===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
(Amendment No. 1)
Annual Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2004
Commission file number 1-9178
------------
KOOR INDUSTRIES LTD.
----------------------------------------------------------------
(Exact name of Registrant as specified in its charter and
translation of Registrant's name into English)
Israel
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(Jurisdiction of incorporation or organization)
14 Hamelacha Street, Rosh Ha'ayin 48091, 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
------------------- ---------------------
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:
None
----------------------------------------------------------------
(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:
16,033,213 Ordinary Shares, Par Value NIS 0.001 Per Share
---------------------------------------------------------
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
--- ---
Indicate by check mark which financial statements the registrant has elected to
follow:
Item 17 X Item 18
--- ---
===============================================================================
EXPLANATORY NOTE
Koor Industries Ltd. ("Koor") filed its Annual Report on Form 20-F for
the fiscal year ended December 31, 2004 (the "Form 20-F") with the Securities
and Exchange Commission ("SEC") on July 15, 2005.
This Amendment No. 1 to Koor's Form 20-F is filed in response to
comments Koor received from the staff of the SEC to: (i) amend its disclosure
under Item 15 (Controls and Procedures) to clarify that Koor's disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports that it filed or submits under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") is accumulated and communicated to
Koor's management, including its principal executive and principal financial
officers, to allow timely decisions regarding required disclosure; (ii) amend
its disclosure under Item 17 (Financial Statements) to provide clarifications
of several differences between generally accepted accounting principles in
Israel ("Israeli GAAP") and generally accepted accounting principles in the
United States ("US GAAP") in its US GAAP reconciliation footnote, including
providing a quantified description of the material differences between cash
flows reported in Koor's primary financial statements under Israeli GAAP and
cash flows that would be reported in accordance with US GAAP; (iii) amend the
financial statements of Makhteshim-Agan Industries Ltd. ("M-A Industries"),
which are included in Koor's Form 20-F pursuant to Rule 3-09 of Regulation S-X
promulgated under the Exchange Act, to provide a quantified description of the
material differences between cash flows reported in M-A Industries' primary
financial statements under Israeli GAAP and cash flows that would be reported
in accordance with US GAAP; and (iv) revise its auditors' report and the
auditors' reports of several of its subsidiaries and affiliates to include the
city and state where those auditors' reports were issued and, with respect to
the auditors' report for M-A Industries, to clarify that the auditors conducted
their audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States).
Pursuant to Rule 12b-15 under the Exchange Act, amendments to Form
20-F must set forth the complete text of each item as amended. Accordingly,
Koor is amending and restating Items 15 and 17 of its Form 20-F in their
entirety and is amending and restating M-A Industries' financial statements in
their entirety. However, other than as described above, no part of Koor's Form
20-F filed on July 15, 2005, including its primary financial statements
prepared in accordance with Israeli GAAP, is being amended, and no part of the
Form 20-F or of the amended Items 15 and 17 as re-filed pursuant to this
amendment speaks as of any date subsequent to July 15, 2005.
Item 15. Controls and Procedures
-----------------------
Koor hereby amends Item 15 of its Form 20-F in its entirety and
replaces it with the following:
Disclosure Controls and Procedures. Our Chief Executive Officer and
Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act as of December 31, 2004. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to us (including our consolidated
subsidiaries) required to be included in our reports filed or submitted under
the Exchange Act, and that our disclosure controls and procedures are effective
to ensure that information required to be disclosed in the reports that we file
or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting. There were no changes in
our internal control over financial reporting (as defined in Rules 13a-15(f) or
15d-15(f) under the Exchange Act) that occurred during the year ended December
31, 2004 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 17. Financial Statements
--------------------
Koor hereby amends Item 17 of its Form 20-F in its entirety and
replaces it with the following:
See pages F-1 through F-144, incorporated herein by reference.
Financial Statements of Makhteshim-Agan Industries Ltd.
-------------------------------------------------------
Koor hereby amends the financial statements of M-A Industries in their
entirety and replaces them with the following:
See pages F-145 through F-232, incorporated herein by reference.
Item 19. Exhibits.
---------
Index to exhibits filed with this Amendment No. 1 to Koor's Form 20-F.
Exhibit No. Description
----------- -----------
12.1 Certification of the Principal Executive Officer of Koor
Industries Ltd. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
12.2 Certification of the Principal Financial Officer of Koor
Industries Ltd. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
13.1 Certification of the Principal Executive and Financial
Officers of Koor Industries Ltd. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
14.1 Consent of KPMG Somekh Chaikin to the incorporation by
reference into the effective registration statement on Form
S-8 of Koor Industries Ltd. under the Securities Act of
1933 of their report with respect to the consolidated
financial statements of Koor Industries Ltd., which appears
in this Annual Report on Form 20-F.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
KOOR INDUSTRIES LTD.
By: /s/ Jonathan B. Kolber
-----------------------------
Jonathan B. Kolber
Chief Executive Officer
Date: September 16, 2005
Koor Industries Ltd. (an Israeli Corporation)
Financial Statements as at December 31, 2004
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Contents
Page
Auditors' Report F-2
Financial Statements
Consolidated Balance Sheets F-3
Company Balance Sheets F-5
Consolidated Statements of Operations F-7
Company Statements of Operations F-8
Statement of Shareholders' Equity F-9
Consolidated Statements of Cash Flows F-12
Company Statements of Cash Flows F-18
Notes to the Financial Statements F-20
F-1
[Letterhead of Somekh Chaikin, a Member Firm of KPMG International]
Report of Independent Registered Public Accounting Firm
The Shareholders
Koor Industries Ltd.
We have audited the accompanying balance sheets of Koor Industries Ltd.
(hereinafter - the "Company" or Koor) and the consolidated balance sheets of
the Company and its subsidiaries as at December 31, 2004 and 2003, and the
related statements of operations, shareholders' equity and cash flows, for each
of the three years, the last of which ended December 31, 2004. 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 12% and 20% of the total consolidated assets as at December 31, 2004
and 2003 respectively, and whose revenues constitute 14%, 19% and 20% of the
total consolidated revenues for the years ended December 31, 2004, 2003 and
2002, respectively. Furthermore, we did not audit the financial statement of
certain affiliates, whose company's investments constitute NIS 204,878 thousand
and NIS 218,081 thousand, as at December 31, 2004 and 2003, respectively, and
its equity in earnings constitute NIS 5,647 thousand for the year ended
December 31, 2004 and its equity in losses, NIS 12,875 thousand and NIS 6,748
thousand for the years ended December 31, 2003 and 2002, respectively. The
financial statements of those subsidiaries and affiliates were audited by other
auditors whose reports thereon were furnished to us. Our opinion, insofar as it
relates to amounts included for such subsidiaries and affiliates, is based
solely on the said reports of the other auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the 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, 2004 and 2003 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, 2004, in conformity with accounting principles
generally accepted in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America (US GAAP). Information related to the nature and effect of such
differences is presented in Note 28 of the financial statements. As further
described in Note 28 to the financial statements, the reconciliation of
differences between Israeli GAAP and US GAAP as of and for the years ended
December 31, 2003 and 2002 has been restated.
As explained in Note 2(B), the financial statements for dates and reporting
periods subsequent to December 31, 2003 are stated in reported amounts, in
accordance with the accounting standards of the Israel Accounting Standards
Board. The financial statements for dates and reporting periods that ended up
to the aforementioned date are stated in values that were adjusted to that date
according to 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/ Somekh Chaikin
Somekh Chaikin
Certified Public Accountants (Isr.)
March 29, 2005, except for Note 28, as to which the date is July 13, 2005.
Tel-Aviv, Israel
F-2
Consolidated Balance Sheets as at December 31
------------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
December 31 December 31 December 31
2004 2003 2004
-------------- --------------- ---------------
Adjusted in
Reported terms of NIS of Reported
amounts* December 2003 amounts
-------------- --------------- ---------------
2004 2003 2004
-------------- --------------- ---------------
Note NIS thousands US $ thousands
-------- -------------------------------- ---------------
Assets
Current assets
Cash and cash equivalents 617,310 593,403 143,294
Short-term deposits and investments 4 416,468 366,809 96,673
Trade receivables 5 2,173,599 2,052,461 504,549
Other receivables 6 528,983 452,170 122,791
Inventories and work in progress, net
of customer advances 7 2,294,885 1,885,751 532,703
Assets designated for sale 41,765 42,525 9,695
-------------- --------------- ---------------
Total current assets 6,073,010 5,393,119 1,409,705
-------------- --------------- ---------------
Investments and long-term
receivables
Investments in affiliates 8 1,375,160 943,764 319,211
Other investments and receivables 9 489,031 483,384 113,517
-------------- --------------- ---------------
1,864,191 1,427,148 432,728
-------------- --------------- ---------------
Fixed assets 10 2,852,907 2,928,407 662,235
-------------- --------------- ---------------
Intangible assets deferred tax assets and
deferred expenses 11 2,357,458 2,121,083 547,228
-------------- --------------- ---------------
13,147,566 11,869,757 3,051,896
============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
F-3
Koor Industries Ltd. (An Israeli Corporation)
-------------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
December 31 December 31 December 31
2004 2003 2004
-------------- --------------- ---------------
Adjusted in
Reported terms of NIS of Reported
amounts* December 2003 amounts
-------------- --------------- ---------------
2004 2003 2004
-------------- --------------- ---------------
Note NIS thousands US $ thousands
-------- -------------------------------- ---------------
Liabilities and Shareholders' Equity
Current liabilities
Credit from banks and others 12 1,738,456 1,577,402 403,541
Trade payables 13 1,667,455 1,342,783 387,060
Other payables 14 1,369,442 1,270,217 317,884
Customer advances, net of costs incurred on project 7 211,207 156,441 49,027
-------------- --------------- ---------------
Total current liabilities 4,986,560 4,346,843 1,157,512
-------------- --------------- ---------------
Long-term liabilities
Net of current maturities: 15
Bank loans 2,208,096 3,006,343 512,557
Other loans 133,019 113,494 30,877
Convertible debentures of consolidated company 646,200 - 150,000
Customer advances 142,164 194,094 33,000
Deferred taxes 16G 240,468 199,787 55,819
Liability for employee severance benefits, net 17 197,168 192,002 45,768
-------------- --------------- ---------------
Total long-term liabilities 3,567,115 3,705,720 828,021
-------------- --------------- ---------------
Contingent liabilities and commitments 18
Convertible debentures of consolidated company 165,091 340,270 38,322
-------------- --------------- ---------------
Minority Interest 2,552,333 1,736,531 592,464
-------------- --------------- ---------------
Shareholders' Equity 20 1,876,467 1,740,393 435,577
-------------- --------------- ---------------
13,147,566 11,869,757 3,051,896
============== =============== ===============
/s/ Jonathan Kolber /s/ Gabriela Shalev /s/ Yuval Yanai
------------------------ -------------------------------- -------------------------
Jonathan Kolber Prof. Gabriela Shalev Yuval Yanai
Chief Executive Officer Member of the Board of Directors Vice President
Chief Financial Officer
March 29, 2005, except for Note 28, as to which the date is July 13, 2005
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-4
Company Balance Sheets as at December 31
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
December 31 December 31 December 31
2004 2003 2004
-------------- --------------- ---------------
Adjusted in
Reported terms of NIS of Reported
amounts* December 2003 amounts
-------------- --------------- ---------------
2004 2003 2004
-------------- --------------- ---------------
Note NIS thousands US $ thousands
-------- -------------------------------- ---------------
Assets
Current assets
Cash and cash equivalents 29,665 9,205 6,886
Short-term deposits and investments 4 298,641 310,806 69,322
Short-term loans and current maturities
of loans to investee companies 49,928 16,480 11,590
Receivables:
Investee companies 9,435 28,650 2,190
Others 6 84,038 67,774 19,507
Assets designated for sale 41,765 42,525 9,695
-------------- --------------- ---------------
Total current assets 513,472 475,440 119,190
-------------- --------------- ---------------
Investments and long-term receivables
Investments in investees 8 3,601,557 3,453,066 836,016
Other investments and receivables 9 33,175 33,177 7,701
-------------- --------------- ---------------
3,634,732 3,486,243 843,717
-------------- --------------- ---------------
Fixed assets, net 10 22,484 23,323 5,219
-------------- --------------- ---------------
4,170,688 3,985,006 968,126
============== =============== ===============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
F-5
Koor Industries Ltd. (An Israeli Corporation)
-------------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
December 31 December 31 December 31
2004 2003 2004
-------------- --------------- ---------------
Adjusted in
Reported terms of NIS of Reported
amounts* December 2003 amounts
-------------- --------------- ---------------
2004 2003 2004
-------------- --------------- ---------------
Note NIS thousands US $ thousands
-------- -------------------------------- ---------------
Liabilities and Shareholders' Equity
Current liabilities
Credit from banks and others 12 719,730 588,535 167,068
Trade payables 13 383 503 89
Other payables:
Investee companies 14,311 57 3,322
Others 14 49,132 43,266 11,405
-------------- --------------- ---------------
Total current liabilities 783,556 632,361 181,884
-------------- --------------- ---------------
Long-term liabilities
Net of current maturities: 15
Loans from banks and others 1,505,690 1,610,768 349,510
Liability for employee severance
benefits, net 17 4,975 1,484 1,155
-------------- --------------- ---------------
Total long-term liabilities 1,510,665 1,612,252 350,665
-------------- --------------- ---------------
Contingent liabilities and commitments 18
Shareholders' equity 20 1,876,467 1,740,393 435,577
-------------- --------------- ---------------
4,170,688 3,985,006 968,126
============== =============== ===============
/s/ Jonathan Kolber /s/ Gabriela Shalev /s/ Yuval Yanai
----------------------- -------------------------------- --------------
Jonathan Kolber Prof. Gabriela Shalev Yuval Yanai
Chief Executive Officer Member of the Board of Directors Vice President
Chief Financial Officer
March 29, 2005, except for Note 28, as to which the date is July 13, 2005
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-6
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Operations
------------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended December 31 Year ended
------------------------------------------------ December 31
2004 2003 2002 2004
------------ -------------- -------------- ---------------
Reported Adjusted in terms of NIS Reported
amounts* of December 2003 amounts*
------------ -------------------------------- ---------------
Note NIS thousands US $ thousands
--------- ------------------------------------------------ ---------------
Revenue from sales
and services 23A 9,228,673 7,690,430 7,099,790 2,142,218
Cost of sales and services 23B 6,287,679 5,392,944 5,315,780 1,459,536
------------ ------------ ------------- ------------
Gross profit 2,940,994 2,297,486 1,784,010 682,682
Selling and marketing expenses 23C 1,172,204 940,457 814,777 272,099
General and administrative
expenses 23D 526,004 460,744 489,369 122,100
------------ ------------ ------------- ------------
Operating earnings 1,242,786 896,285 479,864 288,483
Financing expenses, net 23E 271,362 228,200 408,437 62,990
------------ ------------ ------------- ------------
971,424 668,085 71,427 225,493
Other income (expenses), net 23F (78,759) (219,721) 5,824 (18,282)
Transfer to statement of income
of translation differences of
autonomous investee in voluntary
liquidation 3B - - (390,901) -
------------ ------------ ------------- ------------
Earnings (loss) before income tax 892,665 448,364 (313,650) 207,211
Income tax 16H (287,100) (85,372) (141,179) (66,643)
------------ ------------ ------------- ------------
605,565 362,992 (454,829) 140,568
Group's equity in the operating
results of affiliates, net 23G (27,687) (113,823) (252,091) (6,427)
------------ ------------ ------------- ------------
577,878 249,169 (706,920) 134,141
Minority interest in consolidated
company's results, net (432,888) (202,807) (60,049) (100,485)
------------ ------------ ------------- ------------
Net earnings (loss) from
continuing activities 144,990 46,362 (766,969) 33,656
============ ============ ============= ============
NIS NIS NIS US$
------------ ------------ ------------- ------------
Basic and diluted earnings
(loss) per NIS 1 par value
of ordinary shares: 26 8.851 2.950 (50.547) 2.054
============ ============ ============= ============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-7
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Operations
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended December 31 Year ended
------------------------------------------------ December 31
2004 2003 2002 2004
------------ -------------- -------------- ---------------
Reported Adjusted in terms of NIS Reported
amounts* of December 2003 amounts*
------------ -------------------------------- ---------------
Note NIS thousands US $ thousands
--------- ------------------------------------------------ ---------------
Income
Management services
from subsidiaries 22,334 25,006 35,573 5,184
Other income 23F 234,959 5,691 365,431 54,540
------------ ------------ ------------- ------------
Total income 257,293 30,697 401,004 59,724
Expenses
General and administrative
Expenses 23D 46,648 41,164 48,136 10,828
Financing, net 23E 110,806 35,108 199,808 25,721
------------ ------------ ------------- ------------
Total expenses 157,454 76,272 247,944 36,549
------------ ------------ ------------- ------------
Earnings (loss) before
income tax 99,839 (45,575) 153,060 23,175
Income tax 18,951 55,667 3,722 4,399
Earnings after income tax 118,790 10,092 156,782 27,574
Koor's equity in the
operating results of
investee companies, net 23G 26,200 36,270 (923,751) 6,082
------------ ------------ ------------- ------------
Net earnings (loss) for the
year 144,990 46,362 (766,969) 33,656
============ ============ ============= ============
NIS NIS NIS US$
------------ ------------ ------------- ------------
Basic and diluted earnings
(loss ) per NIS 1 par value
of ordinary shares : 26 8.851 2.950 (50.547) 2.054
============ ============ ============= ============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-8
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity
---------------------------------------------------------------------------------------------------------------------------------
Company Cumulative
shares held foreign
Number of by the currency Retained
ordinary Share Capital Company and translation earnings
shares (1) capital reserves subsidiaries adjustments (deficit) Total
------------ --------- ---------- ------------ ------------ ---------- -----------
Adjusted in terms of NIS of December 2003
---------------------------------------------------------------------------------------------
NIS thousands
---------------------------------------------------------------------------------------------
Balance at December 31, 2001 15,168,884 564,515 2,564,099 (272,458) (418,923) (241,409) 2,195,824
Changes during 2002:
Net loss - - - - - (766,969) (766,969)
Exercise of stock options
granted to Israeli banks 4,493 *- - - - - -
Cumulative foreign currency
translation adjustments, net - - - - 12,538 - 12,538
Provision for decline in value of
autonomous investee
(see Note 3A(1)) - - - - (105,125) - (105,125)
Transfer to statement of income
of translation differences
of autonomous investee in
in voluntary liquidation
(see Note 3B) - - - - 390,901 - 390,901
------------ --------- ---------- ------------- ------------ ----------- -----------
Balance as December 31, 2002 15,173,377 564,515 2,564,099 (272,458) (120,609) (1,008,378) 1,727,169
============ ========= ========== ============= ============ =========== ===========
Balance at December 31, 2002 15,173,377 564,515 2,564,099 (272,458) (120,609) (1,008,378) 1,727,169
Changes during 2003:
Net earnings - - - - - 46,362 46,362
Exercise of stock options
granted to employees 67,783 *- - - - - -
Issuance of "treasury stock"
(see Note 20B) 500,000 - - 192,137 - (149,126) 43,011
Cancellation of provision for
decline in value of autonomous
investee (see Note 3A(1)) - - - - 73,401 - 73,401
Cumulative foreign currency
translation adjustments - - - - (149,550) - (149,550)
------------ --------- ---------- ------------- ------------ ----------- -----------
Balance at December 31, 2003 15,741,160 564,515 2,564,099 (80,321) (196,758) (1,111,142) 1,740,393
============ ========= ========== ============= ============ =========== ===========
* 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-9
Koor Industries Ltd. (An Israeli Corporation)
Statement of Shareholders' Equity (cont'd)
---------------------------------------------------------------------------------------------------------------------------------
Company Cumulative
shares held foreign
Number of by the currency Retained
ordinary Share Capital Company and translation earnings
shares (1) capital reserves subsidiaries adjustments (deficit) Total
------------ --------- ---------- ------------ ------------ ---------- -----------
Adjusted in terms of NIS of December 2003
---------------------------------------------------------------------------------------------
NIS thousands
---------------------------------------------------------------------------------------------
Balance at December 31, 2003 15,741,160 564,515 2,564,099 (80,321) (196,758) (1,111,142) 1,740,393
Changes during 2004:
Net earnings - - - - - 144,990 144,990
Exercise of stock options
granted to employees 83,025 *- - - - - -
Cumulative foreign currency
translation adjustments, net - - - - (8,916) - (8,916)
------------ --------- ---------- ------------- ------------ ----------- -----------
Balance as December 31, 2004 15,824,185 564,515 2,564,099 (80,321) (205,674) (966,152) 1,876,467
============ ========= ========== ============= ============ =========== ===========
* 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)
--------------------------------------------------------------------------------------------------------------------------------
Convenience translation into US Dollars (Note 2B)
Company Cumulative
shares held foreign
by the currency Retained
Capital Company and translation earnings
Share capital reserves subsidiaries adjustments (deficit) Total
------------- ---------- ------------ ----------- ----------- ----------
US$ thousands
--------------------------------------------------------------------------------------------
Balance at January 1, 2003 131,039 595,194 (18,645) (45,672) (257,925) 403,991
Changes during 2004:
Net earnings - - - 33,656 33,656
Exercise of stock options
granted to employees *- - - - -
Cumulative foreign currency
translation adjustments - - - (2,070) - (2,070)
------------- ---------- ------------ ----------- ----------- ----------
Balance at December 31, 2004 131,039 595,194 (18,645) (47,742) (224,269) 435,577
============= ========== ============ =========== =========== ==========
* Represents an amount lower than US$ 1,000
** With respect to discontinuance of adjustment to the effect of inflation as from the CPI of December 2003 (see Note 2B).
(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)
Consolidated Statement of Cash Flows
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
NIS thousands US $ thousands
------------------------------------------------- --------------
Cash flows generated by operating activities:
Net earnings (loss) for the year 144,990 46,362 (766,969) 33,656
Adjustments to reconcile net earnings to net
cash flows generated by operating activities (A) 745,683 728,413 1,194,420 173,093
------------- --------------- -------------- --------------
Net cash inflow generated by operating
activities 890,673 774,775 427,451 206,749
------------- --------------- -------------- --------------
Cash flows generated by investing activities:
Purchase of fixed assets (232,146) (193,424) (260,119) (53,887)
Investment grants in respect of fixed assets 6,908 8,482 7,583 1,603
Amounts charged to intangible assets
and deferred expenses (153,206) (313,125) (810,649) (35,563)
Additional investments in subsidiaries - (600) (2,802) -
Acquisition of subsidiaries (B) (299,305) (14,372) (92,746) (69,477)
Investments in affiliates (646,672) (6,316) (13,652) (150,110)
Investments in loans to affiliates (1,680) (1,616) (1,405) (390)
Repayment of loans from affiliates and others - 226,765 4 -
Proceeds from realization of investments
in formerly consolidated subsidiaries,
net of cash in those subsidiaries at the
time they ceased being consolidated (c) - (14,182) - -
Repayment of liability in respect of
subsidiary in prior years (28,309) - - (6,571)
Proceeds from realization of activity of
prior year - - 11,849 -
Acquisition of minority in subsidiaries (4,762) - - (1,105)
Proceeds from disposal of investments
in investee companies and others 636,286 123,742 484,355 147,699
Proceeds from sale of fixed assets and
intangible assets 10,519 30,998 314,396 2,442
Investment in venture capital companies (34,928) (13,580) (47,025) (8,108)
Decrease (increase) in other investments, net (5,110) 7,465 (58,406) (1,186)
Decrease (increase) in short-term deposits
and investments, net (8,673) 426,348 210,804 (2,013)
Proceeds from realization of subsidiary's shares
that became proportionately consolidated (D) 38,239 - - 8,876
------------- --------------- -------------- --------------
Net cash inflow (outflow) generated by
investing activities (722,839) 266,585 (257,813) (167,790)
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as
from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-12
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
NIS thousands US $ thousands
------------------------------------------------- --------------
Cash flows generated by financing activities:
Issuance of equity - 43,011 - -
Issuance of shares to minority interest in
subsidiaries 14,617 14,137 2,928 3,393
Dividend paid to minority interest
in subsidiaries (107,006) (56,529) (27,104) (24,839)
Payment of suppliers credit received
for the purchase of fixed assets - - (13,014) -
Purchase of convertible debentures of
subsidiary by its subsidiary in the market - - (15,137) -
Issuance of convertible debentures in subsidiary 665,982 - 136,210 154,592
Proceeds from principal of long-term
loans and other long-term liabilities 1,063,387 949,392 1,551,258 246,840
Repayment of long-term loans, debentures
and other long-term liabilities (1,791,112) (1,891,766) (1,875,023) (415,764)
Increase (decrease) in credit from banks
and others, net 26,063 (268,028) 16,162 6,050
------------- --------------- -------------- --------------
Net cash outflow generated by
financing activities (128,069) (1,209,783) (223,720) (29,728)
------------- --------------- -------------- --------------
Translation differences in respect of cash
balances of autonomous foreign investee
companies (15,858) (28,273) 3,056 (3,681)
------------- --------------- -------------- --------------
Increase (decrease) in cash and cash
equivalents 23,907 (196,696) (51,026) 5,550
Balance of cash and cash equivalents
at beginning of year 593,403 790,099 841,125 137,744
------------- --------------- -------------- --------------
Balance of cash and cash equivalents
at end of year 617,310 593,403 790,099 143,294
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as
from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-13
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
NIS thousands US $ thousands
------------------------------------------------- --------------
A. Adjustments to reconcile net earnings
(loss) to cash flows generated by operating
activities:
Income and expenses not involving cash flows:
Minority interest in subsidiaries, net 432,888 202,807 60,049 100,485
Equity in operating results of affiliates, net 27,687 113,823 252,091 6,427
Depreciation and amortization 463,800 440,856 423,580 107,660
Deferred taxes, net 49,647 (45,206) 64,479 11,524
Increase (decrease) in liabilities in respect of
employee severance benefits, net 20,619 (49,822) 52,138 4,786
Net capital losses (gains) from realization:
Fixed assets and intangible assets 16,091 22,863 (23,079) 3,735
Investments in formerly consolidated
subsidiaries - (16,428) - -
Investments in investee companies (227,477) (4,852) (342,343) (52,804)
Translation differences of autonomous
investee in voluntary liquidation - - 390,901 -
Inflationary erosion (linkage) of principal of
long-term loans and other liabilities 8,241 (77,510) 56,490 1,913
Inflationary erosion (linkage) of principal of
credit from banks and others - (10,565) (11,010) -
Inflationary erosion of value of investments,
deposits and loans receivable 9,314 32,540 (19,749) 2,162
Impairment in value of assets and investments 58,144 70,503 143,400 13,497
------------- --------------- -------------- --------------
858,954 679,009 1,046,947 199,385
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
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)
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
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) (71,964) (218,826) 300,164 (16,705)
Decrease (increase) in inventories, projects in
progress and customer advances (including
long-term customer advances and deposits) (319,645) (116,927) 52,251 (74,197)
Increase (decrease) in trade payables
and other payables 278,338 385,157 (204,942) 64,610
------------- --------------- -------------- --------------
(113,271) 49,404 147,473 (26,292)
------------- --------------- -------------- --------------
745,683 728,413 1,194,420 173,093
============= =============== ============== ==============
B. Acquisition of subsidiaries
Assets and liabilities of the subsidiaries
at date of acquisition:
Working capital deficit (surplus),
excluding cash and cash equivalents (34,493) (12,160) 6,516 (8,007)
Fixed assets and investments, net (287,724) (2,404) (36,434) (66,788)
Issuance of shares by investee company 34,238 - - 7,947
Long-term liabilities 187,144 192 10,280 43,441
Contingent liability - - 18,516 -
Goodwill (198,470) - (91,624) (46,070)
------------- --------------- -------------- --------------
(299,305) (14,372) (92,746) (69,477)
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
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)
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
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 deficit, excluding cash
and cash equivalents - (47,105) - -
Fixed assets and investments - 8,765 - -
Intangible assets - 15,440 - -
Long-term liabilities - (3,463) - -
Investments in affiliated companies, net - 12,971 - -
Capital loss on sale of investments in
subsidiaries - (790) - -
- (14,182) - -
D. Proceeds from realization of subsidiary's shares that became
proportionately consolidated
Working capital surplus excluding cash and
cash equivalents 23,057 - - 5,352
Fixed assets 40,851 - - 9,482
Realization proceeds receivable (25,544) - - (5,929)
Capital gain (125) - - (29)
------------- --------------- -------------- --------------
38,239 - - 8,876
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
F-16
Koor Industries Ltd. (An Israeli Corporation)
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
NIS thousands US $ thousands
------------------------------------------------- --------------
E. Non-cash transactions:
Purchase of fixed assets by credit 9,172 24,514 10,680 2,129
============= =============== ============== ==============
Purchase of other assets by credit 28,178 6,639 245,924 6,541
============= =============== ============== ==============
Proceeds from sale of fixed assets, formerly
consolidated subsidiaries and realization
of activities - 15,145 - -
============= =============== ============== ==============
Proposed dividend to minority shareholders
by subsidiaries 29,614 15,446 - 6,874
============= =============== ============== ==============
Dividend in kind from affiliate company 33,363 - - 7,744
============= =============== ============== ==============
Loans converted into shareholders' equity
of subsidiary 14,042 - - 3,260
============= =============== ============== ==============
Purchase of fixed and other assets and inventory
in consideration of issuance subsidiary shares
to minority - - 28,683 -
============= =============== ============== ==============
Contingent liability from consolidated
subsidiary - - 18,516 -
============= =============== ============== ==============
Conversion of investment to loan in an
affiliates - 470 - -
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-17
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
NIS thousands US $ thousands
------------------------------------------------- --------------
Cash flows generated by operating activities:
Net income (loss) for the year 144,990 46,362 (766,969) 33,656
Adjustments to reconcile net income to net cash
flows generated by operating activities (A) (136,907) (163,429) 310,315 (31,780)
------------- --------------- -------------- --------------
Net cash outflow generated by operating
activities 8,083 (117,067) (456,654) 1,876
------------- --------------- -------------- --------------
Cash flows generated by investing activities:
Investee companies:
Acquisition of shares (667,779) (17,488) (12,007) (155,009)
Loans granted\received, capital notes
and non-current accounts 34,950 304,725 18,258 8,113
Purchase of fixed assets (423) (392) (108) (98)
Increase in investments and
other receivables, net - (31,428) (54,106) -
Proceeds from sale of fixed assets - 30 272,776 -
Proceeds from realization of investments
in investee companies 562,177 102,875 454,752 130,496
Investment in short-term deposits and
investments, net 63,412 460,818 197,446 14,719
------------- --------------- -------------- --------------
Net cash inflow (outflow) generated by
investing activities (7,663) 819,140 877,011 (1,779)
------------- --------------- -------------- --------------
Cash flows generated by financing activities:
Equity issuance - 43,011 -
Receipt of long-term loans and other
long-term liabilities 637,000 360,213 574,422 147,864
Payments of long-term loans and
other long-term liabilities (628,703) (1,107,283) (883,190) (145,938)
Credit from banks and others, net 11,743 (13,600) (148,154) 2,726
------------- --------------- -------------- --------------
Net cash (outflow) inflow generated by
financing activities 20,040 (717,659) (456,922) 4,652
------------- --------------- -------------- --------------
Increase (decrease) in cash and cash
equivalents 20,460 (15,586) (36,565) 4,749
Balance of cash and cash equivalents at
beginning of year 9,205 24,791 61,356 2,137
------------- --------------- -------------- --------------
Balance of cash and cash equivalents at
end of year 29,665 9,205 24,791 6,886
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-18
Koor Industries Ltd. (An Israeli Corporation)
Company Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
Convenience
translation
(Note 2B)
--------------
Year ended
Year ended December 31 December 31
-------------------------------------------------
2004 2003 2002 2004
------------- --------------- -------------- --------------
Reported Adjusted in terms of NIS of Reported
amounts* December 2003 amounts*
------------- --------------------------------- --------------
NIS thousands US $ thousands
------------------------------------------------- --------------
(A) Adjustments to reconcile net earnings
(losses) to cash flows generated by
operating activities:
Income and expenses not involving cash flows:
Equity in operating results of investee
companies in addition, net of dividend
received therefrom 47,879 (17,120) 952,414 11,114
Depreciation and amortization 2,022 13,718 2,899 469
Deferred taxes, net (18,580) (58,903) (43,798) (4,313)
Increase (decrease) in liability in respect of
employee severance benefits, net 3,491 (6,898) 5,643 810
Net capital losses (gains) from realization:
Fixed assets - 96 (29,189) -
Investment in investee companies (213,249) (11,635) (336,621) (49,501)
Increase in value of deposits and other
erosions, net (6,623) (11,260) (10,880) (1,537)
Exchange rate differences and erosion of
long-term loans and other liabilities 6,077 (24,865) 29,083 1,411
Erosion (linkage) of loans from banks
and others - (10,526) 5,056 -
Changes in value of investments and assets - 673 10,037 -
------------- --------------- -------------- --------------
(178,983) (126,720) 584,644 (41,547)
------------- --------------- -------------- --------------
Changes in operating assets and liability items:
Increase in current accounts of
investee companies, net 36,543 (43,975) (270,044) 8,482
Decrease (increase) in receivables (213) 42,817 (18,118) (49)
Increase (decrease) in trade payables
and other payables 5,746 (35,551) 13,833 1,334
------------- --------------- -------------- --------------
42,076 (36,709) (274,329) 9,767
------------- --------------- -------------- --------------
(136,907) (163,429) 310,315 (31,780)
============= =============== ============== ==============
(B) Significant non-cash transactions:
Dividend in kind from investee company - - 244,067 -
============= =============== ============== ==============
Proceeds from realization of affiliated
company in capital note - - 27,373 -
============= =============== ============== ==============
Loans converted into shareholders' equity
of subsidiary 6,837 - - 1,587
============= =============== ============== ==============
* With respect to discontinued of adjustment for the effect of inflation as from the CPI of December 2003 (see Note 2B).
The accompanying notes are an integral part of the financial statements.
F-19
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.
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. ("Koor" or "the Company").
2. Subsidiaries - companies, including partnerships, 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, directly or indirectly, in Koor's
consolidated financial statements.
4. Affiliates - companies in which Koor has voting rights which
give it significant influence over the operating and
financial policies of these companies, and which are not
subsidiaries or proportionately consolidated companies. Such
companies are included on the equity basis.
5. Investees - subsidiaries, proportionately consolidated
companies or affiliates.
6. Other companies - companies, the investment in which does not
confer significant influence, which are accounted for by the
cost method.
7. Interested parties - as defined in Paragraph (1) to the
definition of "related parties" in Section 1 of the Israeli
Securities Law, including related parties as defined in
Opinion 29 of the Institute of Certified Public Accountants
in Israel ("ICPAI").
F-20
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
A. Definitions (cont'd):
8. Controlling shareholders - as defined in the Israeli
Securities Regulations (Financial Statement Presentation of
Transactions between a Company and its Controlling
Shareholder), 1996.
9. Venture capital fund - as defined in Standard No. 1 of the
Israel Accounting Standards Board ("IASB").
10. Venture capital investments - an investment in a company that
meets the following two conditions:
(a) The company is engaged primarily in research,
development or marketing of innovative,
high-technology products or processes; and
(b) At least 90% of the company's financing stems from
owners' capital (including shareholder loans and
owner-guaranteed credit), with the support of state
authorities or research grants.
11. Consumer Price Index - the Israeli Consumer Price Index
(CPI) published by the Central Bureau of Statistics.
12. Dollar - U.S. dollar.
13. Adjusted amount - the historical nominal amount that was
adjusted in conformity with the provisions of Opinions 23
and 34 and Opinions 36 and 37.
14. Reported amount - an amount adjusted to the transition date
(December 31, 2003), plus amounts in nominal values that
were added after the transition date, minus amounts that
were deducted after the transition date.
15. Adjusted financial reporting - financial reporting based on
the provisions of Opinions 23, 34, 36, 37 and 50.
16. Nominal financial reporting - financial reporting based on
reported amounts.
B. Financial statements in reported amounts
(1) In October 2001, the Israel Accounting Standards Board
published Accounting Standard No. 12 on "Discontinuation of
Adjustment of Financial Statements". According to this
standard, and in accordance with Accounting Standard No. 17
published in December 2002, the adjustment of financial
statements for the effects of changes in the general
purchasing power of the shekel will be discontinued,
commencing January 1, 2004. Until December 31, 2003, the
Company continued to prepare adjusted financial statements in
accordance with Opinion No. 36 of the ICPAI. The Company is
applying the provisions of the Standard and, accordingly, the
adjustment was discontinued, as stated, commencing January 1,
2004.
(2) In the past, the Company prepared its financial statements on
the basis of historical cost, adjusted to the Consumer Price
Index. The adjusted amounts that were included in the
financial statements as at December 31, 2003, served as the
starting point for the nominal financial reporting commencing
January 1, 2004. Additions made during the period were
included in nominal values.
F-21
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
B. Financial statements in reported amounts (cont'd)
(3) The non-monetary asset amounts do not necessarily represent
their realizable or current economic value, but rather the
reported amounts of those assets.
(4) In the financial statements, the term "cost" means cost in
reported amount.
(5) The financial statements of companies classified as
autonomous units, are stated based on the changes in the
exchange rates of their relevant functional currencies - see
2.D below.
(6) All comparative data for earlier periods are stated adjusted
to the CPI for December 2003.
C. Reporting principles
(1) Balance sheets:
a. Non-monetary items (namely - fixed assets,
inventory of projects in progress and investments
stated at cost) are stated in reported amounts.
b. Monetary items are stated in the balance sheet at
historical nominal values as at the balance sheet
date.
(2) Statements of operations:
a. Revenues and expenses deriving from non-monetary
items (such as: depreciation and amortization,
changes in inventory, prepaid expenses and income,
etc.) or from balance sheet provisions, are derived
from the change between the reported amounts in the
opening balance and closing balance.
b. The remaining statement of operations items (such
as: sales, purchases, current manufacturing costs,
etc.) are stated at nominal values.
(3) Statement of changes in shareholders' equity
A dividend declared in the reporting period is
stated at nominal values.
D. Effects of the changes in foreign currency exchange rates
The Company has been applying Accounting Standard No. 13 on "The
Effect of Changes in Foreign Currency Exchange Rates" since January 1,
2004. The Standard deals with the translation of foreign currency
transactions and the translation of financial statements of overseas
operations for their inclusion in the financial statements of the
reporting corporation. The Standard prescribes rules for classifying
foreign operations as an autonomous foreign unit or as an integrated
unit, based on indications listed in the Standard and the use of
judgment, as well as the manner in which the financial statements of
autonomous held units are to be translated.
F-22
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
D. Effects of the changes in foreign currency exchange rates
Foreign currency transactions
-----------------------------
Transactions denominated in foreign currency are recorded when first
recognized at the exchange rate prevailing on the transaction date.
Exchange rate differences deriving from the discharge of monetary
items, or deriving from the reporting of the Company's financial items
at exchange rates that are different than those used for preliminary
recording during the period, or from those reported in prior financial
statements, will be charged to the statement of operations.
Foreign operations classified as an autonomous held unit
--------------------------------------------------------
For certain investees which are domiciled in Israel, and whose
revenues and most of their raw materials and fixed assets are acquired
in dollars, and for which the dollar is the major currency in the
economic environment in which the companies operate, the dollar
constitutes the measurement and reporting currency in their financial
statements. This is in accordance with the rules provided in Section
29A of Opinion 36 of the Institute of Certified Public Accountants in
Israel.
The financial statements of investees operating in a foreign country
as "an autonomous held unit" of the Group and companies registered in
Israel, the measuring and reporting currency of which is foreign
currency (dollar) as aforementioned, were translated to Israeli
currency as follows:
(1) The monetary and non-monetary assets and liabilities of an
overseas autonomous held unit were translated at the closing
rate. The goodwill balance created in the acquisition of the
overseas autonomous held unit is treated as an asset of that
unit and is translated at the closing rate as of January 1,
2004.
(2) Income and expense items are translated at the exchange rate
prevailing on the transaction date.
(3) All exchange rate differences created were classified as a
separate item in shareholders' equity until the net
investment is realized.
The impairment of an investment in an autonomous held unit overseas
does not constitute partial realization. Therefore, no part of the
translation differences were charged to the statement of operations
when the impairment was recorded.
The financial statements of investees operating overseas that are an
"integrated unit" of the Group, in accordance with the indicators
provided in Standard 13 of the Israeli Accounting Standard Board, are
translated from foreign currency to Israeli currency - with
non-monetary items translated at the historical exchange rate
prevailing on the transaction date and monetary items translated at
the exchange rate prevailing on the balance sheet date. Statement of
operations items are translated at the average exchange rate, except
for revenues and expenses related to non-monetary items that were
translated at the historical exchange rates at which the related
non-monetary items were translated. Differences created from the
translation are charged to financing.
E. Consolidation of financial statements
(1) The consolidated financial statements include the financial
statements of Koor and of all the companies in which the
Company has control. Jointly controlled companies are
included in the consolidated financial statements by the
proportionate consolidation method.
F-23
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
E. Consolidation of financial statements
(2) For the purpose of the consolidation, the amounts
included in the financial statements of the
consolidated companies were included after the
adjustments necessitated by the application of the
uniform accounting principles adopted by the Group.
(3) The consolidated financial statements include the
pro rata share of asset, liability, income and
expense items of proportionately consolidated
companies, based on the holding percentages in these
companies.
(4) As to the financial statements of subsidiaries that
are adjusted according to changes in foreign
currency exchange rates - see Note 2.D.
(5) a. The excess cost of an investment over the fair
value of its identified assets less the fair
value of the identified liabilities (after
allocation of the tax deriving from temporary
provisions) on acquisition date, is charged to
goodwill.
b. The excess cost allocated to assets and
liabilities is charged to the appropriate
balance sheet items.
c. Material intercompany balances and
transactions between Group companies were
eliminated for consolidation purposes.
Likewise, material unrealized income from
intercompany sales not yet realized outside
the Group were eliminated.
(6) The Company's shares that were acquired by the Company and
subsidiaries are presented as treasury stock.
(7) When the sale and/or exercise of convertible securities that
were issued by investees (including in respect of employee
options) is probable, according to the criteria prescribed in
Opinions 48 and 53 of the IACPA, and a decline in the
shareholding percentage is expected when they are converted
or exercised, as a result of which the holder will sustain a
loss, an appropriate provision is included in respect of the
anticipated loss.
(8) The Company applies Accounting Standard No. 20 on the
"Goodwill Amortization Period". Goodwill is stated in the
consolidated balance sheet in "other assets and deferred
expenses" and is amortized over its estimated useful life, in
a methodical manner. The amortization period represents the
best possible estimate of the period in which the Company
expects to derive future economic benefit from the goodwill.
The amortization period is not to exceed 20 years from the
date of initial recognition. Accordingly, the Group companies
amortize goodwill mainly over a period of 10 to 20 years.
The Standard applies to financial statements for periods
beginning on or after January 1, 2004. The change in the
amortization period of amortization balances as at January 1,
2004 is treated as a prospective change in estimate. These
goodwill balances will be amortized methodically over the
remainder of the prescribed amortization period.
F. Use of estimates:
Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to use estimates
and assessments that influence the reported amounts of assets and
liabilities and the disclosure relating to contingent assets and
liabilities, as well as the revenues and expenses in the reporting
period. It should be clarified that actual results may differ from
such estimates.
F-24
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
G. Cash and cash equivalents:
Cash and cash equivalents include short-term bank deposits and
short-term government notes traded in banks, with an original maturity
of three months or less and which are not restricted.
H. Marketable Securities:
(1) Marketable securities
Investments in marketable securities held for the short term
as a current investment are stated at realization value on
the stock market as at the balance sheet date. Investments
in marketable securities, which are permanent investments,
are stated 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
Stated at cost (debentures - including accrued interest),
which, in management's opinion is not higher than realization
value (see also section (3) below).
(3) Decrease in value of investments
From time to time, the Company reviews its permanent
investments in other companies to identify if there has been
a non-temporary decrease in their value. Such a review is
carried out where there are indications of the possibility
that the value of permanent investments has been impaired,
including a drop in stock market prices, the investee's
businesses, the industry in which the investee operates and
other parameters. The impairment in the value of these
investments, which management bases on an evaluation of all
the relevant aspects, giving appropriate weight to each and
which is not temporary, is charged to the statement of
operations.
I. Allowance for doubtful accounts:
The financial statements include allowances for doubtful accounts,
which management believes fairly reflect the loss inherent in accounts
whose collection is doubtful. Among the factors on which management
bases its determination of the appropriateness of the allowances are
an assessment of risk, based on information it has on the financial
status of the debtors, the volume of their activity and a valuation of
the collateral received from them.
The allowance is determined specifically for accounts whose
collection is doubtful.
J. Inventories:
Inventories are included at the lower of cost or market value. Cost is
determined as follows: Raw materials, auxiliary materials and spare
parts - at "moving average" or by the "first-in, first-out" method.
Finished goods and work-in-process - some on the basis of direct
manufacturing costs (including materials, labor and subcontractor
costs) plus the related part of indirect manufacturing costs, and some
on an average basis (including raw materials, tools, labor) and other
direct and indirect expenses.
Merchandise at "first-in, first-out" method or by the "moving
average".
F-25
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
K. Work in progress:
Inventory of long-term projects in progress is stated at cost, less
the part of cost that has been charged to the statement of operations
by the "percentage of completion" method. The cost includes the direct
cost of materials, wages, subcontractors, other direct costs and
indirect manufacturing costs allocated to the said projects (also see
Note 2.5 below).
Projects in progress and customer advances in respect of long-term
contracts include amounts in respect of contracts to be executed over
a period exceeding one year.
Where a loss is anticipated from the project, a provision is made for
the entire loss anticipated until completion of the project.
L. Venture capital investments:
The holdings of a venture capital fund in venture capital investments
are stated at cost in their reported amounts, net of provisions for
decline in value, if a non-temporary decline occurs. Gains from
venture capital investments are charged to the statement of operations
when the investment is realized.
M. Investments in investees:
(1) The investments in investees are presented by the equity
method. Taken into account when computing the Company's share
are losses due to the expected realization of convertible
securities issued by investees, if the conversion or exercise
of those securities is probable.
Taken into account when determining the equity value of the
investments in these companies are the amounts as they are
included in the companies' financial statements, after the
adjustments necessitated by the application of generally
accepted accounting principles.
(2) Regarding the goodwill amortization policy - see Note 2E(8)
above.
(3) Regarding the decline in value of investments in investees -
see Note 2.AD.
A list of investee companies is presented as an appendix to
the financial statements.
N. Monetary balances stated at present value
Monetary balances - long-term debts and liabilities that are interest
free or bear interest at below-market rates, are stated at their
present value, computed using the interest rate prevailing in the
market on the date created.
F-26
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
O. Fixed assets:
1. The assets are stated at cost, after deduction of related
investment grants.
2. Cost includes interest capitalized during the set-up period,
which was calculated using the interest rates applicable to
the sources used to finance the investment.
3. Improvements are charged to the cost of assets and are
amortized over the economic life of the asset. Repair and
maintenance expenses are charged to the statement of
operations as incurred.
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 1.2-10 (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%)
Computers and auxiliary equipment 20-33
Lease hold improvements *10
* or over the lease period, whichever shorter.
P. Other assets and deferred expenses:
Other assets and deferred expenses are amortized on a straight-line
basis over the expected period of benefit therefrom, as follows:
1. Licensing of products and acquisition of know-how are stated
at cost and are mostly amortized over eight years.
2. Marketing rights are stated at cost and amortized over
periods of five to ten years.
3. Intangible assets in the purchase of products are stated at
cost and are mainly amortized over 20 years.
4. Deferred expenses - debenture issue costs:
These costs are amortized by the straight-line method over
the life of the debentures - mainly six years.
5. See Note 2.E(8) regarding goodwill deriving from the
acquisition of companies that were consolidated.
6. Non-compete and confidentiality agreements are mostly
amortized over 5 years.
The amortization period is reevaluated periodically, based on the
estimated period of economic benefit.
F-27
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
Q. Convertible securities:
1. Debentures, the conversion of which is not probable, are
included at their liability value as at the balance sheet
date, in accordance with the provisions of Opinion 53 of the
ICPAI, and are stated in long term liabilities. Debentures,
the conversion of which is probable, are included between the
long-term liabilities item and the shareholders' equity item,
according to the liability value or the capital value,
whichever is the higher.
2. In accordance with Opinions 48 and 53 of the ICPAI, the
provision for loss on a decline in the shareholding
percentage in investee companies is included in the item
"minority interest" in the consolidated balance sheet, and in
the item "investment in investees" in the Company balance
sheet.
R. Deferred taxes:
1. Deferred taxes are calculated in respect of temporary
differences between the amounts included in the adjusted
financial statements and the amount taken into account for
tax purposes. Such deferred taxes are allocated for
differences related to assets, the consumption or
depreciation of which are deductible for tax purposes. As for
the main components in respect of which deferred taxes have
been created - see Note 16.G.
2. Deferred tax balances (asset or liability) are computed at
the tax rate expected to be in effect at the time these taxes
will be utilized, or when the tax benefit will be realized,
based on the tax rates and tax laws legislated or whose
legislation is essentially complete by the balance sheet
date.
The deferred taxes amount in the statement of operations
expresses the change in these balances during the year.
3. Taxes that would be imposed in the event of realization of
investments in investees, the sale of which is not expected
in the foreseeable future, are not included in deferred
taxes.
Deferred taxes were not created for taxes to be imposed on
earnings distributed by subsidiaries, as it is the Company's
policy not to distribute taxable dividends in the foreseeable
future. Likewise, tax benefits are not included in respect of
temporary differences, the realization of which is doubtful.
S. Revenue recognition:
Revenues and costs from work in progress under long-term contracts are
recognized in accordance with Accounting Standard No. 4 ("Standard 4")
published by the Israel Accounting Standards Board ("IASB"), as
follows:
A. Revenues and costs from work in progress under long-term
contracts will be recognized by the "percentage of
completion" method, if the following conditions are met: the
revenues are known or can be reliably estimated, the
collection of revenues is expected, the costs involved in
carrying out the project are known or can be reliably
estimated, there is no material uncertainty as to the ability
to complete the project and to meet the terms of the contract
with the customer, and the percentage of completion may be
reliably estimated.
As long as all the conditions listed above are not met,
revenue will be recognized at an amount equal to the costs
incurred and the recovery of which is expected ("zero
margin").
F-28
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
S. Revenue recognition: (cont'd)
B. Revenues and costs in government contracts, which are based
on cost plus a fixed margin ("cost plus"), are reported on
the basis of the invoices submitted to the customer
(essentially - on an accrual basis).
C. The percentage of completion is determined based on the cost
(actual cost vs. projected total cost) or based on the
delivery of products, depending on the nature of the
agreement.
D. For contracts in which a loss is anticipated, a provision is
recorded immediately for the full amount of the anticipated
loss at the time it is identified by management.
E. Projected earnings or losses from long-term contracts could
change as a result of changes in estimate, between the actual
performance and the original estimate. Such changes in
estimates are charged to the statement of operations when
identified.
2. Sale of products and providing 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, sales are recognized after the work is
performed and acceptance tests are passed, as prescribed in
the product supply contract.
T. Sale of trade receivables:
See Note 3C(2).
U. Research and development expenses:
Research and development expenses -
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 projects in progress, and are included in the
statement of operations as part of the recognition of results from
such projects.
Research and development in process -
Costs to acquire in-process research and development which have no
alternative future use and which have not reached technological
feasibility at the date of acquisition are expensed as incurred.
F-29
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
V. Presentation of transactions between the Company and the
controlling shareholder:
Transactions between the Company and its controlling shareholder are
included in accordance with the Securities Regulations (Financial
Statement Presentation of Transactions between a Company and its
Controlling Shareholder), 1996. Accordingly, the difference between
the price paid to the controlling shareholder on the sale of an asset
and the book value of the asset to the controlling shareholder, is
included in the shareholders' equity.
In addition, the amount of the erosion of an unlinked interest-free
loan having no maturity date which was received from the controlling
shareholder, and that the parties do not intend to repay, is included
in shareholders' equity
W. Derivative financial instruments:
Koor and its subsidiaries enter into different kinds of option
contracts and forward trades that are intended to reduce the financial
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 inter-currency exchange rates,
interest rates and changes in the CPI.
The results of financial derivatives held to hedge assets and
liabilities are recorded in the statement of operations concurrently
with the recording of the changes in the hedged assets and
liabilities. Financial derivatives that are not held for hedging are
stated in the balance sheet at fair value. Changes in the fair value
are included in the statement of operation in the period they
occurred.
The fair value of derivative financial instruments is determined
according to their market values or quotes by financial institutions,
and when such do not exist, according to a valuation model.
X. Earnings (losses) per share:
Earnings (losses) per share data are computed in accordance with
Opinion 55 of the ICPAI.
Taken into account in the computation of basic earnings (losses) per
share are convertible securities issued by the Company, if their
conversion or exercise is probable, based on tests prescribed in the
opinion. Taken into account in the computation of fully-diluted
earnings (losses) per share are convertible securities issued by the
Company and its investees, that were not included in the computation
of basic earnings (losses) per share, when their conversion or
exercise does not increase earnings per share.
Y. Dividend declared subsequent to balance sheet date
In accordance with Accounting Standard No. 7 on "Subsequent Events",
the liability related to a dividend proposed or declared subsequent to
the balance sheet date is expressed in the accounts only in the period
in which it was declared. Likewise, separate expression is given in
the statement of changes in shareholders' equity to the dividend
amount to be distributed against a reduction in the retained earnings
balance.
F-30
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
Z. Segment reporting
Segment reporting is presented in accordance with Accounting Standard
No. 11, which requires the inclusion of information in respect of
business and geographical segments, as well as detailed guidelines for
identification of the business and geographical segments.
AA. Environmental costs
The current operating and maintenance costs of facilities to prevent
environmental pollution and provisions for expected costs related to
the rehabilitation of the environment deriving from current or past
activities, are charged to the statement of operations. Construction
costs of facilities for prevention of environmental pollution, which
increase the economic life or efficiency of the facility or reduce or
prevent environmental pollution, are charged to the cost of the fixed
assets and are depreciated in accordance with the depreciation
policies practiced by the Group.
AB. Impairment of assets
The Company applies Accounting Standard No. 15 - Impairment of Assets
("the Standard"), which prescribes procedures that the Company must
implement in order to assure that its assets in the consolidated
balance sheet (which are subject to the Standard) are not stated at an
amount exceeding their recoverable value, which is the higher of the
net sales price and the usage value (the present value of the
estimated future cash flows expected to derive from the use and
realization of the asset).
The Standard applies to all of the assets in the consolidated balance
sheet, except for tax assets, construction contracts and monetary
assets (aside from monetary assets that are investments in investees
that are not subsidiaries). Likewise, the Standard prescribes the
presentation and disclosure principles for assets that have declined
in value. When the carrying value of an asset in the consolidated
balance sheet exceeds its recoverable amount, the Company recognizes
an impairment loss equal to the difference between the book value of
the asset and its recoverable value. A loss so recognized will be
reversed only if changes have occurred in the estimates used in
determining the recoverable value of the asset, since the date on
which the last impairment loss was recognized.
F-31
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 2 - Significant Accounting Policies (cont'd)
AC. Data regarding the CPI and the Dollar exchange rate:
Israeli Exchange rate
CPI* of one Dollar
------------- ------------------
Points NIS
------------- ------------------
For the year ended:
December 2004 180.74 4.308
December 2003 178.58 4.379
December 2002 182.01 4.737
% %
------------- ------------------
Changes during:
2004 1.2 (1.6)
2003 (1.9) (7.6)
2002 6.5 7.3
%
-------------
Real rate of increase (decrease) in the CPI
relative to the exchange rate of the
dollar during the year:
2004 2.8
2003 (5.7)
2002 (0.8)
(*) According to the CPI for the month of the balance sheet date 1993 average basis = 100
Assets and liabilities in foreign currency or linked thereto are
included in the financial statements according to the representative
exchange rate published by the Bank of Israel on the balance sheet
date.
Assets and liabilities linked to the CPI are included in the financial
statements according to the CPI of the balance sheet month, or the
previous month, as relevant.
AD. Influence of new accounting standards prior to their
application
In July 2004, the IASB published Accounting Standard No. 19, "Taxes on
Income", which prescribes that a deferred tax liability is to be
recognized for all temporary differences that are taxable, except for
a limited number of exceptions. Likewise a deferred tax asset is to be
recognized for all temporary differences that are deductible, losses
for tax purposes and unutilized tax benefits, if it is expected that
there will be taxable income against which it will be possible to
utilize them, except for a limited number of exceptions. The new
Standard will apply to financial statements beginning on January 1,
2005. The Standard will be adopted as the cumulative effect of a
change in accounting method. First time application of the said
Standard will have a net non-recurring impact, as at January 1, 2005,
of increasing the net income by approximately NIS 19 million (which
mainly derives from recording deferred taxes in an investee company in
respect of unrealized profits which are anticipated to be realized in
the near future).
F-32
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees
A. ECI Telecom Ltd. ("ECI") - an affiliate
1. In November 2003, a valuation of ECI was performed by an
independent appraiser, for the purpose of evaluating the
recoverable value of Koor's investment in ECI. In accordance
with this appraisal, the Company reversed the impairment loss
from decline in value that had been created in 2001, based on
various indications, including a valuation for ECI. The
reversal of the loss of NIS 73 million was charged against
the capital reserve from foreign currency translation
adjustments (credit), which was realized when the provision
was created.
At the request of the appraiser (who agreed that the Company
would make use of the valuation), the Company undertook to
indemnify him against any expense or financial damage he will
sustain, if any, with respect to any claim to be filed by any
third party against the appraiser, the cause of action of
which is the valuation.
As at December 31, 2004, the balance of the investment in
ECI, stated by the equity method, is NIS 673 million.
2. In its financial statements for 2003, ECI reported on a
retroactive restatement of its financial statements for 2002
and for the fourth quarter of that year, relating to a
decrease in the value of its investment in an affiliate
(received in exchange for the transfer of certain assets),
having an effect on the investment in ECI of about 2 million
dollars.
The amount of the restatement was taken into account by the
Company, when in the third quarter of 2002, it included an
impairment provision for decline in value of its investment
in ECI, based on a valuation obtained from an independent
appraiser. Therefore, this restatement in the financial
statements of ECI has no effect on the financial statements
of the Company for the years 2002 and 2003.
3. On March 9, 2004, the board of directors of ECI resolved to
distribute 7.6 million shares of ECtel (42% of the paid-up
share capital of ECtel) as a dividend to the shareholders of
ECI. The shares of ECtel were distributed on May 10, 2004,
after all the requisite approvals were obtained. Prior to the
distribution, ECI had held 10.5 million shares of ECtel (58%
of the paid-up share capital of ECtel). Following the
distribution, ECI holds 16% of the shares of ECtel and Koor
directly holds 12.9% of the shares in ECtel. The investment
in ECtel is presented in the financial statements of ECI and
of Koor by the cost method.
F-33
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
A. ECI Telecom Ltd. ("ECI") - an affiliate (cont'd)
4. ECI prepares its financial statements in accordance with
generally accepted accounting principles in the U.S. For the
adjustment of ECI's net income (loss) as reported in
accordance with U.S. generally accepted accounting principles
(US GAAP) to the net losses according to Israeli generally
accepted accounting principles:
Year ended December 31
---------------------------------------------------
2004 2003 2002
-------------- -------------- --------------
US$ thousands US$ thousands US$ thousands
-------------- -------------- --------------
Net gain ( loss) of ECI based on its
reporting according to US GAAP 10,153 (71,040) (155,685)
-------------- -------------- --------------
Adjustments:
Temporary differences resulting from
recognition of revenue arising from
application of SAB 101 - (5,905) (1,548)
Finance income - FAS 133 (8,303) (4,843) (3,632)
Tax expenses (1,529) (956) 645
Amortization of excess cost attributed to
intangible assets (1,233) (1,556) (1,809)
Profit from marketable securities (1,282) 1,282 -
Decline in value of assets 968 2,452 (533)
Cumulative effect of a change in
accounting method - FAS 142 - - 550
Discontinued activities - - (570)
-------------- -------------- --------------
Net loss of ECI according to Israeli GAAP (1,226) (80,566) (162,582)
-------------- -------------- --------------
B. Tadiran Ltd. (in voluntary liquidation) ("Tadiran") - a
subsidiary
On March 7, 2002, Tadiran's Board of Directors adopted a resolution to
begin the voluntary liquidation of Tadiran and to appoint a
liquidator. Following the liquidation, the debit balance of the
capital reserve from foreign currency translation adjustments at Koor
in respect of its investment in Tadiran of approximately NIS 391
million was transferred to the statement of operations.
F-34
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
C. Makhteshim Agan Industries Ltd. ("M-A Industries") - a
subsidiary
1. As at December 31, 2003, Koor held 48.59% of the voting
rights in M-A Industries, and taking into account the voting
agreement with certain other shareholders, Koor held most of
the voting rights. Therefore, the financial statements of M-A
Industries for 2003 were included in the consolidated
financial statements of the Company.
In January 2004, Koor sold 27 million shares of M-A
Industries for approximately NIS 418 million. The capital
gain of NIS 160 million (before tax) is included in "other
income". Likewise, a tax asset of NIS 59 million which had
been created in 2003, because of the expectation that the
carryforward tax losses would be utilized, was realized as a
result of this sale.
As a result of this sale, and after the realization and
conversion of convertible securities that had been allotted
to the public and to employees, Koor's holding percentage in
the voting rights of M-A Industries at December 31, 2004 is
38.6% (32.9% on a fully diluted basis).
Following the sale of the shares in January 2004, as a result
of which Koor's shareholding percentage in M-A Industries
fell below 50%, Koor evaluated the existence of effective
control in M-A Industries and the implications for continuing
to consolidate M-A Industries in the financial statements of
Koor, beginning from the first quarter of 2004.
In the opinion of Koor's management, the range of
circumstances that weight Koor's shareholding percentage in
M-A Industries, the broad dispersal of voting rights among
the other shareholders, the low level of shareholding by the
other shareholders, the slim probability of the creation of a
block of votes opposing Koor at shareholder meetings and past
experience related to the attendance at shareholder meetings,
as well as the voting percentages and opposition at the
meetings, show that the economic substance that stood and
continues to stand at the basis of the relationship between
the Company and M-A Industries immediately before and after
the said transactions demonstrates effective control, i.e.,
Koor's ability to set the financial and operational policies
of M-A Industries.
See Note 27(4) regarding an additional sale of shares of M-A
Industries.
2. In October 2001, M-A Industries and its subsidiaries entered
into a securitization arrangement, pursuant to which those
companies sold all of their trade receivables to foreign
companies established for that purpose and which are neither
owned nor controlled by M-A Industries ("the Special Purpose
Companies"). Purchase of the receivables was financed by an
American company from the Bank of America Group.
On September 28, 2004, M-A Industries and certain
subsidiaries ("the Companies") signed an agreement with Bank
of America to terminate the securitization undertaking. On
that same date, the Companies entered into a new agreement
with Rabobank International for the sale of trade receivables
in a securitization transaction to replace the previous
agreement with Bank of America. The new agreement is similar
in principle to the prior agreement with certain changes
including among others that in the new agreement additional
M-A Indusries subsidiaries are included in the transaction.
F-35
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
C. Makhteshim Agan Industries Ltd. (M-A Industries) -
subsidiary (cont'd)
2. (cont'd)
Under the terms of the new securitization agreement, the
Companies will sell their trade receivables to a foreign
company established for this purpose and which are neither
owned nor controlled by M-A Industries ("the Purchasing
Company"). The purchase of the trade receivables by the
Purchasing Company will be financed by the American company
Erasmus Capital Corporation of the Rabobank International
Group. During the transition from the previous agreement to
the new agreement, the Purchasing Company purchased the trade
receivables remaining in the ownership of the Special Purpose
Companies. The trade receivables included in the
securitization transaction meet certain criteria, as
stipulated in the agreement.
The maximum amount of financial resources expected to be made
available to the Purchasing Company to purchase the trade
receivables of the Companies is 250 million dollars (compared
with 150 million dollars in the previous securitization
agreement), on a current basis, so that the proceeds received
from the customers whose receivables had been sold will be
used to purchase new trade receivables.
The period in which the companies will sell their trade
receivables to the Purchasing Company will be one year from
the closing date of the transaction. This period may be
extended, with the consent of all the parties, for additional
one-year periods, up to a maximum of 4 extensions.
As at balance sheet date, cash in the amount of about 142.5
million dollars was received from the sale of customer debts
(December 31, 2003 - about 125.3 million dollars).
The price at which the trade receivables are sold is the
amount of the sold receivables, which are reduced based on
the period expected to elapse between the date the trade
receivables are sold and the date they are repaid.
On the purchase date of the receivables, the Purchasing
Company will pay most of the price of the receivables in
cash, and the balance in a deferred liability that will be
paid after collection of the sold receivables. The percentage
of the cash proceeds varies according to the behavior of the
trade receivables portfolio.
The companies will bear all the losses sustained by the
Purchasing Company as a result of the non-payment of the
trade receivables included in the securitization transaction,
up to the balance of the total unpaid balance of the sales
price included in the subordinated note.
The Purchasing Company will have no recourse against the
companies in respect of amounts paid in cash, except for
receivables in respect of which a commercial dispute arises
between the companies and their customers, i.e. a dispute
with respect to the non-fulfillment of the seller's
obligation in the agreement to supply the product, such as:
not supplying the correct product, a defective product, a
delay in the supply date, etc.
The Companies will handle the collection of the trade
receivables included in the securitization transaction for
the Purchasing Company.
F-36
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
C. Makhteshim Agan Industries Ltd. (cont'd)
2. (cont'd)
The essence of the accounting treatment of the sale of trade
receivables in a securitization transaction is the
recognition of the sale of the trade receivables only for
that part for which the control and risks were transferred
finally and absolutely to the purchaser. Accordingly, the
trade receivable balances included in the securitization
transaction, for which the consideration of cash and/or non
recourse liabilities was received, were written off. In
respect of the part of the trade receivables included in the
securitization transaction not recognized as a sale, a
subordinated note was recorded in the amount of the
difference between the trade receivable balances included in
the securitization transaction and the proceeds, as noted,
and the recording of receivables in respect of those trade
receivables sold for which proceeds were received subsequent
to the balance sheet date.
A loss from the sale of trade receivables is charged at the
time of sale to the statement of operations in the item
"other expenses".
Under the terms of the agreement, M-A Industries undertook to
meet certain financial covenants, mainly a ratio of
liabilities to capital and profitability ratios. As at the
balance sheet date, M-A Industries is in compliance with the
covenants.
3. In April 2001, the board of directors of M-A Industries
resolved to adopt a dividend policy of distributing 15%-30%
of annual net earnings, subject to the existence of
distributable earnings and to specific resolutions by the
board of directors.
In accordance with this policy, a dividend was declared and
paid in 2004 in the amount of 32.9 million dollars (of which
7.2 million dollars is in respect of the earnings of 2003). A
dividend of 11.2 million dollars was declared in December
2004 and paid in early 2005.
Subsequent to balance sheet date, another dividend was
declared in respect of the earnings of 2004, in the amount of
12.7 million dollars.
4. Acquisition of companies in the report year:
a. In April 2004, M-A Industries, through a
wholly-owned and controlled subsidiary, signed
agreements to acquire ownership and control in a
group of three companies, Vegetation Management LLC,
Farm Saver.com LLC and Nation Ag II LLC ("the
acquired companies"), which are engaged in the
registration, import and marketing of agrochemicals
in the U.S.
The total sales price amounted to NIS 303 million
(the price is after an amendment to the original
contract made in December 2004). NIS 34.4 million of
the total sales price was paid through a transfer of
1,908 thousand shares of M-A Industries that had
been held by a subsidiary (cost of shares - NIS 19.2
million).
The excess cost of investment created upon the
acquisition was NIS 235.8 million, of which NIS
130.2 million was allocated to intangible assets
(namely registration and licensing). The amount of
NIS 2.3 million was attributed to tax liabilities
and NIS 2.7 million was allocated to inventories.
The balance of NIS 105.2 million was allocated to
goodwill.
The excess cost allocated to licensing and
registration, as well as to goodwill, are amortized
over a 20-year period, which, in the estimation of
M-A Industries, represents the period of economic
benefit deriving from them.
F-37
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
C. Makhteshim Agan Industries Ltd. (cont'd)
4. Acquisition of companies in the report year: (cont'd)
a. (cont'd)
The statements of operations and the statements of
cash flows of the acquired operations were
consolidated beginning May 1, 2004. The effect on
the consolidated statement of operations of the
first-time consolidation of the acquired operations
is additional revenues of NIS 108 million for the
period ended December 31, 2004 and an addition to
net earnings (after amortization of goodwill) of NIS
25 million for that period (Koor's share in the
additional net earnings is NIS 10 million). The
effect on the consolidated balance sheet as at
December 31, 2004 is an increase in assets of NIS
334 million.
b. In the report year, M-A Industries, through
subsidiaries, signed agreements for the acquisition
of three marketing companies, as follows:
1) In June 2004, M-A Industries, through a
wholly owned and controlled subsidiary,
signed an agreement for acquisition of 45%
of the rights in the U.S. company, Control
Solutions Inc. ("CSI"), which is engaged in
the marketing of pesticides to the
non-agricultural market in the United
States.
Pursuant to the acquisition agreement, as
long as the subsidiary holds 45% of the
shares of CSI, decisions in areas critical
to CSI are to be made jointly by all the
shareholders of CSI. Therefore, CSI has
been consolidated in the financial
statements by the proportionate
consolidation method.
In addition, the subsidiary was granted an
option, which may be exercised at any time
during the next three years, to increase
its share in CSI to 60%, in exchange for a
payment ranging between NIS 6.8 million and
NIS 47.8 million, based on CSI's earnings
in 2004-2006.
Furthermore, commencing in 2009, the
subsidiary and the remaining shareholders
of CSI have the right to require the
subsidiary to acquire from the remaining
shareholders of CSI the balance of their
shares in CSI in consideration for an
amount to be determined based on the
earnings of CSI in the three years
preceding the acquisition date.
2) In July 2004, M-A Industries, through a
wholly owned and controlled subsidiary,
signed an agreement for acquisition of all
the shares and rights of Farmoz PTY
Limited, an Australian company engaged in
the marketing and distribution of
pesticides in Australia.
3) In August 2004, M-A Industries, through a
subsidiary, signed an agreement for
acquisition of 50.1% of the rights in the
U.S. company, RiceCo LLC, which is engaged
in the development and marketing of
herbicides for rice.
The aggregate acquisition cost of the acquired
marketing companies was NIS 185.7 million. The
excess cost created as at the acquisition date
totalled NIS 140.9 million, of which NIS 68 million
was allocated to intangible assets (namely
registration and licensing), the amount of NIS 15.8
million was attributed to deferred tax liabilities,
NIS 3.1 million was allocated to inventories, and
the balance of NIS 85.6 million was allocated to
goodwill.
F-38
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
C. Makhteshim Agan Industries Ltd. (cont'd)
4. Acquisition of companies in the report year: (cont'd)
b. (cont'd)
The excess cost that was allocated to registration
and licensing as well as the goodwill are amortized
over a 20-year period, which, in the estimation of
M-A Industries, represents the period of economic
benefit deriving from them.
The statements of operations and the statements of
cash flows of the three marketing companies were
consolidated from their acquisition date. The total
effect of the first-time consolidation of the
acquired marketing companies on the consolidated
statement of operations is additional revenues of
NIS 207 million for the period ended December 31,
2004 and a decrease in net earnings (after
amortization of goodwill) of NIS 1 million during
that period. The effect on the consolidated balance
sheet as at December 31, 2004 is an increase in
assets of NIS 314 million.
5. In a private placement to institutional investors (mainly
overseas) in March 2004, M-A Industries allotted
non-marketable convertible debentures in the amount of 150
million dollars par value (including 5 million dollars which
was issued to the underwriters in April 2004), in
consideration for their par value. See Note 15B(1).
6. In March 2004, a subsidiary of M-A Industries transferred to
a third party, in an off-exchange transaction, 7 million
shares of M-A Industries it had held. Under the terms of the
agreement, the proceeds will be paid by the end of one year
from the transfer date, whether in cash, based on the share
price on the stock exchange on such date, or whether in the
shares of M-A Industries plus an increment of 0.5% of the
share price on the stock exchange. Since the cash proceeds
have not yet been received, no capital issuance was recorded
by M-A Industries in respect of the transferred shares.
During the second quarter, 1,908 thousand shares of the above
shares were returned, for the purpose of paying the
consideration for the acquisition of a group of companies in
the U.S., as discussed in Note 3(C)(4)(a) above.
Subsequent to balance sheet date an additional 750 thousand
shares were returned and an extension was granted with
respect to the rest of the shares.
See Note 27(1) regarding the purchase of MABENO.
7. On February 3, 2005, Koor sold 15.9 million shares of M-A
Industries for NIS 374 million. The resultant gain of NIS 204
million will be charged in the Company's financial statements
for the first quarter of 2005. As a result of the sale, the
utilization of carryforward tax losses is certain. Therefore,
the Company recorded a deferred tax asset of NIS 69 million
in the reporting period - (see Note 27(4)).
F-39
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
D. Telrad Networks Ltd. ("Telrad") - a subsidiary
1. On September 28, 2004, Koor and Telrad Holdings, a
wholly-owned subsidiary ("the Koor Group") entered into an
agreement to sell 39% of its holdings in Telrad Networks to
Fortissimo GP Capital Fund L.P. ("Fortissimo") for 21 million
dollars.
The sale will be effected in two stages. In the first stage,
which was closed in November 2004, Koor transferred 19.5% of
the Telrad Networks shares to Fortissimo for consideration of
10.5 million dollars. In the second stage, to be closed 180
days after the closing of the first stage, Fortissimo will
transfer the balance of the consideration, amounting to 10.5
million dollars, and will receive the balance of the sold
shares. The Koor Group and Fortissimo agreed on a formula,
whereby if Fortissimo does not transfer the entire balance in
the second stage, it will receive shares on a basis
proportionate to the consideration paid. In such a situation,
there are cases in which changes will be made to the
composition of the board of directors, in the voting rights
given to the minority shareholders, in the loan amounts and
in the options terms, as described below.
Fortissimo was given an option, exercisable for a period of
up to 48 months from the closing date of the first stage, to
acquire additional shares from the Koor Group, whereby
Fortissimo's total holdings will not exceed 49% of the shares
of Telrad Networks. The exercise price will be determined
according to the value of Telrad Networks, which will not be
less than its shareholders' equity in the financial
statements on the exercise date.
As part of the share-sale agreement, the parties agreed that
upon the closing of the first stage of the sale, the Koor
Group would transfer 9.5 million dollars as a loan to Telrad
Networks, and with the closing of the second stage, would
transfer an additional 11.5 million dollars. These loans will
bear annual interest of Libor+2% per annum, and will mature
20 years from the closing date of the first stage.
On the closing date of the first stage, the Koor Group
provided Telrad Networks with the said 9.5 million dollar
loan. As at December 31, 2004, based on estimates by the
Company's management, forecasts on the operating results of
Telrad Networks and a range of indemnifications provided in
the transaction, the management of Koor Group assessed that
the value of the loan was impaired. Therefore a provision was
recorded in the amount of the net loss that will be incurred
by the Group.
As to the indemnifications given by the Koor Group as part
of this transaction, see Note 18A(5)(C).
Pursuant to the sale agreement, Telrad's board of director
appointed 3 directors from Koor, 3 directors from Fortissimo,
and an outside expert with the consent of the parties, who,
as at the publication date of the financial statements, was
not as yet appointed.
The agreement stipulates a list of matters which must be
approved by the joint consent of the Koor Group and
Fortissimo, including: approval Telrad's budget, appointment
of Telrad's executives and determining their terms of
employment and a dividend distribution. Those rights confer
to the minority shareholders the right to actually
participate in the significant decisions related to the
Telrad's normal course of business, and, therefore, prevent
Koor's Group, the majority shareholder, from actual control
over Telrad Networks and require the joint consent of Koor
and Fortissimo in decisions on matters that are critical for
the operating objectives of Telrad.
Therefore, beginning from the fourth quarter of 2004, Telrad
is included in Koor's financial statements by the
proportionate consolidation method, at a rate of 80.5%.
F-40
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
D. Telrad Networks Ltd. (cont'd)
1. (cont'd)
Below is the Company's share in the balance sheet date of
Telrad as at December 31, 2004 (in NIS thousands):
Current assets 296
Non-current assets 144
Current liabilities 197
Long-term liabilities 91
The Company's share in the results of Telrad at the fourth
quarter of 2004 (in NIS thousands):
Income 93
Costs and expenses 155
2. During the report period Telrad recorded an impairment of its
deferred tax assets by NIS 67 million, due to changes in
management's estimation of the probability of utilization of
the company's carryforward tax losses.
3. In 2004, Telrad's board of directors approved a
reorganization plan that includes additional employee layoffs
in addition to prior early retirement plans in 2000 to 2002.
The financial statements for 2004 included in the item "other
income (expenses), net" an expense of NIS 29 million (of
which NIS 3 million is in respect of previous plans)
(expenses of reorganization plan in 2003 and 2002 totaled NIS
2 million and NIS 107 million, respectively).
E. Elisra Electronic Systems Ltd. ("Elisra") - a subsidiary
1. On March 17, 2001, a fire broke out at the plants of
Elisra's subsidiaries - Tadiran Systems Ltd. and Tadiran
Spectralink Ltd. ("the companies"). The fire caused damage
to equipment, building, inventories and projects in
progress. The book value of the equipment, inventories and
identified costs in projects in progress that were damaged
in the fire, together with the building restoration costs
and other costs, are estimated at approximately 36 million
dollars. As at the balance sheet date, advances were
received from the insurance company of approximately 10
million dollars. The claim sent by the companies to the
insurance company, which was based on the terms of the
insurance policy, also include a demand for amounts related
to consequential damage and other damages that, in the
opinion of the companies, is covered by the insurance
policy. Therefore, the total amount of the claim is
significantly higher than the book value damage and
restoration cost of the building, as aforesaid.
The companies took legal measures to receive insurance
compensation and even filed a lawsuit in Tel Aviv District
Court against the insurance company and its appraisers in the
amount of 96 million dollars. In view of the duration of the
proceedings, the managements of the companies decided to
classify the balance of the income receivable from the
insurance companies as a long-term receivable.
F-41
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
E. Elisra Electronic Systems Ltd. ("Elisra") - a subsidiary
(cont'd)
1. (cont'd)
In the estimation of the companies, based on factors
including opinions from their counsel on this matter, it is
difficult to estimate at this stage what the chances are that
the companies will receive the full amount of the claim,
although they are assessed as solid. Nonetheless, the
managements of the companies, based, as aforesaid, on the
opinions of their counsel on this matter, estimate that the
chances are good that indemnification will be received from
the insurance company at an amount exceeding the balance of
the receivable recorded by them as assets in the financial
statements.
In April 2004, the companies filed a motion with the court to
issue a partial ruling of 33 million dollars (beyond the
advances already paid by the insurance company), based on the
admission of liability by the insurance company and its
representatives deriving from the insurance incident, whereas
the dispute focuses on the level of damages. In December
2004, a hearing was held in the Court in which a ruling was
put into effect, with the consent of the parties, whereby a
separate bank account would be opened, in which the insurance
company would deposit 15 million dollars. Any withdrawal from
this account would require the Court's approval, until the
conclusion of the proceedings in the lawsuit. According to
the above agreement, the lawsuit was sent to arbitration
before retired Supreme Court Justice Prof. Yitzhak Zamir, and
at this time, the court proceedings will be stayed until the
end of the arbitration.
2. In July 2002, the Company, Elisra and Elta Electronic
Industries Ltd. ("Elta" or "the Buyer") signed an agreement
("the Purchase Agreement"), whereby Koor sold 30% of Elisra's
shares to Elta for 100 million dollars. The sale was closed
in November 2002. As a result of the sale, Koor recorded a
capital gain in 2002 of NIS 339 million, under the item
"other income, net".
In addition, Koor granted options to Elta, exercisable until
December 31, 2003, to increase its holdings in Elisra by up
to an additional 8% in consideration of a maximum sum of
approximately 26 million dollars. This option expired and was
not exercised by Elta. Under the Purchase Agreement, Koor
agreed to indemnify Elta if certain conditions, set out in
the Agreement, are fulfilled. Also see Note 18A(3).
As part of the agreement between Koor and Elta, an agreement
was signed, to which Elisra is a party, setting forth the
structure of Elisra's board of directors and the
decision-making process, as well as certain limitations with
respect to the sale of Elisra's shares. In addition, a
cooperation agreement was signed between Elisra and Elta,
with regard to activities between the companies, including a
proposal for an agreed range of products and the principles
for selecting a project leader from time to time.
F-42
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
F. Koor Corporate Venture Capital ("Koor CVC") - a consolidated
partnership
1. Regarding commitments to invest and other investments
subsequent to balance sheet date, see Note 18B(5).
2. During the current year, Koor CVC's management estimated that
the value of the portfolio investments was lower than their
cost, and therefore decided to write-down the value of the
investment by approximately NIS 58 million (in 2003 and 2002
- NIS 72 million and NIS 93 million, respectively).
3. In June 2004, Cisco Systems purchased all the shares of
Riverhead Inc. from its shareholders for consideration of 39
million dollars. The share of Koor CVC in the proceeds is 7
million dollars. The gain to Koor CVC is NIS 17 million.
G. Knafayim Holdings Arkia ("Knafayim") - affiliate
1. During 2003 and in the first quarter of 2004, Knafayim
acquired shares, which did not confer the status of related
party, and various types of options of El Al Israel Airlines
Ltd. ("El Al"). During the second quarter of 2004, after
receiving the requisite approval to increase its stake in the
shares of El Al above 5%, Knafayim exercised some of the
options. Thus, after the exercise, Knafayim held 22% of El
Al's issued share capital. Pursuant to a third-party voting
agreement, Knafayim held 24.9% of the voting rights of El Al.
During the third quarter of 2004, Knafayim filed a request
with the State of Israel, which holds a special share in El
Al, for approval to increase its stake in El Al above 25%.
On August 5, 2004 the Anti-Trust Commissioner approved the
merger between Knafayim and El-Al, with restrictive
conditions, mainly regarding the sale of Knafayim's aviation
activities to an independent third party.
On December 22, 2004, Knafayim received the requisite
approval to increase its stake in the shares of El Al to 40%,
and to a shareholding that would grant control over El Al.
Upon receipt of this approval, Knafayim exercised part of the
purchase option so that as of December 31, 2004 Knafayim
holds approximately 39.8% of the issued and paid shares of El
Al and approximately 42.8% of the voting rights in El Al
according to authorization that was granted to Knafayim by a
third-party.
2. On September 29, 2004 the Company signed two agreements to
sell 16% of the shares of Knafayim for approximately NIS 121
million. In the statement of operations for the third quarter
of 2004, the Company recorded a gain of NIS 43 million. As a
result of the sale, the Company's shareholding in Knafayim
decreased from approximately 28.3% to approximately 12.2%.
Accordingly, the investment in Knafayim is stated by the cost
method, beginning from the date of the sale.
In addition, on September 29, 2004, the Company signed an
agreement for the sale of an additional 3% of the shares of
Knafayim for approximately NIS 23 million. The conditions for
closing the sale were fulfilled on October 20, 2004.
Therefore a gain of approximately NIS 8 million was recorded
in the fourth quarter of 2004.
As of the balance sheet date, the Company holds approximately
9% of Knafayim. Since management intends to sell the
remainder of the shares in Knafayim, the investment is
presented within current assets. As a result of management's
intention to sell the remainder of its holding in Knafayim,
the Company recorded deferred taxes of approximately NIS 8
million during the reporting period in respect of the
anticipated utilization of carryforward tax losses.
F-43
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
H. Tadiran Communications Ltd. ("Tadiran Communications") - an
affiliated Company
1. On September 10, 2004 the Company signed an agreement to
acquire about 33% of the shares of Tadiran Communications
(about 31% taking into consideration stock options the
exercise of which is probable) from two shareholders for
approximately NIS 637 million (approximately 144 million
dollars). Tadiran Communications develops, manufactures and
markets communication devices and systems mainly for military
purposes. The sale was closed in November 2004. The purchase
was financed by a loan received from an Israeli bank in
consideration for a lien in favor of the bank on the sold
shares.
Excess cost created on the acquisition date totaled NIS 490
million (111 million dollars), which was allocated based on
the valuation received from an independent appraiser. At the
request of the appraiser (who agreed that the Company would
make use of the valuation), the Company undertook to
indemnify him against any expense or financial damage he will
sustain, if any, with respect to any claim to be filed by any
third party against the appraiser, the cause of action of
which is the valuation.
Provided below is the allocation of excess cost (according to
a holding rate of 31%):
NIS millions
------------
Current assets 14
Investments and long-term receivables 1
Fixed assets 1
Intangible assets (1) 308
Goodwill (2) 242
Current liabilities 19
Long-term liabilities 3
Deferred taxes (3) (98)
(1) The intangible assets include NIS 20 million
allocated to in-process research and development,
which were charged to the statement of operations on
the acquisition date, in accordance with the
provisions of FIN 4. The balance of NIS 288 million
was allocated to intangible assets with an average
life of seven years, according to the following
breakdown: NIS 14 million allocated to brand name,
NIS 173 million allocated to customer list, NIS 98
million allocated to technology and NIS 3 million
allocated to the orders backlog.
(2) Useful life of goodwill is estimated at 10 years.
(3) Deferred taxes deriving from the allocation of excess
cost.
2. On December 27, 2004, Koor entered into a series of
agreements with Elbit Systems Ltd. ("Elbit") and with
Federman Enterprises Ltd. ("Federman"). Under the terms of
the agreements, Koor will sell its entire holdings in Tadiran
Communications (33%) to Elbit for 146 million dollars ("Elbit
sale"). Concurrently, Koor will acquire 9.8% of Elbit's share
capital from Federman for 99 million dollars ("Federman
sale"). On the date the agreements were drafted, Elbit held
4.2% of the shares of Tadiran Communications and Federman
held 50% of Elbit's shares. On March 1, 2005, a general
meeting of the shareholders of Elbit ratified the Elbit sale.
F-44
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 3 - Information Regarding Certain Investees (cont'd)
H. Tadiran Communications Ltd. ("Tadiran Communications") - an
affiliate (cont'd)
2. (cont'd)
The two sales are interconnected and will be executed -
subject to the conditions stipulated in the agreements,
including approval of the Anti-Trust Commissioner and other
approvals - in two stages.
In the first stage, Koor will sell 13.8% of Tadiran
Communications to Elbit for 63 million dollars and
concurrently Koor will acquire 5.3% of the shares of Elbit
from Federman for 53 million dollars. The closing date for
the first stage will be in the second quarter of 2005, or at
a later date, if so agreed by the parties. After the closing
of the first stage, Koor will be entitled to appoint one
director to Elbit's board, and Elbit will be entitled to
appoint three of the members of Tadiran Communications' board
of directors.
In the second stage of the transaction, Koor will sell the
balance of its holdings in Tadiran Communications (19.2%) to
Elbit for 83 million dollars and concurrently will acquire
4.5% of the shares of Elbit for 46 million dollars. In
addition to the aforementioned conditions, the second stage
is contingent on the closing of a transaction in which
Tadiran Communications will acquire from Koor the holdings of
Koor (70%) in Elisra Elecronic System Ltd.
The closing date for the second stage of the agreements was
scheduled for September 30, 2005. If all the other
conditions are fulfilled, but the Elisra transaction has not
been closed, the date will be postponed to April 30, 2006 or
to another date agreed upon by the parties.
After both stages in the Elbit sale and the Federman sale are
executed, Koor will no longer hold shares of Tadiran
Communications, although it will hold 9.8% of the Elbit
shares and will have the right to appoint 20% of Elbit's
directors. One of the directors nominated by Koor willl serve
as Vice Chairman of the Board of Directors of Elbit.
It was further agreed by the parties that if the second stage
of the sales is not closed within sixteen months of the
signature date of the agreements, then the board of directors
of Tadiran Communications will be comprised in a manner
whereby Koor and Elbit will have the same number of directors
in the board of directors of Tadiran Communications, and
there will be rotation of two-year terms for the chairman of
the board, with Koor's candidate being the first to serve.
F-45
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 4 - Short-Term Deposits and Investments
Consolidated Company
----------------------------- ------------------------------
December 31 December 31
----------------------------- ------------------------------
2004 2003 2004 2003
------------ ---------- ----------- ----------
NIS thousands NIS thousands
----------------------------- ------------------------------
Marketable securities (1):
Debentures 122,706 141,221 117,110 132,218
Short-term Treasury notes 145,927 74,628 81,901 74,628
Shares and options 106,773 56,010 99,630 48,753
Mutual fund participation
certificates - 5,618 - -
------------ ---------- ----------- ----------
375,406 277,477 298,641 255,599
Deposits in banks and financial
institutions 37,584 89,161 - 55,207
Short-term loans and current
maturities of long-term loans 3,478 171 - -
------------ ---------- ----------- ----------
416,468 366,809 298,641 310,806
(1) Presented at market value.
============ ========== =========== ==========
Note 5 - Trade Receivables
Consolidated:
December 31
------------------------------
2004 2003
------------ -----------
NIS thousands
------------------------------
Open accounts 1,877,696 1,732,827
Deferred promissory note and receivables from sale of
customers' debts* 261,004 250,492
Post dated checks receivable and credit card companies 29,920 43,561
Current maturities of long-term trade receivables 4,979 25,581
------------ -----------
2,173,599 2,052,461
============ ===========
Including:
Net of allowance for doubtful accounts 121,922 106,305
============ ===========
* See Note 3C(2).
F-46
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 6 - Other Receivables
Consolidated Company
----------------------------- ------------------------------
December 31 December 31
----------------------------- ------------------------------
2004 2003 2004 2003
------------ ---------- ----------- ----------
NIS thousands NIS thousands
----------------------------- ------------------------------
Government agencies 195,708 126,043 357 7
Deferred taxes, see Note 16G 171,310 156,030 77,483 58,903
Accrued income 31,639 31,289 390 717
Prepaid expenses 48,498 45,712 - -
Employees 8,524 8,855 - -
Affiliates - current accounts 643 2,378 376 -
Others 72,661 82,863 5,432 8,147
------------ ---------- ----------- ----------
528,983 452,170 84,038 67,774
============ ========== =========== ==========
Note 7 - Inventories and Work in Progress
Consolidated:
December 31
------------------------------
2004 2003
------------ -----------
NIS thousands
------------------------------
A. Inventories and work in progress, net of
customer advances
Presented as current assets:
Industrial inventory:
Raw and auxiliary materials 712,021 570,455
Goods and work in progress 228,122 199,748
Finished goods 1,171,574 1,024,181
Advances in respect of materials 13,974 4,562
Inventories for trading operations -merchandise,
including advance payments 169,194 91,591
------------ -----------
2,294,885 1,890,537
Less - customer advances - 4,786
------------ -----------
2,294,885 1,885,751
============ ===========
B. Customer advances, net of work in progress
Presented as current liabilities:
Customer advances in respect of work in progress(1)(2) 211,297 156,831
Less - inventory and work in progress 90 390
------------ -----------
211,207 156,441
============ ===========
(1) Not including long-term advances
(2) 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 7 - Inventories and Work in Progress (cont'd)
December 31
------------------------------
2004 2003
------------ -----------
NIS thousands
------------------------------
C. Financial value of contracts signed during the report
period 902,621 736,517
============ ===========
D. The balance of the financial value of existing contracts
which were not recognized as revenues as at the
balance sheet date 1,990,684 2,245,371
============ ===========
F-48
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 8 - Investments in Investee companies
A. Consolidated balance sheet - affiliates
December 31
------------------------------
2004 2003
------------ -----------
NIS thousands
------------------------------
Net asset value of the investments (1)(2) 882,854 902,343
------------ -----------
Goodwill and original difference (2):
Original amount 491,044 66,465
Accumulated amortization (26,859) (51,395)
------------ -----------
464,185 15,070
------------ -----------
Long-term loans (3) 28,121 26,351
------------ -----------
1,375,160 943,764
============ ===========
(1) As follows:
Net asset value of investments as at December 31, 1991 277,159 277,159
Changes from January 1, 1992:
Cost of shares acquired or received 1,427,857 1,266,706
Accumulated losses, net (744,819) (708,007)
Changes in capital reserves and foreign currency
translation adjustments (32,626) (11,648)
Initially consolidated subsidiaries, net 465,193 465,193
Disposals, net (509,910) (387,060)
------------ -----------
882,854 902,343
============ ===========
(2) Including investments in companies traded on the
Stock Exchange in Tel Aviv or abroad, in NIS millions:
Carrying value at the balance 1,275 862
============ ===========
Market value as at balance date 1,754 985
============ ===========
(3) Linkage terms and interest rates relating to long-term loans:
Linked to the CPI - bearing interest at the rate of 5.5%,
without maturity date 22,335 20,470
Linked to the Dollar - bearing interest at the rate of
LIBOR + 1%, without maturity date (*) 5,786 5,881
------------ -----------
28,121 26,351
============ ===========
(*) On December 31, 2004, the LIBOR rate is 3.1%.
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
December 31
------------------------------
2004 2003
------------ -----------
NIS thousands
------------------------------
Shares:
Net asset value of the investments 1,729,813 1,940,588
------------ -----------
Goodwill and original differences:
Original amount, net 556,043 158,187
Accumulated amortization (57,236) (90,179)
------------ -----------
498,807 68,008
------------ -----------
Book value (1) 2,228,620 2,008,596
Payments on account of shares (1) 60,927 60,927
Long-term loans and capital notes (2) 1,307,998 1,379,561
Non-current inter-company accounts (3) 4,012 3,982
------------ -----------
3,601,557 3,453,066
============ ===========
(1) As follows:
Cost of shares including accumulated earnings as at
December 31, 1991 2,032,681 2,032,681
Changes from January 1, 1992:
Cost of acquired shares 7,714,479 7,055,603
Accumulated losses, net (4,467,604) (4,432,466)
Changes in capital reserves and erosion of capital notes, net (33,483) 14,648
Disposals (2,956,526) (2,600,943)
------------ -----------
Book value, including payments on account of shares (4) 2,289,547 2,069,523
============ ===========
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
------------------------------
2004 2003
------------ -----------
NIS thousands
------------------------------
(2) Long-term loans and capital notes:
Long-term loans (a) (b) 93,476 65,633
Capital notes - unlinked and not bearing interest (c) 1,251,902 1,316,457
------------ -----------
1,345,378 1,382,090
Less - current maturities of long-term loans (37,380) (2,529)
------------ -----------
1,307,998 1,379,561
============ ===========
(a) Long-term loans classified by linkage terms and interest rates:
Interest rate
at December 31 December 31 December 31
-------------- -------------- -------------
2004 2004 2003
-------------- -------------- -------------
% NIS thousands
-------------- ---------------------------------
Linked to the Dollar 3 42,765 12,184
Linked to the CPI 7-2 41,803 43,205
Linked to the CPI No interest 8,908 10,244
-------------- -------------
93,476 65,633
============== =============
(b) The loans mature in the years subsequent to the balance sheet date
(excluding current maturities) as follows:
December 31
---------------------------------
2004 2003
-------------- ------------
NIS thousands
-----------------------------
Second year 5,385 -
Third year - 5,474
Fourth year - 6,710
Fifth year - -
Thereafter 50,711 50,920
-------------- -------------
56,096 63,104
============== =============
(c) Capital notes are not presented at their present value, since
their repayment date has not yet been fixed by the parties.
F-51
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)
(3) Non-current inter-company accounts:
December 31
---------------------------------
2004 2003
-------------- ------------
NIS thousands
---------------------------------
Linked to the Dollar 599 569
Unlinked-bears interest at the rate of the increase in the CPI 3,413 3,413
-------------- ------------
4,012 3,982
============== ============
December 31
---------------------------------
2004 2003
-------------- ------------
NIS millions
---------------------------------
(4) Including investments in marketable shares traded on the Tel
Aviv Stock Exchange or abroad in NIS millions:
Carrying value 754 498
============== ============
Market value as at balance date 960 867
============== ============
Note 9 - Other Investments and Receivables
A. Composition:
Consolidated Company
------------------------------- ---------------------------------
December 31 December 31
2004 2003 2004 2003
-------------- -------------- -------------- ------------
NIS thousands NIS thousands
------------------------------- ---------------------------------
Deposits in banks and in
financial institutions 47,278 49,180 32,028 32,028
Non-current trade receivables 5,229 9,362 - -
Long-term loans receivable
from others 113,637 73,498 - -
-------------- -------------- -------------- ------------
Total (see Note B above) 166,144 132,040 32,028 32,028
Marketable securities 33,471 1,625 - -
Venture capital investment 171,207 230,390 - -
Indemnification receivable for fire
damages (1) 111,508 113,346 - -
Non-marketable shares and
payments on account 1,040 1,036 1,040 1,036
Others 5,661 4,947 107 113
-------------- -------------- -------------- ------------
489,031 483,384 33,175 33,177
============== ============== ============== ============
(1) See Note 3E(1)
F-52
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:
Interest rates at
December 31 December 31
----------------- ----------------------------------
2004 2004 2003
----------------- --------------- --------------
% NIS thousands
----------------- ----------------------------------
Linked to the CPI Mainly 5.7 36,228 39,028
Linked to the foreign currency (mainly to the Dollar) Mainly 0 106,715 93,012
Linked to dollar Libor* + 2% 12,757 -
Unlinked - 10,444 -
--------------- --------------
166,144 132,040
=============== ==============
* As at December 31, 2004 the Libor rate is 3.1%.
Company: December 31
----------------------------------
2004 2003
--------------- --------------
NIS thousands
----------------------------------
Linked to the CPI 5.7 32,028 32,028
=============== ==============
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
-------------------------------- ---------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- ------------
NIS thousands NIS thousands
-------------------------------- ---------------------------------
Amounts collectible in the:
Second year 75,680 50,094 32,028 -
Third year 19,957 45,958 - 32,028
Fourth year 13,748 8,230 - -
Fifth year 3,852 3,909 - -
Thereafter and without a
specific maturity date 52,907 23,849 - -
-------------- -------------- -------------- ------------
166,144 132,040 32,028 32,028
============== ============== ============== ============
F-53
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 10 - Fixed Assets
A. Consolidated
Land Machinery, Vehicles
(including equipment and and forklifts
leasehold land) Buildings installations
---------------- ------------ -------------- -------------
NIS thousands
--------------------------------------------------------------------
Cost as at January 1, 2004 115,651 1,705,294 3,751,016 39,455
Additions during the year 679 34,908 146,112 9,042
Disposals during the year (8) (5,446) (18,403) (13,261)
Adjustments resulting from foreign
currency translation differences* (257) (7,153) (41,928) (465)
Acquisition of subsidiaries, net 932 2,694 2,973 2,962
Company that became proportionately
consolidated (4,184) (31,526) (55,397) (157)
---------------- ------------ -------------- -------------
Balance as at December 31, 2004 112,813 1,698,771 3,784,373 37,576
================ ============ ============== =============
Accumulated depreciation as at
January 1, 2004 1,233 652,118 2,072,799 21,029
Additions during the year 46 38,812 159,431 5,294
Disposals during the year - (2,054) (16,256) (8,162)
Adjustments resulting from foreign
currency translation differences* (13) (1,698) (23,920) (709)
Acquisition of subsidiaries, net - 372 1,189 1,155
Company that became proportionately
consolidated (82) (9,178) (48,301) (155)
---------------- ------------ -------------- -------------
Balance as at December 31, 2004 1,184 678,372 2,144,942 18,452
================ ============ ============== =============
Write down for decline in value - 11,707 - -
---------------- ------------ -------------- -------------
Net book value as at December 31, 2004 111,629 1,008,692 1,639,431 19,124
================ ============ ============== =============
Net book value as at
December 31, 2003 114,418 1,041,469 1,678,217 18,426
================ ============ ============== =============
* See Note 2B(5)
(TABLE CONTINUED)
A. Consolidated
Installations Total
under
construction
Office and payments
furniture Tools and on account
and equipment instruments of acquisition
of assets
-------------- ------------- -------------- -------------
NIS thousands
-----------------------------------------------------------------
Cost as at January 1, 2004 202,506 3,167 822 5,817,911
Additions during the year 18,391 - 764 209,896
Disposals during the year (3,185) - (92) (40,395)
Adjustments resulting from foreign
currency translation differences* (283) - 71 (50,015)
Acquisition of subsidiaries, net 5,685 - - 15,246
Company that became proportionately
consolidated (6,973) - - (98,237)
-------------- ------------- -------------- -------------
Balance as at December 31, 2004 216,141 3,167 1,565 5,854,406
============== ============= ============== =============
Accumulated depreciation as at
January 1, 2004 130,618 - - 2,877,797
Additions during the year 22,876 - - 226,459
Disposals during the year (2,250) - - (28,722)
Adjustments resulting from foreign
currency translation differences* (2,094) - - (28,434)
Acquisition of subsidiaries, net 1,592 - - 4,308
Company that became proportionately
consolidated (3,900) - - (61,616)
-------------- ------------- -------------- -------------
Balance as at December 31, 2004 146,842 2,989,792
============== ============= ============== =============
Write down for decline in value - - - 11,707
-------------- ------------- -------------- -------------
Net book value as at December 31, 2004 69,299 3,167 1,565 2,852,907
============== ============= ============== =============
Net book value as at
December 31, 2003 71,888 3,167 822 2,928,407
============== ============= ============== =============
* See Note 2B(5)
F-54
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 10 - Fixed Assets (cont'd)
A. Consolidated (cont'd)
(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 2004 and thereafter. Certain leases provide an option
for extension for another 49 years.
The cost of leasehold real estate as at December 31, 2004, is
approximately NIS 751 million, of which approximately NIS 402
million is under 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 553 million
and NIS 181 million as at December 31, 2004 and 2003,
respectively (see also Note 16A).
(3) Includes capitalized interest amounting to about NIS 137
million and about NIS 141 million to December 31, 2004 and
2003, respectively.
(4) As for amounts charged to cost of fixed assets, see Notes
23B and E.
(5) Including fully depreciated assets amounting to NIS 895
million to December 31, 2004.
(6) See Note 22 regarding liens.
B. Company
Composition of the assets and accumulated depreciation, according to major
groups, and changes therein during the current year, are as follows:
Offices Office
and land(*) Equipment Total
--------------- --------------- --------------
NIS thousands NIS thousands NIS thousands
--------------- --------------- --------------
Cost as at January 1, 2004 36,275 5,370 41,645
Additions during the year - 423 423
--------------- --------------- --------------
Balance as at December 31, 2004 36,275 5,793 42,068
--------------- --------------- --------------
Accumulated depreciation as at January 1, 2004 4,252 2,363 6,615
Additions during the year 721 541 1,262
--------------- --------------- --------------
Balance as at December 31, 2004 4,973 2,904 7,877
--------------- --------------- --------------
Write down for decline in value 11,707 - 11,707
--------------- --------------- --------------
Net book value as at December 31, 2004 19,595 2,889 22,484
=============== =============== ==============
Net book value as at December 31, 2003 20,316 3,007 23,323
(*) 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.
The 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 - Intangible Assets, Deferred Tax Assets and Deferred Expenses
A. Consolidated balance sheet
December 31
------------------------------
2004 2003
----------- ------------
NIS thousands
Intangible assets-goodwill:
Original amounts 859,238 714,841
Accumulated amortization 348,568 298,430
----------- ------------
510,670 416,411
----------- ------------
Licensing of products abroad:
Original amounts 1,144,717 783,206
Accumulated amortization 474,767 413,741
----------- ------------
669,950 369,465
----------- ------------
Intangible assets in the purchase of products:(1)
Original amounts 1,211,508 1,231,476
Accumulated amortization 177,429 100,993
----------- ------------
1,034,079 1,130,483
----------- ------------
Marketing rights and others:
Original amounts 186,940 189,757
Accumulated amortization 67,503 52,654
----------- ------------
119,437 137,103
----------- ------------
Deferred expenses:
Debentures issuance costs:
Original amount 16,069 10,799
Accumulated amortization 5,480 3,715
----------- ------------
10,589 7,084
----------- ------------
Deferred taxes receivable (see Note 16(G)) 12,733 60,537
----------- ------------
2,357,458 2,121,083
=========== ============
(1) Including intellectual property rights, trade mark, technological know-how, etc.
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
------------------------------ -------------------------------
2004 2003 2004 2003
------------ ------------- ------------ ------------
NIS thousands NIS thousands
------------------------------ -------------------------------
From banks 1,084,944 914,260 181,452 169,709
Current maturities of long-term
loans and debentures 653,512 663,142 538,278 418,826
------------ ------------- ------------ ------------
1,738,456 1,577,402 719,730 588,535
============ ============= ============ ============
See also Note 15A
B. Classification by linkage terms and interest rates:
Interest rates at Consolidated
-------------------------------
December 31 December 31
-------------------------------
2004 2004 2003
------------------------------ ------------ ------------
% NIS thousands
------------------------------ -------------------------------
Linked to foreign currency (mainly to
the Dollar) 3.0 - 16.9 753,900 647,098
(mainly 3.5 - 4.8)
Unlinked 1.8 -11.4
(mainly 10.6) 331,044 267,162
------------ ------------
1,084,944 914,260
============ ============
Interest rates at Company
-------------------------------
December 31 December 31
-------------------------------
2004 2004 2003
------------------------------ ------------ ------------
% NIS thousands
------------------------------ -------------------------------
Linked to the Dollar 3.5 - 4.8 166,427 169,704
Unlinked 5.5 15,025 5
------------ ------------
181,452 169,709
============ ============
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
Consolidated Company
------------------------------ -------------------------------
December 31 December 31
------------------------------ -------------------------------
2004 2003 2004 2003
------------ ------------- ------------ ------------
NIS thousands NIS thousands
------------------------------ -------------------------------
Open debts 1,660,762 1,337,442 379 484
Cheques and notes payable 6,693 5,341 4 19
------------ ------------- ------------ ------------
1,667,455 1,342,783 383 503
============ ============= ============ ============
Note 14 - Other Payables
Consolidated Company
------------------------------ -------------------------------
December 31 December 31
------------------------------ -------------------------------
2004 2003 2004 2003
------------ ------------- ------------ ------------
NIS thousands NIS thousands
------------------------------ -------------------------------
Employees and
withholdings remitted 162,639 162,035 3,213 291
Provision for vacation pay and
vacation expense allowance 93,436 100,006 4,795 3,353
Expenses to be paid 360,760 252,491 22,932 21,341
Government agencies
(including taxes) 252,894 192,770 1,217 2,143
Provision for warranty and repairs
and provision for losses in
respect of long-term contracts 104,171 *87,695 - -
Payables for purchase of assets
and investees 30,036 *27,588 - -
Severance pay payable and current
portion of early retirement
pensions (see Note 17) 59,873 87,438 122 134
Dividend proposed by subsidiary 29,615 15,231 - -
Deferred income 23,037 43,148 - -
Liability in respect of securities
that were sold short 24,241 67,515 - -
Liabilities regarding forward
transaction 46,388 57,061 4,997 9,457
Others 182,352 *177,239 11,856 6,547
------------ ------------- ------------ ------------
1,369,442 1,270,217 49,132 43,266
============ ============= ============ ============
Includes interested parties 712 1,544
============ ============
* Reclassified
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
------------------------------ -------------------------------
2004 2003 2004 2003
------------ ------------- ------------ ------------
NIS thousands NIS thousands NIS thousands NIS thousands
------------- ------------- ------------- -------------
1. Loans from banks 2,859,180 3,668,341 1,995,835 1,875,279
Less - current maturities 651,084 661,998 498,270 320,200
------------- ------------- ------------- -------------
2,208,096 3,006,343 1,497,565 1,555,079
------------- ------------- ------------- -------------
2. Loans from others:
Shareholders in subsidiaries
and in proportionately
consolidated companies 37,611 52,386 - -
Investees - - 48,133 154,315
Receipts from
time-sharing units 33,053 33,765 - -
Others and long-term
accrued expenses 64,783 28,487 - -
------------- ------------- ------------- -------------
135,447 114,638 48,133 154,315
Less - current maturities 2,428 1,144 40,008 98,626
------------- ------------- ------------- -------------
133,019 113,494 8,125 55,689
------------- ------------- ------------- -------------
2,341,115 3,119,837 1,505,690 1,610,768
============= ============= ============= =============
3. Classification by linkage terms and interest rates:
The consolidated balance sheet:
Interest rate at
December 31 December 31
---------------------------------
2004 2004 2003
---------------- -------------- ------------
% NIS thousands
---------------- ---------------------------------
Linked to the foreign currency
(mainly Dollar) 1.7-8.1 982,275 2,147,952
Linked to the CPI 3.7-7.7 1,368,683 1,581,728
Linked to the CPI - - 46,227
Unlinked 6.2-7.9 643,669 7,072
------------- -------------
2,994,627 3,782,979
Less - current maturities 653,512 663,142
------------- -------------
2,341,115 3,119,837
============= =============
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
---------------------------------
2004 2004 2003
---------------- -------------- ------------
% NIS thousands
---------------- ---------------------------------
a. From banks:
Linked to the CPI 6.2-6.9 1,256,006 1,502,011
Linked to the Dollar 3.6-7.7 102,829 373,268
Unlinked 6.2 637,000 -
------------- -------------
1,995,835 1,875,279
Less - current maturities 498,270 320,200
------------- -------------
1,497,565 1,555,079
============= =============
Interest rate at
December 31 December 31
---------------------------------
2004 2004 2003
---------------- -------------- ------------
% NIS thousands
---------------- ---------------------------------
b. From investees:
Capital note - 8,125 8,125
Linked to the CPI - - 98,626
Linked to the CPI - 40,008 47,564
-------------- ------------
48,133 154,315
Less - current maturities 40,008 98,626
-------------- ------------
8,125 55,689
============== ============
B. Debentures
Consolidated
---------------------------------
December 31
---------------------------------
2004 2003
-------------- ------------
NIS thousands
---------------------------------
1. Presented at long-term liabilities
Debentures convertible into shares of subsidiary (1) 646,200 -
-------------- ------------
2. Presented between long-term liabilities and shareholders equity
Debentures convertible into shares of subsidiary (2) 165,091 340,270
============== ============
(1) In a private placement to institutional investors
(mainly overseas) in March 2004, M-A Industries
allotted non-marketable convertible debentures in
the amount of 150 million dollars par value
(including 5 million dollars which was issued to the
underwriters in April 2004), in consideration for
their par value. The debentures are for a 7-year
period and bear annual interest at the rate of
1.75%. The debentures may be converted into ordinary
shares of M-A Industries, of NIS 1 par value each,
at a conversion rate of NIS 20.5 par value,
according to a fixed exchange rate of NIS 4.514 per
1 U.S. dollar. The ordinary shares to be allotted as
a result of the conversion of the debentures will be
listed for trading on the Tel Aviv Stock Exchange.
F-60
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 15 - Long Term Liabilities (cont'd)
B. Debentures (cont'd)
(1) (cont'd)
On March 22, 2007, the debenture holders will have
the right, by serving prior written notice to M-A
Industries (between 30 and 60 days prior to March
22, 2007), to demand redemption of the debentures
(principal and interest balance at such date).
M-A Industries will have the right to force the
conversion of the debentures, beginning March 22,
2007, as long as the average share price of M-A
Industries in the period of 20 business days
preceding the notice of forced conversion will be
more than 30% higher than the conversion price of
the debentures.
M-A Industries committed to the debenture purchasers
that it would refrain from creating additional liens
on its property, the purpose of which is the
guarantee of marketable securities or other
securities which the M-A Industries intends to
register for trading.
The issue costs for these debentures amounted to
NIS 11 million.
(2) a. In 2001, M-A Industries issued convertible
bonds and options for net consideration of
NIS 276 million, of which NIS 257 million
was allocated to the fair value of the
convertible bonds.
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 10.03
(following distribution of a dividend) par
value of debentures per one ordinary share.
b. In January 2002 M-A Industries issued NIS
133,980 thousand par value of debentures
(Series A) in a private placement in a
total consideration of approximately NIS
129 million. The terms of the debentures
are the same as the terms of the debentures
(Series A) issued by M-A Industries as
above.
c. In June 2002 a consolidated company of M-A
Industries purchased in the stock exchange
approximately NIS 16,684 thousand par value
of debentures (Series A) in consideration
of approximately NIS 14 million.
During June 2003, all of the above
debentures were sold for NIS 18.8 million.
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) (cont'd)
d. In 2003, NIS 57,661 thousand par value of
debentures (Series A) were converted into
5,566 thousand ordinary shares, NIS 1 par
value, most at an exercise price of NIS
10.36 par value of debenture per ordinary,
NIS 1 par value, share. M-A Industries
total share capital issued as a result of
the conversion is 1,270 thousand dollars,
at a premium of 11,331 thousand dollars.
In 2004, 179,608 thousand par value of
debentures (Series A) was converted into
17,582 thousand ordinary shares, NIS 1 par
value, at a conversion rate of between NIS
10.03 and NIS 10.36 in par value of the
debentures for 1 ordinary share, NIS 1 par
value. The total share capital issued as a
result of the conversion is 3,974 thousand
dollars, with a premium of 35,581 thousand
dollars.
Subsequent to the balance sheet date and
proximate to the approval date of the
financial statements, NIS 12,839 thousand
par value of debentures (Series A) was
converted into 1,280 thousand ordinary
shares, NIS 1 par value.
Subsequent to the balance sheet date and
proximate to the approval date of the
financial statements, NIS 12,839 thousand
par value of debentures (series A) was
converted into 1,280 thousand ordinary
shares, NIS 1 par value.
The debentures are secured by a symbolic
fixed senior lien on a deposit of NIS 1 in
favor of the trustee for the
debenture-holders.
Beginning from 2003, conversion of the
debentures became probable. Accordingly,
the balance of the debentures is stated in
a separate item between long-term
liabilities and shareholders' equity.
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
--------------------------- ----------------------------
December 31 December 31
--------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
NIS thousands
-----------------------------------------------------------------
Second year 1,284,673 626,983 20,120 7,929
Third year 598,769 1,649,252 17,704 13,622
Fourth year 182,326 308,944 12,941 5,150
Fifth year 52,786 224,854 9,076 4,832
Sixth year 18,710 43,029 1,030 1,000
Subsequent years 70,832 153,281 72,148 80,961
----------- ----------- ----------- ------------
2,208,096 3,006,343 133,019 113,494
=========== =========== =========== ============
2. The Company
Loans from banks
December 31
---------------------------
2004 2003
----------- ------------
NIS thousands
--------------------------------
Second year 1,027,889 314,174
Third year 461,000 1,232,086
Fourth year - -
Fifth year 8,676 -
Sixth year - -
Subsequent years - 8,819
----------- ------------
1,497,565 1,555,079
=========== ============
D. See Note 22 for details of security pledged to secure loans.
(Table Continued)
Debentures Total
----------------------------- -----------------------------
December 31 December 31
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
NIS thousands
-------------------------------------------------------------------
Second year - - 1,304,793 634,912
Third year 165,091 - 781,564 1,662,874
Fourth year - 340,270 195,267 654,364
Fifth year - - 61,862 229,686
Sixth year - - 19,740 44,029
Subsequent years 646,200 - 789,180 234,242
------------ ------------ ----------- ------------
811,291 340,270 3,152,406 3,460,107
============ ============ =========== ============
2. The Company
Loans and capital note Total
from investees
December 31 December 31
----------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ----------- ------------
NIS thousands
------------------------------------------------------------------
Second year - 47,564 1,027,889 361,738
Third year - - 461,000 1,232,086
Fourth year - - - -
Fifth year - - 8,676 -
Sixth year - - - -
Subsequent years 8,125 8,125 8,125 16,944
------------ ------------ ----------- ------------
8,125 55,689 1,505,690 1,610,768
============ ============ =========== ============
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%.
According to the alternative track, some of the plants of subsidiaries
were granted a tax exemption for a two to four year period and are
taxed at the preferential rate of 25% during the remaining benefits
period.
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 Subsidiaries 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"):
The Income Tax (Inflationary Adjustments) Law, 1985 (hereinafter -
"the Adjustments Law") which has been in effect since the 1985 tax
year, instituted the measurement of results for tax purposes on a real
basis. The various adjustments required under the Adjustments Law are
meant to bring about taxation of income on a real basis. However, the
adjustment of nominal income under the tax laws is not always
identical to the inflationary adjustment according to the Opinions of
the ICPAI. Consequently, differences are created between reported
incomes according to the financial statements and between the adjusted
income for tax purposes.
F-64
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
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. Likewise,
certain subsidiaries are entitled to file consolidated tax returns
with the tax authorities.
D. Tax rates applicable to income from other sources:
Income not eligible to "approved enterprise" benefits, mentioned in
Note 16 A. above, is liable to tax at the regular rate of 35% (or if
the investee is registered and operates outside of Israel, at the tax
rate prescribed for that territory).
E. Losses for tax purposes carried forward to future years and
tax assessments:
1. The consolidated balance of tax loss as at December 31, 2004
carryforwards to next years amounted to approximately NIS
3,030 million as at balance sheet date, out of which NIS
1,432 million relates to Koor.
Carryforward tax losses are linked to the CPI, according to
the Adjustments Law.
2. The Company has received final assessments until 2002 tax
year.
3. See Note 18A(7)(C) regarding fiscal claims against a
subsidiary of M-A Industries.
F. Amendment to the Income Tax Ordinance
On June 29, 2004, the Knesset passed the "Law for the Amendment of the
Income Tax Ordinance (Amendment No. 140 and Temporary Order) - 2004"
(hereinafter - the Amendment). The amendment provides for a gradual
reduction in the company tax rate from 36% to 30% in the following
manner: in 2004 the tax rate will be 35%, in 2005 the tax rate will be
34%, in 2006 the tax rate will be 32% and from 2007 onward the tax
rate will be 30%.
Current taxes and deferred tax balances as at December 31, 2004 were
calculated based on the new tax rates prescribed in the Amendment. The
effect of the change in the consolidated financial statements as at
the beginning of 2004 is a decrease in income tax expenses of NIS
5,083 thousand.
F-65
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
G. Deferred taxes:
1. Deferred taxes are presented in the consolidated balance sheet as follows:
December 31
-------------------------------
2004 2003
------------ ------------
NIS thousands
-------------------------------
Within current assets in respect of:
Provision for vacation pay and severance benefits 16,098 28,185
Operating loss and capital loss carried forwards (2) 89,513 92,327
Inventory, net of customer advances 67,868 3,757
Timing differences in respect of recognition of income
and expenses, net (2,169) 31,761
------------ ------------
Total in current assets, net 171,310 156,030
============ ============
Within long-term assets in respect of:
Depreciation (21,110) (33,256)
Operating loss and capital loss carried forwards 691,275 *917,920
Liability in respect of employee severance benefits 9,523 28,680
Other (367) 3,709
------------ ------------
679,321 917,053
Balance not expected to be realized (1) (666,588) *(856,516)
------------ ------------
Total in other long-term assets 12,733 60,537
============ ============
Within short-term liabilities in respect of:
Provision for vacation pay and severance benefits - 71
Timing differences in respect of recognition of income
and expenses (183) (5,054)
------------ ------------
Total in other payables (183) (4,983)
============ ============
Within long-term liabilities in respect of:
Depreciation (374,761) (364,906)
Operating loss and capital loss carried forwards 81,115 *125,892
Inventories less customer advances 9,934 -
Liability in respect of employee severance benefits 45,049 41,842
Other (1,805) (2,615)
------------ ------------
(240,468) (199,787)
============ ============
(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.
(2) The Company's balance - see Notes: 3G(2), 3C(7).
* Reclassified
F-66
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
G. Deferred taxes (cont'd):
2. Balances and movement of deferred taxes in the consolidated balance sheet:
Timing
differences in
Inventories Provisions Losses and respect of
Depreciable net of for deductions recognition
fixed customer employee carried of income
assets advances rights forward and expenses Total
----------- ------------- ------------- ------------- -------------- ---------------
NIS thousands
--------------------------------------------------------------------------------------------
Balance as at
January 1, 2003 (400,721) (6,905) 140,842 178,883 39,849 (48,052)
Translation
differences in
subsidiaries 21,304 1,386 (7,627) (9,026) 8,606 14,643
Amounts charged
to statement of
operations (18,745) 9,276 (34,437) 109,766 (20,654) 45,206
------------ ------------- ------------- ------------- -------------- ---------------
Balance as at
December 31,
2003 (398,162) 3,757 98,778 279,623 27,801 11,797
Translation
differences in
subsidiaries 8,057 (59) (1,124) (4,219) (211) 2,444
Adjustments to
changes in
tax rate 19,202 (93) (918) (9,704) (3,404) 5,083
Amounts charged
to statement of
operations (7,229) 74,197 (26,066) (66,922) (28,710) (54,730)
Other differences, (17,739) - - (3,463) - (21,202)
net*
------------ ------------- ------------- ------------- -------------- ---------------
Balance as at
December 31,
2004 (395,871) 77,802 70,670 195,315 (4,524) (56,608)
============ ============= ============= ============= ============== ===============
* Mainly subsidiaries that were sold/acquired, net.
Deferred taxes were computed at tax rates of 22% - 35%.
F-67
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-----------------------------------------------------------------------------------------------------------------------------
Note 16 - Taxes on Income (cont'd)
H. Taxes on income included in consolidated statements of operations:
1. Composition:
Year ended December 31
-------------------------------------------------
2004 2003 2002
---------- ---------- ----------
NIS thousands
-------------------------------------------------
Current taxes 242,082 111,910 84,836
Deferred taxes 49,647 (45,206) 64,479
In respect of previous years, net (4,629) 18,668 (8,136)
----------- ---------- ----------
287,100 85,372 141,179
=========== ========== ==========
2. Below is the adjustment between the theoretical tax amount
which would have been applicable if all the income of Koor
Group and the consolidated companies were taxable at 35%, and
the tax amount charged in the statement of income.
Year ended December 31
-------------------------------------------------
2004 2003 2002
---------- ---------- ----------
NIS thousands
-------------------------------------------------
Earnings (losses) before taxes on income, as
reported in the statement of operations 892,665 448,364 (313,650)
=========== ========== ==========
Statutory tax rate 35% 36% 36%
=========== ========== ==========
Theoretical tax expenses (income) in respect
of these earnings (losses) 312,433 161,411 (112,914)
Increase (decrease) in taxes resulting from
the following factors - the tax effect:
Tax benefits under various encouragement laws (49,676) (32,790) (58,461)
Non-deductible expenses for tax purposes 19,611 22,650 144,711
Losses for which deferred taxes were
not recorded 113,347 40,470 194,666
Provisions for anticipated losses from the
sale of assets, net - 25,748 43,699
Tax loss carried forwards from prior years for
which deferred taxes were not created and
which were utilized during the current year (20,037) - (60,132)
Deferred taxes in respect of prior years and
which were written-off at the reporting year 75,601 - -
Tax losses from prior years, for which
deferred taxes were recorded this year (77,483) (58,903) -
Differences between the measurement
basis according to the financial statement
to measurement basis for tax purposes 9,520 (25,660) 24,032
Taxes in respect of prior years (4,629) 18,668 (8,136)
Effect of foreign subsidiaries * (93,213) (63,328) (28,862)
Others ** 1,626 (2,894) 2,576
----------- ---------- ----------
Total taxes on income 287,100 85,372 141,179
=========== ========== ==========
* Relates to territories of operations in which the statutory tax rate is lower than that used in Israel.
** Including influence of changes in tax rate.
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. As 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 certain subsidiaries, past experience has shown that the vast
majority of employees continue to work until they reach retirement
age, and these companies were not required, in the past, to make up
significant shortfalls for employees who chose early retirement.
Accordingly, the managements of these companies believe that there is
a low probability that such shortfalls will be paid. Therefore, the
financial statements of these companies do not include a provision.
The financial statements of the other Group companies include a
suitable provision, based on management's estimate of the salary
components used to compute the pension for full coverage of the said
obligation.
Regarding companies in which enhanced severance has been planned or
agreed upon for the employees, appropriate provisions have been made
for the supplementary amounts.
In January 2004, the Retirement Age Law, 2004 ("the Law") was enacted.
The Law raises the retirement age for men and women. In the estimation
of the management of the Company and its investees, the Law will not
have a material impact on the Group's recorded liability for early
pension in respect of its employees, beyond the provisions that were
included in this respect.
B. Funds for severance pay and retirement grants:
The funds provisions in severance pay funds include accrued linkage
differences and interest, and they are deposited in severance pay
funds in banks and insurance companies. Withdrawals from the funded
provision monies are contingent on fulfillment of the provisions of
the Severance Pay Law.
C. 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%-0.4% per
month (3.6% - 5% per annum).
D. 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), no
provision has been made. 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)
E. 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
------------------------------ ------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
NIS thousands NIS thousands
------------------------------ ------------------------------
Severance pay and retirement grants 265,013 259,455 6,903 3,227
Amount accrued for
early retirement 184,335 186,059 575 548
Amount accrued in respect of
unutilized sick leave 14,177 11,853 362 314
------------ ------------ ------------ ------------
463,525 457,367 7,840 4,089
Less - amount funded 266,357 265,365 2,865 2,605
------------ ------------ ------------ ------------
197,168 192,002 4,975 1,484
============ ============ ============ =============
Note 18 - Contingent Liabilities and Commitments
A. Contingent liabilities
1. Anti-Trust Commissioner:
a) During 1997, an investigation was conducted on
behalf of the Anti-Trust Commissioner ("the
Commissioner") in connection with alleged violations
of the Anti-Trust Law, 1988 ("the Anti-Trust Law"),
relating to alleged price fixing and absence of
competition between Tadiran Ltd. (a subsidiary of
Koor - "Tadiran") and Tadiran Telecommunications
Ltd. (a former subsidiary of Koor that merged with
ECI - "Telecommunications") and between Telrad
Networks Ltd. (a subsidiary of Koor - "Telrad").
On September 7, 2004 it was agreed with the
Commissioner that he would issue an order according
to Section 50B of the Anti-Trust Law by which
Tadiran and Telrad would pay to the State Treasury
the total amount of NIS 8 million, without this
being considered an admission of guilt by the above
companies and/or any of their officers to committing
any crime. It was further agreed that indictments
would not be filed, in the field of public switches
and in the field of private switches, and the
Commissioner would not take any further action
against the companies and/or their officers. The
order was approved by the Court. In accordance with
the agreement with the Commissioner, a provision of
NIS 8 million was included in the consolidated
financial statements as at December 31, 2004.
F-70
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments
A. Contingent liabilities (cont'd)
1. Anti-Trust Commissioner (cont'd)
b) On February 2, 2005, Koor's offices received notice
from the Anti-Trust Authority that it was
considering the possibility of prosecuting Koor,
together with 7 other companies that are not
members of the Koor Group (including 2 companies
that had been owned by Koor on the relevant dates,
and were later sold to third parties) and 9
executives (including 2 who had been salaried
employees of Koor on the relevant dates), for
violations of the anti-Trust Law. The notice came
in the wake of an investigation opened by the
Anti-Trust Authority in the other companies during
2001, with respect to price fixing and collusion,
and the lack of competition in the frozen and
canned vegetable industry. The Anti-Trust Authority
claims that two companies that belonged to the Koor
Group in the past had colluded with two other
companies in the years 1992-1998.
According to the Anti-Trust Law, penalties can be
imposed on those who violate the Law, but the
Company believes, based on its legal counsel, that
the said penalties, if imposed, will not have a
material effect on the financial statements.
Moreover, there may be civil implications if it is
possible to prove that damages were caused by the
aforementioned violation. The Company is unable to
assess the implications in the civil law track, if
any, especially due to the fact that in the opinion
of the Company and its legal counsel, for the vast
majority of the period involved, the statute of
limitations has expired.
2. On September 21, 2004 a suit was filed against the Company,
Bezeq - the Israel Telecommunications Company Ltd., Tadiran
Ltd., Telecommunications, Tadiran Public Switching Ltd., (a
former subsidiary in Telecommunications), and Telrad in
connection with the public switches. A motion for
recognition of the suit as a class action was filed together
with the suit in accordance with the Law, and according to
Civil Procedure regulations. In the Statement of Claim, the
plaintiff alleges that during the previous decade, the
defendants had engaged in activities prohibited by the
Anti-Trust Law that resulted in damages to Bezeq's
customers. In respect of the actions alleged by the
Plaintiff, the plaintiff is asking for damages for the group
that he is seeking to represent in the amount of NIS 1.7
billion.
On March 10, 2005, the Company and the other defendants
submitted to the District Court their decisive objection to
the request of the plaintiff to certify the claim as a class
action.
In the estimation of the Company, based on its legal counsel,
the chances for the suit and for the action to be recognized
as a class action are remote.
As to the indemnification Tadiran gave to ECI, see Note
18A(6)(a) below.
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. Elisra
a) As part of the agreement for the sale of part of the
Company's holdings in Elisra to Elta, as described
in Note 3E(2), Koor undertook to indemnify Elta for
damages, as defined in the agreement, which will be
sustained as a result of breach of representations
made to Elta in the agreement. The main points of
the indemnification undertaking liabilities that
have not expired are as follows:
1. Any amount of damages that will be
sustained as a result of breach of the
representation concerning the insurance
indemnity rights to which the Elisra Group
is entitled, relating to the fire that
occurred at the Group's plants, see Note
3E(1). Elta's right to demand payment of
the indemnity in this matter carries no
time limit.
2. Any amount of damages that will be
sustained as a result of tax payments in
respect of the tax year 2001, for which
Elisra will be liable, and that are at
least 4 million dollars higher than the
total provisions for taxes included in
Elisra's financial statements for 2001;
provided that the demand for payment of
indemnity is submitted by Elta not later
than 30 days after the date on which the
self-assessment in respect of that tax year
becomes final.
b) Financial covenants
1. Elisra's undertakings with banks are
secured by negative pledges. Under the
terms of the negative pledges, Elisra
undertook to maintain financial covenants
(which will be measured on the basis of the
consolidated financial statements),
including a minimum ratio of shareholders'
equity to total assets (as described in the
agreement), minimum current ratio, amount
of shareholders' equity and minimum pre-tax
earnings. In addition, certain limitations
were imposed on the Elisra with respect to
furnishing guarantees to third parties,
creating new liens and the sale or transfer
of assets in material amounts.
2. During 2004, Elisra took out long-term
loans totalling 20 million dollars. Under
the terms of these loans, Elisra's
undertakings toward the credit providers
include meeting financial covenants as
provided in Note 18(b)(1) above, as well as
a debt coverage ratio, as defined in the
agreement, which will be measured on the
basis of Elisra's unconsolidated financial
statements. Likewise, limitations were also
imposed on Elisra relating to the
distribution of a dividend and other
payments to its shareholders, as stipulated
in the agreement.
In the estimation of Elisra's management,
during the report period and as at the
balance sheet date, Elisra was in
compliance with the above financial
covenants.
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)
4. In accordance with the agreements with the banks, Koor
undertook to maintain certain financial covenants, including
minimum shareholders' equity and debt capital - of Koor and
certain investees, ratio of shareholders' equity to debt
capital, a ban on creating pledges or furnishing guarantees
without the advance consent of the banks, and limitations
prescribed in the agreement. Koor also undertook to repay
part of the existing debt, by using the proceeds to be
received from the realization of certain assets, if they are
realized.
Additionally, Koor undertook not to sell the shares of a
certain investee, except for cash, and at a percentage not to
exceed that stipulated in the agreement with the banks and
other limitations as mentioned in the above agreements.
As at the balance sheet date, Koor is in compliance with the
above covenants.
5. Telrad
a. In October 1994, a claim in an unspecified amount
was filed by the Engineers Union against Telrad.
The claim pertains to recognition of the
applicability to Telrad engineers of the salary
tables included in the general collective
agreements signed in the years 1994 and 1995,
between the Engineers Union and employers in the
public service sector, beginning January 1, 1993.
On January 31, 1996, Tel Aviv District Labor Court
issued a ruling, which dismissed outright the
claims of the Engineers Union.
The Engineers Union appealed the ruling to the
National Labor Court, which ruled that the agreement
is a collective agreement governing the relations
between Telrad, the Union and the Telrad employees.
Telrad filed an appeal with the Supreme Court.
On January 29, 2002, a ruling was issued dismissing
Telrad's appeal. Consequently, the next stage is a
hearing of evidence by the Labor Court concerning
the applicability of public service sector to
salaries in Telrad.
In April 1996 a parallel claim was filed by the Lod
Workers Council and the Monthly Workers Committee,
to have the salary scales of the public services
sector applied to the employees of Telrad.
b. In 1999, a claim was filed against Telrad by company
employees who are members of Telrad's workers'
committee. They are suing to be given 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
rule that Telrad is obliged to draw up new accounts
for the distribution of earnings. In addition, a
motion was filed to recognize the plaintiffs as
representatives of all of Telrad's workers and
employees. The court dismissed the motion for a
class action. A defense brief has been filed by
Telrad.
Telrad recorded an appropriate provision in respect of the
above claims.
F-73
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
5. Telrad (cont'd)
c. As part of the agreement for the sale of shares of
Telrad Networks (see Note 3D(1)), Koor and Telrad
Holdings (a wholly-owned subsidiary of Koor)
undertook indemnifications in respect of the
following events:
1. Damage or loss sustained by the buyer from
a decline in the value of the acquired
shares as a result of a decrease in the
equity value of Telrad Networks due to
erroneous representations made on the
transaction date. This indemnification
will be in force until 30 days after
publication of the financial statements of
Telrad Networks as at December 31, 2006,
except for representations on the capital
structure of Telrad Networks and tax items
in the financial statements, for which
there is no time limit on indemnification.
2. Telrad Networks not meeting certain
targets as defined in the agreements. The
indemnifications listed in this item are
for between two and five years.
3. Damage or loss sustained by the buyer in
respect of erroneous representations with
respect to the sellers' ownership of the
shares being sold and their ability to
execute the sale. This indemnification will
have no time limit.
The total amount of the indemnification is limited
to the amount of the consideration received from the
sale of the shares of Telrad Networks (except in
respect of claims, the cause of action of which is
fraud, in which the amount is unlimited). As at the
publication date of the financial statements, the
amount of the proceeds received is about 10 million
dollars.
In the event the indemnification is invoked
according to one of the causes of action described
previously, the amount of the indemnification will
be deducted from the loans that the seller made
available to Telrad Networks as part of the sale
agreement.
Additionally, indemnification was given in respect
of expenses that Telrad Networks will incur at an
amount exceeding the sum stipulated in the agreement
in respect of the recognition of a class action
filed in September 2004 relating to anti-trust
activities (see Note 18A(2)).
6. Tadiran and its investees
a. In the 1999 merger agreement between ECI and Tadiran
Telecommunications Ltd. ("TTL"), Tadiran Ltd.
undertook to indemnify ECI for any damages (in
excess of the amount defined in the agreement) it
sustains as a result of matters under investigation
by the Anti-Trust Commissioner.
This indemnification will remain valid for a period
of seven years from the date of the merger and may
be extended for an additional period, as long as
these matters are under investigation by the
Commissioner.
F-74
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
6. Tadiran and its investees (cont'd)
b. Employees of a Tadiran plant that closed during 1990
filed actions against Tadiran, alleging that they
sustained injuries or certain work-related illnesses
resulting from alleged exposure to certain
substances.
Tadiran has insurance policies which, relying on
legal opinions, substantially cover possible damages
resulting from these claims. Therefore, no
provisions have been made in respect of these
claims. Tadiran recorded provisions in respect of
possible damages which had been covered by an
insurance company currently in liquidation.
c. In October 1999, Bezeq - The Israel
Telecommunication Corp. Ltd. ("Bezeq") lodged a
claim against Tadiran Ltd. whose main cause is
various losses sustained by Bezeq due to delays in
the performance of projects ordered in development
and application contracts originally signed between
Bezeq and TTL, in the amount of approximately 8.6
million dollars ("main claim").
Alternatively, Bezeq is suing for the balance of
arrearage penalties to which it alleges it is
entitled pursuant to these contracts, and which were
not paid in full, in the amount of approximately 1.7
million dollars ("alternative claim").
In an arbitration judgment issued on February 17,
2000, all of Bezeq's arguments regarding Tadiran's
liability for the main claim were dismissed. The
arbitration judgment rules that pursuant to the
contractual commitments between the parties, Bezeq
is entitled to compensation within the framework of
arrearage penalties only. The negotiations between
the parties for a settlement were unsuccessful, and
the matter was returned to the arbitrator for his
decision. In February 2003, a supplementary
arbitration agreement was signed. The parties
submitted their written arguments and the arbitrator
issued his ruling on February 26, 2004. In his
ruling, the arbitrator affirmed Tadiran's position
and ruled in accordance with the parameters for
calculating the damages that Tadiran is meant to pay
to Bezeq. The parties conducted negotiations
regarding implementation of the aforementioned
parameters, and they agreed that the final amount
would be NIS 4.6 million, which was paid subsequent
to balance sheet date. The financial statements of
the Company include an adequate provision.
F-75
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
7. M-A Industries and its investees
a. Quality of the environment
The activities of M-A Industries are exposed to the
risks of harming the environment, since it
manufactures, stores and sells chemicals. M-A
Industries invests significant amounts in order to
comply with the provisions of environmental laws and
regulations, and in the opinion of the management it
does comply therewith. According to M-A Industries'
insurance experts, the insurance policies provide
coverage in the event of a sudden unexpected
occurrence of environmental pollution in Israel and
worldwide, subject to the relevant terms of the
policy. As at balance sheet date, M-A Industries
does not have insurance coverage for continuous
environmental pollution.
Such insurance is difficult to obtain, and even
where it can be obtained, M-A Industries believes
that the terms of the insurance, including the sum
insured, do not at present justify taking out such
insurance.
Pursuant to an agreement with the Ministry of
environmental Protection, subsidiaries decided to
construct facilities for the biological treatment of
waste. Construction of the facility will take about
3 years. In the estimation of M-A Industries
management, the aggregate construction cost will be
between 30 million dollars and 40 million dollars.
One of the plants of M-A Industries subsidiary is
located in Ramat Hovav, along with other chemical
plants, since the Government decided that the area
is suitable for the construction of chemical plants
under the assumption that the geological layers in
that particular area are completely impermeable to
seepage or pollution. The Ministry of the
Environment ("The Ministry") conducted tests, which
determined that there are indications of
subterranean pollution in Ramat Hovav. The
investigators recommended that steps be taken to
prevent the continuation of leakages from active and
inactive plants, which could constitute a source of
pollution of the water table in the area. The
subsidiary may be required to clean up the relevant
areas or subterranean layers if and when it is found
that the subsidiary is responsible for the said
contamination. Over the past several years various
tests have been performed by different agencies to
test the ground contamination in the Ramat Hovav
area as well as the area surrounding the
subsidiary's premises in Be'er Sheva. In the opinion
of the subsidiary Management, no material
consequences on the financial statements are
expected due to application of the recommendations
deriving from the said examinations.
In May 2004, a subsidiary of M-A Industries owning
additional plants at the Ramat Hovav site, received
notice of a change in the terms of the license,
whereby the plants must change the method used to
treat sewage from the existing treatment, do so
independently and through the implementation of
vaporization processes. These terms include demands
that, within a short period of time, the plants
conduct research and development for the purpose of
customizing the process to the composition of each
plant's sewage, and later, to build a suitable
facility. Additionally, formulation processes are to
be implemented, whereby the plants must present the
Ministry with a research and development program for
the purpose of implementing the process with respect
to the sewage. At the same time, the Ministry of the
Environment set the date by which the plants must
treat the sewage in the requisite format and to stop
the flow of sewage into the Council's vaporization
pools and treatment facilities.
F-76
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
7. M-A Industries and its investees
a. Quality of the environment (cont'd)
On October 10, 2004, a subsidiary of M-A Industries,
together with the Israel Manufacturers Association
and other companies, filed an administrative appeal
with the Beer Sheba District Court against the
Ministry of the Environment. The subject of the
appeal is the additional conditions for obtaining a
business license imposed on the appealing plants in
May 2004 which are engaged in the treatment and
discharge of sewage created by their activities. In
the appeal, the District Court was asked to issue an
order declaring that the additional terms are
nullified.
On December 29, 2004 a preliminary hearing on the
appeal was held. The hearing on the appeal was
scheduled for March 2005.
In the estimation of M-A Industries management,
based on its legal counsel, in view of the
preliminary stage of the process, it is not possible
at this time to estimate the prospects of the
administrative appeal. In the estimation of M-A
Industries, if the appeal is dismissed, it will have
a material effect on the activities of the plant in
Ramat Hovav and/or will require investments of
amounts that M-A Industries is unable to estimate at
this time.
On November 28, 2004, the Government reached a
decision approving a plan related to reducing air
and water pollution deriving from the "Ramat Hovav"
industrial area.
The key points of the plan are:
(a) Treatment of the plants' sewage
1. By June 30, 2006, the flow of
untreated sewage to the joint
biological treatment facility will
be halted and each plant will
treat the sewage to the quality
level prescribed by the Ministry
of the Environment (as derive from
the additional conditions for a
business license from May 2004).
2. By December 31, 2007, the flow of
waste water to the vaporization
pools will be halted and each
plant will treat the waste water,
to the level of quality and
concentration of salts prescribed
by the Ministry of the Environment
(as derived from the additional
conditions for a business license
from May 2004).
F-77
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
7. M-A Industries and its investees (cont'd)
a. Quality of the environment (cont'd)
(b) Rehabilitation of existing vaporization
pools
1. On January 1, 2005, the Ramat
Hovav Industrial Council will
begin taking action to dry and
rehabilitate the area of the
vaporization pools spanning 15,000
square meters, in an attempt to
complete the drying and
rehabilitation activities by not
later than the end of 2012.
2. The Ramat Hovav Industrial Council
will submit a detailed plan and
timetable for drying and
rehabilitating the vaporization
pools site to the Ministry of the
Environment for approval by
December 31, 2004.
(c) Treatment of air pollution
The Ministry of the Environment will
formulate and operate a plan to prevent
exceptional emission of hazardous materials
into the air from the Ramat Hovav
industrial area.
As to the possible implications of the Government's
decision on the activities of M-A Industries, see
above.
A criminal complaint was filed against M-A
Industries and one of its executives by the Man,
Nature and Law Foundation. The complaint accuses M-A
Industries that in several instances during
1999-2002, there were measurements at its Ramat
Hovav plant of chimney emissions of materials at
prohibited concentrations, which created strong air
pollution.
M-A Industries does not admit to the charges in the
complaint.
In the opinion of M-A Industries and its legal
counsel, because of the early stage of the
proceedings, it is not possible to estimate the
outcome of the complaint and/or the resultant
exposure. Therefore, the financial statements do not
include a provision in respect thereof.
b. In 1995, a claim was filed against a subsidiary of
M-A Industries and several other defendants,
totaling approximately NIS 137.5 million, by a group
that had acquired the rights of two banks which
declared bankruptcy. The subsidiary is being sued as
the guarantor of debts of agricultural cooperatives
that were its former shareholders.
The position of the subsidiary is that it was
removed from the guarantee agreement under the terms
of a subsequent agreement between the bank, the
previous shareholders and a subsidiary of the former
shareholders. The subsidiary's financial statements
include a provision of NIS 8.6 million, based on the
possibility of a compromise agreement with the
plaintiffs. In the estimation of the subsidiary,
based on the opinion of its legal counsel, the
provision recorded is sufficient to cover any
possible loss from this claim.
F-78
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
7. M-A Industries and its investees (cont'd)
c. Administrative proceedings, civil actions and other
monetary claims of approximately NIS 209 million
have been filed against a subsidiary of M-A
Industries. Based on the opinion of its legal
counsel, the subsidiary's management estimates that
the chances of the subsidiary's success in the
proceedings and its defense against the above claims
and demands are high. The subsidiary believes that
the provisions recorded in its financial statements
are adequate to cover any possible damage which may
result, if any, from these claims.
d. On the matter of undertaking in securitization of
transactions, and on the matter of compliance with
financial covenants, see Note 3C(2).
8. The other shareholders ("the plaintiffs") in Herods, a
proportionately consolidated company of Sheraton Moriah
(Israel) Ltd., a subsidiary of Koor, filed a "motion for
approval of a claim as a derivative action" with the Tel Aviv
District Court against Sheraton and a subsidiary. The
derivative action for which they are seeking approval is for
the cancellation of the management agreement between Herods
and a subsidiary, as part of the arbitration process to which
the claim has been referred. The claim itself deals with the
plaintiffs' arguments regarding breaches in the management
and image promotion agreements.
As a result of negotiations conducted between the parties, a
compromise agreement was signed on February 26, 2005,
pursuant to which the motion for approval of the derivative
claim will be dismissed, and the proceedings of the
derivative claim will be stricken. The compromise agreement
is subject to the approval of the board of directors of the
parties. After such approval is given, a final binding
agreement will be signed and the parties will appeal to stay
the proceedings.
9. In addition, a number of claims have been filed against
certain investees concerning various matters arising in the
normal course of business, including litigation with tax,
customs and VAT authorities, which are in various legal
proceedings. In the estimation of the managements of these
companies, based on the opinions of their legal counsel, the
provisions for these claims included in their financial
statements, are adequate in light of the circumstances.
10. On conditions relating to an investment grant - see Note
10A(2).
11. In Israel, the Stamp Duty on Documents Law, 1961 ("the Law")
is applicable to various documents at different rates,
depending on the kind of document and the amount stipulated
therein, or not stipulated therein. In June 2003, the wording
of Section 15.A of the Law was amended, prescribing who is
obligated for the stamping of documents. Since June 2003, the
Israeli tax authorities have intensified the enforcement of
the Law. The amendment to the Law and the enforcement
activities of the tax authorities were brought before the
Supreme Court for a hearing, on which a ruling has not yet
been issued. Moreover, according to the legislative trends,
the Stamp duty tax is expected to be gradually eliminated,
until it is fully cancelled in 2008.
Certain investee companies received a request from Tax
Authorities to produce documents.
In the estimation of the managements of the Company and the
investees, based on the opinions of their legal counsel, the
Companies are not expected to have material exposure in
respect of any demand related to the Stamps Duty Law.
12. On the indemnity granted to Claridge as advisor - see Note
25C(2).
13. In connection with the indemnification of the appraiser who
conducted a valuation for ECI, see Note 3A(1).
F-79
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 18 - Contingent Liabilities and Commitments (cont'd)
A. Contingent liabilities (cont'd)
14. The liabilities of directors and officers in the Company and
investees are insured by leading insurance companies in
Directors and Officers Insurance (D&O), subject to the terms
of the insurance policy.
Additionally, in accordance with a resolution of the general
meeting of the Company's shareholders, the Company resolved
to indemnify the directors and officers for various events
that are not covered by the insurance, at a monetary amount
exceeding the insured amounts, all as provided in the said
resolution.
15. In connection with the indemnification of the appraiser who
conducted a valuation for Tadiran Communications Ltd, see
note 3H(1).
B. Commitments
1. Several 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 generate income from such
research (at rates of 2% - 5% of sales proceeds from products
resulting from the research and development), in amounts not
exceeding 100% - 150% of the amounts of the grants, linked to
the dollar, received by the companies as participation in the
research and development projects.
Royalty expenses paid to the Government of Israel in respect
of these research and development contracts, are as follows:
In the year ended December 31, 2004 - NIS 29,758 thousand.
In the year ended December 31, 2003 - NIS 22,902 thousand. In
the year ended December 31, 2002 - NIS 24,662 thousand.
2. Certain subsidiaries undertook to pay royalties at the rate
of 3% per year in respect of the incremental 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: December 31,
2004 - NIS 22 million; December 31, 2003 - NIS 50 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 43
million in 2004, NIS 50 million in 2003 and NIS 60 million in
2002.
Future minimum payments under the operating leases and rental
fees for the years subsequent to balance sheet date, are as
follows:
December 31
2004
---------------
(NIS thousands)
---------------
First year 41,960
Second year 34,044
Third year 21,514
Fourth year 8,748
Fifth year and thereafter 26,961
---------------
133,227
===============
5. Koor Corporate Venture Capital's commitment for additional
investments in a venture capital fund, as at the signing
date of the financial statements is approximately 5 million
dollars.
6. A subsidiary of M-A Industries has agreements regarding
long-term supply contracts with a multinational company in
the amount of 17 million dollar per year for a period of five
years (2001-2006).
F-80
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 19 - Convertible Securities of Investee Companies
Option warrants to employees:
Certain investees issued options to their employees until 2004
inclusive. Employee entitlement to such options is usually accrued
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.
Convertible debentures and options
See Note 15B.
At each reporting period, Koor reviews the probability that the
convertible securities will be exercised. If a loss, as a result of
dilution, following the convertible securities exercise, is expected,
the Company records the loss.
Note 20 - Share Capital and Stock Options
A. Share capital is composed as follows:
December 31, 2004 December 31, 2003
---------------------------------- ----------------------------------
Authorized Issued and Authorized Issued and
Outstanding outstanding
----------------- --------------- --------------- ----------------
Number of shares:
Ordinary shares, par value
of NIS 0.001 (1) (3) (5) 83,932,757 16,033,213 83,932,757 15,950,188
================= =============== =============== ================
Deferred shares, par value
of NIS 0.001 (2) (4) 15,792,243 15,156,533 15,792,243 15,156,533
================= =============== =============== ================
Amount in nominal NIS:
Ordinary shares, par value
of NIS 0.001 83,933 16,033 83,933 15,950
================= =============== =============== ================
Deferred shares, par value
of NIS 0.001 15,792 15,157 15,792 15,157
================= =============== =============== ================
F-81
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:
(1) These shares are listed on the Tel Aviv Stock Exchange
(TASE). On December 31, 2004, the share price on the TASE
was NIS 224.90.
The ADS, (American Depository Shares) each of which
represents 0.2 ordinary shares, par value of NIS 0.001
(hereinafter - Ordinary Shares), are traded on the New York
Stock Exchange (NYSE). The ADS price on the NYSE on December
31, 2004 was 10.56 dollars.
(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 a dividend distribution of any kind.
(3) On the balance sheet date, subsidiaries hold 15,799 Ordinary
Shares.
(4) A subsidiary of Koor - Koor Trusts (1995) Ltd. (in voluntary
liquidation) had held 624,577 deferred shares of Koor, and in
anticipation of its final liquidation, sold them to Koor
Investments Ltd. (a subsidiary of Koor) in 2004.
(5) During 2004, options in the employee stock option plans (See
Note 20C) were exercised for 83,025 ordinary shares.
B. Buy-back of Company shares
On April 7, 2000, Koor's Board of Directors resolved to approve a
framework of 50 million dollars for buying back ordinary shares of
Koor.
In the framework, which was fully utilized in 2000, 538,592 ordinary
shares were purchased (approximately 3.4% of the ordinary share
capital), at a cost of approximately NIS 219 million. This amount is
deducted from the shareholders' equity of the Company.
On December 31, 2001, the Company purchased 154,637 of its ordinary
shares from a subsidiary at the market price. The transaction was
treated according to the Israeli Securities Regulations (Financial
Statement Presentation of Transactions between a Corporation and its
Controlling Shareholders), 1996.
On May 27, 2003, a foreign institutional investor (hereinafter - "the
Buyer") purchased 500,000 of the aforementioned Company's shares. The
Purchaser declared that the sale was effected without his requesting
or receiving any information from the Company, and undertook not to
trade the shares to be purchased within a specified period.
The sale was effected on that day in an off-market transaction, at
the market price, for total consideration of NIS 43 million.
The Company holds a total of 193,229 of its shares. The amount
deducted from shareholders' equity at the balance sheet date in
respect of the shares held by the Company and subsidiaries is NIS
80,321 thousand.
F-82
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options (cont'd)
C. Stock options to senior employees
1. 1997 plan:
In 1997, 188,968 stock options were allotted under this plan.
On March 22, 2000, Koor's Board of Directors resolved to
amend the plan so that for an employee who resigned and who
holds stock options that vested before his resignation, their
exercise period would be until the end of the five years from
the inception date of the plan (hereinafter - "Amendment of
the exercise period for employees who resign").
On August 6, 2000, Koor's Board of Directors resolved that
for Company employees who are not related 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 vesting date (hereinafter -
"Amendment of extension of the exercise period").
On November 15, 2001, Koor's Board of Directors resolved that
for Company employees on the date of resolution and who are
not related parties in the Company the exercise price of
their stock options would be amended to NIS 101.38 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).
On June 5, 2003, the Company's Board of Directors resolved to
extend the exercise period of the options of Koor Group
employees on the date of the resolution, to December 31,
2010.
Balance of
stock option Exercise Exercise
not exercised price date
-------------- -------- --------
NIS
--------
2,519 101.38 05/2005
3,000 101.38 12/2010
--------------
5,519
--------------
2. 1998 plan:
On August 30, 1998, an 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").
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 financial benefit 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 benefit component (above and hereafter - "the Benefit
Component Method").
F-83
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options (cont'd)
C. Stock options to senior employees (cont'd)
2. 1998 plan: (cont'd)
On March 22, 2000, the Board of Directors approved an
amendment of extension of the exercise period for employees
who resign, applicable to option holders under the Plan who
are not related parties (see Note 20C(1)). 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 vesting date
preceded 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 related 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 resolution date who are not related
parties in the Company.
On June 5, 2003, the Company's Board of Directors resolved to
extend the exercise period of the options for Koor Group
employees on the resolution date to December 31, 2010.
Balance of
stock option Exercise Exercise
not exercised price date
--------------- --------- --------
NIS
---------
670 101.38 07/2006
52,593 101.38 12/2010
---------------
53,263
---------------
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 ordinary issued share capital of
the Company.
2) The options will be exercised for shares in a
quantity reflecting the amount of the financial
benefit inherent in the options, according to the
Benefit Component Method.
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) The options are designated for Company employees who
are not related parties in the Company and will not
become related parties in the Company as a result of
allotment of the stock options.
F-84
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options (cont'd)
C. Stock options to senior employees (cont'd)
3. 2000 Plan: (cont'd)
5) The stock options will vest in accordance with a
division of the options into three batches, so that
at the end of the first year from the record date
(June 14, 2000) or from the date on which the
employee started work in the Company (whichever is
the later), one third of the quantity allotted will
vest, and the remaining two thirds of the quantity
will vest at the end of each of the two subsequent
years. The exercise period of each vested option is
5 years from the vesting date.
6) On October 5, 2000, the total quantity of 400,000
stock options was allotted to a trustee.
7) On June 5, 2003, the Company's Board of Directors
resolved to extend the exercise period of the
options of Koor Group employees on the date of the
resolution to December 31, 2010.
Balance of
stock option Exercise Exercise
not exercised price date
--------------- --------- --------
NIS
---------
1,734 101.38 6/2007
30,000 101.38 12/2010
---------------
31,734
---------------
4. 2003 Plan:
On July 27 2003, a general meeting of shareholders approved
Stock Option Plan 2003, which had been approved previously by
the Audit Committee of the Company's Board of Directors and
by the Board of Directors, on May 25, 2003 and June 5, 2003,
respectively. The key points of the Plan are:
1) A total framework was approved for the allotment of
1,200,000 stock options, theoretically exercisable
for up to 1,200,000 ordinary shares of the Company,
i.e. about 6.8% of the ordinary shares (fully
diluted) of the Company.
2) The options allotted to the trustee will be
exercised for shares in a quantity reflecting the
amount of the financial benefit inherent in the
options, according to the Benefit Component Method.
3) The exercise price of every option will be NIS 96,
linked to the CPI, unless the Company decides to
prescribe a higher exercise price for options that
will be allotted on dates subsequent to the approval
date of the plan.
F-85
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 20 - Share Capital and Stock Options (cont'd)
C. Stock options to senior employees (cont'd)
4. 2003 Plan: (cont'd)
4) The options are designated for Company employees who
are not related parties in the Company and will not
become related parties in the Company as a result of
allotment of the stock options. In any event, the
total number of offerees under Plan 2003 will not
exceed 35 offerees, including the Company's
directors and the CEO.
5) The right of every offeree to exercise the options
for shares will vest in six stages during the
three-year period from the record date, whereby at
the end of every calendar half-year, one-sixth of
the number of options allotted to the trustee on his
behalf will vest.
6) Options not exercised by December 31, 2010 will
expire.
7) The Plan will be taxed under the Capital Gains
Track, under the provisions of Section 102 of the
Income Tax Ordinance and the regulations promulgated
hereunder. Any tax to be imposed in respect of the
exercise of the options will be borne solely by the
offerees. And on the other hand, the Company will be
unable to claim any tax deduction for the expense.
8) Also approved within the framework of the approval
of Plan 2003 was the granting of 350,000 options out
of the total number, to seven directors (except for
two directors who are controlling shareholders in
the Company, directly or indirectly), divided
equally, as well as 175,000 options to the Company's
CEO. The balance of the options is intended for
other employees and officers of the Koor Group.
9) The balance of options remaining as at December 31,
2004 is 939,450 options.
Balance of
stock option Exercise Exercise
not exercised price date
--------------- --------------- ---------------
NIS
---------------
856,450 96 12/2010
33,000 175.95 12/2010
50,000 186.20 12/2010
---------------
939,450
==============
Changes in the options during 2004:
1997 Plan 1998 Plan 2000 Plan 2003 Plan Total
--------------- --------------- --------------- --------------- ---------------
Balance as at
beginning of year 26,039 65,926 61,667 951,789 1,105,421
Granted - - - 93,000 93,000
Exercised (20,520) (12,663) (29,933) (105,339) *(168,455)
--------------- --------------- --------------- --------------- ---------------
Balance as at end
of year 5,519 53,263 31,734 939,450 1,029,966
=============== =============== =============== =============== ===============
* Because of the "Benefit Component Method", a total of 83,025 ordinary shares of the Company were issued.
F-86
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 function currency.
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, 2004:
Forward Call Put Swap
Transaction options options transactions
------------ ------------ ------------ ------------
NIS thousands
--------------------------------------------------------------------
Purchase of Dollars in exchange for:
NIS 25,848 124,932 335,716 -
European currencies 53,850 1,185,992 141,302 -
Brazilian Real 15,078 43,080 43,080 24,509
Others 45,234 99,515 177,920 -
------------ ------------ ------------ ------------
140,010 1,453,519 698,018 24,509
============ ============ ============ ============
Sale of Dollars in exchange for:
NIS 17,232 142,164 196,014 -
European currencies 28,433 189,983 1,334,618 -
Brazilian Real - - - 258,480
Others - 178,351 95,638 -
------------ ------------ ------------ ------------
45,665 510,498 1,626,270 258,480
============ ============ ============ ============
C. The Company entered into an interest rate swap (IRS) in the
amount of 50 million dollars, in order to reduce its exposure
to fluctuations in interest rates. In the transaction,
variable interest was exchanged for fixed interest.
Additionally, the Company executed hedges on its CPI-linked
loans and acquired a CPI-dollar forward contract in the
amount of NIS 170 million.
D. Fair value of financial instruments:
Condensed data of monetary assets and liabilities, whose fair value as
at December 31, 2004, based on their market value, is different from
those presented in the financial statements, is as follows:
Carrying Fair
amount value
------------ ------------
NIS millions
-------------------------------
Investments in affiliates 1,275 1,754
============ ============
F-87
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances (cont'd)
D. Fair value of financial instruments: (cont'd)
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,
debentures and convertible debentures derivatives and other financial
instruments is approximate or similar to at their fair value.
E. Credit risk of trade receivables:
NIS millions
---------------
Condensed data of credit risk of trade receivables as at December 31,
2004:
Receivables insured by credit card companies 341
Receivables insured by foreign trade risk insurance 22
Receivables - Government authorities and Bezeq 42
Other receivables, including checks and credit card companies 1,774
---------------
Total, including non-current receivables 2,179
===============
In Management's opinion, the financial statements include suitable
provisions in respect of exposure to doubtful debts.
The exposure to credit risks relating to trade receivables is limited,
due to the relatively large number of customers.
F-88
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------------
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances (cont'd)
F. Linkage terms of monetary balances:
(1) Consolidated
December 31, 2004
---------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
-------------- ------------ ------------ ------------
NIS thousands
---------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 512,511 - 104,799 617,310
Short-term deposits and investments 91,312 101,785 223,371 416,468
Trade receivables 1,968,387 13,546 191,666 2,173,599
Other accounts receivable 177,180 29,131 102,298 308,609
Investments and other
long-term receivables 236,974 58,562 10,346 305,882
-------------- ------------ ------------ ------------
2,986,364 203,024 632,480 3,821,868
============== ============ ============ ============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 753,900 - 331,044 1,084,944
Trade payables 1,371,290 - 296,165 1,667,455
Other accounts payable 840,327 130,893 375,002 1,346,222
Long-term loans and debentures
(including current maturities) 1,793,566 1,368,683 643,669 3,805,918
-------------- ------------ ------------ ------------
4,759,083 1,499,576 1,645,880 7,904,539
============== ============ ============ ============
(Table Continued)
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
-------------------------------------------------------------------------------------------------------------------------------
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances (cont'd)
F. Linkage terms of monetary balances:
(1) Consolidated
December 31, 2003
-----------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
-------------- ------------ ----------- --------------
NIS thousands
-----------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents 491,889 - 101,514 593,403
Short-term deposits and investments 87,534 150,495 128,780 366,809
Trade receivables 1,794,141 11,945 246,375 2,052,461
Other accounts receivable 139,050 25,770 85,608 250,428
Investments and other
long-term receivables 217,970 59,565 2,823 280,358
-------------- ------------ ----------- --------------
2,730,584 247,775 565,100 3,543,459
============== ============ =========== ==============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 647,098 - 267,162 914,260
Trade payables 1,030,693 - 312,090 1,342,783
Other accounts payable 642,646 171,487 407,953 1,222,086
Long-term loans and debentures
(including current maturities) 2,488,222 1,627,955 7,072 4,123,249
-------------- ------------ ----------- --------------
4,808,659 1,799,442 994,277 7,602,378
============== ============ =========== ==============
F-89
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances (cont'd)
F. Linkage terms of monetary balances (cont'd):
(2) Company
December 31, 2004
---------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
-------------- ------------ ------------ ------------
NIS thousands
---------------------------------------------------------------
Assets
Cash and cash equivalents 2,547 - 27,118 29,665
Short-term deposits and
investments 51,909 80,235 166,497 298,641
Other receivables 1,121 - 14,869 15,990
Short term loans to
investee companies - 12,548 - 12,548
Other investments and receivables 107 32,028 - 32,135
Investments and other long-term receivables:
Investee companies (including
current maturities of loans) 43,364 50,711 1,255,315 1,349,390
-------------- ------------ ------------ ------------
99,048 175,522 1,463,799 1,738,369
============== ============ ============ ============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 166,427 - 15,025 181,452
Trade payables 43 - 340 383
Other accounts payable 18,864 17,143 27,436 63,443
Long-term liabilities (including
current maturities of loans) 102,829 1,296,014 645,125 2,043,968
-------------- ------------ ------------ ------------
288,163 1,313,157 687,926 2,289,246
============== ============ ============ ============
(Table Continued)
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances (cont'd)
F. Linkage terms of monetary balances (cont'd):
(2) Company
December 31, 2003
-----------------------------------------------------------------
In foreign Linked Unlinked Total
currency or to the
linked thereto CPI
-------------- ------------ ----------- --------------
NIS thousands
-----------------------------------------------------------------
Assets
Cash and cash equivalents 4,066 - 5,139 9,205
Short-term deposits and
investments 57,202 144,133 109,471 310,806
Other receivables 11,074 - 23,598 34,672
Short term loans to
investee companies - 13,951 - 13,951
Other investments and receivables 109 32,028 4 32,141
Investments and other long-term receivables:
Investee companies (including
current maturities of loans) 12,753 53,449 1,319,870 1,386,072
-------------- ------------ ----------- --------------
85,204 243,561 1,458,082 1,786,847
============== ============ =========== ==============
Liabilities
Current liabilities:
Credits from banks and others
(not including current maturities
of long-term liabilities) 169,704 - 5 169,709
Trade payables 85 - 418 503
Other accounts payable 4,408 12,057 26,858 43,323
Long-term liabilities (including
current maturities of loans) 373,268 1,648,201 8,125 2,029,594
-------------- ------------ ----------- --------------
547,465 1,660,258 35,406 2,243,129
============== ============ =========== ==============
F-90
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
------------------------------
2004 2003
----------- ------------
NIS thousands
------------------------------
Credit from banks 333,113 392,341
Loans from banks and others and debentures (including
current maturities), see Note 15, and also C and D, E,
below 2,017,912 1,288,411
----------- ------------
2,351,025 1,680,752
=========== ============
C. The Company financed the acquisition of Tadiran
Communications through a NIS 637 million loan from a bank in
Israel, in consideration for a lien on the acquired shares
in favor of the bank.
D. 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).
E. Guarantees to banks and others for loans and for assuring
credit lines and other guarantees in favor of: Consolidated
Company December 31 December 31 2004 2003 2004 2003 NIS
thousands NIS thousands
Consolidated Company
------------------------------ ------------------------------
December 31 December 31
------------------------------ ------------------------------
2004 2003 2004 2003
----------- ------------ ----------- ------------
NIS thousands NIS thousands
------------------------------ ------------------------------
Subsidiaries - - 240,151 314,125
Affiliates - 340 - 340
Others 78,473 67,723 150 154
----------- ------------ ----------- ------------
78,473 68,063 240,301 314,619
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 265,786 thousand, and NIS 302,782 thousand,
as at the years ending December 31, 2004 and 2003,
respectively.
F-91
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 22 - Liens and Guarantees (cont'd)
E. Guarantees to banks and others for loans and for assuring
credit lines and other guarantees: (cont'd)
2) In connection with the Bezeq agreement to transfer ownership
of public switching, Bezeq received from Koor a guarantee in
the amount of NIS 125 million.
3) A subsidiary has a guarantee for a major customer to pay any
amounts up to 40 million dollars in relation to an
indemnification that the subsidiary signed for the same
customer, on account of breaches of contracts to Bezeq, the
Israeli Communication Company. The guarantee is at least till
2015.
4) A subsidiary and its subsidiary in Brazil are, under certain
conditions, 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 98 million dollars. (December 31, 2003
approximately 85 million dollars).
5) 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.
6) As a condition for the continued availability, see Notes 3
and 18.
Note 23 - Data concerning Items in Statements of Operations
A. Revenues from sales and services - net (1) (2):
Consolidated:
Year ended December 31
--------------------------------------------------
2004 2003 2002
----------- ----------- -----------
NIS thousands
--------------------------------------------------
Local:
Industrial operations 874,861 757,759 899,768
Trading operations 505,293 262,692 644,591
Abroad:
Industrial operations - export and
international operations 6,947,748 5,902,716 5,157,580
Trading operations 900,771 767,263 397,851
----------- ----------- -----------
9,228,673 7,690,430 7,099,790
=========== =========== ===========
(1) Not including agency sales 425,224 386,491 315,124
=========== =========== ===========
(2) Revenues and expenses relating to work performed under
long-term contracts:
Revenues 880,959 979,950 1,359,621
Costs (709,899) (793,260) (949,898)
----------- ----------- -----------
171,060 186,690 409,723
=========== =========== ===========
F-92
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
--------------------------------------------------
2004 2003 2002
------------ ------------ ---------------
NIS thousands
--------------------------------------------------
Industrial operations:
Materials 3,817,178 2,757,523 2,766,122
Labor 750,457 775,567 906,158
Subcontracted work 41,640 49,725 68,009
Depreciation and amortization 177,535 180,228 189,720
Research and development expenses, net (*) 212,115 221,343 256,313
Other manufacturing expenses 645,915 533,736 493,684
------------ ------------ ---------------
5,644,840 4,518,122 4,680,006
Less - expenses charged to cost of fixed assets 6,510 8,027 10,350
------------ ------------ ---------------
5,638,330 4,510,095 4,669,656
(Decrease) increase in inventory of goods and
work in process (39,305) 43,428 13,057
------------ ------------ ---------------
5,599,025 4,553,523 4,682,713
Increase in inventory of finished goods (176,611) (18,778) (208,753)
------------ ------------ ---------------
5,422,414 4,534,745 4,473,960
------------ ------------ ---------------
Trading operations:
Merchandise 508,189 537,512 533,532
Labor 55,394 93,235 69,319
Depreciation 26,155 26,873 29,160
Others 275,527 200,579 209,809
------------ ------------ ---------------
865,265 858,199 841,820
------------ ------------ ---------------
6,287,679 5,392,944 5,315,780
============ ============ ===============
(*) Net of grants and participations that were
received and royalties that were paid, net 14,220 (1,952) 788
============ ============ ===============
C. Selling and marketing expenses - consolidated:
Year ended December 31
--------------------------------------------------
2004 2003 2002
------------ ------------ ---------------
NIS thousands
--------------------------------------------------
Salaries 338,629 258,260 251,372
Commissions 150,556 142,256 97,030
Advertising expenses 40,993 30,384 45,584
Depreciation and amortization 113,638 97,086 78,843
Other 528,388 412,471 341,948
------------ ------------ ---------------
1,172,204 940,457 814,777
============ ============ ===============
F-93
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
------------------------------------------ ----------------------------------------------
2004 2003 2002 2004 2003 2002
------------ ------------ ------------ ------------- ------------ ---------------
NIS thousands NIS thousands
------------------------------------------ ----------------------------------------------
Salaries 229,180 217,525 234,098 22,399 17,325 24,342
Bad and
doubtful debts 54,959 36,903 33,933 - - -
Depreciation and
amortization 24,171 24,070 30,797 1,262 1,342 1,665
Other 217,694 182,246 190,541 22,987 22,497 22,129
------------ ------------ ------------ ------------- ------------ ---------------
526,004 460,744 489,369 46,648 41,164 48,136
============ ============ ============ ============= ============ ===============
E. Financing expenses (income), net:
Consolidated Company
------------------------------------------ ----------------------------------------------
Year ended December 31 Year ended December 31
------------------------------------------ ----------------------------------------------
2004 2003 2002 2004 2003 2002
------------ ------------ ------------ ------------- ------------ ---------------
NIS thousands NIS thousands
------------------------------------------ ----------------------------------------------
In respect of
convertible
debentures 18,942 15,319 17,825 - 612 1,139
In respect of
debentures (480) - 651 - - -
In respect of
long-term loans 200,509 141,078 240,713 111,396 94,641 170,283
In respect of
short-term loans
and credit 79,521 182,868 168,478 10,756 (2,458) 15,024
Amortization of
capital raising
expenses 4,334 2,106 2,250 - - -
Losses (gains)
from
marketable
securities, net (24,238) (72,681) 44,112 (18,568 ) (61,974) 35,691
Interest
capitalized to
fixed assets and
work in process (1,544) (371) (14,860) - - -
Expenses
(income) from
balance with
investees, net - - - 1,430 (2,833) 6,478
Expenses
(income) from
deposits and
others, net (5,682) (40,119) (50,732) 5,792 7,120 (28,807)
------------ ------------ ------------ ------------- ------------ ---------------
271,362 228,200 408,437 110,806 35,108 199,808
============ ============ ============ ============= ============ ===============
F-94
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
--------------------------------------------------
2004 2003 2002
------------ ------------ ---------------
NIS thousands
--------------------------------------------------
Sale of investments and activities in investees
(including changes in rates of holding) 223,095 32,916 342,343
Expenses relating to the termination,
sale of activities and sale and write down
of assets, net (73,078) (107,306) (164,401)
Supplemental severance pay and pensions (54,010) (28,279) (126,997)
Management services - affiliated companies 2,682 2,272 2,674
Securitization costs (see Note 3C(2)) (27,783) **(16,112) **(22,254)
Compensation for damages - 5,580 37,957
Amortization of goodwill (136,437) (118,736) (91,085)
Miscellaneous, net (13,228) **9,944 **27,587
------------ ------------ ---------------
(78,759) (219,721) 5,824
============ ============ ===============
2. Company
Year ended December 31
--------------------------------------------------
2004 2003 2002
------------ ------------ ---------------
NIS thousands
--------------------------------------------------
Profit (loss) from sale of investments in
investee companies 212,024 7,039 336,621
Net changes in value of long-term assets - (12,382) (10,036)
Rental income, net* 8,135 7,216 9,219
Capital gain from sale of fixed assets - (96) 29,189
Dividend 4,701 - -
Miscellaneous, net 10,099 3,914 438
------------ ------------ ---------------
234,959 5,691 365,431
============ ============ ===============
* Depreciation included in the item 760 668 1,235
============ ============ ===============
** Reclassified
F-95
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
--------------------------------------------------
2004 2003 2002
------------ ------------ ---------------
NIS thousands
--------------------------------------------------
Affiliated companies, net (1) 3,406 108,049 245,703
Amortization of goodwill * 24,281 5,774 6,388
------------ ------------ ---------------
27,687 113,823 252,091
============ ============ ===============
(1) Including loss from a discontinued operation
in an affiliate - - 110,911
============ ============ ===============
* In 2004 - net of in process research and development in the amount of NIS 20 million with respect to purchase of
affiliated company - See Note 3H.
2. Company
Year ended December 31
--------------------------------------------------
2004 2003 2002
------------ ------------ ---------------
NIS thousands
--------------------------------------------------
Equity of Koor in operating results for the year (1) 57,192 **51,709 (900,592)
Amortization of goodwill (30,992) **(15,439) (23,159)
------------ ------------ ---------------
26,200 36,270 (923,751)
============ ============ ===============
Dividend received/proposed 74,201 23,043 28,663
============ ============ ===============
(1) Including loss from a discontinued operation
in an affiliate - - 110,911
============ ============ ===============
(2)
Year ended December 31
--------------------------------------------------
2004 2003 2002
------------ ------------ ---------------
NIS thousands
--------------------------------------------------
Subsidiaries 122,172 151,053 (680,871)
Proportionately consolidated companies (61,114) - -
Affiliates (34,858) (114,783) (242,880)
------------ ------------ ---------------
26,200 36,270 (923,751)
============ ============ ===============
* In 2004 - net of in process research and development in process
in the amount of NIS 20 million with respect to purchase
of affiliated company. - See Note 3H.
** Reclassified
F-96
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 - Company
Year ended December 31
-----------------------------------------------------------------------------------------------
2004 2003 2002
------------------------------- ----------------------------- -------------------------------
Consolidated Affiliated Consolidated Affiliated Consolidated Affiliated
companies companies companies companies companies companies
-------------- ----------- ------------- ------------ ------------ --------------
NIS thousands
-----------------------------------------------------------------------------------------------
Income:
Management
services 22,334 - 25,006 - 35,573 -
-------------- ----------- ------------- ------------ ------------ --------------
Administrative
expenses --
Salary and other
administrative
expenses 1,457 - 1,679 - 9,002 -
-------------- ----------- ------------- ------------ ------------ --------------
Financing
income
(expenses), net (1,430) - 2,828 5 (6,480) 2
-------------- ----------- ------------- ------------ ------------ --------------
Rental income,
net - - - - 654 -
-------------- ----------- ------------- ------------ ------------ --------------
F-97
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:
The Company's telecommunication activities are focused in two
companies - Telrad Networks Ltd., which develops and markets
telecom products and provides end-user solutions, and ECI
Telecom Ltd., an affiliated company, that provides solutions
for access networks (Inovia) and transmission systems and
optical networks (Enavis, Lightscape).
The Company's agrochemical activities are carried out through
M-A Industries considered a world's foremost manufacturer of
generic crop protection solutions. M-A Industries produces a
full range of products, including insecticides, fungicides
and herbicides, as well as plant growth regulators. In
addition, the M-A Industries is engaged in specialty aroma
chemicals and other different kinds of chemicals.
Activities in the defense space are carried out mainly by the
Elisra Electronics Industries Ltd. Group, a leader in the
planning, development and manufacturing of solutions for
electronic warfare and defense, wireless communication
systems, command and control systems, pilot rescue systems
and advanced communications systems.
Activities in venture capital investments space are carried
out through the Koor Corporate Venture Capital partnership,
which invests in high-tech companies and venture capital
funds with high growth potential. Most of the investments are
in the fields of communication and life sciences.
The Company's remaining business activities are in tourism,
through Sheraton Moriah, which holds the Sheraton Hotel chain
in Israel and Knafayim-Arkia (an affiliated company until the
third quarter of 2004) which holds 40% of the EL-AL airline
company which provides aviation and holiday services and
leases aircrafts to other companies. Additional activities
include international trade through several companies.
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 charged on a
proportionate basis, expenses that benefit more than one
segment. 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 and liabilities by industry segments are
those that are used by Koor in its activities in each
segment.
F-98
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
C. Data regarding business segments of the Koor Group:
Year ended December 31
----------------------------------------------------------------------------------------------
2004 2003 2002
----------------------------- ------------------------------ --------------------------------
NIS thousands % NIS thousands % NIS thousands %
--------------- ------------- --------------- -------------- --------------- ---------------
Revenues from
sales and
services:
Segments:
Telecommunication* 615,057 6.66 796,059 10.35 814,108 11.47
Defense electronics 1,165,998 12.63 1,286,432 16.73 1,687,551 23.77
Agro-chemicals and
other chemicals 6,895,238 74.72 5,191,913 67.51 4,140,471 58.32
Others 552,380 5.99 416,026 5.41 457,660 6.44
Total segments 9,228,673 100.00 7,690,430 100.00 7,099,790 100.00
=============== ============= =============== ============== =============== ===============
* Including sales
to major customer 586,114 753,863 415,442
=============== ============= =============== ============== =============== ===============
Year ended December 31
----------------------------------------------------------------------------------------------
2004 2003 2002
----------------------------- ------------------------------ --------------------------------
NIS thousands % NIS thousands % NIS thousands %
--------------- ------------- --------------- -------------- --------------- ---------------
Pre-tax earnings
(losses):
Operating earnings
(loss) according to
segments:
Telecommunication (64,491) (5.02) 3,158 0.34 (178,623) (34.43)
Defense electronics 30,865 2.4 (4,294) (0.46) 78,853 15.20
Agro-chemicals
and other chemicals 1,312,534 102.1 949,290 102.61 658,507 126.93
Venture capital
investments (1,457) (0.11) (1,445) (0.16) (7,894) (1.52)
Others 8,030 0.63 (21,536) (2.33) (32,062) (6.18)
--------------- ------------- --------------- -------------- --------------- ---------------
Total segments 1,285,481 100.00 925,173 100.00 518,781 100.00
=============== ============= =============== ============== =============== ===============
Joint general
expenses (42,695) (28,888) (38,917)
--------------- --------------- ---------------
Total operating
earnings 1,242,786 896,285 479,864
Financing
expenses, net (271,362) (228,200) (408,437)
Other income
(expenses), net (78,759) (219,721) 5,824
Transfer to
statement of income
of translation
differences of
autonomous
investee in
voluntary liquidation - - (390,901)
--------------- ------------- --------------- -------------- --------------- ---------------
Pre-tax earnings
(losses) 892,665 448,364 (313,650)
=============== ============= =============== ============== =============== ===============
F-99
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
C. Data regarding business segments of the Koor Group: (cont'd)
The Koor Group's equity in the excess of losses over earnings of
affiliates, net, is as follows:
Year ended December 31
----------------------------------------------------------------------------------------------
2004 2003 2002
----------------------------- ------------------------------ --------------------------------
NIS thousands % NIS thousands % NIS thousands %
--------------- ------------- --------------- -------------- --------------- ---------------
Telecommunications (15,919) (57.5) (101,795) (89.43) (246,998) (97.98)
Defense
electronics - - (130) (0.11) (172) (0.07)
Venture capital
investments (329) (1.19) (329) (0.30) (329) (0.13)
Others (11,439) (41.31) (11,569) (10.16) (4,592) (1.82)
--------------- ------------- --------------- -------------- --------------- ---------------
(27,687) (100.00) (113,823) (100.00) (252,091) (100.00)
=============== ============= =============== ============== =============== ===============
December 31
---------------------------------------------------------------------
2004 *2003
------------------------------ -----------------------------------
NIS thousands % NIS thousands %
------------- -------------- --------------- ------------------
Identifiable assets
Segments:
Telecommunications 550,914 4.97 778,182 7.50
Defense electronics 1,119,371 10.10 1,104,515 10.66
Agro-chemicals and
other chemicals 8,242,246 74.33 7,329,815 70.69
Venture capital investments 175,818 1.58 223,733 2.16
Others 1,000,295 9.02 932,586 8.99
------------- --------------- --------------- ------------------
Total segments 11,088,644 100.00 10,368,831 100.00
--------------- ------------------
Corporate assets 683,762 557,162
Affiliates** 1,375,160 943,764
------------- ---------------
13,147,566 11,869,757
============= ===============
** Including an investment in ECI as at December 31, 2004 and 2003 in
the amount of NIS 673 million and NIS 726 million respectively,
which operates in the telecommunications segment and investment in
Tadiran Communications Ltd. which operates in the defense
electronics in the amount of NIS 602 million as at December 31,
2004.
F-100
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
C. Data regarding business segments of the Koor Group: (cont'd)
December 31
---------------------------------------------------------------------
2004 *2003
------------------------------ -----------------------------------
NIS thousands % NIS thousands %
------------- -------------- --------------- ------------------
Identifiable liabilities
Segments:
Telecommunications 215,060 6.87 263,873 9.12
Defense electronics 668,157 21.34 728,443 25.16
Agro-chemicals and other chemicals 2,089,083 66.72 1,733,760 59.89
Venture capital investments 24 - 8,930 0.31
Others 158,607 5.07 159,870 5.52
------------- --------------- --------------- ------------------
Total segments 3,130,931 100.00 2,894,876 100.00
Corporate liabilities 49,515 63,676
------------- ---------------
3,180,446 2,958,552
Financing commitments 4,725,771 4,697,239
Others 647,458 396,772
------------- ---------------
8,553,675 8,052,563
============= ===============
Year ended December 31
----------------------------------------------------------------------------------------------
2004 2003 2002
----------------------------- ------------------------------ --------------------------------
NIS thousands % NIS thousands % NIS thousands %
--------------- ------------- --------------- -------------- --------------- ---------------
Capital
investments:
Segments:
Telecommunications 21,015 2.39 7,173 2.25 15,554 1.19
Defense
electronics 21,408 2.44 28,210 8.85 45,753 3.48
Agro-chemicals
and other
chemicals 816,287 92.9 277,195 86.94 1,241,091 94.53
Others 19,991 2.27 6,262 1.96 10,464 0.80
--------------- ------------- --------------- -------------- --------------- ---------------
Total segments 878,701 100.00 318,840 100.00 1,312,862 100.00
============= ============== ===============
Corporate assets 423 392 108
--------------- --------------- ---------------
879,124 319,232 1,312,970
=============== =============== ===============
F-101
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
C. Data regarding business segments of the Koor Group: (cont'd)
Year ended December 31
----------------------------------------------------------------------------------------------
2004 2003 2002
----------------------------- ------------------------------ --------------------------------
NIS thousands % NIS thousands % NIS thousands %
--------------- ------------- --------------- -------------- --------------- ---------------
Depreciation and
amortization:
Segments:
Telecommunications 31,863 6.89 44,696 10.17 57,664 13.67
Defense electronics 35,721 7.72 39,297 8.94 49,825 11.81
Agro-chemicals
and other
chemicals 364,995 78.91 318,492 72.47 278,482 66.03
Others 29,957 6.48 37,029 8.42 35,792 8.49
--------------- ------------- --------------- -------------- --------------- ---------------
Total segments 462,536 100.00 439,514 100.00 421,763 100.00
============= ============== ===============
Corporate assets 1,264 13,050 1,817
--------------- ------------- --------------- -------------- --------------- ---------------
463,800 452,564 423,580
=============== =============== ===============
D. Revenues from sales and services by geographic destinations
according to customer location
Year ended December 31
---------------------------------------------------
2004 2003 2002
------------- ---------------- ---------------
NIS thousands
---------------------------------------------------
North America 1,542,409 1,152,009 1,125,915
Europe 3,150,853 2,473,635 1,864,012
South America 2,056,261 1,670,256 1,213,485
Asia and Australia 842,986 1,050,873 1,123,387
Africa 256,010 323,206 228,632
Israel 1,380,154 1,020,451 1,544,359
------------- ---------------- ---------------
9,228,673 7,690,430 7,099,790
============= ================ ===============
F-102
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 24 - Business Segments (cont'd)
E. Assets by geographic location of manufacturing operation
December 31
----------------------------------
2004 2003
-------------- ----------------
NIS thousands NIS thousands
----------------------------------
Israel 9,411,628 8,636,399
South America 1,821,643 1,530,178
Europe 1,630,720 1,495,176
United States 169,497 167,808
Others 114,078 40,196
-------------- ----------------
13,147,566 11,869,757
============== ================
F. Capital investments in assets by geographic location
December 31
----------------------------------
2004 2003
-------------- ----------------
NIS thousands NIS thousands
----------------------------------
Israel 798,310 248,131
Brazil 37,184 40,725
United States 2,839 2,719
Others 40,791 27,657
-------------- ----------------
879,124 319,232
============== ================
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. Anfield Ltd.
B. On October 15, 2002 the Board of Directors of Bank Hapoalim
B.M. decided, on the distribution of a dividend in kind of
all its holdings in the Company. On November 27, 2002, the
date of actual distribution, Bank Hapoalim B.M. ceased to be
an interested party in the Company.
During the period when Bank Hapoalim B.M. was an interested
party, Koor and its consolidated companies also made
transactions with Bank Hapoalim. These transactions, which
were mainly for receipt of banking services, were made in the
normal course of business, and therefore, no separation is
made with regard to the management and the recording of the
transactions.
F-103
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 25 - Transactions and Balances with Interested Parties (cont'd)
C. Benefits to interested parties - Company
1. Directors (*)
Year ended December 31
----------------------------------------------
2004 2003 2002
---------- ------------- -------------
NIS thousands
----------------------------------------------
Directors not employed by the Company:
Annual compensation and participation
in meetings:
Claridge Group 116 115 245
========== ============= =============
Number of directors 2 3 3
========== ============= =============
Poalim Assets (Shares) Ltd. - - 95
========== ============= =============
Number of directors - - 2
========== ============= =============
Other directors 516 442 533
========== ============= =============
Number of directors 8 8 10
========== ============= =============
(*) Including directors who have been replaced during the
year.
2. Consultancy services
Year ended December 31
----------------------------------------------
2004 2003 2002
---------- ------------- -------------
NIS thousands
----------------------------------------------
Claridge 1,788 1,789 1,871
========== ============= =============
Poalim Capital Markets and Investment Ltd. - - 1,433
========== ============= =============
The Company has agreements with interested parties - Poalim
Capital Markets and Investments Ltd. (Poalim) (at the time
when Bank Hapoalim B.M. was an interested party) and Claridge
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 dollars 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.
On the date on which Bank Hapoalim ceased to be an interested
party in Koor, the agreement with Poalim expired.
3. See Note 18A(14) regarding insurance and indemnification of
interested parties.
F-104
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
---------------------------------------------------
2004 2003 2002
------------- ---------------- ---------------
NIS thousands
---------------------------------------------------
Net earnings (loss) used in the computation
of earnings (loss) per NIS 1 par value of shares 144,990 46,362 (766,969)
============= ================ ===============
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
--------------------------------------------------
2004 2003 2002
------------ ------------- -------------
Total share capital used in the computation of
16,381,279 16,381,279 15,716,725 15,173,291
============ ============= =============
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 3.5%
(December 31, 2003 - 4%, December 31, 2002 - 6%) for
securities linked to the CPI.
Note 27 - Events Subsequent to the Balance Sheet Date
1. In January 2005, M-A Industries, through a wholly-owned and
controlled subsidiary, signed an agreement to acquire 49% of
the shares and rights of Mabeno, a Dutch company serving as
exclusive distributor of the agrochemical products of the
Makhteshim-Agan Group in Benelux and Scandinavia.
Under the terms of the agreement, the purchase will be
effected in consideration for the allotment of the number of
shares of M-A Industries equal to 2,940 thousand euro(about
NIS 17 million), according to the share's market price on the
transfer date. Additionally, M-A Industries received an
option to increase its holdings in Mabeno to 55%.
2. In January 2005, a lawsuit and a motion to recognize it as
a class action, were filed in a U.S. court against ECtel,
directors and officers of ECtel and against ECI. In their
lawsuit, the plaintiffs claim that, in the period between
April 2001 and April 2003, ECtel violated provisions of the
U.S. securities laws, and that directors and officers of
ECtel breached their duty of faith in connection with the
disclosure of its business results in its financial
statements. The lawsuit was also directed against ECI,
because control in ECtel during that period was held by ECI,
and the plaintiffs claim that the acts and omissions of ECtel
were directed by and carried out at ECI's initiative. The
plaintiffs did not cite the amount they are claiming.
Management of ECI is of the opinion that the plaintiffs'
claims, as they relate to it, are baseless.
3. In February 2005, ECI entered into a preliminary agreement
with ABN Amro Bank for the sale of the balance of long-term
receivables for cash totalling 96 million dollars, as well as
possible future consideration of 3.3 million dollars. The
sale is subject to several conditions and approvals,
including approval from the shareholders of ECI, and is
expected to be approved in April 2005. The sale is expected
to generate a gain to ECI of 11 million dollars (excluding
the future consideration). The Company's share in the
aforementioned gain will be NIS 15 million.
F-105
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 27 - Events Subsequent to the Balance Sheet Date (cont'd)
4. On February 3, 2005, Koor sold 15.9 million shares of M-A
Industries for NIS 374 million, at a gain of NIS 204 million,
which will be charged in the Company's financial statements
for the first quarter of 2005.
Within the framework of the sale, Koor undertook to not sell
additional shares of M-A Industries for a nine-month period
beginning from the date of the sale.
Following the sale of the shares by Koor in February 2005, as
a result of which Koor's shareholding percentage in M-A
Industries fell to 34.6% (29.5% on a fully diluted basis),
the management of Koor reevaluated the issue of continuing to
consolidate M-A Industries, beginning from the first quarter
of 2005.
Based on an evaluation of the range of circumstances, as
discussed in Note 3C(1), Koor decided that due to the
combination of new circumstances created as a result of the
aforementioned sale of its holdings, continuation of the
consolidation of M-A Industries is not consistent with the
economic substance. Therefore, beginning from the first
quarter of 2005, the consolidation of M-A Industries in the
financial statements of Koor will be discontinued, and the
investment therein will be stated by the equity method.
5. On March 14, 2005, M-A Industries published a prospectus
offering employees of M-A Industries and its subsidiaries up
to 14,900 thousand stock options exercisable for up to 14,900
ordinary registered shares of par value NIS 1 of M-A
Industries.
Assuming all the options are exercised, the grantees will
hold approximately 3.05% of M-A Industries issued and paid
share capital. However, the grantees will not be issued the
full number of shares underlying the options, but only the
number of shares reflecting the monetary benefit implicit in
the options.
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
A. Differences between Israel GAAP and US GAAP
Koor's consolidated financial statements conform with Israeli
generally accepted accounting principles ("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 Company, in accordance with Israeli GAAP, comprehensively
includes the effect of price level changes in the
accompanying financial statements, as described in Note 2B.
According to such Israeli accounting principles, the Company
has discontinued the adjustment of the financial statements
as of January 1, 2004.
US GAAP does not provide for recognition of the effects of
such price level changes. Such effects have not been included
in a reconciliation to US GAAP.
2. 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
restructuring part of its debts.
In accordance with US GAAP:
In accordance with FAS No. 15 - "Accounting by Debtors and
Creditors for Doubtful Debt Restructuring" future interest
payments were 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.
As at December 31, 2002, the entire balance of the deferred
interest was fully amortized.
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)
3. Deferred taxes
a) Measurement differences
In accordance with Israeli GAAP:
Deferred taxes should be recognized in respect of
differences related to assets and liabilities that
result from translation of the local currency into
the functional currency using historical exchange
rates and that result from (1) changes in exchange
rates or (2) indexing for tax purposes.
In accordance with US GAAP:
According to paragraph 9(f) of FAS No. 109, deferred
tax liabilities or assets are not provided for
differences related to assets and liabilities that
are remeasured from the local currency into the
functional currency and that result from (1) changes
in exchange rates or (2) indexing for tax purposes.
b) Earnings from "Approved Enterprises"
Under the Israeli Law for the Encouragement of
Capital Investments, 1959, a 25% tax rate is
generally applicable on the profits of an "approved
enterprise" that received investment grants, usually
during a period of seven years.
An "approved enterprise" which chooses the
"alternative benefits" track is generally eligible
for tax benefits during the benefit period (seven or
ten years, depending on the geographical location of
the approved enterprise) as follows: tax exemption
on undistributed profits during a period of two to
ten years depending on the geographical location of
the approved enterprise and a reduced tax rate of
25% for the remainder of the benefit period.
In the event that a dividend is distributed out of
tax-exempt earnings of the "approved enterprise"
under the "alternative benefits" track, the
distributing company will generally be subject to
25% tax on the distributed earnings.
Dividends paid to shareholders from the earnings of
an "approved enterprise" are subject to income tax
at a 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 taxes should be provided on the excess of
the financial statement carrying value over the tax
basis of an investment in an Israeli subsidiary as
the Company does not have any means under local tax
law to recover this difference in a tax-free manner.
Koor has not provided deferred tax in respect of
undistributed tax-exempt or tax reduced earnings
attributed to the "approved enterprise" of
subsidiaries, which may be distributed, since it is
the Group's policy not to initiate such a dividend
distribution.
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)
3. 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.
4. Salary expenses in respect of share options issued
to employees
In accordance with Israeli GAAP:
No expense is recorded due to stock options granted to
employees.
In accordance with US GAAP:
a) Fixed Option Plan:
Under APB-25, the expense is measured as the
difference between the share market price and the
exercise price of the option, at the date of grant.
The difference 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 Plan:
Under APB-25 the expense is measured as the
difference between the share market price and the
exercise price of the option at the end of each
reporting period. In each reporting period the
expense is recorded based on the vested part of the
period which has passed, taking into consideration
amounts previously recorded as expenses.
5. The accounting treatment of marketable securities:
In accordance with Israeli GAAP:
Marketable securities which constitute a short-term
investment are stated at market value. Changes to the market
value are recorded as profits or losses.
Marketable securities which constitute a permanent investment
are 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.
(See Note 2H).
In accordance with US GAAP:
FAS No. 115 differentiates between three categories of
marketable securities: securities held for a short period and
traded at a high frequency (trading securities), available
for sale securities and held to maturity securities.
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)
5. The accounting treatment of marketable securities:
(cont'd)
A change in the value of trading securities, including
unrealized earnings, is charged to the statement of
operations, while unrealized earnings after tax, if any, of
the available for sale type is reported as a separate item
within shareholders' equity.
Marketable securities that are classified as held-to-maturity
are 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.
Most of the short term securities held by the Company are
available-for-sale securities.
6. Allocation of proceeds from an issuance of
debentures and stock warrants, 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
warrants, as a package, are allocated to debentures according
to their face value while the remainder of the proceeds is
attributed to the share warrants.
In accordance with US GAAP:
The proceeds from an issuance of share options and
convertible debentures, as a package, are split based on the
relative fair value, 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 as interest expense over the term of debentures.
As at December 31, 2003, the entire balance of the deferred
interest was amortized in full.
7. Provisions for anticipated losses from realization of
convertible securities of investee companies:
In accordance with Israeli GAAP:
According to Opinions No. 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.
In accordance with 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.
8. Employee severance benefits as a part of an
efficiency program:
In accordance with Israeli GAAP:
Up to and including 2002 employee severance benefits, as part
of future anticipated dismissals, were recorded when
management decided on the dismissals, and/or when management
declared its intention regarding the dismissals. Since 2003,
management's decision or intention regardingthe dismissals
does not in itself constitute a reason to record a provision
for employee severance benefits, rather a provision is
recorded only when an obligation to the employees exists.
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)
8. Employee severance benefits as a part of an
efficiency program: (cont'd)
In accordance with US GAAP:
One-time termination benefits are benefits provided to
current employees that are involuntarily terminated under the
terms of a one-time benefit arrangement. A one-time benefit
arrangement is an arrangement established by a plan of
termination that applies for a specified termination event or
for a specified future period.
A one-time benefit arrangement exists at the date the plan of
termination meets all of the following criteria and has been
communicated to employees (hereinafter referred to as the
communication date):
a. Management, having the authority to approve the
action, commits to a plan of termination.
b. The plan identifies the number of employees to be
terminated, their job classifications or functions
and their locations, and the expected completion
date.
c. The plan establishes the terms of the benefit
arrangement, including the benefits that employees
will receive upon termination (including but not
limited to cash payments), in sufficient detail to
enable employees to determine the type and amount of
benefits they will receive if they are involuntarily
terminated.
d. Actions required to complete the plan indicate that
it is unlikely that significant changes to the plan
will be made or that the plan will be withdrawn.
9. Earnings per share:
In accordance with Israeli GAAP:
In accordance with Opinion No. 55, the dilutive effect of
share options and convertible debentures is included in the
computation of basic earnings per share 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.
In accordance with US GAAP:
In accordance with FAS 128 "Earnings Per Share" - basic
earnings per share is computed on the basis of the weighted
average number of shares outstanding during the year and does
not include any dilutive potential effect of convertible
instruments. Diluted earnings per share arecomputed on the
basis of the weighted average number of shares outstanding
during the year, plus the dilutive potential effect of
ordinary share options considered outstanding during the
year.
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)
10. Venture capital fund investments:
In accordance with Israeli GAAP:
Venture capital fund investments in venture capital
investments are presented according to their cost less a
provision for devaluation in the event of a permanent
devaluation.
In accordance with US GAAP:
Venture capital fund investments are presented according to
their fair value.
11. Revenue recognition - Adoption of SAB 101:
In accordance with US GAAP:
During the fourth quarter of 2000, the US SEC published Staff
Accounting Bulletin No. 101 (hereinafter - "SAB 101"), which
provides stricter criteria for revenue recognition
implemented retroactively to the beginning of 2000, by way of
cumulative effect at the beginning of the year and
presentation of the previous quarters once again.
ECI implemented these guidelines in its financial statements,
which are prepared in accordance with US GAAP. The cumulative
effect, of the sales deferred upon initial adoption of SAB
101, under US GAAP, was recognized over the years 2000
through 2003. Commencing in 2004, there is no additional
impact from the deferral of these revenues.
In accordance with 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 prospectively as of the fourth quarter
of 2000, without implementing cumulative effect to the
beginning of 2000 and without presenting data, which has
already been published in the past.
12. Exchange of assets:
In accordance with Israeli GAAP:
Certain share exchange transactions were considered as
exchanges of similar assets transactions and therefore
neither a profit nor a loss was recorded subsequent to the
transaction and the newly acquired assets were recorded based
on book value of the original assets.
In accordance with US GAAP:
According to EITF 98-3 and EITF 01-2 such transactions are
not considered as exchanges of similar assets transaction and
therefore the newly acquired assets were recorded based on
their fair values.
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)
A. Differences between Israel GAAP and US GAAP (cont'd)
13. Derivatives
In accordance with Israeli GAAP:
The Company applied FAS 52, FAS 80 and EITF 90-17 to account
for its financial derivatives.
The results of financial derivatives held to hedge assets and
liabilities are recorded in the statement of operations
concurrently with the recording of the changes in the hedged
assets and liabilities. Financial derivatives that are not
held for hedging are stated in the balance sheet at fair
value. Changes in the fair value are included in the
statement of operations in the period they occurred.
In accordance with US GAAP:
The Company applied FAS 133 to the derivatives.
Most derivatives in the consolidated group do not meet the
hedging criteria prescribed by FAS 133, therefore they are
stated at fair value and changes in the fair value are
charged to the statement of operations in the period they
occurred.
14. Impairment of Long-lived Assets to be Held and Used
In accordance with Israeli GAAP:
The Company applied Standard No. 15 under which the Company
is required to test the recoverable amount of the assets,
which is the higher of the net sales price and usage value. A
loss from impairment will be reversed only if changes have
occurred in the estimates used in determining the recoverable
value of the asset, from the date of recognition of the last
impairment.
In accordance with US GAAP:
The Company applied FAS 144 according to which a long-lived
asset to be held and used is considered to be impaired only
if the undiscounted cash flows of the related asset do not
exceed its book value and reversals of impairments are not
allowed.
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)
A. Differences between Israel GAAP and US GAAP (cont'd)
15. Impairment of Investments in ECI
In accordance with Israeli GAAP:
The Company applied Standard No. 15 under which the Company
is required to test the recoverable amount of the investment,
which is the higher of the net sales price and usage value. A
loss from impairment will be reversed only if changes have
occurred in the estimates used in determining the recoverable
value of the investment, from the date of recognition of the
last impairment.
In accordance with US GAAP:
The Company applied APB 18 according to which a loss is
recorded only when the impairment of the investee is other
than temporary and reversals of impairments are not allowed.
The impact of the differences between Israel GAAP and US GAAP
was as follows:
1. Recording of impairment in value
-----------------------------------
Subsequent to the negative indications concerning ECI,
an impairment provision of NIS 130 million was
recorded under both Israeli GAAP and US GAAP.
According to Israeli GAAP, the impairment in value is
recorded first by writing-off credit balances of
foreign currency translation differences that were
recorded directly to equity in the amount of NIS 105
million, and only the remainder of NIS 25 million was
recorded as an expense in the statement of income.
According to US GAAP, foreign currency translation
differences are not written-off and the entire
impairment is recorded as an expense in the statement
of income.
This difference is presented in the reconciling item
entitled "foreign currency translation due to
impairment".
2. Amortization differences
---------------------------
The Company allocated the excess of fair value of
ECI's net assets over the book value of those assets
("the impairment provision") to the net assets of ECI
and amortized the impairment provision over the useful
life of these assets.
According to Israeli GAAP, the allocation is first to
the intangible assets of the investee and then to the
non-monetary assets of the investee on a proportional
basis.
According to US GAAP the allocation is to non-current
assets only, on a proportional basis. The different
bases of allocation between Israeli GAAP and US GAAP
resulted in differences in the amortization amounts
recorded in the statement of income, due to different
amortization rates of different asset types
(inventory, fixed assets, intangible assets).
These differences are presented in the reconciling
item entitled "differences from investee due to
impairment previously recorded".
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)
A. Differences between Israel GAAP and US GAAP (cont'd)
15. Impairment of Investments in ECI (cont'd)
3. Reversal of impairment
-------------------------
Subsequent to the recovery of ECI, under Israeli GAAP
the impairment provision was reversed and Koor once
again presented its investment in ECI according to the
equity method.
According to Israeli GAAP, an impairment provision may
be reversed if there is an increase in the fair value
of the investee company. According to US GAAP, an
impairment provision may not be reversed.
The reversal according to Israeli GAAP was not
recorded in the statement of income, but rather as a
credit to equity as foreign currency translation
differences.
16. Amortization of Goodwill:
In accordance with Israeli GAAP:
Goodwill is amortized over its economic life which may not
exceed 20 years. Goodwill is monitored for an impairment in
value where there are indications indicating a permanent
impairment in the value of the goodwill.
In accordance with US GAAP:
Effective January 1, 2002, goodwill balances are not
amortized systematically but are instaed evaluated for
recoverability by means of an impairment test to be performed
at least once a year on a fixed date in accordance with the
directives of FAS 142. Impairment of goodwill subsequent to
the first implementation of the impairment test on January 1,
2002, was recorded as a cumulative effect in respect of a
change in the accounting method. Accordingly, a cumulative
effect of NIS 806 thousand was recorded in the adjustment
note in 2002. No further impairments have been required
subsequent to the initial implementation.
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)
A. Differences between Israel GAAP and US GAAP (cont'd)
17. Consolidation of M-A Industries
As a result of the sale of shares of M-A Industries at the
beginning of 2004, Koor's share in M-A Industries decreased
to below 50%.
In accordance with Israeli GAAP:
The position of the Israeli Securities Authority is that when
a company has been consolidated in the financial statements
of the holding company and there has been a decrease in the
voting rights to below 50%, if the overall economic
circumstances have not essentially changed the consolidation
of the investee company should be continued because of the
importance of continuity and consistency of the accounting
reports. Therefore and as explained in Note 3C(1) Koor
continues to consolidate M-A Industries' financial
statements.
In accordance with US GAAP:
The condition for a controlling financial interest is
ownership of a majority voting interest, and, therefore, as a
general rule ownership by one company, directly or
indirectly, of over fifty percent of the outstanding voting
shares of another company is a prerequisite for
consolidation. Therefore, M-A Industries is accounted under
the equity method for US GAAP purposes, beginning in 2004.
18. Capitalization of licensing costs
In accordance with Israeli GAAP:
Certain costs incurred by the Company in connection with the
registration process to obtain licenses to sell products in
various jurisdictions are capitalized.
In addition, amounts which are paid by the Company to the
original registrant as data compensation costs only after the
U.S. Environmental Protection Agency (hereinafter: "EPA")
issues a registration to the Company are also capitalized.
The capitalized licensing costs are amortized over the
expected benefit period.
In accordance with U.S. GAAP:
The costs incurred by the Company in connection with the
registration process to obtain licenses to sell products in
various jurisdictions are deemed to be development costs
under US GAAP and are expensed as incurred.
The amounts paid by the Company to the original registrant as
data compensation costs only after the EPA issues a
registration to the Company are capitalized and amortized
over the expected benefit period.
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)
A. Differences between Israel GAAP and US GAAP (cont'd)
19. Liabilities for employee severance benefits
In accordance with Israeli GAAP:
Amounts funded by purchase of insurance policies and by
deposits with recognized severance pay funds are deducted
from the related severance pay liability, which is then
presented at a net amount.
In accordance with US GAAP:
The amounts funded would be presented as other long-term
assets and the amount of the liability would be presented
under long-term liabilities.
20. Gains from decline in holdings in consolidated and
affiliated companies
Various GAAP differences affecting the shareholders' equity
of the consolidated or affiliated company, cause differences
in the book value of the investment at the Company level,
i.e. the Company's book value of the holdings according to US
GAAP differs from the book value according to Israeli GAAP.
Therefore the amounts of the gains according to US GAAP
differ from the amounts of the gains according to Israeli
GAAP.
21. Restatement
In prior years, one of the Company's subsidiaries capitalized
for U.S. GAAP purposes certain costs incurred in connection
with the registration process to obtain licenses to sell
products in various jurisdictions. Under U.S. GAAP these
costs are deemed to be development costs and should have been
expensed as incurred.
In addition, one of the Company's subsidiaries incorrectly
applied FAS No 109 with respect to the calculation of certain
deferred tax items relating to temporary differences that
arose from currency exchange rate differences.
Therefore, the reconciliation of material differences between
Israeli and US GAAP has been restated. The impact on the
reconciliation is disclosed below:
As reported As restated
-------------- ----------------
2003
Net loss (105,308) (108,924)
Earnings (loss) per ordinary share (6.81) (7.04)
Intangible assets 2,240,439 (2,011,874)
Deferred taxes 269,468 206,189
Minority interests 1,774,894 1,689,966
Shareholders equity 1,662,480 1,582,122
2002
Net loss (761,561) (762,511)
Earnings (loss) per ordinary shares (50.18) (50.25)
F-117
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)
22. Statements of cash flows
(a) Translation differences in respect of cash and cash
equivalents
In accordance with Israeli GAAP:
The statements shall report the effect of exchange
rate changes on cash and cash equivalents balances
held in foreign currencies, only in "autonomous
foreign entities".
In accordance with US GAAP:
The statements shall report the effect of exchange
rate changes on all cash and cash equivalents
balances held in foreign currencies.
(b) Securitization transaction
In accordance with Israeli GAAP:
The securitization transaction (see Note 3C(2)) was
classified as a sale of trade receivables. Thus,
cash flows, derived from that transaction, were
classified as cash flows from operating activities.
In accordance with US GAAP:
Until June 30, 2003 the securitization transaction
did not meet the criteria set out by FAS 140 for the
classification as a sale of trade receivables and
was classified as a secured borrowing. Therefore,
cash flows derived from this transaction until June
30, 2003 were classified as cash flows from
financing activities.
(c) Consolidation of M-A Industries
In accordance with Israeli GAAP:
In 2004, Koor consolidates M-A Industries' cash
flows.
In accordance with US GAAP:
Beginning in 2004, M-A Industries is accounted under
the equity method for US GAAP purposes, therefore
M-A Industries' cash flows are not consolidated.
See also Note 28A(17).
F-118
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
----------------------------------------------------
2004 2003 2002
------------ ----------------- -----------------
NIS thousands
----------------------------------------------------
a) Net earnings (loss) as reported, according to
Israeli GAAP 144,990 46,362 (766,969)
Amortization of deferred interest in respect of
the restructuring of debts - Note 28A(2) - - 4,812
Salary expenses in respect of share options
issued to employees - Note 28A(4) (91,318) (185,276) 486
Loss (gain) from marketable securities, net - Note 28A(5) (4,295) (58,319) 54,145
Provisions for anticipated losses from realization
of convertible securities in investee companies -
Note 28A(7) 10,106 50,729 (515)
Amortization of discount in respect of
convertible debentures - Note 28A(6) - (18) (338)
Severance pay arising from an efficiency program
- Note 28A(8) 17,326 (10,181) 7,130
Gains from decline in holding in consolidated and
affiliated companies - Note 28A(20) 11,829 - 6,199
Venture capital investments - Note 28A(10) (20,726) 15,790 (16,327)
Temporary differences resulting from recognition
of revenue arising from application of SAB 101 - Note 28A(11) - 7,949 2,230
Profit from exchange of assets - Note 28A(12) - - 15,105
Discontinued activities - - 835
Impairment in value of long-lived assets to be held
and used - Note 28A(14) (1,277) (4,983) 5,858
Differences from investee due to impairment
previously recorded - Note 28A(15) 29,588 (19,676) (14,342)
Foreign currency translation due to impairment - Note 28A(15) - - (105,124)
Amortization of goodwill - Note 28A(16) 39,938 40,949 87,234
Expensing of licensing costs - Note 28A(18) (8,859) *(16,793) *(53,594)
Derivatives (FAS 133) - Note 28A(13) 4,602 (34,002) (12,690)
Other 711 1,078 (4,669)
------------ ----------------- -----------------
(12,375) (212,753) (23,565)
Income taxes - Note 28A(3) (21,212) (79,808) 42,434
Minority interests in respect of the above
differences 170 *137,275 *(13,605)
------------ ----------------- -----------------
(33,418) (155,286) 5,264
Cumulative effect as beginning of the year - - (806)
------------ ----------------- -----------------
(33,418) (155,286) 4,458
------------ ----------------- -----------------
Net earnings (loss) according to US GAAP 111,572 *(108,924) *(762,511)
============ ================= =================
* Restated, see Note 28A(21).
F-119
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
----------------------------------------------------
2004 2003 2002
------------- --------------- ----------------
NIS
----------------------------------------------------
Basic earnings per ordinary share:
As reported according to Israeli GAAP 8.85 2.95 (50.55)
As reported according to US GAAP 7.05 * (7.04) * (50.25)
============= =============== ================
Weighted average of number of shares
and share equivalents according to
US GAAP 15,824,185 15,474,614 15,173,291
============= =============== ================
Fully diluted earnings per ordinary share:
As reported according to Israeli GAAP 8.85 2.95 (50.55)
============= =============== ================
As reported according to US GAAP 4.89 * (7.82) * (50.65)
============= =============== ================
Weighted average of number of shares and
share equivalents according to US GAAP 16,242,770 **15,474,614 **15,173,291
============= =============== ================
* Restated, see Note 28A(21).
** Share equivalents are not reflected in US GAAP due to the
fact that they are anti-dilutive.
F-120
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
----------------------------------------------------------------
2004
-------------------------------------------------------------
Israeli Discontinuance of
GAAP consolidation of
M-A
Industries(11) Adjustments US GAAP
------------- ----------------- ----------- ------------
Cash and cash equivalents 617,310 (174,375) - 442,935
Short-term deposits and investment (1) 416,468 (6,733) 32,911 442,646
Receivables 2,173,599 (1,590,552) - 583,047
Other receivables 528,983 (332,817) - 196,166
Inventories and projects in progress 2,294,885 (1,985,428) - 309,457
Assets designed for sale 41,765 - - 41,765
Investments in affiliates (2) 1,375,160 1,471,197 (154,317) 2,692,040
Investments and other receivables (1)(3) 489,031 (95,073) 202,105 596,063
Fixed assets, net 2,852,907 (1,876,731) 8,574 984,750
Intangible assets after amortization (4) 2,357,458 (2,316,290) 30,198 71,366
Total assets 13,147,566 (6,906,802) 119,471 6,360,235
Short-term liabilities 1,738,456 (603,210) - 1,135,246
Trade payables 1,667,455 (1,404,171) - 263,284
Other payables (5)(6) 1,369,442 (867,233) 8,020 510,229
Customer advances 353,371 (9,891) - 343,480
Bank loans and other 2,341,115 (440,968) - 1,900,147
Convertible debentures 811,291 (811,291) - -
Deferred taxes (7) 240,468 (234,157) 29,304 35,615
Liability for employee severance benefits (3) 197,168 (115,061) 197,614 279,721
Minority interests (8) 2,552,333 (2,420,820) (6,850) 124,663
Capital reserve for "available-for-sale" securities (2) - - 6,442 6,442
Capital reserves (9)(10) 2,358,425 - 276,419 2,634,844
Retained losses (8) (966,152) - (391,478) (1,357,630)
Total shareholders' equity 1,876,467 - (108,617) 1,767,850
* Restated, see Note 28A(21).
Continued --
------------------------------------------------
2003
-----------------------------------------------
Israeli
GAAP
Adjustment US GAAP
------------- ------------ -------------
Cash and cash equivalents 593,403 - 593,403
Short-term deposits and investment (1) 366,809 - 366,809
Receivables 2,052,461 10,847 2,063,308
Other receivables 452,170 - 452,170
Inventories and projects in progress 1,885,751 - 1,885,751
Assets designed for sale 42,525 - 42,525
Investments in affiliates (2) 943,764 (60,839) 882,925
Investments and other receivables (1)(3) 483,384 290,230 773,614
Fixed assets, net 2,928,407 11,455 2,939,862
Intangible assets after amortization (4) 2,121,083 *(109,209) *2,011,874
Total assets 11,869,757 *142,484 *12,012,241
Short-term liabilities 1,577,402 - 1,577,402
Trade payables 1,342,783 - 1,342,783
Other payables (5)(6) 1,270,217 75,551 1,345,768
Customer advances 350,535 - 350,535
Bank loans and other 3,119,837 - 3,119,837
Convertible debentures 340,270 - 340,270
Deferred taxes (7) 199,787 *6,402 *206,189
Liability for employee severance benefits (3) 192,002 265,365 457,367
Minority interests (8) 1,736,531 *(46,565) *1,689,966
Capital reserve for "available-for-sale" securities (2) - (30,074) (30,074)
Capital reserves (9)(10) 2,367,341 *229,863 *2,597,204
Retained losses (8) (1,111,142) *(358,060) *(1,469,202)
Total shareholders' equity 1,740,393 *(158,271) *1,582,122
* Restated, see Note 28A(19).
F-121
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) Adjustment of value of investment securities to market value.
(2) Adjustments to the investments in M-A Industries and ECI
(3) Reconciliation of deposits funded in respect of severance
pay.
(4) Reversal of periodical provisions related to goodwill and
intangible assets.
(5) Provision for employee severance benefits resulting from an
efficiency program.
(6) Financial derivatives.
(7) Change in deferred taxes.
(8) Effects of the reconciliation to US GAAP.
(9) Share options issued to employees.
(10) Cumulative foreign currency translation adjustments,
cancellation of provision for decline in value of autonomous
investee.
(11) See Note 28 A(17).
3. Comprehensive loss
"Comprehensive earnings (loss)" consists of the change, during the
current period, in the Company's shareholder equity that does not
derive from shareholders' investments or from the distribution of
earnings to shareholders.
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
---------------------------------------------------
2004 2003 2002
------------ ---------------- ----------------
NIS thousands
---------------------------------------------------
Net earnings (loss) according to US GAAP 111,572 *(108,924) *(762,511)
------------ ---------------- ----------------
Other comprehensive earnings, after tax:
Adjustments from translation of
financial statements of investee
companies (9,546) *(143,585) *389,873
FAS 133 (10,964) 6,487 (5,397)
Unrealized gains (loss) from securities 36,516 32,572 (54,145)
------------ ---------------- ----------------
Total other comprehensive earnings (loss) 16,006 (104,526) 330,331
------------ ---------------- ----------------
Total comprehensive earnings (loss) 127,578 (213,450) (432,180)
============ ================ ================
* Restated, see Note 28A(21).
F-122
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. Cash flows:
Year ended December 31
2004(1) 2003(2) 2002(2)
------------- ------------ -----------
NIS thousands
----------------------------------------------
Net cash flows from operating activities:
Israeli GAAP 890,673 774,775 427,451
Adjustments (907,798) (235,808) (23,427)
------------- ------------ -----------
US GAAP (17,125) 538,967 404,024
------------- ------------ -----------
Net cash flows from investing activities:
Israeli GAAP (722,839) 266,585 (257,813)
Adjustments 383,650 - -
------------- ------------ -----------
US GAAP (339,189) 266,585 (257,813)
------------- ------------ -----------
Net cash flows from financing activities:
Israeli GAAP (128,069) (1,209,783) (223,720)
Adjustments 340,457 211,182 29,568
------------- ------------ -----------
US GAAP 212,388 (998,601) (194,152)
------------- ------------ -----------
Translation differences in respect of cash and cash equivalents:
Israeli GAAP (15,858) (28,273) 3,056
Adjustments (3) 9,316 24,626 (6,141)
------------- ------------ -----------
US GAAP (6,542) (3,647) (3,085)
------------- ------------ -----------
Increase (decrease) in cash and cash equivalents:
Israeli GAAP 23,907 (196,696) (51,026)
Adjustments (174,375) - -
------------- ------------ -----------
US GAAP (150,468) (196,696) (51,026)
------------- ------------ -----------
Balance of cash and cash equivalents at beginning of year:
Israeli GAAP and US GAAP 593,403 790,099 841,125
------------- ------------ -----------
Balance of cash and cash equivalents at end of year:
Israeli GAAP 617,310 593,403 790,099
Adjustments (174,375) - -
------------- ------------ -----------
US GAAP 442,935 593,403 790,099
------------- ------------ -----------
(1) See Note 28A(22)(c).
(2) See Note 28A(22)(b).
)3) See Note 28A(22)(a).
F-123
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)
C. Condensed figures of M-A Industries and ECI according to
Regulation S-X 4-08
(1) M-A Industries condensed figures
A. As at December 31, 2004
Israeli GAAP Adjustments US GAAP
-------------- ------------- --------------
US$ thousands US$ thousands US$ thousands
-------------- ------------- --------------
Current assets 949,338 5,323 954,661
Non-current assets 985,229 42,118 1,027,347
Current liabilities 669,571 14,685 684,256
Non-current liabilities 333,423 24,631 358,054
Minority interests 18,756 (1,981) 16,775
Convertible debentures 38,322 - 38,322
B. For the year ended December 31, 2004 according to Israeli GAAP
Revenue from sales and services 1,539,702
Gross profit 595,794
Net income according to Israeli GAAP 165,527
Adjustment to US GAAP (41,789)
Net income according to US GAAP 123,738
(2) ECI's condensed figures according to US GAAP
2004 2003
-------------- --------------
US$ thousands US$ thousands
-------------- --------------
As at December 31
Current assets 449,556 537,528
Non-current assets 405,253 364,468
Current liabilities 248,012 242,037
Non-current liabilities 50,943 86,673
Minority interests 4,086 3,781
For the year ended December 31
Revenues 496,712 392,567
Gross profit 195,741 153,269
Income (loss) from continuing operations 14,056 (44,723)
Net income (loss) 10,153 (71,040)
F-124
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)
D. Summarized financial information of proportionately
consolidated companies
(1) Telrad
A. As at December 31, 2004
Israeli GAAP Adjustments US GAAP
------------- ------------- -------------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Current assets 295,867 4,735 300,602
Non-current assets 144,386 6,735 151,121
Current liabilities 197,173 (17,326) 179,847
Non-current liabilities 86,589 - 86,589
Minority interests 4,814 3,765 8,579
B. For the three months ended December 31, 2004 (1)
Revenue from sales and services 93,403
Gross profit (loss) (11,565)
Net loss according to Israeli GAAP (61,114)
Adjustment to US GAAP 18,970
Net loss according to US GAAP (42,144)
Cash flows from operating activities 7,259
Cash flows from investing activities (13,043)
Cash flows from financing activities 27,757
(1) Telrad is included in Koor's financial statements by the
proportionate consolidation method from the fourth quarter of
2004. See Note 3D(1).
(2) Proportionately consolidated companies of Sheraton
A. As at December 31, 2004
Israeli GAAP Adjustments US GAAP
------------- ------------- -------------
NIS thousands NIS thousands NIS thousands
------------- ------------- -------------
Current assets 20,694 - 20,694
Non-current assets 220,893 (2,516) 218,377
Current liabilities 29,530 - 29,530
Non-current liabilities 219,890 - 219,890
B. For the year ended December 31, 2004
Revenue from sales and services 83,238
Gross profit 22,710
Net loss according to Israeli GAAP (1,416)
Adjustment to US GAAP 1,078
Net loss according to US GAAP (338)
Cash flows from operating activities 5,808
Cash flows from investing activities 942
Cash flows from financing activities (3,584)
125
Koor Industries Ltd. (An Israeli Corporation)
Notes to the Financial Statements
------------------------------------------------------------------------------
Note 29 - Events (Unaudited) Subsequent to the Date of the Independent Auditors'
Report
A. On July 6, 2005 the Company signed an amendment to the agreements
with Elbit and Federman (see Note 3H(2)), pursuant to which the
Company will sell its entire holdings in Elisra to Elbit, instead of
to Tadiran Communications as per the original agreements, for
approximately $70 million and additional consideration following
receipt of future insurance proceeds. The Company also received the
right to acquire Dekolink Ltd., a start-up company in the cellular
field that is wholly-owned by Elisra. As originally agreed, the
Company will sell the balance of its holdings in Tadiran
Communications to Elbit for $83 million. However, under the amended
terms of the transactions, contrary to the terms of the original
agreement, this sale will be conducted in two parts, and the Company
and Elbit will share joint control of Tadiran Communications, as
described in Note 3H(2), following the sale of the first 5%. The sale
of the Company's remaining shares in Tadiran Communications is
contingent on the execution of the sale of its holdings in Elisra to
Elbit. Elbit's acquisition of Elisra is subject to the approvals of
Elbit's shareholders at general meeting to be held within sixty days
and Israel's Anti-Trust Commissioner. In addition, under the amended
terms of the transactions, contrary to the terms of the original
agreement, the Company will acquire only an additional 2.3% of Elbit
from Federman for $25 million, regardless of whether the sale of
Elisra is approved by the Israeli Anti-Trust Commissioner. Upon
completion of all the stages of these transactions, the Company will
hold approximately 7.6% of Elbit.
B. On April 10, 2005, as part of a private placement to Israeli
institutional investors, the Company issued NIS 400 million par value
in debentures for NIS 400 million in cash, as well as 800,000 options
without consideration. The debentures bear annual interest of 3.75%,
linked to the CPI, which is paid on April 30 and October 31 of each
year. The debentures are linked to the CPI and will be repaid in a
balloon payment on April 30, 2010. Each option is exercisable for one
ordinary share par value NIS 0.001 of the Company until April 30,
2010, at an exercise price of NIS 300. The Company intends to register
for trade on the Tel-Aviv stock exchange the shares that will ensue
from exercise of the options.
C. On June 7, 2005, the Company received a bill of indictment from the
Anti-Trust Authority in accordance with the notice from February, 2
2005 as described in Note 18A(1)(b).
F-126
[Letterhead of Kost, Forer Gabbay & Kasierer, a Member of Ernst & Young Global]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF
TADIRAN COMMUNICATIONS LTD.
We have audited the consolidated balance sheet of Tadiran
communications Ltd. ("the Company") and its subsidiaries as of December 31,
2004 (not presented separately herein.) This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit. We did not audit the balance
sheet of a certain subsidiary, whose assets included in consolidation
constitute approximately 7% of total consolidated assets as of December 31,
2004. The balance sheet of this subsidiary was audited by other independent
auditor, whose report has been furnished to us, and our opinion, insofar as it
relates to amounts included for this certain subsidiary, is based solely on the
report of the other independent auditors.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial reporting.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other independent
auditors, the consolidated balance sheet referred to above presents fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries as of December 31, 2004, in conformity with generally accepted
accounting principles in Israel, which differ in certain respects from
accounting principles generally accepted in the United States (see Note 32 to
the consolidated financial statements).
/s/ Kost, Forer Gabbay & Kasierer
Tel-Aviv, Israel KOST, FORER GABBAY & KASIERER
March 20, 2005 A Member of Ernst & Young Global
F-127
[Letterhead of Hoberman, Miller, Goldstein & Lesser, P.C.]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and Board of Directors
Talla-Com, Tallahassee Communications Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Talla-Com,
Tallahassee Communications Industries, Inc. and Subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of operations and
retained earnings and cash flows for the years then ended. These consolidated
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Talla-Com, Tallahassee Communications Industries, Inc. and Subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash
flows for the years then needed, in conformity with accounting principles
generally accepted in the United States of America.
Accounting principles generally accepted in the United States vary in certain
significant respects from accounting principles generally accepted in Israel.
Application of accounting principles generally accepted in Israel did not have
a material effect on the results of operations, shareholder's equity and cash
flows for the years ended December 31, 2004 and 2003.
/s/ Hoberman, Miller, Goldstein & Lesser, CPA'S, P.C.
January 28, 2005
New York, New York
F-128
[Letterhead of Brightman Almagor & Co., a Member Firm of
Deloitte & Touche Tohmatsu]
Report of Independent Registered Public Accounting Firm To The
Shareholders of
Tadiran Electronic System Ltd.
We have audited the accompanying balance sheets of Tadiran Electronic System
("the Company") as of December 31, 2004 and 2003 and the related statements of
operations, changes in shareholders' equity and cash flows, for each of the
three years, in the period ended December 31, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statements 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,
2004 and 2003, and the results of its operations, changes in its shareholders'
equity and its cash flows for the three years, in the period ended December 31,
2004, in conformity with generally accepted accounting principles in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 16 to the financial statements.
As explained in Note 2A, the financial statements are presented in U.S. dollars.
/s/ Brightman Almagor & Co.
Brightman Almago & Co.
Certified Public Accountants
Tel Aviv, Israel
February 14, 2005
F-129
[Letterhead of Brightman Almagor & Co., a Member Firm of
Deloitte & Touche Tohmatsu]
Report of Independent Registered Public Accounting Firm To The
Shareholders of
Tadiran Spectralink Ltd.
We have audited the accompanying balance sheets of Tadiran Sprectralink Ltd.
("the Company") as of December 31, 2004 and 2003 and the related statements of
operations, changes in shareholders' equity and cash flows, for each of the
three years, in the period ended December 31, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statements 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,
2004 and 2003, and the results of its operations, changes in its shareholders'
equity and its cash flows for the three years, in the period ended December 31,
2004, in conformity with generally accepted accounting principles in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 22 to the financial statements.
As explained in Note 2A, the financial statements are presented in U.S. dollars.
/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
Certified Public Accountants
Tel Aviv, Israel
February 14, 2005
F-130
[Letterhead of Hoberman, Miller, Goldstein & Lesser, P.C.]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member and Board of Directors
Tadiran Electronic Industries, LLC
We have audited the accompanying balance sheet of Tadiran Electronic
Industries, LLC (formerly Tadiran Electronic Industries, Inc.) as of December
31, 2004 and the consolidated balance sheet of Tadiran Electronic Industries,
LLC and Subsidiary as of December 31, 2003, and the consolidated statements of
operations, member's equity, and cash flows for each of the three years in the
period ended December 31, 2004. These consolidated 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tadiran Electronic
Industries, LLC as of December 31, 2004 and the consolidated financial position
of Tadiran Electronic Industries, LLC and Subsidiary as of December 31, 2003,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The additional information
on pages 13 through 16 is presented for the purpose of additional analysis
rather than to present the financial position and results of operations of the
individual companies, and is not a required part of the basic consolidated
financial statements. This additional information is the responsibility of the
Company's management. Such information has been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects when considered
in relation to the basic consolidated financial statements taken as a whole.
Accounting principles generally accepted in the United States vary in certain
significant respects from accounting principles generally accepted in Israel.
Application of accounting principles generally accepted in Israel did not have
a material effect on the results of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2004.
/s/ Hoberman, Miller, Goldstein & Lesser, CPA'S, P.C.
January 21, 2005
New York, New York
F-131
[Letterhead of Hoberman, Miller, Goldstein & Lesser, P.C.]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Microwave Networks, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Microwave
Networks, Inc. and Subsidiary as of December 31, 2004 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements of material mismanagement. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Microwave Networks,
Inc. and Subsidiary as of December 31, 2004, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
Accounting principles generally accepted in the United States vary in certain
significant respects from accounting principles generally accepted in Israel.
Application of accounting principles generally accepted in Israel did not have
a material effect on the results of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2004.
/s/ Hoberman, Miller, Goldstein & Lesser, CPA'S, P.C.
January 21, 2005
New York, New York
F-132
[Letterhead of Kost, Forer Gabbay & Kasierer, a Member of Ernst & Young Global]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders of
KOOR TRADE LTD.
We have audited the accompanying balance sheets of Koor Trade Ltd.
("the Company") as of December 31, 2004 and 2003 and the related statements of
operations, changes in shareholder's equity and cash flows for each of the
three years in the period ended December 31, 2004 (not presented separately
herein). 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 did not audit the financial statements of certain companies the
investment in which based on the equity method of accounting, amounted to NIS
49 million and NIS 34.1 million as of December 31, 2004 and 2003, respectively,
and the Company's equity in their income amounted to NIS 8.7 million, NIS 5.6
million and NIS 6.5 million for the years ended December 31, 2004, 2003 and
2002, respectively. Those financial statements which presented in accordance
with U.S. generally accepted accounting principles, were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as
it relates to the amounts utilized by Company's management (before
reconciliation to Israel generally accepted accounting principles), is based
solely on the reports of the other auditors.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial reporting.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts (including the Company's
reconciliation of the financial statements of the aforementioned certain
subsidiaries to Israel generally accepted accounting principles from U.S.
generally accepted accounting principles) and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits and the report 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 at December 31, 2004 and 2003,
and the results of its operations and its cash flows for each of the three
years in the period ended of December 31, 2004, in conformity with accounting
principles generally accepted in Israel, which differ in certain respects from
those followed in the United States, as described in Note 7 to the financial
statements.
/s/ Kost, Forer Gabbay & Kasierer
Tel-Aviv, Israel KOST, FORER GABBAY & KASIERER
March 21, 2004 A Member of Ernst & Young Global
F-133
[Letterhead of Blick Rothenberg, Chartered Accountants]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE
SHAREHOLDERS OF BALTON CP LIMITED
We have audited the accompanying consolidated balance sheets of Balton CP
Limited (the "Company") and its subsidiaries as of December 31, 2004 and 2003,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2004 (not presented separately herein). 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the company's internal control over financial reporting. An
audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and 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 consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of the Company and its subsidiaries at December 31, 2004 and
2003, and the consolidated results of their operations and cash flows for each
of the three years in the period ended of December 31, 2004, in conformity with
accounting principles generally accepted in United States.
/s/ Blick Rothenberg
Blick Rothenberg
Chartered Accountants and Registered Auditors
London, England
20 March 2005
F-134
[Letterhead of Einfeld Symonds Vince]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF KOOR INTER-TRADE (ASIA)
PTY LIMITED AND ITS SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of KOOR
INTER-TRADE (ASIA) PTY LIMITED ("the Company") and its subsidiaries as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2004 (not presented separately
herein). 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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts (including the Company's reconciliation of the financial statements
to Israel generally accepted accounting principles and to U.S. generally
accepted accounting principles) and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and 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 consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of
December 31, 2004 and 2003, and the consolidated results of their operations
and cash flows for each of the three years in the period ended of December 31,
2004, in conformity with Australian generally accepted accounting principles,
which differ in certain respects from those followed in the United States and
in Israel as described in Note 1 to the consolidated financial statements.
Dated at Sydney the 8th day of March 2005
/s/ Einfeld Symonds Vince
EINFELD SYMONDS VINCE
Chartered Accountants
/s/ Graham B. Einfeld
GRAHAM B. EINFELD
Partner
F-135
[Letterhead of Kost, Forer Gabbay & Kasierer, a Member of
Ernst & Young Global]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders of
LUXEMBURG PHARMACEUTICAL LTD.
We have audited the accompanying consolidated balance sheets of
Luxemburg Pharmaceutical Ltd. ("the Company") and its subsidiaries as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 2004 (not presented separately herein).
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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts (including the Company's reconciliation of the consolidated
financial statements to U.S. generally accepted accounting principles) and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of
December 31, 2004 and 2003, and the consolidated results of their operations
and cash flows for each of the two years in the period ended of December 31,
2004, in conformity with Israel generally accepted accounting principles, which
differ in certain respects form those followed in the United States, as
described in Note 21 to the consolidated financial statements.
/s/ Kost, Forer Gabbay & Kasierer
Tel-Aviv, Israel KOST, FORER GABBAY & KASIERER
February 17, 2005 A Member of Ernst & Young Global
F-136
[Letterhead of Kost, Forer Gabbay & Kasierer, a Member of
Ernst & Young Global]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders of
LYCORED NATURAL PRODUCTS INDUSTRIES LTD.
We have audited the accompanying consolidated balance sheets of
Lycored Natural Products Industries Ltd. ("the Company") and its subsidiaries
as of December 31, 2004 and 2003, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2004 (not presented separately
herein). 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 did not audit the financial statements of a certain subsidiary,
whose assets included in consolidation constitute approximately 18% and 16% of
total consolidated assets as of December 31, 2004 and 2003, and whose revenues
included in consolidation constitute approximately 37% and 35% of total
consolidated revenues for the two years ended December 31, 2004. Those
financial statements, presented in accordance with accounting principles
generally accepted in the United Kingdom and including reconciliation to United
States generally accepted accounting principles, were audited by other auditors
whose reports as of and for the years ended December 31, 2004 and 2003, have
been furnished to us, and our opinion, insofar as it relates to the amounts
utilized by Company's management (before reconciliation to Israel generally
accepted accounting principles) of and for the years ended December 31, 2004
and 2003, is based solely on the reports of other auditors.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the company's internal control over financial reporting.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts (including the Company's reconciliation of the
financial statements of the aforementioned subsidiary to Israel generally
accepted accounting principles) and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits, the consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of
December 31, 2004 and 2003, and the consolidated results of their operations
and cash flows for each of the three years in the period ended of December 31,
2004, in conformity with Israel generally accepted accounting principles, which
differ in certain respects form those followed in the United States, as
described in Note 21 to the consolidated financial statements.
/s/ Kost, Forer Gabbay & Kasierer
Tel-Aviv, Israel KOST, FORER GABBAY & KASIERER
February 24, 2005 A Member of Ernst & Young Global
F-137
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders of
Nutriblend LTD.
We have audited the accompanying balance sheets of Nutriblend Ltd.
("the Company") as at December 31, 2004 and 2003, and the related statements of
operations, changes in shareholder's equity and cash flows for each of the two
years in the period ended December 31, 2004 (not presented separately herein).
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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the company's internal control over financial reporting.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and 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, 2004 and 2003, and the results of its operations
and its cash flows for each of the two years in the period ended of December
31, 2004, in conformity with accounting principles generally accepted in United
Kingdom, which differ in certain respects from those followed in the United
States, as described in Note 22 to the financial statements.
/s/ Goodman Jones
London Goodman Jones
January 20, 2005 Chartered Accountants Registered Author
F-138
[Letterhead of Kost, Forer Gabbay & Kasierer, a Member of
Ernst & Young Global]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
TELRAD CONNEGY COMMUNICATIONS INC.
We have audited the accompanying consolidated balance sheet of Telrad
Connegy Communications Inc. ("the Company") and its subsidiaries as of December
31, 2004 and 2003 and the related consolidated statements of operations in
shareholders' equity (deficiency) and the consolidated cash flows for each of
the three years in the period ended December 31, 2004. 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 audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial reporting.
Our audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company and its subsidiaries as of December 31, 2004, and 2003
and the consolidated results of their operations and cash flows for each of the
three years in the period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States, which differ in
certain respects from those followed in Israel, as described in Note 14 to the
consolidated financial statements.
/s/ Kost, Forer Gabbay & Kasierer
Tel-Aviv, Israel KOST, FORER GABBAY & KASIERER
March 27, 2005 A Member of Ernst & Young Global
F-139
[Letterhead of Kost, Forer Gabbay & Kasierer, a Member of
Ernst & Young Global]
Report Of Independent Registered Public Accounting Firm
to the Partners of Koor Venture Capital L.P.
We have audited the accompanying balance sheets of Koor Ventures Capital L.P.
(the "Partnership") as at December 31, 2004 and 2003, and the related
statements of operations, shareholders' equity and cash flows, for each of the
three years, the last of which ended December 31, 2004. These financial
statements are the responsibility of the Partnership's Management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of an affiliate, which Partnership's
investment constitute NIS 12,466 thousand and NIS 7,313 thousand, as of
December 31, 2004 and 2003, respectively, and its equity in losses constitute
NIS 329 thousand for the years ended December 31, 2004, 2003 and 2002,
respectively. The financial statements of the affiliate were audited by other
auditors whose reports thereon were furnished to us. Our opinion, insofar as it
relates to amounts included for the affiliate, is based solely on the said
reports of the other auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the 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 Partnership as of December
31, 2004 and 2003 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, 2004 in conformity with accounting principles
generally accepted in Israel.
As explained in Note 2, the financial statements for dates and reporting
periods subsequent to December 31, 2003 are stated in reported amounts, in
accordance with the accounting standards of the Israel Accounting Standards
Board. The financial statements for dates and reporting periods that ended up
to the aforementioned date are stated in values that were adjusted to that date
according to the changes in the general purchasing power of the Israeli
currency, in accordance with opinions of the Institute of Certified Public
Accountants in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects form accounting principles generally accepted in the United States of
America. (US GAAP). Information relating to the nature and effect of such
differences is presented in Note 8 to the financial statements.
/s/ Kost, Forer Gabbay & Kasierer
Tel-Aviv, Israel KOST, FORER GABBAY & KASIERER
March 20, 2005 A Member of Ernst & Young Global
F-140
[Letterhead of Brightman Almagor & Co., a Member Firm of
Deloitte & Touche Tohmatsu]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Scopus Network Technologies Ltd
We have audited the accompanying balance sheets of Scopus Network Technologies
Ltd ("the Company") as of December 31, 2004 and 2003 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows, for each of the three years, in the period ended December 31, 2004.
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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statements 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, 2004 and 2003, and the consolidated results of its operations,
changes in its shareholders' equity and its cash flows for the three years, in
the period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
Accounting principles generally accepted in the United States of America vary
in certain respects from accounting principles generally accepted in Israel. As
stated in Note 2Q, for purposes of these financial statements, the application
of the latter would not have materially effected the Company's net loss for
each of the three years in the period ended December 31, 2004, and its
shareholders' equity and its financial position as of December 31, 2004 and
2003 as reported in these financial statements.
/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu
Tel Aviv, Israel
February 17, 2005
F-141
[Letterhead of Brightman Almagor & Co., a Member Firm of
Deloitte & Touche Tohmatsu]
Report Of Independent Registered Public Accounting Firm
To the Shareholders of
Koorshevel Ltd
We have audited the accompanying balance sheets of Koorshevel ("the Company")
as of December 31, 2004 and 2003 and the related consolidated statements of
operations, shareholders' equity, and cash flows, for each of the three years,
in the period ended December 31, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statements presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, 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 as of December 31, 2004 and
2003, and the results of operations and cash flows of the Company for each of
the three years in the period ended December 31, 2004, in conformity with
accounting principles generally accepted in Israel.
As explained in Note 2(2), the financial statements for dates and reporting
periods subsequent to December 31, 2003 are stated in reported amounts, in
accordance with the accounting standards of the Israel Accounting Standards
Board. The financial statements for dates and reporting periods ended up to the
aforementioned date are stated in values that were adjusted to that date
according to the changes in the general purchasing power of the Israeli
currency, in accordance with opinions of the Institute of Certified Public
Accountants in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America (U.S. GAAP). Information relating to the nature and effect of such
differences is presented in Note 8 to the financial statements.
/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
Certified Public Accountants (Isr.)
A member firm of Deloitte Touche Tohmatsu
Tel Aviv, March 9, 2005
F-142
[Letterhead of Brightman Almagor & Co., a Member Firm of
Deloitte & Touche Tohmatsu]
Report Of Independent Registered Public Accounting Firm
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, 2004 and 2003, 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, in the period ended December 31, 2004. 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 did not audit the financial statements of certain subsidiaries,
including those whose assets constitute 2% of the total consolidated assets as
of December 31, 2003, and whose revenues constitute 12% and 18% of the total
consolidated revenues for the years ended December 31, 2003 and 2002
respectively. Furthermore, we did not audit the financial statements of an
affiliate accounted for by use of the equity method. The Company's equity in
that affiliate's net assets as of December 31, 2004 and 2003, amounts to NIS
4.7 million and NIS 5.6 million, respectively and its shares in losses
constitutes NIS 0.9 million, NIS 1.1 million and NIS 2.2 million in that
affiliate's net loss for the years ended December 31, 2004, 2003 and 2002,
respectively. The financial statements of those consolidated subsidiaries and
the affiliate which were prepared in accordance with Israeli GAAP, were audited
by other auditors whose reports thereon were furnished to us, and our opinion,
insofar as it relates to amounts included for such subsidiaries and affiliate,
before conversion to generally accepted accounting principles in the United
States of America, is based solely on the reports of the other auditors.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States) as established by the Auditing
Standards Board (United States) and in accordance with the auditing standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, 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 the consolidated financial
position of the Company and its subsidiaries as of December 31, 2004 and 2003,
and the results of operations and cash flows - of the Company and on a
consolidated basis - for each of the three years in the period ended December
31, 2004, in conformity with accounting principles generally accepted in
Israel.
As explained in Note 2(1), the financial statements for dates and reporting
periods subsequent to December 31, 2003 are stated in reported amounts, in
accordance with the accounting standards of the Israel Accounting Standards
Board. The financial statements for dates and reporting periods ended up to the
aforementioned date are stated in values that were adjusted to that date
according to the changes in the general purchasing power of the Israeli
currency, in accordance with opinions of the Institute of Certified Public
Accountants in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The effect of the application of the latter on the consolidated
financial position as of December 31, 2004 and on the consolidated results of
operation for the year then ended is summarized in Note 28.
As described in Note 2 (15) to the financial statements the 2002 and 2003
annual financial statements have been restated due to an expense paid by a
controlling party for the Company to a third party.
/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
Certified Public Accountants (Isr.)
A member firm of Deloitte Touche Tohmatsu
Tel Aviv, March 9, 2005
F-143
[Letterhead of Kost, Forer Gabbay & Kasierer, a Member of
Ernst & Young Global]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Venturers of the
Joint Venture - Sheraton City Tower
We have audited the balance sheets of the Joint Venture - Sheraton
City Tower ("the Joint Venture") as of December 31, 2004 and 2003, and the
related statements of operations, changes in venturers' deficiency and cash
flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Joint Venturer's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Joint
Venture's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and 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 Joint Venture
as of December 31, 2004 and 2003 and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles in Israel (which principles differ in certain respects
from accounting principles generally accepted in the United States - see Note
18).
As described in Note 2A, the financial statements as of the dates and
for the reported periods subsequent to December 31, 2003, are presented in
reported amounts, in conformity with Accounting Standards of the Israel
Accounting Standards Board. The financial statements as of the dates and for
the reported periods until the aforementioned date are presented in values that
were adjusted until that date according to 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 & Kasierer
Tel-Aviv, Israel KOST, FORER GABBAY & KASIERER
March 2, 2005 A Member of Ernst & Young Global
F-144
Makhteshim-Agan Industries Ltd.
Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
CONTENTS
PAGE
Auditors' Report F-146
Consolidated Balance Sheets F-147
Company Balance Sheets F-149
Consolidated Statements of Income F-150
Company Statements of Income F-151
Statements of Changes in Shareholders' Equity F-152
Consolidated Statements of Cash Flows F-153
Company Statements of Cash Flows F-155
Notes to the Financial Statements F-157
Appendix to the Financial Statements - Schedule of Investee Companies F-231
F-145
[Letterhead of Somekh Chaikin, a Member Firm of KPMG International]
AUDITORS' REPORT TO THE SHAREHOLDERS OF
MAKHTESHIM-AGAN INDUSTRIES LTD.
We have audited the accompanying balance sheets of Makhteshim-Agan Industries
Ltd. (the Company) as at December 31, 2004 and 2003, and the consolidated
balance sheets of the Company and its subsidiaries as at such dates, and the
related statements of income, changes in shareholders' equity and cash flows -
Company and consolidated - for each of the three years, the last of which ended
December 31, 2004. These financial statements are the responsibility of the
Company's Board of Directors and 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, whose assets
constitute 5% and 4% of the total consolidated assets as at December 31, 2004
and 2003, respectively, and whose revenues constitute 4%, 6% and 1% of the
total consolidated revenues for each of the three years last of which ended
December 31, 2004, 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 the amounts included for those companies, is
based solely on the said reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States) and in
accordance with the auditing standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. 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 the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and on the reports of other auditors, as
mentioned above, 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 at
December 31, 2004 and 2003, and the results of the operations, the changes in
the shareholders' equity and the cash flows - Company and consolidated - for
each of the three years, the last of which ended December 31, 2004, in
conformity with generally accepted accounting principles in Israel.
Furthermore, these statements have, in our opinion, been prepared in accordance
with the Securities Regulations in Israel (Preparation of Annual Financial
Statements), 1993.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America (US GAAP). Information related to the nature and effect of such
differences is presented in Note 34 of the financial statements.
As explained in Note 2(A), since the Company's functional currency is the U.S.
dollar, the financial statements are prepared in U.S. dollars.
Somekh Chaikin
Certified Public Accountants (Isr.)
March 8, 2005, except for Note 34, as to which the date is July 13, 2005.
Tel-Aviv, Israel
F-146
Consolidated Balance Sheets
---------------------------------------------------------------------------------------------
As at December 31
--------------------------------
2004 2003
------------- ---------------
Note US$ thousands US$ thousands
------------ ------------- ---------------
Current assets
Cash and cash equivalents 40,477 49,849
Short-term investments 1,563 1,100
Trade receivables 3 369,209 301,694
Other receivables 4 77,219 54,538
Inventories 6 460,870 360,993
------------- ---------------
949,338 768,174
Long-term investments, loans and receivables 8 22,070 18,044
------------- ---------------
Fixed assets 9
Cost 824,544 786,416
Less - accumulated depreciation 388,805 359,671
------------- ---------------
435,739 426,745
------------- ---------------
Other assets and deferred charges 10
Cost 743,310 612,275
Less - accumulated amortization 215,890 163,873
------------- ---------------
527,420 448,402
------------- ---------------
------------- ---------------
1,934,567 1,661,365
============= ===============
F-147
Makhteshim-Agan Industries Ltd.
-------------------------------------------------------------------------------------------------
As at December 31
--------------------------------
2004 2003
------------- ---------------
Note US$ thousands US$ thousands
------------ ------------- ---------------
Current liabilities
Credit from banks 11 140,021 142,817
Trade payables 12 325,945 243,070
Other payables 13 192,405 150,541
Proposed dividend 11,200 7,000
------------- ---------------
669,571 543,428
------------- ---------------
Long-term liabilities
Loans from banks 14 93,023 269,233
Convertible debentures 15 150,000 -
Other long-term liabilities 16 9,337 2,470
Deferred taxes, net 17 54,354 43,778
Employee severance benefits, net 18 26,709 24,774
------------- ---------------
333,423 340,255
------------- ---------------
Minority interest 18,756 6,436
------------- ---------------
Commitments and contingent liabilities 19
------------- ---------------
Convertible debentures 15 38,322 77,705
------------- ---------------
Shareholders' equity 21 874,495 693,541
------------- ---------------
------------- ---------------
1,934,567 1,661,365
============= ===============
/s/ Danny Biran /s/ Shlomo Yanai /s/ Eli Assraf
---------------------------------- ---------------- --------------
Danny Biran Shlomo Yanai Eli Assraf
Chairman of the Board of Directors Chief Executive Officer Chief Financial Officer
Date of approval of the financial statements: March 8, 2005, except for Note 34, as to which the date is July 13, 2005.
The notes and appendix to the financial statements are an integral part thereof.
F-148
Makhteshim-Agan Industries Ltd.
Company Balance Sheets
-----------------------------------------------------------------------------------------------------
As at December 31
--------------------------------
2004 2003
------------- ---------------
Note US$ thousands US$ thousands
------------ ------------- ---------------
Current assets
Cash and cash equivalents 2,649 3,191
Short-term investments 1,900 5,454
Other receivables 4 11,699 12,945
Loans to investee companies 5 30,959 16,111
------------- ---------------
47,207 37,701
------------- ---------------
Long-term investments, loans and receivables
Investee companies 7 1,008,999 735,005
Bank deposits 8 19,016 29,101
Deferred taxes, net 17 6,674 1,095
------------- ---------------
1,034,689 765,201
------------- ---------------
Office furniture and equipment, net 601 472
------------- ---------------
Deferred charges 10 2,458 1,618
------------- ---------------
1,084,955 804,992
============= ===============
Current liabilities
Credit from banks 11 - 4,500
Other payables 13 6,760 6,373
Proposed dividend 11,200 7,000
------------- ---------------
17,960 17,873
------------- ---------------
Long-term liabilities
Loans from banks 14 - 12,375
Convertible debentures 15 150,000 -
Employee severance benefits, net 18 4,591 3,911
------------- ---------------
154,591 16,286
------------- ---------------
Commitments and contingent liabilities 19
Convertible debentures 15 37,909 77,292
------------- ---------------
Shareholders' equity 21 874,495 693,541
------------- ---------------
1,084,955 804,992
============= ===============
---------------------------------- ----------------------- -----------------------
Danny Biran Shlomo Yanai Eli Assraf
Chairman of the Board of Directors Chief Executive Officer Chief Financial Officer
Date of approval of the financial statements: March 8, 2005, except for Note 34, as to which the date is July 13, 2005.
The notes and appendix to the financial statements are an integral part thereof.
F-149
Makhteshim-Agan Industries Ltd.
Consolidated Statements of Income
------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31
----------------------------------------------------
2004 2003 2002
Note US$ thousands US$ thousands US$ thousands
-------- -------------- ------------- ---------------
Revenues 23 1,539,702 1,177,255 890,863
Cost of sales 24 943,908 730,305 564,763
-------------- ------------- ---------------
Gross profit 595,794 446,950 326,100
-------------- ------------- ---------------
Expenses
Research and development, net 25 19,480 16,820 15,175
Selling and marketing 26 220,212 163,836 128,986
General and administrative 27 66,915 53,899 42,803
-------------- ------------- ---------------
306,607 234,555 186,964
-------------- ------------- ---------------
Operating income 289,187 212,395 139,136
Financing expenses, net 28 27,571 37,956 34,406
-------------- ------------- ---------------
Income before other expenses, net 261,616 174,439 104,730
Other expenses, net 29 42,735 38,245 31,770
-------------- ------------- ---------------
Income before taxes on income 218,881 136,194 72,960
Taxes on income 17 52,334 32,618 12,458
Income after taxes on income 166,547 103,576 60,502
Minority interest in income of
subsidiaries, net (1,020) (802) (424)
-------------- ------------- ---------------
Net income 165,527 102,774 60,078
-------------- ------------- ---------------
US$ US$ US$
-------------- ------------- ---------------
Earnings per share 31
Basic earnings per NIS 1 par value of shares 0.39 0.26 0.17
============== ============= ===============
Fully diluted earnings per NIS 1 par value
of shares 0.37 0.25 0.15
============== ============= ===============
The notes and appendix to the financial statements are an integral part thereof.
F-150
Makhteshim-Agan Industries Ltd.
Company Statements of Income
-----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31
---------------------------------------------------
2004 2003 2002
Note US$ thousands US$ thousands US$ thousands
-------- -------------- ------------- --------------
Income
Company's equity in income of investee
companies, net 163,406 104,015 59,682
Management fees from investee companies 13,559 10,007 9,227
-------------- ------------- --------------
176,965 114,022 68,909
-------------- ------------- --------------
Expenses
Research and development, net - 401 233
General and administrative 27 15,371 13,927 8,992
-------------- ------------- --------------
15,371 14,328 9,225
-------------- ------------- --------------
Operating income 161,594 99,694 59,684
Financing income, net 28 (5,036) (598) (1,726)
-------------- ------------- --------------
Income before other expenses (income), net 166,630 100,292 61,410
Other expenses (income), net 1,850 (4) 1,118
Income before taxes on income (tax benefit) 164,780 100,296 60,292
Taxes on income (tax benefit) 17 (747) (2,478) 214
-------------- ------------- --------------
Net income 165,527 102,774 60,078
============== ============= ==============
US$ US$ US$
-------------- ------------- --------------
Earnings per share 31
Basic earnings per NIS 1 par value of
shares 0.39 0.26 0.17
============== ============= ==============
Fully diluted earnings per NIS 1 par value
of shares 0.37 0.25 0.15
============== ============= ==============
The notes and appendix to the financial statements are an integral part thereof.
F-151
Makhteshim-Agan Industries Ltd.
Statements of Changes in Shareholders' Equity
---------------------------------------------------------------------------------------------------------------------
Receipts from
Share Premium issuance of Capital
capital on shares options reserves
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- -------------- ------------- -------------
Balance as of December 31, 2001 101,757 357,090 4,046 (3,978)
Employee options exercised 47 234 - -
Adjustments deriving from translation of
financial statements of investee companies - - - (3,700)
Realization of Company shares held by a
subsidiary (see Note 21C) - - - -
Capital reserve from acquisition of
convertible debenture by a subsidiary - - - 399
Dividend - - - -
Proposed dividend subsequent to
the balance sheet date - - - -
Net income for the year ended December 31, 2002 - - - -
------------- -------------- ------------- -------------
Balance as of December 31, 2002 101,804 357,324 4,046 (7,279)
Employee options exercised 581 (581) - -
Conversion of convertible debentures into shares 1,270 11,331 - -
Options exercised 138 1,469 (134) -
Adjustments deriving from translation of
financial statements of investee companies - - - 1,886
Dividend - - - -
Proposed dividend - - - -
Proposed dividend subsequent to
the balance sheet date - - - -
Net income for the year ended December 31, 2003 - - - -
------------- -------------- ------------- -------------
Balance as of December 31, 2003 103,793 369,543 3,912 (5,393)
Employee options exercised 578 (578) - -
Conversion of convertible debentures into shares 3,974 35,581 - -
Options exercised 913 9,637 (903) -
Adjustments deriving from translation of
financial statements of investee companies - - - 2,825
Realization of Company shares held by a
subsidiary (see Note 21C) - 3,304 - -
Dividend - - - -
Proposed dividend - - - -
Proposed dividend subsequent - - - -
to the balance sheet date
Net income for the year ended December 31, 2004 - - - -
------------- -------------- ------------- -------------
Balance as of December 31, 2004 109,258 417,487 3,009 *(2,568)
============= ============== ============= =============
Composition of capital reserves: * US$ thousands
-------------
Capital reserve in the framework of the arrangement plan (Note 1B(2)) 257
Adjustments deriving from translation of financial statements of investees (1,425)
Adjustment of commitment to purchase Company shares (1,799)
Capital reserve from acquisition of convertible debentures by a subsidiary 399
-------------
(2,568)
=============
[table continued]
Proposed
dividend
subsequent Company
to balance Retained shares held
sheet date earnings by subsidiary Total
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Balance as of December 31, 2001 - 115,862 (18,004) 556,773
Employee options exercised - - - 281
Adjustments deriving from translation of
financial statements of investee companies - - - (3,700)
Realization of Company shares held by a
subsidiary (see Note 21C) - - 2,576 2,576
Capital reserve from acquisition of
convertible debenture by a subsidiary - - - 399
Dividend - (8,500) - (8,500)
Proposed dividend subsequent to
the balance sheet date 9,500 (9,500) - -
Net income for the year ended December 31, 2002 - 60,078 - 60,078
------------- -------------- ------------- -------------
Balance as of December 31, 2002 9,500 157,940 (15,428) 607,907
Employee options exercised - - - -
Conversion of convertible debentures into shares - - - 12,601
Options exercised - - - 1,473
Adjustments deriving from translation of
financial statements of investee companies - - - 1,886
Dividend (9,500) (16,600) - (26,100)
Proposed dividend - (7,000) - (7,000)
Proposed dividend subsequent to
the balance sheet date 7,200 (7,200) - -
Net income for the year ended December 31, 2003 - 102,774 - 102,774
------------- -------------- ------------- -------------
Balance as of December 31, 2003 7,200 229,914 (15,428) 693,541
Employee options exercised - - - -
Conversion of convertible debentures into shares - - - 39,555
Options exercised - - - 9,647
Adjustments deriving from translation of
financial statements of investee companies - - - 2,825
Realization of Company shares held by a
subsidiary (see Note 21C) - - 4,196 7,500
Dividend (7,200) (25,700) - (32,900)
Proposed dividend - (11,200) - (11,200)
Proposed dividend subsequent 12,700 (12,700) - -
to the balance sheet date
Net income for the year ended December 31, 2004 - 165,527 - 165,527
------------- -------------- ------------- -------------
Balance as of December 31, 2004 12,700 345,841 (11,232) 874,495
============= ============== ============= =============
Composition of capital reserves: *
Capital reserve in the framework of the arrangement plan (Note 1B(2))
Adjustments deriving from translation of financial statements of investees
Adjustment of commitment to purchase Company shares
Capital reserve from acquisition of convertible debentures by a subsidiary
The notes and appendix to the financial statements are an integral part thereof.
F-152
Makhteshim-Agan Industries Ltd.
Consolidated Statements of Cash Flows
-----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Cash flows from operating activities
Net income 165,527 102,774 60,078
Adjustments to reconcile net income to net cash flows
from operating activities (see A. below) 50,126 146,466 48,152
------------- ------------- -------------
Net cash provided by operating activities 215,653 249,240 108,230
------------- ------------- -------------
Cash flows from investing activities
Acquisition of fixed assets (38,823) (33,606) (42,612)
Investment grant received 686 1,937 1,282
Additions to other assets and deferred charges, net (33,749) (20,463) (31,565)
Purchase of products and intangible assets - (50,876) (142,054)
Short-term investments, net (463) (241) 767
Investments in newly consolidated companies (see B. below) (72,152) (3,282) (19,955)
Proceeds from disposal of fixed and other assets 574 2,049 900
Proceeds from sale of long-term investments 2,819 406 1,883
Other long-term investments (828) (2,963) (2,036)
Acquisition of minority interest in subsidiaries (1,056) - (603)
------------- ------------- -------------
Net cash used in investing activities (142,992) (107,039) (233,993)
------------- ------------- -------------
Cash flows from financing activities
Receipt of long-term loans from banks 24,700 97,693 186,566
Repayment of long-term loans and liabilities from banks
and others (227,851) (148,251) (109,948)
Issuance of convertible debentures less issuance expenses 147,450 - 29,309
Realization (acquisition) of Company debentures by a subsidiary - 4,301 (3,257)
Increase (decrease) in short-term credit from banks and
others, net 4,222 (84,801) 33,181
Proceeds from options exercised 9,647 1,473 -
Proceeds from employee options exercised - - 281
Dividend to shareholders (39,900) (26,100) (11,500)
Dividend to minority shareholders in subsidiaries (301) (241) (549)
------------- ------------- -------------
Net cash (used in) provided by financing activities (82,033) (155,926) 124,083
------------- ------------- -------------
Translation differences in respect of cash in autonomous units - - (272)
------------- ------------- -------------
Decrease in cash and cash equivalents (9,372) (13,725) (1,952)
Cash and cash equivalents at beginning of the year 49,849 63,574 65,526
------------- ------------- -------------
Cash and cash equivalents at end of the year 40,477 49,849 63,574
============= ============= =============
The notes and appendix to the financial statements are an integral part thereof.
F-153
Makhteshim-Agan Industries Ltd.
Consolidated Statements of Cash Flows (cont'd)
-----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
A. Adjustments to reconcile net income to net
cash flows from operating activities:
Revenues and expenses not affecting operating cash flows
Depreciation and amortization 82,624 75,673 58,105
Adjustment of long-term liabilities to banks and others 1,791 2,537 3,765
Minority interest in income of subsidiaries, net 998 802 424
Increase in employee severance benefits, net 1,973 4,358 1,058
Deferred taxes, net (163) 3,233 6,287
Amortization of discount on convertible debentures 916 978 1,272
Capital loss on disposal of fixed and other assets, net 511 858 331
Provision for loss with respect to options granted to
employees of subsidiaries 2,090 330 -
Gain on issuance of a subsidiary to a third party (926) - -
Changes in operating assets and liabilities
Decrease (increase) in trade and other receivables (53,236) (48,358) 59,069
Increase in inventories (69,345) (15,323) (38,398)
Increase (decrease) in trade and other payables 82,893 121,378 (43,761)
------------- ------------- -------------
50,126 146,466 48,152
============= ============= =============
B. Investments in newly consolidated companies
Working capital (excluding cash and cash equivalents) (6,485) (2,777) 1,355
Fixed assets, net (2,258) (506) (1,625)
Other assets, net (63,081) - (6,168)
Goodwill created on acquisition (41,851) (43) (19,714)
Long-term liabilities 33,896 44 2,213
Contingent liability - - 3,984
Exercise of Company shares held by a subsidiary 7,500 - -
Minority interest 6,398 - -
------------- ------------- -------------
(65,881) (3,282) (19,955)
Repayment of liability in respect of investee company
previously acquired (6,271) - -
------------- ------------- -------------
(72,152) (3,282) (19,955)
============= ============= =============
C. Non-cash activities
Acquisition of other assets on supplier credit 6,287 1,516 52,913
============= ============= =============
Acquisition of fixed assets on supplier credit - 3,904 2,204
============= ============= =============
F-154
Makhteshim-Agan Industries Ltd.
Consolidated Statements of Cash Flows
-----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Cash flows from operating activities
Net income 165,527 102,774 60,078
Adjustments to reconcile net income to cash flows from
operating activities (see A. below) (130,946) (67,443) (49,962)
------------- ------------- -------------
Net cash provided by operating activities 34,581 35,331 10,116
------------- ------------- -------------
Cash flows from investing activities
Investment in investee companies (3,938) (5,501) (931)
Long-term loans to investee companies (135,582) (326) (49,704)
Repayment of long-term loans to investee companies - 21,623 -
Short-term credit to investee companies, net (9,056) 2,850 (5,350)
Acquisition of fixed assets (431) (221) (279)
Investment in short-term bank deposits, net 3,554 3,687 (9,141)
Realization of long-term bank deposits 10,000 25,000 -
Proceeds from sales of fixed assets 8 10 -
------------- ------------- -------------
Net cash (used in) provided by investing activities (135,445) 47,122 (65,405)
------------- ------------- -------------
Cash flows from financing activities
Issuance of convertible debentures less issuance expenses 147,450 - 29,309
Proceeds from options exercised 9,647 1,473 -
Dividend to shareholders (39,900) (26,100) (11,500)
Proceeds from employee options exercised - - 281
Receipt of long-term loans from banks - - 22,500
Repayment of long-term loans from banks (16,875) (4,500) (46,725)
Receipt of long-term loan from investee company - - 11,500
Increase (decrease) in short-term credit from banks, net - (50,684) 50,084
------------- ------------- -------------
Net cash (used in) provided by financing activities 100,322 (79,811) 55,449
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (542) 2,642 160
Cash and cash equivalents at beginning of the year 3,191 549 389
------------- ------------- -------------
Cash and cash equivalents at end of the year 2,649 3,191 549
============= ============= =============
The notes and appendix to the financial statements are an integral part thereof.
F-155
Makhteshim-Agan Industries Ltd.
Consolidated Statements of Cash Flows
-----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
A. Adjustments to reconcile net income to net cash
flows from operating activities
Revenues and expenses not affecting operating cash flows:
---------------------------------------------------------
Depreciation and amortization 1,235 741 717
Capital loss (gain) on disposal of fixed assets 25 (4) 2
Company's equity in undistributed earnings of investee
companies, net (122,931) (74,153) (49,401)
Increase in employee severance benefits, net 680 1,660 188
Amortization of discount on convertible debentures 916 978 1,272
Adjustment of long-term investments (5,333) 731 3,907
Adjustment of long-term bank loans - - (3,304)
Deferred taxes, net (749) (2,507) 214
Changes in operating assets and liabilities:
--------------------------------------------
Decrease (increase) in other receivables (5,143) 2,362 (3,556)
Increase (decrease) in other payables 354 2,749 (1)
------------- ------------- -------------
(130,946) (67,443) (49,962)
============= ============= =============
The notes and appendix to the financial statements are an integral part thereof.
F-156
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 1 - General
A. Definitions
(1) The Company - Makhteshim-Agan Industries Ltd.
(2) The Group - Makhteshim-Agan Industries Ltd. and its
investees.
(3) Subsidiaries - Companies, including partnerships, whose
financial statements are fully
consolidated, directly or indirectly,
with the financial statements of the
Company.
(4) Proportionately - Companies, including partnerships, whose
consolidated financial statements are consolidated,
companies directly or indirectly, with those of
the Company by the proportionate
consolidation method.
(5) Investees - Subsidiaries and proportionately
consolidated companies.
(6) Related parties - As defined in Opinion 29 of the Institute
of Certified Public Accountants in
Israel.
(7) Interested parties - As defined in Paragraph (1) of the
definition of an "interested party" in a
corporation, in Section 1 of the
Securities Law, 1968.
(8) Controlling - As defined in the Securities Regulations
shareholders (Financial Statement Presentation of
Transactions between a Company and a
Controlling Shareholder Therein), 1996.
(9) CPI - The Consumer Price Index as published by
the Central Bureau of Statistics.
(10) Dollar - The US dollar.
B. Description of the Company and its activity
1. The Company is engaged through its local and foreign investee
companies primarily in the manufacture and marketing of
pesticides, intermediate materials for other industries and
synthetic fragrances, mainly for export. The Company is held
by Koor Industries Ltd. (Koor). As at December 31, 2004, Koor
holds 38.6% of the Company's shares whereas on December 31,
2003, Koor held 48.6% of the Company's shares. In addition,
at that time Koor had a voting agreement, that was not of a
temporary nature, with two other shareholders who hold
together 3.82% of the Company's shares. In July 2004, the
voting agreements was cancelled.
The Company was established on December 8, 1997 for the
purpose of executing a plan for implementing changes in the
holdings in Makhteshim Chemical Works Ltd. (Makhteshim) and
Agan Chemical Industries Ltd. (Agan), as described below.
F-157
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 1 - General (cont'd)
B. Description of the Company and its activity (cont'd)
2. On April 26, 1998, the shareholders of Makhteshim and of Agan
approved an exchange arrangement, the substance of which was
a change in the structure of holdings in the Makhteshim-Agan
Group. Prior to the implementation of the arrangement,
Makhteshim was a 67% subsidiary of Koor, Makhteshim held a
46.6% interest in Agan and Koor held a 5% direct interest in
Agan.
On May 4, 1998, the Court approved the arrangement, which was
consummated pursuant to the provisions of Section 233 of the
Companies Ordinance (New Version). On May 7, 1998, the shares
of Makhteshim and of Agan were delisted from the Tel-Aviv
Stock Exchange and on May 11, 1998, trading commenced in the
shares of the Company.
On May 10, 1998, the following actions were taken pursuant to
the approved exchange arrangement:
- The Company issued shares to all of the shareholders
of Makhteshim and of Agan (except in respect of the
shares of Agan held by Makhteshim) in exchange for
the transfer to the Company of the shares of
Makhteshim and Agan held by them.
- Pursuant to the exchange ratio that was determined
(based on the opinion of economic appraisers), the
shareholders of Makhteshim received 2.446 shares of
the Company for each share of Makhteshim, and the
shareholders of Agan (excluding Makhteshim) received
10.247 shares of the Company for each share of Agan.
Following the implementation of the above-mentioned
transactions, the Company fully owns and controls Makhteshim
and Agan.
Note 2 - Reporting Principles and Accounting Policy
A. Financial statements in US dollars
General:
--------
The Company and its Israeli subsidiaries maintain their current
accounting records in nominal shekels and dollars using a
multi-currency system. Since most of the Group's revenues are received
in dollar and the principal raw materials and fixed assets are
purchased in dollar. The dollar is the principal currency of the
economic environment in which the Group operates ("the functional
currency"). Accordingly, the dollar is the measurement and reporting
currency in these financial statements. It should not be construed
that the translated amounts actually represent or can be converted
into dollars, unless otherwise indicated in these statements.
F-158
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
A. Financial statements in US dollars (cont'd)
1. Balance sheet:
--------------
a) Non-monetary items (items, the stated amounts of
which reflect their historical value upon
acquisition or creation) that were acquired in a
currency other than the dollar, were translated
according to the exchange rate of the dollar on
their date of acquisition or creation. The following
items were treated as non-monetary items: fixed
assets and the related accumulated depreciation,
inventory, other assets, deferred expenses and the
related accumulated amortization, and shareholders'
equity items which derive from funds invested by
shareholders.
The amounts of the non-monetary assets do not
necessarily represent their realizable value or
current economic value, rather only the original
dollar cost thereof in nominal values.
b) The net asset value of investments in investees and
the minority interest in consolidated subsidiaries
are determined on the basis of the dollar translated
financial statements of those companies.
c) Monetary items (items, the amounts of which as
stated in the balance sheet reflect current or
realizable values, as at the balance sheet date)
were translated into dollars at the exchange rate at
the balance sheet date.
2. Statement of income:
--------------------
a) The components of the statement of income reflecting
transactions carried out during the year - sales,
purchases, labor costs, etc. - in a currency other
than the dollar, were translated according to the
exchange rate of the dollar on the date of the cash
flow. The erosion in monetary balances is included
in the specific expense or income items to which
they relate.
b) The components of the statement of income relating
to non-monetary balance sheet items have been
translated according to the same exchange rate used
for translating the related balance sheet items
(mainly: changes in inventory, depreciation and
amortization, capital gain, etc.).
c) Company equity in operating results of investees is
determined on the basis of the financial statements
of those companies.
d) Taxes on income:
Current taxes are composed of payments on account
during the year, plus amounts due as at the balance
sheet date (or net of amounts refundable at the
balance sheet date). The payments on account were
translated according to the exchange rate of the
dollar on the date of each payment, while the
amounts due or refundable are included without
adjustment. Therefore, current taxes also include
the expense or income resulting from the erosion of
the payments on account, from the payment date until
the balance sheet date. Deferred taxes - see Note 2R
and Note 17G.
F-159
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
B. Proposed dividend subsequent to the Balance Sheet Date
Pursuant to Accounting Standard No. 7, "Events Occurring Subsequent to
the Balance Sheet Date", a liability which relates to a dividend
proposed or declared subsequent to the balance sheet date, is
reflected in the financial statements only in the period declared. In
addition, separate expression of the amount of the dividend intended
for distribution is provided as part of the statement of changes in
shareholders' equity, as stated, against reduction of the retained
earnings' balance.
C. Foreign investee companies
As of January 1, 2004, the Company applies Accounting Standard No. 13,
"Effect of changes in Exchange Rates of Foreign Currency". The
Standard discusses the translation of transactions in foreign currency
and the translation of financial statements of foreign operations for
purposes of including them in the financial statements of the
reporting entity. The Standard provides rules for classifying foreign
operations as an autonomous foreign investee or as an integrated
investee, on the basis of the indications described in the standard
and the use of discretion, and it provides the method for translating
the financial statements of autonomous foreign investees.
The financial statements of foreign investees that are integral to the
Group's operations based on the criteria provided in Accounting
Standard No. 13, are translated into dollars as follows: non-monetary
items in the balance sheet are translated at the historical exchange
rates as at the transaction date whereas monetary balance sheet items
are translated at the exchange rate in effect on the balance sheet
date. Items in the statement of income are translated at average
exchange rates, except for revenues and expenses relating to
non-monetary items that were translated based on the historical
exchange rates according to which the corresponding non-monetary items
were translated. Translation differences are recorded in the statement
of income.
The financial statements of foreign investees that operate as
"autonomous entities" based on the criteria provided in Accounting
Standard No. 13, are translated into dollars as follows: monetary and
non-monetary balance sheet items are translated based on the closing
exchange rate. Items in the statement of income are translated at the
exchange rate on the transaction date. Translation differences are
recorded in the statement of income in a separate category in the
shareholders' equity section ("adjustments deriving from translation
of financial statements of investee companies") up to the time of
realization of the net investment.
F-160
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
D. Consolidated financial statements
(1) The financial statements of the Company are consolidated with
the statements of those companies that it controls.
Companies, which are under joint control, are consolidated by
the proportionate consolidation method.
(2) A list of companies whose financial statements are included
in the consolidated statements as well as the rate of control
and ownership thereof, is presented in the appendix to the
financial statements.
(3) For purposes of the consolidation, the amounts appearing in
the financial statements of the subsidiaries were taken into
account, after the adjustments required by the application of
the uniform accounting policies used by the Group.
(4) The excess of the cost of investments in subsidiaries over
the fair value of identified assets, less the identified
liabilities (net of taxes in respect of temporary
differences) at the date of acquisition, is recorded as
goodwill.
The goodwill is presented in the consolidated balance sheet
in the category "other assets and deferred charges" and is
amortized in the "other expenses" item (regarding the
amortization period, see Section L., below).
(5) The consolidated financial statements include the share of
assets, liabilities, income and expenses of proportionately
consolidated subsidiaries, based on the percentage interest
held in these companies.
(6) Material intercompany balances and transactions, including
profits on intercompany sales which have not yet been
realized outside the Group, are eliminated in consolidation.
E. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F. Cash equivalents
Cash equivalents include short-term bank deposits with an original
maturity not exceeding three months.
F-161
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
G. Short-term investments
Marketable securities held as a short-term investment are stated at
their market value as at balance sheet date. Changes in the value of
the marketable securities are fully recognized on a current basis.
H. Allowance for doubtful accounts
The financial statements include an allowance for specific doubtful
accounts which fairly reflects, in management's estimation, the loss
expected from receivables the collection of which is doubtful.
Management determines the allowance, based, in part, on an evaluation
of credit risk using available information regarding the financial
position of the debtors, the extent of their activities and evaluation
of collateral received from them. The financial statements include
specific allowances for doubtful accounts and, as mentioned in section
I below, with respect to trade receivables included in the framework
of a subordinated capital note received as part of a securitization
transaction.
I. Sale of financial assets
The sale of financial assets is recognized as a sale when control over
the asset is transferred in full to an independent third party, and
the full amount of the risks and rewards embodied by the asset are
transferred to an independent third party.
J. Inventories
Inventories are valued at the lower of cost or market, cost being
determined as follows:
- Raw materials, packing materials, purchased products, spare
parts and maintenance materials on the "moving average"
basis.
- Finished products and work in progress on the basis of
average production cost including materials, labor and
manufacturing expenses.
K. Investments in investee companies
(1) Investments in investee companies are stated in the Company's
balance sheet according to the equity method. In determining
the net asset value of the investments in these companies,
the amounts taken into account are based on the financial
statements of these companies, after making the adjustments
thereto required by the application of generally accepted
accounting principles.
(2) Regarding goodwill amortization - see Note 2M.
F-162
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
L. Fixed assets
(1) The fixed assets are presented at cost.
(2) The cost of assets includes financing expenses related to the
financing of their construction during the pre-operation
period. The financing expenses were capitalized as follows:
A. Where the assets under construction are financed by
specific credit - the financing expenses relating to
such credit.
B. Where the financing is not made by specific credit -
by using a rate representing the weighted average
cost rate of the credit sources, the cost of which
was not specifically capitalized.
(3) The cost of the self-constructed assets includes materials
and labor costs during the pre-operation period.
(4) The cost of assets with respect to which an investment grant
was received is presented after deduction of the investment
grant received with respect thereto. The investment grant is
amortized to the statement of income based on the rate of
depreciation of the assets in respect of which it was
received.
(5) Depreciation is computed by the straight-line method over the
estimated useful lives of the assets. Annual rates of
depreciation are:
%
-----------
Leasehold rights and buildings 2 - 4
Plant and equipment 4.5
Motor vehicles 15 - 20
Office furniture and equipment 6 - 15 (mainly 7%)
Computer and auxiliary equipment 20 - 33
M. Other assets and deferred charges
Other assets and deferred charges are amortized by the straight-line
method over the expected benefit period as follows:
- Product registration and acquisition of know-how - mainly eight
years.
- Goodwill arising on the acquisition of subsidiaries - ten or twenty
years (mainly twenty years).
- Intangible assets in purchase of products and companies - mainly
twenty years.
- Marketing rights - five years to ten years.
- Debenture issuance expenses - six years.
- Non-competition and confidentiality agreement - five years.
The amortization periods are re-examined from time to time in accordance with
the estimated expected benefit period of the assets.
F-163
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
N. Debentures convertible into shares
Debentures convertible into shares are included in the balance sheet
based on the probability of their conversion, as provided in Opinion
53 of the Institute of Certified Public Accountants in Israel.
Debentures, the conversion of which is not probable, are included as a
liability at their liability amount. Debentures, the conversion of
which is probable, are stated between the items "long-term
liabilities" and "shareholders' equity", in accordance with the higher
of the liability or capital value.
Convertible debentures issued by the Company and held by a subsidiary,
are included net of the liability value of the debentures issued. The
difference between the acquisition cost and the liability value which
was deducted, is recorded in a capital reserve in the shareholders'
equity category.
O. Company shares held by subsidiary
Company shares held by a subsidiary are stated at cost, as a deduction
from the Company's shareholders' equity.
P. Revenue recognition
Revenues from sales of products are recognized upon shipment to the
customer along with transfer of the main risks involved with ownership
of the products sold.
Q. Research and development costs
Research and development costs, net of grants and participations, are
charged to the statement of income as incurred. The net research and
development expenses are presented separately in the statement of
income after gross profit.
R. Deferred taxes
The Group companies create deferred taxes in respect of temporary
differences. The temporary differences are differences in the value of
assets and liabilities for tax purposes and for financial reporting
purposes. Allocation of the taxes, as stated, is executed with respect
to the differences applying to assets, the amortization of which is
deductible for tax purposes.
The deferred tax balances (asset or liability) are calculated
according to the liability approach, i.e., the tax rates expected to
be in force when the deferred tax liability is utilized, or when the
deferred tax asset is realized, as they are known proximate to the
date of approval of the financial statements.
In calculation of the deferred taxes, no account was taken of the
taxes, which would apply in a case of sale of the investments in the
investee companies, since it is the intention of the Company to hold
these investments and not to sell them.
The Group may be subject to additional tax in a case of distribution
of dividends between the Group companies. This additional tax was not
provided for in the financial statements in cases where Group policy
is not to distribute a dividend which involves additional tax to the
Group.
F-164
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
S. Earnings per share
The earnings per share data is calculated in accordance with opinion
No. 55 of the Institute of Certified Public Accountants in Israel,
retroactively adjusted for the bonus element in the issuance of
rights, and taking into consideration the likelihood of the exercise
of option warrants and convertible debentures issued by the Company.
T. Derivative financial instruments
The results of derivative financial instruments held as 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 a 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 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, fair value
is determined based on a valuation model.
U. Environmental costs
The ongoing cost of maintenance and operation of facilities for the
prevention of environmental pollution and projected provisions for
environment rehabilitation costs stemming from current or past
activities, are charged to expense as incurred. The cost of
constructing facilities to prevent pollution, which increase the life
expectancy of a facility or its efficiency, or decrease or prevent
pollution, are charged to the cost of fixed assets and are depreciated
according to the usual depreciation rates used by the Group.
V. Impairment in value of assets
The Company applies Accounting Standard No. 15 - Impairment in Value
of Assets (hereinafter - "Standard"). The Standard provides procedures
which a company must apply in order to ensure that its assets in the
consolidated balance sheet (to which the Standard applies), are not
presented at an amount which is in excess of their recoverable value,
which is the higher of the net selling price or the realization value
(the present value of the estimated future cash flows expected to be
derived from use and disposal of the asset).
The Standard applies to all the assets in the consolidated balance
sheet, except for tax assets and monetary assets. In addition, the
Standard provides rules for presentation and disclosure with respect
to assets whose value has declined. Where the value of an asset in the
balance sheet is greater than its recoverable value, the Company
recognizes a loss from impairment in value in an amount equal to the
difference between the book value of the asset and its recoverable
value. The loss recognized, as stated, will be eliminated only if
there have been changes in the estimates used in determining the
asset's recoverable value from the date on which the last loss from
impairment in value was recognized.
W. Balances in foreign currency and linked balances
Balances in or linked to foreign currency are included in the
financial statements at the representative exchange rates on the
balance sheet date. Balances linked to the Consumer Price Index are
included on the basis of the index relevant to each linked asset or
liability.
F-165
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
------------------------------------------------------------------------------------------------------------------
Note 2 - Reporting Principles and Accounting Policy (cont'd)
W. Balances in foreign currency and linked balances (cont'd)
Data regarding the representative exchange rate of the US dollar and
the Consumer Price Index are as follows:
Consumer Exchange rate Exchange rate Exchange rate
Price of the US dollar of the US dollar of the US dollar
Index against the against the against the
(Points) NIS Brazilian real Euro
------------ ---------------- ---------------- ----------------
As at
-----
December 31, 2004 107.44 4.308 2.654 0.733
December 31, 2003 106.16 4.379 2.889 0.791
Changes during the year:
------------------------
2004 1.21% (1.62%) (8.13%) (7.33%)
2003 (1.9%) (7.5%) (18.2%) (16.9%)
2002 6.5% 7.3% 52.3% (15.9%)
X. Disclosure of the impact of new accounting standards in the
period prior to their application
In July 2004, the Israeli Accounting Standards Board published
Accounting Standard No. 19, "Taxes on Income". The Standard provides
that a liability for deferred taxes is to be recorded for all
temporary differences subject to tax, except for a limited number of
exceptions. In addition, a deferred tax asset is to be recorded for
all temporary differences that may be deducted, losses for tax
purposes and tax benefits not yet utilized, if it is anticipated that
there will be taxable income against which they can be offset, except
for a limited number of exceptions. The new Standard applies to
financial statements for periods beginning on January 1, 2005. The
Standard provides that it is to be implemented by means of a
cumulative effect of a change in accounting method. First time
application of the said Standard will have a net non-recurring impact,
as at January 1, 2005, of increasing the net income by approximately
US$ 11.6 million (which mainly derives from recording deferred taxes
in respect of unrealized profits which are anticipated to be realized
in the near future).
Note 3 - Trade Receivables
Consolidated
Composition:
December 31
---------------------------------
2004 2003
-------------- -------------
US$ thousands US$ thousands
-------------- -------------
Open accounts -
Foreign 312,661 242,292
Domestic (Israel) 14,812 10,710
Checks receivable 5,796 8,868
Subordinated capital note and receivables related to sale of
trade receivables in a securitization transaction (1) 60,586 57,203
-------------- -------------
393,855 319,073
Net of allowance for doubtful debts 24,646 17,379
-------------- -------------
369,209 301,694
============== =============
F-166
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
------------------------------------------------------------------------------------------------------------------
Note 3 - Trade Receivables (cont'd)
(1) Sale of trade receivables in a securitization transaction:
----------------------------------------------------------
December 31
---------------------------------
2004 2003
-------------- -------------
US$ thousands US$ thousands
-------------- -------------
Trade receivables included in the securitization transaction
as at the balance sheet date 202,832 182,529
Less - proceeds in respect of such receivables, net (*) 141,654 115,769
Subordinated capital note 61,178 66,760
Trade receivables which were collected and the
proceeds in respect thereof were paid subsequent
to the balance sheet date, net (592) (9,557)
Subordinated capital note and receivables related to sale of
trade receivables in a securitization transaction 60,586 57,203
(*) As at the balance sheet date cash proceeds in the amount of US$ 142.2 million were
received in respect of the sale of trade receivables in a securitization
transaction (December 31, 2003 - approximately US$ 125.3 million).
In October 2001, the Company and certain subsidiaries signed
an agreement according to which those companies entered into
a securitization transaction, under which such companies sold
all their trade receivables to foreign companies, which were
incorporated for this purpose and which are not owned or
controlled by the Makhteshim Agan Industries Group
(hereinafter - "the Target Companies"). The purchase of the
debts by the purchasing companies was financed by Kitty Hawk
Funding Corp., a US corporation of the Bank of America Group.
On September 28, 2004, the Company and subsidiaries signed an
agreement with Bank of America to end the undertaking in the
securitization transaction. On the same date, the Company and
certain subsidiaries (hereinafter - "the Companies") entered
into a new agreement with Rabobank International for sale of
customer receivables in the framework of a securitization
transaction, this being in place of the prior agreement with
Bank of America. The new agreement is similar in principle to
the prior agreement with certain changes including, among
others, that in the new agreement additional Company
subsidiaries are included in the transaction. Pursuant to the
new securitization agreement, the Companies will sell their
trade receivables to a foreign company which was set up for
this purpose and which is not owned or controlled by the
Makhteshim Agan Industries Group (hereinafter - "the
Acquiring Company").
Acquisition of the trade receivables by the Acquiring Company
will be financed by a U.S. company, Erasmus Capital
Corporation, of the Rabobank International Group. At the time
of transition from the prior agreement to the new agreement
the Acquiring Company purchased the trade receivables that
remained in the ownership of the Target Companies.
Trade receivables included in the securitization transaction
are those who stand in compliance with a number of criteria,
as determined in the agreement.
The maximum expected volume of the financial means available
to the Acquiring Company for the purpose of purchasing the
trade receivables of the consolidated subsidiaries, is US$
250 million (as opposed to US$ 150 million in the former
securitization agreement) on a current basis, such that the
amounts to be collected from customers whose debts were sold,
will serve to purchase new trade receivables.
F-167
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 3 - Trade Receivables (cont'd)
(1) Sale of trade receivables in a securitization transaction: (cont'd)
---------------------------------------------------------
The period in which the Companies will sell their trade
receivables to the Acquiring Company is one year from the date of
the closing of the transaction. The period may be extended, with
the consent of both parties, for additional one-year periods, up
to a maximum of 4 extensions.
The price at which the trade receivables will be sold is the
amount of the debt being sold less an amount calculated on the
basis of the period anticipated to pass between the date the debt
was sold and the repayment date.
On the date of purchasing the debt, the acquiring company will pay
in cash the major part of the debt price. The balance of the debt
price will be embodied in a subordinated capital note to be paid
after the debt is collected. The rate of the cash payment will
vary in accordance with the composition of the client portfolio
and its performance.
The Company shall bear in full losses sustained by acquiring
companies due to the non-payment of the trade receivables included
in the securitization transaction, up to the amount of the total
outstanding balance of the debt included in the subordinated
capital note.
The acquiring company will not have a right of recourse to the
Companies with respect to the amounts paid in cash, except in the
case of debts in respect of which a commercial dispute arises
between the Companies and their customers, namely, a dispute
arising from an alleged failure to comply with an obligation of
the seller in the supply agreement for the product, such as:
failure to supply the correct product, defect in the product,
non-compliance with the supply date, etc.
The Companies will handle for the acquiring company the collection
of the sold trade receivables included as part of the
securitization transaction.
The main principle of the accounting treatment of the sale of
trade receivables in a securitization transaction is the
recognition of the sale of only that part of the debt where the
risk and control thereof has been finally and absolutely
transferred to the buyer. Accordingly, trade receivables sold were
deleted where the consideration in respect thereof had been
received in cash and/or by a non-deferred liability. With respect
of that part of the trade receivables included in the
securitization transaction, which was not recognized as a sale, a
subordinated capital note receivable was recorded in the amount of
the difference between the amount of trade receivables included in
the transaction and the amounts of consideration received, as
above, and receivables were recorded in respect of the debts sold
where the consideration in respect thereof was received subsequent
to the balance sheet date.
The loss on sale of the trade receivables is recognized at the
date of sale and is reflected in the item "other expenses".
As part of the agreement, the Company committed to maintain
certain financial ratios, mainly, debt to equity and profitability
ratios - see Note 20C.
F-168
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-----------------------------------------------------------------------------------------------------------------------------
Note 4 - Other Receivables
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Claims from the government in
respect of participations and
tax refunds 28,277 15,410 - -
Advance tax payments, net of
provisions 11,071 7,895 - -
Employees (1) 1,376 1,259 6 49
Deferred taxes (Note 17G) 17,037 10,256 325 5,155
Current maturities of long-term
receivables 420 380 - -
Prepaid expenses and accrued
income 10,372 9,819 168 741
Dividend receivable - - 11,200 7,000
Other 8,666 9,519 - -
------------- ------------- ------------- -------------
77,219 54,538 11,699 12,945
============= ============= ============= =============
(1) Includes a non-linked bank deposit
designated for the purpose of
granting loans to employees and
bearing annual interest at the
rate of 5% 417 566 - -
============= ============= ============= =============
Note 5 - Loans to Investee Companies
Company
December 31
--------------------------------
2004 2003
------------- -------------
US$ thousands US$ thousands
------------- -------------
Current maturities of long-term loans - 4,500
Short-term loans (1) 16,056 2,500
Current accounts (2) 14,903 9,111
------------- -------------
30,959 16,111
============= =============
(1) The loan is a dollar loan and bears interest of 1.8% - 2.4%.
(2) The accounts are mainly linked to the US dollar and are
non-interest bearing.
F-169
>
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 6 - Inventories
Consolidated
December 31
--------------------------------
2004 2003
------------- -------------
US$ thousands US$ thousands
------------- -------------
Finished products 263,579 225,678
Work in progress 29,117 23,772
Raw materials 115,046 76,100
Packing materials 4,863 3,078
Spare parts and maintenance materials 12,820 13,739
------------- -------------
425,425 342,367
Purchased products 35,445 18,626
------------- -------------
460,870 360,993
============= =============
Note 7 - Investments in Investee Companies
Company
A. Composition
December 31
--------------------------------
2004 2003
------------- -------------
US$ thousands US$ thousands
------------- -------------
Subsidiaries -
Cost of shares 424,865 417,623
Company's equity in retained earnings and
capital reserves accumulated from date of
acquisition, net 351,475 232,744
Adjustments deriving from translation of
financial statements of investee companies (1,425) (4,250)
------------- -------------
774,915 646,117
Less - investment in Company shares held by
subsidiary (11,232) (15,428)
Capital reserve from acquisition and sale of
debentures convertible into shares of the
Company by a subsidiary 399 399
------------- -------------
764,082 631,088
Loans - C(1) 242,417 101,417
Perpetual loan - C(2) 2,500 2,500
------------- -------------
1,008,999 735,005
============= =============
F-170
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 7 - Investments in Investee Companies
Company
B. Movement during the year
2004
-------------
US$ thousands
-------------
Balance at beginning of year 735,005
Company's equity in net earnings
of investee companies, net 163,406
Adjustments deriving from translation of
financial statements of investee companies 2,825
Dividend (44,675)
Realization of Company shares held by a subsidiary 4,196
Additional investments, net 7,242
Change in loans and capital notes, net 141,000
-------------
Balance at end of year 1,008,999
=============
A list of the investee companies is presented in the Appendix.
C. Terms of loans and capital notes
(1) The loans bear interest at the Libor rate plus a margin which
ranges between 0.8% and 2%. The loans as at December 31, 2004
are presented net of current maturities in the amount of US$
4.5 million.
(2) The perpetual loan is non-linked and does not bear interest.
D. Additional information
(1) Acquisition of companies during the year of the report:
a. In April 2004, the Company, through wholly owned and
controlled subsidiaries, signed agreements for
acquisition of the ownership and control of a group of
three companies: Vegetation Management LLC, Farm Saver.
Com LLC, and Nation Ag II LLC - which are engaged in
licensing the import and marketing of herbicides from
the United States (hereinafter - "the Companies
Acquired").
The aggregate consideration for the acquisition amounted
to approximately US$ 67 million (the consideration is
after an amendment to the original agreement made in
December 2004). Approximately US$ 7.5 million of the
aggregate consideration was paid through a transfer of
1,908 of the Company's shares that were held by a
subsidiary (the cost of the shares is US$ 4.2 million).
The excess cost created on the acquisition date amounted
to US$ 51.4 million, of which $28.4 million was
attributed to intangible assets (mainly licensing and
licenses), US$ 0.5 million was attributed to deferred
tax liability, US $0.6 million was attributed to
inventory and the balance, in the amount of US$ 22.9
million, was recorded as goodwill.
The excess cost attributed to the licensing and the
licenses, as well as the goodwill, are being amortized
over a period of 20 years which, in the Company's
estimation, represents the period of economic benefit to
be derived therefrom.
F-171
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 7 - Investments in Investee Companies (cont'd)
Company
D. Additional information (cont'd)
(1) Acquisition of companies during the year of the report: (cont'd)
a. (cont'd)
The statements of income and cash flows of the Companies
Acquired were consolidated as of May 1, 2004.
The effect of the first time consolidation of the
activities acquired on the consolidated statements of
income is an increase in revenues of US$ 24.1 million
for the period ended December 31, 2004, and an increase
to net income (after amortization of goodwill) of US$
5.6 million for the same period. The impact on the
consolidated balance sheet as at December 31, 2004 is an
increase of assets in the amount of US$ 77.5 million.
b. During the year of the report, the Company signed,
through subsidiaries, agreements for acquisition of
three marketing companies, as follows:
1) In June 2004, the Company, through a wholly owned
and controlled subsidiary, signed an agreement for
acquisition of 45% of the rights in the U.S.
company, Control Solutions Inc. (hereinafter -
"CSI"), which is engaged in the marketing of
pesticides to the non-agricultural market in the
United States.
Based on the acquisition agreement, so long as the
subsidiary holds 45% of the shares of CSI, decisions
in areas critical to CSI are to be made jointly by
all the shareholders of CSI. Therefore, CSI has been
consolidated in the financial statements by means of
the proportionate consolidation method.
In addition, the subsidiary was given an option,
which may be exercised at any time during the next
three years, to increase its share in CSI to 60%, in
exchange for a payment ranging between US$ 1.5
million and US$ 10.5 million, in accordance with the
earnings of CSI in 2004-2006.
Furthermore, commencing from 2009, both the
subsidiary and the remaining shareholders of CSI
have the right to require the subsidiary to acquire
from the remaining shareholders of CSI the balance
of their shares in CSI in consideration of an amount
to be determined based on the income of CSI in the
three years preceding the acquisition date.
2) In July 2004, the Company, through a wholly owned
and controlled subsidiary, signed an agreement for
acquisition of all the shares and rights of Farmoz
PTY Limited, an Australian company engaged in the
marketing and distribution of pesticides in
Australia.
F-172
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 7 - Investments in Investee Companies (cont'd)
D. Additional information (cont'd)
(1) Acquisition of companies during the year of the report: (cont'd)
3) In August 2004, the Company, through a subsidiary, signed
an agreement for acquisition of 50.1% of the rights in the
U.S. company, RiceCo LLC, which is engaged in the
development and marketing of herbicides in the rice
sector.
The aggregate cost of the acquisition of the marketing
companies amounted to US$ 41 million. The excess cost created
on the acquisition date amounted to US$ 31.1 million, of which
US$ 15 million was attributed to intangible assets (mainly
licensing and licenses), US$ 3.5 million was attributed to
deferred tax liability, US$ 0.7 million was attributed to
inventory and the balance, in the amount of US$ 18.9 million,
was recorded as goodwill.
The excess cost attributed to the licensing and the licenses,
as well as the goodwill, are being amortized over a period of
20 years which, in the Company's estimation, represents the
period of economic benefit to be derived therefrom.
The statements of income and cash flows of the three marketing
companies acquired were consolidated as of their acquisition
dates. The total effect of the first time consolidation of the
aforementioned marketing companies on the consolidated
statements of income from the date of their initial
consolidation is an increase in revenues of US$ 46.2 million
for the period ended December 31, 2004 and a reduction of net
earnings (after goodwill amortization) of US$ 0.3 million for
that period. The effect on the consolidation on the balance
sheet as at December 31, 2004, is an increase of assets in the
amount of US$ 72.8 million.
(2) Subsequent to the balance sheet date, in January 2005, the
Company signed an agreement by means of a company it wholly
owns and controls, for acquisition of 49% of the shares and
rights of Makhteshim Agan Benelux & Nordic B.V. ("Mabeno"), a
Dutch company that serves as the exclusive distributor of
herbicides of the Makhteshim Agan Group in the areas of Benelux
and Scandinavia. In accordance with the agreement, the
acquisition will be executed in exchange for an issuance of
Company shares in the amount of (euro) 2,940 thousand,
according to the market price of the share on the day of the
transfer. In addition, the Company received an option to
increase its holdings in Mabeno to 55%.
(3) With respect to Goodwill on acquisition of investee
companies and the unamortized balance thereof - see Note
10.
(4) With respect to guarantees for investee companies - see
Note 19E.
E. Convertible securities in investee companies
(1) A subsidiary, Lycored - Natural Products Industries Ltd.
(hereinafter - "Lycored"), has granted stock options to
employees, which, if exercised, will dilute the Company's
holding in Lycored to about 87.72%.
F-173
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 7 - Investments in Investee Companies (cont'd)
E. Convertible securities in investee companies (cont'd)
(2) On October 28, 2003, the Board of Directors of Luxembourg
Medicine Ltd. (hereinafter - "Luxembourg") approved the
issuance of options to employees of Luxembourg and its
subsidiary. Exercise of the options will dilute the holding
of the Company in Luxembourg to about 92%.
(3) As at the balance sheet date, exercise of the said options is
reasonable and if all of the options are exercised (see Note
7E (1) (2)), the Company will sustain a loss from decline in
the holdings' percentage, in the amount of US$ 2 million. The
financial statements include a provision for this amount.
Note 8 - Long-Term Investments, Loans and Receivables
A. Composition
Consolidated Company
----------------------------- ------------------------------
December 31 December 31 December 31 December 31
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Long-term investments, loans and
receivables [B(1)] 23,265 18,349 - -
Bank deposits [B(2)] - - 19,016 29,101
------------- ------------- ------------- -------------
23,265 18,349 19,016 29,101
Net of allowance for doubtful debts 1,500 1,500 - -
------------- ------------- ------------- -------------
21,765 16,849 19,016 29,101
Less - current maturities 420 380 - -
------------- ------------- ------------- -------------
21,345 16,469 19,016 29,101
Other investments [B(3)] 725 1,575 - -
------------- ------------- ------------- -------------
22,070 18,044 19,016 29,101
============= ============= ============= =============
B. Additional information
(1) Long-term investments, loans and receivables
--------------------------------------------
A. Linkage terms and interest rates
Consolidated
-------------------------------
December 31 December 31
2004 2003
------------- -------------
US$ thousands US$ thousands
------------- -------------
In Israeli currency - not linked 2,353 -
In dollars 1,710 5,485
In Brazilian reals 15,715 7,699
In Argentine pesos 2,352 4,319
Other foreign currency 1,135 846
------------- -------------
23,265 18,349
============= =============
The above investments, loans and receivables are non-interest bearing.
F-174
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 8 - Long-Term Investments, Loans and Receivables (cont'd)
B. Additional information (cont'd)
(1) Long-term investments, loans and receivables (cont'd)
--------------------------------------------
B. Maturities
The investments, loans and receivables mature as follows:
US$ thousands
-------------
First year (current maturities) 420
-------------
Second year 6,333
Third year 2,865
Fourth year 2,180
Fifth year 662
With no defined repayment date *10,805
-------------
22,845
-------------
23,265
=============
* Including restricted deposits and other assets in the amount of
$5.3 million.
(2) Bank deposits
------------
Company
Interest rate --------------------------------
as at balance December 31 December 31
sheet date 2004 2003
------------- ------------- -------------
% US$ thousands US$ thousands
------------- ------------- -------------
Dollar deposits 4.0 10,711 20,799
Dollar deposits 5.1 8,305 8,302
------------- -------------
19,016 29,101
============= =============
During the years 2001 and 2000, the Company made deposits in
a Brazilian bank in the amount of US$ 8,300 thousand and US$
45,600 thousand, respectively, for a five-year period. Such
deposits serve as sole security for loans taken out by a
subsidiary from the same bank and in the same amounts. The
loans are in dollars, bear interest at the rate of 5.3% and
3.5% p.a. and are scheduled to be repaid in 2006 and 2005,
respectively. The Company and the subsidiary are able to
realize the deposit and make early repayment of the loan on
certain dates as provided in the agreement.
In September 2003, the amount of $ 25 million was paid out of
these deposits and in February 2004 the amount of an
additional US$ 10 million was paid out of these deposits.
Concurrently, loans were repaid in the same amount.
In the consolidated balance sheet, the amounts of the
deposits were set-off against the amounts of the loans taken
out by the subsidiary (see Note 14A).
(3) In 1998, the Company entered into an agreement with the
shareholders of Hazera Genetics Ltd. and established a joint
venture intended to function as a venture capital fund for
the investment in companies which are engaged in the field of
agricultural biotechnology. Other investments include the
Group's share (50%) in biotechnology companies. In the year
of account the subsidiary provided the amount of US$ 1.1
million as impairment in value of these investments.
F-175
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------------------------------------------------------
Note 9 - Fixed Assets
A. Composition
Consolidated
Office
Land and Plant and Motor furniture Total
buildings equipment vehicles and equipment
------------- ------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- ------------- -------------
Cost
Balance as at the
beginning of the year 123,345 635,438 4,824 22,809 786,416
Additions net of grants 6,979 26,174 1,101 3,835 38,089
Newly consolidated
company 809 635 587 1,252 3,283
------------- ------------- ------------- ------------- -------------
Disposals (408) (925) (1,513) (398) (3,244)
Balance as at
the end of the year 130,725 661,322 4,999 27,498 824,544
------------- ------------- ------------- ------------- -------------
Accumulated
depreciation
Balance as at the
beginning of the year 44,304 297,561 2,812 14,994 359,671
Additions 4,059 22,717 719 3,132 30,627
Newly consolidated
company 82 264 227 351 924
Eliminated on
disposals (408) (589) (1,158) (262) (2,417)
------------- ------------- ------------- ------------- -------------
Balance as at
the end of the year 48,037 319,953 2,600 18,215 388,805
------------- ------------- ------------- ------------- -------------
Net book value
As at
December 31, 2004 82,688 341,369 2,399 9,283 435,739
------------- ------------- ------------- ------------- -------------
As at
December 31, 2003 79,041 337,877 2,012 7,815 426,745
============= ============= ============= ============= =============
December 31
--------------------------------
2004 2003
------------- -------------
US$ thousands US$ thousands
------------- -------------
Cost of assets includes:
Buildings and development on freehold land 83,289 75,970
Buildings and development on land held under capitalized leases 47,436 47,375
Capitalized financing expenses 19,019 19,019
Fully-depreciated equipment 107,741 106,639
Cost of assets is net of grants received 99,015 98,559
F-176
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------
Note 9 - Fixed Assets (cont'd)
B. Additional information
(1) Makhteshim's plants are located on land in Ramat Hovav and in
Beer-Sheva which is leased from the Israel Lands
Administration. The leasehold periods terminate between 2018
and 2029 with renewal options. The leasehold rights have not
yet been registered in the name of Makhteshim in the Israel
Land Registry. (The legal advisors of Makhteshim are
attending to the registration).
Agan's plant is located on freehold land of approximately 121
dunams in Ashdod, of which 90 dunams are registered in the
name of Agan in the Land Registry with the remaining area of
approximately 30 dunams, which was acquired in 1996,
currently undergoing the registration process.
Plants of foreign investee companies are constructed on
freehold land.
(2) Regarding liens - see Note 20.
Note 10 - Other Assets and Deferred Charges
A. Composition:
Consolidated
December 31, 2004
--------------------------------------------------
Accumulated Unamortized
Cost amortization balance
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Product registration and acquisition of know-how 265,719 110,206 155,513
Goodwill on acquisition of subsidiaries 153,963 51,489 102,474
Intangible assets on purchase of products 281,223 41,186 240,037
Marketing rights 36,099 10,705 25,394
Debenture issuance expenses 3,730 1,272 2,458
Non-competition and confidentiality agreement 2,576 1,032 1,544
------------- ------------- -------------
743,310 215,890 527,420
============= ============= =============
December 31, 2003
--------------------------------------------------
Accumulated Unamortized
Cost amortization balance
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Product registration and acquisition of know-how 178,855 94,483 81,386
Goodwill on acquisition of subsidiaries 111,056 37,093 73,963
Intangible assets on purchase of products 281,223 23,063 258,160
Marketing rights 36,099 7,870 31,215
Debenture issuance expenses 2,466 848 1,618
Non-competition and confidentiality agreement 2,576 516 2,060
------------- ------------- -------------
612,275 163,873 448,402
============= ============= =============
F-177
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------------------------
Note 10 - Other Assets and Deferred Charges (cont'd)
Company
December 31, 2004
--------------------------------------------------
Accumulated Unamortized
Cost amortization balance
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Debenture issuance expenses 3,730 1,272 2,458
============= ============= =============
December 31, 2003
--------------------------------------------------
s Accumulated Unamortized
Cost amortization balance
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Debenture issuance expenses 2,466 848 1,618
============= ============= =============
B. Additional details
1. In October-November 2002, subsidiaries, which are
wholly-controlled by the Company, signed a number of
agreements with Bayer Crop Science AG for acquisition of a
number of products, licenses and distribution rights in the
area of vegetation protection. The total consideration for
acquisition of the products amounted to US$ 185.3 million,
which is presented in the "other assets and deferred
expenses" category.
Approximately US$ 34.6 million of the consideration was
allocated to acquisition of permits and licenses in
connection with the products and is amortized over a 20-year
period in the "selling and marketing expenses" category, and
approximately US$ 144.1 million was allocated to acquisition
of the products in the framework of a "going concern", which
constitutes goodwill on the acquisition of products, and
which is amortized over a 20-year period in the "other
expenses" category.
The consideration in respect of acquisition of the marketing
and distribution rights, in the amount of US$ 6.6 million, is
being amortized over a period of 6-8 years.
2. In 2001, fully controlled subsidiaries of the Company signed
agreements with Aventis and Syngenta A.G. for the purchase of
four new agrochemical products as well as the purchase of
marketing and distribution rights of a product package in the
Scandinavian countries. One of the products which was
purchased is still protected by patents which were
transferred to the purchasing company.
The total price paid for purchase of the four products
totaled US$105 million, and it is included in the "other
assets and deferred charges" category. Of the amount paid,
US$20 million was attributed to registration costs and
licensing, which are amortized over a period of 20 years in
the "selling and marketing expenses" category, US$2.5 million
was attributed to the purchase of agreements with third
parties, which is amortized over a period of 10 years, and
the balance of the amount was attributed to the purchase of
the product as a going concern which includes: intellectual
rights, trade name, brand name, technological know-how,
information on customers and suppliers of materials, etc.,
which constitutes goodwill on the purchase of the products
and is amortized over a period of 20 years under other
expenses. The price of the marketing and distribution rights
was US$5 million and is amortized over a period of 9 years.
F-178
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 10 - Other Assets and Deferred Charges (cont'd)
B. Additional details (cont'd)
3. Regarding goodwill and other assets created in the framework
of acquisition of companies during the period of the report,
see Note 7D.
4. In connection with a non-competition and confidentiality
agreement with the former CEO of Milenia, see Note 30A(4).
Note 11 - Short-term Credit from Banks
A. Composition
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Credit from banks
Overdrafts 55,613 54,656 - -
Short-term loans 57,366 24,946 - -
------------- ------------- ------------- -------------
112,979 79,602 - -
Current maturities of long-term loans 27,042 63,215 - 4,500
------------- ------------- ------------- -------------
140,021 142,817 - 4,500
============= ============= ============= =============
B. Linkage terms and interest rates
Consolidated Company
-------------------------------- --------------------------------
Weighted December 31 December 31
interest rate -------------------------------- --------------------------------
at balance 2004 2003 2004 2003
sheet date ------------- ------------- ------------- -------------
% US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- ------------- -------------
Credit from banks
Overdrafts:
----------
In Israeli currency 1.8 2,892 543 - -
In US dollars 4.0 39,272 33,996 - -
In Euro 4.5 11,350 17,228 - -
In Brazilian currency 16.9 1,814 2,408 - -
In other currencies 285 481 - -
------------- ------------- ------------- -------------
55,613 54,656 - -
------------- ------------- ------------- -------------
Short-term credit:
-----------------
In Euro - 1,807 - -
In dollars (1) 3.5 51,677 18,895 - -
In other currencies 4.7 5,689 4,244 - -
------------- ------------- ------------- -------------
57,366 24,946 - -
------------- ------------- ------------- -------------
112,979 79,602 - -
============= ============= ============= =============
(1) The loans mainly bear variable interest at an annual rate of between 0.8% and 1.7% above the LIBOR.
C. Regarding collateral - see Note 20A.
F-179
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------------------------------------------------
Note 12 - Trade Payables
Consolidated
December 31
--------------------------------
2004 2003
------------- -------------
US$ thousands US$ thousands
------------- -------------
Open accounts 325,770 242,795
Checks payable 175 275
------------- -------------
325,945 243,070
============= =============
Note 13 - Other Payables
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Salaries and payroll accruals 32,591 29,852 2,627 4,550
Accrued income taxes, net of
advance payments 38,047 17,819 - -
Government agencies 5,804 7,058 142 327
Subsidiaries - current account - - 33 56
Liability for securities sold short (1) 5,627 15,418 - -
Payables in respect of currency
transactions 9,608 9,956 - -
Accrued expenses and deferred
income 63,672 34,180 3,209 687
Payables in respect of acquisition
of subsidiary 6,500 6,300 - -
Others 30,556 29,958 749 753
------------- ------------- ------------- -------------
192,405 150,541 6,760 6,373
============= ============= ============= =============
(1) Subsidiary borrows marketable bonds from a bank for purposes
of the short sale thereof. The borrowing period is three
months, which is renewed every three months subject to the
lender's agreement.
The subsidiary's liability in respect of the bonds borrowed,
is presented based on the market value of the bonds as at the
balance sheet date.
F-180
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
-------------------------------------------------------------------------------------------------------------------------
Note 14 - Long-Term Loans from Banks
A. Composition
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Loans from banks* 120,065 332,448 - 16,875
Less - current maturities 27,042 63,215 - 4,500
------------- ------------- ------------- -------------
93,023 269,233 - 12,375
============= ============= ============= =============
* After the deduction of an
investment in bank deposits (see
Note 8B2) in the amount of: 19,016 29,101 - -
============= ============= ============= =============
B. Linkage terms and interest rates
Consolidated Company
-------------------------------- --------------------------------
Weighted December 31 December 31
interest rate -------------------------------- --------------------------------
at balance 2004 2003 2004 2003
sheet date ------------- ------------- ------------- -------------
% US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- ------------- -------------
In US dollars 3.6 103,124 313,148 - 16,875
In Euro 3.5 9,189 9,396 - -
In Israeli currency 7.4 1,548 2,633 - -
In other foreign
currency 5.2 6,204 7,271 - -
------------- ------------- ------------- -------------
120,065 332,448 - 16,875
============= ============= ============= =============
* Most of the loans bear interest at the Libor rate plus a margin.
C. Maturities
Consolidated
-------------
US$ thousands
-------------
First year - current maturities 27,042
Second year 51,015
Third year 19,282
Fourth year 11,830
Fifth year 5,896
Sixth year and thereafter 5,000
-------------
120,065
=============
F-181
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 14 - Long-Term Loans from Banks (cont'd)
D. Regarding the commitment of the Company and certain
subsidiaries to banks, to maintain certain financial
criteria, mainly, debt-equity and profitability ratios - see
Note 20C.
E. Collaterals - see Note 20A.
Note 15 - Convertible Debentures
A. Presented in the "long-term liabilities" category
-------------------------------------------------
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Debenture principal 150,000 - 150,000 -
============= ============= ============= =============
1. In March 2004, the Company issued, as part of a private
issuance to institutional investors (mainly overseas),
non-marketable convertible debentures, in the amount of
US$ 150 million par value (including US$ 5 million which
was issued to the underwriters in April 2004), in
exchange for their par value. The period of the
debentures is 7 years and they bear annual interest at
the rate of 1.75%, which is to be paid once a year, in
March. The debentures may be converted into ordinary
registered shares of NIS 1 par value each, at a
conversion rate of NIS 20.5 par value, based on a fixed
rate of exchange of US$1 = NIS 4.514. The ordinary
shares to be issued as a result of conversion of the
debentures shall be registered for trading on the
Tel-Aviv Stock Exchange.
The owners of the debentures shall have the right to
demand payment of the debentures (principal and interest
up to that date) on March 22, 2007, by means of advance
written notice (which is given 30-60 days prior to March
22, 2007).
The Company shall have the right to execute a forced
conversion of the debentures commencing on March 22,
2007, this being so long as the average price per
Company share in the period of 20 business days which
preceded its notification of forced conversion, shall be
at least 30% higher than the price of the conversion
rate of the debentures.
The Company committed to the debenture purchasers that
it would refrain from creating additional liens on its
property, the purpose of which is the guarantee of
marketable securities or other securities which the
Company intends to register for trading.
The total issuance expenses with respect to the
aforementioned debentures amounted to US$ 2.5 million.
2. As at the balance sheet date, conversion of the said
debentures is not expected and, accordingly, they
are presented in the balance sheet as part of the
"long-term liabilities" category.
F-182
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 15 - Convertible Debentures (cont'd)
B. Presented in a separate category between "long-term liabilities"
and "shareholders' equity"
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Debenture principal 39,474 81,950 39,474 81,950
Discount balance, net (1,152) (4,245) (1,565) (4,658)
------------- ------------- ------------- -------------
38,322 77,705 37,909 77,292
============= ============= ============= =============
1. In November 2001, convertible debentures and options were
issued pursuant to a prospectus, as follows:
NIS 270,000,000 par value registered debentures (Series A)
offered at 90% of the par value, repayable in a lump-sum
payment on November 20, 2007, bearing interest at the
annual rate of 2.5% and linked (interest and principal) to
the representative exchange rate of the dollar. On any
trading day, commencing with the registration date of the
debentures (Series A) for trading on the stock exchange and
up to and including October 31, 2007, the debentures
(Series A) are convertible into fully paid-up ordinary
registered shares of NIS 1 par value each, based on a
conversion rate of NIS 10.68 par value debentures (Series
A) for one ordinary share of NIS 1 par value.
As a result of dividend distributions, the conversion rate
was updated and, as at the balance sheet date, it stands at
NIS 10.03 par value.
18,000,000 registered options (Series 1), exercisable for
18,000,000 ordinary shares of NIS 1 par value each of the
Company, on any trading day, commencing with the
registration date thereof for trading on the stock exchange
and up to and including November 20, 2005, such that every
option (Series 1) may be exercised for one ordinary share
of NIS 1 par value (subject to adjustments), against a cash
payment of the exercise price of NIS 10.68, linked to the
representative exchange rate of the dollar. In any case,
the exercise price will not be less than NIS 10.68. An
option (Series 1) which is not exercised up to and
including November 20, 2005, will be invalid and will not
convey to its holder any right vis-a-vis the Company.
As a result of dividend distributions, the exercise price
was updated and, as at the balance sheet date, it stands at
NIS 10.03
The securities were offered to the public in 1,200,000
units by means of a tender on the unit price, where the
composition of each unit is NIS 225 par value of debentures
(Series A) at the price of 90% of their par value (NIS
202.5) and 15 options (Series 1) for no consideration. The
total minimum price per unit was NIS 202.5.
The price per unit determined as part of the tender was NIS
220. Taking into account the economic value of the options
(Series 1) the discount rate with respect to the debentures
(Series A) is 9.3%. The gross consideration received in the
issuance is US$ 62.5 million, of which US$ 58.5 million was
attributed to the debentures (Series A) and US$ 4.0 million
was attributed to the options (Series 1).
F-183
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 15 - Convertible Debentures (cont'd)
B. Presented in a separate category between "long-term
liabilities" and "shareholders' equity" (cont'd)
------------------------------------------------
2. In January 2002, the Company issued to investors, as part
of a private placement, NIS 133,980 thousand par value
convertible debentures (Series A), at a price of NIS 1.015
for NIS 1 par value of debentures (Series A), for an
aggregate consideration of US$ 29.5 million. The terms of
the convertible debentures (Series A) are identical to the
terms of the debentures (Series A), issued by the Company,
as stated in Section A., above.
3. In June 2002, a subsidiary acquired on the stock exchange,
approximately NIS 16,684 thousand par value of debentures
(Series A), for a consideration of US$ 3.2 million. The
difference between the acquisition cost and the liability
value of the debentures acquired on the books, in the
amount of US$ 0.4 million, was recorded as a capital
reserve in the shareholders' equity section. During June
2003, all the above-mentioned debentures were sold for a
consideration of US$ 4.3 million.
4. In 2003, NIS 57,660,575 par value of debentures (Series A)
were converted into 5,565,649 ordinary shares of NIS 1 par
value, the majority at a conversion rate of NIS 10.36 par
value debentures for one ordinary share of NIS 1 par value.
The total share capital issued as a result of the
conversion is US$ 1,270 thousand, with a premium of US$
11,331 thousand.
In the year of account, NIS 179,607,707 par value of
debentures (Series A) were converted into 17,582,221
ordinary shares of NIS 1 par value, at a conversion rate of
NIS 10.03-10.36 par value debentures for one ordinary share
of NIS 1 par value. The total share capital issued as a
result of the conversion is US$ 3,974 thousand, with a
premium of US$ 35,581 thousand. Subsequent to the balance
sheet date and proximate to the date of authorization of
the financial statements, NIS 12,839 thousand par value of
debentures (Series A) were converted into 1,280 thousand
ordinary shares of NIS 1 par value.
5. As at the balance sheet date, conversion of the said
debentures is expected and, accordingly, they are presented
in the balance sheet in a separate category between the
"long-term liabilities" and the "shareholders' equity"
sections based on their liability value.
F-184
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 16 - Other Long-Term Liabilities
Consolidated
Linkage terms and interest rates
Weighted
interest rate
as of balance December 31
sheet date ------------------------------
------------- 2004 2003
% US$ thousands US$ thousands
------------- ------------- -------------
Liabilities linked
to the US dollar 2 9,195 400
Liabilities linked
to the Brazilian Real - 1,880
Liabilities linked to
another currency 4.5 142 190
------------- -------------
9,337 2,470
============= =============
The liabilities are schedule for repayment in the years 2006 - 2008.
Note 17 - Taxes on Income
A. Benefits under the Law for the Encouragement of Capital Investments,
1959
The plants of the subsidiaries in Israel have been granted "Approved
Enterprise" status under the Law for the Encouragement of Capital
Investments, 1959. Part of the income deriving from the approved
enterprises during the benefit period is subject to tax at the rate of
25% (the total benefit period is for seven years and in certain
circumstances ten years, but does not exceed beyond either 14 years from
the date of the letter of approval or 12 years from the date the approved
enterprise commenced operations).
Other plants of subsidiaries in Israel are entitled to a tax exemption
for periods of between two and six years and a reduced tax rate of 25%
for the remainder of the benefit period. Should a dividend be distributed
from the tax-exempt income, the subsidiaries will be liable to pay tax on
the income from which the dividend was distributed at a rate of 25%.
The benefit period has ended for some of the plants of the subsidiaries
and the benefit period for others will end during years up to 2008. In
addition, subsidiaries have other investment programs in progress, or for
which the benefit period with respect thereto has not yet commenced.
The abovementioned benefits are conditional upon compliance with certain
conditions specified in the Law and related Regulations, and in the
letters of approval, in accordance with which the investments in the
approved enterprises were made. Failure to meet these conditions may lead
to cancellation of the benefits, in whole or in part, and to repayment of
any benefits already received, together with interest. Management
believes that the companies are complying with these conditions.
B. Benefits under the Law for the Encouragement of Industry (Taxes), 1969
Under the Law for the Encouragement of Industry (Taxes) 1969, the Company
is an industrial holding company and the subsidiaries in Israel are
"industrial companies". The main benefit under this law is the filing of
consolidated income tax returns. The Company files a consolidated income
tax return with Makhteshim.
F-185
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 17 - Taxes on Income (cont'd)
C. Taxation under inflationary conditions
The Company and its subsidiaries in Israel are subject to the Income
Tax Law (Inflationary Adjustments), 1985. Under this Law, the results
for tax purposes are adjusted principally for the changes in the
Consumer Price Index. The financial statements are presented in US
dollars.
D. Benefits for development areas
A subsidiary is subject to the Income Tax Regulations (Tax Reductions
in Certain Settlements and Agriculture-based Army Units ("Nahal")),
1978. Under these Regulations, the subsidiary is entitled to an
additional deduction, at the rate of 25% of the tax depreciation
claimed in respect of the plants constructed in Ramat Hovav.
These Regulations were in effect until December 31, 2003.
E. Foreign subsidiaries
The subsidiaries are assessed according to the tax laws applicable in
the respective countries where these subsidiaries operate.
F. Change in tax rate
On June 29, 2004, Income Tax Ordinance Amendment (No. 140 and
Temporary Order), 2004 (hereinafter - "the Amendment") passed the
second and third reading in the Israeli Knesset. The Amendment
provides that the Companies Tax rate shall be gradually reduced,
commencing from January 1, 2004 from 36% to 30% in the following
manner: in 2004 - 35%, in 2005 - 34%, in 2006 - 32% and in 2007 and
thereafter - 30%.
G. Deferred taxes
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
(1) Movement
Balance at beginning
of year 33,522 30,289 (6,250) (3,743)
Included in statement
of income (163) 3,233 (749) (2,507)
Newly consolidated 3,958 - - -
------------- ------------- ------------- -------------
Balance at end of year 37,317 33,522 (6,999) (6,250)
============= ============= ============= =============
Classified as:
Other receivables (17,037) (10,256) (325) (5,155)
Long-term liabilities (in the
balances of the long-term
debt) 54,354 43,778 (6,674) (1,095)
------------- ------------- ------------- -------------
37,317 33,522 (6,999) (6,250)
============= ============= ============= =============
F-186
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 17 - Taxes on Income (cont'd)
G. Deferred taxes (cont'd)
(2) Composition
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Deferred taxes in respect of:
Depreciable assets 81,606 81,876 - -
Carryforward tax losses (19,864) (33,233) (5,343) (4,077)
Inventories (17,615) (7,124) - -
Employee severance
benefits, net (11,467) (11,142) (1,656) (2,097)
Other temporary
differences 699 3,145 - (76)
Newly consolidated 3,958 - - -
------------- ------------- ------------- -------------
37,317 33,522 (6,999) (6,250)
============= ============= ============= =============
In the consolidated balance sheet, deferred taxes are computed at rates ranging between
approximately 29% and 35% (Company - 29%).
H. Composition of tax expense (benefit)
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Taxes in respect of the reported period:
Current 51,228 24,702 10,334
Deferred (3,034) 3,173 4,371
48,194 27,875 14,705
Taxes in respect of prior years:
Current 1,269 4,683 (4,793)
Deferred 2,871 60 2,546
4,140 4,743 (2,247)
------------- ------------- -------------
52,334 32,618 12,458
============= ============= =============
F-187
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 17 - Taxes on Income (cont'd)
H. Composition of tax expense (benefit) (cont'd)
Company
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Current 2 29 -
Deferred (749) (2,507) 214
------------- ------------- -------------
(747) (2,478) 214
------------- ------------- -------------
I. Theoretical tax
Following is a reconciliation between the theoretical tax and the tax
expense included in the statement of income:
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
35% 36% 36%
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Tax expense computed at regular tax rate 76,608 49,030 26,266
Tax benefit for approved enterprises (10,203) (3,727) (5,985)
Benefit for plants in development areas - (2,109) (1,723)
Difference between financial statement
measurement of income and tax basis 2,559 (4,868) 4,388
Change in rate of deferred taxes (1,912) 2,384 -
Income taxable at other tax rates (20,732) (14,490) (9,672)
Taxes in respect of previous years 4,140 4,743 (2,247)
Nondeductible expenses and other differences 1,874 1,655 1,431
------------- ------------- -------------
52,334 32,618 12,458
============= ============= =============
Company
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
35% 36% 36%
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Tax expense computed at regular tax rate 57,673 36,107 21,705
Difference between financial statement
measurement of income and tax basis 353 166 166
Equity in earnings of investee companies, net (57,192) (37,446) (21,486)
Nondeductible expenses and other differences (1,581) (1,305) (171)
------------- ------------- -------------
(747) (2,478) 214
============= ============= =============
F-188
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 17 - Taxes on Income (cont'd)
J. Final assessments
The Company, Makhteshim, Agan and Lycored have received final tax
assessments up to and including the 2001 tax year. Luxembourg and
Bio-Dar Ltd. have received final tax assessments up to and including
1998. Other companies in Israel have not received tax assessments
since their inception.
K. Losses and deductions available for carryforward to future years
As at the balance sheet date, the losses for tax purposes which are
available for carryforward to future tax years, amount to US$ 66
million.
The Company has recorded a deferred tax asset with respect to the
accrued losses, in the amount of US$ 19.9 million, based on
Management's estimation that there is a high level of certainty that
such losses will be utilized in the upcoming years.
L. Additional Information
Regarding fiscal claims against Milenia - see Note 19D(3).
Note 18 - Employee Termination Benefits, Net
A. Composition
Consolidated Company
-------------------------------- --------------------------------
December 31 December 31
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Accrued severance pay and
retirement grants 26,576 23,831 4,591 3,911
Less - deposits in severance pay funds 15,957 13,763 - -
------------- ------------- ------------- -------------
10,619 10,068 4,591 3,911
Early retirement pension 13,248 12,399 - -
Accrual for unutilized sick leave 2,842 2,307 - -
------------- ------------- ------------- -------------
26,709 24,774 4,591 3,911
============= ============= ============= =============
F-189
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 18 - Employee Termination Benefits, Net
B. Severance pay and retirement grants
The Company and its subsidiaries in Israel make regular deposits with
"Nativ" (the Pension Fund of the Workers and Employees of the
Histadrut Ltd.) and insurance companies. These deposits are intended
to provide employees with pension rights or severance pay upon
reaching retirement age. Amounts deposited in the pension fund and
insurance companies are not included in the balance sheet because they
are not under the management or control of the companies.
Employees dismissed before attaining retirement age are eligible for
severance benefits, computed on the basis of their most recent salary.
Where the amounts accumulated in the pension fund are not sufficient
to cover the computed severance benefits, the companies will cover the
difference. Experience has shown that the majority of salaried
employees continue to work until retirement age and the companies have
not been required to cover substantial differences in severance pay to
employees who retire prior to reaching retirement age. Management of
the Company and the subsidiaries accordingly believe that it is
unlikely that it will be necessary to cover such differences and
therefore no accrual has been made in the financial statements.
In addition to their abovementioned pension rights, employees are
entitled to receive retirement grants at the rate of 2.33% of their
salary at retirement age. The accrual in the balance sheet covers the
companies' obligations with regard to these retirement grants, as well
as their liability to pay severance benefits to some of their
employees for the period prior to the date on which these employees
joined the pension plan, during which period no deposits had been made
in the fund in the name of the employee.
C. Deposits with severance pay fund and retirement grants
The deposits in the severance pay funds include accrued linkage
differences and interest and are made in severance pay funds with
banks and insurance companies. Withdrawal of the amounts on deposit is
contingent upon the fulfillment of the provisions set forth in the
Severance Pay Law.
D. Compensation for unutilized sick leave
The financial statements include an accrual for compensation in
respect of unutilized sick leave for employees who are 55 and older.
No accrual is made in respect of employees under the age of 55 as it
is uncertain as to whether or not they will receive such compensation
(by reason of utilization of sick leave or early retirement). The
accrual is computed, using the latest wage rates, on the basis of
eight work days for each year of employment in which sick leave was
not utilized.
E. Early retirement pension
The financial statements include a provision for payment of pension
benefits to a number of employees whose work was terminated before
they reached retirement age. The provision was calculated by reference
to the period from the time their work was terminated until the date
stipulated in the agreement, on the basis of the present value of the
pension payments (the interest rate used in the present value
calculation was 3.6% per annum).
At the beginning of 2004, the Knesset passed a law according to which
the Articles of Association for pension funds were changed, such that
the retirement age will be gradually raised for men from 65 to 67 and
for women from 60 to 62.
In the estimation of Company Management, the above-mentioned law will
have no effect on the Company's liabilities for early retirement in
connection with its employees who left prior to reaching retirement
age.
F-190
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 19 - Commitments and Contingent Liabilities
A. Commitments
(1) The Articles of Association of the Company and its
subsidiaries permit, subject to the governing companies'
laws, including the provision of the Companies Law,
indemnification and insurance of the responsibilities of
directors and officers therein, provided that if the Company
decides to provide advance indemnification, the amount of
such indemnification shall be limited to 25% of the Company's
shareholders' equity as at the date the indemnification is
granted.
(2) Liability of directors and officers of the Company and its
subsidiaries is insured as part of a policy. The limit of the
insured responsibility is US$ 100 million. The directors who
were insured within the policy include all of the Company's
directors as well as the directors of the subsidiaries.
(3) A subsidiary has a long-term supply contract with an
international company in the annual amount of US$ 17 million
for a five-year period (2001 - 2006). Based on the contracts,
a multi-national company participates in part of the
manufacturing costs.
(4) Regarding undertakings of the Company and its subsidiaries as
part of a securitization transaction - see Note 3(1).
(5) Regarding undertakings with interested parties - see Note
30A.
B. Contingent liabilities
(1) In accordance with the Law for the Encouragement of Capital
Investments, 1959, subsidiaries received grants from the
State of Israel in respect of investments made in fixed
assets as part of plant expansion projects authorized by the
Investment Center. Receipt of grants is conditional upon
fulfillment of the terms of the letter of approval which
include, among other things, exports at certain rates. If the
companies do not comply with the required terms, the grants
will have to be refunded, together with interest from the
date of their receipt. Management believes that the
subsidiaries are in compliance with the conditions for
approval.
(2) In accordance with the Law for the Encouragement of Research
and Development in Industry, 1984, subsidiaries received
grants from the State of Israel in respect of their research
and development expenses incurred on projects approved by the
Industrial Research and Development Administration. Receipt
of the grants is conditional upon compliance with the terms
of the letter of approval which include, among other things,
the payment of royalties to the State at rates of between
2%-3.5% of the sales of products, up to the amount of the
State's participation.
The balance of the State's participation in the companies'
research and development expenses (net of royalties paid in
respect thereof), after deduction of participations in
expenses of unsuccessful research projects which were
abandoned, amounts to approximately US$ 6 million.
F-191
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 19 - Commitments and Contingent Liabilities (cont'd)
B. Contingent liabilities (cont'd)
(3) The Company has undertaken to indemnify the economic
consultants who determined the exchange ratio for the
Arrangement (see Note 1B) for reasonable expenses that they
may be required to pay for legal consultation and
representation in the event that legal proceedings are
brought against them in connection with their opinion. In
addition, the Company will indemnify the economic consultants
for any damages payable in consequence of legal proceedings
which exceed US$ 1.5 million. The Company shall not be liable
to indemnify the economic consultants if it is determined
that they acted with gross negligence or willful misconduct
in connection with their opinion.
(4) A subsidiary has an agreement pursuant to which it will pay
royalties at the rate of 4% of sales, with certain reductions
stated in the agreement, with respect to a product whose
development rights were acquired by the subsidiary, for a
period of 10 years beginning from the year 2000, the date on
which sales of the product to outsiders reached the level of
sales stipulated in the agreement. Under certain conditions,
the royalties may be reduced to a rate of not less than 2%.
(5) In Israel the Stamp Duty on Documents Law - 1961 (hereinafter
- the Law) applies to various documents at various rates,
according to the type of the document and the amount
specified or not specified in it. In June 2003 Section 15A of
the Law regarding the identity of those required to pay stamp
duty was amended.
Beginning from June 2003 the Israeli Tax Authorities
increased enforcement of the law. The amendment to the Law
and the enforcement measures taken by the Tax Authorities
were raised for discussion at the Supreme Court, which has
not yet established its opinion on the matter. Furthermore,
in accordance with legislative trends it is anticipated that
the Stamp Duty Law will be gradually annulled and that by
2008 it will be completely annulled.
In August 2004 the Customs and VAT Department requested from
a subsidiary to produce documents the company had signed
after June 1, 2003. The Customs and VAT Department contends
that the Law requires the payment of stamp duty on the
requested documents. Furthermore, the company was issued a
stamp duty notice with respect to a document it had signed
with a third party.
In the opinion of management of the Company, which is based
on the opinion of its legal counsel, the Company does not
stand before any material exposure in respect of any demand
arising from the Stamp Duty Law.
F-192
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 19 - Commitments and Contingent Liabilities (cont'd)
C. Environmental quality
(1) The operations of the Company and of its investee companies
are exposed to risks related to environmental contamination,
since they produce, store and sell chemicals. The Group
invests substantial sums in order to comply with
environmental laws and regulations, and management believes
that the Group companies are in compliance with those laws.
In accordance with the estimate of the Company's insurance
experts, the Group insurance policies cover any sudden,
unexpected environmental contamination caused in Israel and
the rest of the world, subject to the conditions of the
relevant policies. As at December 31, 2004, the Group did not
have any coverage against ongoing environmental
contamination. Such insurance is difficult to obtain, and in
cases when it can be obtained, the Company believes that the
terms of the policy, including the amount of the insurance
coverage, do not presently justify obtaining such a policy.
(2) Pursuant to an agreement with the Ministry of Environmental
Protection, subsidiaries decided to construct facilities for
the biological treatment of waste. Construction of the
facility will take about 3 years. In the estimation of the
subsidiary's management, the aggregate construction cost will
be between US$ 30 million and US$ 40 million.
(3) One of the subsidiary's plants, together with other chemical
plants, was constructed in Ramat Hovav, since the Government
of Israel determined that the location was suitable for
chemical plants as it was assumed that the layers of the soil
in that area were absolutely sealed against penetration by
liquid discharges or contamination. The Ministry of
Environmental Protection conducted tests as a result of which
it was reported that data exist indicating subterranean
contamination in Ramat Hovav. The inspectors recommended that
steps be taken to prevent further leakage from active and
dormant installations which are likely to constitute a source
of contamination of the subterranean water in the region.
The subsidiary may be required to clean up the relevant areas
or subterranean layers if and when it is found that the
subsidiary is responsible for the said contamination. Over
the past several years various tests have been performed by
different agencies to test the ground contamination in the
Ramat Hovav area as well as the area surrounding the
subsidiary's premises in Be'er Sheva. In the opinion of
Company Management, no material consequences on the financial
statements are expected due to application of the
recommendations deriving from the said examinations.
(4) In May 2004, a subsidiary and other factories in the Ramat
Hovav area received a notification of a change in the terms
of the license, according to which the factories will be
required to treat their waste, in contrast with the current
treatment, independently and through application of
evaporation procedures, in the framework of which the
factories are required to perform within a short time,
research and development for purposes of conformance of the
procedures to the composition of each factory's waste, and
later on to construct an appropriate facility, as well as
application of formulation procedures, in the framework of
which the factories are required to present research and
development plans to the Ministry for purposes of application
of the procedures with respect to the waste. At the same
time, the Ministry of Environmental Protection set a date by
which the factories are required to treat their waste in the
required format and to stop the flow of waste into the
evaporation pools and the waste treatment facilities of the
Council.
F-193
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 19 - Commitments and Contingent Liabilities (cont'd)
C. Environmental quality (cont'd)
(4) (cont'd)
On October 10, 2004, the subsidiary, together with the
Israeli Union of Industrialists and other companies, filed an
administrative petition with the District Court of Be'er
Sheva against the Ministry of Environmental Protection. The
subject of the petition is in respect of the additional
conditions for receipt of a business license that were
imposed on the petitioning factories in May 2004 that deal
with treatment and removal of waste accumulated as a result
of their operations.
As part of the petition, the Court was requested to issue an
order declaring that the additional conditions are null and
void.
On December 29, 2004, a preliminary hearing was held with
respect to the petition and it was determined that the
hearing on the petition will be held on March 7, 2005.
In the estimation of Company Management, based on the advice
of its legal advisors, in light of the early stage of the
proceedings, it is not possible at this stage to predict the
chances of the administrative petition succeeding.
In the Company's estimation, if the petition is rejected,
such rejection will have a material impact on the activities
of the factory in Ramat Hovav and/or investments will be
required, the scope of which the Company is unable to
estimate at this point.
(5) On November 28, 2004, a Government decision was received that
approves a plan in connection with reduction of damaging air
and water pollution agents deriving from the Ramat Hovav
area.
A. Treatment of Factory Waste
--------------------------
1. By June 30, 2006, flow of the untreated waste into the
joint biological treatment facility will be
discontinued, and every factory will treat its waste up
to the quality level determined by the Ministry of
Environmental Protection (as determined in additional
terms of the business license from May 2004).
2. By December 31, 2007, flow of the runoff into the
existing evaporation pools will be discontinued, and
every factory will treat its runoff up to the quality
level determined by the Ministry of Environmental
Protection (as determined in additional terms of the
business license from May 2004).
F-194
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 19 - Commitments and Contingent Liabilities (cont'd)
C. Environmental quality (cont'd)
B. Rehabilitation of the Existing Evaporation Pools
------------------------------------------------
1. From January 1, 2005, the Ramat Hovav Industrial Council
will commence activities to dry out and rehabilitate the
area of the evaporation pools spanning an area of about
1,500 dunams, in an attempt to complete such drying out
and rehabilitation activities no later than the end of
2012.
2. The Ramat Hovav Industrial Council will submit a
detailed plan along with timetables for the drying out
and rehabilitation of the area of the evaporation pools
for approval by the Ministry of Environmental Protection
by December 31, 2004.
C. Treatment of Air Pollution
--------------------------
The Ministry of Environmental Protection will formulate and
operate a plan for prevention of exceptional emissions of
dangerous substances into the air in the Ramat Hovav Industrial
Area.
Regarding the possible consequences of the said Government
decision on the Company's activities, see Section 4, above.
D. Claims against subsidiaries
(1) A claim has been submitted against Milenia on the grounds
that a certain process it uses is a protected trade secret,
which was copied from the plaintiff. Accordingly, Milenia is
demanded to indemnify the plaintiff for unfair competition at
an amount of approximately US$ 9 million (based on a
calculation of the amount of the material used). Furthermore,
the plaintiff demands that Milenia be fined US$ 25 per day,
in respect of the unlawful use of trade secrets.
In February 2004, Milenia and the plaintiff reached a
settlement with no indemnity to the parties, under which each
of the parties paid fees to their own attorneys. The total
cost to Milenia amounted to approximately US$ 0.2 million.
(2) In 1995, a claim was submitted against Milenia and a number
of other parties for a total amount of approximately US$ 36
million by a group which purchased the rights of two banks
which went bankrupt. The remainder of the claim is being
submitted against Milenia in its capacity as a guarantor for
agricultural cooperatives, which were its former
shareholders.
Milenia's position is that it was excluded from the guarantee
agreement by a later agreement between the bank, the former
shareholders and the other subsidiary of the former
shareholders. A provision of approximately US$ 2 million was
recorded in the financial statements for this claim, based on
a possibility of settlement in due course. Milenia's
position, based on an analysis by their legal advisors, is
that, the provision recorded is sufficient to cover any
probable losses it may have on this case.
F-195
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 19 - Commitments and Contingent Liabilities (cont'd)
D. Claims against subsidiaries (cont'd)
(3) Administrative proceedings as well as civil and other fiscal
claims have been submitted against Milenia totaling
approximately US$ 48.5 million. Milenia's management believes
based on, inter alia, the opinion of its legal advisors, that
its chances of winning in the administrative proceedings and
successfully defending against the aforesaid claims and
demands, are probable and the provisions included in the
financial statements are sufficient to cover any losses,
which may be incurred as a result of these claims.
(4) A claim was filed against Agan in the District Labor Court,
for payment of approximately US$1 million, in respect of
severance pay. The plaintiff contends that he was a salaried
employee of Agan and that the payments made by Agan to a
company which he owned must be considered his determining
salary for purposes of payment of severance pay. Agan
submitted a statement of defense. In the estimation of Agan's
Management based on the opinion of its legal advisors, the
claim's chances are remote. No provision has been included in
the financial statements in respect of this claim.
(5) A criminal complaint has been filed against Makhteshim and
one of its managers by the Man, Nature and Law Amuta
(Society). In the charge sheet, it is stated that in a number
of cases during 1999-2002, discharges of materials were
measured in the exhaust vents in Makhteshim's factory in
Ramat Hovav in forbidden concentrations which created strong
pollution. Makhteshim does not admit to the allegations
stated in the complaint. In the estimation of Makhteshim and
its legal advisors, in light of the early stage of the
proceedings, it is not possible to predict the results of the
complaint and/or the related exposure and, therefore, no
provision has been recorded in the books in respect thereof.
(6) A number of other claims have been filed against Agan, the
total amount of which is US$ 3.5 million, in respect of
damages which, according to the plaintiffs, were caused due
use of Agan's products, breach of agreement to market a
product, supply of a faulty product, as well as in connection
with additional claims. In Agan's estimation, based on the
opinion of its legal advisors, with respect to some of these
claims the chances of defense are good, while regarding some
of the claims it is not possible, at this stage, to predict
their outcome. Accordingly, no provisions have been recorded
on the books in connection with these claims.
(7) A number of other claims have been filed against Makhteshim,
the total amount of which is US$ 1.4 million, in respect of
damages which, according to the plaintiffs, were caused by,
among other reasons, use of its products as well as a claim
of a supplier which provided the planning work with respect
to construction of the plant in Ramat Hovav.
In Makhteshim's estimation, based on the opinion of its legal
advisors, with respect to some of these claims the chances of
defense are good or the provisions included in the books are
adequate. With respect to claims regarding which it is not
possible, at this stage, to predict their outcome, no
provisions have been included in the financial statements.
F-196
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 19 - Commitments and Contingent Liabilities (cont'd)
E. Guarantees
(1) The Company has guaranteed the liabilities to banks of a
subsidiary without any limitation as to amount. As at the
balance sheet date, the outstanding liabilities of the
subsidiary to the banks totaled US$ 51 million.
(2) The Company has guaranteed the liabilities to banks and
suppliers of subsidiaries, the amount of which as at the
balance sheet date totaled US$ 42 million.
(3) Makhteshim and Agan have guaranteed the liabilities to banks
of subsidiaries in the amount of US$ 15 million.
(4) Foreign suppliers and banks have provided credit lines in the
approximate amount of US$ 137 million to foreign subsidiaries
and to one subsidiary in Israel relying upon, among other
things, the commitments of Makhteshim and Agan as to their
proper fiscal management and the policies of Makhteshim and
Agan to take steps that will enable those companies to meet
their obligations. The amount of the credit lines utilized as
at December 31, 2004, amounted to approximately US$ 91
million.
(5) The Company and Milenia committed to indemnify financial
institutions, upon the existence of certain conditions, in
respect of credit received by Milenia's customers from those
financial institutions, which were used for repayment of the
debts of such customers to Milenia in respect of its sales to
those customers. The amount of the commitment for
indemnification, as at the balance sheet date, was
approximately US$ 98 million, of which approximately US$ 80
million was a commitment for indemnification of Milenia and
approximately US$ 18 million was a commitment for
indemnification of the Company and Milenia (December 31, 2003
- approximately US$ 85 million, of which approximately US$ 55
million was a commitment for indemnification of Milenia and
approximately US$ 30 million was a commitment for
indemnification of the Company and Milenia).
F-197
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 20 - Liens and Collaterals
A. Following are details of collateralized liabilities to banks:
December 31
2004
US$ thousands
-------------
Current liabilities -
=============
Long-term liabilities (including current maturities) 78,632
=============
As collateral for the above liabilities, a subsidiary has registered a
mortgage on land and buildings, and other subsidiaries have registered
a first degree charge on assets including machinery and equipment,
share capital and intangible assets.
- A foreign subsidiary has deposited with banks, documents for
collection amounting to US$ 17 million and other foreign
subsidiary companies have registered charges on some of their
assets.
- The Company and its Israeli subsidiaries have made
commitments to banks not to register charges on their assets
in favor of other parties, except specific liens for
acquisition of an asset for the benefit of the party
financing the acquisition on certain terms and subject to the
giving of notification to the bank, and except for creation
of liens related to receipt of investment grants, as stated
in Section B, below.
In addition, the Company committed not to transfer or sell
any one of its assets (except for sales in the Company's
ordinary course of business and at customary market terms,
including sale of trade receivables), without obtaining the
bank's written consent in advance, except for the following:
(a) Transfer to a subsidiary which did not create and
will not create general liens and which commits not
to pledge or sell the pledged assets without
obtaining the bank's consent in advance.
(b) Sale or transfer of assets, the value of the
Company's interest in which does not exceed US$20
million for any particular year and provided that
the cumulative value of the total assets to be
transferred or sold will not exceed US$ 60 million.
- Regarding bank deposits which serve as the sole security for
repayment of loans taken by a subsidiary from that bank - see
Note 8B(2).
B. As collateral for the fulfillment of the requirements in
respect of investment grants received (see Note 17A), the
Company and its subsidiaries have registered floating charges
in unlimited amounts on all of their assets and have provided
an unlimited guarantee in favor of the State of Israel.
F-198
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 20 - Liens and Collaterals (cont'd)
C. The Company and it's subsidiary have committed to banks to
maintain financial criteria, the main ones of which are as
follows:
- The ratio of the interest-bearing financial
liabilities to shareholders' equity shall not exceed
1.0.
- The ratio of the interest-bearing financial
liabilities to income before financing expenses,
taxes, depreciation and amortization (EBITDA) shall
not exceed 3.3 (in subsidiary - 4).
- The shareholders' equity will not be less than US$ 720
million.
In the opinion of the management of the Company and it's
subsidiary, as at the balance sheet date the company and it's
subsidiary are in compliance with the aforementioned
financial ratios.
Note 21 - Shareholders' Equity
A. Share capital
December 31
--------------------------------------------------
2004-2003 2004 2003
------------- ------------ ------------
Number of shares
--------------------------------------------------
Authorized Issued and paid-up
------------- -------------------------------
Ordinary shares of NIS 1 par value 500,000,000 402,088,045 377,916,876
============= ============ ============
All of the shares are registered for trading on the Tel Aviv Stock Exchange.
B. Employee stock options
1. On April 23, 2001 (hereinafter - the determining date), the
Company's Board of Directors resolved to grant options to
employees of the Company and to employees of its
subsidiaries. In accordance with this plan, the said
employees will be allotted 17,400,000 option warrants which
are exercisable for up to 17,400,000 ordinary shares of a par
value of NIS 1 each, of the Company, at an exercise price of
US$ 1.882 as at the balance sheet date after adjustments made
to all options due to a dividend distribution (the market
value of a share as of April 22, 2001 was NIS 8.12).
All options warrants are to be issued to a trustee pursuant
to the plan. The options were issued in accordance with
Section 102 of the Income Tax Ordinance and the shares to be
issued on the exercise thereof will be held by the trustee
for a period of at least two years from the date of issuance
of the options.
Eligibility to receive the option warrants, subject to the
terms of the plan, is in three portions, as follows: One
third on the determining date, an additional third after the
elapse of one year from the determining date and the balance
after the elapse of two years from the determining date.
F-199
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 21 - Shareholders' Equity (cont'd)
B. Employee stock options (cont'd)
The options of each portion can be exercised after the elapse
of one year from the date of entitlement, and they expire
after the elapse of five years from the date of the beginning
of the exercise period of each portion.
Pursuant to the option plan, at the time of exercise of the
options the Company will issue shares in a number which
reflects the amount of the monetary benefit inherent in the
option, that is, the difference between the regular price of
a Company share on the exercise date and the exercise price
of the option.
Under this plan, the CEO of the Company will be allotted
1,400,000 option warrants exercisable into 1,400,000 ordinary
shares of a par value of NIS 1 each of the Company, which
constitute 8% of the total amount of options to be granted
under the plan.
In 2003, 7,361,923 options were exercised by Company
employees for 2,551,247 of the Company's ordinary shares of
NIS 1 par value each.
In 2004, 4,159,719 options were exercised by Company
employees for 2,505,938 of the Company's ordinary shares of
NIS 1 par value each.
Subsequent to the balance sheet date and proximate to the
date of authorization of the financial statements,
approximately 262 thousand options were exercised by Company
employees for 171 thousand of the Company's ordinary shares
of NIS 1 par value each.
2. On April 14, 2003 (hereinafter - "the determination date"),
the Company's Board of Directors resolved to adopt an
employee compensation plan for the employees of the Company
and its subsidiaries and for their directors (hereinafter -
"the Plan"), pursuant to which 17,000,000 options will be
issued to the employees, which are exercisable for up to
17,000,000 of the Company's ordinary shares of NIS 1 par
value each, at an exercise price of NIS 7.72 as at the
balance sheet date after adjustments made due to a dividend
distribution (the closing share price of the Company's shares
on the stock exchange on the Determination Date, was NIS 9.13
per share).
All of the options will be issued under Section 102 of the
Income Tax Ordinance. The options issued and the shares
issued upon the exercise thereof, will be held by a trustee
for a period of at least two years from the end of the year
in which the options are issued.
In accordance with the Plan, at the time of exercise of the
options, the Company will issue shares in an amount which
reflects the amount of the monetary benefit implicit in the
options, that is, the difference between the price of an
ordinary share of the Company on the exercise date and the
exercise price of the option.
In the framework of the Plan, Company employees who were
issued options under the Company's prior employee
compensation plan, which was adopted on April 23, 2001
(hereinafter - "the Prior Plan") were offered to convert the
options issued to them under the Prior Plan into 12,180,000
options under the Plan. The offer was not accepted by any of
the Company's employees.
F-200
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 21 - Shareholders' Equity (cont'd)
B. Employee stock options (cont'd)
2. (cont'd)
The right to exercise the options, with respect to offerees
who are not included with those who received options under
the Prior Plan and are converting them to options issued
under the Plan, is in three increments, as follows: one-third
at the end of one year from the Determination Date, an
additional one-third at the end of two years from the
Determination Date and the balance at the end of three years
from the Determination Date. The expiration date of the
options is five years from the beginning of the exercise
period of each increment.
In the framework of the Plan, the former CEO of the Company
was entitled to convert the options issued to him pursuant to
the Prior Plan into 980,000 options pursuant to the Plan,
which are exercisable for up to 980,000 of the Company's
ordinary shares of NIS 1 par value each and which constitute
5.8% of the total options issued in the framework of the
Plan. The Company's former CEO did not convert the options.
In addition, in the framework of the Plan, the Company's CEO
was issued 1,600,000 options which are exercisable for up to
1,600,000 of the Company's ordinary shares of NIS 1 par value
each and which constitute 9.4% of the total options issued in
the framework of the Plan.
In addition, in the framework of the Plan, the Company's
directors were issued a total of 1,800,000 options which
constitute 10% of the total options issued in the framework
of the Plan.
In 2004, 1,420,000 options were distributed to Company
directors and employees.
In 2004, 105,663 options were exercised by Company employees
for 64,746 of the Company's ordinary shares of NIS 1 par
value.
Subsequent to the balance sheet date and proximate to the
date of authorization of the financial statements, Company
employees exercised 8,000 options for 5,000 of the Company's
ordinary shares of NIS 1 par value.
3. Subsequent to balance sheet date, on March 8, 2005, the
Company's Board of Directors resolved to adopt a new stock
option plan for the officers and employees of the Company and
its subsidiaries. Pursuant to the plan they will be issued up
to 20,000,000 options exercisable into up to 20,000,000
ordinary shares of the Company of a par value of NIS 1 each,
of which up to 3,000,000 options will be issued to the
Company's CEO and directors.
Regardless of the aforementioned, the assumption regarding
the full exercise of the options is purely theoretical, since
the offerees that exercise the options will not actually be
issued the full amount of the shares deriving from them, but
only shares in an amount which reflects the amount of the
monetary benefit implicit in the options, that is, the
difference between the price of an ordinary share of the
Company on the exercise date and the exercise price of the
option.
The options are offered to the offerees at no cost. The
options will be issued to the offerees in three equal
portions, with the vesting period of the first portion of the
plan beginning after the third and last vesting period of the
employee stock option plan from 2003 (meaning after April 14,
2006).
F-201
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 21 - Shareholders' Equity (cont'd)
B. Employee stock options (cont'd)
3. (cont'd)
The exercise price is NIS 25.10, which is equal to the
opening price of the Company's share on the stock exchange
when the decision was made by the Company's Board of
Directors (March 8, 2005).
The options of the plan will be issued to the offerees
according to the provisions of Section 102 of the Income Tax
Ordinance under the capital track.
The issuance under this plan is subject to the publication of
all the reports required by the Securities Law - 1968 and its
related regulations, the Company's General Meeting approving
the issuance of the options to directors, the Income Tax
Commission approving the issuance being executed according to
the provisions of Section 102 under the capital track and the
Stock Exchange approving registration for trading of the
shares issued upon exercise of the options.
C. Acquisition of Company shares by a subsidiary
As at December 31, 2003, a subsidiary holds 7,017,152 of the Company's
shares.
In March 2004, a subsidiary transferred to a third party, in an
off-market transaction, 7 million shares of the Company which it held.
Pursuant to the agreement, the consideration will be paid by the end
of one year from the transfer date, whether in cash, linked to the
share price at the same date on the stock market, or in Company shares
plus 0.5% of price of the shares on the stock market. Since the
consideration has not yet been received in cash, issuance of the
shares in respect of the shares transferred has not yet been recorded.
During the second quarter, 1,908 thousand of the aforementioned shares
were returned, for purposes of payment of the consideration in respect
of acquisition of a group of companies in the United States, as stated
in Note 7D(1)a above.
As at the balance sheet date, the subsidiary holds 5,108,755 of the
Company's shares, which constitute 1.3% of the Company total issued
and paid-up share capital.
Regarding acquisition of Mabeno, subsequent to the balance sheet date,
in exchange for transfer of shares of an investee company by a
subsidiary - see Note 7D(2).
F-202
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 21 - Shareholders' Equity (cont'd)
D. Dividend distribution policy
On April 23, 2001, the Company's Board of Directors resolved to adopt
a dividend policy at rates of between 15% and 30% of net annual
income, beginning from 2001. In accordance with this policy an interim
quarterly dividend will be distributed. The amount of the dividend
will be calculated according to the net income for the quarter and
will be within the limits specified above. This interim dividend will
be considered as an advance on account of the annual dividend.
Application of the policy is subject to there being sufficient income
for distribution on the relevant dates, to the provisions of any law
regarding dividend distribution, to specific decisions of the
Company's Board of Directors in respect of each distribution and to
any other decision the Board of Directors is permitted to make at any
time, including regarding a different designation of the Company's
earnings and a change in this policy.
In March 2004, the Company's Board of Directors decided to distribute
a dividend in respect of the earnings of 2003, in the amount of US$
7,200 thousand.
During 2004, the Company's Board of Directors decided to make three
interim dividend distributions, in the total amount of US$ 36,900
thousand.
Subsequent to the balance sheet date, the Company's Board of Directors
decided to distribute a dividend in the amount of US$ 12,700 thousand.
E. Convertible debentures and options (Series 1)
Regarding the convertible debentures and the options (Series 1) issued
in the framework of a prospectus from November 2001 - see Note 15A.
In the year of account, 4,018,625 options (Series 1) were converted
into 4,018,625 ordinary shares of NIS 1 par value, based on a
conversion rate of 10.03 per share. The total share capital issued as
a result of the conversion was US$ 913 thousand, at a premium of US$
9,637 thousand.
Subsequent to the balance sheet date and proximate to the date of
authorization of the financial statements, 909 thousand options were
converted into 909 thousand ordinary shares of NIS 1 par value.
Regarding conversion of the debentures - see Note 15B(4).
F-203
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements as at December 31, 2004
--------------------------------------------------------------------------------
Note 22 - Linkage Terms of Monetary Balances
Consolidated
In or linked In Euro In Brazilian In or linked In Israel Total
to US reals to another currency
dollars currency
------------- ------------- ------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- ------------- ------------- -------------
December 31, 2004
Assets:
Cash and cash equivalents 10,751 14,799 3,418 10,624 885 40,477
Short-term investments - 603 - 160 800 1,563
Trade and other receivables 126,638 74,775 136,831 51,673 32,820 442,737
Long-term investments,
loans and other receivables 1,710 328 15,715 1,239 2,353 21,345
------------- ------------- ------------- ------------- ------------- -------------
139,099 90,505 155,964 63,660 36,858 486,122
============= ============= ============= ============= ============= =============
Liabilities:
Credit from banks 90,949 11,350 1,814 5,974 2,892 112,979
Trade and other payables 158,430 146,850 64,328 54,287 90,527 514,422
Proposed dividend 11,200 - - - - 11,200
Long-term bank loans and
other (including current
maturities) and long-term
liabilities 112,319 9,331 - 6,204 1,548 129,402
Liability for employee
severance benefits, net 78 481 310 105 25,735 26,709
------------- ------------- ------------- ------------- ------------- -------------
372,976 168,012 66,452 66,570 120,702 794,712
============= ============= ============= ============= ============= =============
December 31, 2003
Assets:
Cash and cash equivalents 27,662 8,392 4,457 6,875 2,463 49,849
Short-term investments 1,034 39 - 27 - 1,100
Trade and other receivables 74,126 98,078 91,149 48,061 28,500 339,914
Long-term investments,
loans and other receivables 5,485 333 7,699 2,517 435 16,469
------------- ------------- ------------- ------------- ------------- -------------
108,307 106,842 103,305 57,480 31,398 407,332
============= ============= ============= ============= ============= =============
Liabilities:
Credit from banks 52,883 19,035 2,408 4,733 543 79,602
Trade and other payables 83,708 147,209 40,562 32,606 81,694 385,779
Proposed dividend 7,000 - - - - 7,000
Long-term bank loans and
other (including current
maturities) 313,548 9,586 1,880 7,271 2,633 334,918
Liability for employee
severance benefits, net 246 134 324 24 24,046 24,774
------------- ------------- ------------- ------------- ------------- -------------
457,385 175,964 45,174 44,634 108,916 832,073
============= ============= ============= ============= ============= =============
With respect to futures transactions in foreign currency, see Note 32.
F-204
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 23 - Revenues
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Foreign sales -
Industrial 1,351,450 1,001,435 732,085
Commercial 85,007 89,303 77,628
------------- ------------- -------------
1,436,457 1,090,738 809,713
------------- ------------- -------------
Domestic sales -
Industrial 47,461 40,268 34,232
Commercial 55,784 46,249 46,918
------------- ------------- -------------
103,245 86,517 81,150
------------- ------------- -------------
1,539,702 1,177,255 890,863
============= ============= =============
Foreign sales by geographic area:
Latin America 428,638 308,628 248,756
Europe 649,859 525,851 350,430
North America 198,035 142,280 117,450
Far East 55,467 41,398 37,931
Africa and Australia 104,458 72,581 55,146
------------- ------------- -------------
1,436,457 1,090,738 809,713
============= ============= =============
Note 24 - Cost of Sales
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Industrial:
Materials 674,675 443,565 363,144
Labor 71,534 63,606 59,932
Subcontractors 5,822 6,286 9,050
Other manufacturing expenses 111,624 83,611 62,548
Depreciation 25,891 24,571 22,864
------------- ------------- -------------
889,546 621,639 517,538
Less - expenses capitalized to fixed assets (mainly
engineering salaries) 848 958 988
Change in work in progress and finished
products inventories (43,246) (7,528) (52,440)
------------- ------------- -------------
845,452 613,153 464,110
Commercial:
Cost of merchandise sold 98,456 117,152 100,653
------------- ------------- -------------
943,908 730,305 564,763
============= ============= =============
F-205
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 25 - Research and Development Expenses, Net
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Payroll and related expenses 10,508 9,868 9,633
Materials 267 1,210 931
Other expenses 9,758 6,738 5,601
20,533 17,816 16,165
Less -
Government participation in R&D expenses 1,053 996 990
------------- ------------- -------------
19,480 16,820 15,175
============= ============= =============
Note 26 - Selling and Marketing Expenses
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Payroll and related expenses 52,460 37,678 30,547
Commissions and delivery costs 70,480 51,268 42,055
Advertising 14,049 9,957 5,043
Depreciation and amortization 24,685 20,916 15,806
Registration 11,504 7,568 6,170
Professional services 6,263 6,069 3,315
Insurance to the Chief Scientist 6,474 5,746 3,688
Royalties 4,758 2,802 2,483
Other 29,539 21,832 19,879
------------- ------------- -------------
220,212 163,836 128,986
============= ============= =============
Note 27 - General and Administrative Expenses
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Payroll and related expenses 24,743 22,549 17,687
Administrative services and directors' fees to Koor 2,557 2,676 2,548
Depreciation and amortization 3,359 3,446 3,577
Bad and doubtful accounts 11,481 7,752 2,655
Professional services 12,058 6,756 6,770
Insurance 1,925 950 1,262
Other 10,792 9,770 8,304
------------- ------------- -------------
66,915 53,899 42,803
============= ============= =============
F-206
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 27 - General and Administrative Expenses (cont'd)
Company
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Payroll and related expenses 6,073 7,401 2,713
Administrative services and directors' fees to Koor 2,557 2,676 2,548
Depreciation and amortization 269 276 234
Professional services 3,607 1,234 2,112
Other 2,865 2,340 1,385
------------- ------------- -------------
15,371 13,927 8,992
============= ============= =============
Note 28 - Financing Expenses, Net
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
In respect of long- term liabilities, net 17,885 17,604 13,804
In respect of short- term liabilities and credit, net 9,686 20,352 23,417
Less - Interest capitalized to fixed assets - - 2,815
------------- ------------- -------------
Financing expenses, net 27,571 37,956 34,406
============= ============= =============
Company
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Expenses: (*)
In respect of long-term liabilities 5,193 3,815 4,074
In respect of short-term liabilities and credit - 936 1,217
5,193 4,751 5,291
Less:
Financing income 10,229 5,349 7,017
------------- ------------- -------------
Financing income, net 5,036 598 1,726
============= ============= =============
* See Note 32C.
F-207
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
------------------------------------------------------------------------------------------------------------------------------
Note 29 - Other Expenses, Net
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Expenses with respect to devaluation of the currency
and bad debts in Argentina (Note 32C) - - 10,886
Expenses in respect of early retirement of employees
and payment of early pension benefits 4,802 6,721 4,055
Expenses relating to sale of trade receivables
as part of securitization transaction 1,825 - -
Loss on sale of trade receivables as part
securitization transaction 4,374 3,850 4,366
Loss on sale of fixed assets and other, net 1,099 858 331
Provision for loss with respect to options granted to
employees of subsidiaries 2,090 330 -
Amortization of goodwill in investee companies 14,396 9,826 8,179
Amortization of goodwill on acquisition of products 10,164 11,782 4,557
Write-off of fixed and other assets 2,555 2,667 -
Sundry expenses (income), net 1,430 2,211 (604)
------------- ------------- -------------
42,735 38,245 31,770
============= ============= =============
Note 30 - Transactions and Balances with Related and Interested Parties
A. Transactions with interested parties
(1) In the ordinary course of business, Group companies conduct
transactions with entities that are related parties
(principally, sales of the companies' products and purchases
of raw materials and services). It is impracticable to
identify the abovementioned related parties and to separately
record these transactions in the accounting records.
Therefore, the Securities Authority has exempted the Company
from providing details of immaterial transactions involving
acquisitions and sales of goods and services at market value
that the Company is likely to execute in the normal course of
its business with Bank Leumi LeIsrael Ltd., Bank Hapoalim
Ltd. and their investee companies. In any event, the Company
is required to disclose any unusual transactions.
(2) On April 1, 2000, the Company signed an agreement with Koor
according to which the Company will pay Koor $2.5 million per
year for consulting and management services to be rendered by
Koor to the Company. The agreement was effective up to May
2003. The agreement was extended for additional three years,
effective from May 2003 (see Note 27).
In addition, the Company pays directors' fees to Koor
Industries Ltd. in amounts identical to those paid to public
directors, see B., below. Regarding payments made to Koor -
see Section A(10), below.
F-208
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 30 - Transactions and Balances with Related and Interested Parties (cont'd)
A. Transactions with interested parties (cont'd)
(3) The Company has an agreement covering management fees with
Agan and Makhteshim according to which Agan and Makhteshim
paid management fees at the rate of 1% of the annual
revenues. In 2003, this agreement was revised for management
fees at the rate of 1.8% of the annual revenues. In 2004,
Makhteshim and Agan paid management fees to the Company
amounting to US$ 13.5 million (2003 - US$ 10.0 million, 2002
- US$ 9.2 million).
(4) The Company entered in an agreement with the former CEO of
Milenia (who is a director of the Company), covering
non-competition and confidentiality, pursuant to which on
April 30, 2002 (shortly after the termination of his service
as Milenia's CEO), he received 1,000,000 of the Company's
shares in consideration for his agreement not to compete with
the Company and to protect all the Company's confidential
information, provided that up to this time he complies with
his obligation as stated.
The agreement is valid for a period up to the later of July
2007 or the end of 3 years from the date on which he ceases
to serve as CEO, director or other position in the one of the
Group companies.
(5) In November 2002, the Company's Board of Directors decided to
appoint a new CEO who took up his position in May 2003.
The Company entered into an employment agreement with the new
CEO, pursuant to which the CEO will serve in his position for
an unlimited period, unless one of the parties gives notice
of its wish that the employment shall not be continued, by
means of an advance notice of three months.
In a case of transfer of control of the Company up to July 1,
2005, where as a result the CEO's employment is discontinued,
in circumstances under which he is entitled to severance
benefits pursuant to law, the CEO is entitled to an annual
salary, including the accompanying benefits.
(6) A subsidiary has an agreement with STIM Holdings (1991) Ltd.,
a company owned by a shareholder who served as a director of
the Company until September 2003, which was extended up to
September 30, 2004, according to which his company will
supply to the subsidiary management and business organization
services, for a consideration of NIS 60,000 per month plus
linkage differences based on the CPI for December 2001. In
July 2004, the aforesaid shareholder ceased being an
interested party.
(7) A subsidiary has an agreement with S.H.M. Ltd., a company
owned by a shareholder who served as a director of the
Company until September 2003, which was extended up to
September 30, 2004, according to which his company will
supply to the subsidiary management and business organization
services, for a consideration of NIS 60,000 per month plus
linkage differences based on the CPI for December 2001. In
July 2004, the aforesaid shareholder ceased being an
interested party.
F-209
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 30 - Transactions and Balances with Related and Interested Parties (cont'd)
A. Transactions with interested parties (cont'd)
(8) Regarding insurance and indemnification of interested parties
- see Note 19(A)(1) and (2).
(9) Transactions between Makhteshim and Agan with Koor and its
subsidiaries, are made in the regular course of business and
on usual business terms. Set forth below are details of the
transactions:
Consolidated
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Management services and directors fees to Koor 2,557 2,676 2,548
============= ============= =============
Other related parties:
Revenues - 5,638 7,542 5,626
============= ============= =============
Expenses -
Selling 1,863 1,593 1,439
============= ============= =============
Financing - - 29
============= ============= =============
B. Benefits to interested parties
For the year ended December 31
--------------------------------------------------
2004 2003 2002
------------- ------------- -------------
US$ thousands US$ thousands US$ thousands
------------- ------------- -------------
Fees to interested parties employed by the Group (*) 1,147 *3,656 1,179
============= ============= =============
Number of interested parties **4 5 4
============= ============= =============
Fees to directors appointed by Koor Industries Ltd. 57 176 48
============= ============= =============
Number of directors 4 5 4
============= ============= =============
Fees to other directors 75 57 58
============= ============= =============
Number of directors 6 5 5
============= ============= =============
(*) Including settlements in respect of employee severance
benefits with the Company's former CEO. Regarding options
issued to the Company's present and former CEOs, see Note
21B.
(**) In July 2004, two of the four directors ceased being
interested parties - see paragraphs A7 and A8 above.
F-210
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 30 - Transactions and Balances with Related and Interested Parties (cont'd)
C. Balances with related and interested parties
Consolidated
------------
December 31 December 31
2004 2003
------------- -------------
US$ thousands US$ thousands
------------- -------------
Trade receivables (1) -
Related parties 3,403 4,062
============= =============
Trade payables -
Related parties 445 410
============= =============
Other payables
Koor Industries Ltd. 748 753
============= =============
Severance pay fund administered by related companies 2,331 2,126
============= =============
(1) Highest balance during the year - trade receivables 3,403 4,062
============= =============
Bank Hapoalim Ltd. and Bank Leumi Ltd. are related parties of the
Company due to their holdings in the Company through mutual funds and
provident funds which they manage. Financing transactions with these
parties are conducted in the ordinary course of business under normal
commercial terms.
Note 31 - Earnings per Share
Share capital and net income used as the basis for the computation of
basic earnings per share are as follows:
For the year ended December 31
------------------------------------------------
2004 2003 2002
---------- ---------- -----------
Weighted-average par value of share capital
(in thousands) 432,776 410,373 361,815
========== ========== ===========
Net income used for the computation
(US$ thousands) 166,900 105,809 60,078
========== ========== ===========
Interest rates used in computing earnings per share
(linked to the US dollar) 2.5% 1.0% 2.5%
========== ========== ===========
F-211
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
--------------------------------------------------------------------------------
Note 31 - Earnings per Share (cont'd)
Share capital and net income used as the basis for the computation of
fully diluted earnings per share are as follows:
For the year ended December 31
------------------------------------------------
2004 2003 2002
---------- ---------- -----------
Weighted-average par value of share capital
(in thousands) 457,548 427,772 433,215
========== ========== ===========
Net income used in computing earnings per share
(US$ thousands) 168,817 106,118 64,112
========== ========== ===========
Interest rates used in computing earnings per share
(linked to the US dollar) 2.5% 1.0% 2.5%
========== ========== ===========
Note 32 - Financial Instruments and Risk Management
A. General
The Group has extensive international operations, and, therefore, it
is exposed to risks that derive from exchange rate fluctuations, and
to changes in interest rates, in respect of credit received. In order
to reduce the overall exposure to those risks, the Group uses
financial instruments, including derivative instruments and options
(hereinafter - "the Derivatives"). The Group does not hold financial
instruments for trading purposes.
Transactions in derivatives are undertaken with major financial
institutions in Israel and abroad and, therefore, in the opinion of
Group Management the credit risk in respect thereof is low.
B. Exchange rate risk management
The Group uses foreign currency derivatives - forward transactions and
option contracts - in order to hedge the risk that the dollar cash
flows, which derive from existing assets and liabilities and
anticipated sales and costs, may be affected by exchange rate
fluctuations.
Subsidiaries execute swap transactions in order to reduce the exposure
to exchange rate fluctuations. In 2004 a subsidiary entered into
transactions with banks for swapping dollar liabilities (loans and
supplier credit) amounting to a principal of $ 60 million with
liabilities in Brazilian reals at a variable interest rate of a
weighted average of 6%. The transactions will expire in 2005.
In 2004 another subsidiary and a bank entered into transactions
swapping a long-term loan denominated in Colombian pesos with a
variable interest of 7.7% amounting to a principal of 13 million pesos
with a dollar loan bearing variable interest of the Libor rate minus
0.1%. The transactions expire in semi-annual amounts until the end of
2006.
F-212
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 32 - Financial Instruments and Risk Management (cont'd)
B. Exchange rate risk management (cont'd)
As at the balance sheet date, the Company and its subsidiaries had
open forward exchange contracts, which are intended to hedge exposure
with respect to assets and liabilities in foreign currency, as
described below:
Foreign- Foreign-
currency currency
Futures options options
transactions purchased sold
------------ --------- --------
Acquisition of dollars in exchange for:
Shekels 6.0 4.0 21.5
Pounds sterling 6.3 27.5 7.9
Euro - 236.3 14.0
Brazilian reals 3.5 10.0 10.0
South African rands 6.2 3.1 -
Japanese yen 2.3 2.4 1.3
Australian dollars 2.0 17.6 -
Swiss francs - - 6.9
Polish zloty 6.5 11.5 1.0
Korean Yuan - - 40.0
Swedish krona - - 3.0
------------- --------- --------
32.8 312.4 105.6
============= ========= ========
Foreign- Foreign-
currency currency
Futures options options
transactions purchased sold
------------ --------- --------
Sale of dollars in exchange for:
Shekels - 26.5 20.5
Pounds sterling - 2.0 23.6
Euro 6.6 32.1 269.6
Swedish krona - 3.0 1.5
South African rands - - 3.1
Japanese yen - 1.4 2.5
Australian dollars - - 16.6
Swiss francs - 7.0 3.6
Polish zloty - - 11.5
Korean Yuan - 40.0 -
------------- --------- --------
6.6 112.0 352.5
============= ========= ========
F-213
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 32 - Financial Instruments and Risk Management (cont'd)
C. Credit risks
General
-------
The Group's revenues are derived from a large number of
geographically-dispersed customers in many different countries.
Customers include multi-national companies and manufacturing
companies, as well as distributors, agriculturists and agents of
plant protection chemicals manufacturers who purchase the products
either as finished goods or as intermediate products in relation to
their own requirements.
The agricultural sector to which most of the Group's products are
directed, is characterized by lengthy periods of credit.
The financial statements contain specific provisions for doubtful
debts, which properly reflect in management's estimate, the loss
inherent in debts, the collection of which is in doubt. In addition,
up to June 2004, the Company insured its trade receivables by means
of credit insurance in a joint policy with the entire Makhteshim-Agan
Group. Pursuant to the policy, the aggregate amount of credit
insurance for the entire Group is an annual cumulative amount of US$
25 million. The insurance indemnification is limited to 90% of the
debt per event. The terms of the insurance policy require the
implementation of a credit control system for the entire Group which
is required to operate in accordance with procedures stipulated in
the insurance policy. Commencing from July 2004, the Company
discontinued the said insurance because of it not being worthwhile.
Subsequent to balance sheet date, a subsidiary in Brazil purchased a
credit insurance policy which insures deliveries made in Brazil as of
January 1, 2005. The indemnity of the insurer is limited to 85% of
the debt per event in respect of the insured customers. The total
amount of insurance is anticipated to amount to an overall amount of
US$ 20 million per year.
Economic Crisis in Argentina
----------------------------
A serious deterioration in the political and economic situation in
Argentina began in December 2001, and a situation of paralysis of the
political and economic systems in the country has developed, together
with almost complete uncertainty as to the future, followed by a
temporary discontinuation of foreign currency trading. In January
2002, the Congress empowered the President to execute a devaluation
of the Argentine Peso as against the dollar (to which the Peso was
linked under the law for a period of about ten years). Following
approval by Congress, the Argentine Government declared a devaluation
of 29% (namely, Peso 1.4 for US$ 1).
During February 2002, the law was changed in Argentina providing for
total flexibility in the rate of exchange, and that the exchange rate
of 1.4 to the dollar applying to importers and exporters no longer
exists. Foreign currency trading was resumed on January 11, 2002, and
the exchange rate was fixed at Peso 1.7 = US$ 1. This rate is the
applicable rate at December 31, 2001. As a result of the devaluation,
the assets of the subsidiary in Argentina (mainly trade and other
receivables) were eroded by US$ 15 million. Furthermore, in view of
the economic and political situation in the country in 2001, the
subsidiary in Argentina recorded a one-time write-off of US$ 8
million, mainly in respect of bad debts.
In 2002, the severe economic crisis in Argentina continued. The Peso
was devalued by additional 98% (from the rate of US$ 1 = Peso 1.7, at
December 31, 2001, to US$ 1 = Peso 3.37, at December 31, 2002).
In March 2002, the Argentine government issued Regulation 10/02 to
the Conversion Law, pursuant to which trade receivables resulting
from the sale of agricultural inputs, are to be paid on the basis of
the same exchange rate applying to the consideration received from
the export sale of the agricultural products in respect of which
those inputs were used.
F-214
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 32 - Financial Instruments and Risk Management (cont'd)
C. Credit risks (cont'd)
In July 2002, the Argentine government issued Regulations 143/02 and
24/02, which cancel Regulation 10/02 and which provide the various
rates for linking customer debt to the dollar in such a manner that
trade receivables resulting from the sale of agricultural inputs
denominated in dollars, are to be paid on the basis of the dollar
exchange in effect on the date of payment, less a discount at rates
between 25%-60%, in accordance with those products which used the
agricultural inputs as detailed in these Regulations.
Due to the devaluation and the continuing economic crisis in
Argentina, and in light of the accumulated experience regarding
application of Regulations 143/02 and 24/02, in 2002, the subsidiary
included an additional provision, in the amount of US$ 10.8 million,
with respect to bad debts and erosion of its assets in Argentina.
In the estimation Company Management, after the additional
write-downs made in 2001 and 2002, no further material effect is
expected on the results of operations and the financial position of
the subsidiary in Argentina.
The Company and the subsidiaries are guarantors for the subsidiary's
liabilities to banks in Argentina, in the aggregate amount of
approximately US$ 10 million.
D. Currency risks
As at December 31, 2004, monetary assets in excess of monetary
liabilities in Brazilian reals amounted to approximately US$ 90
million, monetary assets in Israeli shekels in excess of monetary
liabilities in Israeli shekels amounted to approximately US$ 75
million, and monetary liabilities in excess of monetary assets in
Euro amounted to approximately US$ 78.
The Group has taken measures to reduce the exposure in respect to
this excess as described in Note B. above.
Regarding the linked balance sheet covering monetary balances - see
Note 22.
E. Fair value of financial instruments
The Group's financial instruments consist of mainly non-derivative
assets and liabilities, e.g.; cash and cash equivalents, investments
in deposits, other receivables, long-term investments, short-term
credit, payables, loans and other long-term liabilities, as well as
derivatives.
In view of their nature, the fair value of financial instruments
included in working capital is usually identical or close to their
carrying amount. Also the fair value of deposits and long-term
receivables and loans and other long-term liabilities is close to
their fair value, as these financial instruments bear interest at
rates which are close to the prevailing market rates.
F-215
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 33 - Segment Information
A. Geographical segments according to location of assets
For the year ended December 31, 2004
Israel Latin America Europe* Adjustments Consolidated
US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- ------------- -------------
Income
Income from
external sources 937,769 337,123 264,810 - 1,539,702
Inter-segment
income 95,558 13,084 25,722 (134,364) -
------------ ----------- ------------ ------------- -----------
Total income 1,033,327 350,207 290,532 (134,364) 1,539,702
=========== =========== =========== ============ ===========
Segment results** 146,996 56,764 61,260 (393) 264,627
=========== =========== =========== ============ ===========
Additional
information
Assets utilized by
the segment 1,148,344 414,428 371,795 - 1,934,567
=========== =========== =========== ============ ===========
Liabilities of the
segment 499,168 255,637 286,511 - 1,041,316
=========== =========== =========== ============ ===========
Capital
investments 139,031 8,631 7,823 - 155,485
=========== =========== =========== ============ ===========
Depreciation and
amortization 60,437 9,352 12,835 - 82,624
=========== =========== =========== ============ ===========
* Mainly products manufactured by non-Group companies.
** Includes amortization of goodwill on the acquisition of products and amortization of goodwill and other
assets arising on the acquisition of subsidiaries.
F-216
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 33 - Segment Information (cont'd)
A. Geographical segments according to location of assets (cont'd)
For the year ended December 31, 2003
Israel Latin America Europe* Adjustments Consolidated
US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- ------------- -------------
Income
Income from
external sources 684,619 246,757 245,879 - 1,177,255
Inter-segment
income 57,431 18,360 - (75,791) -
------------ ----------- ------------ ------------- -----------
Total income 742,050 265,117 245,879 (75,791) 1,177,255
=========== =========== =========== ============ ===========
Segment results** 92,520 47,466 48,326 2,475 190,787
=========== =========== =========== ============ ===========
Additional
information
Assets utilized by
the segment 977,530 342,542 334,832 6,461 1,661,365
=========== =========== =========== ============ ===========
Liabilities of the
segment 417,921 211,166 288,523 43,778 961,388
=========== =========== =========== ============ ===========
Capital
investments 47,685 9,300 6,316 - 63,301
=========== =========== =========== ============ ===========
Depreciation and
amortization 51,022 12,413 12,238 - 75,673
=========== =========== =========== ============ ===========
* Mainly products manufactured by non-Group companies.
** Includes amortization of goodwill on the acquisition of products and amortization of goodwill and other
assets arising on the acquisition of subsidiaries.
F-217
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 33 - Segment Information
A. Geographical segments according to location of assets
For the year ended December 31, 2002:
Israel Latin America Other Adjustments Consolidated
US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- ------------- -------------
Income
Income from
external sources 616,470 196,804 77,589 - 890,863
Inter-segment
income 43,500 7,820 - (51,320) -
------------ ----------- ------------ ------------- -----------
Total income 659,970 204,624 77,589 (51,320) 890,863
=========== =========== =========== ============ ===========
Segment results* 98,302 25,026 3,750 (678) 126,400
=========== =========== =========== ============ ===========
Additional
information
Assets utilized by
the segment 1,055,519 323,230 244,807 - 1,623,556
=========== =========== =========== ============ ===========
Liabilities of
the segment 590,604 213,214 206,175 - 1,009,993
=========== =========== =========== ============ ===========
Capital
investments 278,215 12,174 1,270 - 291,659
=========== =========== =========== ============ ===========
Depreciation and
amortization 46,048 9,309 2,748 - 58,105
=========== =========== =========== ============ ===========
* Includes amortization of goodwill on the acquisition of products and amortization of goodwill and other assets
arising on the acquisition of subsidiaries.
- Regarding the breakdown of sales based on geographic area - see Note 23.
F-218
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 33 - Segment Information (cont'd)
B. Business segments
Year ended December 31
---------------------------------------------------
2004 2003 2002
------------- ------------- --------------
US$ thousands US$ thousands US$ thousands
------------- ------------- --------------
Sales by products
Plant protection products 1,357,913 1,034,702 775,563
Others (non-plant protection products) 181,789 142,553 115,300
------------ ----------- ------------
1,539,702 1,177,255 890,863
============ =========== ============
December 31, 2004 December 31, 2003
------------------------------- --------------------------------
Assets Assets
utilized by utilized by
the Capital the Capital
sector investments sector investments
------------- ------------- ------------- -------------
US$ thousands US$ thousands US$ thousands US$ thousands
------------- ------------- ------------- -------------
Segment assets and
capital investments
Plant protection products 1,722,458 133,188 1,438,007 53,680
Others (non-plant protection
products) 212,109 22,297 223,358 9,621
------------ ----------- ----------- ------------
1,934,567 155,485 1,661,365 63,301
============ =========== =========== ============
F-219
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements
A. Material Differences between Israeli GAAP and US GAAP
The Company's consolidated financial statements conform with Israeli
generally accepted accounting principles ("Israeli GAAP"), which
differs in certain material respects from generally accepted
accounting principles in the United States of America ("US GAAP") as
described below:
1. Deferred taxes
a) Measurement differences
In accordance with Israeli GAAP:
Deferred taxes should be recognized in respect of
differences related to assets and liabilities that result
from translation of the local currency into the functional
currency using historical exchange rates and that result
from (1) changes in exchange rates or (2) indexing for tax
purposes.
In accordance with US GAAP:
According to paragraph 9(f) of FAS No. 109, deferred tax
liabilities or assets are not provided for differences
related to assets and liabilities that are remeasured from
the local currency into the functional currency and that
result from (1) changes in exchange rates or (2) indexing
for tax purposes.
b) Earnings from "Approved Enterprises"
Under the Israeli Law for the Encouragement of Capital
Investments, 1959, an "approved enterprise" which chooses
the "alternative benefits" track is exempt from income tax
on undistributed profits.
In the event that a dividend is distributed out of
tax-exempt earnings of the "approved enterprise" under the
"alternative benefits" track, the distributing company will
be subject to a 25% tax on the distributed earnings.
Furthermore, the shareholders will be liable for 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 taxes should not be provided in respect of the
undistributed tax-exempt earnings of an "approved
enterprise" of subsidiaries, whose earnings have been
reinvested and will not be distributed to their
shareholders.
The Company has not provided deferred taxes in respect of
undistributed tax-exempt earnings attributed to the
"approved enterprise" of subsidiaries, which may be
distributed, since it is the Group's policy not to initiate
such a dividend distribution.
In accordance with US GAAP:
Deferred taxes should be provided on the excess of the
financial statement carrying value over the tax basis of an
investment in domestic subsidiary as the company does not
have any means under local tax law to recover this
difference in a tax-free manner.
F-220
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements (cont'd)
A. Material Differences between Israeli GAAP and US GAAP
(cont'd)
2. Share-based payments to employees
In accordance with Israeli GAAP:
No expense is recorded with respect to options granted to employees
of the Company.
In accordance with US GAAP:
The Company issued stock appreciation rights that under APB 25 and
FIN 28 should be accounted as variable options to employees relating
to the future performance of work or services. In such cases, the
benefit is charged to salary expense in the statement of income. The
"benefit component" is measured as the difference between the market
price of the share and the exercise price of the option at the end of
each reporting period, and the proportional part of the period which
has passed, in relation to amounts previously recorded at the
beginning of that reporting period.
3. Financial derivatives
In accordance with Israeli GAAP:
The Company applies FAS 52, FAS 80 and EITF 90-17 to account for
derivatives. Accordingly, the gains and losses on derivative
instruments held for hedging purposes are recognized in the statement
of income concurrently with gains or losses on the hedged assets.
Certain derivative financial instruments, which are not intended for
hedging purposes are presented in the balance sheet at their fair
value. Changes in fair value are included in the statement of income
in the period in which they occur.
In accordance with US GAAP:
All derivative instruments are recognized as either assets or
liabilities in the balance sheet and are measured at fair value.
Changes in the fair values of derivative instruments are recognized
currently in earnings since the specific hedge accounting criteria
are not met.
4. Goodwill
In accordance with Israeli GAAP:
Goodwill is amortized over its economic life but no more than 20
years. Goodwill is examined for a decrease in value where there are
indications that there has been a permanent decrease in the value of
the goodwill.
In accordance with US GAAP:
Goodwill balances is not amortized but is examined by means of an
impairment test carried out at least once a year on a fixed date in
accordance with the directives in FAS 142, where in the first year of
implementation the impairment test was on January 1, 2002.
F-221
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements (cont'd)
A. Material Differences between Israeli GAAP and US GAAP (cont'd)
4. Goodwill (cont'd)
In accordance with US GAAP: (cont'd)
A two-step impairment test is used to identify potential goodwill
impairment and measure the amount of a goodwill impairment loss t be
recognized (if any). The first step of the goodwill impairment test,
used to identify potential impairment, compares the fair value of a
reporting unit with its carrying amount, including goodwill. If the
fair value of a reporting unit exceeds its carrying amount, including
goodwill. If the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not impaired,
thus the second step of the impairment test is unnecessary. If the
carrying amount of a reporting unit exceeds its fair value, the
second step of the goodwill impairment test shall be performed to
measure the amount of impairment loss, if any.
The second step of the goodwill impairment test, used to measure the
amount of impairment loss, compares the implied fair value of
reporting unit goodwill with the carrying amount of that goodwill. If
the carrying amount of reporting unit goodwill exceeds the implied
fair value of that goodwill, an impairment loss shall be recognized
in an amount equal to the excess.
5. Stock options issued by investee companies
In accordance with Israeli GAAP:
The Investor 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 securities will be converted.
In accordance with US GAAP:
A loss of the parent company resulting from the dilution of its
holdings, because of securities being converted is recorded only at
the time of the conversion.
6. Capitalization of licensing costs
In accordance with Israeli GAAP:
Certain costs incurred by the Company in connection with the
registration process to obtain licenses to sell products in various
jurisdictions are capitalized.
In addition, amounts which are paid by the Company to the original
registrant as data compensation costs only after the EPA issues a
registration to the Company are also capitalized.
The capitalized licensing costs are amortized over the expected
benefit period.
In accordance with U.S. GAAP:
The costs incurred by the Company in connection with the registration
process to obtain licenses to sell products in various jurisdictions
are deemed development costs under U.S. GAAP and are expensed as
incurred.
The amounts paid by the Company to the original registrant as data
compensation costs only after the EPA issues a registration to the
Company are capitalized and amortized over the expected benefit
period.
F-222
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements (cont'd)
A. Material Differences between Israeli GAAP and US GAAP (cont'd)
7. Dividend Declared after the Balance Sheet Date
In accordance with Israeli GAAP:
Dividends declared subsequent to the balance sheet date are reflected
as a deduction of retained earnings.
In accordance with US GAAP:
Dividends declared subsequent to the balance sheet date are deducted
from retained earnings in the period in which the dividend was
declared.
8. Liabilities for employee severance benefits
In accordance with Israeli GAAP:
Amounts funded by purchase of insurance policies and by deposits with
recognized severance pay funds are deducted from the related
severance pay liability, which is then presented at a net amount.
In accordance with US GAAP:
The amounts funded would be presented as other long-term assets and
the amount of the liability would be presented under long-term
liabilities.
9. Convertible debentures
In accordance with Israeli GAAP:
If a conversion of the debentures is expected, the debentures are
presented in the balance sheet in a separate category between
"long-term liabilities" and "shareholders' equity", whereas, if the
conversion of the debentures is not expected they are presented in
the balance sheet as part of "long-term liabilities".
In accordance with US GAAP:
All convertible debentures are presented in the balance sheet as part
of "long-term liabilities".
10. Contingent consideration
In accordance with Israeli GAAP:
Contingent consideration in respect of acquisition of investee
companies is recorded as part as the purchase cost when it is
expected to be paid.
In accordance with US GAAP:
Contingent consideration is recorded as part of the purchase cost
only when the payment probability is beyond any reasonable doubt
which generally is the date that the contingency is resolved.
F-223
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements (cont'd)
A. Material Differences between Israeli GAAP and US GAAP (cont'd)
11. Earnings per share:
In accordance with Israeli GAAP:
In accordance with Opinion No. 55 of the Institute of Certified
Public Accountants in Israel, 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.
In accordance with US GAAP:
In accordance with FAS 128 "earnings per share" - basic earnings per
share are computed on the basis of the weighted average number of
shares outstanding during the year. Diluted earnings per share are
computed on the basis of the weighted-average number of shares
outstanding during the year, plus the dilutive potential effect of
ordinary share options considered to be outstanding during the year
using the treasury stock method.
12. Comprehensive income
In accordance with Israeli GAAP:
Presentation of comprehensive income and other comprehensive income
is not required. In accordance with US GAAP:
An enterprise (a) classifies items of other comprehensive income by
their nature in the financial statements and (b) presents the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of the balance sheet.
13. Purchase of minority shares of Agan
In accordance with Israeli GAAP:
The purchase of minority shares of Agan in May 1998 (Note 1B) was
accounted according to recorded amounts.
In accordance with US GAAP:
Under FTB 85-5 the purchase of the minority shares was accounted at
fair value.
F-224
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - Material Differences Between Israeli and US GAAP and their Effect
on the Financial Statements (cont'd)
A. Material Differences between Israeli GAAP and US GAAP (cont'd)
14. Statements of cash flows
(a) Translation differences in respect of cash and cash equivalents
In accordance with Israeli GAAP:
The statements shall report the effect of exchange rate
changes on cash and cash equivalents balances held in foreign
currencies, only in "autonomous foreign entities", in a
separate part of the reconciliation of the change in cash and
cash equivalents during the period.
In accordance with US GAAP:
The statements shall report the effect of exchange rate
changes on all cash and cash equivalents balances held in
foreign currencies as a separate part of the reconciliation
of the change in cash and cash equivalents during the period.
(b) Securitization transaction (see Note 3)
In accordance with Israeli GAAP:
The securitization transaction was classified as a sale of
trade receivables. Thus, cash flows, derived from that
transaction, were classified as cash flows from operating
activities.
In accordance with US GAAP:
Until June 30, 2003 the securitization transaction did not
meet the criteria set out by FAS 140 for the classification
as a sale of trade receivables and was classified as a
secured borrowing. Therefore, cash flows derived from this
transaction until June 30, 2003 were classified as cash flows
from financing activities.
F-225
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - 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 income:
a) Net income:
Year ended December 31
-----------------------------------------------
2004 2003 2002
US$ thousands
-----------------------------------------------
Net income as reported, according to
Israeli GAAP 165,527 102,774 60,078
--------- --------- ---------
Deferred taxes (A1) (15,861) (21,171) (2,069)
Share-based payments to employees (A2) (26,185) (28,004) -
Financial derivatives (A3) (10,374) (2,030) (4,573)
Amortization of goodwill (A4) 10,569 5,277 8,178
Stock option issues by investee companies (A5) 1,760 330 -
Capitalization of licensing costs (A6) (5,325) (3,835) (11,314)
--------- --------- ---------
120,111 53,341 50,300
Income tax in respect of the above differences 3,736 2,790 3,389
Minority interest in respect of the
above differences (109) (60) (130)
--------- --------- ---------
Net income according to US GAAP 123,738 56,071 53,559
========= ========= =========
b) Earnings per ordinary share
Year ended December 31
-----------------------------------------------
2004 2003 2002
US$ thousands
-----------------------------------------------
Basic earnings per ordinary share:
As reported according to Israeli GAAP 0.39 0.26 0.17
========== ========== =========
As reported according to US GAAP 0.32 0.15 0.15
========== ========== =========
Weighted average of number of shares and
share equivalents according to US GAAP 383,907 363,308 361,815
========== ========== =========
Fully diluted earnings per ordinary share:
As reported according to Israeli GAAP 0.37 0.25 0.15
========== ========== =========
As reported according to US GAAP 0.28 0.14 0.13
========== ========== =========
Weighted average of number of shares and
equivalents according to US GAAP 446,098 401,109 399,071
========== ========== =========
F-226
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - 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, 2004 December 31, 2003
--------------------------------------------- -------------------------------------------
As reported Adjustments US GAAP As reported Adjustments US GAAP
------------ ----------- -------- ----------- ----------- -------
US$ thousands US$ thousands
--------------------------------------------- -------------------------------------------
Other receivables(1) 77,219 5,323 82,542 54,538 3,872 58,410
Long-term
investments, loans
and receivables (4) 22,070 15,957 38,027 18,044 13,763 31,807
Intangible assets after
amortization(2)(3)(6)(10) 527,420 26,161 553,581 448,402 17,907 466,309
Other payables(3)(5) 192,405 14,685 207,090 150,541 1,196 151,737
Deferred taxes, net(1) 54,354 8,674 63,028 43,778 (4,902) 38,876
Employee severance
benefits, net(4) 26,709 15,957 42,666 24,774 13,763 38,537
Minority interest(7)(12) 18,756 (1,981) 16,775 6,436 (330) 6,106
Capital reserve(8)(9)(10) (2,568) 128,993 126,425 (5,393) 102,913 97,520
Proposed dividend
subsequent to balance
sheet date(11) 12,700 (12,700) - 7,200 (7,200) -
Retained earnings((1)2) 345,841 (106,187) 239,654 229,914 (69,898) 160,016
Shareholders' equity 874,495 10,106 884,601 693,541 25,815 719,356
(1) Change in deferred taxes.
(2) Reversal of systematic amortization related to goodwill.
(3) Reconciliation of additional goodwill related to contingent
consideration.
(4) Reconciliation of deposits funded in respect of severance pay.
(5) Recognition of all derivatives at fair value.
(6) Capitalization of licensing costs.
(7) Elimination of provisions for potential losses resulting from dilution
of holding in investee companies.
(8) Share options issued to employees.
(9) Cumulative foreign currency translation adjustments with respect to
GAAP differences.
(10) Purchase of minority shares of Agan.
(11) Dividend declared subsequent to balance sheet date.
(12) Effects of the reconciliation to US GAAP.
F-227
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - 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. Comprehensive income
"Comprehensive income" 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 income to
shareholders.
Comprehensive income include two components - net income and other
comprehensive income. Net income is the earning stated in the
statement of operations and other comprehensive income include
amounts recorded directly to shareholders' equity that do not derive
from transactions with shareholders.
Year ended December 31
-----------------------------------
2004 2003 2002
--------- --------- ---------
US$ thousands
-----------------------------------
Net income according to US GAAP 123,738 56,071 53,559
--------- --------- ---------
Other comprehensive income, net of nil tax:
Adjustments from translation of financial statements
of investee companies 2,825 1,886 (3,700)
--------- --------- ---------
Total comprehensive income 126,563 57,957 49,859
======== ========= =========
4. Statements of cash flows
Year ended December 31
-------------------------------------------
2004 2003 2002
-------------------------------------------
US$ thousands
-------------------------------------------
Net cash flows generated by operating activities:
According to Israeli GAAP 215,653 249,240 108,230
Effect of change in exchange rate on cash (A14a) (1,997) (5,434) 1,654
Classification of securitization transaction (A14b) - (48,226) (6,242)
-------------------------------------------
According to US GAAP 213,656 195,580 103,642
===========================================
Net cash flows generated by financing activities:
According to Israeli GAAP (82,033) (155,926) 124,083
Classification of securitization transaction - 48,226 6,242
(A14b)
-------------------------------------------
According to US GAAP (82,033) (107,700) 130,325
F-228
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 34 - 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. Statements of cash flows (cont'd)
Translation differences in respect of cash balances of autonomous
foreign investee companies:
Year ended December 31
-------------------------------------------
2004 2003 2002
-------------------------------------------
US$ thousands
-------------------------------------------
Translation differences in respect of cash balances:
According to Israeli GAAP - - (272)
Effect of change in exchange rate on cash (A14a) 1,997 5,434 (1,654)
According to US GAAP 1,997 5,434 (1,926)
Note 35 - Events (Unaudited) Subsequent to the Date of the Independent Auditors'
Report
1. Subsequent to the date of the Independent Auditors' Report
and proximate to July 13, 2005, NIS 5,359 thousand par value
debentures (Series A) were converted into 539 thousand of
the Company's ordinary shares of NIS 1 par value, and US$
133,650 thousand par value of the debentures that were
allotted in March 2004 in a private placement to
institutional investors (hereinafter - "The Debentures")
were converted into 29,429 thousand shares of the Company's
ordinary shares of NIS 1 par value. Furthermore, at the
aforesaid period, 2,182 thousand options (Series 1) were
exercised for 2,182 thousand of the Company's ordinary
shares of NIS 1 par value.
2. Until December 31, 2004 it was not anticipated that The
Debentures would be converted and accordingly they were
presented according to their liability value as part of the
long-term liabilities. Proximate to July 13, 2005,
management of the Company believes that conversion of The
Debentures is probable and accordingly the balance of The
Debentures will be classified (together with the Series A
debentures) at their liability value as a separate balance
sheet item between the long-term liabilities and the
shareholders' equity.
3. As described in Note 21B(3), on March 8, 2005, the Company's
Board of Directors decided to adopt a new option plan for
officers and employees of the Company and its subsidiaries.
Pursuant to the plan, 14,900,000 option warrants exercisable
into up to 14,900,000 ordinary shares of the Company of a
par value of NIS 1 each were issued on March 14, 2005. Of
these, 800,000 option warrants were issued to the CEO of the
Company, 9,600,000 to the employees of the Company in
Israel, 2,000,000 to the employees of the Company abroad and
2,500,000 were deposited with a trustee for future
distribution.
F-229
Makhteshim-Agan Industries Ltd.
Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 35 - Events (Unaudited) Subsequent to the Date of the Independent Auditors'
Report (cont'd)
4. Subsequent to the date of the Independent Auditors' Report
and proximate to July 13, 2005, Company employees exercised
approximately 714 thousand options granted in April 2001 (as
described in Note 21B(1)) for 493 thousand of the Company's
ordinary shares of NIS 1 par value each.
5. Subsequent to the date of the Independent Auditors' Report
and proximate to July 13, 2005, Company employees exercised
approximately 166 thousand options granted in April 2003 (as
described in Note 21B(2)) for approximately 119 thousand of
the Company's ordinary shares of NIS 1 par value.
6. In May 2005, the Company's Board of Directors resolved to
distribute an interim dividend, in the amount of US$ 18.3
million, to be paid on September 1, 2005.
F-230
Makhteshim-Agan Industries Ltd.
Appendix to the Financial Statements
-------------------------------------------------------------------------------
Rate of Control and Ownership in Subsidiaries as at December 31, 2004
A. Domestic consolidated subsidiaries
Control and
ownership
of holding
Holding company Investee company company
--------------- ---------------- -----------
%
-----------
Makhteshim-Agan Industries Ltd. Makhteshim Chemical Works Ltd. (Makhteshim) 100
Agan Chemical Manufacturers Ltd. (Agan) 100
Lycored - Natural Products Industries Ltd. (Lycored) 100
Luxembourg Medicine Ltd. 100
Makhteshim Prisma Industries Ltd. 100
Negev Peroxide - Registered Partnership 100
Agan Agan Aroma Chemicals Ltd. 100
Agan Chemical Marketing Ltd. 100
Lycored Bio-Dar Ltd. 100
Dalidar Pharma Israel (1995) Ltd. 100
Luxembourg Medicine Ltd. Isramedcom Ltd 100
Luxvision Ltd. (formerly Curex Ltd.) 100
B. Foreign consolidated subsidiaries
Makhteshim Celsius Property B.V. (Celsius) 100
Agan Fahrenheit Holding B.V. (Fahrenheit) 100
Lycored Nutriblend International Sarl 100
ALB Holdings UK 100
ALB Holdings UK Nutriblend Ltd. 100
Makhteshim and Agan in equal parts Makhteshim Agan Holding B.V. 100
Celsius Irvita Plant Protection N.V. 100
Irvita Plant Protection N.V. White Rock Insurance Company PCC Limited/Macell 100
Fahrenheit Quena Plant Protection N.V. 100
Celsius and Fahrenheit in equal parts Magan HB B.V. 100
Aragonesas Agro S.A. 100
Magan Argentina S.A. 100
Proficol S.A. 57.5
Proficol Andina N.V. 57.5
Magan HB B.V. MAB Participacoes S/C Ltd. 100
MAB Participacoes S/C Ltd. Milenia Participacoes S.A 100
Milenia Participacoes S.A. Milenia Paraguay S.A. 100
Emerald Agrochemical Company AVV 100
Milenia Biotechnologia e Genetica Ltd. 55
Milenia Agro Ciencias S.A. 100
Defensa S.R.L. 100
Proficol S.A. Proficol Venezuela S.A. 100
Proficol Andina N.V. Rice Co. LLC (USA) 50.1
F-231
Makhteshim-Agan Industries Ltd.
Appendix to the Financial Statements
-------------------------------------------------------------------------------
B. Foreign consolidated subsidiaries (cont'd)
Control and
ownership
of holding
Holding company Investee company company
--------------- ---------------- -----------
%
-----------
Makhteshim Agan Holding B.V Makhteshim Agan Costa Rica S.A. 100
Makhteshim Agan Espana S.A. 100
Makhteshim Agan of North America Inc. 100
Makhteshim Agan France S.A.R.L. 100
Makhteshim Agan (UK) Ltd. 100
Makhteshim Agan Romania S.R.L. 100
Makhteshim Agan (Thailand) Ltd. 100
Agricur Defensivos Agricolas Ltd. 100
Makhteshim Agan Italia S.R.L. 95
Makhteshim Agan South Africa PTY Ltd. 100
Magan Korea Co. Ltd. 100
Makhteshim Agan India Private Ltd. 100
Makhteshim Agan Poland SP. zo.o 100
Magan Holding Germany GmbH 100
Makhteshim Agan Sweden AB 100
Makhteshim Agan Portugal Ltd. 100
Magan Japan Co. Ltd. 100
Magan Italia S.R.L 100
MA U.S. Holding Inc. (USA) 100
Agronica Australasia Pty
Limited Australia 100
Magan Holding Germany GmbH Feinchemie Schwebda GmbH 100
Makhteshim Agan Deutschland GmbH 100
Feinchemi Schwebdan GmbH FCS France S.A 100
Feinchemi (UK) Ltd. 100
MA U.S. Holding Inc. (USA) Farm Saver Group 100
Control Solutions Inc. 45
Agronica Australasia Pty
Limited Australia Farmoz Pty Limited 100
C. Companies Proportionately Consolidated
Makhteshim Agan Industries Biotec M.A.H. Management Ltd 50
Biotec M.A.H. - Registered Partnership 50
Biotec M.A.H -
Registered Partnership Biotec Agro Ltd. 100
Makhteshim Agan Holdings B.V. Alfa Agricultural Supplies S.A. 49
Fahrenheit InnovAroma S.A. 50
D. Affiliated companies
Makhteshim Fibertec Fiberglass Ltd. 45.5
Makhteshim and Agan hold shares in other foreign companies which retain
registration rights to certain products sold outside of Israel.
F-232