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 November 2004
-----------------------
AMERICAN ISRAELI PAPER MILLS LTD.
(Translation of Registrant's Name into English)
P.O. Box 142, Hadera, Israel
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
|X| Form 20-F |_| Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): |_|
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): |_|
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
|_| Yes |X| No
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-______________
Attached hereto as Exhibit 1 and incorporated herein by reference is the
Registrant's press release dated November 11, 2004 with respect to the
Registrant's results of operations for the quarter ended September 30, 2004.
Attached hereto as Exhibit 2 and incorporated herein by reference is the
Registrant's Management Discussion with respect to the Registrant's results of
operations for the quarter ended September 30, 2004.
Attached hereto as Exhibit 3 and incorporated herein by reference are the
Registrant's unaudited consolidated financial statements for the quarter ended
September 30, 2004.
Attached hereto as Exhibit 4 and incorporated herein by reference is the
Unaudited Condensed interim consolidated financial statements of Neusiedler
Hadera Paper Ltd. with respect to the quarter ended September 30, 2004.
Attached hereto as Exhibit 5 and incorporated herein by reference are the
unaudited condensed interim consolidated financial statements of Hogla-Kimberly
Ltd. and subsidiaries with respect to the quarter ended September 30, 2004.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ISRAELI PAPER MILLS LTD.
(Registrant)
By: /s/ Lea Katz
----------------------------------
Name: Lea Katz
Title: Corporate Secretary
Dated: November 11, 2004.
EXHIBIT INDEX
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Exhibit No. Description
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1. Press release dated November 11, 2004.
2. Registrant's management discussion.
3. Registrant's unaudited condensed consolidated
financial statements.
4. Interim report of Neusiedler Hadera Paper Ltd.
5. Unaudited condensed interim consolidated financial
statements of Hogla-Kimberly Ltd. and
subsidiaries.
Exhibit 1
NEWS
Client: AMERICAN ISRAELI
PAPER MILLS LTD.
Agency Contact: PHILIP Y. SARDOFF
For Release: IMMEDIATE
American Israeli Paper Mills Ltd.
Reports Financial Results For Third Quarter and Nine Months
Hadera, Israel, November 11, 2004 - American Israeli Paper Mills Ltd. (ASE:AIP)
(the "Company" or "AIPM") today reported financial results for the third quarter
and first nine months ended September 30,2004.
Pursuant to the directives of Standard No.12 of the Accounting Israeli Standards
Board ("Standard 12"), the Company began to report in nominal New Israeli
Shekels (NIS) as of January 1, 2004. In the past, the Company's reports were in
NIS, adjusted to changes in the exchange rate of the US dollar against the NIS.
The comparison figures with the corresponding periods last year and with all of
2003 are the dollar figures, as reported in the past, multiplied by the exchange
rate of the US dollar as of December 31, 2003, the day of the transition to
NIS-based reporting pursuant to Standard 12 ($1 = NIS 4.379).
Since the Company's share in the earnings of associated companies constitutes a
material component in the Company's statement of income (primarily on account of
its share in the earnings of Neusiedler Hadera Paper (NHP) and Hogla-Kimberly
(H-K) that were consolidated in the past, until the transfer of control over
these companies to the international strategic partners), the Company also
presents 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 nine months of 2004 (January - September
2004) totaled NIS 2,001.9 million compared with NIS 1,764.8 million in the
corresponding period last year (January - September 2003). Aggregate sales in
the third quarter of 2004 (July - September 2004) totaled NIS 664.9 million,
compared with NIS 621.9 million in the corresponding quarter last year (July -
September 2003).
Aggregate operating profit in the first nine months of 2004 totaled NIS 147.0
million compared with NIS 119.9 million in the corresponding period last year.
Aggregate operating profit in the third quarter of 2004 totaled NIS 41.9
million, compared with NIS 46.6 million in the corresponding quarter last year.
The consolidated data below does not include the results of operations of NHP,
H-K, Carmel Container Systems and TMM Integrated Recycling industries, which are
included in the Company's share in results of associated companies.
Consolidated sales in the first nine months of 2004 totaled NIS 358.3 million
compared with NIS 350.0 million in the corresponding period last year.
Consolidated sales in the third quarter of the year totaled NIS 120.1 million,
compared with NIS 117.3 million in the corresponding quarter last year.
Operating profit in the first nine months of 2004 totaled NIS 40.6 million
compared with NIS 35.0 million in the corresponding period last year. Operating
profit in the third quarter of 2004 totaled NIS 13.3 million, compared with NIS
12.0 million in the corresponding quarter last year.
Profit after taxes and before the Company's share in the profits of associated
companies in the reported period amounted to NIS 27.4 million (including an
extraordinary tax benefit of NIS 5.8 million - see below), compared with NIS
17.4 million in the corresponding period last year (including NIS 1 million
non-recurring capital gain).
Net profit totaled NIS 57.0 million during the nine months period this year, as
compared with NIS 45.0 million in the corresponding period last year. Net profit
in the reported period includes profit in respect of the effects of the
reduction of the corporate tax rate (from 36% to 30% by 2007) on the deferred
tax reserve (at the Company, and our share in associated companies), which
amounted to NIS 10.2 million Net profit in the corresponding period last year
included approximately NIS 1.0 million in net non-recurring capital gains.
Earnings per share (EPS)in the first nine months of 2004 totaled NIS 14.05
compared with NIS 11.19for the corresponding period last year.
The inflation rate in the first nine months of 2004 was 1.2% as compared with
negative inflation rate of -1.5% in the corresponding period last year.
The exchange rate of the NIS was devaluated against the U.S. dollar in the first
nine months of 2004 by approximately 2.4% as compared with a revaluation of 6.2%
in the corresponding period last year.
Mr. Yaacov Yerushalmi, Chairman of the Company's Board of Directors, said that a
certain growth and recovery has been felt in the Israeli economy since the
beginning of 2004, reflected by positive growth rates, increased demand and an
optimistic atmosphere in the markets.
Nevertheless, this growth has scaled back somewhat over the past several months,
and the growth in demand in the Israeli economy has stopped.
Pulp prices have been rising since March 2004 and in view of the competition
from imports - primarily from Europe - the margins between paper selling prices
and pulp prices have decreased.
The rising fuel prices over the past several months also affect the Group's
operations, both on account of higher fuel oil and electricity prices - that
serve for production - and primarily due to the higher diesel prices, that serve
for the Group's transportation.
2
Despite the aforesaid market conditions, the Group managed to maintain its
profitability.
The consolidated gross margin as a percentage of sales reached 22.8% in the
first nine months of 2004 as compared with 22.3% in the corresponding period
last year.
The improved gross margin compared to the corresponding period last year,
resulted from the Company's increased sales and continuing efficiency measures.
The improvement in the profit was partially offset by the increase of raw
materials prices, mainly in the collection of paper waste for recycling.
The Company's share in the earnings of associated companies in the reported
period amounted to NIS 29.6 million (including NIS 4.4 million representing the
Company's share in a non-recurring benefit recorded in respect of the change in
the corporate tax rate), compared with NIS 27.6 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 (this year - not including the
aforementioned tax benefit), in relation to the corresponding period last year:
o The Company's share in the net earnings of NHP (49.9%), fell by NIS 3.2
million. The decline in the earnings is due to a decrease in operating
profit (primarily due to lower margins, resulting from higher pulp prices
that were not fully compensated for by higher selling prices, due to the
escalating competition in the fine paper sector in Europe). Additional
factor resulting in the decline is the elevated financial expenses this
year resulting from the repayment of shareholder loans, that led to an
increase in NHP's debt balance, and from the 2.4% devaluation of the NIS
against the U.S. dollar (due to the transition to reporting in NIS
pursuant to Standard 12, since NHP possesses a surplus of
dollar-denominated liabilities).
o The Company's share in the earnings of Hogla-Kimberly Israel (49.9%)
increased by approximately NIS 3.9 million, primarily due to the ongoing
improvement in operating profit at Hogla-Kimberly Israel, as compared with
the corresponding period last year. This improvement was achieved
primarily as a result of higher sales prices and quantitative growth,
coupled with the continuing efficiency measures, both in logistics and in
production, and particularly as a result of the expanded production of
Huggies diapers in Afula. The said increase was offset by lower financial
revenues this year as compared with last year, due to the transition to
reporting in NIS pursuant to Standard 12 and the effects of
devaluation/revaluation differentials on Hogla's linkage balance sheet.
o The Company's share in the net profits of Ovisan (Turkey) (49.9%) fell by
NIS 7.6 million despite the increased output and the expansion of
operations and was attributable primarily to the effects of the
devaluation of the Turkish lira, affecting both the costs of raw
materials, which are purchased mainly in dollars, and the financial
expenses. The results were also influenced by the fierce competition in
the Turkish market, expressed by increased advertising expenses along with
lower prices.
o The Company's share in the net profits of the Carmel Group (26.25%)
increased by NIS 2.5 million, due to the continuing improvement in the
operating profit. The improvement is attributed to the comprehensive
efficiency measures being initiated by the Carmel Group, coupled with the
growth in the volume of operations.
3
o The Company's share in the net profits of TMM (41.6%) increased by NIS 0.2
million. The improvement is attributed to a certain improvement in the
operating profit (despite the significant increase in transportation
costs, due to the considerable rise in diesel prices), coupled with a
significant decrease in the TMM's financial expenses during the reported
period, as compared with the corresponding period last year, attributed -
among other factors - to the decrease in the interest rate between the
periods.
A total of 16,678 shares were issued during the reported period (0.4% dilution),
as a result of the exercise of 44,494 option warrants as part of the Company's
employee stock option plans.
In August, the Company declared a dividend payment for 2004, in the amount of
approximately NIS 100 million (NIS 25.12 per share). The dividend was paid in
September 2004.
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(1)
except per share amounts
Nine Months Ended September 30,
-------------------------------
2004 2003
---- ----
Net sales 358,316 349,989
Net earnings 57,023(2) 44,951
Earnings per share 14.05(2) 11.19
Three Months Ended September 30,
--------------------------------
2004 2003
---- ----
Net sales 120,072 117,292
Net earnings 14,393 13,596
Earnings per share 3.56 3.38
(1) New Israeli Shekel amounts are reported according to Accounting
Standard No. 12 of the Israeli Accounting Standard Board (hereafter -
Standard No. 12) - "Discontinuance of Adjusting Financial Statements
for Inflation". The reported NIS under Standard No. 12 are nominal NIS,
for transactions made after January 1, 2004. The amounts of the
corresponding period last year have been adjusted to reflect changes in
the rate of exchange between the U.S. dollar and the New Israeli Shekel
until the end of December 2003 (date of transition to Standard No. 12).
The representative exchange rate at September 30,2004 was NIS
4.482=$1.00 and the representative exchange rate at December 31,2003
was NIS 4.379=$1.00.
(2) The net earnings in the reported period include NIS 10.2 million, tax
benefit resulting from a tax rate reduction (including the company's
share in the tax benefit of the associated companies) - see above.
5
Exhibit 2
November 10, 2004
MANAGEMENT DISCUSSION
We are honored to present the consolidated financial statements of the American
Israeli Paper Mills Ltd. Group ("AIPM" or the "Group") for the first nine months
of the year 2004.
A. Summary of the Group and its Business Environment
1. General
AIPM is the leading Israeli group in the manufacture of paper and
paper products. The Group produces and markets a wide range of
paper types, household paper products, hygienic products,
disposable baby diapers, absorbent products for the incontinent,
office supplies, corrugated board packaging and consumer packaging.
The Group is also engaged in recycling operations in the fields of
paper and plastics as well as in the treatment of solid waste.
The company's securities are traded on the Tel Aviv Stock Exchange
and on the American Stock Exchange (AMEX).
2. The Business Environment
The Israeli economy embarked on a trend of growth and recovery since
the beginning of 2004, following a severe recession that lasted
several years. This recovery was expressed by positive growth rates,
increased demand and an optimistic atmosphere in the markets.
Nevertheless, this growth has scaled back somewhat over the past
several months, and the growth in demand in the Israeli economy has
stopped.
In all sectors of operation, the AIPM Group is continuing to deal
with significant and escalating competition in the local market and
against imports.
A strike in the Israeli ports, that lasted for one month in the
third quarter of the year, also affected the financial results
during the reported period, due to delays in the arrival of raw
materials and in the departure of export shipments, coupled with
additional costs on account of payments to shipping companies for
transportation and storage in foreign ports.
Pulp prices have been rising since March 2004 and in view of the
competition from imports - primarily in Europe - the margins between
paper selling prices and pulp prices have decreased.
The rising fuel prices over the past several months also affect the
Group's operations, both on account of higher fuel oil and
electricity prices - that serve for production -
2
and primarily due to the higher diesel prices, that serve for the
Group's transportation means.
Despite the aforesaid market conditions, the Group managed to
maintain its profitability while continuing its development and
examining the possibility of transforming its energy generation
systems to natural gas.
The Group made the transition to reporting in nominal New Israeli
Shekels (NIS) in 2004, pursuant to the directives of Standard 12 of
the Israeli Accounting Standards Board. In the past, the Group's
reports were in NIS, adjusted to changes in the exchange rate of the
US dollar against the NIS. The comparison figures with the
corresponding period last year and with all of 2003 are the dollar
figures, as reported in the past, multiplied by the exchange rate of
the US dollar as at December 31, 2003, the day of the transition to
NIS-based reporting pursuant to Standard 12 ($1 = NIS 4.379).
During the reported period (January-September 2004), the exchange
rate of the NIS in relation to the US dollar was devaluated by
approximately 2.4%, as compared with a revaluation of 6.2% in the
corresponding period last year (January-September 2003).
The inflation rate during the reported period amounted to 1.2%, as
compared with a negative inflation rate of -1.5% in the
corresponding period last year.
B. Results of Operations
1. Aggregate Data
Since the Group's share in the earnings of associated companies
constitutes a material component in the company's statement of
income (primarily on account of its share in the earnings of
Neusiedler Hadera Paper ("NHP") and Hogla-Kimberly that were
consolidated in the past, until the transfer of control over these
companies to the international strategic partners), the aggregate
data appearing below 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"), without considering the rate of holding and net of
mutual sales.
The aggregate sales amounted to NIS 2,001.9 million during the
reported period, as compared with NIS 1,764.8 million in the
corresponding period last year.
The aggregate operating profit totaled NIS 147.0 million during the
reported period, as compared with NIS 119.9 million in the
corresponding period last year.
The aggregate sales in the third quarter of the year (July-September
2004) totaled NIS 664.9 million, as compared with NIS 621.9 million
in the corresponding quarter last year (July-September 2003).
The aggregate operating income in the third quarter of the year
totaled NIS 41.9 million, as compared with NIS 46.6 million in the
corresponding quarter last year.
3
2. Consolidated Data
The Consolidated data does not include the results of operation of
NHP (fine paper), Hogla-Kimberly, Carmel and TMM.
The sales during the reported period amounted to NIS 358.3 million,
as compared with NIS 350.0 million in the corresponding period last
year.
The operating profit totaled NIS 40.6 million during the reported
period, as compared with NIS 35.0 million in the corresponding
period last year.
The sales in the third quarter of the year amounted to NIS 120.1
million, as compared with NIS 117.3 million in the corresponding
quarter last year.
The operating income in the third quarter of the year totaled NIS
13.3 million, as compared with NIS 12.0 million in the corresponding
quarter last year.
The financial expenses amounted to NIS 7.6 million during the
reported period, as compared with NIS 11.7 million in the
corresponding period last year (see C5, below).
The profit after taxes and prior to the company's share in the
earnings of associated companies amounted to NIS 27.4 million this
year (including an extraordinary tax benefit of NIS 5.8 million -
see below), as compared with NIS 17.4 million in the corresponding
period last year.
3. Net Profit and Earnings Per Share
The net profit totaled NIS 57.0 million during the reported period,
as compared with NIS 45.0 million in the corresponding period last
year.
The net profit in the reported period includes profit in respect of
the effects of the reduction of the corporate tax rate (gradually
from 36% to 30% by 2007) on the deferred tax reserve (at the
Company, and our share in associated companies), which amounted to
NIS 10.2 million (see also C6 below). The net profit last year
included NIS 1.0 million in non-recurring capital gains, net.
The Earnings Per Share in the reported period amounted to NIS 1,405
per NIS 1 par value ($3.14 per share), as compared with NIS 1,119
per NIS 1 par value ($2.56 per share) in the corresponding period
last year.
The return on shareholders' equity in annual terms (not including
extraordinary earnings) amounted to 10.2% during the reported
period, as compared with 9.2% 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
358.3 million, as compared with NIS 350.0 million in the
corresponding period last year.
4
The increase in sales is primarily attributed to a quantitative
increase in the sales of packaging paper and a slight improvement in
the average price of fluting and of paper waste.
2. Cost of Sales
The cost of sales amounted to NIS 276.8 million, or 77.2% of sales,
during the reported period, as compared with NIS 272.0 million, or
77.7% of sales, in the corresponding period last year.
The gross margin as a percentage of sales reached 22.8% during the
reported period, as compared with 22.3% in the corresponding period
last year.
The improved gross margin compared to the corresponding period last
year, resulted from the Company's increased sales and continuing
efficiency measures. The said improvement in the profit was
partially offset by the increase of raw materials prices, primarily
in the collection of paper waste for recycling.
Labor Wages
Wages in the cost of sales and selling, general and administrative
expenses amounted to NIS 108.1 million in the reported period, as
compared with NIS 102.3 million in the corresponding period last
year.
Since in the corresponding period the data were reported adjusted to
the dollar, and taking into account the effects of changes in the
exchange rate of the dollar on the reporting last year, with the
transition to reporting in accordance with Standard 12, the adjusted
cost of wages last year, presented above, is about NIS 4.7 million
lower than the nominal cost incurred at that time that amounted to
NIS 107.0 million.
3. Selling, General and Administrative Expenses
The selling, general and administrative expenses (including wages)
amounted to NIS 40.9 million in the reported period, or 11.4% of
sales, as compared with NIS 43.0 million, or 12.3% of sales, in the
corresponding period last year.
4. Operating Income
The operating profit totaled NIS 40.6 million during the reported
period (11.3% of sales), as compared with NIS 35.0 million (10.0% of
sales) in the corresponding period last year.
5. Financial Expenses
The financial expenses amounted to NIS 7.6 million during the
reported period, as compared with NIS 11.7 million in the
corresponding period last year.
The structure of the Company's linkage bases includes a surplus of
dollar-linked assets on the one hand, coupled with a surplus of
NIS-denominated liabilities, on the other hand.
5
The financial expenses in the corresponding period last year were
influenced by the sharp revaluation of the shekel against the dollar
(6.2%), which caused a significant increase in the financial
expenses during the said period, as financial reporting was adjusted
to the dollar.
With the transition to reporting in nominal shekels in accordance
with Standard 12 this year, the Company's financial expenses have
decreased in the reported period this year, as a result of the
effects of the devaluation during the reported period (2.4%) on the
Company's surplus dollar assets.
The financial expenses this year were also influenced - on the one
hand - by the decrease in the average interest rates on short-term
credit (from 8.8% last year to 5.1% this year), and by the increased
credit and the impact of the issue of notes in late 2003, on the
other hand.
6. Taxes on Income
Taxes on income from current operations amounted to NIS 11.4 million
in the reported period, as compared with NIS 7.0 million in the
corresponding period last year.
The principal factors responsible for the increase in tax expenses
in the reported period as compared with the corresponding period
last year, are the growth in pre-tax profits this year and the
benefit recorded last year due to the sharp increase in tax expenses
(erosion of the reserve).
In June this year a law was passed in Israel, effective
retroactively from January 1, 2004, which gradually lowers the
corporate tax rate (36% prior to the amendment) to 35% in 2004 and
down to 30% by 2007.
The effect of this change on the Company's deferred taxes (in the
consolidated report) amounted to a benefit of NIS 5.8 million
(primarily due to the decrease in future tax liabilities which were
deferred in respect of timing differences in depreciation, which was
calculated at an accelerated pace in the tax reports). This benefit
served to lower the reported tax expenses this year to only NIS 5.6
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: NHP, Hogla-Kimberly,
Carmel and TMM.
The Company's share in the earnings of associated companies amounted
to NIS 29.6 million in the reported period (including NIS 4.4
million as our share in a non-recurring benefit recorded in respect
of the change in the corporate tax rate on the deferred earnings of
the companies), as compared with NIS 27.6 million in the
corresponding period last year.
The following principal changes were recorded in the Company's share
in the earnings of associated companies (this year - not including
the aforementioned tax benefit), in relation to the corresponding
period last year:
- The Company's share in the net earnings of NHP (49.9%), fell
by NIS 3.2 million. The decline in the earnings is due to a
decrease in operating profit
6
(primarily due to lower margins, resulting from higher pulp
prices that were not fully compensated for by higher selling
prices, due to the escalating competition in the fine paper
sector in Europe). Additional factor resulting in the decline
is the elevated financial expenses this year resulting from
the repayment of shareholder loans, that led to an increase in
NHP's debt balance, and from the 2.4% devaluation of the NIS
against the U.S. dollar (due to the transition to reporting in
NIS pursuant to Standard 12, since NHP possesses a surplus of
dollar-denominated liabilities).
- The Company's share in the earnings of Hogla-Kimberly Israel
(49.9%) increased by approximately NIS 3.9 million, primarily
due to the ongoing improvement in operating profit at
Hogla-Kimberly Israel, as compared with the corresponding
period last year. This improvement was achieved primarily as a
result of higher sales prices and quantitative growth, coupled
with the continuing efficiency measures, both in logistics and
in production, and particularly as a result of the expanded
production of Huggies diapers in Afula. The said increase was
offset by lower financial revenues this year as compared with
last year, due to the transition to reporting in NIS pursuant
to Standard 12 and the effects of devaluation/revaluation
differentials on Hogla's linkage balance sheet.
- The Company's share in the net profits of Ovisan (Turkey)
(49.9%) fell by NIS 7.6 million despite the increased output
and the expansion of operations and was attributable primarily
to the effects of the devaluation of the Turkish lira,
affecting both the costs of raw materials, which are purchased
mainly in dollars, and the financial expenses. The results
were also influenced by the fierce competition in the Turkish
market, expressed by increased advertising expenses along with
lower prices.
- The Company's share in the net profits of the Carmel Group
(26.25%) increased by NIS 2.5 million, due to the continuing
improvement in the operating profit. The improvement is
attributed to the comprehensive efficiency measures being
initiated by the Carmel Group, coupled with the growth in the
volume of operations.
- The Company's share in the net profit of TMM (41.6%) increased
by NIS 0.2 million. The improvement is attributed to a certain
improvement in the operating profit (despite the significant
increase in transportation costs, due to the considerable rise
in diesel prices), coupled with a significant decrease in
TMM's high financial expenses during the reported period, as
compared with the corresponding period last year, attributed -
among other factors - to the decrease in the interest rate
between the periods.
7
D. Liquidity and Investments
1. Accounts Receivable - Trade
Accounts Receivable, as at September 30, 2004, amounted to NIS 155.1
million, as compared with NIS 146.0 million at September 30, 2003.
The higher accounts receivable balance is attributed primarily to
the growth in the volume of operations.
2. Cash Flows
The operating cash flows totaled NIS 33.8 million during the
reported period, as compared with NIS 15.6 million in the
corresponding period last year (Prior to NIS 16.4 million in
dividends received from an associated company. Together with the
said dividend, the cash flows from operating activities amounted to
NIS 32.0 million last year). The improvement in the cash flows from
operating activities during the reported period originated primarily
from a smaller increase in operating working capital during the
reported period, as compared with last year, when significant growth
was recorded, primarily of a non-recurring nature.
3. Investments in Fixed Assets
Investments in fixed assets totaled NIS 20.9 million in the reported
period, as compared with NIS 19.2 million in the corresponding
period last year, and included current investments in production,
marketing and transport processes as well as the expansion of
confidential data destruction operations in Israel.
4. Financial Liabilities
The long-term liabilities (including current maturities) amounted to
NIS 270.9 million as at September 30, 2004, as compared with NIS
73.9 million as at September 30, 2003. Most of the increase in the
long-term liabilities is attributed to loans raised through an issue
of notes (Series 2) from institutional entities, in the amount of
NIS 200 million, on December 21, 2003.
Some of the proceeds from the issue of the notes served for the
repayment of short-term credit, while the rest was invested
primarily in deposits and in short-term financial assets.
The balance of short-term credit, as at September 30, 2004, amounted
to NIS 112.6 million, as compared with NIS 188.1 million at
September 30, 2003.
E. Exposure and Management of Market Risks
Pursuant to the Management Discussion dated December 31,2001, 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
September 30, 2004.
8
The Company possesses CPI-linked liabilities (net of deposits) in the net
overall sum of NIS 180 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.
Therefore in January 2004, the company entered into a forward transaction,
with a term of one year, to hedge a sum of NIS 200 million against a rise
in the CPI (at a cost of 0.92% per annum).
Report of Linkage Bases
The following are the balance sheet items, according to linkage bases, as
at December 31,2003 and updated for September 30, 2004.
------------------------------------------ ------------- --------- ------------------- --------------- ------------
In NIS Millions Unlinked CPI-linked In foreign Non-monetary Total
currency, or linked items
thereto (primarily
US$)
------------------------------------------ ------------- --------- ------------------- --------------- ------------
Assets
Cash and cash equivalents 1.4 2.7 4.1
Short-term deposits and
investments 16.4 45.7 62.1
Other Accounts Receivable 235.9 46.9 10.4 293.2
Inventories 87.6 87.6
Investments in associated
companies 12.6 11.2 9.0 369.3 402.1
Deferred taxes on income 3.9 3.9
Fixed assets, net 325.0 325.0
Deferred expenses, net of
accrued amortization 1.1 1.1
------------------------------------------ ------------- --------- ------------------- --------------- ------------
Total Assets 266.3 56.9 58.6 797.3 1,179.1
----- ---- ---- ----- -------
Liabilities
Credit from Banks 112.6 112.6
Accounts Payable 158.5 10.6 169.1
Deferred taxes on income 54.7 54.7
Notes 235.8 235.8
Other liabilities 32.8 2.3 35.1
Shareholders' equity 571.8 571.8
------------------------------------------ ------------- --------- ------------------- --------------- ------------
Total liabilities and equity 303.9 235.8 12.9 626.5 1,179.1
----- ----- ---- ----- -------
------------------------------------------ ------------- --------- ------------------- --------------- ------------
Surplus financial assets (liabilities) (37.6) (178.9) 45.7 170.8 -
as at Sept-30-2004
------------------------------------------ ------------- --------- ------------------- --------------- ------------
Surplus financial assets (liabilities) 69.4 (229.2) 65.2 94.6 -
as at Dec- 31- 2003
------------------------------------------ ------------- --------- ------------------- --------------- ------------
Associated Companies
Hogla-Kimberly, an associated company, possesses a subsidiary operating in
Turkey. The impact of the exposure of this subsidiary to the economic
situation in Turkey - and especially to fluctuations in the exchange rate
of the Turkish lira in relation to the US dollar - might affect the
Group's financial statements within the framework of the Company's share
in the earnings of associated companies.
9
E. 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.
F. Miscellaneous
The Company began operating in the confidential data destruction sector in
Switzerland this year, through the operation of mobile shredder trucks at
customer sites, as part of a process intended to analyze the feasibility
of penetrating this sector of operations in Europe. The company is
currently in the organization stages and the building of a customer base.
G. Donations and Contributions
The AIPM Group, within the framework of its business and social
commitment, invests efforts and resources in community assistance and
support, while focusing on providing help to the weaker echelons of
Israeli society -primarily teenagers - as part of a desire to build and
contribute to shaping the human fabric of Israeli society. As part of this
policy, the company makes contributions to various institutions 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, the Group operates, through the Shenkar Foundation, that was
established by the company together with its Austrian partner in NHP,
where a sum totaling NIS 90 thousand was granted for student scholarships
this year.
H. General
o 16,678 shares were issued during the reported period (0.4%
dilution), on account of the exercise of 44,494 option warrants as
part of the Company's employee option plans.
o The company signed a memorandum of understanding in August 2004,
subject to the signing of an agreement, for the purchase of natural
gas from the partners in the Thetis Sea Group, as part of the
Company's plans to convert its energy generating systems to natural
gas.
o During the Company's board meeting held on August 11, 2004, a
decision was made to distribute a total sum of NIS 100 million as
dividends to the shareholders on account of 2004 (NIS 25.12 per
share).
The dividend was paid in September 2004.
10
o The board of directors decided on October 12, 2004, to appoint Avi
Brener as the Group's General Manager. The appointment will be
effective as of January 1, 2005.
--------------------------------------- ---------------------------------------
Y. Yerushalmi Zvi Livnat
Chairman of the Board of Directors Director
Exhibit 3
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED BALANCE SHEETS
NIS IN THOUSANDS (see note 1c)
SEP. 30, 2004 SEP. 30, 2003 DEC. 31, 2003
(UNAUDITED) (UNAUDITED) (AUDITED)
---------- ---------- ----------
Current assets :
Cash and cash equivalents 4,088 5,549 158,706
Short-term deposit and investments 62,087 20,000
Receivables :
Trade 155,141 146,041 140,996
Other 137,975 140,488 128,246
Inventories 87,645 88,433 90,654
---------- ---------- ----------
Total current assets 446,936 380,511 538,602
Investments and long term receivables:
Investments in associated companies 402,090 381,389 383,879
Deferred income taxes 3,885 3,885
---------- ---------- ----------
405,975 381,389 387,764
Fixed assets
Cost 969,531 945,754 953,656
Less - accumulated depreciation 644,510 622,905 628,015
---------- ---------- ----------
325,021 322,849 325,641
Deferred charges -
net of accumulated amortization 1,146 485 1,267
---------- ---------- ----------
1,179,078 1,085,234 1,253,274
---------- ---------- ----------
Current liabilities:
Credit from banks 112,573 188,058 144,989
Current maturities of long-term notes 6,668 6,542 6,590
Payables and accured liabilities :
Trade 84,132 89,567 84,602
Other 85,021 73,827 73,010
---------- ---------- ----------
Total current liabilities 288,394 357,994 309,191
Long-term liabilities
Deferred income taxes 54,672 61,148 61,801
Loans from banks and other liabilities (net
of current maturities):
Notes 229,181 32,809 233,039
Other liabilities 35,067 34,557 35,013
---------- ---------- ----------
Total long term liabilities 318,920 128,514 329,853
Total liabilities 607,314 486,508 639,044
Shareholders' equity :
Share capital 125,257 125,256 125,257
Capital surplus 90,060 90,060 90,060
Currency adjustments in respect of financial
statements of associated companies (647) (1,529) (1,122)
Retained earnings 357,094 384,939 400,035
---------- ---------- ----------
571,764 598,726 614,230
---------- ---------- ----------
1,179,078 1,085,234 1,253,274
---------- ---------- ----------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME
NIS IN THOUSANDS (see note 1c)
NINE-MONTH PERIOD THREE-MONTH PERIOD YEAR ENDED
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 DEC. 31
---------------------- ---------------------- --------
2004 2003 2004 2003 2003
-------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (AUDITED)
---------------------- ---------------------- --------
Net sales 358,316 349,989 120,072 117,292 465,092
Cost of sales 276,764 271,976 93,390 91,197 362,185
-------- -------- -------- -------- --------
Gross profit 81,552 78,013 26,682 26,095 102,907
-------- -------- -------- -------- --------
Selling and marketing, administrative
and general expenses :
Selling and marketing 23,267 23,615 7,363 8,521 31,324
Administrative and general 17,681 19,375 6,053 5,613 24,999
-------- -------- -------- -------- --------
40,948 42,990 13,416 14,134 56,323
-------- -------- -------- -------- --------
Income from ordinary operations 40,604 35,023 13,266 11,961 46,584
-------- -------- -------- -------- --------
Financial expenses (income) - net 7,617 11,693 3,146 (327) 15,989
Gain from realization of assets 1,609 1,609
-------- -------- -------- -------- --------
Income before taxes on income 32,987 24,939 10,120 12,288 32,204
-------- -------- -------- -------- --------
Taxes on income (see note 2) 5,576 7,567 3,700 5,909 7,706
Income from operations of the company
and the consolidated subsidiaries 27,411 17,372 6,420 6,379 24,498
-------- -------- -------- -------- --------
Share in profits of associated companies - net 29,612 27,579 7,973 7,217 35,549
-------- -------- -------- -------- --------
Net income for the period 57,023 44,951 14,393 13,596 60,047
-------- -------- -------- -------- --------
Net income per NIS 1 par value of shares (in N.I.S) 1,405 1,119 356 338 1,494
-------- -------- -------- -------- --------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
ADJUSTMENTS
SUMMARY OF STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY DUE TO THE
NIS IN THOUSANDS (see note 1c) TRANSLATION
OF FINANCIAL
STATEMENTS
SHARE CAPITAL OF ASSOCIATED RETAINED
CAPITAL SURPLUS COMPANIES EARNINGS TOTAL
----------- ----------- -------------- ----------- ----------
Balance at January 1, 2004 (audited) 125,257 90,060 (1,122) 400,035 614,230
Changes during the nine month period ended September 30, 2004
(unaudited) :
Net income 57,023 57,023
Dividend distributed (99,964) (99,964)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies 475 475
----------- ----------- -------------- ----------- ----------
Balance at September 30, 2004 (unaudited) 125,257 90,060 (647) 357,094 571,764
----------- ----------- -------------- ----------- ----------
Balance at January 1, 2003 (audited) 125,256 90,060 (3,482) 439,116 650,950
Changes during the nine month period ended September 30, 2003
(unaudited) :
Net income 44,951 44,951
Dividend distributed (99,128) (99,128)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies 1,953 1,953
----------- ----------- -------------- ----------- ----------
Balance at September 30, 2003 (unaudited) 125,256 90,060 (1,529) 384,939 598,726
----------- ----------- -------------- ----------- ----------
Balance at July 1, 2004 (unaudited) 125,257 90,060 (279) 442,665 657,703
Changes during the three month period ended September 30, 2004
(unaudited):
Net income 14,393 14,393
Dividend distributed (99,964) (99,964)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies (368) (368)
----------- ----------- -------------- ----------- ----------
Balance at September 30, 2004 (unaudited) 125,257 90,060 (647) 357,094 571,764
----------- ----------- -------------- ----------- ----------
Balance at July 1, 2003 (unaudited) 125,256 90,060 109 445,410 660,835
Changes during the three month period ended September 30, 2003
(unaudited):
Net income 13,596 13,596
Dividend distributed (74,067) (74,067)
Exercise of employees options into shares * *
Adjustments due to the translation respect of financial
statements of associated companies (1,638) (1,638)
----------- ----------- -------------- ----------- ----------
Balance at September 30, 2003 (unaudited) 125,256 90,060 (1,529) 384,939 598,726
----------- ----------- -------------- ----------- ----------
Balance at January 1, 2003 (audited) 125,256 90,060 (3,482) 439,116 650,950
Changes during the year ended December 31, 2003 (audited) :
Net income 60,047 60,047
Dividend distributed (99,128) (99,128)
Exercise of employees options into shares 1 1
Adjustments due to the translation respect of financial
statements of associated companies 2,360 2,360
----------- ----------- -------------- ----------- ----------
Balance at December 31, 2003 (audited) 125,257 90,060 (1,122) 400,035 614,230
----------- ----------- -------------- ----------- ----------
* Represents a sum under 1,000 NIS.
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS LTD.
SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS IN THOUSANDS (see note 1c)
NINE-MONTH NINE-MONTH THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30, 2004 SEPT.30, 2003 SEPT. 30,2004 SEPT. 30, 2003 DEC. 31,2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (AUDITED)
-------- -------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income for the period 57,023 44,951 14,393 13,596 60,047
Adjustments to reconcile net income to net cash
provided by operating activities (*): (23,221) (12,978) (365) 15,134 (7,396)
-------- -------- -------- -------- --------
Net cash provided by operating activities 33,802 31,973 14,028 28,730 52,651
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES :
Purchase of fixed assets (20,943) (19,193) (8,823) (7,719) (29,247)
Short-term deposits and investments - net (41,999) 45,000 (20,000)
Associated companies :
Investment in associated companies and loans
granted (779) (7,786) (6,051) (8,241)
Repayment of loans 13,688 15,326 6,806 21,895
Proceeds from sale of fixed assets 670 2,741 232 749 3,332
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities (49,363) (8,912) 43,215 (13,021) (32,261)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES :
Notes Issuance, net of issuance expenses of NIS 800,000 198,909
Consideration in respect of the exercise of options
by employees 1
Repayment of long-term loans from banks and others (382) (381) (762)
Redemption of Notes (6,666) (6,770) (6,770)
Dividend paid (99,964) (99,128) (99,964) (74,067) (99,128)
Short-term bank credit and loans - net (32,045) 83,307 (22,943) 45,572 40,606
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities (139,057) (22,972) (122,907) (28,495) 132,856
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash equivalents (154,618) 89 (65,664) (12,786) 153,246
Balance of cash and cash equivalents at
beginning of period 158,706 5,460 69,752 18,335 5,460
-------- -------- -------- -------- --------
Balance of cash and cash equivalents at end of period 4,088 5,549 4,088 5,549 158,706
-------- -------- -------- -------- --------
(*) Adjustments to reconcile net income
to net cash provided by operating activities:
Income and expenses not involving cash flows:
Associated companies:
Share in profits of associated companies - net (29,612) (27,579) (7,973) (7,217) (35,549)
Dividend received from those companies 16,391 16,391
Depreciation and amortization 21,300 21,242 7,222 7,057 28,247
Deferred income taxes - net (7,729) 2,462 (236) 4,414 3,471
Capital gains losses on sale of fixed assets (286) (1,738) (52) (727) (2,054)
Income from short-term deposits and investments,
not realized yet (88) (334)
Linkage differences (erosion) of principal of
long-term loans from banks and others - net 65 66 (9) (25) 79
Exchange and linkage differences on Notes 2,886 2,540 (1,620) 3,110
Erosion of long-term loans to associated companies (1,033) (870) (77) 507 (1,101)
Linkage differences on long term capital note to
an associated company 2,019 (966) 2,477
Changes in operating assets and liabilities:
Decrease (increase) in receivables (23,274) (31,241) (696) 6,897 (18,195)
Decrease (increase) in inventories 3,009 2,062 1,137 (4,822) (159)
Increase (decrease) in payables and accrued liabilities 11,541 1,668 653 11,636 (4,113)
-------- -------- -------- -------- --------
(23,221) (12,978) (365) 15,134 (7,396)
-------- -------- -------- -------- --------
The accompanying notes are an integral part of the financial statements.
AMERICAN ISRAELI PAPER MILLS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2004
(Unaudited)
Note 1 - General
a. The interim financial statema.ts as of September 30, 2004 and for the
nine 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 adoption for the first time of standard No. 12 of the IASB - "
Discontinuaunce of adjusting Financial statements of inflation", see c
hereafter. Nevertheless, the interim statements do not include all the
information and explanations required for the annual financial statements.
Costs unevenly incurred during the year are brought forward or deferred for
interim reporting purposes if, and only if, such costs may be brought forward or
deferred in the annual reporting.
c. Transition to nominal-historical financial reporting
With effect from January 1, 2004, the company has adopted the provisions of
Standard No. 12 -"Discontinuance of Adjusting Financial Statements for
Inflation" - of the IASB and, pursuant thereto, the company has discontinued,
from the aforesaid date, the practice of adjusting its financial statements for
the effects of changes in the exchange rate of the U.S. dollar (hereafter - "the
dollar").
Through December 31, 2003, the company prepared its financial statements on the
basis of historical cost adjusted for the changes In the general purchasing
power of Israeli currency (hereafter - "NIS"), based upon changes in the
exchange rate of the dollar, in accordance with pronouncements of the Institute
of Certified Public Accountants in Israel (hereafter - "the Israeli Institute").
The adjusted amounts, as above, presented in the financial statements as of
December 31, 2003 (hereafter - "the transition date"), are used as the opening
balances for the nominal-historical financial reporting in the following
periods. Additions made after the transition date have been included in the
financial statements at their nominal values.
The comparative figures included in these financial statements are based on the
adjusted financial statements for the prior reporting periods, as previously
presented, after adjustment to the exchange rate for December 31, 2003 (the
exchange rate in effect at the transition date).
The amounts reported for periods after the transition date are composed as
follows: all the amounts originating from the period prior to the transition
date are composed of their adjusted amount at the transition date, with the
addition of amounts in nominal values that were added after the transition date,
and net of amounts that were deducted after the transition date (the retirement
of such sums is effected at their adjusted values as of transition date, their
nominal values, or a combination of the two, according to the circumstances).
All the amounts originating from the period after the transition date are
included in the financial statements at their nominal values.
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 nine months ended September 30:
2004 2.4 1.2
2003 (6.2) (1.5)
Increase (decrease) in the three months ended September 30:
2004 (0.3) (0.2)
2003 3.0 (1.0)
Increase in the year ended December 31, 2003 (7.6) (1.9)
The dollar exchange rate as of September 30, 2004 is: $1=NIS 4.482
AMERICAN ISRAELI PAPER MILLS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2004
(Unaudited)
Note 2 - Reduction of Corporate Tax Rate
On June 29, 2004, the Israeli Knesset passed the Income Tax Ordinance Amendment
(No. 140 and Ad Hoc Provision) law, 2004 (hearafter - the amendment), which
provides for the gradual reduction - commencing from January 1, 2004 - in the
rate of corporate tax from 36% to 30%, in the following manner: the rate for
2004 will be 35%, in 2005 - 34%, in 2006 - 32% and in 2007 and thereafter - 30%.
The amendment was signed at the beginning of July 2004 by the officials
authorized by the state of Israel to approve it, and was published in the
Official Gazette of the Government of Israel on July 11,2004. As a result of the
amendment the tax expenses in the statement of income were reduced by NIS 5,824
millions in the period of 6 months ended June 30, 2004, on account of the
company's deferred income taxes.
Note 3 - Recently issued pronouncement
At July 2004 the IASC issued Standard no. 19 - "Taxes on incem" ("the
standard"), which is based on the international standard no. 12. The standard
established the guidelines for the accounting of taxes on income ( recognizing,
measuring, presenting and disclosing). The Standard is effective for financial
statements relating to reporting periods commencing on, or after, January 1,
2005, of after. An early adoption is recommended. The company is currently
examining the implications of the adoption of the Standard on its' financial
statements.
Note 4 - Segment Information
Data on segment activity - In NIS in thousands:
For the period of 9 months
Paper and recycling Marketing of office supplies Total
----------------- ------------------ -----------------
Jan-Sept. Jan-Sept. Jan-Sept. Jan-Sept. Jan-Sept. Jan-Sept.
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Sales - net (1) 272,284 249,185 86,032 100,804 358,316 349,989
Income (loss) from operations 44,136 34,440 (3,532) 685 40,604 35,023
For the period of 3 months
Paper and recycling Marketing of office supplies Total
----------------- ------------------ -----------------
July-Sept. July-Sept. July-Sept. July-Sept. July-Sept. July-Sept.
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Sales - net (1) 92,098 82,549 27,974 34,743 120,072 117,292
Income (loss) from operations 13,938 11,313 (672) 648 13,266 11,961
(1) Represents sales to external
customers.
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:
- Neusiedler Hadera Paper Ltd.
- Hogla-Kimberly Ltd.
The financial report of the following associated companies are not included:
- Carmel Containers Systems Ltd., according to section 44(c) of
the Securities (Periodic and Immediate Reports) Regulations.
- TMM Integrated Recycling Industries Ltd., a reporting
corporation.
Exhibit 4
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
TABLE OF CONTENTS
Page
Accountants' Review Report 1
Condensed Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to the Financial Statements 6-9
The Board of Directors of
Neusiedler Hadera Paper Ltd.
Re: Review of Unaudited Condensed Interim Consolidated
Financial Statements for the Nine months and Three months Ended
September 30, 2004
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Neusiedler Hadera Paper Ltd.
("the Company") and its subsidiaries, as follows:
- Balance sheet as of September 30, 2004.
- Statements of operations for the nine months and three months ended
September 30, 2004.
- Statements of changes in shareholders' equity for the nine months and
three months ended September 30, 2004.
- Statements of cash flows for the nine months and three months ended
September 30, 2004.
The comparative figures as of December 31, 2003 and for the year then ended were
audited by other auditors, and the comparative figures as of September 30, 2003
and for the nine months and three months then ended were reviewed by other
accountants. Those other auditors and accountants issued unqualified reports on
all those financial statements.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention which indicates that
material adjustments are required to the aforementioned interim financial
statements for them to be deemed financial statements prepared in conformity
with generally accepted accounting principles in Israel and in accordance with
the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, October 28, 2004
1
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands)
September 30, December 31,
-------------------- -------
2004 2003 2003
------- ------- -------
Reported Adjusted Adjusted
Amounts(1) Amounts(2) Amounts(2)
------- ------- -------
(Unaudited)
--------------------
A S S E T S
Current Assets
Cash and cash equivalents 9,668 35,947 31,678
Trade receivables 159,326 153,486 147,748
Other receivables 12,368 18,638 (*) 16,218 (*)
Inventories 105,950 73,248 89,231
------- ------- -------
Total current assets 287,312 281,319 284,875
------- ------- -------
Fixed Assets
Cost 141,063 129,627 132,692
Less - accumulated depreciation 31,312 23,388 25,381
------- ------- -------
109,751 106,239 107,311
------- ------- -------
Other Assets - Goodwill 3,958 4,580 4,423
------- ------- -------
Total assets 401,021 392,138 396,609
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank credit 13,822 -- --
Current maturities of long-term bank loans 15,525 14,998 15,108
Trade payables 115,192 78,463 104,097
American Israeli Paper Mills Group, net 62,838 61,832 52,968
Other payables and accrued expenses 15,749 18,579 (*) 17,604 (*)
------- ------- -------
Total current liabilities 223,126 173,872 189,777
------- ------- -------
Long-Term Liabilities
Long-term bank loans 38,649 53,016 51,725
Capital notes to shareholders 17,928 56,927 43,790
Deferred taxes 25,183 28,902 29,247
Accrued severance pay, net 145 140 145
------- ------- -------
Total long-term liabilities 81,905 138,985 124,907
------- ------- -------
Shareholders' Equtiy
Share capital 1 1 1
Capital reserves 43,352 43,352 43,352
Retained earnings 52,637 35,928 38,572
------- ------- -------
95,990 79,281 81,925
------- ------- -------
Total liabilities and shareholders' equity 401,021 392,138 396,609
======= ======= =======
(*) Reclassified.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
----------------------- ----------------------- -----------------------
E.Amar A. Solel Y. Yerushalmi
Chief Financial Officer General Manager Vice Chairman of the
Board of Directors
Approval date of the interim financial statements: October 28 ,2004.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
2
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands, except per share data)
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
--------------------- --------------------- -------
2004 2003 2004 2003 2003
------- ------- ------- ------- -------
Reported Adjusted Reported Adjusted Adjusted
Amounts(1) Amounts(2) Amounts(1) Amounts(2) Amounts(2)
------- ------- ------- ------- -------
(Unaudited) (Unaudited)
--------------------- ---------------------
SALES, NET 516,594 493,791 (*) 167,278 169,218 (*) 640,020 (*)
COST OF SALES 454,363 429,673 (*) 150,644 149,134 (*) 556,890 (*)
------- ------- ------- ------- -------
GROSS PROFIT 62,231 64,118 16,634 20,084 83,130
------- ------- ------- ------- -------
OPERATING COSTS AND EXPENSES
Selling expenses 34,276 31,248 11,031 10,080 42,892
General and administrative expenses 5,529 6,301 (*) 1,622 2,446 (*) 8,425 (*)
------- ------- ------- ------- -------
39,805 37,549 12,653 12,526 51,317
======= ======= ======= ======= =======
OPERATING PROFIT 22,426 26,569 3,981 7,558 31,813
FINANCING EXPENSES, NET (8,236) (1,626)(*) (1,465) (446)(*) (2,561)(*)
OTHER INCOME (LOSS), NET 90 (126)(*) 56 (95)(*) (215)(*)
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES 14,280 24,817 2,572 7,017 29,037
INCOME TAXES 215 8,942 976 3,395 10,518
------- ------- ------- ------- -------
NET INCOME FOR THE PERIOD 14,065 15,875 1,596 3,622 18,519
======= ======= ======= ======= =======
BASIC EARNINGS PER ORDINARY SHARE
Earnings per ordinary share (in NIS) 14,065 15,875 1,596 3,622 18,519
Number of shares used in computation 1,000 1,000 1,000 1,000 1,000
======= ======= ======= ======= =======
(*) Reclassified.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
NEUSIEDLER HADERA PAPER LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
Share Capital Retained
capital reserves earnings Total
------ ------ ------ ------
Nine months ended September 30, 2004
(Unaudited) (Reported Amounts (1))
Balance - January 1, 2004 1 43,352 38,572 81,925
Net income for the period 14,065 14,065
------ ------ ------ ------
Balance - September 30, 2004 1 43,352 52,637 95,990
====== ====== ====== ======
Nine months ended September 30, 2003
(Unaudited) (Adjusted Amounts (2))
Balance - January 1, 2003 1 43,352 20,053 63,406
Net income for the period 15,875 15,875
------ ------ ------ ------
Balance - September 30, 2003 1 43,352 35,928 79,281
====== ====== ====== ======
Three months ended September 30, 2004
(Unaudited) (Reported Amounts (1))
Balance - July 1, 2004 1 43,352 51,041 94,394
Net income for the period 1,596 1,596
------ ------ ------ ------
Balance - September 30, 2004 1 43,352 52,637 95,990
====== ====== ====== ======
Three months ended September 30, 2003
(Unaudited) (Adjusted Amounts (2))
Balance - July 1, 2003 1 43,352 32,306 75,659
Net income for the period 3,622 3,622
------ ------ ------ ------
Balance - September 30, 2003 1 43,352 35,928 79,281
====== ====== ====== ======
Year ended December 31, 2003
(Adjusted Amounts (2))
Balance - January 1, 2003 1 43,352 20,053 63,406
Net income for the year 18,519 18,519
------ ------ ------ ------
Balance - December 31, 2003 1 43,352 38,572 81,925
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands)
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
-------------------- -------------------- -------
2004 2003 2004 2003 2003
------- ------- ------- ------- -------
Reported Adjusted Reported Adjusted Adjusted
Amounts(1) Amounts(2) Amounts(1) Amounts(2) Amounts(2)
------- ------- ------- ------- -------
(Unaudited) (Unaudited)
-------------------- --------------------
CASH FLOWS - OPERATING ACTIVITIES
Net income for the period 14,065 15,875 1,596 3,622 18,519
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Income and expenses
not involving cash flows:
Depreciation and amortization 6,787 6,437 2,302 2,171 8,626
Deferred taxes, net 180 8,971 1,023 3,425 10,438
Increase in liability for
severance pay, net -- 9 -- (3) 14
Capital loss (gain) from sale of fixed assets (90) 201 (56) 108 215
Exchange rate differences of long-term bank loans 1,250 1,252 (78) (999) 1,460
Exchange rate differences of long-term capital
notes to shareholders 1,266 -- (187) -- --
Changes in assets and liabilities:
Decrease (increase) in trade receivables (11,578) 1,510 (25) (14,544) 7,247
Increase in other receivables (394) (1,777)(*) (3,798) (2,482)(*) (479)(*)
Decrease (increase) in inventories (16,719) 6,450 (21,127) 2,517 (9,533)
Increase in trade payables 11,095 1,812 29,444 1,801 27,447
Increase (decrease) in American
Israeli Paper Mills Group, net 9,870 7,147 2,018 (5,238) (1,717)
Decrease in other payables
and accrued expenses (1,855) (5,044)(*) (2,854) (354)(*) (6,020)(*)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities 13,877 42,843 8,258 (9,976) 56,217
------- ------- ------- ------- -------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of fixed assets (8,818) (6,182) (4,378) (2,712) (9,339)
Proceeds from sale of fixed assets 146 596 60 271 635
------- ------- ------- ------- -------
Net cash used in investing activities (8,672) (5,586) (4,318) (2,441) (8,704)
------- ------- ------- ------- -------
CASH FLOWS - FINANCING ACTIVITIES
Short-term bank credit, net 13,822 (18) 10,664 -- (18)
Repayment of long-term loans (13,909) (19,728) (6,340) (12,302) (21,116)
Repayment of long-term
capital notes to shareholders (27,128) (30,653) (13,364) -- (43,790)
------- ------- ------- ------- -------
Net cash used in financing activities (27,215) (50,399) (9,040) (12,302) (64,924)
======= ======= ======= ======= =======
Decrease in cash and cash equivalents (22,010) (13,142) (5,100) (24,719) (17,411)
Cash and cash equivalents - beginning of period 31,678 49,089 14,768 60,666 49,089
------- ------- ------- ------- -------
Cash and cash equivalents - end of period 9,668 35,947 9,668 35,947 31,678
======= ======= ======= ======= =======
(*) Reclassified.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S. dollar as of
December 31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as of
September 30, 2004 and for the nine months and three months then ended
("interim financial statements") of Neusiedler Hadera Paper Ltd. ("the
Company") and subsidiaries should be read in conjunction with the
audited consolidated financial statements of the Company and
subsidiaries as of December 31, 2003 and for the year then ended,
including the notes thereto. In the opinion of management, the interim
financial statements include all adjustments necessary for a fair
presentation of the financial position and results of operations as of
the dates and for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected on a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General
The interim financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") in Israel, in
a condensed format in accordance with GAAP applicable to the
preparation of interim period financial statements, including those
under Standard No. 14, "Interim Financial Reporting".
B. New Accounting Standards
The accounting principles applied in the preparation of these
interim financial statements are consistent with those principles
applied in the preparation of the most recent annual audited
financial statements with the exception of the following:
(1) Cessation of Financial Statement Adjustment and Change to
Reporting in Reported Amounts - Standard No. 12
(a) Definitions:
Adjusted Amount - historical nominal amount adjusted for
changes in the exchange rate of the U.S dollar as of
December 31, 2003, in accordance with Opinion No. 36 of the
Institute of Certified Public Accountants in Israel.
Reported Amount - Adjusted Amount plus amounts in nominal
terms added subsequent to December 31, 2003, and less
amounts subtracted after that date.
6
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. New Accounting Standards (cont.)
(1) Cessation of Financial Statement Adjustment and Change to
Reporting in Reported Amounts - Standard No. 12 (cont.)
(b) In January 2004, Israeli Accounting Standard No. 12
"Cessation of Financial Statements Adjustment" came into
effect. Following the initial implementation of Standard No.
12, commencing January 1, 2004, the Group ceased the
presentation of its financial statements based on nominal
historical cost adjusted for the changes in the exchange
rate of the US Dollar in relation to the NIS. Effective with
the interim financial statements as of March 31, 2004 and
for the reporting periods thereafter, the Group's financial
statements are prepared and presented in Reported Amounts.
Comparative figures included in the interim financial
statements relating to December 31, 2003 and September 30,
2003 and for the year and nine-month and three-month periods
respectively then ended, are presented in Adjusted Amounts.
(c) Reported Amounts are determined as follows:
Balance Sheet Items
Monetary items (items whose balance sheet amount reflects
their current value or realization value at the balance
sheet date) are presented at their nominal value as of the
balance sheet date.
Non-monetary items are presented at their Adjusted Amounts
plus additions and dispositions occurring during the
reporting period. Additions made subsequent to December 31,
2003 and dispositions of items added subsequent to such
date, are presented at their historical nominal value.
Dispositions of items added prior to December 31, 2003 are
presented at their Adjusted Amount.
Statement of Operation Items
Income and expenses reflecting transactions, and financial
income and expenses, are presented at their nominal value.
Income and expenses deriving from non-monetary items (mainly
depreciation and amortization) were presented in a manner
corresponding to the presentation of the related
non-monetary balance sheet item, as illustrated above.
(d) The amounts at which non-monetary items are presented in
these interim financial statements do not necessarily
represent their realization value or economic value, but
solely their Reported Amount.
7
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. New Accounting Standards (cont.)
(2) Amortization of Goodwill - Standard No. 20
In March 2004, the Israeli Accounting Standards Board issued
Standard No. 20 "The Amortization Period of Goodwill". Standard No.
20 calls for the amortization of goodwill over its useful life,
based on a systematic method that should reflect the estimated
expected period in which the goodwill is to contribute economic
benefits. The amortization period shall not exceed 20 years from the
date on which the goodwill was initially recognized. Standard No. 20
is in effect for reporting periods commencing January 1, 2004, and
its provisions are to be applied on a prospective basis. The
implementation of Standard No. 20 did not, and is not expected to,
affect the Group's financial position and results of operations.
(3) New Accounting Pronouncement - Income Taxes
In July 2004, the Israeli Accounting Standards Board published
Accounting Standard No. 19 "Income Taxes" (the "Standard"). The
Standard established the guidelines 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 shall be 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 Group is currently examining the implications of the Standard,
yet is unable, at this stage, to estimate its impact on the Group's
financial position and results of operations.
C. Following are the changes in the representative exchange rate of the
U.S. dollar vis-a-vis the NIS and in the Israeli Consumer Price
Index ("CPI").
Representative
Exchange CPI
Rate of the dollar "in respect of"
As of: (NIS per $1) (in points)
------------ ------------
September 30, 2004 4.482 180.74
September 30, 2003 4.441 179.30
December 31, 2003 4.379 178.58
Increase (decrease) during the: % %
Nine months ended September 30, 2004 2.4 1.2
Nine months ended September 30, 2003 (6.2) (1.5)
Three months ended September 30, 2004 (0.3) (0.2)
Three months ended September 30, 2003 3.0 (1.0)
Year ended December 31, 2003 (7.6) (1.9)
8
NEUSIEDLER HADERA PAPER LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 3 - REDUCTION OF CORPORATE TAX RATE
In June 2004, the Israeli Knesset passed Amendment No. 140 to the Income
Tax Ordinance, according to which the corporate income-tax rate would be
gradually reduced from 36% to 30% by 2007 (2004-35%, 2005-34%, 2006-32%,
2007-30%). The effect of this change on the Group's deferred income tax
provisions is reflected by a reduction of NIS 4,889 thousand in income
tax expense for the nine-month period ended September 30, 2004.
9
Exhibit 5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
TABLE OF CONTENTS
-----------------
Page
----
Accountants' Review Report 1
Condensed Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4-5
Statements of Cash Flows 6-7
Notes to the Financial Statements 8-12
1
The Board of Directors of
Hogla-Kimberly Ltd.
Re: Review of Unaudited Condensed Interim Consolidated Financial Statements
for the Nine Months and Three Months Ended September 30, 2004
Gentlemen:
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Hogla-Kimberly Ltd. ("the
Company") and its subsidiaries, as follows:
- Balance sheet as of September 30, 2004.
- Statements of operations for the nine months and three months ended
September 30, 2004.
- Statements of changes in shareholders' equity for the nine months and
three months ended September 30, 2004.
- Statements of cash flows for the nine months and three months ended
September 30, 2004.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention which indicates that
material adjustments are required to the aforementioned interim financial
statements for them to be deemed financial statements prepared in conformity
with generally accepted accounting principles in Israel and in accordance with
the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, November 9, 2004
1
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(NIS in thousands)
September 30, December 31,
-------------------- -------
2 0 0 4 2 0 0 3 2 0 0 3
------- ------- -------
Reported Adjusted Adjusted
Amounts(1) Amounts(3) Amounts(3)
------- ------- -------
Current Assets (Unaudited)
--------------------
Cash and cash equivalents 93,197 16,270 37,340
Current maturities of long-term deposits - 7,882 7,882
Trade receivables 271,470 226,683 229,979
Other receivables 29,305 14,547 14,222
Inventories 110,588 86,652 92,664
------- ------- -------
504,560 352,034 382,087
------- ------- -------
Long-Term Investments
Long-term deposits 71,712 70,064 70,064
Capital note of shareholder 32,770 32,313 32,770
------- ------- -------
104,482 102,377 102,834
------- ------- -------
Fixed Assets
Cost 485,918 472,158 479,744
Less - accumulated depreciation 216,310 206,030 210,176
------- ------- -------
269,608 266,128 269,568
------- ------- -------
Other Assets - Goodwill 27,619 29,765 29,073
------- ------- -------
906,269 750,304 783,562
Current Liabilities
Short-term bank credit - - 1,087
Short-term loans and
current maturities of long-term bank loans 44,372 19,102 15,147
Trade payables 184,250 127,969 139,555
Other payables and accrued expenses 43,559 36,850 37,632
------- ------- -------
272,181 183,921 193,421
------- ------- -------
Long-Term Liabilities
Long-term bank loans 91,880 89,770 96,338
Deferred taxes 32,937 28,030 29,428
------- ------- -------
124,817 117,800 125,766
------- ------- -------
Minority Interest 53,721 47,535 51,394
------- ------- -------
Shareholders' Equity
Share capital 29,038 28,788 28,788
Capital reserves 180,414 156,799 156,799
Translation adjustments relating to
foreign held autonomous Subsidiary (2) 951 - -
Retained earnings 245,147 215,461 227,394
------- ------- -------
455,550 401,048 412,981
------- ------- -------
906,269 750,304 783,562
======= ======= =======
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
----------------------- ----------------------- -----------------------
T. Davis A. Magid A. Brenner
Chairman of the Board Financial Manager Managing Director
of Directors
Approval date of the interim financial statements: November 9, 2004.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
2
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(NIS in thousands)
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
-------------------------- -------------------------- ---------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3 2 0 0 3
--------- --------- --------- --------- ---------
Reported Adjusted Reported Adjusted Adjusted
Amounts(1) Amounts(2) Amounts(1) Amounts(2) Amounts(2)
--------- --------- --------- --------- ---------
(Unaudited)
------------------------------------------------------------
Net sales 785,306 638,472 260,382 233,847 868,671
Cost of sales 545,589 458,384 181,780 165,866 621,014
--------- --------- --------- --------- ---------
Gross profit 239,717 180,088 78,602 67,981 247,657
Selling expenses 142,429 94,108 47,647 33,527 130,670
General and
administrative expenses 31,451 29,643 10,957 10,260 39,046
--------- --------- --------- --------- ---------
Operating profit 65,837 56,337 19,998 24,194 77,941
Financing income
(expenses), net (7,447) 5,298 (1,125) (4,294) 5,517
Other income, net 1,257 425 - 198 496
--------- --------- --------- --------- ---------
Income before income
taxes 59,647 62,060 18,873 20,098 83,954
Income taxes 15,702 14,463 5,033 8,047 20,566
--------- --------- --------- --------- ---------
Income after income
taxes 43,945 47,597 13,840 12,051 63,388
Minority interest in losses
(earnings) of Subsidiary (2,327) (3,277) (834) 77 (7,135)
--------- --------- --------- --------- ---------
Net income for the
period 41,618 44,320 13,006 12,128 56,253
========= ========= ========= ========= =========
Earnings per share
(in NIS) (*) 4.89 5.21 1.53 1.42 6.61
========= ========= ========= ========= =========
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 shares distribution.
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
3
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
Translation
adjustments Dividend
relating to declared
foreign held subsequent to
Share Capital autonomous Retained balance sheet
capital reserves Subsidiary earnings date Total
-------- -------- -------- -------- -------- --------
Nine months ended
September 30, 2004 (unaudited)
(Reported Amounts (1))
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 (2) 951 951
Net income for the period 41,618 41,618
-------- -------- -------- -------- -------- --------
Balance - September 30, 2004 29,038 180,414 951 245,147 - 455,550
======== ======== ======== ======== ======== ========
Nine months ended
September 30, 2003 (unaudited)
(Adjusted Amounts (3))
Balance - January 1, 2003 28,788 156,799 - 171,141 32,843 389,571
Dividend paid (32,843) (32,843)
Net income for the period 44,320 44,320
-------- -------- -------- -------- -------- --------
Balance - September 30, 2003 28,788 156,799 - 215,461 - 401,048
======== ======== ======== ======== ======== ========
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
4
HOGLA-KIMBERLY LTD.
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NIS in thousands)
Translation
adjustments Dividend
relating to declared
foreign held subsequent to
Share Capital autonomous Retained balance sheet
capital reserves Subsidiary earnings date Total
--------- --------- --------- --------- -------- ---------
Three months ended
September 30, 2004 (unaudited)
(Reported Amounts (1))
Balance - July 1, 2004 28,788 156,799 1,690 256,006 - 443,283
Distribution of bonus shares 250 23,615 (23,865) -
Translation adjustments
relating to foreign held
autonomous Subsidiary (2) (739) (739)
Net income for the period 13,006 13,006
--------- --------- --------- --------- -------- ---------
Balance - September 30, 2004 29,038 180,414 951 245,147 - 455,550
========= ========= ========= ========= ======== =========
Three months ended
September 30, 2003 (unaudited)
(Adjusted Amounts (3))
Balance - July 1, 2003 28,788 156,799 - 203,333 - 388,920
Net income for the period 12,128 12,128
--------- --------- --------- --------- -------- ---------
Balance - September 30, 2003 28,788 156,799 - 215,461 - 401,048
========= ========= ========= ========= ======== =========
Year ended
December 31, 2003
(Adjusted Amounts (3))
Balance - January 1, 2003 28,788 156,799 - 171,141 32,843 389,571
Dividend paid (32,843) (32,843)
Net income for the year 56,253 56,253
--------- --------- --------- --------- -------- ---------
Balance - December 31, 2003 28,788 156,799 - 227,394 - 412,981
========= ========= ========= ========= ======== =========
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
5
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands)
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
--------------------- --------------------- -------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3 2 0 0 3
------- ------- ------- ------- -------
Reported Adjusted Reported Adjusted Adjusted
Amounts(1) Amounts(3) Amounts(1) Amounts(3) Amounts(3)
------- ------- ------- ------- -------
(Unaudited)
-------------------------------------------------
Cash flows - operating activities
Net income for the period 41,618 44,320 13,006 12,128 56,253
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities
(Appendix A) (5,853) (4,905) (16,504) 12,110 4,190
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities 35,765 39,415 (3,498) 24,238 60,443
------- ------- ------- ------- -------
Cash flows - investing activities
Withdrawal of long-term bank
deposits 8,138 9,195 8,138 1,313 9,195
Acquisition of fixed assets (13,794) (23,726) (7,677) (6,567) (26,953)
Proceeds from sale of fixed assets 1,827 1,357 - 826 1,092
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities (3,829) (13,174) 461 (4,428) (16,666)
------- ------- ------- ------- -------
Cash flows - financing activities
Dividend paid - (32,843) - - (32,843)
Long-term loans received 38,052 22,124 24,449 11,387 28,949
Repayment of long-term loans (15,162) (20,582) (10,741) (12,700) (24,960)
Short-term bank credit, net (1,087) - - (12,065) 1,087
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 21,803 (31,301) 13,708 (13,378) (27,767)
------- ------- ------- ------- -------
Translation adjustments of cash
and cash equivalents of
foreign held autonomous
Subsidiary (2) 2,118 - 2,157 - -
------- ------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents 55,857 (5,060) 12,828 6,432 16,010
Cash and cash equivalents -
beginning of period 37,340 21,330 80,369 9,838 21,330
------- ------- ------- ------- -------
Cash and cash equivalents -
end of period 93,197 16,270 93,197 16,270 37,340
======= ======= ======= ======= =======
(1) See Note 2B(1).
(2) See Note 2B(2).
(3) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
6
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
APPENDICES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands)
Nine months ended Three months ended Year ended
September 30, September 30, December 31,
--------------------- --------------------- -------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3 2 0 0 3
------- ------- ------- ------- -------
Reported Adjusted Reported Adjusted Adjusted
Amounts(1) Amounts(2) Amounts(1) Amounts(2) Amounts(2)
------- ------- ------- ------- -------
(Unaudited)
-------------------------------------------------
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
(losses) of Subsidiary 2,327 3,277 834 (77) 7,135
Depreciation and amortization 18,205 19,688 6,479 6,704 25,213
Deferred taxes, net (983) 6,873 (295) 2,806 8,251
Gain from sale of fixed assets (1,257) (425) - (198) (482)
Effect of exchange rate
differences, net 1,039 (1,976) 1,594 1,010 (2,266)
Changes in assets and
Liabilities:
Increase in trade receivables (44,444) (44,564) (14,583) (17,820) (47,933)
Increase in other receivables (11,229) (2,459) (8,234) (1,289) (2,115)
Decrease (increase) in
inventories (19,554) (225) 559 13,856 (6,237)
Increase (decrease) in trade
payables 32,749 9,617 (3,934) 15,276 27,544
Net change in balances with
related parties 11,058 944 (446) (14,049) (10,050)
Increase in other payables
and accrued expenses 6,236 4,345 1,522 5,891 5,130
------- ------- ------- ------- -------
(5,853) (4,905) (16,504) 12,110 4,190
======= ======= ======= ======= =======
B. Non-cash activities
Acquisition of fixed assets on
credit 7,368 5,856 4,005 1,490 8,661
(1) See Note 2B(1).
(2) Adjusted for changes in the exchange rate of the U.S dollar as of December
31, 2003.
The accompanying notes are an integral part of the condensed interim
consolidated financial statements.
7
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed interim consolidated financial statements as of
September 30, 2004 and for the nine months and three months then ended
("interim financial statements") of Hogla-Kimberly Ltd. ("the Company")
and subsidiaries should be read in conjunction with the audited
consolidated financial statements of the Company and subsidiaries as of
December 31, 2003 and for the year then ended, including the notes
thereto. In the opinion of management, the interim financial statements
include all adjustments necessary for a fair presentation of the
financial position and results of operations as of the dates and for the
interim periods presented. The results of operations for the interim
periods are not necessarily indicative of the results to be expected on
a full-year basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General
The interim financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") in Israel, in a condensed format in accordance with
GAAP applicable to the preparation of interim period financial
statements, including those under Standard No. 14, "Interim
Financial Reporting".
B. New Accounting Standards
The accounting principles applied in the preparation of these
interim financial statements are consistent with those
principles applied in the preparation of the most recent annual
audited financial statements with the exception of the
following:
(1) Cessation of Financial Statement Adjustment and Change
to Reporting in Reported Amounts - Standard No. 12
(a) Definitions:
Adjusted Amount - historical nominal amount
adjusted for changes in the exchange rate of the
U.S dollar as of December 31, 2003, in
accordance with Opinion No. 36 of the Institute
of Certified Public Accountants in Israel.
Reported Amount - Adjusted Amount plus amounts
in nominal terms added subsequent to December
31, 2003, and less amounts subtracted after that
date.
8
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. New Accounting Standards (cont.)
(1) Cessation of Financial Statement Adjustment and Change to
Reporting in Reported Amounts - Standard No. 12 (cont.)
(b) In January 2004, Israeli Accounting Standard No. 12
"Cessation of Financial Statements Adjustment" came into
effect. Following the initial implementation of Standard
No. 12, commencing January 1, 2004, the Group ceased the
presentation of its financial statements based on
nominal historical cost adjusted for the changes in the
exchange rate of the US Dollar in relation to the NIS.
Effective with the interim financial statements as of
March 31, 2004 and for the reporting periods thereafter,
the Group's financial statements are prepared and
presented in Reported Amounts.
Comparative figures included in the interim financial
statements relating to December 31, 2003 and September
30, 2003 and for the year and nine-month and three-month
periods respectively then ended, are presented in
Adjusted Amounts.
(c) Reported Amounts are determined as follows:
Balance Sheet Items
Monetary items (items whose balance sheet amount
reflects their current value or realization value at the
balance sheet date) are presented at their nominal value
as of the balance sheet date.
Non-monetary items are presented at their Adjusted
Amounts plus additions and dispositions occurring during
the reporting period. Additions made subsequent to
December 31, 2003 and dispositions of items added
subsequent to such date, are presented at their
historical nominal value. Dispositions of items added
prior to December 31, 2003 are presented at their
Adjusted Amount.
Minority interest in a Subsidiary is presented based on
the interim financial statements of that Subsidiary
prepared according to the guidance of Standard No. 12.
Statement of Operation Items
Income and expenses reflecting transactions, and
financial income and expenses, are presented at their
nominal value.
Income and expenses deriving from non-monetary items
(mainly depreciation and amortization) are presented in
a manner corresponding to the presentation of the
related non-monetary balance sheet item, as illustrated
above.
Minority interest in earnings of a Subsidiary is
determined based on the interim financial statements of
that Subsidiary prepared according to the guidance of
Standard No. 12.
9
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. New Accounting Standards (cont.)
(1) Cessation of Financial Statement Adjustment and Change
to Reporting in Reported Amounts - Standard No. 12
(cont.)
(d) The amounts at which non-monetary items are
presented in these interim financial statements
do not necessarily represent their realization
value or economic value, but solely their
Reported Amount.
(2) Translation of Foreign Operations' Financial Statements
- Standard No. 13
(a) In January 2004, Israeli Accounting Standard No.
13 "Effect of Changes in Foreign Exchange Rates"
came into effect. This Standard addresses the
translation of transactions denominated in
foreign currency, as well as the translation of
financial statements of a foreign entity, for
inclusion in the financial statements of the
reporting company. Standard No. 13 supersedes
Clarifications No. 8 and 9 to Opinion No. 36 of
the Institute of Certified Public Accountants in
Israel, which were nullified on the date on
which Accounting Standard No. 12 came into
effect, as described in (1) above.
(b) A foreign entity classified as a foreign held
autonomous subsidiary
o Following the implementation of Standard
No. 13, commencing January 2004 goodwill
derived from an investment made in
another entity is to be treated as one
of that entity's assets. Accordingly,
the goodwill associated with the Group's
investment in Ovisan (a Subsidiary
located in Turkey) is translated to NIS
at the closing rate, rather than at the
exchange rate at the date in which said
investment was made, as was previously
required under the applicable accounting
literature in effect through December
31, 2003.
o Monetary and non-monetary assets and
liabilities of the foreign entity are
translated at the closing rate.
o Statement of operations items and cash
flow items of the foreign entity are
translated, in general, by the average
exchange rate for the reporting period,
rather than by the closing rate as was
previously required under the applicable
accounting literature prior to the date
in which Standard No. 13 came into
effect (January 1, 2004).
o All differences resulting from the
translation of the foreign entity's
financial statements by the method
described above, are included in a
separate component of shareholders'
equity as "Translation adjustments
relating to foreign held autonomous
Subsidiary".
10
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. New Accounting Standards (cont.)
(3) Amortization of Goodwill - Standard No. 20
In March 2004, the Israeli Accounting Standard Board
issued Standard No. 20 "The Amortization Period of
Goodwill". Standard No. 20 calls for the amortization of
goodwill over its useful life, based on a systematic
method that should reflect the estimated expected period
in which the goodwill is to contribute economic
benefits. The amortization period shall not exceed 20
years from the date on which the goodwill was initially
recognized. Standard No. 20 is in effect for reporting
periods commencing January 1, 2004, and its provisions
are to be applied on a prospective basis. The
implementation of Standard No. 20 did not, and is not
expected to, affect the Group's financial position and
results of operations.
(4) Income taxes - Standard No. 19
In July 2004, the Israeli Accounting Standard Board
published Accounting Standard No. 19 "Income Taxes" (the
"Standard"). The Standard established the guidelines 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 shall be accounted for
by the cumulative effect of a change in accounting
method, for the beginning of the period in which the
Standard is initially adopted. The Group is currently
examining the implications of the Standard, yet is
unable, at this stage, to estimate its impact on the
Group's financial position and results of operations.
C. During the nine months ended September 30, 2004, the
representative exchange rate of the US Dollar vis-a-vis the NIS
increased by 2.4%, the exchange rate of the Turkish Lira
vis-a-vis the NIS increased by 4.6%, and the Israeli Consumer
Price Index increased by 1.2%. During the three months ended
September 30, 2004, the representative exchange rate of the US
Dollar vis-a-vis the NIS decreased by 0.3%, the exchange rate of
the Turkish Lira vis-a-vis the NIS increased by 1.5%, and the
Israeli Consumer Price Index decreased by 0.2%.
NOTE 3 - ADDITIONAL INFORMATION
A. Reduction of Corporate Tax Rate
In June 2004, the Israeli Knesset passed Amendment No. 140 to
the Income Tax Ordinance, according to which the corporate
income-tax rate would be gradually reduced from 36% to 30% by
2007 (2004-35%, 2005-34%, 2006-32%, 2007-30%). The effect of
this change on the Group's deferred income tax provisions is
reflected by a reduction of approximately NIS 4.2 million in
income tax expense for the nine-month period ended September 30,
2004.
11
HOGLA-KIMBERLY LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
NOTE 3 - ADDITIONAL INFORMATION (cont.)
B. In connection with the Company's approved enterprise program, in
September 2004, the Company's Board of Directors decided to
issue to the Company's shareholders 250,000 bonus shares with a
premium of NIS 94.46 for each share.
12