SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the Month of August 2005
-----------------------
AMERICAN ISRAELI PAPER MILLS LTD.
(Translation of Registrant's Name into English)
P.O. Box 142, Hadera, Israel
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
|X| Form 20-F |_| Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): |_|
NOTE: Regulation S-T Rule 101(b)(1) only permits the submission in paper
of a Form 6-K if submitted solely to provide an attached annual report to
security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): |_|
NOTE: Regulation S-T Rule 101(b)(7) only permits the submission in paper
of a Form 6-K submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the
laws of the jurisdiction in which the registrant is incorporated,
domiciled or legally organized (the registrant's "home country"), or
under the rules of the home country exchange on which the registrant's
securities are traded, as long as the report or other document is not a
press release, is not required to be and has not been distributed to the
registrant's security holders, and, if discussing a material event, has
already been the subject of a Form 6-K submission or other Commission
filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934:
|_| Yes |X| No
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-______________
Attached hereto as Exhibit 1 and incorporated herein by reference is the
Registrant's press release dated August 9, 2005 with respect to the Registrant's
results of operations for the quarter ended June 30, 2005.
Attached hereto as Exhibit 2 and incorporated herein by reference is the
Registrant's Management Discussion with respect to the Registrant's results of
operations for the quarter ended June 30, 2005.
Attached hereto as Exhibit 3 and incorporated herein by reference are the
Registrant's unaudited condensed consolidated financial statements for the
quarter ended June 30, 2005.
Attached hereto as Exhibit 4 and incorporated herein by reference are the
unaudited condensed interim consolidated financial statements of Mondi Business
Paper Hadera Ltd. and subsidiaries with respect to the quarter ended June 30,
2005.
Attached hereto as Exhibit 5 and incorporated herein by reference are the
unaudited condensed interim consolidated financial statements of Hogla-Kimberly
Ltd. and subsidiaries with respect to the quarter ended June 30, 2005.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ISRAELI PAPER MILLS LTD.
(Registrant)
By: /s/ Lea Katz
-----------------------------------
Name: Lea Katz
Title: Corporate Secretary
Dated: August 9, 2005.
EXHIBIT INDEX
Exhibit No. Description
1. Press release dated August 9, 2005.
2. Registrant's management discussion.
3. Registrant's unaudited condensed consolidated financial
statements.
4. Unaudited condensed interim consolidated financial statements of
Mondi Business Paper Hadera Ltd. and subsidiaries.
5. Unaudited condensed interim consolidated financial statements of
Hogla-Kimberly Ltd. and subsidiaries.
EXHIBIT 1
NEWS
CLIENT: AMERICAN ISRAELI
PAPER MILLS LTD.
AGENCY CONTACT: PHILIP Y. SARDOFF
FOR RELEASE: IMMEDIATE
AMERICAN ISRAELI PAPER MILLS LTD.
REPORTS FINANCIAL RESULTS FOR SECOND QUARTER AND SIX MONTHS
Hadera, Israel, August 9, 2005 - American Israeli Paper Mills Ltd. (ASE:AIP)
(the "Company" or "AIPM") today reported financial results for the second
quarter and first six months ended June 30,2005.
Since the Company's share in the earnings of associated companies constitutes a
material component in the Company's statement of income (primarily on account of
its share in the earnings of Mondi Business Paper Hadera (Mondi Hadera) and
Hogla-Kimberly (H-K) that were consolidated in the past, until the transfer of
control over these companies to the international strategic partners), we also
present the aggregate data which include the results of all the companies in the
AIPM Group (including the associated companies whose results appear in the
financial statements under "earnings from associated companies"), net of
intercompany sales and irrespective of the percentage of holding.
Aggregate group sales in the first six months of 2005(January - June 2005)
totaled NIS 1,370.9 million compared with NIS 1,337.9 million in the
corresponding period last year (January - June 2004). Aggregate sales in the
second quarter of 2005 (April - June 2005) totaled NIS 685.1 million, compared
with NIS 655.3 million in the corresponding quarter last year (April - June
2004).
The aggregate operating profit presented below for the first six months of this
year and for the second quarter of the year does not include the extraordinary
provision for doubtful debts, in the amount of NIS 10.6 million, that was
recorded at H-K as a result of the collapse of H-K's client, the Club Market
chain and the stay of proceedings that was approved by the District Court in
July this year (as it is not part of the ongoing operations for the period).
Aggregate operating profit in the first six months of 2005 totaled NIS 65.3
million compared with NIS 106.0 million in the corresponding period last year.
Aggregate operating profit in the second quarter of 2005 totaled NIS 29.1
million, compared with NIS 49.6 million in the corresponding quarter last year.
The consolidated data below does not include the results of operations of Mondi
Hadera, H-K, Carmel Container Systems and TMM Integrated Recycling industries,
which are included in the Company's share in results of associated companies.
Consolidated sales in the first six months of 2005 totaled NIS 240.0 million
compared with NIS 238.2 million in the corresponding period last year.
Consolidated sales in the second quarter of the year totaled NIS 118.3 million,
compared with NIS 119.1 million in the corresponding quarter last year.
Operating profit in the first six months of 2005 totaled NIS 25.8 million
compared with NIS 27.3 million in the corresponding period last year. Operating
profit in the second quarter of 2005 totaled NIS 11.3 million, compared with NIS
13.8 million in the corresponding quarter last year.
Net profit before non-recurring items totaled NIS 23.1 million during the
reported period, as compared with NIS 32.4 million in the corresponding period
last year.
Due to the collapse of the Club Market chain, which has entered a stay of
proceedings, H-K has recorded a net non-recurring loss (after taxes) of NIS 7
million, of which the Company's share amounts to a net sum of NIS 3.5 million,
thereby bringing the reported net income during the reported period to NIS 19.5
million.
Net profit during the reported period does not include the impact of the tax law
reforms, that were passed by the Knesset on July 27, 2005, that serve to
gradually lower the corporate tax rate to a level of 25% by 2010. The derived
tax benefit will be recorded in the third quarter of the year and is estimated
at NIS 9 million (including the Company's share in the benefit at the associated
companies).
During the corresponding period last year, extraordinary income in the amount of
NIS 10.2 million was recorded in the Company's financial statements, on account
of a tax benefit (including the Company's share in the benefit at the associated
companies), originating from the change in deferred taxes due to the lowering of
tax rate, that became effective in June 2004.
Earnings per share (EPS) (before non-recurring gains) in the first six months of
2005 totaled NIS 5.70 ($1.25 per share) compared with NIS 8.01 ($1.78 per share)
for the corresponding period last year.
Earnings per share (EPS), before non-recurring items, in the second quarter this
year totaled NIS 2.23 per share ($0.49 per share), as compared with NIS 3.70
share in the corresponding quarter last year ($0.82 per share).
The inflation rate in the first six months of 2005 was 0.5% as compared with an
inflation rate of 1.4% in the corresponding period last year.
The exchange rate of the NIS was devaluated against the U.S. dollar in the first
six months of 2005 by approximately 6.2% as compared with a devaluation of 2.7%
in the corresponding period last year.
Mr. Avi Brener, Chief Executive Officer of the Company, said that the first half
of 2005 was characterized by a slowdown in the growth rate of the Israeli
economy in relation to 2004 - a slowdown that was expressed by lower domestic
demand and deteriorating terms of trade.
2
The trend of rising energy prices that began in 2004 grew even more acute in
2005, in all the input types used by the Group as compared with the
corresponding period last year (including fuel oil - an increase of 30%, diesel
- 33% and electricity - 15%). The effect of these higher prices in annual terms
represents an additional annual expenditure of NIS 30 million.
Furthermore, the prices of all main raw materials used by the Group companies in
their various operations also continued to grow - including pulp, fluff (pulp
for absorbent products) and absorbent materials for diapers (SAP).
The above-mentioned extraordinary price hikes, coupled with the surplus supply
of low-priced paper imports, harmed the Group's results during the reported
period, in relation to the corresponding period last year.
Due to this rise in the input prices, the Group accelerated its efficiency
programs in all companies, operating intensively across all expense areas - in
parallel to maintaining the quality of products and the market shares.
In addition, the Group raised the selling prices of its products, albeit only
partially and not to the extent warranted by the higher input prices - due to
the economic conditions outlined above, the lower demand and the escalating
competition.
These efficiency measures, together with the higher prices, rendered it possible
to significantly reduce the heavy impact of the rising input prices on the
results.
An enterprise-wide comprehensive program was formulated during the current
quarter, intended to exploit all of the Group's business and managerial
capabilities, for the purpose of gradually improving the profitability.
As part of the Company's endeavors for cutting manufacturing costs and for
additional environmental improvements, the Company is continuing to promote the
energy-cogeneration plant project in Hadera, based on natural gas.
The Company's share in the earnings of associated companies (before non
recurring items) in the reported period amounted to NIS 8.1 million compared
with NIS 17.2 million in the corresponding period last year.
The following principal changes were recorded in the Company's share in the
earnings of the main associated companies, in relation to the corresponding
period last year (before non-recurring items):
- The Company's share in the net income of Mondi Hadera (49.9%) decreased by
NIS 5.3 million. Most of the change in the net income is attributable to
the decrease in operating income over the years, as a result of the rebuild
of the paper machine this year. The massive rebuild that intended to
increase the output of the machine and improve the quality of the paper,
required shutdown during the rebuild and was accompanied by a learning
curve, as is normal during such a significant project. The full expected
benefit of this rebuild will be reflected later this year and in 2006.
Also, the unusual increase in raw material, energy and water prices
adversely affected the profitability of Mondi Hadera. Mondi Hadera is
continuing to raise its prices as much as possible considering the market
condition both in Europe and Israel and is further expanding its
cost-cutting efforts.
- The Company's share in the net income of H-K Israel (49.9%) grew by NIS 0.7
million (not including the allowance due to Club Market). The
implementation
3
of the efficiency program at Hogla Kimberly, in conjunction with higher
prices, served to compensate for the sharp rise in input prices (raw
materials and energy) and improved the operating income in the second
quarter of the year.
A net loss of NIS 3.5 million was recorded in the second quarter of the
year, on account of AIPM's share in the additional provision for doubtful
debts that was recorded by Hogla Kimberly on account of the debt of Club
Market.
- The Company's share in the net income of Ovisan (Turkey) (49.9%) decreased
by NIS 1.9 million. Ovisan is continuing its preparation for the expansion
of operations in the Turkish market and for the introduction of Kimberly
Clark's international premium brands into the Turkish market, within the
framework of the multi-annual strategic program that is in its final stages
of formulation at this time (in partnership with Kimberly Clark). In this
capacity, the local management team was reinforced, to enable the
realization of this plan. The said plan is intended to begin toward the end
of 2005 and will continue into 2006.
The Company's share in the earnings of associated companies - including
non-recurring items - amounted to NIS 4.5 million in the reported period, after
a deduction of NIS 3.5 million, representing AIPM's share in the losses of H-K -
due to Club Market. It is not including the Company's share in the tax benefit
from the tax reform of 2005 (see above) that is expected to be recorded in the
third quarter this year at the various companies. AIPM's share in the tax
benefit is expected to amount to NIS 4 million. In the corresponding period last
year, the Company's share included a sum of NIS 4.4 million, as AIPM's share in
the tax benefit recorded at the companies following the tax reform of 2004.
A total of 3,446 shares were issued during the reported period (0.1% dilution),
as a result of the exercise of 12,520 option warrants as part of the Company's
employee stock option plans.
The Company recently acquired a plot of land of 21.5 acres, next to its Hadera
plant, for a purchase price of $4.4 million.
In July 2005, Carmel Container Systems Ltd. - an associated company - completed
its delisting and deregistration process from the US stock exchange.
This report contains various forward-looking statements based upon the Board of
Directors' present expectations and estimates regarding the operations of the
Group and its business environment. The Company does not guarantee that the
future results of operations will coincide with the forward-looking statements
and these may in fact differ considerably from the present forecasts as a result
of factors that may change in the future, such as changes in costs and market
conditions, failure to achieve projected goals, failure to achieve anticipated
efficiencies and other factors which lie outside the control of the Company. The
Company undertakes no obligation for publicly updating the said forward-looking
statements, regardless of whether these updates originate from new information,
future events or any other reason.
4
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF RESULTS
(UNAUDITED)
NIS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS
SIX MONTHS ENDED JUNE 30,
2005 2004
==== ====
Net sales 240,041 238,244
Net earnings 19,541* 42,630*
Earnings per share 4.83* 10.53*
THREE MONTHS ENDED JUNE 30,
2005 2004
==== ====
Net sales 118,263 119,062
Net earnings 5,510* 25,195*
Earnings per share 1.36* 6.22*
* The net earnings of the 6 months and 3 months ended June 30, 2005
include a non- recurring loss in the sum of NIS 3.5 million on account
of AIPM's share in Hogla-K+imberly's loss regarding Club-Market, and
does not include tax benefit in the sum of about NIS 9 million on
account of the new tax reform in Israel. This income will be recorded
in the third quarter of 2005.
The net earnings of the 6 months and 3 months ended June 30, 2004
include a non-recurring tax benefit of about NIS 10.2 million.
5
EXHIBIT 2
August 9, 2005
MANAGEMENT DISCUSSION
We are honored to present the consolidated financial statements of the American
Israeli Paper Mills Ltd. Group ("AIPM") for the first six months of 2005.
A. A SUMMARIZED DESCRIPTION OF THE GROUP AND ITS BUSINESS ENVIRONMENT
1. GENERAL
AIPM deals in the manufacture and sale of paper, in the recycling of
paper waste and in the marketing of office supplies - through
subsidiaries. The Company also holds associated companies that deal in
the manufacture and marketing of fine paper, in the manufacture and
marketing of household paper products, hygiene products, disposable
diapers and complementary kitchen products, corrugated board
containers, packaging for consumer goods and the handling of solid
waste.
The company's securities are traded on the Tel Aviv Stock Exchange and
on the American Stock Exchange (AMEX).
2. THE BUSINESS ENVIRONMENT
The first half of 2005 was characterized by a slowdown in the growth
rate of the Israeli economy in relation to 2004 - a slowdown that was
expressed by lower domestic demand and deteriorating terms of trade.
The continuing structural problems in the European economy resulted in
the continued recession, while the changes in the Chinese economy have
even exacerbated this trend. Consequently, also due to the surplus
manufacturing capacity in Europe (created as a result of anticipated
growth, resulting in surplus supply as opposed to low demand),
low-priced competing imports are arriving in Israel, constituting a
price barrier against the Group's products in Israel.
The weakening euro in the second quarter of 2005 resulted in an
erosion of selling prices in exports (fine paper exports are made
primarily to Europe) and lowering of prices of competing imports.
The trend of rising energy prices that began in 2004 grew even more
acute in 2005, in all the input types used by the Group (including
fuel oil, diesel and electricity). Diesel prices for transportation
and fuel oil average prices rose by over 30% during the reported
period (January-June 2005) as compared with the corresponding period
last year (January-June 2004), while electricity prices rose by
approximately 15%. The effect of these higher prices in annual terms
represents an additional annual expenditure of NIS 30 million.
2
Furthermore, the prices of all main raw materials used by the Group
companies in their various operations also continued to rise -
including pulp, fluff (pulp for absorbent products) and absorbent
materials for diapers (SAP).
The above-mentioned extraordinary price hikes, coupled with the
surplus supply of low-priced paper imports, harmed the Group's results
during the reported period, in relation to the corresponding period
last year.
Due to the said rise in the input prices, the Group accelerated its
efficiency programs in all companies, operating intensively across all
expense areas - in parallel to maintaining quality of products and
market shares.
In addition, the Group raised the selling prices of its products,
albeit only partially and not to the extent warranted by the higher
input prices - due to the economic conditions outlined above, the
lower demand and the escalating competition.
The said efficiency measures, together with the higher prices,
rendered it possible to significantly reduce the heavy impact of the
rising input prices on the results.
Concurrently, an enterprise-wide comprehensive program was formulated
during the current quarter, intended to exploit all of the Group's
business and managerial capabilities, for the purpose of gradually
improving the profitability.
As part of the company's endeavors for cutting manufacturing costs and
for additional environmental improvements, the company is continuing
to promote the energy-cogeneration plant project in Hadera, based on
natural gas.
The company is initially preparing for the conversion of its
energy-cogeneration systems from the use of fuel oil to natural gas,
once the transportation infrastructure of natural gas to Hadera is
completed.
In this capacity, the company signed an agreement with Thetis Sea
Group on July 29, 2005, for the purchase of natural gas (see below).
The exchange rate of the shekel (NIS) vis-a-vis the US dollar was
devaluated by approximately 6.2% during the reported period, as
compared with a devaluation of 2.7% during the corresponding period
last year.
The inflation rate during the reported period amounted to 0.5%, as
compared with an inflation rate of 1.4% in the corresponding period
last year.
B. RESULTS OF OPERATIONS
1. AGGREGATE DATA
Since the Company's share in the earnings of associated companies
constitutes a material component in the company's statement of income
(primarily on account of its share in the earnings of Mondi Business
Hadera Paper Ltd. [Mondi Hadera] and Hogla-Kimberly that were
consolidated in the past, until the transfer of control over these
companies to the international strategic partners), we present the
aggregate data which also include the results of all the companies in
the AIPM Group (including the associated companies whose results
appear in the financial statements under "earnings from associated
companies"), net of mutual sales and without considering the rate of
holding.
3
The aggregate sales amounted to NIS 1,370.9 million during the
reported period, as compared with NIS 1,337.9 million in the
corresponding period last year.
The aggregate sales in the second quarter amounted to NIS 685.1
million, as compared with NIS 655.3 million in the corresponding
quarter last year.
The aggregate operating profit totaled NIS 65.3 million during the
reported period, as compared with NIS 106.0 million in the
corresponding period last year.
The aggregate operating income in the second quarter of the year
totaled NIS 29.1 million, as compared with NIS 49.6 million in the
corresponding quarter last year.
The operating income presented above for the reported period this year
and for the second quarter of the year does not include the
extraordinary provision for doubtful debts, in the amount of NIS 10.6
million, that was recorded at Hogla Kimberly as a result of the
collapse of the Club Market chain and the stay of proceedings that was
approved by the District Court in July this year (since they do not
form part of the ongoing operations for the period).
2. CONSOLIDATED DATA
The information set forth below does not include the results of
operation of Mondi Hadera, Hogla-Kimberly, Carmel and TMM Integrated
Recycling Industries.
The sales during the reported period amounted to NIS 240.0 million, as
compared with NIS 238.2 million in the corresponding period last year.
The sales in the second quarter of the year (April-June 2005) totaled
NIS 118.3 million, as compared with NIS 119.1 million in the
corresponding quarter last year (April-June 2004).
The operating income totaled NIS 25.8 million during the reported
period, as compared with NIS 27.3 million in the corresponding period
last year.
The operating income in the second quarter of the year totaled NIS
11.3 million, as compared with NIS 13.8 million in the corresponding
quarter last year.
The profit after taxes and before the Company's share in the earnings
of associated companies (before the influence of non recurring items)
for the reported period, amounted to NIS 15.0 million, as compared
with NIS 15.2 million during the corresponding period last year.
3. NET PROFIT AND EARNINGS PER SHARE
The net profit before non-recurring items totaled NIS 23.1 million
during the reported period, as compared with NIS 32.4 million in the
corresponding period last year.
4
Due to the collapse of the Club Market chain, which has entered a stay
of proceedings, Hogla Kimberly, an associated company, has recorded a
net non-recurring loss (after taxes) of NIS 7 million, of which the
company's share amounts to a net sum of NIS 3.5 million, thereby
bringing the reported net income during the reported period to NIS
19.5 million.
The net income during the reported period does not include the impact
of the tax law reforms, that were passed by the Knesset on July 27,
2005, that serve to gradually lower the corporate tax rate to a level
of 25% by 2010. The derived tax benefit will be recorded in the third
quarter of the year and is estimated at NIS 9 million (including the
company's share in the benefit at the associated companies).
During the corresponding period last year, extraordinary income in the
amount of NIS 10.2 million was recorded in the company's financial
statements, on account of the tax benefit (including the company's
share in the benefit at the associated companies), originating from
the change in deferred taxes due to the lowering of tax rate that
became effective in June 2004.
Earnings per share (EPS), before non-recurring items, in the reported
period this year totaled NIS 570 per NIS 1 par value ($1.25 per
share), as compared with NIS 801 per NIS 1 par value in the
corresponding period last year ($1.78 per share).
Earnings per share (EPS), before non-recurring items, in the second
quarter this year totaled NIS 223 per NIS 1 par value ($0.49 per
share), as compared with NIS 370 per NIS 1 par value in the
corresponding quarter last year ($0.82 per share).
The return on shareholders' equity in annual terms, before
non-recurring items, amounted to 8.0% during the reported period, as
compared with 10.6% in the corresponding period last year.
C. ANALYSIS OF OPERATIONS AND PROFITABILITY
The analysis set forth below is based on the consolidated data.
1. SALES
The consolidated sales during the reported period amounted to NIS
240.0 million, as compared with NIS 238.2 million in the corresponding
period last year.
The growth in sales in relation to the corresponding period last year
originated from a certain improvement in selling prices and
quantitative growth in the domestic market, that was partially offset
by a decrease in exports.
2. COST OF SALES
The cost of sales amounted to NIS 187.7 million - or 78.2% of sales -
during the reported period, as compared with NIS 183.4 million - or
77% of sales - in the corresponding period last year.
5
The gross margin as a percentage of sales reached 21.8% during the
reported period, as compared with 23.0% in the corresponding period
last year.
The decrease in the gross margin originated primarily from an increase
in raw material prices (15% in paper waste), coupled with an unusual
increase in energy prices (30% in fuel oil and 15% in electricity), as
well as water prices (9%) and was partially offset by quantitative
growth in the sale of paper waste, higher selling prices and the
continuing efficiency processes in all areas of operation.
Labor Wages
Wages in the cost of sales and in the selling, general and
administrative expenses amounted to NIS 73.7 million in the reported
period, as compared with NIS 72.4 million in the corresponding period
last year.
The change in the cost of wages in relation to the corresponding
period represents savings in personnel on the one hand, coupled with a
nominal 3% increase in wages, on the other hand.
3. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The selling, general and administrative expenses (including wages)
amounted to NIS 26.5 million in the reported period - or 11.1% of
sales - as compared with NIS 27.5 million - or 11.6% of sales - in the
corresponding period last year. The decrease in the selling, general
and administrative expenses originated from actions intended to bring
about savings and efficiency, coupled with the impact of the decrease
in export volumes on the selling expenses.
4. OPERATING INCOME
The operating profit totaled NIS 25.8 million during the reported
period (10.7% of sales), as compared with NIS 27.3 million (11.5% of
sales) in the corresponding period last year.
5. FINANCIAL EXPENSES
The financial expenses during the reported period amounted to NIS 4.3
million, as compared with NIS 4.5 million in the corresponding period
last year.
The total average of the company's net, interest-bearing liabilities
grew by approximately NIS 40 million, as a comparison between the
periods. The growth originated from the payment of NIS 100 million in
dividends in September 2004, net of the positive cash flows for the
period.
Moreover, the cost of the transaction for hedging the Series 2 notes
against a rise in the CPI has risen to 1.3% per annum in 2005, as
compared with 0.92% per annum in 2004 and resulted in an increase in
costs related to the notes.
On the other hand, the decrease in the average interest rate, due to
the decreasing interest rate in the Israeli market, and the higher
devaluation this year (that served to increase the revenues from the
company's dollar-denominated assets) resulted
6
in the fact that the financial expenses did not grow this year in
relation to the corresponding period last year.
6. TAXES ON INCOME
Taxes on income from current activities amounted to NIS 6.5 million in
the reported period, as compared with NIS 7.7 million in the
corresponding period last year.
The principal items responsible for the decrease in tax expenses
during the reported period in relation to the corresponding period
last year include the decrease in pre-tax earnings this year and the
decrease in tax rates that was determined last year.
The tax expenditures this year do not include the impact of the tax
reforms that was passed by the Knesset in July this year (regarding
the gradual decrease of the corporate tax rate to 25% by 2010). The
estimated tax benefit for the company amounts to NIS 5 million
(excluding the company's share in the benefit at associated companies)
and will be recorded in the third quarter this year.
A tax benefit of NIS 5.8 million was recorded during the corresponding
period last year on account of the impact of the corporate tax change
last year on the company's deferred taxes. Subsequent to this benefit
deduction from the tax expenses last year, the reported tax expenses
last year amounted to only NIS 1.9 million.
7. COMPANY'S SHARE IN EARNINGS OF ASSOCIATED COMPANIES
The companies whose earnings are reported under this item (according
to AIPM's holdings therein), include primarily: Mondi Hadera,
Hogla-Kimberly, Carmel and TMM.
The Company's share in the earnings of associated companies (before
non-recurring items) totaled NIS 8.1 million during the reported
period, as compared with NIS 17.2 million in the corresponding period
last year.
The following principal changes were recorded in the Company's share
in the earnings of associated companies, in relation to the
corresponding period last year (before non-recurring items):
- The Company's share in the net income of Mondi Hadera (49.9%)
decreased by NIS 5.3 million. Most of the change in the net
income originates from the decrease in operating income over the
years, as a result of the rebuild of the paper machine this year.
The massive rebuild intended to improve the output of the machine
and the quality of the paper, required shut-down during the
rebuild and was accompanied by a learning curve, as is normal
during such a significant project. The full impact of this
rebuild will be reflected later this year and in 2006.
Also, the unusual increase in raw material, energy and water
prices adversely affected the profitability of Mondi Hadera.
The economic slowdown in Europe is creating a constant erosion of
prices and low-priced import of paper. This renders it difficult
for Mondi Hadera to raise prices, as warranted from the said rise
in input price - both on the local and
7
especially in export markets. Mondi Hadera is nevertheless
continuing to raise its prices and is further expanding its
cost-cutting efforts.
In parallel, Mondi Hadera is focusing intensive efforts in
product development and in creating differentiation as opposed to
import products - that will result in a gradual increase of the
premium on products.
- The company's share in the net income of Hogla Kimberly Israel
(49.9%) grew by NIS 0.7 million (not including the allowance due
to Club Market affair). The implementation of the efficiency
program at Hogla Kimberly, in conjunction with higher prices,
served to compensate for the sharp rise in input prices (raw
materials and energy) and improved the operating income in the
second quarter of the year.
A net loss of NIS 3.5 million was recorded in the second quarter
of the year, on account of AIPM's share in the additional
provision for doubtful debts that was recorded by Hogla Kimberly
on account of the debt of Club Market that is in a stay of
proceedings.
- The Company's share in the net income of Ovisan (Turkey) (49.9%)
decreased by NIS 1.9 million. Ovisan is continuing its
preparation for the expansion of operations in the Turkish market
and for the introduction of Kimberly Clark's international
premium products into the Turkish market, within the framework of
the multi-annual strategic program that is in its final stages of
formulation these very days (in partnership with Kimberly Clark).
In this capacity, the local management team was reinforced, to
enable the realization of the said plan. The said plan is
intended to begin toward the end of 2005 and will continue into
2006, including the introduction of the Kotex(R) line of feminine
hygiene products, Huggies(R) diapers and Kleenex(R) paper
products.
- The Company's share in the net earnings of the Carmel Group
(26.25%) fell by NIS 1.2 million, due to the decrease in the
operating income, coupled with an increase in financial expenses
during the reported period (due to devaluation differentials).
The decrease in operating income originated primarily from the
sharp rise in raw material prices, that affected primarily the
first quarter of the year and that was only partially offset by
the raising of selling prices, in view of the escalating
competition in the corrugation market.
- The Company's share in the TMM net earnings (41.6%) decreased by
NIS 1.9 million. TMM recorded an operating loss during the
reported period due to the significant increase in transportation
costs (originating from the significant rise of 33% in average
diesel prices in relation to the corresponding period last year),
together with lower revenues due to the need to offer discounts
(given the fierce competition in waste removal, as a result of
the surplus transportation capacity in the economy). The said
increase in diesel prices was not compensated for in the selling
prices, due to the fact that most of the agreements are linked to
the Consumer Price Index (CPI), that rose by only 0.5% this year.
The company deals intensively in comprehensive efficiency
measures, along with earnest efforts to obtain appropriate
compensation on account of the extraordinary increase in diesel
prices.
8
The company's share in the earnings of associated companies -
including non-recurring items - amounted to NIS 4.5 million in the
reported period, after a deduction of NIS 3.5 million, representing
AIPM's share in the losses of Hogla Kimberly, due to Club Market.
The company`s share in the earnings of associated companies during the
reported period, does not include AIPM's share in the tax benefits
that are expected to be recorded in the third quarter this year at the
various companies, following the lowering of the corporate tax rate
that was passed by the Knesset in July this year. The influence is
expected to amount to NIS 4 million (AIPM's share). During the
corresponding period last year, the company's share in the earnings of
associated companies including a sum of NIS 4.4 million, as AIPM's
share in the tax benefit recorded at the companies following the tax
reform of 2004. Consequently, the company's share in the earnings of
associated companies - including non-recurring items - amounted to NIS
21.6 million during the corresponding period.
D. LIQUIDITY AND INVESTMENTS
1. ACCOUNTS RECEIVABLE - TRADE
Accounts Receivable, as at June 30, 2005, amounted to NIS 149.0
million, as compared with NIS 146.9 million at June 30, 2004. The
higher accounts receivable balance is attributed primarily to the
growth in the volume of operations.
2. CASH FLOWS
The cash flows from operating activities amounted to NIS 45.2 million
during the reported period this year, as compared with NIS 19.8
million in the corresponding period last year (this year: NIS 67.0
million including dividend received from an associated company). The
improvement in the cash flows from operating activities during the
reported period originated primarily from a decrease in the operating
working capital. Part of the said decrease in operating working
capital originates from sums that were supposed to be obtained at the
end of 2004 and were obtained in early 2005.
3. INVESTMENTS IN FIXED ASSETS
The investments in fixed assets amounted to NIS 23.0 million during
the reported period, as compared with NIS 12.1 million during the
corresponding period last year, and included investments in land,
storage and compaction equipment, in compactors, in machines,
equipment and transportation equipment.
4. FINANCIAL LIABILITIES
The long-term liabilities (including current maturities) amounted to
NIS 263.9 million as at June 30, 2005, as compared with NIS 270.9
million as at June 30, 2004.
The long-term liabilities include primarily two series of debentures:
9
Series 1 - NIS 26.8 million, for repayment until 2009.
Series 2 - NIS 202.2 million, for repayment between 2007 and 2013.
The balance of short-term credit, as at June 30, 2005, amounted to NIS
28.5 million, as compared with NIS 135.5 million at June 30, 2004. The
positive cash flows for the period and the withdrawal of deposits (due
to the lower creditory interest rate) served for the payment of NIS
100 million in dividends and for the reduction of short-term credit.
E. EXPOSURE AND MANAGEMENT OF MARKET RISKS
Pursuant to the Management Discussion dated December 31, 2004, which
outlined the essence of the exposure and management of market risks, as set
forth by the board of directors, the following is an update, true to June
30, 2005:
The Company possesses CPI-linked liabilities in the net overall sum of NIS
222 million, with the interest thereupon being no higher than the market
interest rate. In the event that the inflation rate shall rise
significantly, a loss may be recorded in the Company's financial
statements, due to the surplus of CPI-linked liabilities. The company
consequently entered into a forward transaction, with a term of one year -
until the end of 2005, to hedge a sum of NIS 200 million against a rise in
the CPI (at a cost of 1.3% per annum).
REPORT OF LINKAGE BASES
The following are the balance sheet items, according to linkage bases, as
at December 31, 2004 and updated for June 30, 2005:
10
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
IN NIS MILLIONS UNLINKED CPI-LINKED IN FOREIGN NON-MONETARY TOTAL
CURRENCY, OR ITEMS
LINKED THERETO
(PRIMARILY US$)
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
ASSETS
CASH AND CASH EQUIVALENTS 3.3 7.7 11.0
SHORT-TERM DEPOSITS AND INVESTMENTS 11.3 11.3
OTHER ACCOUNTS RECEIVABLE 196.3 44.0 7.7 248.0
INVENTORIES 84.5 84.5
INVESTMENTS IN ASSOCIATED COMPANIES 49.3 14.1 9.2 346.6 419.2
DEFERRED TAXES ON INCOME 6.5 6.5
FIXED ASSETS, NET 331.4 331.4
DEFERRED EXPENSES, NET OF ACCRUED 1.0 1.0
AMORTIZATION
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
TOTAL ASSETS 260.2 14.1 60.9 777.7 1,112.9
----- ---- ---- ----- -------
LIABILITIES
CREDIT FROM BANKS 28.5 28.5
ACCOUNTS PAYABLE 155.3 6.0 11.5 172.8
DEFERRED TAXES ON INCOME 51.2 51.2
NOTES 229.6 229.6
OTHER LIABILITIES 32.8 1.4 34.2
SHAREHOLDERS' EQUITY 596.6 596.6
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
TOTAL LIABILITIES AND EQUITY 216.6 235.6 12.9 647.8 1,112.9
----- ----- ---- ----- -------
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
JUNE 30, 2005 43.6 (221.5) 48.0 129.9 -
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
SURPLUS FINANCIAL ASSETS (LIABILITIES) AS AT
DECEMBER 31, 2004 (24.6) (177.5) 44.4 157.7 -
---------------------------------------------- ----------- ------------ ---------------- ----------- --------------
ASSOCIATED COMPANIES
AIPM is exposed to various risks associated with operations in Turkey,
where Hogla-Kimberly is active through its subsidiary, Ovisan. These risks
originate from concerns regarding economic instability and elevated
interest rates, that characterized the Turkish economy in the past and that
may recur and harm the Ovisan operations.
F. FORWARD-LOOKING STATEMENTS
This report contains various forward-looking statements, based upon the
Board of Directors' present expectations and estimates regarding the
operations of the Group and its business environment. The Company does not
guarantee that the future results of operations will coincide with the
forward-looking statements and these may in fact considerably differ from
the present forecasts as a result of factors that may change in the future,
such as changes in costs and market conditions, failure to achieve
projected goals, failure to achieve anticipated efficiencies and other
factors which lie outside the control of the company. The Company
undertakes no obligation to publicly update such forward-looking
statements, regardless of whether these updates originate from new
information, future events or any other reason.
G. DONATIONS AND CONTRIBUTIONS
The AIPM Group, within the framework of its business and social commitment,
invests efforts and funds in community assistance and support, while
focusing on providing help to the weaker echelons of Israeli society
-primarily teenagers - as part of a desire to build and contribute to
shaping the human fabric of Israeli society.
11
As part of this policy, the company makes contributions to various
institutions that are active in the said areas, while also participating,
through its employees, in volunteering work in the community, for promoting
these same objectives.
Moreover, a sum totaling NIS 105 thousand was granted for student
scholarships and for a project this year, through the Shenkar Foundation,
that was established by the company together with its Austrian strategic
partner in Mondi Hadera.
H. UPDATE REGARDING THE DESCRIPTION OF THE COMPANY'S BUSINESS IN THE
PERIODICAL REPORT FOR 2004
o On July 29, 2005, the company signed an agreement in London with the
Thetis Sea Group, for the purchase of natural gas. The gas that will
be purchased is intended to serve the Company's needs in the coming
years, for the operation of its energy co-generation plant at the
Hadera plant that will be converted for the use of natural gas,
instead of the current use of fuel oil. The overall financial volume
of the transaction totals $40 million over the term of the agreement
(5 years from the initial supply of gas, but no later than July 1,
2011).
o Due to the collapse of the Club Market chain, that entered into a stay
of proceedings in July this year, an associated company - Hogla
Kimberly - recorded an additional provision for doubtful debts, in the
amount of NIS 10.6 million. The total provision amounts to 75% of the
debt. This provision, net of the tax influence, led to a net
non-recurring loss of NIS 7 million at Hogla Kimberly, of which AIPM's
share totals a net sum of NIS 3.5 million.
I. GENERAL
o 3,466 shares were issued during the reported period (0.1% dilution),
on account of the exercise of 12,520 option warrants as part of the
Company's employee option plans.
o The company recently acquired a land plot of 21.5 acres, next to its
Hadera plant, in return for about $4.4 million.
o In July 2005, Carmel Container Systems Ltd. - an associated company -
completed its delisting process from the US Stock Exchange.
--------------------------------------- ---------------------------------------
Yaki Yerushalmi Avi Brenner
Chairman of the Board of Directors Chief Executive Manager
EXHIBIT 3
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED BALANCE SHEETS
NIS IN THOUSANDS
JUNE 30, 2005 JUNE 30, 2004 DEC. 31, 2004
(UNAUDITED) (UNAUDITED) (AUDITED)
-------------- --------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 10,997 69,752 7,813
Short-term deposits and investments 11,297 106,753 62,464
Receivables:
Trade 148,974 146,883 143,275
Other 98,980 145,382 101,840
Inventories 84,538 88,782 83,220
-------------- --------------- ----------------
Total current assets 354,786 557,552 398,612
INVESTMENTS AND LONG TERM RECEIVABLES:
Investments in associated companies 419,216 401,214 431,752
Deferred income taxes 6,511 3,885 6,511
-------------- --------------- ----------------
425,727 405,099 438,263
FIXED ASSETS
Cost 995,595 961,693 974,462
Less - accumulated depreciation 664,185 638,163 650,056
-------------- --------------- ----------------
331,410 323,530 324,406
Deferred charges -
net of accumulated amortization 1,026 1,215 1,106
-------------- --------------- ----------------
1,112,949 1,287,396 1,162,387
-------------- --------------- ----------------
CURRENT LIABILITIES:
Credit from banks 28,535 135,516 112,684
Current maturities of long-term notes 6,681 6,668 6,648
Payables and accrued liabilities:
Trade 89,056 81,395 87,556
Other 83,775 87,105 66,355
-------------- --------------- ----------------
Total current liabilities 208,047 310,684 273,243
LONG-TERM LIABILITIES
Deferred income taxes 51,151 54,753 52,562
Loans from banks and other liabilities
(net of current maturities):
Notes 222,955 229,181 228,499
Other liabilities 34,224 35,075 32,770
-------------- --------------- ----------------
Total long term liabilities 308,330 319,009 313,831
Total liabilities 516,377 629,693 587,074
SHAREHOLDERS' EQUITY:
Share capital 125,257 125,257 125,257
Capital surplus 90,060 90,060 90,060
Capital surplus on account of tax benefit from
exercise of employee options 267
Currency adjustments in respect of financial
statements of associated companies (1,356) (279) (2,807)
Retained earnings 382,344 442,665 362,803
-------------- --------------- ----------------
596,572 657,703 575,313
-------------- --------------- ----------------
1,112,949 1,287,396 1,162,387
-------------- --------------- ----------------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME
NIS IN THOUSANDS
SIX-MONTH PERIOD THREE-MONTH PERIOD YEAR ENDED
ENDED JUNE 30 ENDED JUNE 30 DEC. 31
2005 2004 2005 2004 2004
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (AUDITED)
Net sales 240,041 238,244 118,263 119,062 482,854
Cost of sales 187,728 183,374 94,172 91,557 375,904
------------- ------------- ------------- ------------- -------------
Gross profit 52,313 54,870 24,091 27,505 106,950
------------- ------------- ------------- ------------- -------------
Selling and marketing, administrative and
general expenses:
Selling and marketing 14,752 15,904 7,405 7,559 30,595
Administrative and general 11,789 11,628 5,390 6,151 22,425
------------- ------------- ------------- ------------- -------------
26,541 27,532 12,795 13,710 53,020
------------- ------------- ------------- ------------- -------------
Income from ordinary operations 25,772 27,338 11,296 13,795 53,930
------------- ------------- ------------- ------------- -------------
Financial expenses - net 4,274 4,471 1,014 2,427 13,118
------------- ------------- ------------- ------------- -------------
Income before taxes on income 21,498 22,867 10,282 11,368 40,812
------------- ------------- ------------- ------------- -------------
Taxes on income (tax benefit) (see note 2) 6,500 1,876 3,500 (2,124) 3,152
Income from operations of the company
------------- ------------- ------------- ------------- -------------
and the consolidated subsidiaries 14,998 20,991 6,782 13,492 37,660
------------- ------------- ------------- ------------- -------------
Share in profits of associated companies - net 4,543 21,639 (1,272) 11,703 25,072
------------- ------------- ------------- ------------- -------------
Net income for the period 19,541 42,630 5,510 25,195 62,732
------------- ------------- ------------- ------------- -------------
NET INCOME PER NIS 1 PAR VALUE OF SHARES (IN N.I.S) 483 1,053 136 622 1,544
------------- ------------- ------------- ------------- -------------
* In 2005, second quarter and accumulative, including loss on account of the
additional provision for doubtful accounts in an associated company, in the
sum of NIS 3.5 million, net (the company's share). See note 5.
In 2004, second quarter and accumulative, including a tax benefit income in
the associated companies, originating from the change in the tax rate last
year, in the sum of NIS 4.4 million (the company's share). See note 2.
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
CURRENCY
CAPITAL ADJUSTMENTS
SUMMARY OF STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY SURPLUS ON IN RESPECT OF
NIS IN THOUSANDS ACCOUNT OF FINANCIAL
TAX BENEFIT STATEMENTS OF
FROM EXERCISE AN ASSOCIATED
SHARE CAPITAL OF EMPLOYEE COMPANY AND RETAINED
CAPITAL SURPLUS OPTIONS A SUBSIDIARY EARNINGS TOTAL
---------- ---------- ------------ ------------- ---------- --------
BALANCE AT JANUARY 1, 2005 (AUDITED) 125,257 90,060 (2,807) 362,803 575,313
Changes during the six month period ended
June 30, 2005 (unaudited):
Net income 19,541 19,541
Exercise of employees options into shares * 267 *
Adjustments due to the translation respect
of financial statements of associated companies 1,451 1,451
---------- ---------- ---------- ------------- ---------- ----------
Balance at June 30, 2005 (unaudited) 125,257 90,060 267 (1,356) 382,344 596,305
---------- ---------- ---------- ------------- ---------- ----------
Balance at January 1, 2004 (audited) 125,257 90,060 (1,122) 400,035 614,230
Changes during the six month period ended
June 30, 2004 (unaudited):
Net income 42,630 42,630
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies 843 843
---------- ---------- ------------- ---------- ----------
Balance at June 30, 2004 (unaudited) 125,257 90,060 (279) 442,665 657,703
---------- ---------- ------------- ---------- ----------
Balance at April 1, 2005 (unaudited) 125,257 90,060 174 (1,508) 376,834 590,817
Changes during the three month period ended
June 30, 2005 (unaudited):
Net income 5,510 5,510
Exercise of Employees Options Into Shares * 93 93
Adjustments Due to the Translation Respect of Financial
Statements of Associated Companies 152 152
---------- ---------- ---------- ------------- ---------- ----------
Balance at June 30, 2005 (unaudited) 125,257 90,060 267 (1,356) 382,344 596,572
---------- ---------- ---------- ------------- ---------- ----------
Balance at April 1, 2004 (unaudited) 125,257 90,060 (62) 417,470 632,725
Changes during the three month period ended
June 30, 2004 (unaudited):
Net income 25,195 25,195
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies (217) (217)
---------- ---------- ------------- ---------- ----------
Balance at June 30, 2004 (unaudited) 125,257 90,060 (279) 442,665 657,703
---------- ---------- ------------- ---------- ----------
Balance at January 1, 2004 (audited) 125,257 90,060 (1,122) 400,035 614,230
Changes during the year ended December 31, 2004 (audited):
Net income 62,732 62,732
Dividend distributed (99,964) (99,964)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies (1,685) (1,685)
---------- ---------- ------------- ---------- ----------
Balance at December 31, 2004 (audited) 125,257 90,060 (2,807) 362,803 575,313
---------- ---------- ------------- ---------- ----------
* Represents a sum under 1,000 NIS.
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS IN THOUSANDS
SIX-MONTH SIX-MONTH THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
JUNE 30, 2005 JUNE 30, 2004 JUNE 30, 2005 JUNE 30, 2004 DEC. 31, 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (AUDITED)
-------- -------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period 19,541 42,630 5,510 25,195 62,732
Adjustments to reconcile net income to net cash provided by
operating activities (*): 47,467 (22,856) 33,319 (15,518) (15,637)
-------- -------- -------- -------- --------
Net cash provided by operating activities 67,008 19,774 38,829 9,677 47,095
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (23,041) (12,119) (17,336) (5,614) (30,952)
Short-term deposits and investments - net 51,003 (86,999) 10,840 (30,000) (42,000)
Associated companies:
Investment in associated companies and loans granted (2,762) (779) (23) (420) (779)
Repayment of loans 6,882 6,882 13,688
Proceeds from sale of fixed assets 352 438 197 16 1,001
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities 25,552 (92,577) (6,322) (29,136) (59,042)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term loans received 1,454 1,454
Repayment of long-term loans from banks and others (383) (383) (383)
Redemption of Notes (6,681) (6,666) (6,681) (6,666) (6,666)
Dividend paid (99,964)
Short-term bank credit and loans - net (84,149) (9,102) (23,156) (4,885) (31,933)
-------- -------- -------- -------- --------
Net cash provided used in financing activities (89,376) (16,151) (28,383) (11,934) (138,946)
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash equivalents 3,184 (88,954) 4,124 (31,393) (150,893)
Balance of cash and cash equivalents at beginning of period 7,813 158,706 6,873 101,145 158,706
-------- -------- -------- -------- --------
Balance of cash and cash equivalents at end of period 10,997 69,752 10,997 69,752 7,813
-------- -------- -------- -------- --------
(*) Adjustments to reconcile net income to net cash
provided by operating activities:
INCOME AND EXPENSES NOT INVOLVING CASH FLOWS:
Associated companies:
Share in profits of associated companies - net (4,543) (21,639) 1,272 (11,703) (25,072)
Dividend received from those companies 21,761 21,761
Depreciation and amortization 15,889 14,078 8,198 7,039 28,633
Deferred income taxes - net (2,763) (7,493) (1,082) (6,546) (10,096)
Capital (gains) losses on sale of fixed assets (124) (234) (11) 8 508
Loss (income) from short-term deposits and investments,
not realized 164 246 8 361 (464)
Linkage differences (erosion) of principal of long-term
loans from banks and others - net 74 (3) (26)
Exchange and linkage differences on Notes 1,170 2,886 1,872 2,965 2,184
Erosion of long-term loans to associated companies (686) (956) (533) (183) (721)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in receivables (1,003) (22,578) (7,832) (12,414) (14,316)
Decrease (increase) in inventories (1,318) 1,872 (1,933) 4,453 7,434
Increase (decrease) in payables and accrued liabilities 18,920 10,888 11,599 505 (3,701)
-------- -------- -------- -------- --------
47,467 (22,856) 33,319 (15,518) (15,637)
-------- -------- -------- -------- --------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2005
(Unaudited)
NOTE 1 - GENERAL
a. The interim financial statements as of June 30, 2005 and for the six and
three month periods then ended (hereafter - the interim financial
statements) were drawn up in condensed form, in accordance with Accounting
Standard No. 14 of the Israel Accounting Standards Board (hereafter - the
IASB) and in accordance with the Securities (Preparation of Periodic and
Immediate Financial Statements) Regulations, 1970.
b. The accounting principles applied in preparation of the interim statements
are consistent with those applied in the annual financial statements,
except for the change in the accounting treatment applied to taxes on
income as detalied in note 3; nevertheless, the interim statements do not
include all the information and explanations required for the annual
financial statements.
Costs unevenly incurred during the year are brought forward or deferred for
interim reporting purposes if, and only if, such costs may be brought
forward or deferred in the annual reporting.
c. The company draws up and presents its financial statements in Israeli
currency (hereafter -NIS)in accordance with the provisions of Accounting
Standard No.12 -"Discontinuance of Adjusting Financial Statements for
Inflation"-of the IASB,which set transitory provisions for financial
reporting on a nominal basis, commencing January 1,2004.Accordingly,the
amounts of non-monetary assets, mainly fixed assets and other assets
(including depreciation and amortization in respect of those assets),and
the shareholders' equity components included in the financial statements,
originating from the period that preceded the transition date, are based on
their adjusted to December 2003 shekel amount.
Following are the changes in exchange rate of the dollar and in the Israeli
consumer price index (the "CPI"):
EXCHANGE RATE
OF THE DOLLAR CPI
------------- ---
% %
------------- ---
Increase (decrease) in the six months ended June 30:
2005 6.2 0.5
2004 2.7 1.4
Increase (decrease) in the three months ended June 30:
2005 4.9 1.1
2004 (0.7) 1.5
Increase in the year ended December 31, 2004 (1.6) 1.2
The dollar exchange rate as of June 30, 2005 is: $1=NIS 4.574
NOTE 2 - TAXES ON INCOME
a. On June 29, 2004, the IsraeliA.arliament (the "Knesset") passed the second
and third readings of the Income Tax Ordinance Amendment (No. 140 and Ad
Hoc Provision) Law, 2004 (hereafter - the 2004 Amendment), which was
published in the Official Gazette of the Government of Israel on July 11,
2004. The 2004 Amendment provided for the gradual reduction - commencing
from January 1, 2004 - in the rate of corporate tax from 36% to 30%, in the
following manner: the rate for 2004 would be 35%, in 2005 - 34%, in 2006 -
32%, and in 2007 and thereafter - 30%.
As a result of the amendment the tax expenses in the statement of income
(regarding deferred taxes) were reduced by NIS 5,824 millions in the second
quarter of 2004.
AMIRICAN ISRAELI PAPER MILLS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2005
(Unaudited)
NOTE 2 - TAXES ON INCOME-cont.
b. On July 25, 2005, the Israeli Parliament (the "Knesset") passed the second
and third readings of the proposed Income Tax Ordinance Amendment (No. 147
and Ad Hoc Provision) Law, 2005 (hereafter - the 2005 Amendment). The 2005
Amendment further reduces the corporate tax rates stipulated under the 2004
amendment, and provides for the gradual reduction - commencing from January
1, 2006 - in the following manner: the rate for 2006 will be 31%, in 2007 -
29%, in 2008 - 27%, in 2009 - 26%, and in 2010 and thereafter - 25%.
As a result of the 2005 Amendment, the Company's income tax expenses are
expected to decrease by about NIS 5 million (based on the deferred tax
balances as of June 30, 2005), be carried to income in the third quarter of
2005.
c. Accounting changes Accounting Standard No.19
Commencing in the financial statements for the 3-month period ended March
31,2005 ,the company implements Israel Accounting Standard No.19 -"Taxes on
Income" of the IASB, which came into effect on January 1,2005. This
Standard prescribes the accounting treatment (recognition criteria,
measurement, presentation and disclosure) required for taxes on income.
For the most part, the provisions of this standard are the same as the
accounting principles that were applied before the application of the new
standard. The adoption of this standard does not have any effect on the
company's financial statements in the reported periods.
NOTE 3 - SEGMENT INFORMATION
Data on segment activity - In NIS in thousands:
For the period of 6 monthes : Paper and recycling Marketing of office supplies Total
-------------------- -------------------- --------------------
Jan-June Jan-June Jan-June Jan-June Jan-June Jan-June
2005 2004 2005 2004 2005 2004
------- ------- ------ ------ ------- -------
Sales - net (1) 188,644 180,186 51,397 58,058 240,041 238,244
Income (loss) from operations 27,005 30,198 (1,233) (2,860) 25,772 27,338
For the period of 3 monthes : Paper and recycling Marketing of office supplies Total
-------------------- -------------------- --------------------
April-June April-June April-June April-June April-June April-June
2005 2004 2005 2004 2005 2004
------- ------- ------ ------ ------- -------
Sales - net (1) 93,687 91,634 24,576 27,428 118,263 119,062
Income (loss) from operations 12,066 15,540 (770) (1,745) 11,296 13,795
For 2004: Paper and recycling Marketing of office supplies Total
-------------------- -------------------- --------------------
2004 2004 2004
Sales - net (1) 367,391 115,463 482,854
Income (loss) from operations 58,496 (4,566) 53,930
(1) Represents sales to external customers.
AMIRICAN ISRAELI PAPER MILLS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT JUNE 30, 2005
(Unaudited)
NOTE 4 - RECENTLY ISSUED PRONOUNCEMENT
In August 2005, the Israel Accounting Standards Board issued Israel Accounting
Standard No. 22 - "Financial Instruments: Disclosure and Presentation", which is
based on International Accounting Standard No. 32. This standard prescribes the
rules for the presentation of financial instruments and the proper disclosure
required therefor. The standard sets forth the rules for classifying financial
instruments, the rules for splitting and classifying compound financial
instruments and the rules for offsetting financial assets and financial
liabilities. The standard also prescribes the rules for classifying interest,
dividends, losses and gains relating to financial instruments.
This accounting standard applies to financial statements for periods commencing
on or after January 1, 2006. The standard is to be applied prospectively and,
accordingly, comparative data that are presented in the financial statements for
periods commencing from the effective date of the standard will not be
re-presented. Financial instruments issued before the standard's effective date
are to be classified and presented in conformity with the provisions of the
standard from its effective date. Compound financial instruments (that include
both an equity component and a liability component), which were issued in
periods prior to the standard's effective date, and which had not yet been
converted or redeemed at that date, are to be classified according to their
component parts and are to be presented in conformity with the provisions of the
standard, commencing from the effective date of the standard.
When the standard becomes effective, Opinion 48 - "Accounting Treatment of
Option Warrants", and Opinion 53 - "Accounting Treatment of Convertible
Liabilities" will be revoked.
The Company is currently assessing the implications of implementing this
standard on its financial statements in future periods.
NOTE 5 - SUBSEQUENT EVENT
In July 2005, the Club Market chain, a costumer of an associated company - Hogla
Kimberly, filed to the District Court in Tel-Aviv a request for stay of
proceedings. The request was approved until August 17, 2005. Therefore, Hogla
Kimberly made an additional provision for doutful debts in the sum of NIS 10.6
million.
The Company's share in the additional provision, net (after tax), totaled in a
loss of NIS 3.5 million, that is included in the financial statements under
share in profits of associated companies (in the second quarter and acumulated),
according to the provisions of Israel Accounting Standard No. 7 - "Subsequent
event ".
------------
---------------------
------------
AIPM AMERICAN ISRAELI PAPER Meizer street
MILLS LTD. GROUP Industrial Zone, P.O.B. 142
Hadera 38101, Israel
Tel: 972-4-6349402
Fax: 972-4-6339740
E-mail: chq@aipm.co.il
Enclosed please find the financial reports of the following associated
companies:
- Mondi Business Paper Hadera Ltd.
- Hogla-Kimberly Ltd.
The financial report of the following associated companies are not
included:
- Carmel Containers Systems Ltd., according to section 44(c) of the
Securities (Periodic and Immediate Reports) Regulations.
- TMM Integrated Recycling Industries Ltd., a reporting corporation.
EXHIBIT 4
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
TABLE OF CONTENTS
PAGE
ACCOUNTANTS' REVIEW REPORT 1
CONDENSED FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to the Financial Statements 6-7
The Board of Directors of
Mondi Business Paper Hadera Ltd.
RE: REVIEW OF UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2005
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Mondi Business Paper Hadera Ltd.
("the Company") and its subsidiaries, as follows:
- Balance sheet as of June 30, 2005.
- Statements of operations for the six months and three months ended June
30, 2005.
- Statements of changes in shareholders' equity for the six months and three
months ended June 30, 2005.
- Statements of cash flows for the six months and three months ended June
30, 2005.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention, which indicates that
material adjustments are required to the aforementioned interim financial
statements for them to be deemed financial statements prepared in conformity
with generally accepted accounting principles in Israel and in accordance with
the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, July 31, 2005
1
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands; Reported Amounts)
June 30, December 31,
-------------------- -------
2005 2004 2004
------- ------- -------
(Unaudited)
--------------------
A S S E T S
Current Assets
Cash and cash equivalents 4,751 14,768 10,804
Trade receivables 167,550 159,301 157,815
Other receivables 11,441 7,717 (*) 7,580
Inventories 109,136 84,823 90,391
------- ------- -------
Total current assets 292,878 266,609 266,590
------- ------- -------
Fixed Assets
Cost 184,486 134,940 (*) 149,083
Less - accumulated depreciation 37,895 27,416 (*) 33,345
------- ------- -------
146,591 107,524 115,738
------- ------- -------
Other Assets - Goodwill 3,487 4,113 3,800
======= ======= =======
Total assets 442,956 378,246 386,128
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank loans 30,601 3,158 --
Current maturities of long-term bank loans 15,977 15,567 15,125
Trade payables 134,846 85,748 104,661
American Israeli Paper Mills Group, net 65,895 56,393(*) 65,033
Other payables and accrued expenses 25,008 21,183(*) 23,132
------- ------- -------
Total current liabilities 272,327 182,049 207,951
------- ------- -------
Long-Term Liabilities
Long-term bank loans 29,545 45,025 36,248
Capital notes to shareholders 18,296 31,479 17,233
Deferred taxes 26,443 25,154 25,422
Accrued severance pay, net 87 145 87
------- ------- -------
Total long-term liabilities 74,371 101,803 78,990
------- ------- -------
Shareholders' Equtiy
Share capital 1 1 1
Premium 43,352 43,352 43,352
Retained earnings 52,905 51,041 55,834
------- ------- -------
96,258 94,394 99,187
======= ======= =======
Total liabilities and shareholders' equity 442,956 378,246 386,128
======= ======= =======
--------------- --------------- ---------------
A. Magid A. Solel Y. Yerushalmi
Financial Director General Manager Vice Chairman of the
Board of Directors
(*) Reclassified.
Approval date of the interim financial statements: August 2, 2005.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
2
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands except per share data; Reported Amounts)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
------------------ ------------------ -------
2005 2004 2005 2004 2004
------- ------- ------- ------- -------
(Unaudited) (Unaudited)
------------------ ------------------
NET SALES 329,699 345,021 (*) 165,639 170,156(*) 686,094
COST OF SALES 299,957 299,525(*) 153,661 147,710(*) 605,738
------- ------- ------- ------- -------
GROSS PROFIT 29,742 45,496 11,978 22,446 80,356
------- ------- ------- ------- -------
OPERATING COSTS AND EXPENSES
Selling expenses 20,929 23,245 11,331 10,587 46,135
General and administative expenses 4,341 3,907 1,746 2,204 7,803
------- ------- ------- ------- -------
25,270 27,152 13,077 12,791 53,938
======= ======= ======= ======= =======
OPERATING PROFIT (LOSS) 4,472 18,344 (1,099) 9,655 26,418
FINANCING EXPENSES, NET (8,498) (6,670) (6,592) (1,400) (8,438)
OTHER INCOME, NET 76 34 -- 34 100
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES
(TAX BENEFITS) (3,950) 11,708 (7,691) 8,289 18,080
INCOME TAXES (TAX BENEFITS) (1,021) (761) (2,617) (1,876) 818
------- ------- ------- ------- -------
NET INCOME (LOSS) FOR THE PERIOD (2,929) 12,469 (5,074) 10,165 17,262
======= ======= ======= ======= =======
BASIC EARNINGS (LOSS) PER ORDINARY SHARE
Earnings (loss) per ordinary share (in NIS) (2,929) 12,469 (5,074) 10,165 17,262
======= ======= ======= ======= =======
Number of shares used in computation 1,000 1,000 1,000 1,000 1,000
======= ======= ======= ======= =======
(*) Reclassified.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
MONDI BUSINESS PAPER HADERA LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
Share Retained
capital Premium earnings Total
------ ------ ------ ------
Six months ended June 30, 2005
(Unaudited)
Balance - January 1, 2005 1 43,352 55,834 99,187
Loss for the period (2,929) (2,929)
------ ------ ------ ------
Balance - June 30, 2005 1 43,352 52,905 96,258
====== ====== ====== ======
Six months ended June 30, 2004
(Unaudited)
Balance - January 1, 2004 1 43,352 38,572 81,925
Net income for the period 12,469 12,469
------ ------ ------ ------
Balance - June 30, 2004 1 43,352 51,041 94,394
====== ====== ====== ======
Three months ended June 30, 2005
(Unaudited)
Balance - April 1, 2005 1 43,352 57,979 101,332
Loss for the period (5,074) (5,074)
------ ------ ------ ------
Balance - June 30, 2005 1 43,352 52,905 96,258
====== ====== ====== ======
Three months ended June 30, 2004
(Unaudited)
Balance - April 1, 2004 1 43,352 40,876 84,229
Net income for the period 10,165 10,165
------ ------ ------ ------
Balance - June 30, 2004 1 43,352 51,041 94,394
====== ====== ====== ======
Year ended December 31, 2004
Balance - January 1, 2004 1 43,352 38,572 81,925
Net income for the year 17,262 17,262
------ ------ ------ ------
Balance - December 31, 2004 1 43,352 55,834 99,187
====== ====== ====== ======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
--------------------- --------------------- -------
2005 2004 2005 2004 2004
------- ------ ------- ------ -------
(UNAUDITED) (UNAUDITED)
--------------------- ---------------------
CASH FLOWS - OPERATING ACTIVITIES
Net Income (Loss) for the Period (2,929) 12,469 (5,074) 10,165 17,262
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used In) Operating Activities
Income and Expenses
Not Involving Cash Flows:
Depreciation and Amortization 5,017 4,485 2,669 2,251 9,118
Deferred Taxes, Net (1,049) (843) (2,325) (1,739) 823
Decrease in Liability for
Severance Pay, Net -- -- -- -- (58)
Other Income, Net (76) (34) -- (34) (100)
Effect of Exchange Rate and Linkage Differences
of Long-term Bank Loans 1,777 1,328 1,434 (61) (195)
Effect of Exchange Rate Differences
of Long-term Capital Notes to Shareholders 1,063 1,453 852 (37) 571
Changes in Assets and Liabilities:
Increase in Trade Receivables (9,735) (11,553) (11,504) (4,425) (10,067)
Decrease (Increase) in Other Receivables (1,791) 329 (*) (105) 2,503 (*) (932)
Decrease (Increase) in Inventories (18,745) 4,408 (10,785) (3,565) (1,160)
Increase (Decrease) in Trade Payables 29,850 (18,349) 23,411 (12,047) (220)
Increase (Decrease) in American
Israeli Paper Mills Group, Net 862 7,607 (*) 1,984 (1,500)(*) 16,247
Increase in Other Payables
and Accrued Expenses 1,876 4,319 (*) 3,479 86 (*) 6,268
------- ------ ------- ------ -------
Net Cash Provided by (Used In)
Operating Activities 6,120 5,619 4,036 (8,403) 37,557
------- ------ ------- ------ -------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of Fixed Assets (35,222) (4,440) (17,317) (2,190) (16,235)
Proceeds From Sale of Fixed Assets 76 86 -- 64 197
------- ------ ------- ------ -------
Net Cash Used in Investing Activities (35,146) (4,354) (17,317) (2,126) (16,038)
------- ------ ------- ------ -------
CASH FLOWS - FINANCING ACTIVITIES
Short-term Bank Loans, Net 30,601 3,158 19,535 3,158 --
Repayment of Long-term Loans (7,628) (7,569) (1,503) (1,309) (15,265)
Repayment of Long-term
Capital Notes to Shareholders -- (13,764) -- (13,764) (27,128)
------- ------ ------- ------ -------
Net Cash Provided by (Used In) Financing
Activities 22,973 (18,175) 18,032 (11,915) (42,393)
======= ======= =======
Increase (decrease) in cash and cash equivalents (6,053) (16,910) 4,751 (22,444) (20,874)
Cash and cash equivalents - beginning of period 10,804 31,678 -- 37,212 31,678
------- ------ ------- ------ -------
Cash and cash equivalents - end of period 4,751 14,768 4,751 14,768 10,804
======= ====== ======= ====== =======
Non-cash activities
Acquisition of Fixed Assets On Credit 1,119 1,119 784
======= ======= =======
(*) RECLASSIFIED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS.
5
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements
as of June 30, 2005 and for the six months and three months then
ended ("interim financial statements") of Mondi Business Paper
Hadera Ltd. ("the Company") and subsidiaries should be read in
conjunction with the audited consolidated financial statements of
the Company and subsidiaries as of December 31, 2004 and for the
year then ended, including the notes thereto. In the opinion of
management, the interim financial statements include all
adjustments necessary for a fair presentation of the financial
position and results of operations as of the dates and for the
interim periods presented. The results of operations for the
interim periods are not necessarily indicative of the results to
be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
The interim financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") in Israel, in a condensed format in accordance
with GAAP applicable to the preparation of interim period
financial statements, including those under Standard No.
14, "Interim Financial Reporting" and in accordance with
Paragraph D of the Israeli Securities Regulations (Periodic
and Immediate Financial Statements), 1970.
B. RECENT ACCOUNTING STANDARD - INCOME TAXES
In July 2004, the Israel Accounting Standards Board
published Accounting Standard No. 19 "Income Taxes" (the
"Standard"). The Standard established the guideline for
recognizing, measuring, presenting and disclosing taxes on
income taxes in the financial statements. The Standard is
effective for financial statements relating to reporting
periods commencing on, or after, January 1, 2005. The
initial adoption of the Standard is accounted for by the
cumulative effect of change in accounting method, for the
beginning of the period in which the Standard is initially
adopted. The implementation of Standard No. 19 did not
affect the Group's financial position, results of
operations and cash flows.
6
MONDI BUSINESS PAPER HADERA LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. Following are the changes in the representative exchange
rate of the U.S. dollar vis-a-vis the NIS and in the
Israeli Consumer Price Index ("CPI"):
REPRESENTATIVE
EXCHANGE CPI
RATE OF THE DOLLAR "IN RESPECT OF"
AS OF: (NIS PER $1) (IN POINTS)
------------------ ---------------
June 30, 2005 4.574 181.63
June 30, 2004 4.497 181.09
December 31, 2004 4.308 180.74
INCREASE (DECREASE) DURING THE: % %
------------------ ---------------
Six months ended June 30, 2005 6.2 0.5
Six months ended June 30, 2004 2.7 1.4
Three months ended June 30, 2005 4.9 1.1
Three months ended June 30, 2004 (0.7) 1.5
Year ended December 31, 2004 (1.6) 1.2
NOTE 3 - REDUCTION OF CORPORATE TAX RATE
In July 2005, the Israeli Knesset passed in second and third
reading the Law for Amending the Income Tax Ordinance (No. 147),
2005, according to which commencing in 2006 the corporate
income-tax rate would be gradually reduced, for which a 31% tax
rate was established, through 2010, in respect of which a 25% tax
rate was established. The effect of this amendment on the
deferred-tax balances of the Group will be reflected in its
interim financial statements for the third quarter of 2005. Had
the Group applied the provisions of this amendment in respect of
the June 30, 2005 deferred-tax balances, the Group would have
recorded an additional deferred income tax of approximately NIS
4,200 thousand.
7
EXHIBIT 5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
TABLE OF CONTENTS
PAGE
ACCOUNTANTS' REVIEW REPORT 1
CONDENSED FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4-5
Statements of Cash Flows 6-7
Notes to the Financial Statements 8-10
The Board of Directors of
Hogla-Kimberly Ltd.
RE: REVIEW OF UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2005
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Hogla-Kimberly Ltd. ("the
Company") and its subsidiaries, as follows:
- Balance sheet as of June 30, 2005.
- Statements of operations for the six months and three months ended June
30, 2005.
- Statements of changes in shareholders' equity for the six months and three
months ended June 30, 2005.
- Statements of cash flows for the six months and three months ended June
30, 2005.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention which indicates that
material adjustments are required to the aforementioned interim financial
statements for them to be deemed financial statements prepared in conformity
with generally accepted accounting principles in Israel and in accordance with
the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, August 4, 2005
1
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS IN THOUSANDS; REPORTED AMOUNTS)
JUNE 30, DECEMBER 31,
---------------------- -------
2005 2004 2004
------- ------- -------
(UNAUDITED)
----------------------
Assets
CURRENT ASSETS
CASH AND CASH EQUIVALENTS 58,956 80,369 117,364
CURRENT MATURITIES OF LONG TERM BANK DEPOSITS -- 8,095 --
TRADE RECEIVABLES 227,879 261,448 214,389
OTHER RECEIVABLES 39,329 19,310 35,725
INVENTORIES 128,685 113,139 142,551
------- ------- -------
454,849 482,361 510,029
------- ------- -------
LONG-TERM INVESTMENTS
LONG-TERM BANK DEPOSITS 73,184 71,952 68,928
CAPITAL NOTE OF SHAREHOLDER 32,770 32,770 32,770
------- ------- -------
105,954 104,722 101,698
------- ------- -------
FIXED ASSETS
COST 522,420 480,793 507,175
LESS-ACCUMULATED DEPRECIATION 234,166 212,210 222,256
------- ------- -------
288,254 268,583 284,919
------- ------- -------
OTHER ASSETS
GOODWILL 26,086 28,435 25,878
DEFERRED TAXES 19,467 -- 15,108
------- ------- -------
45,553 28,435 40,986
======= ======= =======
894,610 884,101 937,632
======= ======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF LONG-TERM BANK LOANS 87,578 19,261 68,747
TRADE PAYABLES 182,444 191,509 219,902
OTHER PAYABLES AND ACCRUED EXPENSES 43,502 42,454 38,720
------- ------- -------
313,524 253,224 327,369
------- ------- -------
LONG-TERM LIABILITIES
LONG-TERM BANK LOANS 73,184 103,880 81,851
DEFFERED TAXES 41,268 30,827 37,388
------- ------- -------
114,452 134,707 119,239
------- ------- -------
MINORITY INTEREST 54,732 52,887 54,492
------- ------- -------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 29,038 28,788 29,038
CAPITAL RESERVES 180,414 156,799 180,414
TRANSLATION ADJUSTMENTS RELATING TO
FOREIGN HELD AUTONOMOUS SUBSIDIARY (905) 1,690 (3,377)
RETAINED EARNINGS 203,355 256,006 230,457
------- ------- -------
411,902 443,283 436,532
======= ======= =======
894,610 884,101 937,632
======= ======= =======
T. DAVIS O. ARGOV A. SCHOR
--------------------- ----------------------- -----------------------
CHAIRMAN OF THE BOARD CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
OF DIRECTORS
APPROVAL DATE OF THE INTERIM FINANCIAL STATAMENTS: AUGUST 4, 2005.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS.
2
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS IN THOUSANDS; REPORTED AMOUNTS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
----------------------- ---------------------- ---------
2005 2004 2005 2004 2004
--------- --------- --------- --------- ---------
(unaudited) (unaudited)
----------------------- ----------------------
Net sales 553,808 524,924 279,661 258,158 995,569
Cost of sales 400,135 363,809 200,301 178,772 719,982
--------- --------- --------- --------- ---------
GROSS PROFIT 153,673 161,115 79,360 79,386 275,587
Selling expenses 99,083 94,782 49,711 49,139 193,701
General and administrative expenses 31,795 20,494 21,559 10,574 41,029
--------- --------- --------- --------- ---------
OPERATING PROFIT 22,795 45,839 8,090 19,673 40,857
Financing income (expenses), net 5,364 (6,322) 6,192 (8,402) (1,490)
Other income, net 32 1,257 32 1,170 903
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 28,191 40,774 14,314 12,441 40,270
Income taxes 11,443 10,669 7,780 (189) 10,244
--------- --------- --------- --------- ---------
INCOME AFTER INCOME TAXES 16,748 30,105 6,534 12,630 30,026
Minority interest in results of Subsidiary (240) (1,493) 441 (331) (3,098)
--------- --------- --------- --------- ---------
NET INCOME FOR THE PERIOD 16,508 28,612 6,975 12,299 26,928
========= ========= ========= ========= =========
BASIC EARNINGS PER ORDINARY SHARE
(Earnings per share (in NIS) 1.94 3.36 (*) 0.82 1.44 (*) 3.16
========= ========= ========= ========= =========
Number of Shares Used in Computation 8,513,473 8,513,473 8,513,473 8,513,473 8,513,473
========= ========= ========= ========= =========
(*) RETROACTIVELY ADJUSTED FOR THE EFFECT OF BONUS SHARE DISTRIBUTION.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
HOGLA-KIMBERLY LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
-
Translation
Adjustments
Relating to
Foreign Held
Share Capital Autonomous Retained
Capital Reserves Subsidiary Earnings Total
------- ------- ------- ------- -------
SIX MONTHS ENDED
June 30, 2005 (Unaudited)
Balance - January 1, 2005 29,038 180,414 (3,377) 230,457 436,532
Translation Adjustments
Relating to Foreign Held
Autonomous Subsidiary 2,472 2,472
Dividend Paid (43,610) (43,610)
Net Income for the Period 16,508 16,508
------- ------- ------- ------- -------
Balance - June 30, 2005 29,038 180,414 (905) 203,355 411,902
======= ======= ======= ======= =======
Six Months Ended
June 30, 2004 (Unaudited)
Balance - January 1, 2004 28,788 156,799 -- 227,394 412,981
Translation Adjustments
Relating to Foreign Held
Autonomous Subsidiary 1,690 1,690
Net Income for the Period 28,612 28,612
------- ------- ------- ------- -------
Balance - June 30, 2004 28,788 156,799 1,690 256,006 443,283
======= ======= ======= ======= =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
HOGLA-KIMBERLY LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands; Reported Amounts)
Translation Dividend
Adjustments Declared
Relating to After
Foreign Held Balance
Share Capital Autonomous Retained Sheet
Capital Reserves Subsidiary Earnings Date Total
------- ------- ------- ------- ------- -------
Three Months Ended
June 30, 2005 (Unaudited)
Balance - April 1, 2005 29,038 180,414 (897) 196,380 43,610 448,545
Translation Adjustments
Relating to Foreign Held
Autonomous Subsidiary (8) (8)
Dividend Paid (43,610) (43,610)
Net Income for the Period 6,975 6,975
------- ------- ------- ------- ------- -------
Balance - June 30, 2005 29,038 180,414 (905) 203,355 -- 411,902
======= ======= ======= ======= ======= =======
Three Months Ended
June 30, 2004 (Unaudited)
Balance - April 1, 2004 28,788 156,799 2,124 243,707 -- 431,418
Translation Adjustments
Relating to Foreign Held
Autonomous Subsidiary (434) (434)
Net Income for the Period 12,299 12,299
------- ------- ------- ------- ------- -------
Balance - June 30, 2004 28,788 156,799 1,690 256,006 -- 443,283
======= ======= ======= ======= ======= =======
Year Ended December 31, 2004
Balance - January 1, 2004 28,788 156,799 -- 227,394 -- 412,981
Distribution of Bonus Shares 250 23,615 (23,865) --
Translation Adjustments
Relating to Foreign Held
Autonomous Subsidiary (3,377) (3,377)
Net Income for the Year 26,928 26,928
------- ------- ------- ------- ------- -------
Balance - December 31, 2004 29,038 180,414 (3,377) 230,457 -- 436,532
======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
C0NDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
June 30, June 30, DECEMBER 31,
--------------------- --------------------- -------
2005 2004 2005 2004 2004
------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
--------------------- ---------------------
CASH FLOWS - OPERATING ACTIVITIES
NET INCOME FOR THE PERIOD 16,508 28,612 6,975 12,299 26,928
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES (APPENDIX A) (14,525) 10,651 (14,500) 5,504 30,683
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,983 39,263 (7,525) 17,803 57,611
------- ------- ------- ------- -------
CASH FLOWS - INVESTING ACTIVITIES
WITHDRAWAL OF LONG-TERM BANK DEPOSITS -- -- -- -- 8,138
ACQUISITION OF FIXED ASSETS (16,946) (6,117) (10,796) (2,659) (25,191)
PROCEEDS FROM SALE OF FIXED ASSETS 32 1,827 32 1,328 1,827
------- ------- ------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (16,914) (4,290) (10,764) (1,331) (15,226)
------- ------- ------- ------- -------
CASH FLOWS - FINANCING ACTIVITIES
DIVIDEND PAID (43,610) -- (43,610) -- --
LONG-TERM LOAN RECEIVED 8,933 13,603 5,877 9,176 57,672
REPAYMENT OF LONG-TERM LOAN (8,501) (4,421) (5,445) -- (15,162)
SHORT-TERM BANK CREDIT -- (1,087) -- -- (1,087)
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (43,178) 8,095 (43,178) 9,176 41,423
------- ------- ------- ------- -------
TRANSLATION ADJUSTMENTS OF CASH
AND CASH EQUIVALENTS OF FOREIGN
HELD AUTONOMOUS SUBSIDIARY (299) (39) (2,481) (164) (3,784)
======= ======= ======= ======= =======
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (58,408) 43,029 (63,948) 25,484 80,024
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 117,364 37,340 122,904 54,885 37,340
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS - END OF PERIOD 58,956 80,369 58,956 80,369 117,364
======= ======= ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS.
6
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
APPENDICES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands; Reported Amounts)
Six Months Ended Three Months Ended Year Ended
June 30, June 30, December 31,
-------------------- -------------------- -------
2005 2004 2005 2004 2004
------- ------- ------- ------- -------
(Unaudited) (Unaudited)
-------------------- --------------------
A. Adjustments to Reconcile
Net Income to Net Cash Provided
by (Used In) Operating Activities
Income and Expenses Not
Involving Cash Flows:
Minority Interest in Earnings of
Subsidiary 240 1,493 (441) 331 3,098
Depreciation and Amortization 12,374 11,726 6,265 5,674 23,468
Deferred Taxes, Net (2,760) (688) (261) (1,131) (5,011)
Gain From Sale of Fixed Assets (32) (1,257) (32) (1,170) (1,162)
Effect of Exchange Rate
Differences, Net (779) (555) (850) 43 (1,901)
Changes in Assets and
Liabilities:
Decrease (Increase) in Trade
Receivables (8,493) (29,861) (2,450) 8,468 15,763
Decrease (Increase) in Other
Receivables 1,603 (2,995) 2,027 449 (20,938)
Decrease (Increase) in Inventories 16,125 (20,113) (2,286) (12,099) (46,919)
Increase (Decrease) in Trade
Payables (30,346) 36,683 (11,464) 8,342 49,624
Net Change in Balances With
Related Parties (6,589) 11,504 (4,674) 5,275 13,591
Increase (Decrease) in Other
Payables and Accrued Expenses 4,132 4,714 (334) (8,678) 1,070
------- ------- ------- ------- -------
(14,525) 10,651 (14,500) 5,504 30,683
======= ======= ======= ======= =======
B. Non-cash Activities
Acquisition of Fixed Assets On
Credit 9,263 3,363 6,267 2,729 18,470
======= ======= ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS.
7
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial
statements as of June 30, 2005 and for the six months and
three months then ended ("interim financial statements") of
Hogla-Kimberly Ltd. ("the Company") and Subsidiaries should be
read in conjunction with the audited consolidated financial
statements of the Company and Subsidiaries as of December 31,
2004 and for the year then ended, including the notes thereto.
In the opinion of management, the interim financial statements
include all adjustments necessary for a fair presentation of
the financial position and results of operations as of June
30, 2005 and for the interim periods presented. The results of
operations for the interim periods are not necessarily
indicative of the results to be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
The interim financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") in Israel, in a condensed format in accordance with
GAAP applicable to the preparation of interim period financial
statements, including those under Standard No. 14, "Interim
Financial Reporting" and in accordance with Paragraph D of the
Israeli Securities Regulations (Periodic and Immediate
Financial Statements), 1970. The accounting principles applied
in the preparation of these interim financial statements are
consistent with those principles applied in the preparation of
the most recent annual audited financial statements with the
exception of Standard No. 19 "Income Taxes" as described in
paragraph B below.
B. INCOME TAXES
In July 2004, the Israeli Accounting Standards Board published
Accounting Standard No. 19 "Income Taxes" (the "Standard").
The Standard established the guideline for recognizing,
measuring, presenting and disclosing income taxes in the
financial statements. The Standard is effective for financial
statements relating to reporting periods commencing on, or
after, January 1, 2005. The initial adoption of the Standard
is accounted for by the cumulative effect of change in
accounting method, for the beginning of the period in which
the Standard is initially adopted. The implementation of
Standard No. 19 did not affect the Group's financial position,
results of operations and cash flows.
8
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. Following are the changes in the representative exchange rate
of the U.S. dollar vis-a-vis the NIS and the Turkish Lira, and
in the Israeli Consumer Price Index ("CPI"):
REPRESENTATIVE TURKISH LIRA CPI
EXCHANGE RATE OF EXCHANGE RATE WITH THE "IN RESPECT
THE DOLLAR DOLLAR OF"
AS OF: (NIS PER $1) (TL'000 PER $1) (IN POINTS)
June 30, 2005 4.574 1,333 181.63
June 30, 2004 4.497 1,481 181.09
December 31, 2004 4.308 1,352 180.74
INCREASE (DECREASE)
DURING THE YEAR ENDED: % % %
--- --- ---
Six months ended June 30, 2005 6.2 7.7 0.5
Six months ended June 30, 2004 2.7 3.1 1.4
Three months ended June 30, 2005 4.9 6.5 1.1
Three months ended June 30, 2004 (0.7) 13.7 1.5
December 31, 2004 (1.6) (2.9) 1.2
NOTE 3 -SUPPLEMENTAL DATA
A. REDUCTION OF CORPORATE TAX RATE
In July 2005, the Israeli Knesset passed in second and third
reading the Law for Amending the Income Tax Ordinance (No.
147), 2005, according to which commencing in 2006 the
corporate income-tax rate would be gradually reduced, for
which a 31% tax rate was established, through 2010, in respect
of which a 25% tax rate was established. The effect of this
amendment on the deferred-tax balances of the Group will be
reflected in its interim financial statements for the third
quarter of 2005. Had the Group applied the provisions of this
amendment in respect of the June 30, 2005 deferred-tax
balances, the Group would have recorded an additional deferred
income tax of approximately NIS 3 million.
9
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
NOTE 3 -SUPPLEMENTAL DATA (cont.)
B. PROVISION FOR DOUBTFUL ACCOUNTS
In July 2005, Clubmarket Marketing Chains Ltd. ("Clubmarket"),
a customer of the Company and one of the largest retail groups
in Israel, applied for the regional court in Tel-Aviv for a
staying of procedures by creditors. The court protection was
granted until August 17, 2005. A resolution whether to grant a
longer court protection period to allow for Clubmarket
recovery or to liquidate its assets is expected. As a result,
the interim financial statements include a provision of NIS
10.6 million for doubtful accounts, which is included in the
general and administrative expenses line item. The remaining
net balance of Clubmarket as of June 30, 2005, that is in
excess of the doubtful accounts provision recorded, is
approximately NIS 5.3 million, which represents approximately
25% of the balance as of such date (including VAT).
The net sales to Clubmarket during the six-month period ended
June 30, 2005 constituted approximately 6.4% of total net
sales on a consolidated basis. The Company estimates that
there will be no material effect on the Group's net sales in
the future, in the event Clubmarket fully ceases all its
operations.
10