso
per Dollar). During February 2002, the law in Argentina was
changed to state that the peso would be a floating currency
and the rate of 1.4 peso per Dollar for exporters and
importers no longer exists. On January 11, 2002 the trading
started in the foreign currency market in Argentina, and a
conversion rate of 1.7 peso to the Dollar was set. This
conversion rate is the determining rate as at the balance
sheet date. As a result of the devaluation the consolidated
company's assets in Argentina eroded (mainly trade receivables
and other debts receivable) at the amount of approximately 15
million Dollars. In addition, due to the economic and
political situation in Argentina, the consolidated company
included a one-time allowance of 8 million Dollars, mainly on
account of doubtful debt.
The continuation of the recession in the Argentinean market,
return to high inflation and high devaluation rates of the
Argentinean peso rate to the Dollar stand to have an influence
on the result of operations, and business status of the
consolidated company in Argentina. M-A Industries and its
consolidated companies, are guarantors to the liabilities of
the consolidated company to the banks in Argentina to a total
amount of approximately 17 million Dollars.
After the balance sheet date, close to the date of approval of
the financial statements, the peso was devalued by an
additional 21% against the Dollar.
F-40
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
C. Makhteshim Agan Industries Ltd. (hereinafter: "M-A
Industries") - Consolidated company (cont'd)
10. After the balance sheet date, on January 23, 2002, M-A
Industries issued to investors, in a private placement, NIS
133,980 thousand par values of convertible debentures (series
A) at NIS 1.015 per NIS 1 par value of debentures (series A),
for a total consideration of approximately NIS 130 million.
The terms of the convertible debentures (series A) will be the
same as those of the debentures (series A) as mentioned above
in item 8.
The Company's shareholding in M-A Industries, as at the
December 31, 2001 is 52.56%. Assuming exercise and conversion
of all the convertible securities issued and allotted by M-A
Industries including the above mentioned in item 10, the
Company's shareholding in M-A Industries will drop to 44.17%.
D. Mashav Enterprise and Development Ltd. - Proportionately
consolidated company
In January 2000 a transaction for the sale of Mashav
Enterprise and Development (hereinafter: "Mashav") was closed
between Koor and Clal Industries & Investments Ltd.
(hereinafter: "Clal"), whereby Koor sold to Clal all its
holdings (50%) in Mashav in consideration for NIS 903 million
and 47.5% of the share capital in Mashal Alumina Industries
Ltd. The capital gain to Koor from this sale is approximately
NIS 368 million before tax, and after tax is approximately NIS
237 million.
During December 1999, before conclusion of the transaction,
Mashav distributed a dividend to Koor and Clal in the total
amount of NIS 720 million.
E. Telrad Networks Ltd. (hereinafter: Telrad) - Consolidated
company
1. The board of directors of Telrad approved a retirement plan
for additional employees, beyond the retirement plans from
1999 and 2000. In the financial statements as at December 31,
2001 in the item "Other income (expenses), net", an expense in
the amount of NIS 87 million was recorded (the cost of
reorganization plan in 2000 and 1999 amounted to NIS 261
million and NIS 90 million, respectively).
2. During the reporting period, a contract was signed between
Telrad and ECtel (a publicly traded subsidiary of ECI),
whereby Telrad sold all its holdings (100%) in Net-Eye Ltd. to
ECtel, which issued shares and options to Telrad in
consideration of the acquisition. This transaction was
treated, in Koor's financial statements, in accordance with
the accounting principles in similar transactions for exchange
of assets, and therefore no gain or loss was recorded.
F-41
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
E. Telrad Networks Ltd. (hereinafter: Telrad) - Consolidated
company (cont'd)
3. On August 30, 2000, a series of agreements was signed and
closed between Koor, Telrad and Nortel Networks Ltd.
(hereinafter "Nortel"), a Canadian international
telecommunications company.
Pursuant to the agreements, Nortel established a new company
in Israel, Nortel Networks Israel (Sales and Marketing)
Limited (hereinafter "Nortel Israel") controlled by Nortel.
Koor and Telrad which holds together 28% of the non-voting
rights to profits, and has the right to appoint one director
out of six.
Under the series of agreements, Koor was granted a PUT option
to sell Nortel the shares held by Koor in Nortel Israel and at
the same time, Nortel was granted a CALL option to purchase
these shares from Koor. The two options have identical
exercise prices, and are exercisable in 2003 at a price which
reflects the sum of Koor's investment in the company, plus a
yield to be determined in the agreements. The company
estimates the probability of non-exercise of either of the
above options is being low. In light of the above, Koor's
investment in Nortel is presented by the cost method under the
item" Investments and other debts receivable".
In view of the above, Koor's investment in Nortel Israel is
presented by the cost method, in the item "Investments and
other debts receivable".
As part of the series of agreements, Koor and Telrad invested
a sum of approximately 5.6 million Dollar in the share capital
of Nortel Israel, and provided it with a shareholders' loan of
approximately 42 million Dollar. The loan is to be paid in
2003, and bears interest at a rate of 6% p.a.
Similarly, on the date of effecting the said transactions,
Nortel exercised the option granted to it in 1997 and sold 20%
of the shares in Telrad to Koor for 45 million Dollar, thereby
making Telrad a wholly-owned subsidiary of Koor.
Concurrently, Telrad signed an agreement whereby the
marketing, the installations and the support in Israel, Africa
and several other countries, of the public networks and TX1
business exchanges, will from now on be effected by Nortel
Israel, and elsewhere will be effected by another company of
Nortel Group.
Telrad will serve as a sub-contractor of Nortel Israel for the
manufacture of exchanges, which will be marketed by Nortel
Israel for the period defined in the agreement. These
activities in 1999 and the eight months ended August 31, 2000,
constituted about 43.5% and 31.3% of Telrad's sales,
respectively.
Telrad received approximately 90 million Dollar for the
transaction, over the book value of the transferred assets.
As part of the above series of agreements, earlier agreements
concerning a commitment made by Telrad to purchase know-how
and pay royalties to Nortel were cancelled by mutual consent.
As a result of the transaction, Koor recorded a capital gain,
after tax, in the third quarter of 2000, of approximately NIS
261 million.
F-42
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
F. Elisra Electronic Systems Ltd. (hereinafter Elisra)
1. On March 17, 2001, a fire broke out at the plants of the
consolidated companies - Tadiran Systems Ltd. and Tadiran
Spectralink Ltd. The managements of these two companies
estimate, on the basis, inter alia, of the opinion of their
legal advisers in this matter, that the indemnity value which
will be received from the insurance companies will be not less
than the amount of the fire damages.
The above estimate of indemnity did not include amounts
relating to loss of interim profits of approximately 1.3
million Dollars, which were recognized in earlier periods in
respect of "works in progress" which were damaged by the fire.
These amounts were allocated to the statement of operations
under item "Other income (expenses), net". Up to December 31,
2001, advances were received from the insurance companies
amounting to approximately 10 million Dollars.
2. During 2000, Elisra acquired by way of allotment, purchase on
the stock exchange and purchase from other shareholders,
additional shares (about 17.6%) in BVR Systems (1998) Ltd.
(hereinafter: "BVR"), for a total of approximately 10 million
Dollars. Elisra also purchased all the BVR shares which were
held by Koor - this acquisition was recorded at the cost of
the shares in Koor's books, in accordance with the Securities
Regulations - Transactions between a Corporation and its
Controlling Shareholder.
After these acquisitions, Elisra holds about 46% of the share
capital of BVR. Elisra signed a voting agreement with other
shareholders of BVR, whereby Elisra will be entitled to
appoint most of the directors of BVR, and accordingly, the
financial statements of BVR were consolidated with the
financial statements of Koor, starting from September 30, 2000.
During the third quarter of 2000 and the first quarter of
2001, provisions of approximately NIS 41 million and NIS 36.5
million, respectively, were recorded in the goodwill of BVR,
in order to reflect a decrease in value not of a temporary
nature, based, inter alia, on the business operations, backlog
of orders and updated assessments of the market potential. The
provisions are included in the item "Other income (expenses),
net".
G. United Steel Mills Ltd. (hereinafter: "USM")
On November 5, 2001, the Haifa District Court gave a
liquidation order for USM Group Ltd., under which Adv. Ilan
Shavit was appointed as special manager until a permanent
liquidator would be appointed. Previously, from March 16, 2000
to July 30, 2001, the group was managed under a stay of
proceedings order, and from August 1, 2001 under a temporary
liquidation order.
F-43
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
G. United Steel Mills Ltd. (hereinafter: "USM") (cont'd)
Due to the liquidation proceeding which commenced on August 1,
2001, the consolidation of USM in the financial statements of
Koor was terminated at the beginning of the third quarter of
the year. In 2001, the operations of USM constituted the
entire activity in the construction and infrastructure segment
in Koor's operations, after two other companies in this
segment were sold during 2000. Therefore, in the Statement of
Operations including the earning (loss) per share for the year
that ended December 31, 2001, operations in the construction
and infrastructure segment are presented as a segment whose
operations were discontinued. In addition, statements of
operations for previous years were restated in order to
reflect the discontinuation of operations in this segment (see
Note 23(G)).
During 2001, in the period when the group was managed under
the stay of proceedings order, Koor made available, ex gratia
and without committing to it, a special credit line of about
NIS 28 million, which was given concurrently with credit
arrangements given ex gratia by the banks, and was intended to
finance the expenses involved in the sale of the plants and
the workers' retirement arrangements. Since Koor was not a
guarantor for the debts of USM to third parties, it had no
share in USM's losses for the first six months of 2001 beyond
the aforementioned amount.
H. Koor Corporate Venture Capital
1. On January 2, 2000, Koor and a wholly-owned subsidiary set up
a registered partnership called "Koor Corporate Venture
Capital" (hereinafter: "Koor CVC") through which Koor
concentrates its investment activities in venture capital
Funds and in technological companies with growth potential.
See Note 18B(5) for investment commitments and investments
after the balance sheet date.
2. During 2001, Scopus (a subsidiary) issued preferred shares
(ordinary shares with preferred rights) to third parties in
consideration of 17.4 million Dollars. Following the issue,
the percentage of the holding in Scopus decreased to 49.4%,
its consolidation was terminated starting from the beginning
of the fourth quarter of 2001 and the investment in the
company is presented in the item "Investments in affiliates".
3. During the reporting period, the management of the Koor CVC
partnership estimated that the value of the investments in a
number of companies in the portfolio was lower than the cost
of the investment, and therefore decided to reduce the value
of the investment in those portfolio companies by
approximately NIS 126 million.
F-44
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investee Companies (cont'd)
I. Divestiture of additional holdings
1. On January 31, 2001, the transaction for the sale of all
Koor's holdings in Koor Insurance Agency (100%) was closed, in
consideration of approximately NIS 5 million. The profit from
the transaction is approximately NIS 3 million.
2. On May 4, 2001, Koor Group sold, free of charge, all its
holdings (50%) in Sigmaone Communications (hereinafter -
"Sigma1") to the KL-LLC group (hereinafter - "the Buyers"),
the other shareholders in Sigma1. In the sale transaction,
Koor and the Buyers transferred 2 million Dollars to Sigma1,
to ensure its operation as a going concern. Koor Group also
replaced the existing debt of Sigma1 to it with a new debt,
which includes an option to convert the debt to shares of
about 15% of the capital of Sigma1, on the transaction date.
Accordingly, the financial statements of Koor recorded a
provision in the amount of the investment, including the loans
which Koor extended to Sigma1, of approximately 10 million
Dollars.
3. During 2001, a consolidated subsidiary of Koor Properties Ltd.
(a company wholly-owned by Koor) sold part of its real estate
assets in consideration for NIS 48 million (of which
approximately NIS 32 million will be received in 2002).
Neither a profit nor a loss was recorded from the sale.
4. In the first quarter of 2001, a provision of 10 million
Dollars has been recorded for a decrease in value of
investments in investee companies, so as to reflect, in the
company's estimation, the anticipated losses as a result of
the expected exercise or from a decrease in value not of a
temporary nature. The reduction is recorded in the item "Other
income (expenses), net".
Note 4 - Short-Term Deposits and Investments
Consolidated Company
--------------------------- -----------------------------
December 31 December 31
--------------------------- -----------------------------
2001 2000 2001 2000
--------------------------- -----------------------------
NIS thousands NIS thousands
--------------------------- -----------------------------
Marketable securities (1):
Debentures 328,239 373,843 308,606 349,951
Short-term Treasury notes 65,606 49,754 65,577 39,896
Shares and options 105,573 105,723 99,726 73,919
Mutual fund participation
certificates 7,661 17,424 - -
-------- ------- ------- -------
507,079 546,744 473,909 463,766
Deposits in banks and financial
institutions 93,024 84,988 - -
Short-term loans and current
maturities of long-term loans 3,042 9,220 3,042 9,220
-------- ------- ------- -------
603,145 640,952 476,951 472,986
======== ======= ======= =======
(1) Presented at market value.
F-45
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
---------------------------------------------------------------------------------------------
Note 5 - Trade Receivables
Consolidated:
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
-----------------------------
Open accounts 1,735,775 2,562,904
Deferred promissory note and receivables from sale
of customers' debts* 295,943 -
Post dated checks receivable and credit card
companies 31,030 82,738
Current maturities of long-term trade receivables 46,027 52,216
--------- ---------
2,108,775 2,697,858
========= =========
Including:
Affiliates - 315
========= =========
Net of allowance for doubtful accounts 100,786 87,284
========= =========
* According to the accounting principles relating to sale of customer
debts (Note 2R), the balance of the customer debts, which were sold
in the securitization transaction, and whose associated control and
risks have been completely transferred to the purchaser, were
written off. For the share in customer debt included in the
securitization transaction, and which were not recognized as a sale,
a deferred promissory note was recorded, see Note 3(C)(1).
Note 6 - Other Receivables
Consolidated Company
--------------------------- -----------------------------
December 31 December 31
--------------------------- -----------------------------
2001 2000 2001 2000
--------------------------- -----------------------------
NIS thousands NIS thousands
--------------------------- -----------------------------
Government agencies 103,885 106,598 443 12,707
Deferred taxes, see Note 16F 105,176 112,289 - -
Accrued income 127,009 68,129 2,341 2,390
Prepaid expenses 43,491 36,185 - -
Employees 12,449 19,546 - 14
Affiliates - current accounts 3,202 4,256 - 27
Others 149,572 109,653 12,101 6,994
------- ------- ------ ------
544,784 456,656 14,885 22,132
======= ======= ====== ======
F-46
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------
Note 7 - Inventories and Work in Progress
Consolidated:
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
----------------------------
A. Inventories and work in progress, net
of customer advances
Presented as current assets:
Industrial inventory:
Raw and auxiliary materials 647,208 638,361
Goods and work in progress (1) 256,002 268,148
Finished goods 810,790 786,208
Advances in respect of materials 16,495 7,894
Inventories for trading operations - merchandise,
including advance payments 70,276 97,063
--------- ---------
1,800,771 1,797,674
Less - customer advances 44,310 11,610
--------- ---------
1,756,461 1,786,064
========= =========
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
-----------------------------
B. Customer advances, net of work in progress
Presented as current liabilities:
Customer advances in respect of work in progress (1)(2)(3) 280,870 303,197
Less - inventory and work in progress 989 1,317
--------- ---------
279,881 301,880
========= =========
(1) Net of provision for loss in respect
of work in progress 13,067 8,637
========= =========
(2) Not including long-term advances
(3) See Note 22 regarding guarantees provided for
securing the gross amounts of customer advances
(including long-term advances).
F-47
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------
Note 8 - Investments in Investee companies
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
-----------------------------
A. Consolidated balance sheet - affiliates
Net asset value of the investments (1)(2) 1,286,886 1,794,198
--------- ---------
Goodwill and original difference (2):
Original amount 74,675 1,576,109
Accumulated amortization (37,884) (352,651)
--------- ---------
36,791 1,223,458
--------- ---------
Long-term loans (3) 26,748 25,606
--------- ---------
1,350,425 3,043,262
========= =========
(1) As follows:
Net asset value of investments as at December 31, 1991 265,257 265,257
Changes from January 1, 1992:
Cost of shares acquired or received 1,183,007 1,105,611
Accumulated net earnings (339,041) 314,417
Changes in capital reserves and
Foreign currency translation adjustments 74,280 (63,561)
Initially consolidated subsidiaries, net 445,215 445,215
Disposals, net (341,832) (272,741)
--------- ---------
1,286,886 1,794,198
========= =========
(2) Including investments in companies traded on the
Stock Exchange in Tel Aviv or abroad, in NIS millions:
Carrying value 1,242 2,939
========= =========
Market value as at December 31, 2001 900 1,979
========= =========
(3) Linkage terms and interest rates relating to long-term loans:
Linked to the CPI - in part bearing interest at the rate of 5%,
and in part bearing no interest 20,717 19,702
Linked to foreign currency (mainly to the Dollar) - in part
bearing interest up to the rate of LIBOR + 2%, and in part
bearing no interest 6,031 5,904
--------- ---------
26,748 25,606
========= =========
F-48
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------
Note 8 - Investment in Investee Companies (cont'd)
B. Company balance sheet - investees
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
-----------------------------
Shares:
Net asset value of the investments 2,728,035 4,019,368
--------- ---------
Goodwill and original differences:
Original amount, net 323,022 1,218,837
Accumulated amortization (87,862) (263,807)
--------- ---------
235,160 955,030
--------- ---------
Book value (1) 2,963,195 4,974,398
Payments on account of shares (1) 56,303 56,303
Long-term loans and capital notes (2) 1,460,690 1,111,866
Non-current inter-company accounts (3) 2,074 3,978
--------- ---------
4,482,262 6,146,545
Less - Company shares held by subsidiaries - 54,399
--------- ---------
4,482,262 6,092,146
========= =========
(1) As follows:
Cost of shares including accumulated
earnings as at December 31, 1991 1,945,388 1,945,388
Changes from January 1, 1992:
Cost of acquired shares 6,724,524 5,704,995
Accumulated net (losses) earnings (3,109,678) (24,438)
Changes in capital reserves, net (268,625) (545,767)
Disposals (2,272,111) (2,049,477)
--------- ---------
Book value, including payments on
account of shares (4) 3,019,498 5,030,701
========= =========
F-49
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------
Note 8 - Investment in Investee Companies (cont'd)
B. Company balance sheet - investees (cont'd)
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
-----------------------------
(2) Long-term loans and capital notes:
Long-term loans (a) 153,420 149,047
Capital notes - unlinked and not bearing
interest (b) 1,338,352 964,946
1,491,772 1,113,993
Less - current maturities of long-term loans 31,082 2,127
1,460,690 1,111,866
(a) Loans classified by linkage terms and interest rates:
Interest rate
at December 31 December 31 December 31
-------------- -------------------------------
2001 2001 2000
-------------- -------------------------------
% NIS thousands
-------------- -------------------------------
Linked to the Dollar 3.87 5,520 -
Linked to the CPI 2-2.75 73,664 72,287
Linked to the CPI 6.5 4,046 24,449
Linked to the CPI No interest 70,190 52,311
--------- ---------
153,420 149,047
========= =========
(b) Capital notes are not presented at their present value,
since their repayment date has not yet been fixed by the
parties.
(3) Non-current inter-company accounts:
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
-----------------------------
Linked to the Dollar exchange rate 133 123
Unlinked-bears interest at the rate of
the increase in the CPI 1,941 3,855
----- -----
2,074 3,978
===== =====
F-50
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------
Note 8 - Investment in Investee Companies (cont'd)
B. Company balance sheet - investees (cont'd)
December 31
-----------------------------
2001 2000
-----------------------------
NIS thousands
-----------------------------
(4) Including investments in marketable shares traded on the
Tel Aviv Stock Exchange or abroad in NIS millions:
Carrying value 2,097 1,974
===== =====
Market value as at December 31, 2001 1,961 1,402
Note 9 - Other Investments and Receivables
A. Composition:
Consolidated Company
----------------------------- -----------------------------
December 31 December 31
----------------------------- -----------------------------
2001 2000 2001 2000
----------------------------- -----------------------------
NIS thousands NIS thousands
----------------------------- -----------------------------
Deposits in banks and in
financial institutions 392,257 402,061 369,815 370,154
Non-current trade receivables 57,497 92,500 - -
Long-term loans receivable
from others 263,685 282,335 164,378 154,742
------- ------- ------- -------
713,439 776,896 534,193 524,896
Marketable securities 2,990 6,553 - -
Venture capital investment 315,815 344,704 - -
Non-marketable shares and
payments on account 25,047 26,516 19,316 19,316
Others 28,953 26,587 209 142
--------- --------- ------- -------
1,086,244 1,181,256 553,718 544,354
========= ========= ======= =======
F-51
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------
Note 9 - Other Investments and Receivables (cont'd)
B. Classification by linkage terms and interest rates of deposits, non - current debts of
customers and long - term loans from others:
Consolidated:
Average
interest rates
at December 31
December 31 ------------------------------
2001 2001 2000
--------------- ------------------------------
% NIS thousands
--------------- ------------------------------
Linked to the CPI Mainly 6.6 380,465 396,299
Linked to the foreign currency (mainly to the Dollar) Mainly 6.0 332,722 379,551
Unlinked Mainly 9.0 252 1,046
------- --------
713,439 776,896
======= =======
Company:
December 31
------------------------------
2001 2000
------------------------------
NIS thousands
------------------------------
Linked to the CPI Mainly 6.6 372,717 383,167
Linked to the Dollar Mainly 6.0 161,476 141,729
------- -------
534,193 524,896
======= =======
C. Repayment schedule of deposits, non-current customers balances and long-term loans from
others, in the consolidated balance sheet:
Consolidated Company
----------------------------- -----------------------------
December 31 December 31
----------------------------- -----------------------------
2001 2000 2001 2000
----------------------------- -----------------------------
NIS thousands NIS thousands
----------------------------- -----------------------------
Amounts collectible in the:
Second year 628,458 98,820 525,272 10,141
Third year 40,421 602,543 8,921 506,401
Fourth year 10,159 29,102 - 8,354
Fifth year 29,574 13,392 - -
Thereafter and without a
specific maturity date 4,827 33,039 - -
------- ------- ------- --------
713,439 776,896 534,193 524,896
======= ======= ======= =======
F-52
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------
Note 10 - Fixed Assets
A. Consolidated
Land Buildings Machinery, Vehicles
(including equipment and
leasehold and forklifts
land) installations
------------- ----------- -------------- ------------
NIS thousands
-----------------------------------------------------------------
Cost as at January 1, 2001 227,543 2,076,573 4,084,013 86,999
Additions during the year 1,201 93,564 193,244 8,264
Adjustments resulting from
foreign currency translation
differences* 13,308 57,408 184,453 4,975
Formerly consolidated
subsidiaries, net (665) (29,511) (49,206) (2,119)
Other changes during the
year, net (123,307) (721,251) (889,624) (31,170)
========= ========= ========= =======
Balance as at December 31, 2001 118,080 1,631,211 3,691,253 66,949
Accumulated depreciation as at
January 1, 2001 1,032 842,354 2,519,748 44,946
Additions during the year 53 49,552 179,141 8,897
Adjustments resulting from
foreign currency translation
differences* 59 25,874 90,814 2,114
Formerly consolidated
subsidiaries, net - (22,430) (38,403) (1,017)
Other changes during the year, net (29) (334,773) (734,511) (24,474)
--------- --------- ---------- -----------
Balance as at December 31, 2001 1,115 560,577 2,016,789 30,466
Net book value as at
December 31, 2001 116,965 1,070,634 1,674,464 36,483
========= ========= ========= =======
Net book value as at
December 31, 2000 226,511 1,234,219 1,564,265 42,053
========= ========= ========== ========
* See Note 2B(3)
Office Tools Installations Total
furniture and under
and instruments construction
equipment and payments
on account of
acquisition
of assets
---------- ----------- ------------- ----------
NIS thousands
-----------------------------------------------------------------
Cost as at January 1, 2001 173,436 16,324 166,362 6,831,250
Additions during the year 21,969 - 69,197 387,439
Adjustments resulting from
foreign currency translation
differences* 8,388 - 9,065 277,597
Formerly consolidated
subsidiaries, net (4,074) - (466) (86,041)
Other changes during the
year, net (25,846) (12,271) (229,494) (1,710,162)
-------- -------- --------- -----------
Balance as at December 31, 2001 173,873 4,053 14,664 5,700,083
======== ======== ========= ===========
Accumulated depreciation as at 108,089 - - 3,516,169
January 1, 2001
Additions during the year 17,743 - - 255,386
Adjustments resulting from
foreign currency translation
differences* 5,135 - - 123,996
Formerly consolidated
subsidiaries, net (2,725) - - (64,575)
Other changes during the year, net (25,241) - - (1,119,028)
-------- -------- --------- -----------
Balance as at December 31, 2001 103,001 - - 2,711,948
-------- -------- --------- -----------
Net book value as at
December 31, 2001 70,872 4,053 14,664 2,988,135
-------- -------- --------- -----------
Net book value as at
December 31, 2000 65,347 16,324 166,362 3,315,081
======== ======== ========= ===========
* See Note 2B(3)
F-53
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 10 - Fixed Assets (cont'd)
A. Consolidated (cont'd)
Supplementary data on consolidated fixed assets:
(1) Some of the real estate properties have not yet been
registered in the Land Registry Office in the name of the
subsidiaries, in some cases because of the absence of
formal parceling of the area.
Leasehold rights are for a period of 49 years, ended in
the year 2001 and thereafter. Certain leases provide an
option for extension for another 49 years.
The cost of leasehold real estate as at December 31,
2001, is approximately NIS 732 million, of which
approximately NIS 428 million is under a capitalized lease.
(2) After deduction of investment grants, net of
depreciation, which have been received from the State of
Israel by certain subsidiaries under the terms of the Law
for the Encouragement of Capital Investments, 1959,
amounting to NIS 191 million, adjusted, and NIS 123
million, adjusted, as at December 31, 2001 and 2000,
respectively (see also Note 16A).
(3) Includes capitalized interest amounting to NIS 76,370
thousand, adjusted, and NIS 66,499 thousand, adjusted to
December 31, 2001 and 2000, respectively.
(4) As for amounts charged to cost of fixed assets, see
Notes 23B and E.
(5) Including fully depreciated assets amounting to NIS 975
million, adjusted to December 31, 2001.
(6) See Note 22 regarding liens.
F-54
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
---------------------------------------------------------------------------------------------------------------------
Note 10 - Fixed Assets (cont'd)
B. Company
Composition of the assets and accumulated depreciation, according
to major groups, and changes therein during the current year, are as follows:
Balance at Changes during the year Balance
beginning ------------------------------ at end
of year Additions Disposals of year
------------ ----------- ----------- -----------
NIS thousands
----------------------------------------------------------------------
Cost:
Offices and land * 34,426 36 - 34,462
Vehicles 732 3 206 529
Office equipment 5,868 330 100 6,098
------------ ----------- ----------- -----------
41,026 369 306 41,089
------------ ----------- ----------- -----------
Accumulated depreciation:
Offices 1,253 1,011 - 2,264
Vehicles 306 84 95 295
Office equipment 1,816 579 97 2,298
------------ ----------- ----------- -----------
3,375 1,674 192 4,857
------------ ----------- ----------- -----------
Net book value:
Land and offices 33,173 32,198
Vehicles 426 234
Office equipment 4,052 3,800
------------ ----------- ----------- -----------
37,651 36,232
============ =========== =========== ===========
(*) Represents the ownership of two stories in an office building in Tel Aviv and
leasehold rights to land in Dimona, in an area of 27 dunams, not yet registered in
the Company's name.
These offices have not as yet been registered in the name of the Company at the Land
Registry Office. The offices are on land leased under a capital lease for a period of
49 years ending in 2044.
F-55
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------
Note 11 - Other Assets, Net of Amortization
Consolidated Company
----------------------------- -----------------------------
December 31 December 31
----------------------------- -----------------------------
2001 2000 2001 2000
----------- ----------- ------------- ----------
NIS thousands NIS thousands
----------------------------- -----------------------------
Intangible assets:
Goodwill:
Original amounts 773,364 766,025 - -
Accumulated amortization 245,350 152,163 - -
---------- -------- -------- --------
528,014 613,862 - -
---------- -------- -------- --------
Licensing of products abroad:
Original amounts 516,138 434,193 - -
Accumulated amortization 275,320 219,209 - -
---------- -------- -------- --------
240,818 214,984 - -
---------- -------- -------- --------
Intangible assets in the purchase of products:
Original amounts 465,376 - - -
Accumulated amortization 19,956 - - -
---------- -------- -------- --------
445,420 - - -
---------- -------- -------- --------
Know-how, software, patents and others:
Original amounts 110,975 81,282 - -
Accumulated amortization 60,300 37,571 - -
---------- -------- -------- --------
50,675 43,711 - -
---------- -------- -------- --------
Deferred expenses:
Debentures issuance costs:
Original amount 32,589 24,364 16,457 16,457
Accumulated amortization 21,147 23,816 16,457 15,909
---------- -------- -------- --------
11,442 548 - 548
---------- -------- -------- --------
Deferred taxes receivable
(see Note 16(f)) 97,624 *53,287 - -
---------- -------- -------- --------
1,373,993 926,392 - 548
========== ======== ======== ========
* Reclassified
F-56
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------
Note 12 - Credit from Banks and Others
A. Composition:
Consolidated Company
----------------------------- -----------------------------
December 31 December 31
----------------------------- -----------------------------
2001 2000 2001 2000
---------- ------------ ------------ ------------
NIS thousands NIS thousands
----------------------------- -----------------------------
From banks 1,203,218 1,856,400 322,460 280,421
From others - 10,924 - 8,293
--------- --------- ------- -------
1,203,218 1,867,324 322,460 288,714
Current maturities of long-term
loans and debentures 530,634 866,252 62,331 669,170
--------- --------- ------- -------
1,733,852 2,733,576 384,791 957,884
========= ========= ======= =======
See also Note 15A
B. Classification by linkage terms and average interest rates:
Average
interest rates
at December 31
December 31 ------------------------------
2001 2001 2000
--------------- ------------ -----------
% NIS thousands
--------------- ------------------------------
Linked to foreign currency (mainly to 2.3 - 18.16
the Dollar) (mainly 2.3 -7.5) 910,366 1,329,486
Unlinked 4.4 - 7.8 (mainly 4.9) 292,852 537,838
--------- ---------
1,203,218 1,867,324
========= =========
Average
interest rates
at December 31
December 31 ------------------------------
2001 2001 2000
--------------- ------------ -----------
% NIS thousands
--------------- ------------------------------
Linked to the Dollar mainly 3 287,151 103,041
Unlinked 4.4 35,309 185,673
--------- ---------
322,460 288,714
========= =========
C. See Note 22 regarding liens to secure credit.
F-57
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------
Note 13 - Trade Payables
December 31
------------------------------
2001 2000
------------ -----------
NIS thousands
------------------------------
Including notes payable 23,927 19,106
============ ===========
Note 14 - Other Payables
Consolidated Company
----------------------------- -----------------------------
December 31 December 31
----------------------------- -----------------------------
2001 2000 2001 2000
----------- ----------- ------------- ----------
NIS thousands NIS thousands
----------------------------- -----------------------------
Employees and
withholdings remittable 130,008 175,285 845 6,373
Provision for vacation pay and
vacation expense allowance 103,856 114,371 1,381 978
Expenses to be paid 190,979 222,448 23,501 26,651
Government agencies
(including taxes) 93,040 90,441 2,643 4,980
Provision for warranty and repairs 24,593 35,474 - -
Payables for purchase of assets 216 3,696 - -
Severance pay payable and current
portion of early retirement pensions
(see Note 17) 98,887 183,904 224 527
Reserve for internal insurance 17,595 16,020 8,617 9,293
Dividend proposed to the minority 5,447 - - -
Deferred income 19,587 13,743 305 487
Provision for loss for company
in liquidation (see Note 3G) 1,512 54,524 1,512 23,971
Liability in respect of securities
that were sold short 58,583 - - -
Others 264,898 182,844 23,467 23,325
--------- --------- ------ ------
1,009,201 1,092,750 62,495 96,585
========= ========= ====== ======
Includes interested parties 883 819
====== ======
F-58
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------
Note 15 - Long Term Liabilities
A. Loans
Consolidated Company
----------------------------- ------------------------------
December 31 December 31
----------------------------- ------------------------------
2001 2000 2001 2000
----------- ----------- ------------- -----------
NIS thousands NIS thousands
----------------------------- ------------------------------
1. Loans from banks 4,782,784 3,791,924 2,633,432 2,126,215
Less - current maturities 458,281 723,960 - 472,290
----------- ----------- ------------- -----------
4,324,503 3,067,964 2,633,432 1,653,925
----------- ----------- ------------- -----------
2. Loans from others:
Shareholders in subsidiaries
and in proportionately
consolidated companies 29,011 25,469 - -
Investees - - 110,259 117,386
Receipts from
time-sharing units 33,443 35,214 - -
Deferred income 9,287 14,593 - -
Others and long-term
accrued expenses 32,744 119,131 - -
----------- ----------- ------------- -----------
104,485 194,407 110,259 117,386
Less - current maturities 1,175 2,892 25,583 98,661
----------- ----------- ------------- -----------
103,310 191,515 84,676 18,725
----------- ----------- ------------- -----------
Total loans 4,427,813 3,259,479 2,718,108 1,672,650
=========== =========== ============= ===========
3. Classification by linkage terms and interest rates:
The consolidated balance sheet:
Interest rate
at December 31 December 31
------------------- -------------------------------
2001 2001 2000
------------------- -------------------------------
% NIS thousands
------------------- -------------------------------
Linked to the foreign currency (mainly 2.3 - 11.9
Dollar) (mainly 2.3 - 4.53) 3,229,412 3,284,944
Linked to the Dollar exchange rate or
CPI - the higher of the two - 109,453
Linked to the CPI 3.75 - 6.33 1,613,506 542,127
Linked to the CPI No interest 33,443 35,214
Unlinked 0 - 7.6 10,908 14,593
---------- ----------
4,887,269 3,986,331
Less - current maturities 459,456 726,852
---------- ----------
4,427,813 3,259,479
========== ==========
F-59
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------
Note 15 - Long Term Liabilities (cont'd)
A. Loans (cont'd)
The Company balance sheet:
Interest rate
at December 31 December 31
---------------- -------------------------------
2001 2001 2000
---------------- -------------------------------
% NIS thousands
---------------- -------------------------------
a. From banks
Linked to the Dollar exchange rate or CPI -
the higher of the two - 109,453
Linked to the CPI 5.05 - 6.33 1,520,538 512,720
Linked to the Dollar 2.47 - 3.12 1,112,894 1,504,042
2,633,432 2,126,215
Less - current maturities - 472,290
--------- ---------
2,633,432 1,653,925
========= =========
In October 2001, an agreement was signed with Bank Hapoalim B.M., whereby long-term loans
amounting to 253 million Dollars were rescheduled to the Company for a five-year period,
whereby the interest payments will be made quarterly. It was further agreed that the bank
would extend an additional 50 million Dollars loan to Koor, for a five-year period on the
same terms.
In addition, during December 2001, the Company signed an additional agreement with another
bank, whereby short-term credit to the total amount of 80 million Dollars was rescheduled
into a long-term credit for a three-year period.
Based on the terms of the agreements signed with the banks, Koor committed, among other
thins, to maintain a minimum shareholders equity, and to repay part of the outstanding debt
from proceeds of divested assets, should they be divested. As at the balance sheet date,
Koor fulfills all its commitments to the banks.
Interest rate
at December 31 December 31
---------------- -------------------------------
2001 2001 2000
---------------- -------------------------------
% NIS thousands
---------------- -------------------------------
b. From investees:
Linked to the CPI 4 - 4.75 110,259 117,386
Less - current maturities 25,583 98,661
------- -------
84,676 18,725
======= =======
F-60
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------
Note 15 - Long Term Liabilities (cont'd)
B. Debentures
Consolidated Company
----------------------------- ------------------------------
December 31 December 31
----------------------------- ------------------------------
2001 2000 2001 2000
----------- ----------- ------------- -----------
NIS thousands NIS thousands
----------------------------- ------------------------------
Debentures (1): 34,430 66,207 - -
Less - current maturities 34,430 31,780 - -
-------- -------- ------- -------
- 34,427 - -
======== ======== ======= =======
Debentures convertible
in shares of Series F issued
by Koor (2): 73,484 110,237 73,484 110,237
Debentures convertible into shares
of investee companies (3):
Issued by Koor - 61,470 - 61,470
Issued by subsidiaries 258,336 9,401 - -
-------- -------- ------- -------
331,820 181,108 73,484 171,707
Less - current maturities 36,748 107,620 36,748 98,219
-------- -------- ------- -------
295,072 73,488 36,736 73,488
======== ======== ======= =======
(1) Debentures of Series 7 issued by Koor Issuers Ltd. (consolidated company) bear
interest of 4.5% and are linked to the CPI, both as to principal and interest, and
are redeemable until 2002.
The debentures are secured by a floating charge on all the said company's assets. Under
the terms of the trust deed the Company has guaranteed the full payment of all
principal, interest and linkage differences of the debentures. The Company registered
a "negative pledge" to secure its guarantee.
(2) Debentures convertible into shares in Koor:
(a) NIS 46,870 thousand par value of debentures (Series F), traded on the Tel-Aviv Stock
Exchange, are linked to the CPI of April 1994 and bear interest at an annual rate of
2.75%. The debentures are redeemable, if not previously converted into shares, in the
years 2001-2003. The debentures are convertible into registered ordinary shares of
Koor of a par value of NIS 0.001 at the conversion rate of NIS 330 par value of
debentures for 1 ordinary share.
In the current period debentures of a par value of NIS 36,603 thousand (Series F) were
converted into shares. As at December 31, 2001 it is not probable that the debentures
will be converted.
F-61
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------
Note 15 - Long Term Liabilities (cont'd)
B. Debentures (cont'd)
2. Debentures convertible into shares in Koor: (cont'd)
(b) The debentures are secured by a first degree fixed token charge on a NIS 1 coin
deposited with a trustee. In addition, Koor undertook not to create any charges on
its assets, whether fixed or floating, prior to receiving the trustee's explicit
approval, and on the condition that a charge of the same degree and the same level
will also be registered in favor of the trustee to secure the debentures, except for
a token charge to secure additional series of debentures that will be issued by Koor.
(c) According to the prospectuses of the issue of Koor's convertible debentures, Koor
will refrain from any distribution of dividends out of capital reserves, or from
funds or profits deriving from capital gain, either of the Company or of the
subsidiaries.
3. Debentures convertible into shares of investee companies that were issued by the
Company and subsidiaries
Interest rate as Consolidated
at --------------
December 31 December 31
2001 2001 2000
---------------- -------------- --------------
% Maturity NIS thousands NIS thousands
---------------- -------------- ------------- --------------
Linkage bases and interest rates:
Linked to the Dollar (a) 2.5 2007 258,336 -
Linked to the CPI (b) 2000 - 2001 - 9,401
Linked to the Dollar (c) 2001 - 61,470
-------- --------
258,336 70,871
======== ========
(a) In November 2001, M-A Industries issued NIS 270,000 thousand par value of debentures
(Series A) listed on the Tel Aviv Stock Exchange, bearing interest at 2.5% p.a. and
linked (principal and interest) to the representative exchange rate of the Dollar.
The debentures are repayable in one payment in November 2007 if not converted before
then into shares. The debentures are convertible into ordinary shares of NIS 1 par
value each of M-A Industries at the rate of NIS 10.68 par value of debentures per one
ordinary share. The debentures are secured under a first level fixed symbolic lien on
a deposit of NIS 1 in favor of the trustee for the debenture holders.
(b) NIS 9,271 thousand debentures were issued by United Steel Mills Ltd. and were repaid
in the current period. See also Note 3H.
(c) Debentures convertible in to ECI shares held by Koor at a minimum realization price
of 50 Dollar per share were repaid in the current period.
F-62
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
----------------------------------------------------------------------------------------------------------------------------------
Note 15 - Long Term Liabilities (cont'd)
C. Liabilities (net of current maturities) that will mature in the following years
subsequent to balance sheet date are as follows:
1. Consolidated
Loans from banks Loans from others Debentures Total
-------------------------- ------------------------- --------------------- ------------------------
December 31 December 31 December 31 December 31
2001 2000 2001 2000 2001 2000 2001 2000
----------- ------------ ---------- ------------ ------- ----------- ---------- -----------
NIS thousands
----------------------------------------------------------------------------------------------------------
Second year 1,441,459 215,928 21,309 99,744 36,736 71,232 1,499,504 386,904
Third year 781,490 2,015,170 10,436 13,626 - 36,683 791,926 2,065,479
Fourth year 304,163 543,982 4,980 10,250 - - 309,143 554,232
Fifth year 1,453,568 133,894 17,378 11,986 - - 1,470,946 145,880
Sixth year 116,268 51,543 4,157 4,477 258,336 - 378,761 56,020
Subsequent years 227,555 107,447 45,050 51,432 - - 272,605 158,879
--------- --------- ------- ------- ------- ------- --------- ---------
4,324,503 3,067,964 103,310 191,515 295,072 107,915 4,722,885 3,367,394
========= ========= ======= ======= ======= ======= ========= =========
2. The Company
Loans from banks Loans from investors Convertble Debentures Total
-------------------------- ------------------------- --------------------- ------------------------
December 31 December 31 December 31 December 31
2001 2000 2001 2000 2001 2000 2001 2000
----------- ------------ ---------- ------------ ------- ----------- ---------- -----------
NIS thousands
----------------------------------------------------------------------------------------------------------
Second year 953,138 - 84,676 18,725 36,736 36,745 1,074,550 55,470
Third year 340,000 1,645,672 - - - 36,743 340,000 1,682,415
Fifth year 1,331,400 - - - - - 1,331,400 -
Sixth year 8,894 8,253 - - - - 8,894 8,253
--------- --------- ------- ------- ------- ------- --------- ---------
2,633,432 1,653,925 84,676 18,725 36,736 73,488 2,754,844 1,746,138
========= ========= ======= ======= ======= ====== ========= =========
D. See Note 22 for details of security pledged to secure loans.
F-63
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 16 - Taxes on Income
A. Tax benefits under the Law for Encouragement of Capital
Investments, 1959:
Under this law, by virtue of the "approved enterprise" status
granted to certain enterprises of several investees, these
companies are entitled to various tax benefits. The income derived
from these enterprises during a period of up to 10 years, from the
year in which these enterprises first had taxable income (limited
to 12 years from commencement of production or 14 years from the
date of the approval, whichever is earlier), is subject to a
corporate tax rate of 0 - 25%.
For fixed assets serving the approved enterprise, investees are
entitled to an accelerated amortization deduction over five years.
In the event that an investee distributes a dividend to
shareholders out of income attributable to revenues from an
approved enterprise which received a tax exemption, the company
that distributes the dividend would be liable to tax at 25% of the
earnings distributed. Deferred taxes in respect of income from
approved enterprises were not provided, since it is the Group's
policy not to initiate a distribution of dividend that involves an
additional tax liability to the Group.
Benefits are conditional upon the fulfillment of terms set out in
law or in deeds of approval. Non-fulfillment of terms could cause
cancellation of the benefit, in whole or in part, and the return
of benefit sums, plus interest and linkage differentials. The
investees met all terms set out as above as at the dates of the
financial reports.
As security for the implementation of the approved projects and
compliance with the conditions of the approval, a pledge has been
registered on the above subsidiaries' assets in favor of the State
of Israel.
B. Measurement of results for tax purposes in accordance
with the Income Tax (Inflationary Adjustments) Law, 1985
(hereinafter - "the Adjustments Law"):
In accordance with the Adjustments Law, the results for tax
purposes are measured in real (non-inflationary) terms, based on
the changes in the CPI.
C. Law for the Encouragement of Industry (Taxation), 1969:
Certain companies qualify as "industrial companies" under the
above law. By virtue of this status and certain regulations
published under the inflationary adjustments law, the companies
are entitled to claim, and have in fact claimed, accelerated rates
of depreciation.
D. Tax rates applicable to income from other sources:
Income not eligible to "approved enterprise" benefits, mentioned
in item A. above, is liable to tax at the regular rate of 36%.
F-64
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
E. Losses for tax purposes carried forward to future years
and tax assessments:
1. The consolidated balance of net operating and capital tax
loss carryforwards to next years amounted to
approximately NIS 1,793 million as at December 31, 2001,
out of which NIS 736 million relates to Koor.
In 1999 the utilization of capital losses and part of the
operating losses carried forward for the Company's tax
purposes became feasible and in 1999 Koor accordingly
recorded a tax asset of NIS 131 million against the 2000
tax income. In 2000 the tax asset was realized and was
recorded as a tax expense. Under the Inflationary
Adjustments Law, carryforward tax losses are linked to
the CPI.
2. Final tax assessments have been received by the Company
and by some of the subsidiaries through the 1999 tax
year. Some of the Group companies have received final
assessments through the 1993 tax year. The Company has
received final assessments until 1998 tax year.
F. Deferred taxes:
1. Deferred taxes are presented in the consolidated balance sheet as follows:
December 31
------------------------------
2001 * 2000
------------ ------------
NIS thousands
------------------------------
Within current assets in respect of:
Provision for vacation pay and severance benefits (34,994) (79,343)
Operating loss and capital loss carryforwards (32,052) (16,786)
Inventory, net of customer advances 4,124 4,315
Timing differences in respect of recognition of income and expenses (42,254) (20,475)
------------ ------------
Total in current assets (105,176) (112,289)
============ ============
Within long-term liabilities in respect of:
Depreciation 309,565 253,456
Operating loss and capital loss carryforwards (159,174) (124,623)
Liability in respect of employee severance benefits (43,246) (31,398)
Other 15,893 3,692
------------ ------------
123,038 101,127
Balance not expected to be realized (1) 61,748 73,902
------------ ------------
Total in long-term liabilities 184,786 175,029
============ ============
Within long-term assets in respect of:
Depreciation 30,059 62,475
Operating loss and capital loss carryforwards (456,477) (316,119)
Liability in respect of employee severance benefits (17,850) (52,961)
Other (864) (9,167)
------------ ------------
Total in long-term assets (445,132) (315,772)
Balance not expected to be realized (1) 347,508 262,485
------------ ------------
Total in other long-term assets (97,624) (53,287)
============ ============
(1) The Company and certain subsidiaries have deferred tax assets, that are not expected to be realized,
because of accumulated tax loss carryforwards and other timing differences. Companies Management's
believes that it is not likely that these balances will be realized and, accordingly, no deferred taxes
were created in respect thereof.
* Reclassified
F-65
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
F. Deferred taxes (cont'd):
2. Balances and movement of deferred taxes in the consolidated balance sheet:
Depreciable Inventories Provisions Losses and Timing Total
fixed net of for deductions differences in
assets customer employee carried respect of
advances rights forward recognition
of income
and
expenses
-------------- -------------- -------------- -------------- -------------- --------------
NIS thousands
----------------------------------------------------------------------------------------------
Balance as at
January 1, 2000 396,736 (9,561) (166,621) (227,019) (28,620) (35,085)
Translation
differences in
subsidiaries (4,894) 307 1,718 644 140 (2,085)
Amounts charged
to statement of
operations ** 33,471 (2,497) (4,990) 100,604 2,501 129,089
Other changes,
net* (109,382) 16,066 6,191 4,630 29 (82,466)
-------------- -------------- -------------- -------------- -------------- --------------
Balance as at
December 31, 2000 315,931 4,315 (163,702) (121,141) (25,950) 9,453
Translation
differences in
subsidiaries 16,981 195 (4,387) (3,213) (1,391) 8,185
Amounts charged
to statement of
operations 78,267 6,183 61,728 (170,672) (11,138) (35,632)
Other changes,
net* (71,556) (6,569) 10,272 56,579 11,254 (20)
-------------- -------------- -------------- -------------- -------------- --------------
Balance as at
December 31, 2001 339,623 4,124 (96,089) (238,447) (27,225) (18,014)
============== ============== ============== ============== ============== ==============
* Mainly companies whose consolidation was terminated, net.
** Including companies whose activity was discontinued. Deferred
taxes were computed at tax rates of 25% - 36% (mainly 28%).
F-66
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
G. Taxes on income included in consolidated statements of operations:
1. Composition:
Year ended December 31
--------------------------------------------------
2001 2000 1999
----------- ----------- -----------
NIS thousands
--------------------------------------------------
Earnings (losses) before income tax:
In Israel (667,344) 415,685 552,750
Abroad 601 118,821 66,908
----------- ----------- -----------
(666,743) 534,506 619,658
=========== =========== ===========
For the current year:
Current taxes:
In Israel 63,835 154,106 264,312
Abroad 10,763 3,368 19,974
Deferred taxes:
In Israel (3,112) (9,479) (132,677)
Abroad (32,520) 7,746 14,574
In respect of previous years:
In Israel (5,871) 1,162 *(14,449)
Abroad 4,067 (2,279) (6,260)
----------- ----------- -----------
37,162 154,624 145,474
=========== =========== ===========
* Including deferred taxes in the amount of NIS 35,070 thousand.
F-67
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
G. Taxes on income included in the consolidated statements of operations (cont'd):
2. Below is a reconciliation between the theoretical tax
expense --translation --, if all the income of Koor and
the subsidiaries were taxed at the regular rate of 36%,
and the actual tax expense as reported in the statement
of operations:
Year ended December 31
--------------------------------------------------
2001 2000 1999
----------- ----------- -----------
NIS thousands
--------------------------------------------------
Earnings (losses) before taxes on income, as
reported in the statement of operations (666,743) 534,506 619,658
=========== =========== ===========
Statutory tax rate 36% 36% 36%
=========== =========== ===========
Theoretical tax expenses in respect of these
earnings (losses) (240,027) 192,422 223,077
Increase (decrease) in taxes resulting from
the following factors - the tax effect:
Tax benefits under various encouragement laws (40,762) (40,859) (19,048)
Non-deductible expenses for tax
purposes (including depreciation) 56,967 31,044 24,866
Losses for which deferred taxes were not recorded 158,506 81,440 24,943
Capital gains (losses) from sale of investments
and assets, net 41,754 (79,994) (26,119)
Provisions for anticipated losses from the sale of
assets, net 81,590 - 27,152
Tax loss carryforwards from prior years for which
deferred taxes were not created and which were
utilized during the current year (1,409) (8,759) (105,409)
Inflationary erosion of tax advances - 3 (174)
Effect of the Inflationary Adjustments Law in
respect of companies whose functional currency is
the Dollar 28,051 (729) 7,405
Taxes in respect of prior years (1,804) (1,117) (20,709)
Effect of foreign subsidiaries (45,063) (19,889) 10,462
Others (641) 1,062 (972)
----------- ----------- -----------
Total taxes on income 37,162 154,624 145,474
=========== =========== ===========
Effective tax rate 5.57% 28.93% 23.48%
=========== =========== ===========
F-68
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 17 - Liabilities for Employee Severance Benefits, Net
A. Pension, severance pay and retirement grants:
Under current labor laws and existing labor agreements, the
companies in the Group are required to make severance payments, to
employees who are dismissed or who retire. In respect of these
liabilities, regular deposits are made by Group companies with
pension and severance pay funds. The balance sheet amount
represents the unfunded balance of the liabilities. Were the funds
deposited are not under the control and management of the Group
companies, the funded amounts are not reflected in the balance
sheets. These deposits and the amount stated in the balance sheet
fully cover the Company's liability for employee severance
benefits.
Employees dismissed before reaching retirement age are entitled to
severance pay, computed on the basis of their latest salary. Where
amounts accumulated in the pension funds are insufficient to cover
such severance pay, the Company and its subsidiaries will make up
the amount of the shortfall at the time of payment. In
Management's opinion, an appropriate provision, based on the
salary components used in the computation of severance pay, has
been included in the financial statements to fully cover this
liability.
Regarding companies in which enhanced severance pay has been
planned or agreed upon for the employees, appropriate provisions
have been made for the supplementary amounts.
B. Early retirement pension:
Under agreements with certain employees who retired from service,
Koor Group companies have undertaken to make pension payments
until they reach retirement age. The entire liability for such
pensions is included in the accounts on the basis of the present
value of future pension payments, computed at a monthly discount
rate of 0.3% (3.6% per year).
C. Compensation for unutilized sick leave:
A provision for unutilized sick leave, according to agreements, is
included in the accounts in respect of those employees who have
reached the age of 55, due to the uncertainty as to whether
employees who have not reached that age will be entitled to such
compensation (as a result of utilization of sick leave or early
retirement). The provision is computed on the basis of the latest
salary for 8 working days in respect of each year during which the
sick leave was not utilized.
F-69
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 17 - Liabilities for Employee Severance Benefits, Net (cont'd)
D. Liabilities for severance benefits, which are presented in the balance sheet, and the
amount funded in severance pay funds, are as follows:
Consolidated Company
------------------------------------ ------------------------------------
December 31 December 31
------------------------------------ ------------------------------------
2001 2000 2001 2000
------------------ ---------------- ------------------ ----------------
NIS thousands NIS thousands
------------------------------------ ------------------------------------
Severance pay and retirement
grants 378,246 392,319 4,205 4,516
Amount accrued for early
retirement 110,765 256,749 726 1,046
Amount accrued in respect of
unutilized sick leave 8,611 7,761 - -
------------------ ---------------- ------------------ ----------------
497,622 656,829 4,931 5,562
Less - amount funded * 305,968 363,793 2,310 2,209
------------------ ---------------- ------------------ ----------------
191,654 293,036 2,621 3,353
================== ================ ================== ================
* The amounts funded can be withdrawn, subject to the fulfillment of the provisions of the
Severance Pay Law.
Note 18 - Contingent Liabilities and Commitments
A. Contingent liabilities
1. Commissioner of Restrictive Trade Practices
During October 1997, proximate to the date of the
publication of a newspaper article containing details
about alleged violations of the Law for Restrictive Trade
Practices, 1988 (hereinafter - "the Law") regarding
price-fixing and absence of competition between Tadiran
Telecommunications Ltd. (hereinafter: "TTL", this Company
was merged, at the beginning of 1999, with ECI Telecom)
and Telrad, the Commissioner of Restrictive Trade
Practices (hereinafter - "the Commissioner") conducted an
investigation at the offices of TTL, Telrad and the
Company, during which certain documents were confiscated,
certain employees were questioned and additional
information was submitted as requested.
On December 13, 1998, the Commissioner issued a press
release, in which he announced that the Investigations
Department of the Restrictive Trade Practices Authority
(hereinafter - "the Authority") had concluded the
investigation regarding suspicions about restrictive
arrangements between Koor, TTL, Telrad, Bezeq and
BezeqCall, in the field of the supply of switchboards for
the commercial market in the field of N.S.R.
F-70
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
1. Commissioner of Restrictive Trade Practices (cont'd)
On March 4, 2002, Tadiran Ltd. (whom committed to
indemnify ECI on any damage caused from the issues
under review by the commissioner) and Telrad
Networks Ltd. (wholly-controlled subsidiaries of
Koor) received notice from the Authority that it
is considering the possibility of bringing each of
them to trial for offences against the Law, in the
matter of the actions each of them allegedly took,
according to the Authority, on various subjects
related to the supply of switchboards for the
commercial market in the field of N.S.R, in the
years 1993 to 1997. The Authority's notice states
that the allegations against the Company against
Telrad and Tadiran in the field of N.S.R. are
still being reviewed by the commissioner.
Under the Law, penalties may be imposed against an
entity which has violated the Law. There is also
the possibility of repercussions at the civil
level, if damage should be proven as a result of a
violation of the law. The Company is unable to
estimate, at this stage, the significance and
implications of the Authority's notice, and
accordingly, it was not considered appropriate to
make any provision in the financial statements in
respect of this matter.
2. Under the merger agreement of March 16, 1999 between ECI
and TTL, TTL undertook to indemnify ECI for any damage it
incurred as a result of the following:
(a) Taxes imposed on TTL and its consolidated
companies over and above the provisions included
in the financial statements.
(b) Violation of the obligations of Tadiran and TTL in
the merger agreement concerning agreements with
related parties.
(c) Any subject connected with the matters being
investigated by the Commissioner (see item 1
above).
The indemnity items will cover losses in excess of the
deductible of between 1.5 million Dollars and 10 million
Dollars (contingent upon each section separately) and/or
are limited to 81.67% of the loss incurred.
Tadiran's indemnity in respect of the matters or facts
being investigated by the Commissioner, shall remain
valid for a period of seven years from the date of the
merger and shall be extendible for an additional period
as long as these matters are under investigation by the
Commissioner. Aside from this, all the remaining
representations made by the Company, were not valid on
balance sheet date.
F-71
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
3. Environmental issues
The activities of M-A Industries Ltd. are exposed to the
risk of harming to the environment, since the group
manufactures, stores and sells chemicals. M-A Industries
invest significant amounts in order to comply with the
provisions of the laws and of the environmental
regulations, and in the opinion of the management it does
comply therewith. M-A Industries' insurance policies
provide coverage in the event of a sudden unexpected
crisis of environmental pollution in Israel and
worldwide, subject to the relevant terms of the policy.
As at balance sheet date, M-A Industries do not have
insurance coverage for continuous environmental
pollution. Such insurance is difficult to obtain, and
even where it can be obtained, the company believes that
the terms of the insurance, including the sum insured, do
not at present justify taking out such insurance.
One of M-A Industries' plants is located in Ramat Hovav,
along with other chemical plants, since the Government
decided that the geological layers in that particular
area are completely impermeable to seepage or pollution.
The Ministry of the Environment conducted tests, which
determined that there is data indicating subterranean
pollution in Ramat Hovav. The examiners recommended that
steps be taken to prevent the continuation of leakages
from active and inactive plants, which are liable to
constitute a source of pollution of the water table in
the area. At this stage, the company is unable to
estimate the costs involved if, in the light of the
research that will be carried out, a solution will be
found, which it will be decided to implement.
Furthermore, Ramat Hovav Local Council is continuing to
take rehabilitation steps relating to past incidents.
4. Telrad
A. In October 1994, a claim was filed by the
Engineers Union against Telrad, for an unspecified
amount. The claim pertains to the recognition of
applicability of the salary tables included in the
general collective bargaining agreements, which
were signed in 1995 and 1994 between the Engineers
Union and the employers in the public service
sector, to Telrad engineers.
On January 31, 1996, a ruling was handed down by
the Tel Aviv District Labor Court, which
completely rejected the claims of the Engineers
Union. The Engineers Union appealed to the Labor
Court, which stated that the Koor agreement is a
collective agreement governing the relations
between the company, the union and the employees
of the company. An appeal was filed in the Supreme
Court by Telrad.
On January 29, 2002 Telrad's appeal was dismissed,
and the next stage is the hearing evidence to the
Labor Court of concerning application of the
salaries of the public service sector in Telrad.
In April 1996, a parallel claim was filed by the
Lod Workers' Council and the Workers' Committee
concerning the application of salary tables of the
public service sector to employees of Telrad.
F-72
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
B. In 1999 a claim was filed against Telrad by
company employees who are members of the company's
workers' committee. They are suing for accounts so
that the plaintiffs can examine the calculation of
the distribution of earnings to employees. They
are also suing for a declaratory judgment which
will determine that Telrad is obliged to draw up
new accounts for the distribution of earnings. In
addition, an application was filed to recognize
the plaintiffs as representatives of all Telrad's
workers and employees. The court dismissed the
application for a class action. A statement of
defense has been filed.
C. As a condition for the continued availability of
bank credit lines, Telrad undertook to preserve
certain financial ratios, such as the total
shareholders' equity and operating cashflow,
starting from September 30, 2001.Telrad also
undertook to obtain the consent of the banks
before making certain transactions, giving
guarantees and realizing assets not in the normal
course of business. Failure on Telrad's part to
comply with these conditions will entitle the
banks to foreclose on the loans, in part or in
full.
As at balance sheet date Telrad stands in its
liability to the banks.
D. In November 2001 a claim against Telrad, a
consolidated company and the CEO of Telrad was
filed by a former employee of the consolidated
company. The amount of the claim is NIS 10 million
for fee purposes alone. In the opinion of Telrad's
management and its legal advisers, the chances are
good that claim will be rejected and therefore, no
provision is made in the financial statements.
5. Tadiran and its investees companies
A. Employees of a plant of Tadiran, which closed
during 1990, filed actions against the company,
alleging that they sustained injuries or that
certain work-related illnesses had been caused by
exposure to certain substances during their
employment.
Tadiran has insurance policies which, relying on
legal opinion, cover possible damages as a result
of these claims, and consequently, no provisions
have been made in respect of those claims. Tadiran
recorded provisions in respect of possible damages
which had been covered by an insurance company
currently in the process of liquidation.
B. In October 1999, Bezeq, The Israel
Telecommunication Corp. Ltd. (hereinafter -
"Bezeq") lodged a claim against Tadiran Ltd. whose
main cause is various losses incurred to Bezeq due
to delays in the performance of works which were
ordered under development and application
contracts originally signed between Bezeq and TTL,
in the amount of approximately 8.6 million Dollar.
Alternatively, Bezeq is suing for the balance of
arrearage penalties to which it alleges it is
entitled pursuant to those contracts, and which
were not paid in full, in the amount of
approximately 1.7 million Dollar. In an
arbitration judgment given on February 17, 2000,
all Bezeq's arguments regarding the company's
liability for the Principal Claim were dismissed.
The arbitration judgment determines that pursuant
to the engagement contracts between the parties,
Bezeq is entitled to compensation within the
framework of arrearage penalties only. The parties
are in intensive negotiations to reach a
settlement. In the opinion of management of
Tadiran, based on the opinions of its legal
counsel, the company will not bear additional
substantial expenses over and above the
allocations contained in the financial statements.
F-73
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
6. M-A Industries and its foreign investees
A. A claim was filed against a subsidiary in Brazil,
alleging that the subsidiary copied a certain
process, which is a protected trade secret that is
owned by the claimant. Accordingly, the subsidiary
is being sued to indemnify the claimant for unfair
competition, in the amount of approximately 14
million Dollar (based on a calculation involving
the amount of materials used). In addition, the
claimant requested that a fine of 40 Dollar per
day be levied against the subsidiary in respect of
the unlawful exploitation of trade secrets. Based
on the opinion of its legal counsel, the
subsidiary's management estimates that the claim
has no validity and therefore, no provision has
been included in the financial statements in
respect thereto.
B. A claim was filed against a subsidiary in Brazil
and others, in the aggregate amount of
approximately 30 million Dollar, by a group that
acquired the rights of two banks that had declared
bankruptcy. The subsidiary is requested to repay a
loan of 1 million Dollar out of the aforementioned
amount, which the claimants maintain had been
granted directly to the subsidiary. With respect
to the balance of the claim, the subsidiary has
been sued as the guarantor of debts of
agricultural cooperatives, which were its former
shareholders. Based on the opinion of its legal
counsel, the subsidiary's management estimates
that there is a reasonable likelihood that its
defense against the claim will be accepted and,
therefore, no provision has been included in the
financial statements in respect thereto.
C. Administrative proceedings, civil actions and
other fiscal demands have been filed against a
subsidiary of M-A Industries, in an amount of
approximately 18 million Dollar. Based on the
opinion of its legal counsel, the subsidiary's
management estimates that the chances of the
consolidated company's success in the proceedings
and its defense against the above claims and
demands are high. The consolidated company
believes that the provisions recorded in its
financial statements are adequate to cover any
possible damage which may result from these
claims.
7. A number of claims have been filed against certain other
companies concerning various matters derive from the
normal course of business, including deliberation with
tax, customs and VAT authorities, which are in various
legal proceedings. The managements of these companies
believe based on the opinions of their legal counsels
that adequate provisions of those claims have been made
in their financial statements, in light of the
circumstances.
8. On fulfillment of the conditions relating to an
investment grant - see Note 10A(2).
9. The business activities of the Koor Group are
characterized primarily by advanced technologies. The
accelerated rate of technological developments and
innovations in the Group's segments of operations,
require the investment of substantial financial resources
in research and development, in order to assure the
Group's standing in its respective segments of operations
and facing the constant competition of both Israeli and
worldwide entities. Consequently, the Group may be
exposed to the loss of its position in certain segments,
as well as to substantial research and development costs,
which, in turn, may have an adverse effect on the Group's
operating results.
10. In the matter of the class action that was filed against
ECI, see Note 3A(7).
F-74
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
B. Commitments
1. Some companies in the Group have research and development
contracts with the Government of Israel. Under these
contracts, the companies are required to pay royalties to
the Government of Israel if they will generate income
from such research (in rates of 2% - 5% of proceeds of
sales resulting from the research and development), in
amounts not exceeding 100% - 150% of the linked amounts
of the grants received by the companies as participation
in the research and development projects.
Royalties paid to the Government of Israel in respect of
the aforementioned research and development contracts,
are as follows:
In the year ended December 31, 2001 - NIS 25,863
thousand. In the year ended December 31, 2000 - NIS
36,731 thousand. In the year ended December 31, 1999 -
NIS 36,465 thousand.
Negotiations have been under way between a subsidiary and
the Office of the Chief Scientist (hereinafter - "OCS")
of the Government of Israel to re-examine the royalties
paid to the OCS during a period exceeding 7 years. The
financial statements do not include a provision for
potential required to pay the royalties, which will
result will result from the negotiations.
2. Certain subsidiaries are required to pay royalties at the
rate of 3% per year in respect of the increase in export
sales, up to the amount financed by the Fund for the
Encouragement of Marketing Abroad. Such amounts are
linked to the exchange rate of the Dollar
3. Commitments for the purchase of fixed assets are as
follows: December 31, 2001 - NIS 35 million; December 31,
2000 - NIS 30 million
4. Certain companies in the Group lease and rent industrial
and office premises under long-term contracts. The lease
contracts are non-cancelable and in most cases include,
renewal options. The expenses of these companies were NIS
45 million in 2001, NIS 32 million in 2000, and NIS 46
million in 1999.
Future minimum payments under the non-cancelable
operating leases and rent payment, for the years
subsequent to balance sheet date, are as follows:
December 31
-------------------
2001
-------------------
(NIS thousands)
-------------------
First year 46,329
Second year 47,681
Third year 33,676
Fourth year 25,897
Fifth year and thereafter 47,623
-------------------
201,206
===================
F-75
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
B. Commitments (cont'd)
5. Koor Corporate Venture Capital's commitment for
additional investments in venture capital funds, as at
the balance sheet date, is 52 million dollars.
Note 19 - Convertible Securities of Investee Companies
Option warrants to employees:
Certain investors issued options to their employees until 2001
inclusive. Employee entitlement to such options is being
determined over a number of years from their date of issue,
subject to continued employment. The exercise term of the options
varies according to the terms of the different plans.
The exercise price was, in most cases, identical to the market
price of the shares of subsidiary companies on the issuance date
of the option warrants.
In each break-off period Koor evaluates the probability of
exercise of Options and therefore creates a provision for loss for
situations in which a where there is loss from a decrease in the
holding due to Option exercise.
F-76
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options
A. Share capital is composed as follows:
December 31, 2001 December 31, 2000
--------------------------------- ---------------------------------
Authorized Issued and Authorized Issued and
outstanding outstanding
---------------- -------------- ---------------- --------------
Number of shares:
Ordinary shares of a par value
of NIS 0.001 (1) (3) (4) 84,557,334 16,502,489 84,557,334 16,525,984
================ ============== ================ ==============
Deferred shares of a par value
of NIS 0.001 (2) (3) (4) 15,167,666 14,531,956 15,167,666 14,484,971
================ ============== ================ ==============
Amount in nominal NIS:
Ordinary shares of a par value
of NIS 0.001 84,557 16,502 84,557 16,526
================ ============== ================ ==============
Deferred shares of a par value
of NIS 0.001 15,168 14,532 15,168 14,485
================ ============== ================ ==============
(1) These shares are listed on the Tel Aviv Stock
Exchange (TASE). On December 31, 2001 the share
price on the TASE was NIS 145.90.
The ADS, each of which represents 0.2 ordinary
shares of a par value of NIS 0.001 (hereinafter -
Ordinary Shares), are traded in New York Stock
Exchange (NYSE). The ADS price on the NYSE on
December 31, 2001 was 6.51 Dollar.
(2) The holders of the deferred shares are entitled to
recovery of paid up capital upon liquidation in
its nominal amount, after payment of the nominal
amount to the holders of the Ordinary Shares. The
holders of the deferred shares do not have voting
rights, and they are not entitled to participate
in distribution of a dividend of any kind.
(3) The distribution between the registered and paid
up ordinary share capital and the registered and
paid up deferred share capital varies with each
deferment of Ordinary Shares that occurs
simultaneously with the exercise of options issued
to banks by the Company or with their expiry (see
section C below).
(4) On the balance sheet date, subsidiaries hold
15,799 Ordinary Shares and 12,950,864 deferred
shares. The amount present from the shareholders'
equity as at the balance sheet date is NIS 260,757
thousand, adjusted.
(5) A consolidated subsidiary of Koor - Koor Trusts
(1995) Ltd. - holds 624,577 Ordinary Shares of
Koor which were issued to it as part of the
implementation of the 1995 and 1997 options plan
of the Company. These shares are held by the
subsidiary only for the purpose of granting them
to the Company's employees, subject to receipt of
the requisite approvals. Until their grant, the
subsidiary undertook that it would not have, in
respect of those shares, a right to participate or
vote in the general meeting of the shareholders of
the Company, or a right to receive a dividend in
respect of those shares. If the shares are not
used as aforesaid within a reasonable time after
November 2002, the Company will act to convert
them into deferred shares.
F-77
Note 20 - Share Capital and Stock Options (cont'd)
B. Buy-back of Company shares
On December 31, 2001 the Company purchased 154,637
ordinary shares, of the Company, from a subsidiary at the
market price. The transaction was handled according to
the Securities Regulations (Percentage of Transactions
Between a Corporation and its Controlling Shareholders in
Financial Statement), 1996.
On April 7, 2000 the Board of Directors of Koor resolved
to approve a framework of 50 million Dollars for buying
back ordinary shares of Koor. In the framework, which has
been fully utilized in year 2000, 538,592 ordinary shares
were purchased (approximately 3.4% of the ordinary share
capital), at a cost of approximately NIS 206 million.
This amount is deducted from the shareholders' equity of
the Company.
The Company holds a total of 693,229 of its shares.
C. Options
Options issued to Israeli banks:
Under an umbrella agreement signed in September 1991
between Koor and the Israeli banks, the Israeli banks
were granted options to purchase ordinary shares of Koor.
At the time of exercise of an option, ordinary shares
held by the Hevrat Ha'ovdim is deferred, so that the
total number of ordinary shares does not change.
In both 2001 and 2000, the Israeli banks exercised
options to purchase 23,490 ordinary shares each year.
The exercise period of these options ended on September
27, 2001, and the balance of 23,495 options which were
not exercised, expired.
D. Stock options to senior employees
1. 1997 plan:
On May 27, 1997, 134,547 stock options were allotted
under this plan, and on November 6, 1997 another 54,421
stock options were allotted.
On March 22, 2000, the Board of Directors of Koor
resolved to amend the plan so that for an employee who
resigned and who hold stock options for which the date of
entitlement to exercise arrived before his resignation,
their exercise period would be until the end of the five
years from the date of the inception of the plan
(hereinafter - Amendment of the exercise period for
employees who resign).
F-78
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options (cont'd)
D. Stock options to senior employees (cont'd)
1. 1997 plan: (cont'd)
On August 6, 2000, the Board of Directors of Koor
resolved that for Company employees who are not
interested parties in the Company and who did not resign
before the end of 2000, the exercise period of each stock
option would be extended to the end of 5 years from the
date of its entitlement (hereinafter - "Amendment of
extension of the exercise period").
On November 15, 2001, the Board of Directors of Koor
resolved that for Company employees on the date of the
resolution who are not interested parties in the Company,
the exercise price of their stock options would be
amended to NIS 101.38 per share. For the other stock
option holders under this plan, the exercise price would
remain as it was (for some of the stock options 90.989
Dollar and for others 98.747 dollar per share). The Board
of Directors also resolved that the technical method of
exercise would be the "Bonus Component Method" (see
below, in sub-section 2).
Balance of
stock option Exercise Exercise
not exercised price date
---------------- ---------------- ----------------
61,478 $ 90.989 05/2002
23,139 $ 98.747 11/2002
5,039 NIS 101.38 05/2005
31,282 NIS 101.38 11/2005
----------------
120,938
----------------
2. 1998 plan:
On August 30, 1998, the extraordinary general meeting of
the shareholders of the Company approved a private
placement of 400,000 stock options, free of charge, to
Company employees. The options are exercisable for up to
400,000 ordinary shares of a par value of NIS 0.001 each
(hereinafter - "the Plan"). All the stock option under
this Plan were allotted on different dates, and after
their expiry following retirement, 361,421 options
remained for exercise as at December 31, 2001, of which
105,263 were allotted to the CEO.
Under the terms of the Plan, each stock option is
theoretically exercisable for one share, subject to
adjustments. However, in practice, offerees who exercise
the options will not be allotted the full quantity of
shares underlying each option, but only shares which
reflect the amount of the monetary bonus inherent in
their option, computed on the date of exercise.
Accordingly, the exercise price of each stock option is
intended only for computation of the bonus component
(above and hereafter - "the Bonus Component Method").
F-79
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options (cont'd)
D. Stock options to senior employees (cont'd)
2. 1998 plan: (cont'd)
On March 22, 2000 the Board of Directors approved, with
reference to stock option holders, under this Plan, who
are not interested parties, Amendment of the exercise
period for employees who resign. The Board of Directors
also resolved that for these option holders, the exercise
price would be adjusted in respect of distribution of a
dividend for all the options, even if the date of
entitlement to exercise them fell before the entitlement
to the dividend.
On October 6, 2000, the Board of Directors approved the
Amendment of extension of the exercise period for Company
employees who are not interested parties in the Company
and who did not retire before the end of 2000.
On November 15, 2001 the Board of Directors approved the
amendment of the exercise price to NIS 101.38 per share
for Company employees on the date of the resolution and
who are not interested parties in the Company.
Balance of
stock option Exercise Exercise
not exercised price date
---------------- ---------------- ----------------
105,263 $ 112.50 07/2002
77,161 $ 108.90 07/2003
178,997 NIS 101.38 07/2006
----------------
361,421
----------------
3. 2000 plan:
On August 6, 2000, the Board of Directors of the Company
approved the 2000 stock options plan, which was
previously approved on June 14, 2000 by the Executive
Committee of the Board of Directors. The main points of
the plan are these:
1. A total framework was approved for the allotment
of 400,000 stock options theoretically exercisable
for up to 400,000 ordinary shares of the Company,
i.e. about 2.5% of the issued share capital of the
Company.
2. The options will be exercised for shares in a
quantity reflecting the amount of the monetary
bonus inherent in the options, according to the
Bonus Component Method.
F-80
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options (cont'd)
D. Stock options to senior employees (cont'd)
3. 2000 plan: (cont'd)
3. The exercise price of each stock option pursuant
to the amendment by the Board of Directors of the
Company on November 15, 2001, will be NIS 101.38
per share.
4. Since the underlying shares will be allotted only
against the monetary bonus, the employees will not
be required to pay the exercise price at the date
of exercise of the options. This price will serve
only for computation of the amount of the monetary
bonus.
5. The options are designated for Company employees
who are not interested parties in the Company and
will not become interested parties in the Company
as a result of allotment of the stock options.
6. The entitlement to exercise the stock options will
apply in accordance with a division of the options
into three batches, so that at the end of the
first year from the determining date (June 14,
2000) or from the date on which the employee
started work in the Company (whichever is the
later), the entitlement to exercise one third of
the quantity allotted will come into being, and
the remaining two thirds of the quantity allotted
at the end of each year of the two years
thereafter. The exercise period of each option
that comes into being is 5 years from the date on
which the entitlement came into being.
7. On October 5, 2000, the total quantity of 400,000
stock options was allotted to a trustee, of which
125,000 options was designated for employees.
Movement in options during the year was as follows:
1997 plan 1998 plan 2000 plan Total
-------------- -------------- -------------- --------------
Balance as at beginning of
year 120,938 350,017 125,000 595,955
Exercised - 11,404 - 11,404
-------------- -------------- -------------- --------------
Balance as at end of year 120,938 361,421 125,000 607,359
============== ============== ============== ==============
F-81
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances
A. General:
The Company and certain subsidiaries have entered into forward
transactions and option contracts, in order to hedge assets and
liabilities denominated in foreign currency and in order to reduce
the overall exposure of commitments for the purchase of raw
materials and the sale of goods, in currencies other than the
Dollar. Those subsidiaries neither hold nor issue financial
instruments for trading purposes.
B. Details of the open foreign exchange transactions made to
hedge the company's and subsidiaries' assets and
liabilities in foreign currency as at December 31, 2001:
Forward Call Swap
Transaction options transactions
--------------- --------------- ---------------
NIS thousands
----------------------------------------------------
Purchase of Dollars in exchange for:
NIS 4,416 11,040 183,259
European currencies 53,438 28 -
Brazilian Real 426,144 132,480 -
--------------- --------------- ---------------
483,998 143,548 183,259
=============== =============== ===============
Sale of Dollars in exchange for:
NIS 115,037 11,614 183,327
European currencies 50,099 - -
--------------- --------------- ---------------
165,136 11,614 183,327
=============== =============== ===============
C. The Company and its consolidated companies signed
interest swap agreements totaling NIS 397 million.
D. The Company signed an agreement for an interest rate swap
(IRS) for NIS 331 million, and for a dollar - CPI swap of
NIS 183 million.
F-82
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances
(cont'd)
E. Fair value of financial instruments:
Condensed data of monetary assets and liabilities, whose fair
value as at December 31, 2001, based on their market value, is
significantly different from those presented in the financial
statements, is as follows:
Carrying Fair
amount value
---------- ----------
NIS millions
--------------------------
Investments in affiliates 1,242 900
Debentures and convertible debentures 366 376
The carrying amounts of cash and cash equivalents, short-term
investment, trade receivables, other accounts receivable, credits
from banks and others, trade payables and other accounts payable
and other financial instruments is approximate or similar to at
their fair value.
F. Credit risk of trade receivables:
NIS millions
---------------
Condensed data of credit risk of trade receivables
as at December 31, 2001:
Receivables insured by credit card companies 372
Receivables insured by foreign trade risk insurance 5
Receivables - Government authorities and Bezeq 199
Other receivables, including checks and credit card
companies 1,590
---------------
Total, including non-current receivables 2,166
===============
In Management's opinion, the financial statements include
sufficient provisions in respect of doubtful debts.
The exposure to credit risks relating to trade receivables is
limited, due to the relatively large number of customers.
F-83
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances (cont'd)
G. Linkage terms of monetary balances:
(1) Consolidated
December 31, 2001
-------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
--------------- ------------- ------------- -------------
NIS thousands
-------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 623,948 16,163 164,893 805,004
Short-term deposits and
investments 199,241 209,467 194,437 603,145
Other receivables 1,736,615 29,224 342,936 2,108,775
Other accounts receivable 269,220 37,853 89,044 396,117
Investments and other
long-term receivables 368,949 401,240 1,078 771,267
--------------- ------------- ------------- -------------
3,197,973 693,947 792,388 4,684,308
=============== ============= ============= =============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 910,366 - 292,852 1,203,218
Trade payables 1,013,789 4,226 263,098 1,281,113
Other accounts payable 402,088 93,472 494,054 989,614
Long-term loans and debentures
(including current maturities) 3,487,748 1,754,863 10,908 5,253,519
--------------- ------------- ------------- -------------
5,813,991 1,852,561 1,060,912 8,727,464
=============== ============= ============= =============
(Chart continued)
December 31, 2000
---------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
--------------- ------------- ------------- -------------
NIS thousands
---------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 815,603 - 167,110 982,713
Short-term deposits and
investments 183,144 270,479 187,329 640,952
Other receivables 2,208,413 18,133 471,312 2,697,858
Other accounts receivable 175,856 14,142 118,184 308,182
Investments and other
long-term receivables 432,392 416,084 3,607 852,083
--------------- ------------- ------------- -------------
3,815,408 718,838 947,542 5,481,788
=============== ============= ============= =============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 1,329,487 - 537,837 1,867,324
Trade payables 1,058,370 - 375,204 1,433,574
Other accounts payable 379,716 70,917 628,374 1,079,007
Long-term loans and debentures
(including current maturities) 3,346,412 887,234 - 4,233,646
--------------- ------------- ------------- -------------
6,113,985 958,151 1,541,415 8,613,551
=============== ============= ============= =============
F-84
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances (cont'd)
G. Linkage terms of monetary balances (cont'd):
(2) Company
December 31, 2001
-------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
--------------- ------------- ------------- -------------
NIS thousands
-------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 4,283 - 54,438 58,721
Short-term deposits and
investments 150,744 202,949 123,258 476,951
Other receivables 1,736 - 13,149 14,885
Short term loans to investees
companies - 35,120 - 35,120
Other investments and receivables 161,586 372,717 99 534,402
Investments and other long-term
receivables:
Investees companies (including
current maturities of loans) 5,653 147,900 1,340,293 1,493,846
--------------- ------------- ------------- -------------
324,002 758,686 1,531,237 2,613,925
=============== ============= ============= =============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 287,151 - 35,309 322,460
Trade payables 32 - 147 179
Other accounts payable 12,774 13,919 35,497 62,190
Long-term liabilities (including
current maturities of loans) 1,112,894 1,697,159 - 2,810,053
--------------- ------------- ------------- -------------
1,412,851 1,711,078 70,953 3,194,882
=============== ============= ============= =============
(Chart continued)
December 31, 2000
---------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
--------------- ------------- ------------- -------------
NIS thousands
---------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 1,247 - 21,800 23,047
Short-term deposits and
investments 117,361 260,096 95,529 472,986
Other receivables 117 - 22,015 22,132
Short term loans to investees
companies - 46,446 - 46,446
Other investments and receivables 141,871 383,167 - 525,038
Investments and other long-term
receivables:
Investees companies (including
current maturities of loans) 123 149,046 968,802 1,117,971
--------------- ------------- ------------- -------------
260,719 838,755 1,108,146 2,207,620
=============== ============= ============= =============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 103,041 - 185,673 288,714
Trade payables 75 - 218 293
Other accounts payable 27,964 4,244 63,890 96,098
Long-term liabilities (including
current maturities of loans) 1,565,512 849,796 - 2,415,308
--------------- ------------- ------------- -------------
1,696,592 854,040 249,781 2,800,413
=============== ============= ============= =============
F-85
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 22 - Liens and Guarantees
A. In order to secure some liabilities, certain subsidiaries
have mortgaged their real estate and have placed fixed
charges on plant, equipment and bank deposits, as well as
floating charges on all of their assets. They also
pledged a portion of their shares in investee companies.
Regarding the pledge in respect to an investment grant -
see Note 10A(2).
B. The balances of secured liabilities are as follows:
Consolidated
-----------------------------------
December 31
-----------------------------------
2001 2000
---------------- ----------------
NIS thousands
-----------------------------------
Credit from banks 541,564 750,209
Loans from banks and others and debentures (including
current maturities), see Note 15, and also C, D and H below 1,300,309 1,102,558
---------------- ----------------
1,841,873 1,852,767
================ ================
C. For the purpose of securing debentures convertible into
Koor shares, Koor has undertaken not to pledge its assets
in future, except in accordance with the terms stipulated
by the trust deeds. See also Note 15B.
D. Debentures issued by Koor Issuance Ltd. a subsidiary, are
secured by a floating charge on all the assets of the
above company. Under the terms of the deed of trust, Koor
has guaranteed the full repayment of all the amounts of
the principal, interest and linkage differences of the
debentures. Koor registered a "negative pledge" to secure
its guarantee.
E. The convertible debentures, which were issued by M-A
Industries, are guaranteed by first level fixed symbolic
lien with a deposit to the amount of NIS 1 for the
Trustee of the convertible debenture holders (see Note
15B)
F-86
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 22 - Liens and Guarantees (cont'd)
F. Guarantees to banks and others for loans and for assuring
credit lines and other guarantees in favor of:
Consolidated Company
--------------------------------- ---------------------------------
December 31 December 31
--------------------------------- ---------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
NIS thousands NIS thousands
--------------------------------- ---------------------------------
Subsidiaries - - 386,317 136,081
Affiliates 6,449 6,830 5,897 4,098
Others 44,709 30,780 23,206 13,723
--------------- --------------- --------------- ---------------
51,158 37,610 415,420 153,902
=============== =============== =============== ===============
1) In certain cases when advances from customers are
received, a subsidiary provides its customers with bank
guarantees to secure the advances. Guarantees in excess
of the amount of advance payments stated as liabilities
in the balance sheet, amounted to NIS 361,812 thousand,
and NIS 363,552 thousand, as at the years ending December
31, 2001 and 2000, respectively.
2) In connection with the Bezeq agreement to transfer
ownership of public switching, Bezeq received from Koor a
guarantee in the amount of NIS 104 million. See also Note
18A(5).
3) A consolidated company signed a guarantee for a major
customer to pay any amounts up to 40 million Dollars in
relation to an indemnification, that the consolidated
company signed for the same customer, on account of
breaches of contracts to Bezeq. The guarantee is at least
till 2015.
4) A consolidated company is a guarantor to financial
institutions for credit that its customers received in
relation to commercial sales of the consolidated company
to those customers. The balance of guarantees, as at the
balance sheet date, was approximately 58 million Dollars.
5) Tadiran Com. was sold to the purchasing company in a
transaction of representations. According to the terms of
the transaction, if it transpires that the condition of
Tadiran Com. is essential different from the
representation made, the buyer will be entitled to a
compensation from Tadiran. Koor is a guarantor to the
commitments of Tadiran.
6) There are also guarantees, in an unlimited amount, to
ensure due performance of work and customer agreements,
product warranty, advance payments received and
guarantees on behalf of liabilities to customs and excise
authorities.
F-87
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 23 - Data concerning Items in Statements of Operations
A. Revenues from sales and services - net (1) (3) (4):
1. Consolidated
Year ended December 31
-------------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
NIS thousands
-------------------------------------------------------
Local:
Industrial operations (2) 875,089 1,202,251 2,101,952
Trading operations 522,132 661,064 1,002,780
Abroad:
Industrial operations - export and
international operations 5,118,238 5,491,602 5,657,540
Trading operations 627,445 580,971 602,101
--------------- --------------- ---------------
7,142,904 7,935,888 9,364,373
=============== =============== ===============
(1) Not including agency sales 342,391 320,197 434,076
=============== =============== ===============
(2) Including sales to major customer (a) - - 275,404
=============== =============== ===============
Including sales to major customer (b) 639,915 1,191,795 848,028
=============== =============== ===============
(3) Including sales under long-term credit
arrangements (see also Note 2Q) 724 255 517
=============== =============== ===============
(4) Revenues and expenses relating
to work performed under long-term
contracts:
Revenues 1,044,234 856,646 842,366
Costs (858,334) (673,234) (626,267)
Decrease in provision for losses - - 1,166
--------------- --------------- ---------------
185,900 183,412 217,265
=============== =============== ===============
2. Company
Income from management fees :
From subsidiaries 32,694 40,128 39,405
From proportionately consolidated
investees - - 841
From affiliated companies - - 767
From companies whose activity was
discontinued - - 25,028
--------------- --------------- ---------------
32,694 40,128 66,041
=============== =============== ===============
F-88
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 23 - Data to Items in Statements of Operations (cont'd)
B. Cost of sales and services - consolidated:
Year ended December 31
-------------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
NIS thousands
-------------------------------------------------------
Industrial operations:
Materials 2,824,672 2,809,620 3,021,287
Labor 926,767 962,125 1,362,553
Subcontracted work 47,001 69,533 86,410
Depreciation and amortization 183,564 168,096 280,009
Research and development expenses, net (*) 266,703 364,889 433,762
Other manufacturing expenses 430,985 486,426 381,715
--------------- --------------- ---------------
4,679,692 4,860,689 5,565,736
Less - expenses charged to cost of fixed assets 9,547 10,869 12,838
--------------- --------------- ---------------
4,670,145 4,849,820 5,552,898
Decrease in inventory of goods and
work in process 22,135 55,123 219,506
4,692,280 4,904,943 5,722,404
Decrease (increase) in inventory of finished goods (26,577) 45,994 158,643
--------------- --------------- ---------------
4,665,703 4,950,937 5,931,047
--------------- --------------- ---------------
Trading operations:
Merchandise 493,635 452,963 770,111
Labor 97,127 119,127 145,901
Depreciation 32,150 48,435 42,646
Others 229,465 359,619 132,960
--------------- --------------- ---------------
852,377 980,144 1,091,618
--------------- --------------- ---------------
5,518,080 5,931,081 7,022,665
=============== =============== ===============
(*) Net of grants and participations, net 11,870 6,969 15,866
=============== =============== ===============
C. Selling and marketing expenses - consolidated:
Year ended December 31
-------------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
NIS thousands
-------------------------------------------------------
Salaries 244,073 254,835 328,275
Commissions 104,507 104,143 141,236
Advertising expenses 43,134 44,860 62,371
Depreciation and amortization 62,729 51,075 43,331
Other 325,654 328,555 386,124
--------------- --------------- ---------------
780,097 783,468 961,337
=============== =============== ===============
F-89
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 23 - Data to Items in Statements of Operations (cont'd)
D. General and administrative expenses:
Consolidated Company
------------------------------------------- -------------------------------------------
Year ended December 31 Year ended December 31
------------------------------------------- -------------------------------------------
2001 2000 1999 2001 2000 1999
------------ ------------ ------------ ------------ ------------ ------------
NIS thousands NIS thousands
------------------------------------------- -------------------------------------------
Salaries 225,099 274,125 346,713 16,542 33,364 26,775
Bad and doubtful
debts 28,695 25,826 25,086 - - -
Depreciation and
amortization 27,751 24,102 28,582 1,674 1,673 1,254
Other 220,139 214,424 263,114 22,042 27,433 39,075
------------ ------------ ------------ ------------ ------------ ------------
501,684 538,477 663,495 40,258 62,470 67,104
============ ============ ============ ============ ============ ============
E. Financing expenses (income), net:
Consolidated Company
------------------------------------------- -------------------------------------------
Year ended December 31 Year ended December 31
------------------------------------------- -------------------------------------------
2001 2000 1999 2001 2000 1999
------------ ------------ ------------ ------------ ------------ ------------
NIS thousands NIS thousands
------------------------------------------- -------------------------------------------
In respect of
convertible
debentures 6,293 3,450 6,897 5,366 3,451 6,165
In respect of
debentures 2,202 3,892 4,589 - - -
In respect of
long-term loans 349,176 183,711 211,798 229,215 88,685 127,970
In respect of
short-term loans
and credit 205,300 109,948 150,467 41,456 9,399 27,064
Amortization of
capital raising
expenses 707 1,574 1,602 548 1,037 1,213
Losses (gains)
from marketable
securities, net (50,142) 36,304 (68,663) (43,131) 51,645 (27,614)
Interest
capitalized to
fixed assets and
work in process (14,525) (3,397) * 33,293 - - 28,656
Revenue from
investees, net - - - (5,069) (600) (3,445)
Revenue from
deposits and
others, net (85,145) (26,306) (18,500) (38,459) (9,716) 2,732
------------ ------------ ------------ ------------ ------------ ------------
413,866 309,176 321,483 189,926 143,901 162,741
============ ============ ============ ============ ============ ============
* Including financing expenses (income) recorded in the category "cumulative foreign currency adjustments".
F-90
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 23 - Data to Items in Statements of Operations (cont'd)
F. Other income (expenses), net
1. Consolidated
Year ended December 31
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
NIS thousands
----------------------------------------------------
Sale of investments and activities in investees
(including changes in rates of holding) (56,850) 540,248 642,448
Expenses relating to the termination,
sale of activities and
sale and write down of assets, net (384,801) (61,184) (214,770)
Supplemental severance pay and pensions (79,170) (280,757) (203,510)
Management services and participation in
selling general and administrative expenses:
Proportionately consolidated - 869 25,566
Companies affiliates 2,192 1,986 2,804
Rent from buildings and equipment
(net of related depreciation) (*) 391 20 3,382
Joint ventures, net 1,435 (542) (2,608)
Compensation for damages 881 3,164 430
Amortization of goodwill (79,978) (51,153) (52,980)
Miscellaneous, net (20) 8,169 23,503
-------------- -------------- --------------
(595,920) 160,820 224,265
============== ============== ==============
(*) Including depreciation - - 756
============== ============== ==============
2. Company
Year ended December 31
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
NIS thousands
----------------------------------------------------
Profit (loss) from sale of investments in
investee companies (51,148) 7,660 43,408
Joint venture - - 619
Changes in value of long-term assets - - (47,686)
Capital gain (loss) from sale of fixed assets 2 9 (1,684)
Miscellaneous, net 1,743 2,099 6,030
-------------- -------------- --------------
(49,673) 9,768 687
============== ============== ==============
F-91
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 23 - Data to Items in Statements of Operations (cont'd)
G. Equity of the Koor Group in the operating results of affiliates, net
1. Consolidated
Year ended December 31
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
NIS thousands
----------------------------------------------------
Affiliates companies, net (1) (653,458) (109,004) 287,660
Amortization of goodwill (2) (1,159,707) (164,815) (164,058)
-------------- -------------- --------------
(1,813,165) (273,819) 123,602
============== ============== ==============
Dividend received - 25,591 50,444
============== ============== ==============
(1) Including gain (loss) from a discontinued operation
in an affiliate 1,759 - (87,998)
============== ============== ==============
(2) Including write-off of goodwill in an affiliate 1,067,050 - -
============== ============== ==============
2. Company
Year ended December 31
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
NIS thousands
----------------------------------------------------
Equity of Koor in operating results for the year (1) (1,099,279) 356,765 775,553
Amortization of goodwill (2) (1,162,620) (146,005) (125,744)
-------------- -------------- --------------
(2,261,899) 210,760 649,809
============== ============== ==============
Dividend received 821,826 356,821 1,201,643
============== ============== ==============
(1) Including gain (loss) from a discontinued operation
in an affiliate 1,759 - (87,998)
============== ============== ==============
(2) Including write-off of goodwill in an affiliate 1,067,050 26,240 -
============== ============== ==============
F-92
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 23 - Data to Items in Statements of Operations (cont'd)
H. Results of discontinued operations
Year ended December 31
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
NIS thousands
----------------------------------------------------
Pre-tax loss on income (28,704) (75,833) (31,392)
Effect of tax - (411) (16,635)
Minority share 683 35,705 10,668
-------------- -------------- --------------
(28,021) (40,539) (37,359)
Capital gain from sale of discontinued operation
Capital gain - 388,538 6,672
Effect of tax - (130,817) (2,064)
-------------- -------------- --------------
- 257,721 4,608
-------------- -------------- --------------
(28,021) 217,182 (32,751)
============== ============== ==============
In 2001, the construction and infrastructures segment included USM, and in 2000 it included
Middle East Tubes Ltd. and Mashav Enterprise and Development Ltd., which were sold during 2000.
In 1999, the segment also included Merhav Building Materials and Ceramics Ltd. which was sold
during 1999.
F-93
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------------------------------------------------------
Note 23 - Supplementary Data to Items in Statements of Operations (cont'd)
I. Income (expenses) from investee companies and their participation in expenses
Year ended December 31
2001 2000
--------------------------------------- ---------------------------------------------------------
Companies Consolidated Companies
whose companies by whose
Consolidated Affiliated activity was Consolidated proportional Affiliated activity was
companies companies discontinued companies consolidation companies discontinued
------------ ----------- ------------ ------------ ------------- ---------- -------------
NIS thousands NIS thousands
--------------------------------------- ---------------------------------------------------------
Income:
Management
services 32,694 - - 40,128 - - -
============ =========== ============ ============ ============= ========== =============
Administrative
expenses -
Salary and other
administrative
expenses 7,648 - - 4,532 - - -
============ =========== ============ ============ ============= ========== =============
Financing income
(expenses),net 5,685 6 (622) 585 (200) 3 212
============ =========== ============ ============ ============= ========== =============
(Chart continued)
1999
---------------------------------------------------------------
Consolidated Companies
companies by whose
Consolidated proportional Affiliated activity was
companies consolidation companies discontinued
------------- -------------- ---------- -------------
NIS thousands
---------------------------------------------------------------
Income:
Management
services 39,405 841 767 25,028
============= ============= ========== =============
Administrative
expenses -
Salary and other
administrative
expenses - - - -
============= ============= ========== =============
Financing income
(expenses),net 4,028 8 (1,047) 456
============= ============= ========== =============
F-94
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments
A. The Koor Group operates in the following business segments:
Telecommunications
Defense electronics
Agro-chemicals and other chemicals
Venture capital investments
The "others" segment includes mainly tourism and trade.
In 2001 the construction and infrastructures segment
discontinued operations due to the discontinuation of
activity of USM (which was consolidated in the
construction and infrastructures segment (see Note 3G)),
and in 2000 the segment of construction and
infrastructure included the companies - Middle East Tubes
Co. Ltd. and Mashav Enterprise and Development Ltd.,
which were sold during 2000. In 1999, the segment
included Merhav Building Materials and Ceramics Ltd.,
which were sold during 1999. The comparable numbers were
reclassified.
B. Segment sales include products sold and services rendered
to unrelated customers, which are not part of the group.
Inter-industry segment sales are immaterial and are based
primarily on prices determined in the ordinary course of
business. Accordingly, these sales are not presented
separately.
Segment operating earnings include all costs and expenses
directly related to the relevant segment and an
allocation of expenses from which more than one segment
may benefit. Expenses and revenue presented in the
statements of operations after operating earnings are not
taken in account in the determination of operating
earnings or loss. Identifiable assets by industry
segments are those assets that are used by Koor in its
activities in each segment.
C. See Notes 23H and 24H for details of the discontinuation
of activities.
D. Data regarding business segments of the Koor Group:*
Year ended December 31
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
NIS thousands % NIS thousands % NIS thousands %
----------------------------------------------------------------------------------
Revenues from
sales and services:
Segments:
Telecommunications 1,165,118 16.31 2,232,244 28.13 2,230,766 23.82
Defense electronics 1,351,769 18.93 1,162,962 14.65 1,352,525 14.44
Agro-chemicals
and other chemicals 3,925,228 54.95 3,509,155 44.22 3,590,927 38.35
Venture capital
investment 83,121 1.16 81,248 1.02 - -
Others 617,668 8.65 950,279 11.98 2,190,155 23.39
--------- ------ --------- ----- --------- -----
Total segments 7,142,904 100.00 7,935,888 100.0 9,364,373 100.00
========= ====== ========= ===== ========= ======
* Restated
F-95
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
D. Data regarding business segments of the Koor Group:* (cont'd)
Year ended December 31
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
NIS thousands % NIS thousands % NIS thousands %
----------------------------------------------------------------------------------
Pre-tax earnings
(losses):
Operating
earnings (loss)
according to
segments:
Segments:
Telecommunication (203,606) (55.73) 253,128 32.64 264,343 31.52
Defense
electronics 53,773 14.72 54,230 6.99 70,035 8.35
Agro-chemicals
and other
chemicals 561,840 153.79 447,584 57.72 396,018 47.23
Venture capital
investments (7,937) (2.17) (5,990) (0.77) - -
Others (38,751) (10.61) 26,463 3.42 108,131 12.90
------- ------ ------ ---- ------- -----
Total segments 365,319 100.00 775,415 100.0 838,527 100.00
====== ===== ======
Joint general
expenses (22,276) (92,553) (121,651)
------- ------- --------
Total operating
earnings 343,043 682,862 716,876
Financing
expenses, net (413,866) (309,176) (321,483)
Other income
(expenses), net (595,920) 160,820 224,265
-------- ------- -------
Pre-tax
earnings (losses) (666,743) 534,506 619,658
======== ======= =======
The Koor Group's equity in the excess of earnings over losses (the
excess of losses over earnings) of affiliates, net, is as follows:
Year ended December 31
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
NIS thousands % NIS thousands % NIS thousands %
----------------------------------------------------------------------------------
Telecommunications (1,803,686) 99.48 (242,859) 88.69 138,953 112.42
Defense
electronics (1,046) 0.06 (20,961) 7.66 (8,131) (6.58)
Agor-chemicals
and other
chemicals - - - - - -
Venture capital
Investments (79) 0.00 - - - -
Others (8,354) 0.46 (9,999) 3.65 (7,220) (5.84)
---------- ------ -------- ------ ------- ------
(1,813,165) 100.00 (273,819) 100.00 123,602 100.00
========== ====== ======== ====== ======= ======
* Restated
F-96
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
D. Data regarding business segments of the Koor Group:* (cont'd)
December 31
-----------------------------------------------------
2001 2000
-----------------------------------------------------
NIS thousands % NIS thousands %
-----------------------------------------------------
Identifiable assets:
Segments:
Telecommunications 1,175,423 11.31 1,858,859 17.70
Defense electronics 1,111,473 10.70 1,164,430 11.09
Agro-chemicals and other chemicals 6,225,357 59.90 5,587,993 53.20
Venture capital investments 315,841 3.04 399,204 3.80
Others 1,564,021 15.05 1,493,018 14.21
--------- ----- --------- -----
Total segments 10,392,115 100.00 10,503,504 100.00
====== ======
Discontinued activity - 382,875
Corporate assets 1,140,405 1,100,593
Affiliates** 1,350,425 3,043,262
--------- ---------
12,882,945 15,030,234
========== ==========
December 31
-----------------------------------------------------
2001 2000
-----------------------------------------------------
NIS thousands % NIS thousands %
-----------------------------------------------------
Identifiable liabilities
Segments:
Telecommunications 372,692 14.47 617,026 22.65
Defense electronics 671,914 26.08 665,149 24.42
Agro-chemicals and other chemicals 1,274,472 49.47 1,158,459 42.53
Venture capital investments 11,635 0.45 34,202 1.26
Others 245,460 9.53 249,022 9.14
--------- ------ --------- ------
Total segments 2,576,173 100.00 2,723,858 100.00
====== ======
Discontinued activity - 80,693
Corporate liabilities 63,172 129,535
--------- ---------
2,639,345 2,934,086
========= =========
* Restated
** Including an investment in ECI as at December 31, 2001,
and 2000 in the amount of NIS 1,094 million and NIS 2,797
million respectively, which operates in the
telecommunications segment.
F-97
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
D. Data regarding business segments of the Koor Group:* (cont'd)
Year ended December 31
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
NIS thousands % NIS thousands % NIS thousands %
----------------------------------------------------------------------------------
Capital
investments:
Segments:
Telecommunications 57,122 10.22 101,429 16.74 67,998 11.37
Defense
electronics 50,903 9.13 31,391 5.18 43,494 7.27
Agro-chemicals
and other
chemicals 412,747 73.90 322,956 53.32 281,464 47.04
Venture capital
investments 2,802 0.50 1,714 0.28 - -
Others 34,919 6.25 148,257 24.48 205,365 34.32
------ ---- ------- ----- ------- -----
Total segments 558,493 100.00 605,747 100.00 598,321 100.00
====== ====== ======
Discontinued
activity 186 2,286 117,667
Corporate assets 370 772 14,250
------- ------- -------
559,049 608,805 730,238
======= ======= =======
Year ended December 31
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
NIS thousands % NIS thousands % NIS thousands %
----------------------------------------------------------------------------------
Depreciation and
amortization:
Segments:
Telecommunications 59,861 15.55 69,510 20.37 86,292 19.12
Defense electronics 48,540 12.61 35,011 10.26 56,668 12.55
Agro-chemicals
and other
chemicals 228,460 59.34 177,255 51.93 190,349 42.16
Venture capital
investments 1,779 0.46 1,985 0.58 - -
Others 46,356 12.04 57,560 16.86 118,134 26.17
------ ----- ------ ----- ------- -----
Total segments 384,996 100.00 341,321 100.00 451,443 100.00
====== ====== =======
Discontinued
activity 11,703 34,510 123,906
Corporate assets 2,626 3,114 2,770
------- ------- -------
399,325 378,945 578,119
======= ======= =======
* Restated
F-98
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
E. Industrial operations - export sales and foreign
industrial operations by geographical destination:
Year ended December 31
-------------------------------------------------
2001 2000 1999
-------------------------------------------------
NIS thousands
-------------------------------------------------
North America 1,163,464 1,698,885 1,622,160
Europe 1,581,119 1,630,778 1,730,017
South America 1,380,199 1,362,891 1,453,313
Asia and Australia 864,339 667,563 721,094
Africa 129,117 131,485 130,956
--------- --------- ---------
5,118,238 5,491,602 5,657,540
========= ========= =========
F. Assets by geographic location of manufacturing operation
December 31
--------------------------------
2001 2000
--------------------------------
NIS thousands NIS thousands
--------------------------------
Israel 10,965,266 12,794,663
Brazil 1,734,596 1,682,794
United States 183,083 169,902
Discontinued activities - Israel - 382,875
---------- ----------
12,882,945 15,030,234
========== ==========
G. Capital investments in assets by geographic location
December 31
---------------------------------
2001 2000
---------------------------------
NIS thousands NIS thousands
---------------------------------
Israel 527,297 564,862
Brazil 29,808 36,481
United States 1,758 5,176
Discontinued activities -Israel 186 2,286
------- -------
559,049 608,805
======= =======
F-99
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
H. Discontinued activity
In Koor's financial statements the companies Phoenicia and Yonah
constituted part of the food segment included in the financial
statements as at December 31, 1999, in the "Others" framework in
the Note relating to segments. After conclusion of the sale of the
companies, operations in Koor's food segment were terminated.
Year ended
December 31
1999
-------------
NIS thousands
-------------
Revenues from sales and implementation of works 97,365
=========
Loss from operating earnings 435
=========
Loss - Koor's share 4,136
=========
Total assets
I. Additional information on business segments of the Company:
The Company operates through subsidiaries,
proportionately consolidated companies and affiliates in
various sectors of the economy.
Data according to business segments is as follows:
Equity of the Company in the excess of earnings over
losses (the excess of losses over earnings), of investee,
net*:
Year ended December 31
------------------------------------------------
2001 2000 1999
------------------------------------------------
NIS thousands
------------------------------------------------
Telecommunications (2,016,387) 71,602 263,114
Defense Electronics (21,669) (42,808) 23,972
Agro-chemicals and other chemicals 79,587 99,418 (1,299)
Venture capital investments (188,323) (20,895) -
Others (115,107) 103,443 328,952
(2,261,899) 210,760 614,739
---------- ------- -------
Provision for taxes - - 35,070
Discontinued activity (28,021) 217,182 (32,751)
---------- ------- -------
(2,289,920) 427,942 617,058
========== ======= =======
* Restated
F-100
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
I. Additional information on business segments of the
Company: (cont'd)
Investment of the Company in shares, loans (include
current maturities) and capital notes of investee
companies, net:
December 31
------------------------------
2001 2000
------------------------------
NIS thousands
------------------------------
Telecommunications 1,832,942 3,722,397
Defense Electronics 332,151 331,595
Agro-chemicals and other chemicals 1,382,521 1,355,978
Venture capital investments 314,954 358,925
Others 650,776 325,378
--------- ---------
4,513,344 6,094,273
========= =========
Note 25 - Transactions and Balances with Interested Parties
A. The following are details of interested parties in Koor
resulting from their holdings of Koor's ordinary shares:
1. Claridge Group (Claridge).
2. Bank Hapoalim B.M. group (Bank Hapoalim B.M.)
3. In January 2000, an agreement which was signed on
September 8, 1999 between the Claridge Group, Anfield
Ltd. (a company owned by the CEO of Koor) and Bank Leumi
B.M., a shareholder of Koor until then, was consummated.
In accordance with the agreement Bank Leumi B.M. sold its
entire holding in Koor to Claridge, Anfield Ltd. and Bank
Hapoalim B.M. As at balance sheet date Anfield Ltd. is an
interested party of Koor.
B. Koor and its subsidiaries undertake transactions with
interested parties as detailed below. These transactions,
which consist principally of the receipt of banking
services, are carried out in the normal course of
business and thus no separate records are kept of the
handling and recording of such transactions.
Consequently, and given the large number of the above
mentioned entities, it is not possible to accurately
determine the scope and scale of these transactions.
C. The balance of liabilities owed to Bank Hapoalim B.M. as
at December 31, 2001 and 2000 is NIS 2,346 million and
NIS 2,115 million, respectively.
F-101
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 25 - Transactions and Balances with Interested Parties (cont'd)
D. Benefits to interested parties
1. Directors*
Year ended December 31
-----------------------------------------
2001 2000 1999
-----------------------------------------
NIS thousands
-----------------------------------------
Directors not employed by the Company:
Annual compensation and participation
in meetings:
Claridge Group 150 340 275
======= ======= =======
Number of directors 3 5 6
======= ======= =======
Poalim Assets (Shares) Ltd. 124 160 175
======= ======= =======
Number of directors 2 3 3
======= ======= =======
Other directors 461 297 238
======= ======= =======
Number of directors 9 6 3
======= ======= =======
Consulting fee (a) - 1,117
======= ======= =======
* Including directors who have been replaced during the year.
(a) On July 1, 1998 Mr. B. Gaon resigned from his position as General Manager of the
Company. At the request of the Board of Directors Mr. Gaon remained with the Company
until December 31, 1998 and he undertook to continue to render it services as a
consultant in 1999 and 2000 for an annual consulting fee of $125,000.
2. Consultancy services
Year ended December 31
-----------------------------------------
2001 2000 1999
-----------------------------------------
NIS thousands
-----------------------------------------
Claridge 1,723 1,634 1,707
===== ===== =====
Poalim Capital Markets and Investment Ltd. 1,723 1,634 1,707
===== ===== =====
The Company has agreements with interested parties -
Claridge and Poalim Capital Markets and Investments Ltd.
(Poalim) - for the receipt of consultancy services. These
services include, inter alia, advice in respect of
investment strategies, monetary policies, international
activities, strategic partnerships and company
structuring. The agreements include instructions
regarding the indemnification of the consultants
(Claridge/Poalim) in respect of claims connected to the
consultancy, except for cases of gross negligence and/or
intentional damage.
In consideration for the consultancy the Company has
agreed to pay an annual sum which will not exceed $
400,000 to each of the consultants. The agreements are
for the period of one year and are automatically
renewable each year, unless one of the parties gives 60
days' prior notice of the termination of the agreement.
F-102
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 26 - Earnings (Loss) Per Share
A. Adjusted net earnings (loss) used in the computation of
earnings per NIS 1 par value of the share capital:
Year ended December 31
----------------------------------------------
2001 2000 1999
----------------------------------------------
NIS thousands
----------------------------------------------
Earnings (losses) used in the computation of basic
earnings (loss) per NIS 1 par value of shares (2,537,083) 271,467 556,874
Add - theoretical earnings resulting from Conversion of
convertible debentures:
Series E - - 497
Series F - 2,477 5,562
----------- -------- -------
Net earnings (loss) used in the computation of fully
diluted earnings per NIS 1 par value of shares (2,537,083) 273,944 562,933
========== ======= =======
B. Weighted number of ordinary shares of NIS 0.001 used in
the computation of net earnings (loss) per NIS 1 par
value of the share capital:
Number of ordinary shares
------------------------------------------------
2001 2000 1999
------------------------------------------------
In the computation of basic earnings (loss) per share 15,188,463 15,384,206 15,737,564
Add - theoretical share capital resulting from Conversion of
convertible debentures:
Series E - - 40,500
Series F - 213,047 284,062
---------- ---------- ----------
Total share capital used in the computation of
fully diluted earnings (loss) per share 15,188,463 15,597,253 16,062,126
========== ========== ==========
C. To examine that the conversion or exercise of convertible
securities is reasonable, the present value of these
securities was computed according to a discount rate of
4% (December 31, 2000 - 7%, December 31, 1999 - 6%) for
securities linked to the CPI.
Note 27 - Events Subsequent to the Balance Sheet Date
A. Regarding ECI's private placement to a group of
investors, see Note 3(A)(5).
B. On March 17, 2002, agreements to sell a substantial
amount of Tadiran's real estate to a group of investors
headed by Denisra International Ltd. and Ranitech Ltd..
Total proceeds to Koor approximately NIS 270 million.
Koor will record a net capital gain of NIS 36 million as
a result of the transaction. The transaction will be
completed within 30 days from the signing date.
F-103
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements
A. The consolidated financial statements of Koor conform
with accounting principles generally accepted in Israel
("Israeli GAAP"), which differ in certain respects from
those generally accepted in the United States of America
("US GAAP") as described below:
1. Effect of inflation
In accordance with Israeli GAAP:
The consolidated financial statements of Koor are
expressed in terms of a uniform monetary unit - the
inflation adjusted Israeli shekel - which is after
adjustment in respect of the changes in the Consumer
Price Index. (See Note 2B).
In accordance with US GAAP:
The financial statements are expressed in current nominal
historical monetary terms.
Measuring on the basis of the change in the CPI, which
reflects the effect of changes in the general price level
in the Israeli economy, provides a very valid picture of
the financial position, results of operations and the
cash flows of the Koor Group for both Israeli and US
accounting purposes.
In view of the above, no data on the effect of the
differences between measurements on the basis of cost
adjusted to the CPI or on the basis of historical cost,
were included.
2. ECI and Tadiran Telecommunications - merger
In accordance with Israeli GAAP:
The merger between ECI and Tadiran Telecommunications
("TTL") in 1999 was recorded in Koor's financial
statement at book values in accordance with the accepted
rules governing similar asset exchange transactions.
Pursuant to the merger agreement, shares of TTL held by
Tadiran were exchanged for ECI shares at an exchange rate
determined in the merger agreement.
In accordance with US GAAP:
According to EITF 98-3 the merger of ECI and TTL is not
considered as an exchange of similar assets in respect of
Koor and Tadiran and therefore a capital gain from the
realization of TTL is recorded and an original
differentials is recorded on behalf of ECI and allocated
to goodwill. In 2001 Koor's management decided to reduce
the book value of the investment in ECI in respect of
decrease in value not of a temporary nature. Therefore,
the Company wrote-off the balance of the goodwill in the
amount of NIS 157 million.
In 2001 Tadiran sold its shareholding in ECI to Koor.
Therefore, the deferred taxes which was created during
the merger were realized and an income tax in the amount
of NIS 128 million was recorded.
F-104
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
3. Debt arrangement within the framework of an
overall financial arrangement
In accordance with Israeli GAAP:
Koor reported an extraordinary gain in 1991 as a result
of the restructuring of part of its debts.
In accordance with US GAAP:
In accordance with FAS No. 15 - "Accounting by Debtors
and Creditors for Troubled Debt Restructuring" future
interest payments must be deducted from the restructuring
of an old debt. The recognition of non-realized earnings
(which represents deferred interest) is affected by
payments of interest over the period from the date of the
restructuring of the debt up to its repayment date. The
balance of deferred interest at December 31, 2000 and
2001, was NIS 11,042 thousand, and NIS 4,605 thousand,
respectively.
4. Deferred taxes
a) Deferred taxes in respect to inflation
adjustment differences
In accordance with Israeli GAAP:
Koor does not provide deferred taxes in respect to
adjustment differences to the CPI for assets defined as
"immune assets" in the Law for Taxation Under
Inflationary Conditions and for which the depreciation
period is at least 20 years.
In accordance with US GAAP:
Under FAS No. 109, a provision for deferred taxes should
be made for all temporary differences, without relation
to the period of amortization of the assets. The effect
on net earnings, as a result of the above provision for
deferred taxes, was a decrease in income tax in 1999,
2000 of NIS 12,473 thousand, NIS 7,992 thousand,
respectively and an increase in income tax in the amount
of NIS 221 thousand in 2001.
b) Deferred taxes in companies which adjust their
financial statements for inflation on the basis
of changes in the US Dollar exchange rate.
In accordance with Israeli GAAP:
Certain companies, which adjust their financial
statements on the basis of changes in the Dollar
exchange rate, create deferred taxes in respect
of all the differences between the amounts of
assets (mainly in respect to fixed assets and
inventory) as stated in the financial statements
and the amounts for tax purposes.
F-105
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
4. Deferred taxes (cont'd)
b) (cont'd)
In accordance with US GAAP:
According to paragraph 9(f) of FAS No. 109,
deferred taxes should not be provided in respect
of differences, the source of which is in the
difference of assets and liabilities for
accounting purposes and their amounts for tax
purposes, where the source of the tax difference
stems from different measuring bases for
accounting purposes and for tax purposes.
The ultimate effect of the above write-off of
deferred taxes on the statement of operations is
an increase in income tax in the amount of NIS
29,860 thousand in 1999, a decrease in income
tax in 2000 in the amount of NIS 19,756 thousand
and a decrease in the amount of NIS 50,186
thousand in 2001.
c) Earnings from "Approved Enterprises"
Under the Israeli Law for Encouragement of
Capital Investments, 1959, a company which owns
an "approved enterprise" is subject to tax at a
rate of 25% of attributable earnings during "the
period of benefits".
Dividends paid to shareholders from the earnings
of an "approved enterprise" are subject to
income tax at a rate of 15%. A company that
received such a dividend is entitled to a 15%
tax credit, if and when this dividend is paid to
its shareholders.
An "approved enterprise" which choose the
"alternative benefits" track is exempted from
income tax on undistributed profits.
In the event that a dividend is distributed out
of tax-exempt earnings of the "approved
enterprise" under on the "alternative benefits"
track, the distributing company will be subject
to tax on the distributed earnings at a rate of
25%. Furthermore, the shareholders will be
liable to tax at the rate of 15%. However, if
the shareholder is a company, that shareholder
will be entitled to a 15% tax credit, if and
when such dividend out of "approved enterprise"
earnings is distributed to its shareholders.
In accordance with Israeli GAAP:
Deferred tax should not be provided in respect
to the undistributed tax-exempt earnings of an
"approved enterprise" of subsidiaries, whose
earnings have been reinvested and will not be
distributed to the company shareholders.
Koor has not provided deferred tax in respect to
undistributed tax-exempt earnings attributed to
the "approved enterprise" of subsidiaries under
the "alternative benefits" track, which may be
distributed, since it is the Group's policy not
to initiate such a dividend distribution.
F-106
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
4. Deferred taxes (cont'd)
In accordance with US GAAP:
A reserve for deferred tax should be provided on the
undistributed tax-exempt earnings of local subsidiaries
established subsequent to December 15, 1992, as their
distribution results in additional tax.
The effect of providing a reserve for deferred tax on the
undistributed tax exempt earnings of an "approved
enterprise", assuming either the sale of the shares in
the subsidiary, a merger (change of structure), or its
liquidation, was an increase in income tax in the amount
of NIS 3,316 thousand in 1999, a decrease of NIS 7,284
thousand in 2000 and decrease in income tax, in 2001
amounting to NIS 3,333 thousand.
5. Handling of "benefit component" in respect of
options issued to employees
In accordance with Israeli GAAP:
The overall "benefit component", in respect to options
granted to employees of Koor, is not charged as an
expense in the statement of operations.
In accordance with US GAAP:
a) Fixed Option Plan:
Under US GAAP (APB-25), the "benefit component"
is measured as the difference between the share
market price and the exercise price of the
option, when measuring the "benefit". The
benefit is charged as a salary expense during
the period in which the employee performs the
services for which the benefit was granted.
b) Variable Option Plans:
In the event that the options have been issued
to employees for the future performance of work
or services, the benefit is charged to salary
expense in the statement of operations. The
"benefit component" is computed on the basis of
the full benefit valued as at that date, and,
the proportional part of the period, which has
passed from the opening balance of that period.
For information regarding the effect of pro forma data,
according to FAS No. 123 data, see subsection 3b below.
F-107
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
6. The accounting treatment of quoted securities:
In accordance with Israeli GAAP:
Quoted securities which constitute a short-term
investment (see note 2F) are stated at market value.
Quoted securities which constitute a permanent investment
is stated at cost (regarding debentures, including
accumulated interest), except where market value is
lower, and the decline in value is not considered to be
temporary.
In accordance with US GAAP
FAS No. 115 divides quoted securities, into three types:
securities held for a short period and traded at a high
frequency (trading securities), available for sale
securities and held to maturity securities.
A change in the value of trading securities, including
unrealized earnings, is charged to the statement of
operations, while unrealized earnings after tax of the
available for sale type is reported as a separate item
within shareholders' equity.
7. Attribution of proceeds from an issuance to
debentures, when securities are issued as a
package (issuance by Koor in 1994):
According to the accounting policy at this issuance:
The proceeds from an issuance of debentures and stock
options, as a package, are attributed to debentures
according to their par value while the remainder of the
proceeds is attributed to the share options.
According to US GAAP:
The proceeds from an issuance of share options and
convertible debentures, as a package, are split based on
the relative market prices of these securities at the
date of issuance. This will sometimes result in the
recording of a discount in respect of the convertible
debentures that is to be amortized over the term of
debentures.
8. Dividends
According to Israeli GAAP:
A dividend proposed prior to the date of approval of the
financial statements is included in the balance sheet as
a current liability. See Note 2 X(1).
According to US GAAP:
Such a dividend is reflected only in the notes and is not
recorded in the balance sheet as a liability until
declared.
F-108
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
9. Convertible securities of investee companies
According to Israeli GAAP:
According to the provisions of Opinion Nos. 48 and 53 of
the ICPAI, a parent company is required to create a
provision for losses, which it may incur from the
dilution of its holdings in investee companies, when it
is probable that the share options will be exercised or
the debentures will be converted.
According to US GAAP:
A loss in the parent company resulting from the dilution
of its holdings, because of share options being exercised
or debentures being converted, is recorded only at the
time of exercise or conversion.
10. Employee severance benefits as a part of an
efficiency program
According to Israeli GAAP:
Employee severance benefits as part of future anticipated
dismissals are recorded when management decides on the
dismissals, and/or when management intended on the
dismissals.
According to US GAAP:
According to the provisions of EITF 94-3, employee
severance benefits, as part of a program for promoting
efficiency, are charged as an expense in the financial
statements only when all the following conditions exist:
a) Management has the appropriate authority to
dismiss employees and the efficiency program
includes all employee severance benefits.
b) Management notified employees of its intention
to dismiss them, while supplying them with full
details regarding employee severance benefits.
c) The plan for dismissals states specifically the
names of the dismissed employees, their
positions and their duties.
d) The period of time for completion of the program
of dismissals indicates that a significant
change in the plan is not likely to occur.
F-109
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
11. Earnings per share
According to Israeli GAAP:
Opinion No. 55 - the dilutive effect of share options and
convertible debentures is included in the computation of
basic earnings per share only if their exercise or
conversion is considered to be probable. Calculation of
the probability is based on the ratio between the market
price of the shares and the present value of the price of
exercising the stock options into shares or the present
value of the payments for conversion of the debentures
into shares.
According to US GAAP:
In accordance with FAS 128. Basic earnings per share are
computed on the basis of the weighted average number of
shares outstanding during the year. Diluted earnings per
share is computed on the basis of the weighted average
number of shares outstanding during the year, plus the
dilutive potential effect of ordinary shares considered
outstanding during the year.
12. Acquiring an Investment in stages
According to Israeli GAAP:
Opinion 68 determines that when acquiring an investment
in stages, on the date of which the holding constitutes
an initial material influence, it is necessary to
calculate the original differentials and record the
investment according to the equity method from this date
onwards.
According to US GAAP:
When acquiring an investment in stages, on the date an
initial influence becomes material it is necessary to
calculate post factum for each acquisition the original
differentials created by the acquisition despite the fact
that on that date the company did not yet have a material
influence and to implement the equity method
retroactively.
13. Venture capital investments:
According to Israeli GAAP:
Venture capital fund investments in venture capital
investments will be represented according to their cost
less a provision for devaluation in the event of a
permanent devaluation.
According to US GAAP:
Venture capital fund investments will be represented
according to their fair value.
F-110
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
14. Revenue recognition - SAB 101:
According to US GAAP:
During the fourth quarter of 2000, the US SEC published
Staff Accounting Bulletin No. 101 (hereinafter - "SAB
101"), which imposes stringencies on the rules for
revenue recognition which are to be implemented
retroactively to the beginning of the year, by way of
cumulative effect to the beginning of the year and
presentation of the previous quarters once again.
ECI implemented these guidelines in its statements, which
are set out in accordance with US GAAP.
According to Israeli GAAP:
The provision does not apply in Israel, although it is
possible to adopt the principles set out in the rule if
management estimates that the method of revenue
recognition prescribed in SAB 101 is appropriate for
economic and commerce conditions presently existing in
its area of business.
This rule was adopted as of the fourth quarter of 2000,
without implementing cumulative effect to the beginning
of the year and without presenting data, which has
already been published in the past.
Therefore, cumulative effect has been recorded in the
adjustment note in the sum of NIS 37,762 thousand.
15. Exchange of assets:
According to Israeli GAAP:
The transfer of NetEye shares from Telrad to ECTel, as
described in Note 3E(2), was treated based on the
accounting principles in transactions of exchange of
similar assets and therefore neither a profit nor a loss
was recorded.
According to US GAAP:
According to EITF 98/3 this transaction is not seen as an
exchange of similar assets transaction and therefore a
profit of NIS 27,913 thousand was recorded.
The acquisition of Millenia shares, previously held by
the minority shareholders, as described in Note 3C(6) was
treated as an exchange of similar assets transaction
based on the Israel GAAP. According to the US GAAP this
transaction was not seen as an exchange of similar assets
and therefore a profit of NIS 6,163 thousand was
recorded.
F-111
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
A. Differences between Israel GAAP and US GAAP (cont'd)
16. Derivatives
According to Israeli GAAP:
The Company applied FAS 52 and EITF 90-17 as to its
financial derivatives.
According to US GAAP:
As of January 1, 2001, the Company applied FAS 133.
The Company initially applied FAS 133 in a manner similar
to the cumulative effect of a change in accounting
principle.
17. Securitization agreement of M-A Industries and
its consolidated companies
According to Israeli GAAP:
This transaction was treated as a sales transaction only
in relation to the sale of customer debts which were
included in the securitization transaction, and whose
associated control and risks have been completely
transferred to the purchaser, and the proceeds were
received in cash or with an undeferred liability.
According to the US GAAP:
M-A Industries has to consolidate the acquiring company
since it does not meet the criteria for classification as
a QSPE (Qualified Special Purpose Entity) as defined in
FAS 140. Therefore, the transaction was treated as a
secured borrowing, and the balance of customers increased
by 95.5 million Dollars against a similar increase in
short-term credit.
18. Adjustment on net loss of ECI as being reported
according to the US GAAP to the net loss as
being reported according to the Israeli GAAP:
Year ended
December 31
2001
------------
$ thousands
------------
Net loss of ECI based on its reported profit according to US GAAP (412,376)
Adjustments:
Timing differentials for revenue recognition for implementation of SAB 101 (22,584)
Finance income - marketable securities, see Note 28A(6) 1,475
Tax income - deferred taxes (30)
Cumulative effect to beginning of year (FAS 133) (1,703)
Salary expenses in respect of share options issued to employees 311
---------
Net loss of ECI according to Israeli GAAP (434,907)
=========
F-112
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements (cont'd)
B. The effect of the material differences between Israeli
and US GAAP on the financial statements
1. Statements of operations:
Year ended December 31
-----------------------------------------------
2001 2000 1999
-----------------------------------------------
NIS thousands
-----------------------------------------------
a) Net earnings (loss) as reported, according to
Israeli GAAP (2,537,083) 271,467 556,874
---------- --------- ---------
Amortization of deferred interest in
respect of the restructuring of debts 6,437 9,263 12,092
Deferred taxes 53,298 36,020 (37,578)
Salary expenses in respect of
share options issued to employees (17,921) (23,462) (3,594)
Gain (loss) from marketable securities, net (13,048) 40,093 (44,181)
Provisions for anticipated losses from
realization of convertible securities in
Investee companies (7,744) (2,424) 1,355
Amortization of discount in respect of
convertible debentures (1,022) (2,094) (1,900)
Severance pay arising from
an efficiency program 2,304 (11,446) 12,635
Capital gain from a merger - - 193,650
Acquiring an investment in stage 4,452 396 (5,037)
Venture capital investments 736 19,613 -
Amortization of goodwill in accordance
with a merger (157,124) (23,498) (21,301)
Temporary differences resulting from
recognition of revenue arising from
application of SAB 101 34,512 (4,599) -
Profit from exchange of assets 34,076 - -
Derivatives (FAS 133) (1,404) - -
---------- --------- ---------
(62,448) 37,862 106,141
Income taxes 123,155 (3,672) (131,147)
Minority interests in respect of the above
differences (38,419) (13,660) 8,075
---------- --------- ---------
22,288 20,530 (16,931)
Extraordinary item (1) - - 5,552
Cumulative effect as beginning of the year 2,602 (37,762) -
---------- --------- ---------
24,890 (17,232) (11,379)
---------- --------- ---------
Net income (loss) according to US GAAP (2,512,193) 254,235 545,495
=========== ========= ==========
(1) Deferred gains were recognized in respect of early repayment of debts.
F-113
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
B. The effect of the material differences between Israeli
and US GAAP on the financial statements (cont'd)
1. Statements of operations (cont'd):
b) Earnings (loss) per ordinary share
Year ended December 31
-----------------------------------------
2001 2000 1999
-----------------------------------------
NIS
-----------------------------------------
Basic earnings per ordinary share:
As reported according to Israeli GAAP (167.04) 17.64 35.38
========== ========= ========
As reported according to US GAAP:
Before extraordinary item (165.40) 16.52 34.32
Extraordinary item - - 0.35
---------- --------- --------
Total (165.40) 16.52 34.67
========== ========== ===========
Weighted average of number of shares
and share equivalents according to
US GAAP 15,188,463 15,384,206 15,727,144
========== ========== ===========
Diluted earnings (loss) per ordinary share:
As reported according to Israeli GAAP (167.04) 17.56 35.04
========== ========== ===========
As reported according to US GAAP:
Before extraordinary item (165.40) 16.45 33.99
Extraordinary item - - 0.34
----------- ---------- -----------
Total (165.40) 16.45 34.33
========== ========== ===========
Weighted average of number of shares
and share equivalents according to
US GAAP 15,188,463 15,597,253 16,061,493
========== ========== ===========
F-114
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements (cont'd)
B. The effect of the material differences between Israeli
and US GAAP on the financial statements (cont'd)
2. Balance sheet:
December 31
--------------------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------------------
As reported Adjustments US GAAP As reported Adjustment US GAAP
--------------------------------------------------------------------------------------------
NIS thousands
--------------------------------------------------------------------------------------------
Investments in
affiliates (10) 1,350,425 (29,924) 1,320,501 3,043,262 114,691 3,157,953
Customers (9) 2,108,755 421,869 2,530,624 2,697,858 - 2,697,858
Investments
and other
receivables 1,086,244 62,421 1,148,665 1,181,256 19,613 1,200,869
Intangible assets
after
amortization (10) 1,373,993 25,460 1,399,453 926,392 22,055 948,447
Total assets 12,882,945 479,827 13,362,772 15,030,234 156,359 15,186,593
Payables and
accruals (7)(8) 1,009,201 (3,493) 1,005,708 1,092,750 (1,189) 1,091,561
Deferred interest - 4,605 4,605 - 11,042 11,042
(3)
Short-term
liabilities (9) 1,733,852 421,869 2,155,721 2,733,576 - 2,733,576
Convertible
debentures (4) 295,072 (340) 294,732 73,488 (1,362) 72,126
Deferred taxes (2) 184,786 92,972 277,758 175,029 268,486 443,515
Minority 1,308,898 22,356 1,331,254 1,078,396 (8,843) 1,069,553
interests (6)
Capital reserve
for "available
for
sale" securities - 361 361 - (6,896) (6,896)
(1)
Capital
reserves(4)(5) 2,453,986 61,889 2,515,875 2,453,845 40,403 2,494,248
Retained
earnings(6) (231,042) (120,392) (351,434) 2,306,041 (145,282) 2,160,759
Total
shareholders'
equity 2,101,525 (58,142) 2,043,383 4,367,063 (111,775) 4,255,288
(1) Adjustment of value of investment securities to market value.
(2) Change in deferred taxes.
(3) Deferred gain on debt restructuring.
(4) Debentures issued with stock options.
(5) Share options issued to employees.
(6) Effects of the reconciliation to US GAAP.
(7) Proposed dividend.
(8) Provision for employee severance benefits resulting from an efficiency program.
(9) Securitization agreement.
(10) Original differentials arising from the exchange of shares in the merger,
acquiring an investment in stages and increasing the holdings in a
consolidated company, as well as temporary differences with implementation of
SAB 101.
F-115
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
B. The effect of the material differences between Israeli
and US GAAP on the financial statements (cont'd)
3. Additional information according to US GAAP
The effect of pro forma data calculated according to FAS 123:
a) Under the provisions of FAS 123, all option plans are
recorded in the statement of operations, based on the
fair value of the option to the balance sheet date.
b) The Company applies the Black-Scholes model to estimate
fair value of the options, utilizing the following
assumptions:
Risk free annual interest rate 2.5%
Expected life of stock options 1-6 years
Annual standard deviation 55.5
Expected dividend per share * 1.2%
The group companies apply the Black & Scholes formula for
evaluating the fair value of the option. They apply
assumptions which are based on the terms of the options
and the fluctuation in the price of their shares.
c) If the cost of the benefit in respect of share options
issued to employees under this plan (including plans of
certain subsidiaries) had been computed on the basis of
the fair value at date of grant in accordance with FAS
123, the Company's net earnings and earnings per share in
accordance with US GAAP would have been as follows:
Year ended December 31
-----------------------------------------------
2001 2000 1999
-----------------------------------------------
Pro forma net earnings (loss)
(NIS thousands) (2,625,441) 166,657 504,731
---------- ---------- ---------
Pro forma basic earnings (loss)
per share (NIS) (172.86) 10.83 32.09
=========== ========== =========
Pro forma diluted earnings (loss)
per share (NIS) (172.86) 10.83 31.8
=========== ========== =========
* A compensation to the exercise price in respect of the
distribution of a dividend is included in the option plans
of 1999 and 2000.
F-116
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 28 - Material Differences Between Israeli and US GAAP and
their Effect on the Financial Statements (cont'd)
B. The effect of the material differences between Israeli
and US GAAP on the financial statements (cont'd)
4. Comprehensive earnings
"Comprehensive earnings (loss)" consists of the change,
during the current period, in Company's shareholder
equity that does not derive from shareholders'
investments or from the distribution of earnings to
shareholders.
a. Comprehensive earnings (loss) include two
components - net earnings and other
comprehensive earnings. Net earnings are the
earnings stated in the statement of operations
and other comprehensive earnings include the
amounts that are recorded directly in
shareholders' equity and that do not derive from
transactions with shareholders.
Year ended December 31
-------------------------------------------------
2001 2000 1999
-------------------------------------------------
NIS thousands
-------------------------------------------------
Net earnings (loss) according to US GAAP (2,512,193) 254,235 545,495
------------ ---------- ----------
Other comprehensive earnings, after tax:
Adjustments from translation of
Financial statements of investee companies 271,404 (87,281) (19,767)
Unrealized gains from securities (loss) 13,048 (41,080) 42,274
------------ ---------- ----------
Total other comprehensive earnings* 284,452 (128,361) 22,507
------------ ---------- ----------
Total comprehensive (loss) earnings (2,227,741) 125,874 568,002
============ ========== ==========
*Tax component included in the item - (987) (1,908)
============ ========== ==========
b. The effect of taxes on the other comprehensive earnings
(loss):
Before tax Tax effect After tax
--------------------------------------------------
NIS thousands
--------------------------------------------------
Adjustments from translation of Investee companies 271,404 - 271,404
----------- ------------- -----------
Unrealized loss from securities:
Loss which arose in current year 3,311 - 3,311
Less realized gains credited to net earnings 9,737 - 9,737
----------- ------------- -----------
Net unrealized gains 13,048 - 13,048
----------- ------------- -----------
284,452 - 284,452
=========== ============= ===========
F-117
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 29 - Event (Unaudited) Subsequent to the Date of the Independent
Auditors' Report
1. On March 7, 2002, Tadiran's Board of Directors adopted a
resolution for the voluntary liquidation of Tadiran and
the appointment of a liquidator. As a result of the
liquidation the capital reserve from cumulative foreign
currency translation adjustments, of approximately NIS
383 million, which were created in Koor in respect of its
investment in Tadiran, was transferred to the statement
of income in the first quarter of 2002.
2. On March 2002, a transaction was completed for the sale
of a substantial share of the real estate assets of
Tadiran to a group of investors headed by Denisra
International Ltd. and Ranitech Ltd. The total
consideration was received during the second quarter of
2002, amounted to approximately NIS 271 million, and a
capital gain of about NIS 31 million after tax was
recorded in the first quarter of 2002.
3. As a result of the updated revenues forecast, and a drop
in demand for Innowave's products, Innowave (a
wholly-owned subsidiary of ECI) commissioned a fair
valuation of its intangible assets. As a result of this,
ECI recorded in its financial statements, during the
first quarter of 2002, a loss of approximately 53 million
dollars, for impairment of intangible assets. Koor's
share in the loss is approximately 16 million dollars.
4. On May 20, 2002, an agreement in principle was reached
which requires the approval of the Court, for dismissal
of the class action which filed against ECI and against
some of its officers. Under the agreement, a fund will be
established by ECI's insurer, which will be used to cover
the expenses for clearance and cancellation of the
action. It was also agreed that the plaintiffs will
cancel their claims against ECI's officers without any
liability or wrongdoing being attributed to them - see
Note 3A(7).
5. On June 2002, the Company signed a binding Heads of
Agreement for the sale of 30% of the shares of Elisra
Electronic Systems Ltd. (a wholly owned subsidiary of
Koor) to Elta Electronic Industries Ltd. (a subsidiary of
Israel Aircraft Industries) on the basis of a company
valuation of approximately 330 million dollars. In
addition, Koor granted an option to Elta to acquire an
additional 8% of the company, at the same company value,
until December 31, 2003 or Initial Public Offering
whichever earlier. The signing of a definitive agreement
is subject to the completion of due diligence, and
receipt of the approvals of the Government of the State
of Israel, the Israel's anti-trust authority and other
necessary approvals.
Upon completion, Koor is expected to record a capital
gain of over 60 million dollars, after tax, in the second
half of 2002.
F-118
Deloitte
& Touche
Brightman Almagor
INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF
SCOPUS NETWORK TECHNOLOGIES LTD.
We have audited the accompanying consolidated balance sheets of Scopus
Network Technologies Ltd. (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years then ended. 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 the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
Company as of December 31, 2001and 2000, and the consolidated results of
its operations, changes in shareholders' equity and cash flows for each of
the years then ended, in conformity with accounting principles generally
accepted in Israel.
The financial statements have been prepared in U.S. dollars, as explained
in Note 2A.
/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
Certified Public Accountants
Tel Aviv, Israel
March 18, 2002
F-119
AUDITORS' REPORT
To the Shareholders of
Celsius Property, BV and Fahrenheit Holding, BV
We have audited the combined balance sheets of CELSIUS PROPERTY, B.V. (a
Dutch company) and its subsidiaries and of FAHRENHEIT HOLDING, B.V. (a
Dutch company) and its subsidiaries (together - "the Companies") as of
December 31, 2001 and 2000, and the related combined statements of income
and changes in shareholders' equity for the years then ended. These
financial statements are the responsibility of the management of the
Companies. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We did not audit the financial statements of certain subsidiaries, whose
assets represent 7,5% and 14% of combined total assets as of December 31,
2001 and 2000, respectively, and whose revenues constitute approximately
5,3% and 10% of combined revenues from sales for the years ended December
31, 2001 and 2000, respectively. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for those subsidiaries, is based
solely on the reports of such other auditors.
We conducted our audits in accordance with International Standards on
Auditing and generally accepted auditing standards in the United States of
America. 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 management, as well as evaluating the
overall financial statement presentation. We believe that our audits and
the reports of other auditors provide a reasonable basis for our opinion.
Qualifications of opinion
-------------------------
I. The Companies declined to present a statement of cash flows for
the years ended December 31, 2001 and 2000. Presentation of such
statement summarizing the Company's operating, investing, and
financing activities is required by accounting principles
generally accepted in Israel.
II. As described in Note 16, the combined financial statements do not
include deferred taxes in respect of the differences between the
carrying value for financial reporting purposes of certain assets
of a subsidiary in Brazil and the amount that will be allowed as a
deduction for income tax purposes. In our opinion, such deferred
taxes are required to be recorded in accordance with generally
accepted accounting principles in Israel.
F-120
III. In the fourth quarter of 2001, the Companies, their parent and
certain affiliates entered into a trade receivables securitization
transaction with multi seller conduit administrated by Bank of
America. Since one technical aspect of this transaction did not meet
the stringent requirements of SFAS 140 (as of today the parties to
the transaction gave irrevocable instructions to correct it), the
Companies, were required to consolidate all of the Group's
receivables and advances resulting in equity in affiliates and
minority interest balances at December 31, 2001, amounting to USD
162,548 (receivable) (unaudited), USD 95,532 (advances) (unaudited),
USD 12,124 (equity in affiliates) (unaudited) and USD 54,892
(minority interest) (unaudited). Once this correction is done the
off balance sheet treatment is appropriate. We refer to note 4 of
the notes to the financial statements.
In our opinion, based on our audits and the reports of other auditors, and
except for the matters described in paragraphs I, II and III above, the
combined financial statements referred to above present fairly, in all
material respects, the combined financial position of the Companies as of
December 31, 2001 and 2000, and the combined results of operations and
changes in shareholders' equity for each of the years then ended, in
conformity with generally accepted accounting principles in Israel.
Without further qualifying our report, we draw your attention to note 18 of
the financial statements where it is explained that the devaluation of the
Argentinean peso introduces some significant changes in the economical
environment where Magan Argentina carries out its operations. The effect of
these changes cannot be fairly estimated as of the issuance date of these
financial statements.
As described in Note 2B, the combined financial statements referred to
above have been prepared in U.S. dollars and to be used solely in
connection with the preparation of the consolidated financial statements of
Makhteshim Agan Industries (the ultimate parent company) and, accordingly,
they state the assets, liabilities, shareholders' investment, revenues and
expenses of the Companies as adjusted for this purpose. They are not
intended for any other use.
ARTHUR ANDERSEN
Reviseurs d'Entreprises
s/s Georges Hepner
-------------------
Georges Hepner
February 4, 2002
F-121
AUDITORS' REPORT
To the Shareholders of
Makhteshim Agan Holding, BV
We have audited the consolidated balance sheets of MAKHTESHIM AGAN HOLDING,
B.V. (a Dutch company) and its subsidiaries (together - "the Company") as
of December 31, 2001 and 2000, and the related consolidated statements of
income and changes in shareholders' equity for the years then ended. These
financial statements are the responsibility of the management of the
Companies. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We did not audit the financial statements of certain subsidiaries, whose
assets represent 16,4% and 11% of consolidated total assets as of December
31, 2001 and 2000, respectively, and whose revenues constitute
approximately 14,8% and 11% of consolidated revenues from sales for the
years ended December 31, 2001 and 2000, respectively. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for those
subsidiaries, is based solely on the reports of such other auditors.
We conducted our audits in accordance with International Standards on
Auditing and generally accepted auditing standards in the United States of
America. 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 management, as well as evaluating the
overall financial statement presentation. We believe that our audits and
the reports of other auditors provide a reasonable basis for our opinion.
In the fourth quarter of 2001, the Company, its parent and certain
affiliates entered into a trade receivables securitization transaction with
multi seller conduit administrated by Bank of America. Since one technical
aspect of this transaction did not meet the stringent requirements of SFAS
140 (as of today the parties to the transaction gave irrevocable
instructions to correct it), the Company, was required to consolidate all
of the Group's receivables and advances resulting in equity in affiliates
and minority interest balances at December 31, 2001, amounting to USD
162,548 (receivable) (unaudited), USD 95,532 (advances) (unaudited), USD
6,971 (equity in affiliates) (unaudited) and USD 60,045 (minority interest)
(unaudited). Once this correction is done the off balance sheet treatment
is appropriate. We refer to note 4 of the financial statements.
In our opinion, based on our audits and the reports of other auditors, and
except for the matter described in the preceding paragraph, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 2001 and 2000, and the consolidated results of operations and
changes in shareholders' equity for each of the years then ended, in
conformity with generally accepted accounting principles in Israel.
As described in Note 2B, the consolidated financial statements referred to
above have been prepared in U.S. dollars and to be used solely in
connection with the preparation of the consolidated financial statements of
Makhteshim Agan Industries (the ultimate parent company) and, accordingly,
they state the assets, liabilities, shareholders' investment, revenues and
expenses of the Companies as adjusted for this purpose. They are not
intended for any other use.
ARTHUR ANDERSEN
Reviseurs d'Entreprises
s/s Georges Hepner
--------------------
Georges Hepner
March 11, 2002
F-122
REPORT OF INDEPENDENT AUDITOR
To the Shareholders of
KOOR VENTURE CAPITAL PARTNERSHIP
We have audited the accompanying balance sheets of Koor Venture
Capital Partnership (the "Partnership") as of December 31, 2000 and 2001,
and the related statements of operations, changes in Partners Capital
accounts and cash flows for each of the two years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Partnership management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in the United States and 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 Partnership management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The investment in an investee Company is presented at cost offset
by additional paid-in capital in respect to a transaction with a
controlling interest and not in accordance with the equity method as is
required pursuant to pronounce of the Institute of Certified Public
Accountants in Israel.
In our opinion, except for not presenting the investment in an
investee company pursuant to the equity method, as stated above, the
financial statements referred to above present fairly, in all material
respects, the financial position of the Partnership as of December 31, 2000
and 2001, and the results of its operations, changes in Partners Capital
accounts and cash flows for each of the two years in the period ended
December 31, 2001, in conformity with generally accepted accounting
principles in Israel.
As explained in Note 2, the financial statements referred to above
are presented in values adjusted for the changes in the general purchasing
power of the Israeli currency, in accordance with pronouncements of the
Institute of Certified Public Accountants in Israel.
/s/ KOST FORER & GABBAY
Tel-Aviv, Israel KOST FORER & GABBAY
March 11, 2002 A Member of Ernst & Young International
F-123
PricewaterhouseCoopers
Auditors' Report to the shareholders of
Koor Investments Ltd.
We have audited the accompanying balance sheets of Koor Investments Ltd. as
of December 31, 2001 and 2000, and the related statements of operations,
shareholders' equity and cash flows for each of the three years, the last
of which ended December 31, 2001. These financial statements are the
responsibility of the Company's Board of Directors and of its 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 the United States of America. 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 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 as of December 31, 2001 and 2000, and the results of its
operations, the changes in its shareholders' equity and its cash flows for
each of the three years, the last of which ended December 31, 2001, in
conformity with accounting principles generally accepted in Israel.
As explained in note 1b, the abovementioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
/s/ Kesselman & Kesselman
--------------------------
Tel-Aviv Kesselman & Kesselman
February 19, 2002 Certified Public Accountants (Isr.)
F-124
1 May 2002
Auditors' Report to the Shareholders of
Solkoor Marketing and Purchasing Ltd.
I have audited the accompanying balance sheets of Solkoor Marketing and
Purchasing Ltd. (the "Company") as at December 31, 2001 and 2000, and the
related statements of operations, shareholders' equity and cash flows, for
each of the three years, the last of which ended December 31, 2001. These
financial statements are the responsibility of the Company's Board of
Directors and of its Management. My responsibility is to express an opinion
on these financial statements based on my audits.
I conducted my audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that I
plan and perform the audit to obtain reasonable assurance about whether
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. I believe that my audits, and reports of the other
auditors, provide a reasonable basis for my opinion.
In my opinion, based on my audits the financial statements referred to
above present fairly, in all material respects, as of December 31, 2001 and
2000 and the results of their operations, the changes in shareholders'
equity and their cash flows for each of the three years, the last of which
ended December 31, 2001, in conformity with accounting principles generally
accepted in Israel.
As explained in note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
/s/ Yosef Shimony
--------------------
Yosef Shimony
C.P.A (Isr.)
F-125
1 May 2002
Auditors' Report to the Shareholders of
Koor Holding Ltd.
I have audited the accompanying balance sheets of Koor Holding Ltd. (the
"Company") as at December 31, 2001 and 2000, and the related statements of
operations, shareholders' equity, and cash flows, for each of the three
years, the last of which ended December 31, 2001. These financial
statements are the responsibility of the Company's Board of Directors and
of its Management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that I
plan and perform the audit to obtain reasonable assurance about whether
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. I believe that my audits, and the reports of the
auditors, provide a reasonable basis for my opinion.
In my opinion, based on my audits, the financial statements referred to
above present fairly, in all material respects, as of December 31, 2001 and
2000 and the results of their operations, the changes in shareholders'
equity and their cash flows for each of the three years, the last of which
ended December 31, 2001, in conformity with accounting principles generally
accepted in Israel.
As explained in note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
/s/ Yosef Shimony
-------------------
Yosef Shimony
C.P.A (Isr.)
F-126
1 May 2002
Auditors' Report to the Shareholders of
Koor Trusts (1995) Ltd.
I have audited the accompanying balance sheets of Koor Trusts (1995) Ltd.
(the "Company") as at December 31, 2001 and 2000, and the related
statements of operations, shareholders' equity, and cash flows, for each of
the three years, the last of which ended December 31, 2001. These financial
statements are the responsibility of the Company's Board of Directors and
of its Management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that I
plan and perform the audit to obtain reasonable assurance about whether
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. I believe that my audits, and reports of the other
auditors, provide a reasonable basis for my opinion.
In my opinion, based on my audits, the financial statements referred to
above present fairly, in all material respects, as of December 31, 2001 and
2000 and the results of their operations, the changes in shareholders'
equity and their cash flows for each of the three years, the last of which
ended December 31,2001, in conformity with accounting principles generally
accepted in Israel.
As explained in note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
/s/ Yosef Shimony
--------------------
Yosef Shimony
C.P.A (Isr.)
F-127
AUDITORS' REPORT
To the shareholders of
"ALDA" ISRAEL FOREIGN TRADE LTD.
We have audited the accompanying balance sheets of "Alda" Israel Foreign
Trade Ltd. ("the Company") as at December 31, 2001 and 2000, and the
related statements of operations, changes in equity and cash flows for each
of the three years, the last of which ended December 31, 2000. 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 a certain company the
investment in which on the equity basis of accounting totaled NIS 65
million and NIS 65 million as of December 31, 2001 and 2000, respectively,
and the Company's share in the net income of which totaled NIS 1,307
thousand, and NIS 780 thousand for the years ended December 31, 2000 and
1999, respectively. These statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates
to data included for this certain company, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audits provide a reasonable
basis for our opinion.
The Company has restated its financial statements for the year ended
December 31, 2000 in order to retroactively reflect the effect of the
operating results of an investee whose investment in the financial
statements for December 31, 2000 did not include its operating results for
2000 (see Note 2) - a change to which we concur.
As no audited statements of other auditors were furnished, the investment
in investee was included according to the adjusted book value as of
December 31, 2000. The statement of operations does not include the
Company's share in the results of operations of that investee for the year
ended December 31, 2001.
In our opinion, except for the absence of information referred to in the
preceding paragraph, based on our audits and the reports of the
above-mentioned other auditors, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of December 31, 2001 and 2000, and the results of its
operations, the changes in its equity and its cash flows for each of the
three years, the last of which ended December 31, 2001, in conformity with
accounting principles generally accepted in Israel.
As explained in Note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
/s/ KOST, FORER & GABBAY
----------------------------
Tel-Aviv, Israel KOST, FORER & GABBAY
March 14, 2002 A Member of Ernst & Young International
F-128
Kost, Forer & Gabbay Phone: 972-3-6232525
3 Aminadav St . Fax: 972-3-5622555
Tel-Aviv 67067, Israel
AUDITORS' REPORT
To the shareholders of
KOOR TRADE LTD.
We have audited the accompanying balance sheets of Koor Trade Ltd. ("The
Company") as at December 31, 2001 and 2000, and the related statements of
operations, changes in deficiency and cash flows for each of the three
years, the last of which ended December 31, 2001. 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 a certain company the
investment in which on the equity basis of accounting totaled NIS 41.6
million and NIS 41.6 million as of December 31, 2001 and 2000,
respectively, and the Company's share in the net income of which totaled
NIS 2,522 thousand, and NIS 838 thousand for the years ended December 31,
2000 and 1999, respectively. These statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to data included for this certain company, is based solely on
the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audits provide a reasonable
basis for our opinion.
The Company has restated its financial statements for the year ended
December 31, 2000 in order to retroactively reflect the effect of the
operating results of an investee whose investment in the financial
statements for December 31, 2000 did not include its operating results for
2000 (see Note 2g.) - a change to which we concur.
As no audited statements of other auditors were furnished, the investment
in investee was included according to the adjusted book value as of
December 31, 2000. The statement of operations does not include the
Company's share in the results of operations of that investee for the year
ended December 31, 2001.
In our opinion, except for the absence of information referred to in the
preceding paragraph, based on our audits and the reports of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2001 and 2000, and the results of its operations, the changes in its
deficiency and its cash flows for each of the three years, the last of
which ended December 31, 2001, in conformity with accounting principles
generally accepted in Israel.
As explained in Note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
Tel-Aviv, Israel
March 14, 2002
/s/ KOST, FORER & GABBAY
------------------------
KOST, FORER & GABBAY
A Member of Ernst & Young International
F-129
AUDITORS' REPORT
To the Shareholders of
KOORSHEVEL LTD.
We have audited the attached balance sheets of Koorshevel Ltd. (hereafter -
the company) as at December 31, 2001 and 2000, and the statements of loss
and of capital defiency for the year ended December 31, 2001(hereafter -
the financial statements). 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 US generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance that 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 statements presentation. We
believe that our audits provide a fair 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 as at
December 31, 2001 and 2000 and the results of its operations and the change
in its capital deficiency for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in Israel (insofar
as the company is concerned such principles are identical with those
generally accepted in the USA).
As explained in note 2a., the financial statements referred to above are
presented in values adjusted for the changes in the general purchasing
power of the Israeli currency, in accordance with pronouncements of the
Institute of Certified Public Accountants in Israel.
Ramat-Gan, Israel
March 11, 2002
/s/ LION, ORLITZKY &CO.
-----------------------
LION, ORLITZKY & CO.
Certified Public Accountants (Isr.)
F-130
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheets of Koor Electronics Ltd.
(hereafter - the Company) as of December 31, 2001 and 2000, and the related
statements of operations and changes in deficit for each of the three years
in the period ended December 31, 2001. These financial statements are in
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 the United States of America. 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 management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
December 31, 2001 and 2000, and the results of its operations and changes
in deficit for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the
United States of America.
As explained in note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
Ramat-Gan, Israel
March 7, 2002
/s/ Oren Horowitz & Co. - H. Wallenstein & Co.
-----------------------------------------------
OREN HOROWITZ & CO - H. WALLENSTEIN & CO
Certified Public Accountants (Isr.)
F-131
Kost, Forer & Gabbay Phone: 972-3-6232525
3 Aminadav St . Fax: 972-3-5622555
Tel-Aviv 67067, Israel
AUDITORS' REPORT
To the shareholders of
SOLOR AGENCIES LTD.
We have audited the accompanying balance sheets of Solor Agencies Ltd.
("the Company") as at December 31, 2001 and 2000, and the related
statements of operations, changes in equity (deficiency) and cash flows for
each of the three years, the last of which ended December 31, 2001. 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 the United States of America. 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 audits provide 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 as of
December 31, 2001 and 2000, and the results of its operations, the changes
in its equity (deficiency) and its cash flows for each of the three years,
the last of which ended December 31, 2001, in conformity with accounting
principles generally accepted in Israel.
As explained in Note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
Without qualifying our opinion, we wish to draw attention to the matter
discussed in Note 1a. to the financial statements. The Company has suffered
losses amounting to approximately NIS 94 thousand for the year ended
December 31, 2001 and has a working capital deficiency as of December 31,
2001 amounting to approximately NIS 1,319 thousand. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments for the
amounts and classification of assets or the amounts and classification of
liabilities that may result should the Company not be able to continue and
to operate as a "going concern".
Tel-Aviv, Israel
March 14, 2002
/s/ KOST, FORER & GABBAY
-------------------------
KOST, FORER & GABBAY
A Member of Ernst & Young International
F-132
ANDERSEN LUBOSHITZ KASLERER
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF
KNAFAIM - ARKIA HOLDINGS LIMITED
We have audited the accompanying balance sheets of Knafaim - Arkia Holdings
Limited ("the Company") and the consolidated balance sheets as of December
31, 2001 and 2000, and the related statements of income, shareholders'
equity and cash flows - of the Company and consolidated - for each of the
three years in the period ended December 31, 2001. 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 subsidiaries whose assets
constitute approximately 1.9% and 2.1% of total consolidated assets as at
December 31, 2001 and 2000, respectively, and whose revenues constitute
approximately 31%, 25% and 18% of total consolidated revenues for the years
ended December 31, 2001, 2000 and 1999, respectively. Also we did not audit
the financial statements of affiliated companies, the investment in which
is U.S.$17,418,000 and U.S.$19,901,000 as at December 31, 2001 and 2000,
respectively, and the Company's equity in their earnings (losses) is
U.S.$798,000, U.S.$1,043,000 and U.S.$(970,000) for the years ended
December 31, 2001, 2000 and 1999, respectively. The financial statements of
those companies were audited by other auditors whose reports were furnished
to us, and our opinion, insofar as it relates to the amounts included for
those companies, is based on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in Israel and in the United States, including those prescribed
under the Auditors' Regulations (Auditor's 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 audits and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position - of the Company and on a consolidated
basis - as at December 31, 2001 and 2000, and the results of operations,
shareholders' equity and cash flows - of the Company and on a consolidated
basis - for each of the three years in the period ended December 31, 2001,
in conformity with generally accepted accounting principles in Israel.
As described in Note 2(a), the Company prepares its primary financial
statements in values adjusted for changes in the general purchasing power
of the Israeli currency as measured by the changes in the exchange rate of
the U.S. dollar in relation to the Israeli shekel in accordance with
pronouncements of the Institute of Certified Public Accountants in Israel.
The accompanying financial statements are a translation of the primary
financial statements into U.S. dollars, as described in Note 2(a).
Tel Aviv, March 18, 2002
/s/ Luboshitz Kasierer
----------------------
Luboshitz Kasierer
Certified Public Accountants (Isr.)
F-133
Deloitte
& Touche
Brightman Almagor
AUDITORS' REPORT
TO THE SHAREHOLDERS OF MASHAL ALUMINA INDUSTRIES LTD.
We have audited the accompanying balance sheets of Mashal Alumina
Industries Ltd. ("the Company") as at December 31, 2001 and 2000, and the
related statements of operations, for each of each of the two years in
period ended December 31, 2001. These financial statements are the
responsibility of the Company's 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 the United States of America. 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 management, as
wcll as evaluating the overall financial statement presentation. We believe
that our audits provide 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 as of
December 31, 2001 and 2000, and the results of its operations, for the
period of two years ended December 31, 2001 in conformity with accounting
principles generally accepted in Israel.
As explained in Note 2 the above mentioned Financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
/s/ Brightman Almagor & Co.
---------------------------
Brightman Almagor & Co.
Certified Public Accountants
FEBRUARY 20, 2002
F-134
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheets of Telrad Business
Communication Ltd. (hereafter -- the Company) as of December 31 , 2001 and
2000, and the related statements of operations, changes in equity and of
cash flows for each of the three years in the period ended December 31,
2001. These financial statements are in 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.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
December 31, 2001 and 2000, and the results of its operations, its changes
in equity and its cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
As explained in note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
Ramat-Gan, Israel
March 7, 2002
/s/ Oren Horowitz & Co. - H. Wallenstein & Co.
-----------------------------------------------
OREN HOROWITZ & CO - H. WALLENSTEIN & CO
Certified Public Accountants (Isr.)
F-135
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
SHERATON MORIAH (ISRAEL) LTD.
We have audited the accompanying balance sheets of Sheraton Moriah (Israel)
Ltd. ("the Company") as of December 31, 2001 and 2000, and the consolidated
balance sheets -of the Company and on a consolidated basis -at such dates
and the related statements of operations, shareholders' equity, and cash
flows-of the Company and on a consolidated basis - for each of the three
years in the period ended December 31,2001. 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
We did not audit the financial statements of certain subsidiaries
consolidated whose assets constitute 4% and 10% of the total consolidated
assets as at December 31, 2001 and 2000, respectively, and whose revenues
constitute 19%, 26% and 0% of the total consolidated revenues for each of
the three years in the period ended December 31, 2001, respectively. The
financial statements of those companies were audited by other auditors
whose report thereon were furnished to us and our opinion, insofar as it
relates to amounts included in respect thereof is based solely on the said
report of the other auditors. Furthermore, the data included in the
consolidated financial statements relating to the equity in investees are
based on the financial statements audited by other auditors.
We conducted our audits in accordance with U S generally accepted auditing
standards. 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 reports of the other auditors
provide a reasonable basis for our opinion, except for matter discussed in
the following paragraph.
The financial statements of proportionately consolidated subsidiaries whose
assets and revenues constitute 30% and 27% of the total consolidated assets
and revenues at December 31, 2001 and for the year then ended,
respectively, have not been approved by the management of these companies
and, therefore, not yet received the respective auditor reports.
In our opinion, except for the possible effect of adjustments that might
have been required had the financial staements noted in the preceding
papragraph been received, based on our audits and on the reports of the
other auditors, the financial statements referred to above present fairly,
in all material respects, the financial position - of the Company and on a
consolidated basis - at December 31, 2001 and 2000 and the results of their
operations, changes in shareholders' equity and cash flows- for the Company
and on a conslidated basis- for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally
accepted in Israel.
As explained in Note 2, the above-mentioned financial statements are
stated in values adjusted for the changes in the general purchasing power
of the Israeli currency, in accordance with pronouncements of the Institute
of Certified Public Accountants in Israel.
Tel Aviv,
March 10, 2002
Sincerely yours,
/s/ Lion, Orlitzky & Co. /s/ Brightman Almagor & Co.
------------------------ ---------------------------
Lion, Orlitzky & Co. Brightman Almagor & Co.
Certified Public Accountants (Isr.) Deloitte Touche Tomatsu
Certified Public Accountants (Isr.)
F-136
Auditors' Report to the shareholders of
Koor Hanpakot Ltd.
We have audited the accompanying balance sheets of Koor Hanpakot Ltd. as
of December 31, 2001 and 2000 and the related statements of operations,
shareholders' equity and cash flows for each of the three years, the last
of which ended December 31, 20001 These financial statements are the
responsibility of the Company's Board of Directors and of its 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 the United States of America. 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 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 as of December 31, 2001and 2000 and the results of its
operations, the changes in its shareholders' equity and its cash flows for
each of the three years, the last of which ended December 31, 2001, in
conformity with accounting principles generally accepted in Israel.
As explained in note 1b, the above mentioned financial statements are
stated in values adjusted for the changes in the general purchasing power
of the Israeli currency, in accordance with opinions of the Institute of
Certified Public Accountants in Israel.
Tel-Aviv
/s/ Kesselman & Kesselman
---------------------------
Kesselman & Kesselman
February 19, 2002 Certified Public Accountants (Isr.)
F-137
March 14, 2002
Auditors' Report to the Shareholders of
Koor Properties Ltd.
I have audited the accompanying balance sheets of Koor Properties Ltd. (the
"Company") as at December 31, 2001 and 2000, and the consolidated balance
sheets of the Company and its subsidiaries as at such dates, and the
related statements of operations, shareholders' equity, and cash flows, for
each of the three years, the last of which ended December 31, 2001. These
financial statements are the responsibility of the Company' s Board of
Directors and of its Management. My responsibility is to express an opinion
on these financial statements based on my audits.
I did not audit the financial statements of certain subsidiaries, whose
revenue constitute 3% and 11% of the total consolidated revenues for the
years ended December 31, 2001, 2000 repectively. The financial statements
of those subsidiaries were audited by other auditors whose reports thereon
were furnished to me. My opinion, insofar as it relates to amounts
emanating from the financial statements of such subsidiaries, is based
solely on the said reports of the other auditors. Furthermore, the data
included in the financial statements relating to the net asset value of the
Company' s investments in affiliates and to its share in their operating
results is based on the financial statements of such affiliates, some of
which were audited by other auditors.
I conducted my audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that I
plan and perform the audit to obtain reasonable assurance about whether
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. I believe that my audits, and reports of the other
auditors, provide a reasonable basis for my opinion.
In my opinion, based on my audits and on the reports of the above-mentioned
other auditors, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company and the
consolidated financial position of the Company and its subsidiaries as of
December 31, 2001 and 2000 and the results oftheir operations, the changes
in shareholders' equity and their cash flows for each of the three years,
the last of which ended December 31, 2001, in conformity with accounting
principles generally accepted in Israel.
As explained in note 2, the above-mentioned financial statements are stated
in values adjusted for the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel. .
/s/ Yosef Shimony
------------------
Yosef Shimony
C.P.A (Isr.)
F-138
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Isram Wholesale Tours and Travel, Ltd. and Subsidiaries
(A Majority-Owned Subsidiary of Koor Industries Limited)
We have audited the accompanying consolidated balance sheets of Isram
Wholesale Tours and Travel, Ltd. and Subsidiaries (a majority-owned
subsidiary of Koor Industries Limited) as of December 31, 2001 and 2000,
and the related consolidated statements of income (loss) and retained
earnings, and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Isram (Israel) Touring, Ltd., a wholly owned
subsidiary, which statements reflect total assets of $1,734,000 and
$2,555,000 as of December 31, 2001 and 2000, respectively, and total
revenue of $ 5,823,000, $28,870,000 and $23,679,000 for the years ended
December 31, 2001, 2000 and 1999, respectively. These statements were
audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for Isram (Israel)
Touring, Ltd., is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Isram Wholesale Tours and
Travel, Ltd. and Subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Israeloff, Trattner & Co. P.C.
---------------------------------
Valley Stream, New York
February 20, 2002, except as to
foreign operations, covered by
the other auditors' report, as
to which the date is March 8, 2002
F-139
BDO Seidman, LLP
Accountants and Consultants
Independent Auditors' Report
Telrad Tenecs, Inc.
Woodbury, New York
We have audited the accompanying consolidated balance sheets of Telrad
Tenecs, Inc. (formerly Telrad Networks, Inc.) ( a wholly-owned subsidiary
of Telrad Tenecs Ltd.) and Subsidiary as of December 31, 2001 and 2000, and
the related consolidated statements of income and retained earnings, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 also
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
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Telrad
Tenecs, Inc. at December 31, 2001 and 2000 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
January 25, 2002
F-140