Exhibit 1
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Client: |
AMERICAN ISRAELI
PAPER MILLS LTD.
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Agency Contact: |
PHILIP Y. SARDOFF |
American Israeli Paper
Mills Ltd.
Reports Financial Results for Fiscal Year Ended December 31, 2007
Hadera, Israel, March 11, 2008 –
American Israeli Paper Mills Ltd. (AMEX:AIP) (the “Company” or “AIPM”)
today reported its financial results for the year ended December 31, 2007. The Company,
its subsidiaries and associated companies are referred to hereinafter as the
“Group”.
Since the Company’s share in the
earnings of associated companies constitutes a material component in the Company’s
statement of income (primarily on account of its share in the earnings of Mondi Hadera
Paper Ltd. (“Mondi Hadera”) and Hogla-Kimberly Ltd.(“H-K”)),
before the presentation of the consolidated data below, the aggregate data which includes
the results of all the companies in the AIPM Group (including the associated companies
whose results appear in the financial statements under “earnings from associated
companies”), is being presented without considering the rate of holding therein and
net of mutual sales:
Aggregate sales totaled NIS 3,124.3
million in 2007, as compared with NIS 2,830.5 million in 2006 – net of TMM Integrated
Recycling Industries Ltd. (“TMM”). Aggregate sales in 2005 amounted to NIS
2,613.7 million.
The aggregate operating profit in
2007 totaled NIS 189.4 million, as compared with NIS 103.1 million in 2006. The operating
profit in 2005 amounted to NIS 115.8 million.
The Consolidated data set forth below
does not include the results of operation of the associated companies: Mondi Hadera, H-K
and Carmel Container Systems Ltd. (“Carmel”), which are included in the
Company’s share in results of associated companies.
Consolidated sales totaled NIS 583.6
million in 2007, as compared with NIS 530.1 million in 2006.
Consolidated operating profit
amounted to NIS 75.4 million in 2007, as compared with NIS 50.5 million in 2006.
The increase in operating profit in
2007, by 49% in relation to 2006, originated from the increase in sales of packaging paper
and recycling, primarily on account of the improvement in selling prices and the
efficiency measures, that were partially offset by rising energy prices, coupled with the
improvement in the operating profit of the marketing of office supplies activity as a
result of efficiency measures and the reorganization that the company initiated in the
past several years.
Financial expenses amounted to NIS
19.6 million in 2007, as compared with NIS 31.1 million in 2006.
Net profit in 2007 totaled NIS 31.4
million, as compared with NIS 13.3 million in 2006 and NIS 45.7 million in 2005. Net
profit in 2007 was affected by the growth in the Company’s share in the losses of the
operations in Turkey (KCTR), amounting to approximately NIS 11.8 million, as compared with
the preceding year.
Basic earnings per share amounted to
NIS 7.61 per share in 2007 ($1.98 per share), as compared with NIS 3.31 per share ($0.78
per share) in 2006 and as compared with NIS 11.43 per share ($2.48 per share) in 2005.
The inflation rate in 2007 amounted
to 3.4%, as compared with an inflation rate of 0% in 2006.
Commenting on the year’s
results, Mr. Avi Brener, Chief Executive Officer of the Company said that “The
positive global trends in the paper industry, primarily in Europe, due to the decline in
the gap between paper supply and demand, have affected the group companies active in
Israel. Moreover, the growth trend in developing markets, primarily in Asia, as reflected
by relatively high growth rates, is creating high demand for pulp and paper waste, as well
as for paper products”.
The Company acted to convert its
boilers systems at its main site in Hadera from the use of fuel oil to natural gas. The
laying of the gas pipeline and its connection to the plant facilities has been completed
and the flow of natural gas to the Company by Israel Natural Gas Lines Ltd. started in
late August, and in October the Company converted to full production of steam using
natural gas, while discontinuing the use of fuel oil in October. The conversion of the
central boiler to full production using natural gas was completed in the fourth quarter.
In 2007, Kimberly Clark Turkey, KCTR
(an affiliated company in Turkey), continued to implement its strategic plan GBP –
(Global Business Plan) that was formulated together with the international partner,
Kimberly Clark, designated to introduce Kimberly Clark’s global brands to Turkey,
based on local manufacturing. The KCTR turnover amounted to approximately $63 million in
2007. The implementation of business and strategic plan, the strengthening of brands and
the gradual growth of using the Unilever sales and distribution platform, coupled with the
reduction of costs at the diaper plant, have led to improved gross profitability in the
first quarter, while significantly curtailing the operating loss from a sum of NIS 27
million in the first quarter of 2007, NIS 19.3 million in the second quarter and NIS 15
million in the third quarter, to NIS 12.5 million in the fourth quarter of 2007.
The Company’s share in the earnings (losses) of associated companies amounted to losses
of NIS (2.9) million in 2007, as compared with losses of NIS (26.7) million in 2006 and
earnings of NIS 16.4 million in 2005.
2
The following principal changes were
recorded in the Company’s share in the earnings of associated companies, compared
with 2006:
| – |
The
Company’s share in the net profit of Mondi Hadera (49.9%) increased by NIS 12.9
million this year. Most of the change in profit originated from the company’s highly
improved profitability, the transition from an operating loss of NIS 2.1 million last
year to an operating profit of NIS 33.6 million this year, primarily as a result of the
improved trading conditions that allowed for higher selling prices that led to an
improved gross margin, coupled with a decrease in certain raw material costs as a result
of the lower dollar exchange rate, primarily in the course of the second half of the
year, coupled with a significant improvement in the efficiency of the company’s
operational array. The sharp improvement in profit was somewhat offset as a result of the
rise in the net financial expenses, which originated primarily from working capital
requirements due to the rise in the volumes of operation and the impact of changes in the
exchange rate. |
| – |
The
Company’s share in the net profit of Hogla-Kimberly Israel (49.9%) increased by NIS
5.4 million in 2007, as compared with 2006. The operating profit of Hogla grew from NIS
127.0 million to NIS 135.4 million this year. The improved operating profit originated
from a quantitative increase in sales, improved selling prices and the continuing trend
of raising the proportion of some of the premium products out of the products basket.
This improvement was partially offset by the continuing rise in raw material prices. The
net profit was also affected by the increase in financial expenses of NIS -1.7 million,
as compared with financial revenues of NIS 1 million last year, as a result of the
financing needs of the operations in Turkey. The net profit of Hogla-Kimberly Israel last
year was influenced by non-recurring tax expenses of NIS 4.5 million (our share was
approximately NIS 2.2 million). |
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The
Company’s share in the losses of KCTR (formerly: “Ovisan”) (49.9%) grew by
approximately NIS 11.8 million in 2007, as compared with 2006. The operating loss
decreased by approximately NIS 9.4 million in 2007 in relation to last year, due to the
continuing growth in the penetration rate of brands and their strengthened position in the
market. A non-recurring loss of approximately NIS 6 million ($1.5 million) was included on
account of the termination of trade agreements with distributors due to the transition to
distribution by Unilever, of which our share was approximately NIS 3 million. Moreover,
the tax asset that was recorded in previous years in Turkey, in the sum of approximately
NIS 26 million ($6.4 million) was reduced, of which our share is NIS approximately 13.3
million. Last year, the loss included a non-recurring expenditure of approximately NIS 16
million, of which our share was approximately NIS 8 million, primarily as a result of the
devaluation of the Turkish lira and the amortization of a tax asset in the sum of
approximately NIS 6.7 million, of which our share was approximately NIS 3.3 million. |
| – |
The
Company’s share in the net profit of Carmel (36.21%) increased by NIS 2.1 million in
2007 as compared with 2006. The factors that affected the growth in the company’s
share in the net profit of Carmel, originated inter alia from the improvement in the
operating profitability at Carmel – primarily in the second half of the year. This
improvement originated primarily from higher prices and was partially offset by the sharp
rise in raw material prices. In the course of the second quarter, the company’s
holding rate in Carmel rose from 26.25% to 36.21% due to Carmel’s self purchase of
some of the minority shareholders’ holdings. As a result of the acquisition, a
negative surplus cost of NIS 4.9 million was created at the company, of which a sum of
NIS 2.4 million was allocated to the statement of income this year and served to increase
the company’s share in the Carmel profits in 2007. In 2006, Carmel’s net profit
included capital gains from the sale of a real-estate asset, of which the Company’s
share was approximately NIS 1 million. |
3
| – |
In
2006, the Company’s share in the earnings of associated companies included the
Company’s share in the losses of TMM, in the amount of NIS 14.8 million. As
mentioned above, the Company sold its holdings in TMM in early 2007 and this item is
therefore not included in the Company’s share in the earnings of associated
companies this year. The Company’s share in the earnings of associated companies
from current operations in Israel (excluding Turkey and TMM) grew by NIS 20.7 million
this year and amounted to NIS 60.9 million. |
In July 2006, the Israel Accounting
Standards Board issued Israel Accounting Standard No. 29 – “Adoption of
International Reporting Financial Standards (IFRS)” (“Standard 29”).
Pursuant to the Standard, companies that are subject to the provisions of the Securities
Law, and that are required to report according to the regulations published thereunder,
are to prepare their financial statements in accordance with IFRS starting from the period
commencing on January 1, 2008. The company will implement the IFRS standards starting with
the financial statements for the period commencing January 1, 2008.
This press release contains various
forward-looking statements based upon the Company’s present expectations and
estimates regarding the operations and plans 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
(AUDITED)
NIS IN THOUSANDS(1)
except per share amounts
|
2007
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2006
|
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|
|
|
|
|
|
|
|
|
|
|
| Net sales |
|
|
| 583,650 |
|
| 530,109 |
|
| | | |
| Net earnings | | |
| 31,447 |
(1) |
| 13,330 |
(2) |
| | | |
| Earnings per share | | |
| 7.61 |
(1) |
| 3.31 |
(2) |
| (1) |
The
net profit in 2007 was affected by the growth in the Company’s share in
the losses of the operations in Turkey (KCTR), amounting to approximately
NIS 11.8 million (from NIS 52.0 million last year to NIS 63.8 million this
year), as compared with the preceding year (see Strategic Investment in
Turkey, above, and Section C7, below). |
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In
2007, the net profit included earnings from the realization of surplus cost at an
associated company in the amount of NIS 2.5 million, a loss from the amortization of a
tax asset at an associated company in the sum of NIS 13.4 million and a capital loss from
the sale of cardboard machines (machine 6) and hub machines in the sum of NIS 2.4
million. |
| (2) |
The
net profit in 2006 included net capital gains from the sale of real estate
at Atidim in the sum of NIS 28.5 million, while also including
non-recurring expenses (net of tax influence) of NIS 18 million, primarily
on account of a provision for impairment at an associated company (in the
third quarter of the year) and the impact of the devaluation and modified
tax rates in Turkey (in the second quarter of the year- approximately NIS
8 million included in the loss of the operations in Turkey). |
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The
representative exchange rate at December 31, 2007 was NIS 3.846=$1.00 |
5
Exhibit 2
Translation from Hebrew
March 10, 2008
MANAGEMENT DISCUSSION
We are honored to present the
consolidated financial statements of the American Israeli Paper Mills Ltd. Group
(“AIPM” or “The Company”) for the year 2007. The Company, its
consolidated subsidiaries and its associated companies – hereinafter: “The
Group”.
| A. |
Description
of the Company’s Business |
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AIPM
deals in the manufacture and sale of packaging paper, in the recycling of paper waste and
in the marketing of office supplies – through subsidiaries. The Company also holds
associated companies that deal in the manufacture and marketing of fine paper, in the
manufacture and marketing of household paper products, hygiene products, disposable
diapers and complementary kitchen products, corrugated board containers and packaging for
consumer goods. |
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The
Company’s securities are traded on the Tel Aviv Stock Exchange and on the American
Stock Exchange, AMEX. |
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A. |
The
Operations In Israel |
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1. |
The
Business Environment |
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2007
was characterized by continued growth in the Israeli economy of 4.7% , while the high
demand in consumer spending persisted. Moreover, 2007 was characterized by the continued
revaluation of the NIS against the US dollar, which amounted to 9%, in addition to a
revaluation of 8.2% in 2006. |
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The
positive global trends in the paper industry, primarily in Europe, due to the decline in
the gap between paper supply and demand, have affected the group companies active in
Israel. Moreover, the growth trend in developing markets, primarily in Asia, as reflected
by relatively high growth rates, is creating high demand for pulp and paper waste, as
well as for paper products. |
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These
demands are causing a continuing rise in input prices – primarily fibers and
chemicals – in parallel to a rise in global paper prices since the end of the
previous year – both in fine paper and in packaging paper. |
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These
trends enable the Group companies to realize price hikes in most paper and paper products
areas, thereby compensating for the high input prices, while improving profitability. |
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The
above information pertaining to trends in the paper market constitutes forward-looking
information as defined in the securities law, based on the company’s estimates at
the date of this report. These estimates may not materialize – in whole or in part
–or may materialize in a different manner, inter alia on account of factors that lie
outside the control of the company, such as changes in global raw material prices,
changes in supply and demand of global paper products. |
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Energy
prices (primarily fuel oil) that were at their lowest point in two years during the first
quarter this year, have reversed their trend in the second quarter of 2007 and have
started climbing back toward the high prices that prevailed in 2006. The trend of rising
fuel prices that began in the second quarter of the year, accelerated in the second half
of the year and amounted to 40%, as compared with the level of prices at the beginning of
the year. Due to the gradual transition to the use of natural gas in the course of the
fourth quarter of the year, the Group saved NIS 12 million in energy operation costs.
These savings are attributed to the transition to natural gas and to the fuel oil price
level during 2007. |
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Electricity
prices rose by an average of 13% at the end of 2007. |
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The
inflation rate in 2007 amounted to 3.4%, as compared with an inflation rate of 0% in
2006. |
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2. |
Current
Operations in Israel |
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Most
Group companies continued to grow – both quantitatively and in terms of their sales
turnover – during the reported period – while raising prices across most areas
of operation, in parallel to the successful implementation of the efficiency plan.
The
Group consequently recorded a significant improvement in the volume of sales and in the
operating profit from the Israeli operations in 2007, in relation to 2006. |
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3. |
Implementation
and Assimilation of Organization-Wide Processes |
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In
the course of the reported period, the Group companies continued to successfully
implement and assimilate organization-wide processes that were intended to empower Group
operations and support continued growth and increased profitability: |
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— |
Empowering
organizational development while placing an emphasis on management by objectives and the
development of the organization's middle management |
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— |
Continuing
reorganization of the Group’s purchasing network, while exploiting synergy opposite
the organization’s suppliers. |
2
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— |
Assimilation
of the Centerlining process at the operational levels of the various companies to a
gradual and continuing improvement in the efficiency of the primary manufacturing arrays. |
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— |
Accelerating
processes for encouraging innovation at the companies for the development of new products
and to create competitive differentiation for improving profitability. |
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— |
Formulating
and assimilating B2B marketing methodologies, for improving perceived quality and service
among company clients. |
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— |
Establishing
expense-cutting measures at the organization in order to improve savings “anywhere
and anytime”. |
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— |
Social
responsibility – Formulating a multi-annual plan that will be launched in early 2008
and will empower the organization’s activities in this area. |
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In
parallel to the ongoing operations, the Company is working to successfully implement the
strategic plans that will lead to continued growth in operations and improved
profitability over the coming years: |
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1. |
Converting
the boiler system from fuel oil to natural gas |
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As
mentioned previously, as part of the Company’s endeavors for cutting manufacturing
costs and for additional environmental improvements, the Company is continuing the
energy-generation plant project in Hadera, using natural gas. |
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As
a first stage, the Company acted to convert its boilers systems from the use of fuel oil
to natural gas. The laying of the gas pipeline and its connection to the plant facilities
has been completed and the flow of natural gas to the Company by Israel Natural Gas Lines
Ltd. started in late August. Acceptance tests were conducted at the Hadera site through
September and in October the Company converted to full production of steam using natural
gas, while discontinuing the use of fuel oil in October. The conversion of the central
boiler to full production using natural gas was completed in the fourth quarter. |
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The
gas that serves as a replacement for the fuel oil is purchased from the Yam Tethys Group,
with whom the Company signed a natural gas purchase agreement in London on July 29, 2005,
that is intended to provide the company’s needs over the next few years (until July
1, 2011), in terms of the operation of the existing energy generation system, by
cogeneration at the Hadera site. The total financial volume of this transaction is
approximately $35 million over the term of the agreement. |
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Subsequent
to the termination of the agreement with Yam Tethys, the company intends to rely on
natural gas that will be purchased from EMG on the basis of the principles agreement
signed in May 2007. |
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The
transition to natural gas resulted in an improvement of the air quality. The company
estimates that given the level of fuel oil and gas prices in the third quarter of 2007
and while operating the energy generation system at full capacity using natural gas, the
full impact of the savings on the net income will amount to NIS 25 million, annually. |
3
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The
above information pertaining to the impact of the conversion to natural gas on the
Company constitutes forward-looking information as defined in the securities law, based
on the company’s estimates at the date of this report. These estimates may not
materialize – in whole or in part – or may materialize in a different manner,
inter alia on account of factors that lie outside the control of the company, such as
changes in fuel oil and gas prices and the gas and transportation suppliers to the Hadera
site. |
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2. |
Expanding
the manufacturing network of recycled packaging paper |
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The
investment budget in the project was increased to NIS 690 million ($170 million) and was
approved on October 15, 2007 by the Company’s Board of Directors. The Company
selected the most advanced technologies in this field and the leading suppliers in the
sector. |
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The
implementation of the project is advancing as planned and the Company signed a supply
agreement with the main equipment supplier VOITH at the end of December. Moreover, the
Company is promoting agreements with the building contractor and suppliers of equipment,
electrical systems and additional auxiliary systems that are meant to be signed these
days. |
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In
parallel, Amnir Recycling Industries Ltd. (“Amnir”), is continuing preparations
for the expansion of the collection of cardboard and newspaper waste and has started to
accumulate inventories toward the planned operation of the new machine commencing during
2009. |
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As
part of the preparations for financing the project, following approval from the Board of
Directors, the Company has completed the raising of approximately NIS 211 million in
capital, net of issuing expenses, by way of a private placement of shares to the
controlling shareholders and institutional and/or private investors (additional details
appear in the immediate reports published October 16, 2007 and November 25, 2007). The
Company is also examining additional ways to raise the financing for the project. |
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The
power plant project that is intended to provide steam and electricity for the
manufacturing operations in Hadera and to sell surplus electricity to Israel Electric
Company (IEC) and/or to private customers, is currently at the final configuration
definition stages and feasibility studies on the basis of a license for a plant that will
generate 230 mega-watts, to be built on an area that was acquired for the project, in
proximity to the Company’s site in Hadera. |
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The
company is awaiting the publication of the updated sales prices by the Electrical
Authority and on this basis, upon completing the examination of the station and its
feasibility, the business plan will be formulated, along with possible means of finance. |
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The
Company plans for the said power plant to consume natural gas that will be provided by
EMG, on the basis of the principles agreement that was signed in May this year. |
4
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B. |
The
Strategic Investment in Turkey |
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In
2007, Kimberly Clark Turkey, KCTR, a wholly-owned Hogla Kimberly subsidiary (49.9% of
which is held by the Company) – continued to implement its strategic plan GBP –(Global
Business Plan) that was formulated together with the international partner, Kimberly
Clark. The plan is designated to introduce Kimberly Clark’s global brands to Turkey,
on the basis of local manufacturing. If the plan will be fully implemented, KCTR whould
grow to become a dominant and profitable company by 2015, with annual sales in the area
of $300 million. The KCTR turnover amounted to approximately $63 million in 2007. |
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In
the course of 2007, KCTR continued its marketing innovation and launched new product
lines under the Huggies® and Pedo® brands, manufactured at KCTR’s advanced
manufacturing plant. The company also launched an advanced KOTEX® product (feminine
hygiene) that was well-received by the market. |
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The
company’s continuing marketing and advertising operations are being felt in the
gradual strengthening of the brands, as expressed by consumer studies that are being
conducted regularly. |
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As
part of the strategic plan, the Company intends to continue its marketing and sales
promotion efforts, while launching new products that will support the establishment of
the brands and the creation of customer loyalty. A strategic cooperation agreement was
signed in the first quarter of the year between KCTR and Unilever in Turkey. Pursuant to
this agreement, Unilever will conduct the sales, distribution and collection on behalf of
KCTR in the entire Turkish market, except for nationwide large marketing chains that
represent approximately 30% of the market potential, wherein KCTR intends to continue to
operate directly. |
| |
In
the course of the first half of 2007, KCTR continued to promote the collaboration with
Unilever and expanded the number of points of sale in the Turkish market that sell KCTR
brands. |
| |
The
level of competition in the markets where the company is working to penetrate and empower
its brands is high and calls for low prices level in the market and regular and
significant investments in advertising and sales promotion. |
| |
All
of the expenses detailed above associated with the penetration of brands, advertising,
expansion of the distribution network and more – are regularly recorded as an
expenditure in the KCTR statements of income. The operating loss of KCTR in the reported
period this year amounted to approximately NIS 74 million ($18.0 million), as compared
with an operating loss of approximately NIS 83 million ($18.6 million) in 2006. The loss
included a non-recurring expenditure of approximately NIS 6 million ($1.5 million),
recorded in the first quarter, on account of the closing of commercial agreements with
the previous distributors, following the implementation of the agreement with Unilever
and also on account of the upgrading of brands on the Turkish market. |
5
| |
As
to the reduction of the tax asset in Turkey this year, see Chapter 4 (7) – Company
Share in Earnings of Associated Companies. |
| |
The
Company is continuing to implement the business and strategic plan. The strengthening
brands and the gradual growth of the Unilever sales and distribution platform, coupled
with the reduction of costs at the diaper plant, have led to improved gross profitability
in the first quarter, while significantly curtailing the operating loss from a sum of NIS
27 million in the first quarter, NIS 19.3 million in the second quarter and NIS 15
million in the third quarter, to NIS 12.5 million in the fourth quarter of 2007. |
| |
The
above information pertaining to the KCTR business plans and their implementation
constitutes forward-looking information as defined in the securities law, based on the
company’s estimates at the date of this report. These estimates may not materialize
– in whole or in part – or may materialize in a different manner, inter alia on
account of factors that lie outside the control of the company, such as market
conditions, legislation and various costs. |
| B. |
Analysis
of the Company’s Financial Situation |
| |
— |
The
cash and cash equivalents item rose from NIS 13.6 million on December, 31, 2006 to NIS
167.7 million on December 31, 2007. This increase is primarily attributed to some of the
proceeds in the amount of approximately NIS 110 million, received from a private
placement in a total amount of approximately NIS 211 million, to the shareholders , sums
received as proceeds from the sale of land – approximately NIS 30 million – and
from the realization of approximately NIS 27 million investment in TMM. |
| |
— |
The
accounts receivable item rose from NIS 168.1 million as at December 31, 2006 to NIS 178.8
million as at December 31, 2007. This increase is primarily attributed to the growth in
the volume of operations, with no significant change in customer credit days. |
| |
— |
The
other accounts receivables decreased from NIS 146.7 million on December 31, 2006 to NIS
105.1 million on December 31, 2007. This decrease is primarily attributed to the payment
of debt from the sale of land in late 2006 in the sum of approximately NIS 30 million. |
| |
— |
The
inventories item rose from NIS 62.1 million on December 31, 2006 to NIS 69.6 million on
December 31, 2007. This increase originates primarily from an increase in the paper waste
inventories, due to Amnir preparations in anticipation of the future operation of the new
packaging paper machine (see also 2a 4(2), above). |
| |
— |
Investments
in associated companies decreased from NIS 375.5 million on December 31, 2006 to NIS
346.2 million on December 31, 2007. The principal components of the said decrease
included the Company’s net share in the losses of associated companies during the
reported period, coupled with the realization of an investment in TMM in return for its
book value of approximately NIS 27 million. |
| |
— |
Short-term
credit fell from NIS 203.0 million on December 31, 2006 to NIS 143.0 million on December
31, 2007. The decrease in this item is primarily attributed to repayment from proceeds
obtained from the private placement to shareholders, the positive cash flows from
operating activities, net of investments in fixed assets. |
6
| |
— |
The
other payables item decreased from NIS 103.7 million on December 31, 2006 to NIS 87.2
million on December 31, 2007. The decrease is primarily attributed to the payment of
income tax on account of NIS 12 million in betterment taxes, originating from the
transaction for the sale of land in late 2006. |
| |
— |
The
company’s shareholders’ equity increased from NIS 430.8 million on December 31,
2006 to NIS 678.1 million on December 31, 2007. The change is primarily attributed to the
issue of shares by private placement to the shareholders, net of issuing expenses, in the
sum of approximately NIS 211.6 million, from net profit this year of NIS 31.4
million, and the decrease in the negative capital surplus from translation differences at
an associated company. |
| |
1. |
Investments
in Fixed Assets |
| |
The
investments in fixed assets amounted to NIS 86 million in 2007, as compared with NIS 53.1
million in 2006. The investments in 2007 included payments for the acquisition of an
reservesteam boiler and the completion of the conversion of the energy system to natural
gas, along with the necessary infrastructure. The Company also made current investments
in environmental issues (sewage treatment) and current investments in equipment renewal,
means of transportation and in the maintenance of buildings at the Hadera site. The
investments in 2006 included payments for converting the energy system to natural gas,
improving the material preparation system so as to improve the quality of packaging paper
and the treatment of waste water, as part of the environmental investments. The Company
also invested regularly in equipment renewal and transportation. |
| |
The
long-term liabilities (including current maturities) amounted to NIS 261.7 million as at
December 31, 2007, as compared with NIS 297.9 million as at December 31, 2006. The
long-term liabilities decreased by NIS 36 million as a result of the repayment of
debentures in 2007 in the sum of NIS 37 million, the repayment of long-term loans in the
sum of NIS 5 million, net of the increase from the evaluation of CPI-linked debenture
balances. |
| |
The
long-term liabilities include primarily two series of debentures and the following
long-term bank loans: |
| |
Series
1 – NIS 14.1 million, for repayment until 2009 – by private placement to
institutional investors. |
| |
Series
2 – NIS 182.1 million, for repayment until 2013 – by private placement to
institutional investors. |
| |
Long-term
loans from banks – NIS 33.5 million. |
| |
The
balance of short-term credit from banks, as at December 31, 2007, amounted to NIS 143.0
million, as compared with NIS 203.0 million at December 31, 2006. |
7
| |
Since
the Company’s share in the earnings of associated companies constitutes a material
component in the Company’s statement of income (primarily on account of its share in
the earnings of Mondi Business Hadera Paper Ltd. [Mondi Hadera] and Hogla-Kimberly
Ltd.), before the presentation of the consolidated data below, 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”), is being presented without considering the rate of holding
therein and net of mutual sales. |
| |
Regarding
the consolidated data, see Section (2) below. |
| |
A. |
Aggregate
Data from Israeli Operations |
| |
In
early 2007, the Company sold its holdings in TMM Integrated Recycling Industries Ltd. (“TMM”)
(43.02% directly and indirectly), as part of an agreement with Veolia Israel and in
response to a tender offer for the acquisition of TMM shares from the public, by Veolia
Israel. The aggregate sales and operating profit figures for the preceding year are
consequently presented net of the TMM results. |
| |
The
aggregate sales in Israel totaled NIS 2,864.1 million in 2007, as compared with
approximately NIS 2,614.7 million in 2006, representing growth of 9.5%. The aggregate
sales in 2005 amounted to NIS 2,425.9 million. |
| |
The
aggregate operating profit in Israel totaled approximately NIS 263.1 million in 2007, as
compared with NIS 177.7 million in 2006, representing growth of 48%. Net of TMM (that was
sold at the beginning of 2007), the operating profit rose from NIS 186.2 million in 2006,
to NIS 263.1 million in 2007, representing growth of 41.3%. The operating profit in 2005
amounted to NIS 142.3 million. |
| |
The
significant improvement in the operating profitability in Israel is attributed to the
raising of prices in most of the Group’s areas of operation, the growth in
quantitative sales and the continuing efficiency measures and group synergy. This
improvement was partially offset by the continuing rise in raw material prices. |
| |
B. |
Aggregate
Data (including Turkey) |
| |
The
aggregate sales amounted to NIS 3,124.3 million in 2007, as compared with NIS 2,830.5
million in 2006 – net of TMM – representing growth of 10.4%. The aggregate
sales in 2005 amounted to NIS 2,613.7 million. |
| |
The
aggregate operating profit in 2007 amounted to NIS 189.4 million, as compared with NIS
103.1 million in 2006. The operating profit in 2005 amounted to NIS 115.8 million. |
8
| |
The
increase in the aggregate operating profitability in 2007 is primarily attributed to the
raising of prices in most areas of operation, the rise in quantitative sales and the
reduction of the operating loss in Turkey by NIS 9.4 million, originating from the
continued trend of improvement in the Turkish results, despite the cost of introducing
the international Kimberly Clark brands to Turkey, that began in 2006, along with the
price war as part of the battle over competing market share in the market. |
| |
For
the operations in Turkey – see Section C7 below – Company’s share in the
earnings of associated companies. |
| |
Excluding
the results of operation of the associated companies: Mondi Hadera, Hogla-Kimberly and
Carmel Container Systems Ltd. (“Carmel”). |
| |
The
consolidated sales totaled NIS 583.6 million in 2007, as compared with NIS 530.1 million
in 2006, representing growth of 10.1%. |
| |
The
consolidated operating profit amounted to NIS 75.4 million in 2007, as compared with NIS
50.5 million in 2006, representing growth of approximately 49.3%. |
| |
Total
revenues for the paper and recycling activity amounted to NIS 464.7 million, NIS 408.0
million and NIS 368.9 million in 2007, 2006 and 2005, respectively. |
| |
Gross
profit for the paper and recycling activity amounted to NIS 110.3 million (24% of
turnover) in 2007, NIS 78.7 million (19% of turnover) in 2006 and NIS 69.8 million (19%
of turnover) in 2005. |
| |
Total
revenues for the marketing of office supplies activity amounted to NIS 119 million in
2007, as compared with NIS 122.1 million and NIS 113.6 million in 2006 and 2005. |
| |
Gross
profit for the marketing of office supplies activity amounted to NIS 32.9 million (28% of
turnover) in 2007, compared with NIS 32.7 million (27% of turnover) in 2006 and NIS 29.4
million (26% of turnover) in 2005. |
| |
3. |
Net
Profit and Earnings Per Share |
| |
The
net profit in 2007 amounted to NIS 31.4 million, as compared with NIS 13.3 million in
2006 and NIS 45.7 million in 2005. |
| |
The
net profit in 2007 was affected by the growth in the Company’s share in the losses
of the operations in Turkey (KCTR), amounting to approximately NIS 11.8 million (from NIS
52.0 million last year to NIS 63.8 million this year), as compared with the preceding
year (see Strategic Investment in Turkey, above, and Section C7, below). |
| |
In
2007, the net profit included earnings from the realization of surplus cost at an
associated company in the amount of NIS 2.5 million, a loss from the amortization of a
tax asset at an associated company in the sum of NIS 13.4 million and a capital loss from
the sale of cardboard machines (machine 6) and hub machines in the sum of NIS 2.4 million. |
9
| |
The
net profit in 2006 included net capital gains from the sale of real estate at Atidim in
the sum of NIS 28.5 million, while also including non-recurring expenses (net of tax
influence) of NIS 18 million, primarily on account of a provision for impairment at an
associated company (in the third quarter of the year) and the impact of the devaluation
and modified tax rates in Turkey (in the second quarter of the year). (Approximately NIS
8 million included in the above loss from Turkey). |
| |
The
net profit in 2005 included capital gains of NIS 4.4 million plus a tax benefit of NIS 8
million (including the company’s share in the benefit at the consolidated
subsidiaries) on account of the impact of the tax law reforms that were passed by the
Knesset (Israeli parliament) on July 25, 2005, that serve to gradually lower the
corporate tax rate to a level of 25% by 2010. |
| |
The
basic earnings per share amounted to NIS 7.61 per share in 2007 ($1.98 per share), as
compared with NIS 3.31 per share ($0.78 per share) in 2006 and as compared with NIS 11.43
per share ($2.48 per share) in 2005. |
| |
The
diluted earnings per share amounted to NIS 7.60 per share in 2007 ($1.98 per share), as
compared with NIS 3.28 per share in 2006 ($0.77 per share) and NIS 11.35 per share in
2005 ($2.46 per share). |
| |
4. |
Analysis
of Operations and Profitability |
| |
The
analysis set forth below is based on the consolidated data. |
| |
The
consolidated sales amounted to NIS 583.6 million in 2007, as compared with NIS 530.1
million in 2006 and NIS 482.5 million in 2005. |
| |
The
increase in the turnover in 2007 originated primarily from the growth in sales of
packaging paper and recycling as a result of the possibility of realizing price hikes in
accordance with prevailing global conditions in the paper market. |
| |
Sales
of the packaging paper and recycling activity amounted to NIS 464.7 million in 2007, as
compared with NIS 408.0 million in the corresponding period last year. |
| |
The
growth in the sales turnover of the packaging paper and recycling activity originated
primarily from the raising of the selling prices. |
| |
Sales
of the marketing of office supplies marketing activity amounted to NIS 119.0 million in
the reported period, as compared with NIS 122.1 million last year. Most of the decrease
in sales is attributed to the impact of not winning the Accountant General tender in
early 2007, a fact that was somewhat compensated for by an increase in sales to other
customers, at better margins. |
| |
The
change in the turnover in 2006 in relation to 2005 originated primarily from a certain
increase in sales of packaging paper and recycling and a marginal decrease in sales of
the office supplies sector in light of a change in the customer mix toward a more
profitable one. |
10
| |
The
cost of sales amounted to NIS 440.9 million in 2007, representing 75.5% of sales, as
compared with NIS 418.7 million, or 79.0% of sales in 2006 and as compared with NIS 383.2
million, or 79.4% of sales in 2005. |
| |
The
gross profit as a percentage of sales grew in 2007 to reach 24.5%, as compared with 21.0%
in 2006 and 20.6% in 2005. |
| |
The
increase in the gross profit originated primarily from the improved selling prices and
the quantitative growth in the local market, coupled with the savings in energy costs,
primarily on account of the transition to natural gas in the last quarter. On the other
hand, an increase was recorded in other manufacturing costs as a result of the increase
of the volume of operations, including growth in collection by Amnir and the rise in
diesel prices. |
| |
The
labor wages in the cost of sales, in selling expenses and in General and Administrative
expenses, amounted to approximately NIS 174.8 million in 2007, as compared with NIS 160.6
million in 2006 and NIS 149.7 million in 2005. |
| |
The
change in payroll costs in relation to the corresponding period last year reflects a 5%
increase in personnel – especially at Amnir, as part of preparations for increasing
paper waste collection in anticipation of the future operation of the new packaging paper
machine – along with a nominal increase of 3.5% in the wages. The wage expenses (in
General and Administrative) also included non-recurring expenditures, primarily on
account of the employment agreement with the Company’s CEO. See Note 9D to the
financial statements. |
| |
3. |
Selling,
General and Administrative Expenses |
| |
The
selling, general and administrative expenses (including wages) amounted to NIS 67.4
million in 2007 (11.6% of sales), as compared with NIS 60.9 million (11.5% of sales), in
2006 and NIS 55.9 million in 2005 (11.6% of sales). |
| |
The
increase in selling, general and administrative expenses originated primarily from growth
in labor expenses, including non-recurring influences, as stated above in the Labor Wages
section. |
| |
The
operating profit amounted to NIS 75.4 million in 2007, representing 49% growth in
relation to 2006, 13.0% of sales, as compared with NIS 50.5 million, or 9.5% of sales in
2006 and as compared with NIS 43.3 million, or 9.0% of sales in 2005. |
| |
The
increase in operating profit in 2007, by 49% in relation to 2006, originated from the
increase in sales of packaging paper and recycling, primarily on account of the
improvement in selling prices and the efficiency measures, that were partially offset by
rising energy prices, coupled with the improvement in the operating profit of the
marketing of office supplies activity as a result of efficiency measures and the
reorganization that the company initiated in the past several years. |
| |
In
the marketing of office supplies activity, the trend of maintaining the operating profit
of NIS 0.4 million in 2007, was attributed to the reorganization in the sector,
accompanied by far-reaching efficiency measures and steps to increase sales, following
the transition to an operating profit in 2006 as compared with a loss in 2005 (NIS 0.2
million in 2006, as compared with NIS -0.9 million in 2005). |
11
| |
Financial
expenses amounted to NIS 19.6 million in 2007, as compared with NIS 31.1 million in 2006. |
| |
The
total average of the Company’s net, interest-bearing liabilities grew by an average
of approximately NIS 10 million between the years 2007 and 2006. The increase is
primarily attributed to investments in fixed assets, net of positive cash flows from
operating activities. |
| |
Despite
the said increase in the obligo, the financial expenses in 2007 were cut back in relation
to the preceding year by NIS 11.5 million. |
| |
The
said decrease in financial expenses originated from the decrease in the average interest
rate on short-term credit (by approximately 1.2%), the lower expenses on account of
CPI-linked notes, despite the sharp rise in the inflation rate in relation to 2006, on
account of the lowering of the cost of hedging the CPI-linked notes against a rise in the
CPI that fell from 1.8% in 2006, to 1.3% in 2007 and resulted in a approximately NIS 1.1
million decrease in note-related costs. |
| |
As
a result of currency hedging transactions made by the company on the dollar/euro ratio,
the company recorded financial revenues of NIS 4.6 million in the last quarter of the
year. (These revenues, on account of hedging the expected cash flows for the new
packaging paper Machine were allocated to the statement of income pursuant to accounting
principles since the agreement with the machine’s supplier VOITH was only signed in
late December 2007). |
| |
Due
to the decrease in the dollar exposure this year in relation to the preceding year, the
financial expenses decreased this year by NIS 4.7 million in relation to last year on
account of currency rate differential revenues on account of the assets in foreign
currency. |
| |
Expenses
for taxes on income from current operations totaled NIS 18.4 million in 2007, as compared
with NIS 5.5 million in 2006 and NIS 10.2 million in 2005. |
| |
The
principal factors responsible for the increase in tax expenses from operating activities
in 2007 as compared with 2006, included the increase in operating profit before taxes
this year, despite the impact of the lower tax rate on current and deferred taxes this
year, in relation to last year. In addition, the tax expenses this year grew by NIS 2
million as a result of the sharp rise in the CPI this year by 3.4% in relation to last
year. |
| |
Moreover,
the tax expenses in 2007 included an additional tax expense of NIS 0.9 million in 2007
from taxes on previous years as a result of the completion of tax assessments for the
years 2002-2005. An additional tax expense of NIS 11.2 million was recorded in 2006,
primarily on account of betterment tax on the sale of real estate. A tax benefit of NIS
4.2 million was recorded in 2005 on account of the impact of the tax reforms that were
passed by the Knesset in July 2005 (gradually lowering the corporate tax rate to 25% by
2010) on the company’s deferred taxes. |
12
| |
Total
tax expenses amounted to NIS 19.3 million in 2007, as compared with NIS 5.5 million in
2006 and NIS 6.0 million in 2005. |
| |
7. |
Company’s
Share in Earnings of Associated Companies |
| |
The
companies whose earnings are reported under this item (according to AIPM’s holdings
therein), include primarily: Mondi Hadera, Hogla-Kimberly, Carmel and TMM. |
| |
The
Company’s share in the earnings (losses) of associated companies amounted to NIS
(2.9) million in 2007, as compared with losses of NIS (26.7) million in 2006 and earnings
of NIS 16.4 million in 2005. |
| |
The
following principal changes were recorded in the Company’s share in the earnings of
associated companies, in relation to 2006: |
| |
– |
The
Company’s share in the net profit of Mondi Hadera (49.9%) increased by NIS 12.9
million this year. Most of the change in profit originated from the company’s highly
improved profitability, the transition from an operating loss of NIS 2.1 million last
year to an operating profit of NIS 33.6 million this year – primarily as a result of
the improved trading conditions that allowed for higher selling prices that led to an
improved gross margin, coupled with a decrease in certain raw material costs as a result
of the lower dollar exchange rate, primarily in the course of the second half of the
year, coupled with a significant improvement in the efficiency of the company’s
operational array. This said improvement was rendered possible as a result of the said
recovery in the European paper industry, coupled with the quantitative increase in sales
to the local market. This improvement began in the second quarter of the year,
accelerated in the second quarter and preserved the same trend in the second half of the
year. The sharp improvement in profit was somewhat offset as a result of the rise in the
net financial expenses, which originated primarily from working capital requirements due
to the rise in the volumes of operation and the impact of changes in the exchange rate. |
| |
– |
The
Company’s share in the net profit of Hogla-Kimberly Israel (49.9%) increased by NIS
5.4 million in 2007, as compared with 2006. The operating profit of Hogla grew from NIS
127.0 million to NIS 135.4 million this year. The improved operating profit originated
from a quantitative increase in sales, improved selling prices and the continuing trend
of raising the proportion of some of the premium products out of the products basket.
This improvement was partially offset by the continuing rise in raw material prices. The
net profit was also affected by the increase in financial expenses of NIS -1.7 million,
as compared with financial revenues of NIS 1 million last year, as a result of the
financing needs of the operations in Turkey. The net profit of Hogla-Kimberly Israel last
year was influenced by non-recurring tax expenses of NIS 4.5 million (our share was
approximately NIS 2.2 million). |
13
| |
Company’s
share in the losses of KCTR (formerly: “Ovisan”) (49.9%) grew by approximately
NIS 11.8 million in 2007, as compared with 2006. The operating loss decreased by
approximately NIS 9.4 million in 2007 in relation to last year, due to the continuing
growth in the penetration rate of brands and their strengthened position in the market.
The launch process of premium KC products in the Turkish market (Kotex® and Huggies®),
that began in the second quarter last year and was accompanied by fierce competition over
shelf space, primarily against P&G coupled with the erosion of selling prices – to
the lowest levels in the world – for same-quality disposable diapers. In the course
of 2007, a non-recurring loss of approximately NIS 6 million ($1.5 million) was included
on account of the termination of trade agreements with distributors due to the transition
to distribution by Unilever, of which our share was approximately NIS 3 million.
Moreover, the tax asset that was recorded in previous years in Turkey, in the sum of
approximately approximately NIS 26 million ($6.4 million) was reduced, of which our share
is NIS approximately 13.3 million. Last year, the loss included a non-recurring
expenditure of approximately NIS 16 million, of which our share was approximately NIS 8
million, primarily as a result of the devaluation of the Turkish lira and the
amortization of a tax asset in the sum of approximately NIS 6.7 million, of which our
share was approximately NIS 3.3 million. |
| |
– |
The
Company’s share in the net profit of Carmel (36.21%) increased by NIS 2.1 million in
2007 as compared with 2006. The factors that affected the growth in the company’s
share in the net profit of Carmel, originated inter alia from the improvement in the
operating profitability at Carmel – primarily in the second half of the year. This
improvement originated primarily from higher prices and was partially offset by the sharp
rise in raw material prices. In the course of the second quarter, the company’s
holding rate in Carmel rose from 26.25% to 36.21% due to Carmel’s self purchase of
some of the minority shareholders’ holdings. As a result of the acquisition, a
negative surplus cost of NIS 4.9 million was created at the company, of which a sum of
NIS 2.4 million was allocated to the statement of income this year and served to increase
the company’s share in the Carmel profits in 2007. In 2006, Carmel’s net profit
included capital gains from the sale of a real-estate asset in Netanya in the amount of
NIS 3.9 million, of which the Company’s share was approximately NIS 1 million. |
| |
In
2006, the Company’s share in the earnings of associated companies included the
Company’s share in the losses of TMM, in the amount of NIS 14.8 million. As
mentioned above, the Company sold its holdings in TMM in early 2007 and this item is
therefore not included in the Company’s share in the earnings of associated
companies this year. |
| |
The
Company’s share in the earnings of associated companies from current operations in
Israel (excluding Turkey and TMM) grew by NIS 20.7 million this year and amounted to NIS
60.9 million. |
| |
The
cash flows from operating activities in 2007 amounted to NIS 69.5 million, as compared
with NIS 53.1 million in 2006. The change in the cash flows from operating activities in
2007 originated primarily from the increase in current operations and in profit. |
| |
The
cash flows from operating activities in 2005 amounted to NIS 88.6 million. |
14
| |
The
dividend that was declared in December 2005, in the amount of NIS 50 million, was paid in
January 2006. Additional dividend of NIS 100 million was distributed in July 2006. |
| |
See
Section B2 – Financial Liabilities. |
| |
In
November 2007, the Company performed a private placement of 1,012,585 ordinary shares of
NIS 0.01 par value of the Company (hereinafter: “Ordinary Shares”) which, as of
the date of issuance, accounted for 20% of the issued share capital of the Company
(hereinafter in this section: “The Shares”) against an investment in the total
sum of NIS 213 million (hereinafter in this section: “the raised amount”).
About 60% of the shares (607,551 shares) were issued to the controlling shareholders in
the Company, Clal Industries and Investments and Discount Investments (hereinafter: “the
special offerees”), in accordance with the pro-rata holdings in the Company, and 40%
of the shares (405,034 shares) were offered by way of a tender to institutional entities
and private entities (whose number did not exceed 35) (hereinafter in this section: “The
Ordinary Offerees”). The price per share for the ordinary offerees, as determined by
tender was NIS 210. Accordingly, the price per share for the special offerees,
considering the amount of shares offered to the special offerees, was set at NIS 211.05
(the price per share in the tender plus a rate of 0.5%). The Company paid the
distributors a rate of 1.2% of the total consideration received from the ordinary
offerees, that is, a sum of NIS 1,020,686. The consideration received in respect of the
allotment of the shares offered as aforesaid, shall be used for the partial financing of
the acquisition of the new packaging paper machine . |
| F. |
Exposure
and Management of Market Risks |
| |
The
Company conducts periodical discussions regarding market risks and exposure to exchange
rate and interest rate fluctuations, with the participation of the relevant factors, so
as to reach decisions in this matter. The individual responsible for the implementation
of market risk management policy at the Company is Israel Eldar, that serves as the
Company’s Comptroller since 1981, and as a director in subsidiaries of the Company . |
| |
2. |
Market
Risks to which the Company is Exposed |
| |
Description
of Market Risks |
| |
The
market risks reflect the risk of changes in the value of financial instruments affected
by changes in the interest rate, in the Consumer Price Index and in exchange rates. |
| |
Approximately
half of the Company’s sales are denominated in US dollars, whereas a significant
share of its expenses and liabilities are in NIS. The Company is therefore exposed to
exchange rate fluctuations of the NIS vis-à-vis the US dollar. |
15
| |
In
September this year the Company entered into dollar-euro hedging transactions for a
period of up to 4 months, in the amount of € 13.4 million. |
| |
Consumer
Price Index Risks |
| |
The
Company is exposed to changes in the Consumer Price Index, pertaining to bank and other
loans and to the bonds issued by the Company, in the total sum of NIS 196 million.
In
early 2008, the Company entered into hedging transactions for a period of one year, to
protect itself against a rise in the CPI, in the amount of NIS 140 million, pursuant to
previous transactions that were made in December 2006 and January 2007 and terminated at
the end of 2007. |
| |
The
Company is exposed to changes in interest rates, primarily on account of notes, in the
sum of NIS 196 million. |
| |
Most
of the Group’s sales are made in Israel to a large number of customers and the
exposure to customer-related credit risks is consequently generally limited. The Group
regularly analyzes – through credit committees that operate within the various
companies – the quality of the customers, their credit limits and the relevant
collateral required, as the case may be. |
| |
The
financial statements include provisions for doubtful debts, based on the existing risks
on the date of the statements. |
Sensitivity Analysis Tables for Sensitive Instruments, According to Changes in Market Elements
| |
Sensitivity to Interest Rates
|
| |
Sensitive Instruments
|
Profit (loss) from changes
|
Fair value
As at
Dec-31-07
|
Profit (loss) from changes
|
| |
|
Interest
rise
10%
|
Interest
rise
5%
|
Interest
decrease
10%
|
Interest
decrease
5%
|
| |
In NIS thousands
|
| |
|
|
|
|
|
|
| |
Series 1 Debentures |
|
|
| 54 |
|
| 27 |
|
| 14,336 |
|
| (54 |
) |
| (27 |
) |
| |
Series 2 Debentures | | |
| 2,370 |
|
| 1,191 |
|
| 191,537 |
|
| (2,417 |
) |
| (1,203 |
) |
| |
Other liabilities | | |
| 121 |
|
| 60 |
|
| 31,510 |
|
| (122 |
) |
| (61 |
) |
| |
Long-term loans and capital notes - granted | | |
| (186 |
) |
| (93 |
) |
| (48,644 |
) |
| 188 |
|
| 94 |
|
| |
The
fair value of the loans is based on a calculation of the present value of the cash flows,
according to the generally-accepted interest rate on loans with similar characteristics
(4% in 2007). |
| |
Regarding
the terms of the debentures and other liabilities – See Note 4 to the financial
statements. |
| |
Regarding
long-term loans and capital notes granted –See Note 2 to the financial statements. |
16
| |
Sensitivity of € linked instruments to changes in the(euro)exchange rate
|
| |
Sensitive Instruments
|
Profit (loss) from changes
|
Fair value
As at Dec-31-07
|
Profit (loss) from changes
|
| |
|
Revaluation of
€
10%
|
Revaluation of
€
5%
|
Devaluation of
€
10%
|
Devaluation of
€
5%
|
| |
In NIS thousands
|
| |
|
|
|
|
|
|
| |
NIS-€forward transaction |
|
|
| 6,038 |
|
| 4,028 |
|
| 994 |
|
| (8,439 |
) |
| (3,741 |
) |
| |
See
Note 12a to the financial statements. |
| |
Sensitivity to the US Dollar Exchange Rate
|
| |
Sensitive Instruments
|
Profit (loss) from changes
|
Fair value
As at Dec-31-07
|
Profit (loss) from changes
|
| |
|
Revaluation of
$
10%
|
Revaluation of
$
5%
|
Devaluation of
$
10%
|
Devaluation of
$
5%
|
| |
In NIS thousands
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
Other Accounts Receivable |
|
|
| 1,272 |
|
| 636 |
|
| 12,720 |
|
| (1,272 |
) |
| (636 |
) |
| |
Capital note | | |
| 242 |
|
| 121 |
|
| 2,421 |
|
| (242 |
) |
| (121 |
) |
| |
Accounts Payable | | |
| (1,036 |
) |
| (518 |
) |
| (10,363 |
) |
| 1,036 |
|
| 518 |
|
| |
Other
accounts receivable reflect primarily short-term customer debts. |
| |
Capital
note – See Note 2b to the financial statements. |
| |
Accounts
payable reflect primarily short-term liabilities to suppliers. |
17
| |
Below
are the balance sheet items, according to linkage bases, as at December 31, 2007: |
In NIS Millions
|
Unlinked
|
CPI-linked
|
In foreign
currency, or
linked thereto
(primarily US$)
|
Non-Monetary
Items
|
Total
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | |
| Cash and cash equivalents | | |
| 2.5 |
|
| |
|
| 165.2 |
|
| |
|
| 167.7 |
|
| Other Accounts Receivable | | |
| 259.0 |
|
| 0.4 |
|
| 12.7 |
|
| 11.8 |
|
| 283.9 |
|
| Inventories | | |
| |
|
| |
|
| |
|
| 69.6 |
|
| 69.6 |
|
| Investments in Associated Companies | | |
| 52.2 |
|
| |
|
| 2.4 |
|
| 291.6 |
|
| 346.2 |
|
| Deferred taxes on income | | |
| |
|
| |
|
| |
|
| 6.1 |
|
| 6.1 |
|
| Fixed assets, net | | |
| |
|
| |
|
| |
|
| 445.6 |
|
| 445.6 |
|
| Deferred expenses, net of accrued | | |
| amortization | | |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| |
| |
| |
| |
| |
| Total Assets | | |
| 313.7 |
|
| 0.4 |
|
| 180.3 |
|
| 824.7 |
|
| 1,319.1 |
|
|
| |
| |
| |
| |
| |
| | | |
| Liabilities | | |
| Credit from Banks | | |
| 143.0 |
|
| |
|
| |
|
| |
|
| 143.0 |
|
| Other Accounts Payable | | |
| 185.3 |
|
| |
|
| 10.4 |
|
| |
|
| 195.7 |
|
| Deferred taxes on income | | |
| |
|
| |
|
| |
|
| 40.5 |
|
| 40.5 |
|
| Long-Term Loans | | |
| 33.5 |
|
| |
|
| |
|
| |
|
| 33.5 |
|
| Notes (bonds) | | |
| |
|
| 195.5 |
|
| |
|
| |
|
| 195.5 |
|
| Other liabilities - including current | | |
| maturities | | |
| 32.8 |
|
| |
|
| |
|
| |
|
| 32.8 |
|
| Equity, funds and reserves | | |
| |
|
| |
|
| |
|
| 678.1 |
|
| 678.1 |
|
|
| |
| |
| |
| |
| |
| Total liabilities and equity | | |
| 394.6 |
|
| 195.5 |
|
| 10.4 |
|
| 718.6 |
|
| 1,319.1 |
|
|
| |
| |
| |
| |
| |
| Surplus financial assets (liabilities) as at | | |
| December 31, 2007 | | |
| (80.9 |
) |
| (195.1 |
) |
| 169.9 |
|
| 106.1 |
|
| |
|
18
| |
Below
are the balance sheet items, according to linkage bases, as at December 31, 2006: |
In NIS Millions
|
Unlinked
|
CPI-linked
|
In foreign
currency, or
linked thereto
(primarily US$)
|
Non-Monetary
Items
|
Total
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | |
| Cash and cash equivalents | | |
| 5.0 |
|
| |
|
| 8.6 |
|
| |
|
| 13.6 |
|
| Other Accounts Receivable | | |
| 243.1 |
|
| 0.2 |
|
| 59.8 |
|
| 11.7 |
|
| 314.8 |
|
| Inventories | | |
| |
|
| |
|
| |
|
| 62.1 |
|
| 62.1 |
|
| Investments in Associated Companies | | |
| 63.7 |
|
| |
|
| 6.3 |
|
| 305.5 |
|
| 375.5 |
|
| Deferred taxes on income | | |
| |
|
| |
|
| |
|
| 6.5 |
|
| 6.5 |
|
| Fixed assets, net | | |
| |
|
| |
|
| |
|
| 400.8 |
|
| 400.8 |
|
|
| |
| |
| |
| |
| |
| Total Assets | | |
| 311.8 |
|
| 0.2 |
|
| 74.7 |
|
| 786.6 |
|
| 1,173.3 |
|
|
| |
| |
| |
| |
| |
| | | |
| Liabilities | | |
| Credit from Banks | | |
| 203.0 |
|
| |
|
| |
|
| |
|
| 203.0 |
|
| Other Accounts Payable | | |
| 191.5 |
|
| |
|
| 8.4 |
|
| |
|
| 199.9 |
|
| Deferred taxes on income | | |
| |
|
| |
|
| |
|
| 41.7 |
|
| 41.7 |
|
| Long-Term Loans | | |
| 38.7 |
|
| |
|
| |
|
| |
|
| 38.7 |
|
| Notes (bonds) | | |
| |
|
| 226.4 |
|
| |
|
| |
|
| 226.4 |
|
| Other liabilities - including current | | |
| maturities | | |
| 32.8 |
|
| |
|
| |
|
| |
|
| 32.8 |
|
| Equity, funds and reserves | | |
| |
|
| |
|
| |
|
| 430.8 |
|
| 430.8 |
|
| Total liabilities and equity | | |
| 466.0 |
|
| 226.4 |
|
| 8.4 |
|
| 472.5 |
|
| 1,173.3 |
|
|
| |
| |
| |
| |
| |
| Surplus financial assets (liabilities) as at | | |
| December 31, 2006 | | |
| (154.2 |
) |
| (226.2 |
) |
| 66.3 |
|
| 314.1 |
|
| |
|
| |
AIPM
is exposed to various risks associated with operations in Turkey, where Hogla-Kimberly is
active through its subsidiary, KCTR. These risks originate from concerns regarding the
economic instability, high devaluation and elevated interest rates that have
characterized the Turkish economy in the past and that may recur and harm the KCTR
operations. |
| G. |
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 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 to publicly update such forward-looking
statements, regardless of whether these updates originate from new information, future
events or any other reason. |
19
| H. |
Donations
and Contributions |
| |
The
AIPM Group, within the framework of its business and social commitment, invests efforts
and funds in community assistance and support, while focusing on providing help to the
weaker echelons of Israeli society – and primarily teenagers. |
| |
As
part of this policy, the company makes contributions to various institutions active in
the said areas. The Group’s contributions amounted to NIS 350 thousand in 2007. |
| |
In
parallel, through its employees, the Company also participates in volunteer activity in
the community, for promoting these same objectives. |
| |
This
year the company focused on donations to youth clubs, community centers operating in the
afternoons – with the intention of fortifying and enriching teenagers while granting
them a proper opportunity.
The company has also contracted an external company to conduct
social mapping and intends to begin implementing the new program this year. |
| |
Moreover
the company is active in the granting of student scholarships, through the Shenkar
Foundation, that was established by the company together with its Austrian strategic
partner in Mondi Hadera. Assistance was also provided to two projects: A women’s
club in Um-el-Fahem and a children’s club in the Eastern Worker neighborhood of
Hadera, as well as for the purchase of computers for the youth center in Hadera. The
total contributions of the company through the Shenkar Foundation amounted to NIS 102
thousand. |
| I. |
Members
of the Board of Directors Possessing Financial Skills and Qualifications |
| |
The
minimum number of company directors possessing accounting and financial qualifications
and skills was determined to be two for the company, in consideration of the nature of
the accounting and financial issues that are raised in the preparation of the company’s
financial statements, in view of the company’s areas of operation and in
consideration of the composition of the board of directors as a whole, that includes
individuals possessing business, management and professional experience that enables them
to deal effectively with the tasks of managing the company, including reporting duties. |
| |
The
members of the company’s board of directors who possess accounting and financial
qualifications and skills are: |
| |
Avi Yehezkel |
– |
Holds a degree in Economics from Tel Aviv University and a Law degree
from Bar-Ilan University. External director at Bank
Yahav. Served as a Knesset member between 1992-2003,
also served as Chairman of the Economics Committee, Chairman of the Defense
Budget Committee, Chairman of the Capital Market
Sub-Committee, Chairman of the Banking Sub-Committee and
member of the Finance Committee. |
| |
Ari Bronshtein |
– |
Holds a Bachelor's degree in Management and Economics from Tel Aviv
University and a Master's degree in Management,
Accounting and Finance from Tel Aviv University. Serves
as VP of Discount Investments Ltd.; Director at Elron
Electronic Industries Ltd. Former VP of Economics and
Business Development and Director of Finance and Investments at
Bezeq - The Israel Telecommunications Company Ltd. |
| |
Itzhak Manor |
– |
Holds an MBA from Hebrew University. Serves as director at various
publicly-traded and privately-held companies within the
IDB Group; Chairman of companies in the David Lubinsky
Group Ltd.; member of the Balance Sheet Committee at Israel Union Bank Ltd. |
20
| |
Amos Mar-Haim |
– |
Holds a BA in economics and an MBA from Hebrew University. Formerly served
and currently serves as Chairman or Deputy Chairman at
publicly-traded or privately-held companies. Member of
the Israeli Accounting Standards Board. |
| |
Amir Makov |
– |
Holds a Law degree from Hebrew University and an Engineering degree
from the Haifa Technion. Served as CEO of Haifa Chemicals
Ltd., Sonol Israel Ltd.. Served and serves as a director
of various publicly-traded and privately-held companies including Bank
Leumi Ltd., Dead Sea Works Ltd., Dead Sea Bromine Ltd. and
more. |
| J. |
The
Company’s Internal Auditor |
| |
A. |
Auditor’s
Name: Eli Greenbaum |
| |
In
the position since: July 16, 2006 |
| |
B. |
The
Auditor is employed by the Company. |
| |
C. |
The
Company’s Audit Committee has approved the appointment of the Auditor on
Mar-7-06. The Auditor is a CPA by training and has dealt in Treasury positions
at the Company for 20 years and consequently possesses the necessary skills for
the job. |
| |
D. |
The
Internal Auditor is supervised by the General Manager. |
| |
E. |
The
work plan for internal auditing is annual. The work plan is determined on the
basis of: A five-year plan, covering numerous issues that were approved by the
Audit Committee according to the auditing needs of the Company and covers
issues that the Internal Auditor believes warrant his examination and
consideration in the course of the current year. The work plan is determined by
the Internal Auditor and the Audit Committee. The work plan is approved by the
Audit Committee. The judgment of the Internal Auditor in terms of deviations
from the audit program, subject to the approval of the Company’s Audit
Committee. |
| |
F. |
The
Internal Auditing program includes auditing topics in corporations that
constitute significant holdings of the Company. |
| |
G. |
Scope
of employment: Full-time job as Auditor, plus an assistant. The auditing hours
number a total of 416 monthly hours, totaling 4,100 hours annually, divided
equally between the corporation and its investee companies: |
| |
Audited body
|
Estimated hours of audit annually
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
Internal auditing at the Company |
370 hours |
| |
Auditing at investee companies |
3,730 hours |
| |
Total hours |
4,100 hours |
21
| |
The
Internal Auditor conducts the audit according to generally-accepted professional
standards of internal auditing in Israel and worldwide, and to the estimation of the
Company’s Board of Directors, based on the Company’s Audit Committee
assessment, the audit is conducted according to the standards’ requirements. |
| |
H. |
The
Company declares that it has granted the Internal Auditor free, constant and
direct access to all the information at its disposal and at the disposal of the
held companies. |
| |
I. |
Audit
reports were submitted in writing and discussed on the following dates: |
| |
Submitted
|
Discussed
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
4.3.07 |
7.3.07 |
| |
6.5.07 |
6.5.07 |
| |
2.8.07 |
6.8.07 |
| |
4.11.07 |
7.11.07 |
| |
J. |
The
scope of employment of the Internal Auditor is determined according to a cycle
that renders it possible to audit all the significant topics at the Company,
once every few years.
This scope of activity, the nature, the continuity of
operation and the work plan of the Internal Auditor – are reasonable – according
to the estimation of the Company’s Audit Committee, while rendering it
possible to realize the Internal Audit objectives of the organization. |
| |
K. |
The
Auditor is employed by the Company. The Board of Directors believes that the
compensation received by the Internal Auditor does not influence his
professional judgment. |
| K. |
Senior
Employee Compensation |
| |
In
determining the compensation and bonuses of senior employees, the directors and
Compensation Committee took into consideration the position and standing of each
executive and his contribution to the operations and business of the Company. |
| |
In
January 2008, the board of directors decided to adopt a senior employee stock option
plan. The total general expenditure from the option plan amounts to approximately NIS 27
million. The option plan’s influence on the consolidated financial reports amounts
to approximately NIS 22 million |
| |
The
professional fees for the Company’s auditing CPA, covering auditing services,
including auditing of the internal control on the financial reports, amounted to $312
thousand in 2007, as compared with $150 thousand in 2006. The hours invested by the
auditing CPAs on account of these services amounted to 7,800 hours and 9,700 hours in the
years 2007 and 2006, respectively. |
22
| |
Follows
all-inclusive fees details of the Company’s and subsidiaries auditing CPA in the
reported year and in the previous year: |
| |
|
2007
|
2006
|
| |
|
Thousands of $
|
hours
|
Thousands of $
|
hours
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
Auditing and tax services |
|
|
| 150,000 |
|
| 4,510 |
|
| 150,000 |
|
| 9,700 |
|
| |
Auditing of internal control | | |
| 120,000 |
|
| 2,400 |
|
| - |
|
| - |
|
| |
Auditing of IFRS | | |
| 22,000 |
|
| 440 |
|
| - |
|
| - |
|
| |
Differentials | | |
| 20,000 |
|
| 450 |
|
| - |
|
| - |
|
| |
Total | | |
| 312,000 |
|
| 7,800 |
|
| 150,000 |
|
| 9,700 |
|
| M. |
Adoption
of Accounting Standard No. 29 – Adoption of International Financial Reporting
Standards (IFRS) |
| |
In
July 2006, the Israel Accounting Standards Board issued Israel Accounting Standard No. 29
– “Adoption of International Reporting Financial Standards (IFRS)”(hereinafter
– “the standard” or “Standard 29”).
Pursuant to the Standard,
companies that are subject to the provisions of the Securities Law, 5728-1968, and that
are required to report according to the regulations published thereunder, are to prepare
their financial statements in accordance with IFRS starting from the period commencing on
January 1, 2008. The standard allows for early adoption starting with the financial
statements published after July 31, 2006. The above does not apply to entities subject to
the Securities regulations (periodical and immediate reports of external corporations)
and whose financial statements are formulated not in accordance with generally accepted
accounting principles in Israel. Moreover, companies that are not subject to the
provisions of the Securities Law, 5728-1968, and that are not required to report
according to the regulations published thereunder, are also eligible to prepare their
financial statements in accordance with IFRS starting from the financial statements
published subsequent to July 31, 2006. |
| |
The
initial adoption of IFRS standards shall be made according to the instructions of IFRS 1,
“Initial Adoption of IFRS Standards” for the purposes of the transition. |
| |
According
to the Standard, the Company is required to include in a note to the annual financial
statements as of December 31, 2007, a balance sheet as of December 31, 2007, and a
statement of income for the year then ended, that have been prepared based on the
recognition, measurement and presentation criteria of IFRS. The company will implement
the IFRS standards starting with the financial statements for the period commencing
January 1, 2008. |
| |
For
impact of international standards on the company’s financial statements – see
Note 16 to the financial statements. |
23
| N. |
Detailed
processes undertaken by the company’s supreme supervisors, prior
to the approval of the financial statements |
| |
The
Company’s Board of Directors has appointed the Company’s Audit Committee to
serve as a Balance Sheet Committee and to supervise the completeness of the financial
statements and the work of the CPAs and to offer recommendations regarding the approval
of the financial statements and the discussion thereof prior to said approval. |
| |
The
Committee consists of three directors, of which two possess accounting and financial
expertise. The meetings of the Balance Sheet Committee, as well as the Board meetings
during which the financial statements are discussed and approved, are attended by the
Company’s auditing CPA, who is instructed to present the principal findings – if
there are any – that surfaced during the audit or review process, as well as by the
Internal Auditor. |
| |
The
Committee conducts its examination via detailed presentations from Company executives and
others, including: CEO – Avi Brenner; CFO – Shaul Gliksberg. The material
issues in the financial reports, including any extraordinary transactions – if any,
the material assessments and critical estimates implemented in the financial statements,
the reasonability of the data, the financial policy implemented and the changes therein,
as well as the implementation of proper disclosure in the financial statements and the
accompanying information. The Committee examines various aspects of risk assessment and
control, as reflected in the financial statements (such as reporting of financial risks),
as well as those affecting the reliability of the financial statements. In case
necessary, the Committee demands to receive comprehensive reviews of matters with
especially relevant impact, such as the implementation of international standards. |
| |
The
approval of the financial statements involves several meetings, as necessary: The first,
held at the Audit Committee several days before the approval date of the financial
statements, is held to discuss the material reporting issues in depth and at great
length, whereas the second, held in proximity to the approval date, by the Board of
Directors, to discuss the actual results. As to the supreme supervision regarding the
impact of the transition to international financial reporting standards, the Committee
held a detailed discussion regarding the said disclosure and the accounting policy
implemented in its respect. |
|
|
|
|
|
|
|
|
|
|
|
|
| Tzvika Livnat |
Avi Brenner |
| Chairman of the Board of Directors |
General Manager |
24
Exhibit 3
AMERICAN ISRAELI PAPER
MILLS LIMITED
2007 CONSOLIDATED
FINANCIAL STATEMENTS
AMERICAN ISRAELI PAPER
MILLS LIMITED
2007 CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Report of Independent
Registered Public Accounting Firm
To the shareholders of
AMERICAN ISRAELI PAPER
MILLS LIMITED
We have audited the consolidated
balance sheet of American Israeli Paper Mills Limited (hereafter - the Company) and
its subsidiaries as of December 31, 2007 and the consolidated statement of income,
changes in shareholders’ equity and cash flows for the year ended December 31,
2007. These financial statements are the responsibility of the Company’s board of
directors and management. Our responsibility is to express an opinion on these financial
statements based on our audits.
The financial statements of the
company for the years ended December 2006 and 2005 have been audited by other independent
auditors who expressed their unqualified opinion as of March 7, 2007.
We did not audit the financial
statements of certain associated companies, the Company’s interest in which as
reflected in the balance sheets as of December 31, 2007 is NIS 66.5 million, and
the Company’s share in excess of profits over losses of which is a net amount of NIS
2.9 million, for the year ended December 31, 2007. The financial statements of those
companies were audited by other Independent registered Public Accounting Firms whose
reports have been furnished to us, and our opinion, insofar as it relates to amounts
included for those companies, is based solely on the reports of the other independent
auditors.
We conducted our audits in accordance
with auditing standards generally accepted in Israel including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973 and the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates
made by the Company’s board of directors and management, as well as evaluating the
overall financial statement presentation. We believe that our audits and the reports of
the other independent auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits
and the reports of the other independent auditors, the financial statements referred to
above present fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 2007 and the consolidated results of
operations, changes in shareholders’ equity and cash flows for the year ended
December 31, 2007 in conformity with accounting principles generally accepted
(“GAAP”) in Israel. Furthermore, in our opinion, the financial statements
referred to above have been prepared in accordance with the Israeli Securities
(Preparation of Annual Financial Statements) Regulations, 1993.
As explained in note 1b, the
financial statements referred to above are presented in new Israeli shekels, in conformity
with accounting standards issued by the Israel Accounting Standards Board.
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel-Aviv, Israel
March 10, 2008
F - 2
AMERICAN ISRAELI PAPER
MILLS LIMITED
CONSOLIDATED BALANCE
SHEETS
|
|
December 31
|
|
Note
|
2007
|
2006
|
|
|
NIS in thousands (see note 1b.)
|
| |
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
| |
|
| |
|
| CURRENT ASSETS: | | |
| 8 | |
| |
|
| |
|
| Cash and cash equivalents | | |
| 1u | |
| 167,745 |
|
| 13,621 |
|
| | | |
| Accounts receivable: | | |
| 10a | |
| |
|
| |
|
| Trade | | |
| | |
| 178,771 |
|
| 168,050 |
|
| Other | | |
| | |
| 105,109 |
|
| 146,684 |
|
| Inventories | | |
| 10b | |
| 69,607 |
|
| 62,109 |
|
|
|
| |
| |
| Total current assets | | |
| | |
| 521,232 |
|
| 390,464 |
|
|
|
| |
| |
| INVESTMENTS AND LONG-TERM | | |
| RECEIVABLES: | | |
| Investments in associated companies | | |
| 2;8 | |
| 346,186 |
|
| 375,510 |
|
| Deferred income taxes | | |
| 7f | |
| 6,083 |
|
| 6,490 |
|
|
|
| |
| |
| | | |
| | |
| 352,269 |
|
| 382,000 |
|
|
|
| |
| |
| FIXED ASSETS: | | |
| 3 |
|
|
|
|
|
|
|
| Cost | | |
| | |
| 1,164,847 |
|
| 1,109,239 |
|
| Less - accumulated depreciation | | |
| | |
| 719,281 |
|
| 708,416 |
|
|
|
| |
| |
| | | |
| | |
| 445,566 |
|
| 400,823 |
|
|
|
| |
| |
| DEFERRED CHARGES, | | |
| net of accumulated amortization | | |
| 1i | |
| |
|
| |
|
|
|
| |
| |
| Total assets | | |
| | |
| 1,319,067 |
|
| 1,173,287 |
|
|
|
| |
| |
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
) Chairman of the |
| |
_____________________________________________ |
|
| |
Zvi Livnat |
) Board of Directors |
| |
|
| |
|
) |
| |
_____________________________________________ |
|
| |
Avi Brener |
) Chief Executive Officer |
| |
|
| |
|
) |
| |
_____________________________________________ |
|
| |
Shaul Gliksberg |
) Chief Financial and Business |
| |
|
Development Officer |
Date of approval of the financial
statements: 10 March 2008
The accompanying notes
are an integral part of the financial statements
F - 3
|
|
December 31
|
|
Note
|
2007
|
2006
|
|
NIS in thousands (see note 1b.)
|
| |
|
|
|
|
|
|
|
| Liabilities and shareholders' equity |
|
|
| |
|
| |
|
| |
|
| CURRENT LIABILITIES: | | |
| 8 |
|
| |
|
| |
|
| Credit from banks and others | | |
| 10c |
|
| 143,015 |
|
| 203,003 |
|
| Current maturities of long-term notes and long term loans | | |
| 4a;b |
|
| 42,775 |
|
| 41,567 |
|
| Accounts payable and accruals: | | |
| 10d |
|
| |
|
| |
|
| Trade | | |
| |
|
| 108,409 |
|
| 96,273 |
|
| Other | | |
| |
|
| 87,235 |
|
| 103,699 |
|
|
|
| |
| |
| Total current liabilities | | |
| |
|
| 381,434 |
|
| 444,542 |
|
|
|
| |
| |
| LONG-TERM LIABILITIES: | | |
| Deferred income taxes | | |
| 7f |
|
| 40,515 |
|
| 41,613 |
|
| Loans and other liabilities | | |
| (net of current maturities): | | |
| 4;8 |
|
| |
|
| |
|
| Loans from banks | | |
| 4b |
|
| 28,127 |
|
| 33,515 |
|
| Notes | | |
| 4a |
|
| 158,134 |
|
| 190,005 |
|
| Other liabilities | | |
| 4c |
|
| 32,770 |
|
| 32,770 |
|
|
|
| |
| |
| Total long-term liabilities | | |
| |
|
| 259,546 |
|
| 297,903 |
|
|
|
| |
| |
| COMMITMENTS AND CONTINGENT LIABILITIES | | |
| 9 |
|
| |
|
| |
|
|
|
| |
| |
| Total liabilities | | |
| |
|
| 640,980 |
|
| 742,445 |
|
|
|
| |
| |
| SHAREHOLDERS' EQUITY: | | |
| 6 |
|
| |
|
| |
|
| Share capital (ordinary shares of NIS 0.01 par value: | | |
| authorized - 20,000,000 shares; issued and paid: | | |
| December 31, 2007 and 2006 - 5,060,774 and | | |
| 4,032,723 shares, respectively) | | |
| |
|
| 125,267 |
|
| 125,257 |
|
| Capital surplus | | |
| |
|
| 301,695 |
|
| 90,060 |
|
| Capital surplus resulting from tax benefit on exercise | | |
| of employee options | | |
| |
|
| 3,397 |
|
| 2,414 |
|
| Differences from translation of foreign currency | | |
| financial statements of associated companies | | |
| |
|
| (5,166 |
) |
| (8,341 |
) |
| Retained earnings | | |
| |
|
| 252,894 |
|
| 221,452 |
|
|
|
| |
| |
| Total shareholders equity | | |
| |
|
| 678,087 |
|
| 430,842 |
|
|
|
| |
| |
| Total liabilities and shareholders' equity | | |
| |
|
| 1,319,067 |
|
| 1,173,287 |
|
|
|
| |
| |
The accompanying notes are an
integral part of the financial statements.
F - 4
AMERICAN ISRAELI PAPER
MILLS LTD.
CONSOLIDATED STATEMENTS
OF INCOME
|
Note
|
2007
|
2006
|
2005
|
|
|
NIS in thousands (see note 1b.)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SALES |
|
|
| 10e;14 |
|
| 583,650 |
|
| 530,109 |
|
| 482,461 |
|
| COST OF SALES | | |
| 10f |
|
| 440,854 |
|
| 418,725 |
|
| 383,179 |
|
|
|
| |
| |
| |
| GROSS PROFIT | | |
| |
|
| 142,796 |
|
| 111,384 |
|
| 99,282 |
|
|
|
| |
| |
| |
| SELLING, MARKETING, ADMINISTRATIVE | | |
| AND GENERAL EXPENSES: | | |
| 10g |
|
| |
|
| |
|
| |
|
| Selling and marketing | | |
| |
|
| 31,367 |
|
| 31,366 |
|
| 30,482 |
|
| Administrative and general | | |
| |
|
| 36,060 |
|
| 29,517 |
|
| 25,462 |
|
|
|
| |
| |
| |
| | | |
| |
|
| 67,427 |
|
| 60,883 |
|
| 55,944 |
|
|
|
| |
| |
| |
| INCOME FROM ORDINARY OPERATIONS | | |
| |
|
| 75,369 |
|
| 50,501 |
|
| 43,338 |
|
| FINANCIAL EXPENSES - net | | |
| 10h |
|
| 19,558 |
|
| 31,111 |
|
| 12,490 |
|
| OTHER INCOME (EXPENSES) - net | | |
| 10i |
|
| (2,178 |
) |
| 37,305 |
|
| 4,444 |
|
|
|
| |
| |
| |
| INCOME BEFORE TAXES ON INCOME | | |
| |
|
| 53,633 |
|
| 56,695 |
|
| 35,292 |
|
| TAXES ON INCOME | | |
| 7 |
|
| 19,307 |
|
| 16,702 |
|
| 5,991 |
|
|
|
| |
| |
| |
| INCOME FROM OPERATIONS OF THE | | |
| COMPANY AND ITS SUBSIDIARIES | | |
| |
|
| 34,326 |
|
| 39,993 |
|
| 29,301 |
|
| SHARE IN PROFITS (LOSSES) OF ASSOCIATED | | |
| COMPANIES - net | | |
| 2 |
|
| (2,884 |
) |
| (26,202 |
) |
| 16,414 |
|
| | | |
| INCOME BEFORE CUMULATIVE EFFECT, | | |
| AT BEGINNING OF YEAR, OF AN ACCOUNTING | | |
| |
|
| |
|
| |
|
| |
|
|
|
| |
| |
| |
| CHANGE IN ASSOCIATED COMPANIES | | |
| |
|
| 31,442 |
|
| 13,791 |
|
| 45,715 |
|
| | | |
| CUMULATIVE EFFECT, AT BEGINNING OF | | |
| YEAR, OF AN ACCOUNTING CHANGE IN AN ASSOCIATED COMPANY | | |
| 1m |
|
| - |
|
| (461 |
) |
| - |
|
|
|
| |
| |
| |
| NET INCOME FOR THE YEAR | | |
| |
|
| 31,442 |
|
| 13,330 |
|
| 45,715 |
|
|
|
| |
| |
| |
| | | |
|
|
(See note 1b)NIS
|
| | | |
| EARNINGS PER SHARE: | | |
| 1v;11 |
|
| |
|
| |
|
| |
|
| Primary: | | |
| Before cumulative effect of a change in accounting policy | | |
| |
|
| 7.61 |
|
| 3.42 |
|
| 11.43 |
|
| Cumulative effect, at beginning of year, of a change in accounting | | |
| policy of an associated company | | |
| |
|
| - |
|
| (0.11 |
) |
| - |
|
|
|
| |
| |
| |
| Net income per share | | |
| |
|
| 7.61 |
|
| 3.31 |
|
| 11.43 |
|
|
|
| |
| |
| |
| Fully diluted: | | |
| Before cumulative effect of a change in accounting policy | | |
| |
|
| 7.60 |
|
| 3.39 |
|
| 11.35 |
|
| Cumulative effect, at beginning of year, of a change in accounting | | |
| policy of an associated company | | |
| |
|
| - |
|
| (0.11 |
) |
| - |
|
|
|
| |
| |
| |
| Net income per share | | |
| |
|
| 7.60 |
|
| 3.28 |
|
| 11.35 |
|
|
|
| |
| |
| |
| Number of shares used to compute the primary earnings per share | | |
| |
|
| 4,132,728 |
|
| 4,025,181 |
|
| 3,999,867 |
|
|
|
| |
| |
| |
| Number of shares used to compute the fully diluted earnings per share | | |
| |
|
| 4,139,533 |
|
| 4,058,610 |
|
| 4,028,107 |
|
|
|
| |
| |
| |
The accompanying notes are an
integral part of the financial statements.
F - 5
AMERICAN ISRAELI PAPER
MILLS LIMITED
STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
|
Share capital
|
Capital
surpluses
|
Capital surplus
resulting from
tax benefit on
exercise
of employee options
|
Differences from
currency translation
resulting from
financial
statements of
associated companies
|
Retained
earnings
|
Total
|
|
N I S i n t h o u s a n d s (see note 1b.)
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE AT JANUARY 1, 2005 |
|
|
| 125,257 |
|
| 90,060 |
|
| - |
|
| (2,807 |
) |
| 362,803 |
|
| 575,313 |
|
| CHANGES IN 2005: | | |
| Net income | | |
| - |
|
| - |
|
| - |
|
| - |
|
| 45,715 |
|
| 45,715 |
|
| Dividend paid*** | | |
| - |
|
| - |
|
| - |
|
| - |
|
| (100,039 |
) |
| (100,039 |
) |
| Exercise of employee options into shares | | |
| * |
|
| - |
|
| 401 |
|
| - |
|
| - |
|
| 401 |
|
| Differences from currency translation resulting from | | |
| financial statements of associated companies | | |
| - |
|
| - |
|
| - |
|
| 1,994 |
|
| - |
|
| 1,994 |
|
|
| |
| |
| |
| |
| |
| |
| BALANCE AT DECEMBER 31, 2005 | | |
| 125,257 |
|
| 90,060 |
|
| 401 |
|
| (813 |
) |
| 308,479 |
|
| 523,384 |
|
| CHANGES IN 2006: | | |
| Net income | | |
| - |
|
| - |
|
| - |
|
| - |
|
| 13,330 |
|
| 13,330 |
|
| Dividend paid | | |
| - |
|
| - |
|
| - |
|
| - |
|
| (100,357 |
) |
| (100,357 |
) |
| Exercise of employee options into shares | | |
| * |
|
| - |
|
| 2,013 |
|
| - |
|
| - |
|
| 2,013 |
|
| Differences from currency translation resulting from | | |
| financial statements of associated companies | | |
| - |
|
| - |
|
| - |
|
| (7,528 |
) |
| - |
|
| (7,528 |
) |
|
| |
| |
| |
| |
| |
| |
| BALANCE AT DECEMBER 31, 2006 | | |
| 125,257 |
|
| 90,060 |
|
| 2,414 |
|
| (8,341 |
) |
| 221,452 |
|
| 430,842 |
|
| CHANGES IN 2007: | | |
| Net income | | |
| - |
|
| - |
|
| - |
|
| - |
|
| 31,442 |
|
| 31,442 |
|
Costs Shares issuance (deduction of costs issuance in
the amount of NIS 1,581 thousands)** | | |
| 10 |
|
| 211,635 |
|
| - |
|
| - |
|
| - |
|
| 211,645 |
|
| Exercise of employee options into shares | | |
| * |
|
| - |
|
| 983 |
|
| - |
|
| - |
|
| 983 |
|
| Differences from currency translation resulting from | | |
| financial statements of associated companies | | |
| - |
|
| - |
|
| - |
|
| 3,175 |
|
| - |
|
| 3,175 |
|
|
| |
| |
| |
| |
| |
| |
| BALANCE AT DECEMBER 31, 2007 | | |
| 125,267 |
|
| 301,695 |
|
| 3,397 |
|
| (5,166 |
) |
| 252,894 |
|
| 678,087 |
|
|
| |
| |
| |
| |
| |
| |
| * |
Represents
an amount less than NIS 1,000. |
| *** |
Includes
a dividend, declared in December 2005 and paid in January 2006, amounting to
approximately NIS 50 million. |
F - 6
AMERICAN ISRAELI PAPER
MILLS LIMITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
2007
|
2006
|
2005
|
|
NIS in thousands (see note 1b)
|
| |
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
| |
|
| |
|
| |
|
| Net income for the year | | |
| 31,142 |
|
| 13,330 |
|
| 45,715 |
|
| Adjustments to reconcile net income to | | |
| net cash provided by operating activities (A) | | |
| 38,096 |
|
| 39,775 |
|
| 42,845 |
|
|
| |
| |
| |
| Net cash provided by operating activities | | |
| 69,538 |
|
| 53,105 |
|
| 88,560 |
|
|
| |
| |
| |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| Purchase of fixed assets | | |
| (85,959 |
) |
| (53,107 |
) |
| (71,080 |
) |
| Deposit and Marketable securities | | |
| - |
|
| 11,582 |
|
| 51,003 |
|
| Associated companies: | | |
| Granting of loans | | |
| (318 |
) |
| - |
|
| (2,744 |
) |
| Collection of loans | | |
| 2,893 |
|
| 2,112 |
|
|
|
|
| Proceeds from sale of investment of associated company | | |
| 27,277 |
|
| - |
|
| - |
|
| Proceeds from sale of subsidiary consolidated in the past (B) | | |
| - |
|
| - |
|
| 2,004 |
|
| Proceeds from sale of fixed assets | | |
| 31,415 |
|
| 419 |
|
| 6,532 |
|
|
| |
| |
| |
| Net cash used in investing activities | | |
| (24,692 |
) |
| (38,994 |
) |
| (14,285 |
) |
|
| |
| |
| |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | |
| Proceeds gain from private shares allocating | | |
| 211,645 |
|
| - |
|
| - |
|
| Receipt of long-term loans from banks | | |
| - |
|
| 40,000 |
|
| 1,746 |
|
| Repayment of long-term loans from banks | | |
| (5,212 |
) |
| (1,277 |
) |
| (277 |
) |
| Redemption of notes | | |
| (37,167 |
) |
| (6,913 |
) |
| (6,680 |
) |
| Dividend paid | | |
| - |
|
| (150,450 |
) |
| (49,946 |
) |
| Short-term credit from banks - net | | |
| (59,988 |
) |
| 109,832 |
|
| (18,613 |
) |
|
| |
| |
| |
| Net cash used in financing activities | | |
| 109,278 |
|
| (8,808 |
) |
| (73,770 |
) |
|
| |
| |
| |
| INCREASE IN CASH AND | | |
| CASH EQUIVALENTS | | |
| 154,124 |
|
| 5,303 |
|
| 505 |
|
| BALANCE OF CASH AND CASH EQUIVALENTS AT | | |
| BEGINNING OF YEAR | | |
| 13,621 |
|
| 8,318 |
|
| 7,813 |
|
|
| |
| |
| |
| BALANCE OF CASH AND CASH EQUIVALENTS AT | | |
| END OF YEAR | | |
| 167,745 |
|
| 13,621 |
|
| 8,318 |
|
|
| |
| |
| |
The accompanying notes are an
integral part of the financial statements.
F - 7
AMERICAN ISRAELI PAPER
MILLS LIMITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
2007
|
2006
|
2005
|
|
NIS in thousands (see note 1b.)
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (A) Adjustments to reconcile net income to net cash provided |
|
|
| |
|
| |
|
| |
|
| by operating activities: | | |
| Income and expenses not involving cash flows: | | |
| Share in losses (profits) of associated companies - net | | |
| 2,884 |
|
| 26,663 |
|
| (16,414 |
) |
| Capital loss from sale of investment of an associated company | | |
| 28 |
|
| - |
|
| - |
|
| Dividend received from associated company | | |
| - |
|
| 19,616 |
|
| 21,761 |
|
| Depreciation and amortization | | |
| 34,865 |
|
| 31,957 |
|
| 31,604 |
|
| Deferred income taxes - net | | |
| (1,951 |
) |
| (5,755 |
) |
| (7,671 |
) |
| Capital losses (gains) on: | | |
| Sale of fixed assets - net | | |
| 1,403 |
|
| (28,823 |
) |
| (3,570 |
) |
| Sale of subsidiary consolidated in the past (B) | | |
| - |
|
| - |
|
| (874 |
) |
| Losses (gains) on short-term deposits and securities | | |
| - |
|
| (166 |
) |
| 45 |
|
| Linkage and exchange differences (erosion) on principal of | | |
| long-term loans from banks - net | | |
| - |
|
| - |
|
| (111 |
) |
| Linkage differences (erosion) on principal of notes | | |
| 6,326 |
|
| (415 |
) |
| 6,171 |
|
| Linkage differences (erosion) on principal of long-term loans | | |
| granted to associated companies | | |
| (265 |
) |
| 178 |
|
| (975 |
) |
|
| |
| |
| |
| | | |
| 43,290 |
|
| 43,255 |
|
| 29,966 |
|
|
| |
| |
| |
| Changes in operating asset and liability items: | | |
| Increase in trade receivables | | |
| (10,721 |
) |
| (17,641 |
) |
| (7,162 |
) |
| Decrease (increase) in other receivables | | |
| (excluding deferred income taxes) | | |
| 1,168 |
|
| (1,661 |
) |
| (1,587 |
) |
| Decrease (increase) in inventories | | |
| (7,498 |
) |
| 1,890 |
|
| (1,612 |
) |
| Increase in trade payables | | |
| 16,101 |
|
| 5,761 |
|
| 3,018 |
|
| Increase (decrease) in other payables and accruals | | |
| (4,244 |
) |
| 8,171 |
|
| 20,222 |
|
|
| |
| |
| |
| | | |
| (5,194 |
) |
| (3,480 |
) |
| 12,879 |
|
|
| |
| |
| |
| | | |
| 38,096 |
|
| 39,775 |
|
| 42,845 |
|
|
| |
| |
| |
| Supplementary disclosure of cash flow information - | | |
| Payments in cash during the year: | | |
| Income taxes paid | | |
| 23,415 |
|
| 23,877 |
|
| 1,559 |
|
|
| |
| |
| |
| Interest paid | | |
| 26,428 |
|
| 23,714 |
|
| 15,828 |
|
|
| |
| |
| |
The accompanying notes are an
integral part of the financial statements.
F - 8
AMERICAN ISRAELI PAPER
MILLS LIMITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
2005
NIS in thousands
(see note 1b)
|
| |
|
|
|
|
|
|
|
| (B) Proceeds from sale of subsidiary consolidated in the past - |
|
|
| |
|
| | | |
| Assets and liabilities of the subsidiary consolidated in the | | |
| past at the date of its sale: | | |
| 509 |
|
| Working capital (excluding cash and cash equivalents) | | |
| 1,979 |
|
| Fixed assets | | |
| (1,358 |
) |
| Long-term liabilities | | |
| 874 |
|
| Capital gain from the sale | | |
| 2,004 |
|
(C) Information on
activities not involving cash flows:
| |
1) |
Dividend
declared by the Company in December 2005, in the amount of approximately
NIS 50 million, was paid in January 2006. |
| |
2) |
Dividend
declared by an associated company in December 2005 that the Company’s
share in this dividend amounts to NIS 2,650,000 was paid during 2006. |
| |
3) |
In
December 2006 a land was sold in consideration of approximately NIS 40
million, net of tax, betterment levy and other accompanying selling cost.
This amount was transferred to a trustee at the date of the transaction
execution and received during January 2007 see note 10i. |
| |
4) |
For
December 31, 2007 the acquisition of fixed assets on credit amounts to NIS
6,634 thousands and for December 31, 2006 amounts to NIS 10,599 thousands. |
The accompanying notes are an
integral part of the financial statements.
F - 9
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES
| |
The
consolidated financial statements are drawn up in conformity with accounting principles
generally accepted in Israel and in accordance with the Israeli Securities (Preparation
of Annual Financial Statements) Regulations, 1993. The Company’s financial
statements are presented separately from these consolidated financial statements. |
| |
The
significant accounting policies, which, except for the changes in the accounting policy
resulting from the first-time application, in 2007, of new accounting standards of the
Israel Accounting Standards Board (hereafter - the IASB) were applied on a
consistent basis, as follows: |
| |
As
to the adoption of International Financial Reporting Standards (IFRS), which is to be
carried out in reporting periods commencing on January 1, 2008 and thereafter, see
note 16 below. |
| |
1) |
Activities
of the Group |
| |
American
Israeli Paper Mills Limited and its subsidiaries (hereafter – the Company) are
engaged in the production and sale of paper packaging, in paper recycling activities and
in the marketing of office supplies. The Company also has holdings in associated
companies that are engaged in the production and sale of paper and paper products
including the handling of solid waste (the Company and its investee companies – hereafter
–the Group). Most of the Group’s sales are made on the local (Israeli) market.
For segment information, see note 14. |
| |
2) |
Use
of estimates in the preparation of financial statements |
| |
The
preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and expenses
during the reporting years. Actual results could differ from those estimates. |
| |
Subsidiaries
– companies over which the Company has control and over 50% of the ownership, the
financial statements of which have been consolidated with the financial statements of the
Company. |
| |
Associated
companies – investee companies, which are not subsidiaries, over whose financial and
operational policy the Company exerts material influence, the investment in which is
presented by the equity method. Material influence is deemed to exist when the percentage
of holding in said company is 20% or more, unless there are circumstances that contradict
this assumption. |
| |
Interested
parties – as defined in the Israeli Securities (Preparation of Annual Financial
Statements) Regulations, 1993. |
| |
Related
parties – as defined by opinion No. 29 of the Institute of Certified Public
Accountants in Israel. |
F - 10
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
Controlling
shareholders – Until December 31, 2006, transactions between the Company and a
controlling shareholder therein were treated in accordance with the provisions of
Securities Regulations (Presentation of Transactions between a Company and a Controlling
Shareholder Therein in the Financial Statements), 1996 (hereinafter – “the
Regulations”). |
| |
As
of January 1, 2007, the Company has been implementing Accounting Standard No. 23: “The
Accounting Treatment of Transactions between an Entity and the Controlling Shareholder
Therein”. |
| |
b. |
Basis
of presentation of the financial statements |
| |
1) |
The
Company draws up and presents its financial statements in Israeli currency
(hereafter - shekels or NIS). in accordance with the provisions of
Israel Accounting Standard No. 12 – “Discontinuance of Adjusting
Financial Statements for Inflation” – of the IASB, which
establishes principles for transition to nominal reporting, commencing
January 1, 2004 (hereafter - the transition date). Accordingly,
amounts that relate to non-monetary assets (including depreciation and
amortization thereon), investments in associated companies (see also e
below) “permanent” investments, and equity items, which originate
from the period that preceded the transition date, are based on the data
adjusted for the changes in the exchange rate of the dollar (based on the
exchange rate of the dollar at December 31, 2003), as previously reported.
All the amounts originating from the period after the transition date are
included in the financial statements at their nominal values.
The
financial statements of group companies which are drawn up in foreign
currency, are translated into shekels or are remeasured in shekels for the
purpose of inclusion in these financial statements, as explained in e.
below. |
| |
2) |
The
sums of non-monetary assets do not necessarily reflect the realization value
or an updated economic value, but rather only the reported sums of the
said assets, as stated in (1), above. The term ‘cost’ in these
financial statements shall mean the cost in reported sums. |
| |
c. |
Principles
of consolidation: |
| |
1) |
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. A list of the main subsidiaries is presented in a schedule
to the financial statements. |
| |
2) |
Intercompany
transactions and balances, as well as profits on intercompany sales that have
not yet been realized outside the Group, have been eliminated. |
| |
Commencing
January 1, 2007, the Company has been implementing the provisions of Accounting Standard
No. 26, “Inventories”. |
| |
Inventories
are measured at the lower of cost or net realizable value. The cost of inventories
includes acquisition costs, fixed and varied overhead costs, as well as others costs
incurred in bringing the inventory to the current location and condition.
The net
realization value represents the selling price estimate during the ordinary course of
business, net of the estimate of completion costs and the estimate of costs required to
perform the sale. |
| |
Until
December 31, 2006, inventory was presented at the lower of cost or market value. |
F - 11
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
In
accordance with the Standard, when inventories are purchased under credit terms whereby
the arrangement involves a financing element, the inventories should be presented at cost
reflecting the purchase price under ordinary credit terms. The difference between the
actual purchase amount and the cost reflecting the purchase price under ordinary credit
terms, is recognized as an interest expense during the credit period. |
| |
The
cost of inventory is determined on a moving average basis. |
| |
The
spare parts of machinery and equipment, which are not intended for current use, are
presented under “fixed assets”. |
| |
The
first-time application of the standard did not have any effect on the Company’s
financial statements. |
| |
e. |
Investments
in associated companies: |
| |
1) |
The
investments in these companies are accounted for by the equity method.
According to this method, the Company records, in its statement of income,
its share in the profits and losses of these companies that were created
after acquisition, and, in its statement of changes in shareholders’ equity,
its share in changes in capital surpluses (mostly translation differences
relating to their investments in subsidiaries that present their financial
statements in foreign currency) that were created after acquisition. |
| |
2) |
Profits
on intercompany sales, not yet realized outside the Group, have been
eliminated according to the percentage of the Company’s holding in
such companies. |
| |
3) |
The
Company reviews –at each balance sheet date – whether
any events have occurred or changes in circumstances have taken place,
which might indicate that there has been an impairment of its investments
in associated companies – see i. below. |
| |
4) |
The
excess of cost of the investment in associated companies over the equity in
net assets at time of acquisition (“excess of cost of investment”)
or the excess of equity in net assets of associated companies at time of
acquisition over the cost of their acquisition (“negative excess of
cost of investment”) represent the amounts attributed to specific
assets upon acquisition, at fair value. The excess of cost of investment
and the negative excess of cost of investment are presented at their net
amount and are amortized over the remaining useful life of the assets. The
average rate of amortization is 10%. |
| |
5) |
In
accordance with the provisions of Standard No. 20 (As Amended), which is
applied by the group companies since January 1, 2006, as of that date,
amortization of goodwill at associated company, which until then was included
under “share in profits (losses) of associated companies”, was
discontinued. The amounts of amortization of goodwill, included under
“share in profits (losses) of associated companies”, as above, for
the year ended December 31, 2005 are NIS 4 million. |
| |
These
securities are stated at market prices. |
| |
The
changes in value of the above securities are carried to financial income or expense. |
F - 12
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
g. |
Real
estate for investment |
| |
Commencing
January 1, 2007, when the standard became effective, the Company has been implementing
Accounting Standard No. 16, “Real Estate For Investment”. |
| |
Real
estate for investment is defined as real estate (land or a building or part of a building
or both), which is held (by the owners or under a financing lease), for the purpose of
producing rental income or realizing a capital appreciation or both, and not for the
purpose of: |
| |
— |
The
use of manufacture or supply of goods or services or for administrative purposes, or |
| |
— |
Sale
during the ordinary course of business |
| |
The Company does not own any
buildings that fall under the definition of Real Estate for Investment. The Company
has several leasing rights in real estate which, in accordance with IFRS, are classified
as operating leases. Upon initial adoption of IFRS, the Company does not intend to
classify these leasehold rights as real estate held for investment. The Company has
consequently decided not to classify these leasehold rights as real estate held for
investment according to Standard 16, but rather to continue to present them at cost, as
part of fixed assets, pursuant to generally accepted accounting principles in Israel. The
initial adoption of the provisions of the Standard did not consequently have a material
impact on the Company’s financial statements. |
| |
Commencing
January 1, 2007, The Company has been implementing Accounting Standard No. 27 –“Fixed
Assets” and Accounting Standard No. 28 “Amendment of Transition Provisions in
Accounting Standard No. 27, Fixed Assets”. |
| |
A
fixed asset is a tangible item, which is held for use in the manufacture or supply of
goods or services, or leased to others, which is predicted to be used for more than one
period. The Company presents its fixed assets items according to the cost model. |
| |
Under
the cost method – a fixed asset item is presented at the balance sheet at cost (net
of any investment grants), less any accumulated depreciation and any accumulated
impairment losses. The cost includes the cost of the asset’s acquisition as well as
costs that can be directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by
management. The cost of qualifying assets also includes credit costs which have to be
discounted as stated in note k. below. |
| |
The
depreciation is carried out systematically by the straight line method over the expected
useful life of the item’s components from the date in which the asset is prepared
for its intended use. |
| |
The
useful life that was used in the calculation of the asset’s depreciation is as
follows: |
| |
|
Years
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Buildings |
10 to 50 |
(primarily 33) |
| |
Machinery and equipment |
7 to 20 |
(Primarily 10 and 20) |
| |
Vehicles |
5 to 7 |
(primarily 7) |
| |
Office furniture & equipment (including computers) |
3 to 17 |
(primarily 4) |
F - 13
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
In
accordance with the implementation of the transitional provisions of Accounting Standard
No. 28 “Amendment of Transition Provisions in Accounting Standard No. 27, Fixed
Assets”, as of January 1, 2007, the Company has been adopting the cost model. |
| |
The
Company assesses – at each balance sheet date – whether any events have
occurred or changes in circumstances have taken place, which might indicate that there
has been an impairment of non-monetary assets, mainly fixed assets and investments in
associated companies. When such indicators of impairment are present, the Company
evaluates whether the carrying value of the asset is recoverable from the cash flows
expected from that asset. |
| |
The
recoverable value of an asset is determined according to the higher of the net selling
price of the asset or its value in use to the Company. The value in use is determined
according to the present value of anticipated cash flows from the continued use of the
asset, including those expected at the time of its future retirement and disposal. |
| |
When
it is not possible to assess whether an impairment provision is required for a particular
asset on its own, the need for such a provision is assessed in relation to the
recoverable value of the cash-generating unit to which that asset belongs.
In accordance
with the transitional provisions of Standard 22, commencing January 1, 2006, in
addition to the aforesaid, the financial statements include the following changes: |
| |
The
balance of deferred issuance costs, which at December 31, 2005 amounted to NIS 946
thousands, has been reclassified and presented as a deduction from the amount of the
liabilities to which such expenses relate. Through December 31, 2005, deferred
issuance costs were included under other assets and amortized according to the
straight-line method. |
| |
The
change in the amortization method of deferred issuance costs, as above, do not have a
material effect on the operating results in the reported years. |
| |
Until
December 31, 2005, the deferred charges in respect of issue of debentures were displayed
in Other Assets at their cost, deduction of accumulated amortization. The above expenses
that were attributed to the debenture issuance were amortized at the straight line method
on the basis of the weighted average of the debentures in turnover, till their
redemption date. |
| |
The
balance of deferred issuance costs, which at December 31, 2005 amounted to NIS 946
thousands, has been reclassified and presented as a deduction from the amount of the
liabilities to which such expenses relate. Through December 31, 2005, deferred
issuance costs were included under other assets and amortized according to the
straight-line method. |
| |
The
Company has been discounting credit costs in accordance with Standard No. 3 –“Discounting
of Credit Costs” of the Israeli Institute of Accounting Standards. |
| |
Pursuant
to Standard No. 3, specific and non-specific financing costs are to be capitalized to
qualifying assets (assets under preparation or establishment, which still do not serve
their purpose and the preparation of which for their intended use or sale require
considerable time, all in accordance with the rule established in Standard No. 3).
Non-specific financing costs are capitalized to such qualifying assets, or portion
thereof, which was not financed with specific credit, by means of a rate which is the
weighted-average cost of the financing sources which were not specifically capitalized. |
F - 14
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
l. |
Deferred
income taxes: |
| |
The
Company and the companies in the Group allocate taxes in respect of temporary differences
between the value of assets and liabilities in the financial statements and their tax
base and in respect of losses for tax purposes, whose realization is predictable.
Deferred taxes are computed at the tax rates expected to be in effect at the time of
realization thereof, as they are known at the balance sheet date. |
| |
The
current taxes, as well as the changes in the deferred tax balances, are included in the
tax expenses or income in the reporting period. |
| |
Taxes
that would apply in the event of disposal of investments in subsidiaries and associated
companies have not been taken into account in computing the deferred taxes, as it is the
Company’s policy to hold these investments, not to realize them. |
| |
The
Group may incur an additional tax liability in the event of an intercompany dividend
distribution derived from “approved enterprises” profits – see note 7a.
No account was taken of this additional tax, since it is the Group’s policy not to
cause distribution of dividends, which would involve an additional tax liability to the
Group in the foreseeable future. |
| |
In
April 2005, the IASB issued Clarification No. 7 – “Accounting Treatment of the
Tax Benefits, in Respect of Capital Instruments Granted to Employees, For Which No
Compensation was Recognized”. The provisions of this clarification apply to such tax
benefits, which have not been allowed as a deduction through December 31, 2004. The
clarification stipulates that, commencing on January 1, 2005, the tax benefit
derived by the Company from the exercise of options granted to employees is to be carried
to shareholders’ equity, in the period in which the benefit to the employees is
allowed as a deduction for tax purposes. Formerly, the aforesaid tax saving was credited
to the statement of income, as part of the taxes on income item. |
| |
Commencing
January 1, 2006, the company applies Israel Accounting Standard No. 25 of the
IASB – “Revenue”, which prescribes recognition, measurement, presentation
and disclosure criteria for revenues originating from the sale of goods purchased or
manufactured by the company. |
| |
Revenue
is measured, as detailed below, at the fair value of the consideration received or the
consideration that the company is entitled to receive, taking into account trade
discounts and/or bulk discounts granted by the entity: |
| |
Revenue
from sale of goods is recognized when all the following conditions have been satisfied:
(a) the significant risks and rewards of ownership of the goods have been transferred to
the buyer; (b) the company retains neither continuing managerial involvement to the
degree usually associated with ownership nor effective control over the goods sold; (c)
the amount of revenue can be measured reliably; (d) it is probable that the economic
benefits associated with the transaction will flow to the company; and (e) the costs
incurred or to be incurred in respect of the transaction can be measured reliably. |
F - 15
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
The
Company implements Clarification No. 8 of the Israeli Institute of Accounting Standard
regarding the reporting of revenues on a gross basis or a net basis. Accordingly, the
Company’s revenues as an agency or intermediary, without bearing the risks and
returns that derive from the transaction, are presented on a net basis. |
| |
Interest
income is accrued on a cumulative basis, taking into consideration the principal to be
repaid and by using the effective interest rate. |
| |
Dividend
income in respect of investments is recognized on the date in which the entitlement for
said income was created for the shareholders. |
| |
Upon
the application of the standard, an associated company separates the financing component
embedded in revenue from sales made on credit for periods exceeding the customary credit
period in its industry (mainly 90 days), that does not bear interest at the appropriate
rate; the financing component is determined according to the amount by which the nominal
amount of consideration for the transaction exceeds the present value of future cash
payments in respect thereof, based on the customary market interest rate applicable to
credit extended under similar terms. Revenue from the financing component is recognized
over the credit period. Through December 31, 2005, the company did not separate the
financing component in respect of sales made on credit, as above, and included within
revenue from the sale on the date of recognition of such revenue. |
| |
In
accordance with the transitional provisions of the standard, on January 1, 2006 the
company recognized an expense of NIS 1.1 million as a result of presentation in
present value, resulting from the adjustment of trade receivables in respect of such
credit transactions to their present value on the effective date of the standard, the
share of the company at the adjustment effect as above was approximately NIS 0.5 million
which is presented in these financial statements under “Cumulative effect, at
beginning of year, of an accounting change in an associated company”. |
| |
n. |
Shipping
and handling costs |
| |
Shipping
and handling costs are classified as a component of selling and marketing expenses. |
| |
o. |
Allowance
for doubtful accounts |
| |
The
allowance is determined mainly in respect of specific debts doubtful of collection (see
note 12b). |
| |
p. |
Derivate
financial instruments |
| |
Gains
and losses on derivatives that are hedging existing assets or liabilities are recognized
in income commensurate with the results from those assets or liabilities. |
F - 16
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
q. |
Fair
Value of Financial Instruments |
| |
The
fair value of financial instruments traded in active markets is based on the quoted
prices as of the balance sheet date. The fair value of financial instruments that are not
traded in an active market will be determined on the market prices of similar financial
instruments and in the absence thereof, based on accepted valuation methods.
The Company
uses several valuation techniques, which are accompanied by assumptions based on the
existing economic conditions at each balance sheet date. |
| |
The
applied valuation methods include the current value of cash flows, economic models for
the valuation of options and additional acceptable valuation methods. |
| |
r. |
Offset
of Financial instruments |
| |
Financial
assets and financial liabilities are presented on the balance sheet at their net amount,
only when the Company has a legally enforceable right to effect such set off, and subject
to the existence of intent to settle the asset and the liability on a net basis, or to
realize the asset and settle the liability simultaneously. |
| |
Commencing
January 1, 2006, the company applies Israel Accounting Standard No. 24 of the
IASB, “Share-Based Payment” (hereafter - Standard 24), which prescribes
the recognition and measurement principles, as well as the disclosure requirements,
relating to share-based payment transactions. |
| |
Since
the company has not granted any equity-settled awards, nor made modifications to existing
grants, subsequent to March 15, 2005, the measurement criteria of the standard do
not apply to past grants made by the company, and its application has not had any effect
on the financial statements of the Company. |
| |
t. |
Transactions
between the Company and Controlling Shareholders Therein |
| |
1. |
Until
December 31, 2006, transactions between the Company and a controlling
shareholder therein were treated in accordance with the provisions of
Securities Regulations (Presentation of Transactions between a Company and
a Controlling Shareholder Therein in the Financial Statements), 1996
(hereinafter – “the Regulations”). |
| |
As
of January 1, 2007, the Company has been implementing Accounting Standard No. 23: “The
Accounting Treatment of Transactions between an Entity and the Controlling Shareholder
Therein”. |
| |
This
standard stated that the basis of valuation in transactions between an entity and the
controlling shareholder therein is the fair value. Transactions such as loans of
controlling shareholders or distribution pf dividend to controlling shareholders are not
be recorded in shareholders’ equity and should to be included in the operating
results of the controlled entity. The differences between the proceeds determined in the
transactions between an entity and a controlling shareholder therein and the fair value
of these transactions, shall be carried to shareholders’ equity. Current taxes and
deferred taxes that relate to items carried to shareholders’ equity in respect of
transactions with controlling shareholders, shall also be carried directly to shareholders’ equity.
The provisions of the standard do not apply to transactions of business combinations
under the same controlling interest.
The implementation of the standard did not have any
effect on the financial statements of the Company. |
F - 17
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
2. |
Until
December 31, 2006, loans provided/received to/from a controlling shareholder,
not under market conditions, were presented in the financial statements at
their fair value only if the difference between the proceeds of the loan and
its fair value exceeded 5 percent. |
| |
As
of January 1, 2007, loans provided/received are presented on the date of the initial
recognition of the fair value, while the difference between the amount of the loan and
its fair value is carried to shareholders’ equity. |
| |
The
standard applies to transactions between an entity and a controlling shareholder therein,
which were carried out after January 1, 2007, as well as to loans provided or received
from a controlling shareholder prior to January 1, 2007, starting from this date. |
| |
Pursuant
to the standard, the balance of loans that were granted by the Company to an associated
company, as at January 1, 2007, is measured at fair value.
The implementation of the
standard did not have material effect on the financial statements of the Company. |
| |
The
Company considers all highly liquid investments, which include short-term bank deposits
that are not restricted as to withdrawal or use, the period to maturity of which did not
exceed three months at time of deposit, to be cash equivalents. |
| |
The
computation of basic net income per share is generally based on earnings available for
distribution to holders of ordinary shares, divided by the weighted average number of
ordinary shares outstanding during the period. |
| |
In
computing diluted net incomeper share, the weighted average number of shares to be
issued, assuming that all dilutive potential shares are converted into shares, is to be
added to the average number of ordinary shares used in the computation of the basic
income (loss) per share. Potential shares are taken into account, as above, only when
their effect is dilutive (reducing net income per share from continuing activities). |
| |
Comparative
net income per share figures for the year 2005 included in these financial statements
reflect a retrospective application of the new standard’s computation directives. |
| |
As
to the data used in the computation of net income per share, as above – see note 11 |
| |
w. |
Israel
Accounting Standard No. 29 – “Adoption of International Reporting
FinancialStandards (IFRS)" |
| |
In
July 2006, the Israel Accounting Standards Board issued Israel Accounting Standard No. 29
– “Adoption of International Reporting Financial Standards (IFRS)”(hereafter
– “the standard” or “Standard 29”). |
| |
The
standard stipulates that companies, which are subject to the Securities Law, and are
required to report pursuant to regulations issued thereunder, except for offshore
corporations, shall draw up their financial statements under International Financial
Reporting Standards (IFRS) and the clarifications thereto, which are issued by the IASB
(The International Accounting Standards Board). |
F - 18
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES (continued):
| |
An
entity implementing the IFRS as of January 1, 2008, which elected to report comparative
data for one year only (2007), shall be required to prepare an opening balance sheet as
of January 1, 2007 (hereafter – “opening balance sheet”) in accordance
with IFRS provisions. |
| |
The
transition to reporting under IFRS shall be conducted in accordance with the provisions
of IFRS 1, “First-Time Adoption of International Financial Reporting Standards”.
IFRS 1 prescribes rules on how an entity should make the transition from financial
reporting based on previous local accounting rules, to financial reporting based on
international accounting standards. IFRS 1 supersedes all the transitional provisions
established by other IFRS (including transitional provisions established in previous
local accounting standards) and states that all IFRS should be adopted retroactively in
the opening balance sheet. At the same time, IFRS 1 provides reliefs concerning mandatory
retroactive implementation with regard to certain defined topics. In addition, IFRS 1
specifies several exceptions to the principle of retrospective application of certain
aspects of other IFRS. |
| |
The
Company’s management has elected to adopt IFRS starting from January 1, 2008, see
Note 16 regarding reconciliations to be carried out during the transition to reporting
under IFRS and the reliefs which the Company has chosen pursuant to the provisions of
IFRS1. |
F - 19
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 –
INVESTMENTS IN ASSOCIATED COMPANIES:
| |
a. |
The
Company has a number of investments in associated companies, which are held
either directly or through investee companies. The financial statements of
significant associated companies (Mondi Business Paper Hadera Ltd. – formerly
Neusiedler Hadera Paper Ltd, NHP – Hogla-Kimberly Ltd and Carmel container
system Ltd.) are attached to these financial statements. |
| |
|
December 31
|
| |
|
2007
|
2006
|
| |
|
NIS in thousands
|
| |
|
|
|
| |
|
|
|
| |
Shares: |
|
|
| |
|
| |
|
| |
Cost | | |
| 7,325 |
|
| 54,241 |
|
| |
Excess of cost of investment - net | | |
| 6,929 |
|
| 2,086 |
|
| |
L e s s - accumulated amortization | | |
| (6,929 |
) |
| (2,086 |
) |
| |
Gain on issuance of shares of an associated | | |
| |
company to a third party | | |
| 40,241 |
|
| 40,241 |
|
| |
Differences from translation of foreign currency | | |
| |
financial statements | | |
| (5,166 |
) |
| (8,341 |
) |
| |
Share in profits (after deduction of losses) accumulated since | | |
| |
acquisition | | |
| 249,132 |
|
| 219,328 |
|
| |
|
| |
| |
| |
| | |
| 291,532 |
|
| 305,469 |
|
| |
Long-term loans and capital notes * | | |
| 54,654 |
|
| 70,041 |
|
| |
|
| |
| |
| |
| | |
| 346,186 |
|
| 375,510 |
|
| |
|
| |
| |
| |
* |
Classified
by linkage terms and rate of interest, the total amounts of the loans and capital notes
are as follows: |
| |
|
Weighted average
interest rate
at December 31,
2006
|
December 31
|
| |
|
2007
|
2006
|
| |
|
%
|
NIS in thousands
|
| |
|
|
|
|
| |
|
|
|
|
| |
Capital notes in dollars |
|
|
| |
|
| 2,698 |
|
| 6,337 |
|
| |
Unlinked loans and capital notes | | |
| 4.8 |
% |
| 51,956 |
|
| 63,704 |
|
| |
|
| |
| |
| |
| |
| | |
| |
|
| 54,654 |
|
| 70,041 |
|
| |
|
|
| |
| |
| |
As
of December 31, 2007, the repayment dates of the balance of the loans and capital
notes have not yet been determined. |
F - 20
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 – INVESTMENTS IN
ASSOCIATED COMPANIES (continued):
| |
c. |
The
changes in the investments during 2007 are as follows: |
| |
|
NIS in
thousands
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
Balance at the beginning of the year |
|
|
| 375,510 |
|
| |
|
| |
| |
Changes during the year: | | |
| |
Share in losses of associated companies - net | | |
| (2,884 |
) |
| |
Dividend from associated companies | | |
| (14,692 |
) |
| |
Adjustments resulting from translation of foreign currency | | |
| |
financial statements | | |
| 3,175 |
|
| |
Share in capital surplus from capital note to associated company | | |
| 464 |
|
| |
Increase in balance of long-term loans and capital notes - net | | |
| (15,387 |
) |
| |
|
| |
| |
Balance at end of year | | |
| 376,186 |
|
| |
|
| |
| |
d. |
Mondi
Business Paper Hadera Ltd. (hereafter - Mondi Hadera; formerly – Neusiedler
Hadera Paper Ltd. – NHP): |
| |
Mondi
Hadera is held to the extent of 49.9% by the Company and also by Mondi Business Paper LTD
(hereafter – MBP), under an agreement dated November 21, 1999. According to the
said agreement, Mondi Hadera purchased the Group’s activities in the field of
printing and writing paper, and issued to MBP 50.1% of its shares. As part of the said
agreement, Neusiedler was granted an option to sell to the Company its holdings in Mondi
Hadera, at a price that is 20% lower than the value (as defined in the agreement). The
understanding between the parties is that the option would only be exercised under
prolonged, extraordinary circumstances that preclude the operation of Mondi Hadera in
Israel. The Company believes that the likelihood of such circumstances is very remote. |
| |
e. |
Hogla-Kimberly
Ltd. (hereafter – Hogla-Kimberly) |
| |
Hogla-Kimberly
is held to the extent of 49.9% by the Company and to the extent of 50.1% by Kimberly
Clark Corporation (hereafter- KC). |
| |
f. |
Investment
in Carmel Container Systems Limited (hereafter – Carmel) |
| |
Carmel
Container Systems was held to the extent of 26.25% by the Company. During the second
quarter an affiliated company (Carmel Container Systems Limited hereafter – Carmel)
acquired its own shares which were held by part of its minority shareholders. As a result
of this acquisition the share of holding in Carmel increased from 26.25% to 36.21%. The
increase in the share of holding yielded to the company negative excess of cost in the
amount of NIS 4,923 thousands which according to standard 20 (adjusted) was related to
non financial assets, which will be realized according to the rate of realization of
these assets. |
| |
During
the period the Company included in the profits from affiliated companies, profit amount
of NIS 2,439 thousands form the realization of these asstes. |
F - 21
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 – INVESTMENTS IN
ASSOCIATED COMPANIES (continued):
| |
g. |
Investment
in T.M.M Integrated Recycling Industries Ltd. |
| |
On
January 4, 2007, the Company entered into an agreement with Veolia Israel CGEA Ltd.
(hereinafter: “CGEA”), whereby it will sell to CGEA its holdings in Barthelemi,
along with its remaining holdings in T.M.M.Pursuant to the agreement, CGEA has
acquired all of the Company’s holdings in Barthelemi.CGEA also acquired all
of the Company’s holdings in T.M.M, as part of a complete tender offer and starting
February 2007, the Company is no longer a shareholder in T.M.M. |
| |
The
sale of the holdings in T.M.M was made in consideration of a sum approximately similar to
the book value, after taking into account, the impairment as mention above. |
F - 22
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 – FIXED ASSETS:
| |
a. |
Composition
of assets and the accumulated depreciation thereon, grouped by major classifications,
and changes therein during 2007, are as follows: |
|
Cost
|
Accumulated depreciation
|
|
|
|
Balance at
beginning
of year
|
Additions
during
the year
|
Retirements
during
the year
|
Balance at
end of
year
|
Balance at
beginning
of year
|
Additions
during
the year
|
Retirements
during
the year
|
Balance at
end of
year
|
Depreciated balance
|
|
December 31
|
|
2007
|
2006
|
|
NIS in thousands
|
NIS in thousands
|
NIS in thousands
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Land and buildings thereon |
|
|
| 228,747 |
|
| 21,434 |
|
| 99 |
|
| 250,082 |
|
| 113,944 |
|
| 3,673 |
|
| 154 |
|
| 117,463 |
|
| 132,619 |
|
| 114,803 |
|
| Machinery and equipment | | |
| 702,206 |
|
| 80,592 |
|
| 20,027 |
|
| 762,771 |
|
| 512,044 |
|
| 25,658 |
|
| 8,505 |
|
| 529,197 |
|
| 233,574 |
|
| 190,162 |
|
| Vehicles | | |
| 35,339 |
|
| 5,228 |
|
| 5,322 |
|
| 35,245 |
|
| 23,049 |
|
| 3,409 |
|
| 5,147 |
|
| 21,311 |
|
| 13,934 |
|
| 12,290 |
|
Office furniture
and equipment | | |
| (including computers) | | |
| 70,913 |
|
| 2,377 |
|
| 807 |
|
| 72,483 |
|
| 59,379 |
|
| 2,125 |
|
| 10,194 |
|
| 51,310 |
|
| 21,173 |
|
| 11,534 |
|
| Payments on account of | | |
machinery and
equipment, net | | |
| 49,329 |
|
| (27,547 |
) |
| - |
|
| 21,782 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 21,782 |
|
| 49,329 |
|
| Spare parts - not current, net | | |
| 22,705 |
|
| |
|
| 221 |
|
| 22,484 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 22,484 |
|
| 22,705 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | |
| 1,109,239 |
|
| 82,084 |
|
| 26,476 |
|
| 1,164,847 |
|
| 708,416 |
|
| 34,865 |
|
| 24,000 |
|
| 719,281 |
|
| 445,566 |
|
| 400,823 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
F - 23
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 – FIXED ASSETS (continued):
| |
b. |
The
item is net of investment grants in respect of investments in “approved
enterprises” (see notes 7a). |
| |
c. |
The Company’s real estate is partly owned and partly leased – to the
extent of NIS 37.5 million, in respect of which lease fees of approximately
NIS 25.8 million have been capitalized. The leasehold rights are for 49-57 year
periods ending in the years 2008 to 2059, with options to extend for an
additional 49 years. |
| |
d. |
As
of December 31, 2007 and 2006, the cost of fixed assets includes borrowing
costs of NIS 1,007,000 capitalized to the cost of machinery and
equipment. |
| |
e. |
Depreciation expenses
amounted to NIS 34,865,000, NIS 31,957,000 and NIS 31,604,000 , for the years ended December
31, 2007, 2006 and 2005, respectively. |
NOTE 4 – NOTES AND
OTHER LONG-TERM LIABILITIES:
| |
The
item represents two series of notes issued to institutional investors as follows: |
| |
|
December 31
|
| |
|
2007
|
2006
|
| |
|
NIS in thousands
|
| |
|
Series II
|
Series I
|
Series II
|
Series I
|
| |
|
|
|
|
|
| |
Balance |
|
|
| 182,052 |
|
| 14,098 |
|
| 206,627 |
|
| 20,522 |
|
| |
Less - current maturities | | |
| 30,342 |
|
| 7,049 |
|
| 29,518 |
|
| 6,841 |
|
| |
|
| |
| |
| |
| |
| |
| | |
| 151,710 |
|
| 7,049 |
|
| 177,109 |
|
| 13,681 |
|
| |
|
| |
| |
| |
| |
| |
The
balance of the notes as of December 31, 2007 is redeemable in two installments, due
in June of each of the years 2008-2009, each installment amounting to 6.66% of the
original par value of the notes, which is NIS 105,055,000, in December 2007 terms;
the unpaid balance of the notes bears annual interest of 3.8%, payable annually each
June. The notes – principal and interest – are linked to the Israeli known CPI
(base CPI of February 1992). |
| |
2) |
Series
II – December 2003 |
| |
The
balance of the notes as of December 31, 2007 is redeemable in 6 equal, annual
installments due in December of each of the years 2008-2013; the unpaid balance of the
notes bears annual interest of 5.65%, payable annually each December. The notes –principal
and interest – are linked to the Israeli known CPI (based CPI of November 2003). |
F - 24
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 – NOTES AND
OTHER LONG-TERM LIABILITIES:
| |
3) |
As
of December 31 2007 the balance of the notes represents in deduction of
issuance costs amounts to NIS 625 thousands. As to the change from January
2006 in the presentation of deferred issuance costs – see note 1j
above. |
| |
The
section refers to two long-term loans that were received from banks, as detailed below: |
| |
|
2007
|
2006
|
| |
|
NIS Thousands
|
NIS Thousands
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Loan 1 |
|
|
| 11,591 |
|
| 14,319 |
|
| |
Loan 2 | | |
| 21,920 |
|
| 24,404 |
|
| |
Less - current maturities | | |
| 5,384 |
|
| 5,208 |
|
| |
|
| |
| |
| |
| | |
| 28,127 |
|
| 33,515 |
|
| |
|
| |
| |
| |
In
July 2006, the Company assumed a loan of NIS 15 million.The outstanding balance as
at December 31, 2007, is scheduled for repayment in 17 quarterly installments through to
January 2012, each in the sum of NIS 0.7 million.The outstanding balance of the
loan carries a variable rate of interest, linked to the Prime lending rate. |
| |
In
July 2006, the Company assumed a loan of NIS 25 million.The outstanding balance as
at December 31, 2007, is scheduled for repayment in 27 quarterly installments through to
July 2014, each in the sum of NIS 1.0 million including principal and interest component
on the outstanding balance of principal.The outstanding balance of the loan
carries a variable rate of interest, linked to the Prime lending rate. |
| |
The
capital note from an associated company is unlinked and interest free. No repayment date
has been fixed, but the associated company does not intend to demand the repayment of the
capital note before January 1, 2009. |
F - 25
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 – EMPLOYEE
RIGHTS UPON RETIREMENT:
| |
a. |
Israeli
labor laws and agreements require the Company and its subsidiaries to pay
severance pay to employees dismissed or leaving their employment under certain
circumstances, computed on the basis of the number of years of service, or a
pension upon retirement. |
| |
To
cover the liability for employee rights upon retirement, pursuant to labor agreements in
force and based on salary components that, in management’s opinion, create
entitlement to severance pay, deposits are made by the Company and its subsidiaries with
various provident funds (including pension funds) or insurance policies for the benefit
of the employees. |
| |
The
severance pay and pension liability and the amounts funded as above are not reflected in
the financial statements, as the pension and severance pay risks have been irrevocably
transferred to the pension funds and the insurance companies, as allowed by the Severance
Pay Law. |
| |
b. |
The
expenses relating to employee rights upon retirement, which reflect the amounts
that were deposited during the reported years with provident funds, pension
funds and various insurance policies, are NIS 9,398,000, NIS 8,849,000 and
NIS 8,710,000 in 2007, 2006, and 2005, respectively. |
NOTE 6 –
SHAREHOLDERS’ EQUITY:
| |
Composed
of ordinary registered shares of NIS 0.01 par value, as follows: |
| |
|
|
December 31
|
| |
|
|
2007
|
2006
|
| |
|
Authorized
|
Issued and paid
|
| |
|
|
|
|
| |
|
|
|
|
| |
Number of shares |
|
|
| 20,000,000 |
|
| 5,060,774 |
|
| 4,032,723 |
|
| |
|
| |
| |
| |
| |
Amount in NIS | | |
| 200,000 |
|
| 50,608 |
|
| 40,327 |
|
| |
|
| |
| |
| |
| |
The
shares are traded on stock exchanges in Tel-Aviv and in the U.S. (“AMEX”). The
quoted prices per share, as of December 31, 2007 are NIS 249.2 and $ 65.50 (NIS 251.91),
respectively. |
| |
As
part of the Company’s arrangement for the financing of the acquisition of the new
machine for the manufacture of packaging paper in November 2007, the Company performed a
private allotment of 1,012,585 ordinary shares of NIS 0.01 par value of the Company,
which, as of the date of allotment, accounted for 20% of the issued share capital of the
Company against an investment in the total sum of $213 million (hereinafter in this
section: “the raised amount”). About 60% of the shares (607,551 shares) were
allotted to the shareholders in the Company, Clal Industries and Investments and Discount
Investments (hereinafter: “the special offerees”), in accordance with the
pro-rata holdings in the Company, and 40% of the shares (405,034 shares) were offered by
way of a tender to institutional entities and private entities. The price per share for
institutional entities and private entities as determined in the tender was NIS 210.
Accordingly, the price per share for Clal Industries and Investments and Discount
Investments considering the amount of shares offered to Clal Industries and Investments
and Discount Investments, was set at NIS
211.05 (the price per share in the tender plus a rate of 0.5%). The Company paid the
distributors a rate of 1.2% of the total consideration received from institutional
entities and private entities, that is, a sum of NIS 1,020,686. |
F - 26
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 – SHAREHOLDERS’
EQUITY (continued):
| |
The
share capital was increased as a result from this issuance in amounts of NIS 10 thousands
and the capital surplus that divided from the issuance in deduction of cost issuance as
mentioned above amounts of NIS 211,635 thousands. |
| |
b. |
Employee
stock option plans: |
| |
1) |
The
2001 plan for senior officers in the Group |
| |
On
April 2, 2001, the Company’s board of directors approved a stock option plan
for senior officers in the Group (hereafter – the 2001 plan for senior officers).
Under this plan, 194,300 options were allotted on July 5, 2001 without consideration.
Each option can be exercised to purchase one ordinary share of NIS 0.01 par value of the
Company. The options are exercisable in four equal annual batches. The blocking period of
the first batch is two years, commencing on the date of grant; the blocking period of the
second batch is three years from the date of grant, and so forth. Each batch is
exercisable within two years from the end of the blocking period. |
| |
The
exercise price of the options granted as above was set at NIS 217.00, linked to the
CPI, on the basis of the known CPI on April 2, 2001. The exercise price for each
batch is determined as the lesser of the aforementioned exercise price or the average
price of the Company’s shares as quoted on the Tel-Aviv Stock Exchange (hereafter -
the Stock Exchange) during the thirty trading days preceding to the effective date of
each batch, less 10%. The 2001 plan for senior officers expired during July 2007. |
| |
In
2007, 2006 and 2005, 35,425, 44,998 and 13,877 options, respectively, were exercised
under the 2001 plan for senior officers, and 15,466, 24,303 and 4,307 shares of NIS 0.01,
respectively, were issued following the exercise of the options, as above. 8,250 options
expired in 2005 (from the first batch) and 10,225 options expired in 2006 (from the
second batch). In 2006 12,225 option were cancelled from the third batch and 12,225 were
cancelled from the forth batch. |
| |
This
plan is designed to be governed by the terms stipulated by Section 102 of the Israeli
Income Tax Ordinance. Inter alia, these terms provide that the Company is allowed to
claim, as an expense for tax purposes, the amounts credited to the employees as a benefit
in respect of shares or options granted under the plan. |
| |
The
amount allowed as an expense for tax purposes, at the time the employee utilizes such
benefit, is limited to the amount of the benefit that is liable to tax as labor income,
in the hands of the employee; all being subject to the restrictions specified in Section
102 of the Income Tax Ordinance. |
| |
Since,
in accordance with Israeli accounting principles, the Company does not recognize the
expense in its accounts (with respect to the salary benefit embodied in these grants),
then under Clarification No. 7 of the IASB (See note 1j), the Company credited the tax
saving derived from the exercise of benefits by employees in the years 2005, 2006 and
2007 to capital surplus. |
F - 27
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 – SHAREHOLDERS’
EQUITY (continued):
| |
2) |
The
2001 employee plan |
| |
On
August 29, 2001, the Company’s board of directors approved a stock option plan
for employees in the Group, according to a specification (hereafter – the 2001
employee plan). Under this plan, up to 125,000 options will be allotted without
consideration. Each option can be exercised to purchase one ordinary share of NIS 0.01
par value of the Company. The blocking period of the options is two years from the date
of grant. Each option is exercisable within three years from the end of the blocking
period. |
| |
On
November 4, 2001, 81,455 options were granted under the 2001 employee plan. |
| |
The
exercise price of all the options granted as above was set at NIS 160.99, linked to
the CPI, on the basis of the known CPI on August 29, 2001. This price represents the
average price of the Company’s shares as quoted on the Tel-Aviv Stock Exchange
during the thirty trading days prior to the date of the board of directors’ approval,
less 10%. The 2001 employee Plan was expired during November 2006. |
| |
In
2006 and 2005 10,091 and 2,405 options, respectively, were exercised under the 2001
employee plan, and 6,215 and 1,224 shares of NIS 0.01, respectively, were issued
following the exercise of options, as above. The last of the options that were granted
and were not exercised, expired during 2006. |
| |
This
plan is designed to be governed by the terms stipulated by Section 102 of the Israeli
Income Tax Ordinance. Inter alia, these terms provide that the Company is allowed
to claim, as an expense for tax purposes, the amounts credited to the employees as a benefit
in respect of shares or options granted under the plan. |
| |
The
amount allowed as an expense for tax purposes, at the time the employee utilizes such
benefit, is limited to the amount of the benefit that is liable to tax as labor income,
in the hands of the employee; all being subject to the restrictions specified in Section 102
of the Income Tax Ordinance. |
| |
Since,
in accordance with Israeli accounting principles, the Company does not recognize the
expense in its accounts (with respect to the salary benefit embodied in these grants),
then under Clarification No. 7 of the IASB (See note 1j), the Company credited the tax
saving derived from the exercise of benefits by employees in the years 2006 and 2005 to
capital surplus. |
| |
3) |
The
2008 plan for senior officers in the Group |
| |
With
regard to the 2008 plan for senior officers in the group see note 15 – events
subsequent balance sheet date. |
NOTE 7 – TAXES ON
INCOME:
| |
a. |
Tax
benefits under the Law for the Encouragement of Capital Investments, 1959 (hereafter
– the law) |
| |
Under
the law, by virtue of the “approved enterprise” status granted to certain of
their production facilities, certain subsidiaries were entitled to various tax benefits
(mainly reduced tax rates) until 2003. |
| |
During
the period of benefits – mainly 7 years commencing in the first year in which the
companies earn taxable income from the approved enterprises, provided the maximum period
to which it is restricted by law has not elapsed – reduced tax rates or exemption
from tax apply, as follows: |
F - 28
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 – TAXES ON INCOME (continued):
| |
1) |
Corporate
tax rate of 25%, instead of the regular tax rate (see d. below). |
| |
2) |
Tax
exemption on income from certain approved enterprises in respect of which the
companies have elected the “alternative benefits” (involving waiver
of government guaranteed loans instead of the tax exemption); the length of the
exemption period is 4 years, after which the income from these enterprises
is taxable at the rate of 25% for 3 years. |
| |
The
part of the taxable income, which is entitled to the tax benefits, is determined on the
basis of the ratio of the turnover attributed to the “approved enterprise” to
the total turnover of these companies, taking into account the ratio of the “approved
enterprise” assets to total assets of these companies. The turnover that is
attributed to the “approved enterprise” is generally computed on the basis of
the ratio of the increase in turnover to the “basic” turnover stipulated in the
instrument of approval. |
| |
The
period of benefits in respect of the “approved enterprises” of these companies
expired at the end of 2003. |
| |
The
entitlement to the above benefits is conditional upon the companies’ fulfilling the
conditions stipulated by the law, regulations published there under and the instruments
of approval for the specific investments in “approved enterprises”. In the
event of failure to comply with these conditions, the benefits may be cancelled and the
companies may be required to refund the amount of the benefits, in whole or in part, with
the addition of CPI linkage differences and interest. |
| |
b. |
Measurement
of results for tax purposes under the Income Tax (Inflationary Adjustments) Law,
1985 (hereafter – the inflationary adjustments law) |
| |
Under
the inflationary adjustments law, results for tax purposes are measured in real terms,
having regard to the changes in the Israeli CPI. The Company and its subsidiaries are
taxed under this law. |
| |
On
February 26, 2008, the Knesset ratified the third reading of the Income Tax Law
(Inflation Adjustments) (Amendment 20) (Limitation of Term of Validity) – 2008
(hereinafter: “The Amendment”), pursuant to which the application of the
inflationary adjustment law will terminate in tax year 2007 and as of tax year 2008, the
law will no longer apply, other than transition regulations whose intention it is to
prevent distortions in tax calculations. |
| |
According
to the amendment, in tax year 2008 and thereafter, the adjustment of revenues for tax
purposes will no longer be considered a real-term basis for measurement. Moreover, the
linkage to the CPI of the depreciated sums of fixed assets and carryover losses for tax
purposes will be discontinued, in a manner whereby these sums will be adjusted until the
CPI at the end of 2007 and their linkage to the CPI will end as of that date. |
| |
c. |
The
Law for the Encouragement of Industry (Taxation), 1969 |
| |
The
Company and certain consolidated subsidiaries are “industrial companies” as
defined by this law. These companies claimed depreciation at accelerated rates on
equipment used in industrial activity as stipulated by regulations published under the
inflationary adjustments law. |
| |
The
Company also files consolidated tax returns with certain consolidated subsidiaries as
permitted under this law. |
F - 29
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 – TAXES ON INCOME (continued):
| |
d. |
Tax rates applicable to income not derived from “approved enterprises” |
| |
The
income of the Company and its Israeli subsidiaries (other than income from” approved
enterprises”, see a. above) is taxed at the regular rate. Through to December 31,
2003, the corporate tax was 36%. In July 2004, an amendment No. 140, to the Income Tax
Ordinance was published fixing, among others that corporate tax rate is gradually reduced
from 36% to 30%. In August 2005, an additional amendment (No. 147) to the Income Tax
Ordinance was published which makes a further revision to the corporate tax rates
prescribed by Amendment No. 140. As a result of the aforementioned amendments, the tax
rates for 2004 and thereafter are as follows: 2004 – 35%, 2005 – 34%, 2006
– 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and 2010 and thereafter
– 25%. |
| |
As
a result of the said changes in the tax rates, the Company adjusted – in each of the
years 2004 and 2005 – at the time the aforementioned amendments were made, its
deferred tax balances, in accordance with the tax rates expected to be in effect in the
coming years; the effect of the change has been carried to income in these years. |
| |
Capital
gains (except for the real capital gain from the sale of marketable securities – to
which the regular tax rates will apply) are taxed at a reduced tax rate of 25% on capital
gains that arose after January 1, 2003, and at the regular corporate tax rate on income
that arose until that date. |
| |
e. |
Carryforward
tax losses |
| |
Carryforward
tax losses in subsidiary companies are NIS 24,334,000 and NIS 24,036,000 as of
December 31, 2007 and 2006, respectively. |
| |
The
Company examines on each balance sheet date the possibility of recording deferred taxes
in respect of carryforward tax losses based on an assessment of all evidence, both
positive and negative, regarding the likelihood of their being taxable income in the
foreseeable future. Under the inflationary adjustments law, carryforward losses are
linked to the Israeli CPI, and may be utilized indefinitely. |
F - 30
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 – TAXES ON INCOME (continued):
| |
The
composition of the deferred taxes at balance sheet dates, and the changes therein during
the years 2007 and 2006, are as follows: |
|
In respect of balance sheet items
|
|
|
|
|
|
Provisions for employee rights
|
|
|
|
|
|
Depreciable
fixed
assets
|
Inventories
|
Severance
pay
|
Vacation
and
recreation
pay
|
Doubtful
accounts
|
In respect of
carryforward tax
losses
(see above)
|
Total
|
|
N I S i n t h o u s a n d s
|
| |
|
|
|
|
|
|
|
| Balance at January 1, 2006 |
|
|
| 45,783 |
|
| 2,551 |
|
| 526 |
|
| (4,079 |
) |
| (5,962 |
) |
| (5,797 |
) |
| 33,022 |
|
| Changes in 2006 - | | |
| amounts carried to income | | |
| (4,170 |
) |
| (1,404 |
) |
| 26 |
|
| 36 |
|
| 450 |
|
| (693 |
) |
| (5,755 |
) |
|
| |
| |
| |
| |
| |
| |
| |
| Balance at December 31, 2006 | | |
| 41,613 |
|
| 1,147 |
|
| 552 |
|
| (4,043 |
) |
| (5,512 |
) |
| (6,490 |
) |
| 27,267 |
|
| Changes in 2007 - | | |
| amounts carried to income | | |
| (1,098 |
) |
| (875 |
) |
| (721 |
) |
| (42 |
) |
| 378 |
|
| 407 |
|
| (1,951 |
) |
|
| |
| |
| |
| |
| |
| |
| |
| Balance at December 31, 2007 | | |
| 40,515 |
|
| 272 |
|
| (169 |
) |
| (4,085 |
) |
| (5,134 |
) |
| (6,083 |
) |
| 25,316 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
The
deferred taxes are computed at the rate of 25%-27%. |
| |
Deferred
taxes are presented in the balance sheets as follows: |
|
December 31
|
|
2007
|
2006
|
|
NIS in thousands
|
| |
|
|
|
|
|
| Among current assets |
|
|
| (9,116 |
) |
| (7,856 |
) |
| Among long-term asset balances | | |
| (6,083 |
) |
| (6,490 |
) |
| Among long-term liabilities | | |
| 40,515 |
|
| 41,613 |
|
|
| |
| |
| Balance - liability - net | | |
| 25,316 |
|
| 27,267 |
|
|
| |
| |
F - 31
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 – TAXES ON INCOME (continued):
| |
g. |
Taxes
on income included in the income statements: |
| |
|
2007
|
2006
|
2005
|
| |
|
NIS in thousands
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
For the reported year: |
|
|
| |
|
| |
|
| |
|
| |
Current | | |
| 20,408 |
|
| 22,457 |
|
| 13,662 |
|
| |
Previous years | | |
| 850 |
|
| |
|
| |
|
| |
Deferred, see f. above: | | |
| |
In respect of changes to tax rates, | | |
| |
see d. above | | |
| - |
|
| - |
|
| (4,166 |
) |
| |
In respect of the reporting period | | |
| (1,951 |
) |
| (5,755 |
) |
| (3,505 |
) |
| |
|
| |
| |
| |
| |
| | |
| 19,307 |
|
| 16,702 |
|
| 5,991 |
|
| |
|
| |
| |
| |
| |
Current
taxes in 2007 were computed at an average tax rate of 29%, 2006 – 31% and 2005- 34%,
see (2) below. |
| |
2) |
Following
is a reconciliation of the “theoretical” tax expense, assuming all
income is taxed at the regular rate applicable to companies in Israel, as
stated in d. above, and the actual tax expense: |
|
2007
|
2006
|
2005
|
|
%
|
NIS in
thousands
|
%
|
NIS in
thousands
|
%
|
NIS in
thousands
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before taxes on income, as reported |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| in the statements of income | | |
| 100 |
|
| 53,633 |
|
| 100.0 |
|
| 56,695 |
|
| 100.0 |
|
| 35,292 |
|
|
| |
| |
| |
| |
| |
| |
| Theoretical tax on the above amount | | |
| 29.0 |
|
| 15,554 |
|
| 31.0 |
|
| 17,575 |
|
| 34.0 |
|
| 11,999 |
|
| | | |
| Decrease in taxes resulting from computation | | |
| of deferred taxes at a rate which is | | |
| different from the theoretical rate | | |
| (1.6 |
) |
| (859 |
) |
| (2.1 |
) |
| (1,196 |
) |
| (0.9 |
) |
| (324 |
) |
| Decrease in taxes resulting from adjustment to | | |
| deferred tax balances due to changes | | |
| in tax rates, see d. above | | |
| - |
|
| - |
|
| - |
|
| - |
|
| (11.8 |
) |
| (4,166 |
) |
Differences at equity and non financial assets
definition for the purpose of tax | | |
| 4.5 |
|
| 2,400 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| Previous years tax | | |
| 1.6 |
|
| 850 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| Nondeductible expenses | | |
| 0.3 |
|
| 170 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| Other - net | | |
| 2.2 |
|
| 1,192 |
|
| 0.6 |
|
| 323 |
|
| (4.3 |
) |
| (1,518 |
) |
|
| |
| |
| |
| |
| |
| |
| Taxes on income for the reported year | | |
| 36.0 |
|
| 19,307 |
|
| 29.5 |
|
| 16,702 |
|
| 17.0 |
|
| 5,991 |
|
|
| |
| |
| |
| |
| |
| |
| |
The
Company and most of its subsidiaries have received final tax assessments through the year
ended December 31, 2005. |
F - 32
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued):
NOTE 8 – LINKAGE
TERMS OF MONETARY BALANCES:
|
December 31, 2007
|
December 31, 2006
|
|
In, or linked
to, foreign
currency
(mainly dollar)
|
Linked to the
Israeli CPI
|
Unlinked
|
In, or linked
to, foreign
currency
(mainly dollar)
|
Linked to the
Israeli CPI
|
Unlinked
|
|
NIS in thousands
|
NIS in thousands
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Current assets: | | |
| Cash and cash equivalents | | |
| 165,189 |
|
| - |
|
| 2,556 |
|
| 8,573 |
|
| - |
|
| 5,048 |
|
| Receivables | | |
| 12,720 |
|
| 439 |
|
| 258,882 |
|
| 59,849 |
|
| 244 |
|
| 243,049 |
|
| Investments in associated companies - long-term | | |
| loans and capital notes | | |
| 2,421 |
|
| - |
|
| 52,233 |
|
| 6,337 |
|
| - |
|
| 63,704 |
|
|
| |
| |
| |
| |
| |
| |
| | | |
| 180,330 |
|
| 439 |
|
| 313,671 |
|
| 74,759 |
|
| 244 |
|
| 311,801 |
|
|
| |
| |
| |
| |
| |
| |
| Liabilities: | | |
| Current liabilities: | | |
| Short-term credit from banks | | |
| - |
|
| - |
|
| 143,015 |
|
| - |
|
| - |
|
| 203,003 |
|
| Accounts payables and accruals | | |
| 10,363 |
|
| - |
|
| 185,281 |
|
| 8,422 |
|
| - |
|
| 191,551 |
|
| Long-term liabilities (including current maturities): | | |
| Long -term loans | | |
| - |
|
| - |
|
| 33,511 |
|
| |
|
| |
|
| 38,723 |
|
| Notes | | |
| - |
|
| 195,525 |
|
| - |
|
| - |
|
| 226,364 |
|
|
|
|
| Other liability | | |
| - |
|
| - |
|
| 32,770 |
|
| - |
|
| - |
|
| 32,770 |
|
|
| |
| |
| |
| |
| |
| |
| | | |
| 10,363 |
|
| 195,525 |
|
| 394,577 |
|
| 8,422 |
|
| 226,364 |
|
| 466,047 |
|
|
| |
| |
| |
| |
| |
| |
| As to exposures relating to fluctuations in foreign currency exchange rates and the use of
derivatives for hedging purposes – see note 12a. |
F - 33
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 – LINKAGE TERMS OF MONETARY BALANCES (continued):
| |
b. |
Data
regarding the exchange rate and the Israeli CPI: |
| |
|
Exchange rate of
one dollar
|
CPI*
|
| |
|
NIS
|
Points
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
At end of year: |
|
|
| |
|
| |
|
| |
2007 | | |
| 3.846 |
|
| 191.2 |
|
| |
2006 | | |
| 4.225 |
|
| 184.9 |
|
| |
2005 | | |
| 4.603 |
|
| 185.0 |
|
| |
| | |
| |
Change in the year: | | |
| |
2007 | | |
| (9.0 |
)% |
| 3.4 |
% |
| |
2006 | | |
| (8.2 |
)% |
| - |
|
| |
2005 | | |
| 6.8 |
% |
| 2.4 |
% |
| |
* |
Based
on the index for the month ending on each balance sheet date, on the basis of 1993 average = 100. |
NOTE 9 –
COMMITMENTS, CONTINGENT LIABILITIES:
| |
a. |
Subsidiaries
provided guarantees to various entities, in connection with tenders, in
the aggregate amount of approximately NIS 2,902,000. |
| |
b. |
On
May 7, 2001, the Company’s board of directors resolved to carry out
a plan, which was approved by the shareholders’ meeting, to
remunerate the Company’s former chairman of the board of directors.
According to the plan, remuneration will be granted, equal to the increase
in the value of 50,000 shares of the Company in the period from May 7,
2001 (share price – NIS 194.37, linked to the terms of the plan)
to May 7, 2008. The remuneration will be spread over the period
commencing two years from the resolution of the board of directors, until
the end of seven years from said resolution or until the time of
termination of duty in certain conditions, the earlier. Up to December 31
2006, all of the remuneration was exercised. |
| |
c. |
In
accordance with the Companies Law, 1999, the Company issued new letters of
indemnity to its officers in 2004, pursuant to which the Company
undertakes to indemnify the officers for any liability or expense, for
which indemnification may be paid under the law, that may be incurred by
the officers in connection with actions performed by them as part of their
duties as officers in the Company, which are directly or indirectly
related to the events specified in the addendum to the letters of
indemnity, provided that the total amount of indemnification payable to
the officers, shall not exceed 25% of the Company’s shareholders’ equity
as per its latest financial statements published prior to the actual
indemnification. The liability of officers in connection with the
performance of their duties, as above, is partly covered by an insurance
policy. |
F - 34
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 – COMMITMENTS, CONTINGENT LIABILITIES: (continued)
| |
d. |
On
May 13, 2007, the Company’s Audit Committee and Board of Directors
approved an employment contract with the Company’s General Manager.
The employment contract is not time-limited and consists of the following
principal terms of employment: Monthly wages of NIS 95,000, linked to the
Consumer Price Index (CPI) starting in 2007, an annual bonus equal to 6-9
monthly paychecks, to be determined at the discretion of the Company’s
Board of Directors. Retirement conditions – In addition to the
liberation of the funds accrued in the Managers’ Insurance, upon
leaving his position, the general manager will receive a retirement bonus
equal to his last monthly paycheck – prior to leaving his position
– multiplied by the number of years during which he was employed by
the Company (starting August 1998), including advanced notice of 6 months
in the event of termination or resignation and additional auxiliary
conditions. It has to be noted that the amounts transferred to managerial insurance policies in respect of severance
pay, will include current completion on basis of last monthly salary for each year of work in the Group. |
| |
It
should be noted that in proximity to the appointment of the General Manager, who entered
his position in January 2005, a brief memorandum was drafted regarding the said
employment, with terms similar to those mentioned above. This memorandum was not approved
by the Company’s Board of Directors and the Company’s management, based on the
opinion of legal counsel, is doubtful whether it is legally binding. The impact of the
agreement will be expressed in the second quarter results and will amount to NIS 1.3
million (net, after taxes) on account of the retirement terms. |
| |
e. |
The
Company converted during October 2007 its energy-generation plant in Hadera
to using natural gas, instead of fuel oil. |
| |
In
this capacity, the Company signed an agreement in London on July 29, 2005, with the
Thetis Sea Group, for the purchase of natural gas. The gas that will be purchased is
intended to fulfill the Company’s requirements in the coming years, for the
operation of the existing energy generation plants using cogeneration at the Hadera
plant, when it will be converted for the use of natural gas, instead of the current use
of fuel oil. The overall financial scope of the transaction totals $ 35 million over
the term of the agreement (5 years from the initial supply of gas, but no later than July
1, 2011). |
| |
In
this capacity the Company also contracted with Alstom Power Boiler Service gmbh, a
manufacturer of equipment in the energy industry, in an agreement worth approximately
€ 1.74 million, for the purchase of the systems needed for the conversion and
assistance with their installation at the plant in Hadera. Up to December 31, 2007 the
remainder of the agreement was worth approximately € 0.6 million. |
| |
f. |
In
the beginning of 2008, the Company has engaged in a contract with the main
equipment suppliers for the new manufacturing facility of packaging
papers, for the total sum of €48.4 million. Some of the equipment
will be supplied during 2008 and the rest will be supplied in the
beginning of 2009. |
| |
g. |
In
the last quarter of 2007, the Company signed an agreement with a gas company
for the transmission of gas for a period of 6 years with a two-year
extension option. The total financial value of the transaction is NIS 13.8
million. |
| |
h. |
In
November 2006, the Environmental Protection Ministry announced that, even
though the company plant at Hadera has made considerable investments in
sewage treatment and environmental protection issues, an investigation may
be launched against it to review deviations from certain emission
standards into the air. Based on the opinion of its legal advisors, the
Company anticipates that the investigation will not materially impact its
operations. |
F - 35
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 – COMMITMENTS, CONTINGENT LIABILITIES AND LIABILITIES: (continued)
| |
i. |
On
October 21, 2007, the tax authorities issued a demand for payment of a
betterment levy in the amount of NIS 8 million in respect of change of
land use, which is designed for the construction of a new production line
for the manufacture of packaging papers.
The Company contested the amount
of the levy through counter-assessment in the sum of NIS 400,000. In
addition, it should be noted that as a result, these financial statements
do not include a provision for said demand. When the levy is recognized in
the financial statements, it will be included in the cost of the land and
therefore will not have any effect on the operating results of the
Company. |
F - 36
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 –
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
| |
|
December 31
|
| |
|
2007
|
2006
|
| |
|
NIS in thousands
|
| |
|
|
|
| |
|
|
|
| |
1) Trade: |
|
|
| |
|
| |
|
| |
Open accounts | | |
| 164,032 |
|
| 152,944 |
|
| |
Checks collectible | | |
| 14,739 |
|
| 15,106 |
|
| |
|
| |
| |
| |
| | |
| 178,771 |
|
| 168,050 |
|
| |
|
| |
| |
| |
The item is: | | |
| |
Net of allowance for doubtful accounts | | |
| 17,171 |
|
| 16,791 |
|
| |
|
| |
| |
| |
Includes associated companies | | |
| 37,255 |
|
| 36,967 |
|
| |
|
| |
| |
| |
2) Other: | | |
| |
Employees and employee institutions | | |
| 2,218 |
|
| 2,451 |
|
| |
Associated companies - current debt | | |
| 80,054 |
|
| 72,467 |
|
| |
Prepaid expenses | | |
| 2,719 |
|
| 3,732 |
|
| |
Advances to suppliers | | |
| 2,303 |
|
| 2,617 |
|
| |
Deferred income taxes, see note 7f | | |
| 9,116 |
|
| 7,856 |
|
| |
Proceeds from sale of land in trustee's control (see note 10i) | | |
| - |
|
| 51,936 |
|
| |
Accounts Receivable | | |
| 4,953 |
|
| - |
|
| |
Sundry | | |
| 3,746 |
|
| 5,625 |
|
| |
|
| |
| |
| |
| | |
| 105,109 |
|
| 146,684 |
|
| |
|
| |
| |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
For industrial activities: |
|
|
| |
|
| |
|
| |
Finished goods | | |
| 19,824 |
|
| 16,998 |
|
| |
Raw materials and supplies | | |
| 7,630 |
|
| 7,884 |
|
| |
|
| |
| |
| |
| | |
| 27,454 |
|
| 24,882 |
|
| |
For commercial activities - purchased products | | |
| 19,280 |
|
| 14,348 |
|
| |
|
| |
| |
| |
| | |
| 46,734 |
|
| 39,230 |
|
| |
Maintenance and spare parts * | | |
| 22,873 |
|
| 22,879 |
|
| |
|
| |
| |
| |
| | |
| 69,607 |
|
| 62,109 |
|
| |
|
| |
| |
* Including inventories for the use
of associated companies.
| |
|
Weighted average
Interest rate
on December 31,
2007
|
December 31
|
| |
|
2007
|
2006
|
| |
|
NIS in thousands
|
| |
|
|
|
|
| |
|
|
|
|
| |
Unlinked |
|
|
| 5.3 |
% |
| 143,015 |
|
| 203,003 |
|
F - 37
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 – SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION (continued):
| |
d. |
Accounts
payable and accruals – other: |
| |
|
December 31
|
| |
|
2007
|
2006
|
| |
|
NIS in thousands
|
| |
|
|
|
| |
|
|
|
| |
1) Trade: |
|
|
| |
|
| |
|
| |
Open accounts | | |
| 104,301 |
|
| 91,932 |
|
| |
Checks payable | | |
| 4,108 |
|
| 4,341 |
|
| |
|
| |
| |
| |
| | |
| 108,409 |
|
| 96,273 |
|
| |
|
| |
| |
| |
| | |
| |
2) Other: | | |
| |
Payroll and related expenses | | |
| 43,902 |
|
| 42,553 |
|
| |
Institutions in respect of employees | | |
| 22,057 |
|
| 15,775 |
|
| |
Income tax authority | | |
| 908 |
|
| 19,824 |
|
| |
Customs and value added tax authorities | | |
| 322 |
|
| 8,814 |
|
| |
Accrued interest | | |
| 1,679 |
|
| 2,104 |
|
| |
Accrued expenses | | |
| 17,697 |
|
| 14,100 |
|
| |
Sundry | | |
| 670 |
|
| 529 |
|
| |
|
| |
| |
| |
| | |
| 87,235 |
|
| 103,699 |
|
| |
|
| |
| |
| |
|
|
2007
|
2006
|
2005
|
| |
|
|
NIS in thousands
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
e. |
Sales
- net (1): |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Industrial operations (2) |
|
|
| 462,634 |
|
| 404,030 |
|
| 364,539 |
|
| |
|
Commercial operations | | |
| 121,016 |
|
| 126,079 |
|
| 117,922 |
|
| |
|
|
| |
| |
| |
| |
|
| | |
| 583,650 |
|
| 530,109 |
|
| 482,461 |
|
| |
|
|
| |
| |
| |
| |
|
(1) Including sales to associated companies | | |
| 159,627 |
|
| 149,173 |
|
| 115,262 |
|
| |
|
|
| |
| |
| |
| |
|
(2) Including sales to export | | |
| 48,669 |
|
| 47,886 |
|
| 43,356 |
|
| |
|
|
| |
| |
| |
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Industrial operations: |
|
|
| |
|
| |
|
| |
|
| |
Materials consumed | | |
| 93,260 |
|
| 85,617 |
|
| 80,740 |
|
| |
Payroll and related expenses | | |
| 115,773 |
|
| 104,880 |
|
| 96,370 |
|
| |
Depreciation | | |
| 30,906 |
|
| 27,886 |
|
| 27,396 |
|
| |
Other manufacturing costs | | |
| 114,400 |
|
| 106,387 |
|
| 94,517 |
|
| |
Decrease (increase) in inventory of | | |
| |
finished goods | | |
| (2,826 |
) |
| (420 |
) |
| (4,894 |
) |
| |
|
| |
| |
| |
| |
| | |
| 351,513 |
|
| 324,350 |
|
| 294,129 |
|
| |
Commercial operations - cost of products sold | | |
| 89,341 |
|
| 94,375 |
|
| 89,050 |
|
| |
|
| |
| |
| |
| |
| | |
| 440,854 |
|
| 418,725 |
|
| 383,179 |
|
| |
|
| |
| |
| |
| |
Including purchases from associated | | |
| |
companies | | |
| 31,220 |
|
| 39,900 |
|
| 37,747 |
|
| |
|
| |
| |
| |
F - 38
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 – SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION (continued):
| |
|
|
2007
|
2006
|
2005
|
| |
|
|
NIS in thousands
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
g. |
Selling,
marketing, administrative and general expenses: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Selling and marketing: |
|
|
| |
|
| |
|
| |
|
| |
|
Payroll and related expenses | | |
| 13,454 |
|
| 13,954 |
|
| 13,641 |
|
| |
|
Packaging, transport and shipping | | |
| 9,712 |
|
| 9,243 |
|
| 7,866 |
|
| |
|
Commissions | | |
| 1,869 |
|
| 2,121 |
|
| 2,699 |
|
| |
|
Depreciation | | |
| 1,403 |
|
| 1,331 |
|
| 1,145 |
|
| |
|
Other | | |
| 4,929 |
|
| 4,717 |
|
| 5,131 |
|
| |
|
|
| |
| |
| |
| |
|
| | |
| 31,367 |
|
| 31,366 |
|
| 30,482 |
|
| |
|
|
| |
| |
| |
| |
|
| | |
| |
|
Administrative and general: | | |
| |
|
Payroll and related expenses | | |
| 45,527 |
|
| 43,407 |
|
| 39,727 |
|
| |
|
Office supplies, rent and maintenance | | |
| 1,214 |
|
| 1,593 |
|
| 1,241 |
|
| |
|
Professional fees | | |
| 1,789 |
|
| 1,167 |
|
| 991 |
|
| |
|
Depreciation | | |
| 3,159 |
|
| 3,128 |
|
| 2,903 |
|
| |
|
Doubtful accounts and bad debts | | |
| 738 |
|
| (122 |
) |
| 840 |
|
| |
|
Other | | |
| 9,997 |
|
| 7,022 |
|
| 4,201 |
|
| |
|
|
| |
| |
| |
| |
|
| | |
| 62,424 |
|
| 56,195 |
|
| 49,903 |
|
| |
|
L e s s - rent and participation from | | |
| |
|
associated companies | | |
| 26,364 |
|
| 26,678 |
|
| 24,441 |
|
| |
|
|
| |
| |
| |
| |
|
| | |
| 36,060 |
|
| 29,517 |
|
| 25,462 |
|
| |
|
|
| |
| |
| |
| |
h. |
Financial
expenses - net*: |
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Expenses: |
|
|
| |
|
| |
|
| |
|
| |
In respect of long-term loans | | |
| 1,907 |
|
| 1,196 |
|
| - |
|
| |
In respect of notes - including amortization of deferred | | |
| |
charges and net of related hedges | | |
| 15,642 |
|
| 17,013 |
|
| 16,516 |
|
| |
In respect of increase in value of operating monetary balance-net | | |
| 2,227 |
|
| 4,771 |
|
| - |
|
| |
In respect of short-term balances | | |
| 10,430 |
|
| 11,590 |
|
| 3,559 |
|
| |
|
| |
| |
| |
| |
| | |
| 30,206 |
|
| 34,570 |
|
| 20,075 |
|
| |
|
| |
| |
| |
| |
Income: | | |
| |
In respect of long-term loans | | |
| 4,289 |
|
| 579 |
|
| 385 |
|
| |
In respect of increase in value of operating monetary balances | | |
| - |
|
| - |
|
| 3,294 |
|
| |
In respect of short-term balances | | |
| 6,359 |
|
| 2,880 |
|
| 3,906 |
|
| |
|
| |
| |
| |
| |
| | |
| 10,648 |
|
| 3,459 |
|
| 7,585 |
|
| |
|
| |
| |
| |
| |
| | |
| (19,558 |
) |
| (31,111 |
) |
| (12,490 |
) |
| |
|
| |
| |
| |
| |
** Including financial income (expenses) in respect | | |
| |
of loans to associated companies | | |
| 2,655 |
|
| 2,280 |
|
| 3,401 |
|
| |
|
| |
| |
| |
F - 39
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
10 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
| |
|
2007
|
2006
|
2005
|
| |
|
NIS in thousands
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Proceeds from sale of land |
|
|
| - |
|
| *40,641 |
|
| 3,260 |
|
| |
Capital gain from sale of fixed assets | | |
| (2,150 |
) |
| 317 |
|
| 310 |
|
| |
Gains (losses) from sale of the operation in Switzerland | | |
| | |
| (3,653 |
) |
| 874 |
|
| |
Capital loss from sale of associated company | | |
| (28 |
) |
| - |
|
| - |
|
| |
|
| |
| |
| |
| |
| | |
| (2,178 |
) |
| 37,305 |
|
| 4,444 |
|
| |
|
| |
| |
| |
| |
* |
On
December 31, 2006, the Company sold a land estate. As a result of this sale, the Company
recorded a capital gain in the amount of approximately NIS 28.5 million, net of tax,
betterment levy, and expenses related to the sale. The proceeds of the sale, in the
amount of NIS 43 million, were deposited on December 31, 2006 with a trustee in order to
secure the liabilities of the Company. At the beginning of January 2007, the balance in
the amount of approximately NIS 30 million was received, and in during the course of
February this balance was transferred from the trustee to the Company. |
NOTE 11 – NET
INCOME PER SHARE
| |
Following
are data relating to the net income and the number of shares (including adjustments to
such data) used for the purpose of computing the basic and fully diluted net income per
ordinary share. (The data for the year 2005 are after retroactive application of the
provisions of Accounting Standard No. 21 of the IASB, see note 1v): |
| |
|
Net income
Year ended December 31
|
| |
|
2007
|
2006
|
2005
|
| |
|
NIS in thousands
|
| |
|
|
|
|
| |
|
|
|
|
| |
Net income for the period, as reported in the |
|
|
| |
|
| |
|
| |
|
| |
income statements, used in computation of | | |
| |
basic net income per share | | |
| 31,442 |
|
| 13,330 |
|
| 45,715 |
|
| |
|
| |
| |
| |
| |
Total net income for the purpose of computing | | |
| |
diluted income per share | | |
| 31,442 |
|
| 13,330 |
|
| 45,715 |
|
| |
|
| |
| |
| |
| |
|
Number of shares
Year ended December 31
|
| |
|
2007
|
2006
|
2005
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Weighted average number of shares used for |
|
|
| |
|
| |
|
| |
|
| |
computing the basic income per share | | |
| 4,132,728 |
|
| 4,025,181 |
|
| 3,999,867 |
|
| |
Adjustment in respect of incremental shares of warrants | | |
| 6,805 |
|
| 33,429 |
|
| 28,240 |
|
| |
|
| |
| |
| |
| |
Weighted average number of shares used for | | |
| |
computing the diluted income per share | | |
| 4,139,533 |
|
| 4,058,610 |
|
| 4,028,107 |
|
| |
|
| |
| |
| |
F - 40
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 – FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT:
| |
a. |
Derivative
financial instruments |
| |
The
Company has limited involvement with derivative financial instruments. The Company uses
these instruments as hedges. The Company utilizes derivatives, mainly forward exchange
contracts, to protect its expected cash flows in respect of existing assets and
liabilities denominated in currencies other than the functional currency of the Company
or that are linked to the CPI. As the counter-parties to these derivatives are Israeli
banks, the Company considers the inherent credit risks remote. |
| |
In
December 2006 the Company entered into forward transactions for a period of one year, in
order to hedge an amount of NIS 100 million against increases in the CPI, following
the termination of the 2005 transaction that was finalized.
In January 2007, the Company
entered into forward transactions for a period of one year, in order to hedge an amount
of NIS 120 million against increases in the CPI, following the termination of the 2005
transaction that was finalized. |
| |
In
January 2008, the Company entered into forward transactions for a period of one year, in
order to hedge an amount of NIS 90 million against increases in the CPI, following
the termination of the aforementioned transaction.
In February 2008, the Company entered
into additional forward transactions for a period of one year, in order to hedge an
amount of NIS 50 million against increases in the CPI, following the termination of
the aforementioned transaction. |
| |
The
Company and its subsidiaries’ cash and cash equivalents as of December 31, 2007 and
2006 are deposited mainly with major banks. The Company and its subsidiaries consider the
credit risks in respect of these balances to be remote. |
| |
Most
of these companies’ sales are made in Israel, to a large number of customers. The
exposure to credit risks relating to trade receivables is limited due to the relatively
large number of customers. The Group performs ongoing credit evaluations of its customers
to determine the required amount of allowance for doubtful accounts. An appropriate
allowance for doubtful accounts is included in the financial statements. |
| |
Approximately
half of the Company’s sales are nominated in US dollars, while a substantial part of
its expenditures and its liabilities are in NIS, and as a result, the Company has an
exposure to the changes in the rate of exchange of the NIS against the US dollar. This
exposure includes an economic exposure (resulting from the excess of receipts over
payments, in foreign currency or linked to it) and reporting exposure (relating to the
excess of dollar linked assets over liabilities). |
| |
The
Company has trade receivables balances linked to the US dollar – see note 8(a). |
F - 41
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 – FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT (continued):
| |
d. |
Fair
value of financial instruments |
| |
The
following table specifies the carrying amount and fair value of financial instrument
groups that are not presented in the financial statements at their value: |
| |
|
Carrying Amount
|
Fair Value
|
| |
|
December 31, 2007
NIS in thousands
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Financial Assets |
|
|
| |
|
| |
|
| |
Long term loans and capital note | | |
| 51,956 |
|
| 50,590 |
|
| |
|
| |
| |
| |
Financial Liabilities | | |
| |
Notes - series 1* | | |
| 14,098 |
|
| 14,336 |
|
| |
Notes - series 2* | | |
| 182,052 |
|
| 191,537 |
|
| |
Other liability* | | |
| 32,770 |
|
| 31,510 |
|
| |
|
| |
| |
| |
| | |
| 228,920 |
|
| 237,383 |
|
| |
|
| |
| |
| |
* |
The
above carrying amounts are based on the computation of the present value of cash flows at
interest rates applicable to similar characterized loans (in 2007 – 4%). |
NOTE 13 –
INTERESTED PARTIES – TRANSACTIONS AND BALANCES:
| |
|
2007
|
2006
|
2005
|
| |
|
NIS in thousands
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Sales |
|
|
| 57,050 |
|
| 47,803 |
|
| 46,396 |
|
| |
|
| |
| |
| |
| |
Costs and expenses | | |
| (16,956 |
) |
| (20,175 |
) |
| (13,997 |
) |
| |
|
| |
| |
| |
| |
Financial expenses | | |
| 2,128 |
|
| 2,191 |
|
| 1,731 |
|
| |
|
| |
| |
| |
| |
The
amounts presented above represent transactions that the Company carried out in the
ordinary course of business with interested parties (companies which are held by the
Company’s principal shareholder), at terms and prices similar to those applicable to
non-affiliated customers and suppliers. |
F - 42
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 – INTERESTED PARTIES
– TRANSACTIONS AND BALANCES (continued):
| |
2) |
Benefits
to interested parties: |
| |
|
2007
|
2006
|
2005
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Payroll to interested parties employed |
|
|
| |
|
| |
|
| |
|
| |
by the Company - NIS in thousands | | |
| *2,643 |
|
| *8,094 |
|
| *5,181 |
|
| |
|
| |
| |
| |
| |
Number of people to whom the benefits relate | | |
| 1 |
|
| 2 |
|
| 2 |
|
| |
|
| |
| |
| |
| |
Remuneration of directors who are not | | |
| |
employed by the Company - | | |
| |
NIS in thousands | | |
| 601 |
|
| 504 |
|
| 485 |
|
| |
|
| |
| |
| |
| |
Number of people to whom | | |
| |
the benefits relate | | |
| 11 |
|
| 11 |
|
| 12 |
|
| |
|
| |
| |
| |
| |
* |
In 2007 because of the payroll of
CEO. In 2006 includes the payroll of CEO and of the former Chairman of the Board of
Directors and, in addition a payment to the former chairman of the Board of directors as a
result of exercise of a bonus according to a remuneration plan. In 2005 including the CEO
and the former Chairman of the Board of Directors. 2005 includes a special bonus to the
Chairman of the Board of Directors, in a sum of NIS 800,000. |
| |
3) |
During
2007, an interested party employed by the Company (the CEO) held 1,975 options
under the 2001 plan for senior employees in the group (see note 6b(1)). As of
December 31, 2007 all the options were exercised. |
| |
4) |
As
to the plan for the remuneration of the Company’s former chairman of the
Board of Directors – see note 9b. |
| |
b. |
Balances
with interested parties: |
| |
|
December 31
|
| |
|
2007
|
2006
|
| |
|
NIS in thousands
|
| |
|
|
|
| |
|
|
|
| |
Accounts receivable - commercial operations* |
|
|
| 20,710 |
|
| 18,825 |
|
| |
|
| |
| |
| |
Accounts payables and accruals | | |
| 1,589 |
|
| 4,930 |
|
| |
|
| |
| |
| |
Notes | | |
| 34,216 |
|
| 38,871 |
|
| |
|
| |
| |
| |
* |
There
were no significant changes in the balance during the year. |
NOTE 14 – SEGMENT
INFORMATION:
| |
a. |
Activities
of the Company and its subsidiaries: |
| |
1) |
Manufacturing
and marketing of packaging paper, including collection and recycling of paper
waste. The manufacturing of paper relies mainly on paper waste as raw material. |
| |
2) |
Marketing
of office supplies and paper, mainly to institutions.
Most of the sales are on
the local (Israeli) market and most of the assets are located in Israel. |
F - 43
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
14 – SEGMENT INFORMATION (continued):
| |
b. |
Business
segment data: |
|
Paper and recycling
|
Marketing of office supplies
|
T o t a l
|
|
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
|
N I S i n t h o u s a n d s
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales - net(1) |
|
|
| 464,653 |
|
| 408,045 |
|
| 368,884 |
|
| 118,997 |
|
| 122,064 |
|
| 113,577 |
|
| 583,650 |
|
| 530,109 |
|
| 482,461 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Income (loss) from ordinary operations | | |
| 74,936 |
|
| 50,359 |
|
| 44,218 |
|
| 433 |
|
| 142 |
|
| (880 |
) |
| 75,369 |
|
| 50,501 |
|
| 43,338 |
|
| Financial expenses, net | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 19,558 |
|
| 31,111 |
|
| 12,490 |
|
| Other income | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| (2,178 |
) |
| 37,305 |
|
| 4,444 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Income before taxes on income | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 53,633 |
|
| 56,695 |
|
| 35,292 |
|
| Taxes on income | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 19,307 |
|
| 16,702 |
|
| 5,991 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Income from operations of the Company and its subsidiaries | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 34,326 |
|
| 39,993 |
|
| 29,301 |
|
| Share in profits of associated companies - net | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| (2,884 |
) |
| (26,663 |
) |
| 16,414 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Net income | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 31,442 |
|
| 13,330 |
|
| 45,715 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | |
| Segment assets (at end of year) | | |
| 630,435 |
|
| 574,319 |
|
| 536,965 |
|
| 63,509 |
|
| 56,663 |
|
| 57,377 |
|
| 693,944 |
|
| 630,982 |
|
| 594,342 |
|
| Unallocated corporate assets (at end of year) (2) | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 625,123 |
|
| 542,305 |
|
| 561,416 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
Consolidated total assets (at end
of year) | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 1,319,067 |
|
| 1,173,287 |
|
| 1,155,758 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Segment liabilities (at end of year) | | |
| 79,116 |
|
| 69,923 |
|
| 57,754 |
|
| 29,293 |
|
| 26,350 |
|
| 32,758 |
|
| 108,409 |
|
| 96,273 |
|
| 90,512 |
|
| Unallocated corporate liabilities (at end of year) | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 532,571 |
|
| 646,172 |
|
| 541,862 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
Consolidated total liabilities (at
end of year) | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| 640,980 |
|
| 742,445 |
|
| 632,374 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Depreciation and amortization | | |
| 33,267 |
|
| 30,137 |
|
| 29,795 |
|
| 1,596 |
|
| 1,820 |
|
| 1,809 |
|
| 34,863 |
|
| 31,957 |
|
| 31,604 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Investments in fixed assets | | |
| 80,431 |
|
| 51,380 |
|
| 70,014 |
|
| 1,653 |
|
| 1,727 |
|
| 1,066 |
|
| 82,084 |
|
| 53,107 |
|
| 71,080 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| (1) |
Represents
sales to external customers. |
| (2) |
Including
investments in associated companies. |
F - 44
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued):
NOTE 15 – EVENTS SUBSEQUENT
BALANCE SHEET DATE
| |
On January 14, 2008, the
Company’s Board of Directors approved, pursuant to approval by the Audit Committee,
adoption of a compensation plan for senior employees of the Company and/or its
subsidiaries and/or associated companies, whereby up to 285,750 stock options, each of
which is exercisable into one ordinary share of the company of NIS 0.01 par value, would
be allocated to senior employees and officers of the Group, including the Company CEO,
which at the time of approval of said allocation comprised 5.65% of the Company’s
issued share capital. The offerees in the said plan are not interested parties in the
company, except for the CEO who is an interested party by virtue of his position. Pursuant
to the conditions of the said option warrants, the offerees who will exercise the option
warrants will not be allocated all of the shares derived there from, but only a quantity
of shares that reflects the sum of the financial benefit that is inherent to the option
warrants at the exercise date only. As at the reported date, the said option warrants have
yet to be allocated. |
| |
The total expenditure that will be
recorded by the Group companies on account of the granting of the said option warrants was
estimated at NIS 27 million. The influence of the plan at the consolidated financial
statements was estimated at NIS 22 million. |
| |
The
option warrants are not registered for trade. The company has obtained approval from the
stock exchange and from AMEX to register for trade the ordinary shares that shall be
allocated to the offerees upon exercise of the option warrants. |
F - 45
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – DISCLOSURE
REGARDING THE ADOPTION OF IFRS
| |
Following
the publication of Account Standard No. 29, “the Adoption of International Financial
Reporting Standards (IFRS)” in July 2006, the Company plans to adopt IFRS starting
from January 1, 2008. |
| |
Pursuant
to the provisions of IFRS1, which deals with the first-time adoption of IFRS, and
considering the date in which the Company elected to adopt these standards for the first
time, the financial statements which the Company must draw up in accordance with IFRS
rules, are the consolidated financial statement as of December 31, 2008, and for the year
ended on that date. The date of transition of the Company to reporting under IFRS, as it
is defined in IFRS 1, is January 1, 2007 (hereinafter: “the transition date”),
with an opening balance sheet as of January 1, 2007 (hereinafter: “Opening Balance”).
The Company’s interim financial statements for 2008 will also be drawn up in
accordance with IFRS, and shall include comparative figures for the year. |
| |
Under
the opening balance sheet, the Company performed the following reconciliations: |
| |
— |
Recognition
of all assets and liabilities whose recognition is required by IFRS. |
| |
— |
De-recognition
of assets and liabilities if IFRS do not permit such recognition. |
| |
— |
Classification
of assets, liabilities and components of equity according to IFRS. |
| |
— |
Application
of IFRS in the measurement of all recognized assets and liabilities. |
| |
IFRS
1 states that all IFRS shall be adopted retroactively for the opening balance sheet. At
the same time, IFRS 1 includes 14 reliefs, in respect of which the mandatory retroactive
implementation does not apply. As to the reliefs implemented by the Company, see section
f. below. |
| |
Changes
in the accounting policy which the Company implemented retroactively in the opening
balance sheet under IFRS, compared to the accounting policy in accordance with Generally
Accepted Accounting Principles in Israel, were recognized directly under Retained
Earnings or another item of Shareholders’ Equity, as the case may be.
This note is
formulated on the basis of International Financial Reporting Standards and the notes
thereto as they stand today, that have been published and shall enter into force or that
may be adopted earlier as at the Group’s first annual reporting date according to
IFRS, December 31, 2008. Pursuant to the above, the Company’s management has made
assumptions regarding the anticipated financial reporting regulations that are expected
to be implemented when the first annual financial statements are prepared according to
IFRS, for the year ended December 31, 2008.
The IFRS standards that will be in
force or that may be adopted in the financial statements for the year ended December 31,
2008 are subject to changes and the publication of additional þclarifications.
Consequently, the financial reporting standards that shall be applied to the represented
periods, will be determined finally only upon preparation of the first financial
statements according to IFRS, as at December 31, 2008. |
| |
Listed
below are the Company’s consolidated balance sheets as of January 1, 2007 and
December 31, 2007, the consolidated statement of income for the year ended on December
31, 2007, and the Company’s shareholders’ equity prepared in accordance with
International Accounting Standards. In addition, the table presents the material
reconciliations required for the transition from reporting under Israeli GAAP to
reporting under IFRS. |
F - 46
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued):
NOTE 16 – DISCLOSURE
REGARDING THE ADOPTION OF IFRS (Cont.)
| |
According
to IFRS 1, the adoption of IFRS in the opening balance sheet as of the transition date
will be done retrospectively. |
| |
a. |
Reconciliation
of balance sheets from Israeli GAAP to IFRS: |
|
December 31, 2007
|
January 1, 2007
|
|
|
Israeli GAAP
|
Effect of
transition
to IFRS
|
IFRS
|
Israeli
GAAP
|
Effect of
transition
to IFRS
|
IFRS
|
|
Note
|
NIS in thousands
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CURRENT ASSETS: |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Cash and cash equivalents | | |
| |
|
| 167,745 |
|
| - |
|
| 167,745 |
|
| 13,621 |
|
| - |
|
| 13,621 |
|
| Accounts receivables | | |
| Trade | | |
| |
|
| 178,771 |
|
| (218 |
) |
| 178,553 |
|
| 168,050 |
|
| (218 |
) |
| 167,832 |
|
| Other receivable | | |
| e1 |
|
| 105,109 |
|
| (9,116 |
) |
| 95,993 |
|
| 146,684 |
|
| (7,856 |
) |
| 138,828 |
|
| Inventories | | |
| |
|
| 69,607 |
|
| - |
|
| 69,607 |
|
| 62,109 |
|
| - |
|
| 62,109 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| |
|
| 521,232 |
|
| (9,334 |
) |
| 511,898 |
|
| 390,464 |
|
| (8,074 |
) |
| 382,390 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| INVESTMENTS ONLONG TERM RECEIVABLES | | |
| Investments in associated | | |
| companies | | |
| e6 |
|
| 346,186 |
|
| 1,777 |
|
| 347,963 |
|
| 375,510 |
|
| (402 |
) |
| 375,108 |
|
| Deferred taxes | | |
| e1 |
|
| 6,083 |
|
| 14,539 |
|
| 20,622 |
|
| 6,490 |
|
| 12,233 |
|
| 18,723 |
|
|
|
| |
| |
| |
| |
| |
| |
| Loan to related party | | |
| |
|
| 352,269 |
|
| 16,316 |
|
| 368,585 |
|
| 382,000 |
|
| 11,831 |
|
| 393,831 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| Fixed assets, net | | |
| |
|
| 445,566 |
|
| (37,535 |
) |
| 408,031 |
|
| 400,823 |
|
| (37,576 |
) |
| 363,247 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| Deferred expenses | | |
| e2 |
|
| - |
|
| 32,100 |
|
| 32,100 |
|
| - |
|
| 32,785 |
|
| 32,785 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| Total assets | | |
| |
|
| 1,319,067 |
|
| 1,547 |
|
| 1,320,614 |
|
| 1,173,287 |
|
| (1,034 |
) |
| 1,172,253 |
|
|
|
| |
| |
| |
| |
| |
| |
F - 47
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – DISCLOSURE
REGARDING THE ADOPTION OF IFRS (Cont.)
|
|
December 31, 2007
|
January 1, 2007
|
|
|
Israeli GAAP
|
Effect of
transition
to IFRS
|
IFRS
|
Israeli
GAAP
|
Effect of
transition
to IFRS
|
IFRS
|
|
Note
|
NIS in thousands
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CURRENT LIABILITIES: |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | |
| Credit from banks and others | | |
| |
|
| 143,015 |
|
| - |
|
| 143,015 |
|
| 203,003 |
|
| - |
|
| 203,003 |
|
| Current maturities to long-term | | |
| notes and long-term loans | | |
| e4 |
|
| 42,775 |
|
| - |
|
| 42,775 |
|
| 41,567 |
|
| - |
|
| 41,567 |
|
| Trade payables | | |
| |
|
| 108,409 |
|
| |
|
| 108,409 |
|
| 96,273 |
|
| - |
|
| 96,273 |
|
| Other accounts payable | | |
| e3 |
|
| 87,235 |
|
| (2,673 |
) |
| 84,562 |
|
| 103,699 |
|
| (2,763 |
) |
| 100,936 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| |
|
| 381,434 |
|
| (2,673 |
) |
| 378,761 |
|
| 444,542 |
|
| (2,763 |
) |
| 441,779 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| NON-CURRENT LIABILITIES: | | |
| Loans from banks and others | | |
| |
|
| 28,127 |
|
| - |
|
| 28,127 |
|
| 33,515 |
|
| - |
|
| 33,515 |
|
| Notes | | |
| e4 |
|
| 158,134 |
|
| - |
|
| 158,134 |
|
| 190,005 |
|
| - |
|
| 190,005 |
|
| Deferred taxes | | |
| |
|
| 40,515 |
|
| - |
|
| 40,515 |
|
| 41,613 |
|
| - |
|
| 41,613 |
|
| Employee benefit liabilities | | |
| e3 |
|
| - |
|
| 8,435 |
|
| 8,435 |
|
| - |
|
| 8,326 |
|
| 8,326 |
|
| Other liabilities | | |
| |
|
| 32,770 |
|
| - |
|
| 32,770 |
|
| 32,770 |
|
| - |
|
| 32,770 |
|
|
|
| |
| |
| |
| |
| |
| |
| Total liabilities | | |
| |
|
| 259,546 |
|
| 8,435 |
|
| 267,981 |
|
| 297,903 |
|
| 8,326 |
|
| 306,229 |
|
|
|
| |
| |
| |
| |
| |
| |
| | | |
| SHAREHOLDERS EQUITY | | |
| f2 |
|
| 678,087 |
|
| (4,215 |
) |
| 673,872 |
|
| 430,842 |
|
| (6,597 |
) |
| 424,245 |
|
|
|
| |
| |
| |
| |
| |
| |
| Total liabilities and shareholders | | |
| equity | | |
| |
|
| 1,319,067 |
|
| 1,547 |
|
| 1,320,614 |
|
| 1,173,287 |
|
| (1,034 |
) |
| 1,172,253 |
|
|
|
| |
| |
| |
| |
| |
| |
F - 48
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – DISCLOSURE
REGARDING THE ADOPTION OF IFRS (Cont.)
| |
b. |
Reconciliation
of profit and loss from Israeli GAAP to IFRS: |
|
|
January 1, 2007
|
|
|
Israeli
GAAP
|
Effect of transition
to IFRS
|
IFRS
|
|
Note
|
NIS in thousands (except per share data)
|
| |
|
|
|
|
|
|
|
|
|
| Sales |
|
|
| |
|
| 583,650 |
|
| - |
|
| 583,650 |
|
| Cost of sales | | |
| |
|
| 440,854 |
|
| 527 |
|
| 441,381 |
|
|
|
| |
| |
| |
| Gross profit | | |
| |
|
| 142,796 |
|
| (527 |
) |
| 142,269 |
|
| | | |
| Selling and marketing expenses | | |
| |
|
| 31,367 |
|
| - |
|
| 31,367 |
|
| General and administrative expenses | | |
| |
|
| 36,060 |
|
| 317 |
|
| 36,377 |
|
|
|
| |
| |
| |
| Operating income (loss) | | |
| |
|
| 75,369 |
|
| (844 |
) |
| 74,525 |
|
| | | |
| Financial income | | |
| e5 |
|
| 10,648 |
|
| - |
|
| 10,648 |
|
| Financial expenses | | |
| e5 |
|
| (30,206 |
) |
| (1,560 |
) |
| (31,766 |
) |
|
|
| |
| |
| |
| Gain (loss) after financial expenses, net | | |
| |
|
| 55,811 |
|
| (2,404 |
) |
| 53,407 |
|
| Other expenses | | |
| |
|
| (2,178 |
) |
| - |
|
| (2,178 |
) |
|
|
| |
| |
| |
| Income before taxes on income | | |
| |
|
| 53,633 |
|
| (2,404 |
) |
| 51,229 |
|
| Taxes on income (tax benefit) | | |
| |
|
| 19,307 |
|
| (1,046 |
) |
| 18,261 |
|
|
|
| |
| |
| |
| Income after taxes on income | | |
| |
|
| 34,326 |
|
| (1,358 |
) |
| 32,968 |
|
| | | |
| Equity in earnings (losses) of affiliates, net | | |
| e6 |
|
| (2,884 |
) |
| 2,958 |
|
| 74 |
|
|
|
| |
| |
| |
| Net income | | |
| |
|
| 31,442 |
|
| 1,600 |
|
| 33,042 |
|
|
|
| |
| |
| |
| | | |
| EARNINGS PER SHARE: | | |
| Primary | | |
| |
|
| 7.61 |
|
| 0.39 |
|
| 8.00 |
|
|
|
| |
| |
| |
| Full diluted | | |
| |
|
| 7.60 |
|
| 0.38 |
|
| 7.98 |
|
|
|
| |
| |
| |
| | | |
| Number of shares used to compute the primary | | |
| earnings per share | | |
| |
|
| 4,132,728 |
|
| 4,132,728 |
|
| 4,132,728 |
|
|
|
| |
| |
| |
| Number of shares used to compute the fully diluted | | |
| earnings per share | | |
| |
|
| 4,139,533 |
|
| 4,139,533 |
|
| 4,139,533 |
|
|
|
| |
| |
| |
F - 49
AMERICAN ISRAELI PAPER MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued):
NOTE 16 – FINANCIAL
INFORMATION IN ACCORDANCE WITH IFRS (continued)
| |
D. |
Equity
reconciliation: |
|
Share Capital
|
Premium on shares
|
Retained Earnings
|
Capital surplus
Share-based
payment (in
respect of
options of
employee options)
|
Capital surplus
in respect of
controlling
shareholders
|
Capital surplus
from translation
differences
|
Total
|
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at January 1, 2007 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Israeli GAAP | | |
| 125,257 |
|
| 90,060 |
|
| 221,452 |
|
| 2,414 |
|
| - |
|
| (8,341 |
) |
| 430,842 |
|
| Presentation of marketable securities at fair value | | |
| Adjustments of investment in associated companies | | |
| by the equity method | | |
| - |
|
| - |
|
| 377 |
|
| - |
|
| - |
|
| - |
|
| 377 |
|
| Classification of adjustments deriving from | | |
| translations of financial statements of foreign | | |
| operations | | |
| - |
|
| - |
|
| (8,341 |
) |
| - |
|
| - |
|
| 8,341 |
|
| - |
|
| Employee benefits net of tax effects | | |
| - |
|
| - |
|
| (4,172 |
) |
| - |
|
| - |
|
| - |
|
| (4,172 |
) |
| Amortization of pre-paid expenses in respect of | | |
| lease of land | | |
| - |
|
| - |
|
| (1,868 |
) |
| - |
|
| - |
|
| - |
|
| (1,868 |
) |
| Capital surplus in respect of a capital note from | | |
| associated companies to interested party | | |
| - |
|
| - |
|
| (1,560 |
) |
| - |
|
| 781 |
|
| - |
|
| (779 |
) |
| Effect of classifying a doubtful debt provision as | | |
| specific after being classified as general | | |
| - |
|
| - |
|
| (155 |
) |
| - |
|
| - |
|
| - |
|
| (155 |
) |
| Other, net | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| |
| |
| |
| |
| |
| |
| |
| Under IFRS rules | | |
| 125,257 |
|
| 90,060 |
|
| 205,733 |
|
| 2,414 |
|
| 781 |
|
| - |
|
| 424,245 |
|
|
| |
| |
| |
| |
| |
| |
| |
F - 50
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – FINANCIAL
INFORMATION IN ACCORDANCE WITH IFRS (continued)
| |
D. |
Equity
reconciliation (continued): |
|
Share Capital
|
Premium on shares
|
Retained Earnings
|
Capital surplus
Share-based
payment (in
respect of
options of
employee options)
|
Capital surplus
in respect of
controlling
shareholders
|
Capital surplus
from translation
differences
|
Total
|
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
NIS
thousands
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at December 31, 2007 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Israeli GAAP | | |
| 125,267 |
|
| 301,695 |
|
| 252,894 |
|
| 3,397 |
|
| - |
|
| (5,166 |
) |
| 678,087 |
|
| Adjustments of investment in associated companies | | |
| by the equity method | | |
| - |
|
| - |
|
| 3,334 |
|
| - |
|
| - |
|
| - |
|
| 3,334 |
|
| Classification of adjustments deriving from | | |
| translations of financial statements of foreign | | |
| operations | | |
| - |
|
| - |
|
| (8,341 |
) |
| - |
|
| - |
|
| 8,341 |
|
| - |
|
| Benefits to employees net of tax effects | | |
| - |
|
| - |
|
| (4,326 |
) |
| - |
|
| - |
|
|
|
|
| (4,326 |
) |
| Amortization of pre-paid expenses in respect of | | |
| lease of land | | |
| - |
|
| - |
|
| (1,508 |
) |
| - |
|
| - |
|
| - |
|
| (1,508 |
) |
| Capital surplus in respect of a capital note from | | |
| associated companies to interested party | | |
| - |
|
| - |
|
| (3,120 |
) |
| - |
|
| 1,564 |
|
| - |
|
| (1,556 |
) |
| Effect of classifying a doubtful debt provision as | | |
| specific after being classified as general | | |
| - |
|
| - |
|
| (159 |
) |
| - |
|
| - |
|
| - |
|
| (159 |
) |
|
| |
| |
| |
| |
| |
| |
| |
| Under IFRS rules | | |
| 125,267 |
|
| 301,695 |
|
| 238,774 |
|
| 3,397 |
|
| 1,564 |
|
| 3,175 |
|
| 673,872 |
|
|
| |
| |
| |
| |
| |
| |
| |
F - 51
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – FINANCIAL
INFORMATION IN ACCORDANCE WITH IFRS (continued)
| |
E. |
Additional
information (1) (2)(3) |
| |
In
accordance with generally accepted accounting principles in Israel, deferred tax assets
or liabilities were classified as current or non-current assets or liabilities depending
on the classification of the assets in respect of which they were created. |
| |
Pursuant
to IAS 12, deferred tax assets or liabilities are classified as non-current assets or
liabilities, respectively. |
| |
Consequently,
amounts of NIS 7,856,000 and NIS 9,116,000 which were previously presented under accounts
receivable were reclassified to deferred taxes under non-current taxes as of January 1,
2007 and December 31, 2007, respectively. |
| |
(2) |
Land
leased from the Israel Land Administration |
| |
In
accordance with generally accepted accounting principles in Israel, land leased from the
Israel Land Administration, was classified as fixed assets and included in the amount of
the capitalized leasing fees that were paid. The amount paid was not depreciated. |
| |
Pursuant
to IAS 17, “Lease”, land lease arrangements, whereunder at the end of the
leasing period, the land is not transferred to the lessor, are classified as operating
lease arrangements. As a result, the Company’s lands in Hadera and Nahariya,
which were leased from the Israel Land Administration and the Company’s land in
Tel-Aviv, which was leased from the Tel-Aviv Municipality, and which do not constitute
real estate for investment that is measured at fair value, shall be presented in the
Company’s balance sheet as pre-paid expenses in respect of lease, and amortized over
the remaining period of the lease. |
| |
Consequently,
the pre-paid expense balance in respect of an operating lease increased by NIS 32,719,000
and by NIS 32,100,000 and the balance of fixed assets decreased by NIS 37,510 and by NIS
37,535. The change was partly carried to retained earnings in the sums of NIS 1,867,000
and NIS 1,508,000 and partly against deferred taxes in the sums of NIS 2,923,000 and NIS
3,927,000 on January 1, 2007 and on December 31, 2007, respectively. |
| |
In
accordance with generally accepted accounting principles in Israel, the company’s
liability for severance pay is calculated based on the recent salary of the employee
multiplied by the number of years of employment. |
| |
Pursuant
to IAS 19, the provision for severance pay is calculated according to an actuarial basis
taking into account the anticipated duration of employment, the value of time, the
expected salary increases until retirement and the possible retirement under conditions
not entitling severance pay. |
F - 52
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – FINANCIAL
INFORMATION IN ACCORDANCE WITH IFRS (continued)
| |
E. |
Additional
information (3) (continued) |
| |
In
addition, under Israeli GAAP, deposits made with regular policies or directors’insurance
policies which are not in the employee’s name, but in the name of the employer, were
also deducted from the company’s liability. |
| |
Under
IFRS, regular policies or directors’ insurance policies as aforesaid, which do not
meet the definition of plan assets under IAS 19, will be presented in the balance sheet
under a separate item and will not be deducted from the employer’s liability. |
| |
Most
of the Group’s employees are covered according to Section 14 of the Compensation
Law. Employee deposits are not reflected in the company’s financial statements and
accordingly, no provision is necessary in the books. However, the Company is required to
pay employees differences from entitlement to severance pay and unutilized vacation pay.
These liabilities are computed in accordance with the actuary’s assessment based on
an estimate of their utilization and redemption. |
| |
In
addition, net liabilities in respect of benefits to employees after retirement, which
relate to defined benefit plans, are measured based on actuarial estimates and discounted
amounts. |
| |
The
impact of the aforesaid on the balance sheet is an increase in liabilities in respect of
net benefits to employees, as of January 1, 2007 and December 31, 2007, in the amount of
NIS 5,563,000 and NIS 5,762,000, respectively, and an increase in deferred taxes as of
January 1, 2007 and December 31, 2007, in the amounts of NIS 1,391,000 and NIS 1,436,000,
respectively. |
| |
(4) |
CPI-linked
assets and liabilities |
| |
The
Company has assets and liabilities that are linked to the Consumer Price Index
(hereinafter – the CPI), which are not measured at fair value under the statement of
income. The Company determines the effective interest rate in respect of these assets and
liabilities as a real rate with the addition of linkage differences in line with actual
changes in the CPI until the balance sheet date. This is also the approach used under
generally accepted accounting principles in Israel. |
| |
As
of the balance sheet date, the Company has CPI-linked financial liabilities in the total
sum of NIS 196,150,000. |
| |
There
is another interpretation of IFRS, under which the effective interest rate in respect of
these assets and liabilities should include the anticipated inflation up to the relevant
repayment dates (instead of accumulation of real interest plus linkage differences in
line with changes in the CPI until the balance sheet date). |
| |
The
vast majority of loans and long-term and medium-term financing arrangements in Israel are
linked to the CPI. Therefore, the Israeli Institute for Accounting Standards has
submitted a request to the International Financial Reporting Interpretation Committee
(IFRIC) to clarify the applicable method in the measurement of the effective interest
rate of such assets and liabilities under IFRS. |
F - 53
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – FINANCIAL
INFORMATION IN ACCORDANCE WITH IFRS (continued)
| |
E. |
Additional
information (4) (continued) |
| |
The
Committee’s response in this matter and the implications thereof cannot be reliably
predicted. If the Committee’s response indicates that the method used in Israel (and
which was implemented in these financial statements/ as described in this note) is not
appropriate in accordance with IFRS, the Company will have to change the method of
measurement of these assets and liabilities and it may have to do so by way of restating
its financial statements. Under the present circumstances, the Company is unable to
reliably measure the potential impact on its financial statements in such a case. |
| |
(5) |
Financial
Revenues and Expenses |
| |
In
accordance with generally accepted accounting principles in Israel, financing income and
expenses are presented under the statement of income in one amount. |
| |
Pursuant
to IAS 1, financing income and expenses should be presented separately. |
| |
Consequently,
financing expenses in the sum of NIS 31,766,000 and financing expenses in the sum of NIS
10,648,000 were presented in the statement of income for the year ended December 31, 2007. |
| |
(6) |
Investment
in Associated Companies |
| |
In
the course of the second quarter, Carmel, an associated company, made a repurchase of its
own shares, held by some of its minority shareholders.As a result of this
repurchase, the Company’s holdings in Carmel rose from 26.25% to reach 36.21%.This
increase in the holding rate led to a negative cost surplus of NIS 4,923,000 for the
Company. According to Standard 20 (amended), this was allocated to non-monetary items and
will be realized in accordance with the realization rate of these items. |
| |
During
2007, the Company included a sum of NIS 2,439,000 in earnings from associated companies,
as a result of the realization of these items.According to the directives of IAS
28 regarding the equity method of accounting, the balance of the negative cost surplus in
the amount of NIS 4,923 thousand will be allocated to the Company’s share in
earnings of associated companies during 2007, thereby increasing the Company’s
earnings for the year ended on December 31, 2007 by a sum of NIS 2,484,000.The
Investments in Associated Companies item in the balance sheet will also grow by the said
sum. |
F - 54
AMERICAN ISRAELI PAPER
MILLS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – FINANCIAL
INFORMATION IN ACCORDANCE WITH IFRS (continued)
| |
F. |
Reliefs
with respect to the retroactive implementation of IFRS adopted by the Company |
| |
IFRS
1 includes several reliefs, in respect of which the mandatory retroactive implementation
does not apply. The following reliefs are those which the Company elected to adopt in its
opening balance sheet under IFRS as of January 1, 2007 (hereinafter: “the opening
balance sheet”): |
| |
The
provisions of IFRS 2, which deals with share-based payments, have not been retroactively
implemented with respect to equity instruments granted before November 7, 2002 and which
have vested prior to the transition date. |
| |
2. |
Translation
Differences |
| |
The
Company chose not to retroactively implement the provisions of IAS 21 regarding
translation differences accumulated as of January 1, 2007, with respect to overseas
operations. Consequently, the opening balance sheet does not include cumulative
translation differences in respect of overseas operations. |
F - 55
AMERICAN ISRAELI PAPER
MILLS LIMITED
Schedule
Details of Subsidiaries and Associated Companies
At December 31, 2007
|
Percentage of direct and
indirect holding in shares
conferring equity and
voting rights
|
|
%
|
| |
|
|
|
|
|
| Main subsidiaries: |
|
|
| |
|
| Amnir Recycling Industries Limited | | |
| 100.00 |
|
| Graffiti Office Supplies and Paper Marketing Ltd. | | |
| 100.00 |
|
| Attar Marketing Office Supplies Ltd. | | |
| 100.00 |
|
| American Israeli Paper Mills Paper Industry (1995) Ltd. | | |
| 100.00 |
|
| | | |
| Main associated companies: | | |
| Hogla-Kimberly Ltd. | | |
| 49.90 |
|
| Subsidiaries of Hogla-Kimberly Ltd.: | | |
| Hogla-Kimberly Marketing Limited | | |
| 49.90 |
|
| Molett Marketing Limited | | |
| 49.90 |
|
| Shikma For Personal Comfort Ltd. | | |
| 49.90 |
|
| Turketim Mallari Sanayi ve Ticaret A.S (KCTR) | | |
| 49.90 |
|
| Mondi Business Paper Hadera Ltd. | | |
| 49.90 |
|
| Subsidiary of Mondi Business Paper Hadera Ltd.: | | |
| Mondi Business Paper Hadera Marketing Ltd. | | |
| 49.90 |
|
| Carmel Container Systems Limited | | |
| 36.21 |
|
| Frenkel C.D. Limited** | | |
| 27.85 |
|
| * |
Not
including dormant companies. |
| ** |
Frenkel
C.D. Limited is partly held through Carmel Container Systems Limited (an associated
company); the holding in voting shares of C.D. Packaging Systems Limited is 27.85%. |
F - 56
| |
Enclosed
please find the financial reports of the following associated companies: |
| |
– |
Mondi
Business Paper Hadera Ltd. |
| |
– |
Carmel
Containers Systems Ltd. |
Exhibit 4
1
– FREE TRANSLATION FROM HEBREW –
Table of Contents
| |
|
| |
|
| |
|
| |
|
| |
|
| A: Description of the Corporation's Business |
|
| |
| B: Report of the Board of Directors Regarding the Corporation's State |
|
| |
| C: Financial Statements for December 31, 2007 |
|
| |
| D: Additional Details Regarding the Corporation |
|
2
Part A
Description of the
Corporation’s Business
3
Chapter A –
Description of the Corporate’s General
Business Development
| |
The
Board of Directors of American Israeli Paper Mills Ltd. is honored to hereby present the
description of the corporation’s business as of December 31, 2007 – a review of
the corporate description and development of its business in 2007 (the “Reported
Period”). The report was formulated in accordance with the Securities
Regulations (Periodic and Immediate Reports), 1970. |
| |
For
convenience’ sake, in this periodic report the following abbreviations shall have
the meaning noted next to them: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
"Amnir" - |
Amnir Recycling Industries Ltd.; |
| |
| |
"Amnir Environment" - |
Amnir Industries and Environmental Services Ltd.; |
| |
| |
"Graffiti" |
Graffiti Office Supplies & Paper Marketing Ltd.; |
| |
| |
"DIC" - |
Discount Investment Corporation Ltd.; |
| |
| |
"The Stock Exchange" - |
The Tel Aviv Stock Exchange Ltd.; |
| |
| |
"The Company" or "AIPM" - |
American Israeli Paper Mills Ltd.; |
| |
| |
"The Group" |
The Company, its subsidiaries and associated companies, as defined below; |
| |
| |
"Subsidiaries" - |
Companies directly and/or indirectly controlled by the Company1: Graffiti Office Supplies & Paper Marketing Ltd.; American Israeli Paper Mills Paper Industry (1995) Ltd.; Amnir Recycling Industries Ltd.; Attar Office Supplies Marketing Ltd.; and other inactive companies as set forth in section 2.5 below; |
1 In this report, “Control” – as defined in Section 1 of the
Securities Act.
4
| |
"Associated Companies" - |
Carmel Container Systems Ltd.; Hogla-Kimberly Ltd.; Mondi Paper Hadera Ltd.; Frenkel CD Ltd.; KCTR (Turkey) (formerly: Ovisan); and Cycle-Tec Recycling Technology Ltd.; |
| |
| |
"Hogla Kimberly" - |
Hogla-Kimberly Ltd.; |
| |
| |
"The Companies Law" - |
The Companies Law, 1999; |
| |
| |
"The Securities Act" - |
The Securities Act, 1968; |
| |
| |
"Carmel" - |
Carmel Container Systems Ltd.; |
| |
| |
"CII" - |
Clal Industries and Investments Ltd.; |
| |
| |
"Mondi" - |
Mondi Paper Hadera Ltd.; |
| |
| |
"Report Date" - |
December 31, 2007; |
| |
| |
"AIPM Paper Industry" - |
American Israeli Paper Mills Paper Industry (1995) Ltd.; |
| |
| |
"Cycle-Tec" - |
Cycle-Tec Recycling Technology Ltd.; |
| |
| |
"Attar" - |
Attar Office Supplies Marketing Ltd.; |
| |
| |
"Frenkel" - |
Frenkel - CD Ltd.; |
| |
| |
"AMEX"- |
American Stock Exchange; |
| |
| |
"KCTR"- |
Kimberly-Clark Tuketim Mallari Sanayi Ve Ticare A.S. (formerly: Ovisan). |
| 1.2 |
The
degree to which information included in this report is material, including description of
the subsidiaries and associated companies and description of their business, is provided
from the Company’s viewpoint, and in some cases the description has been elaborated
to provide a comprehensive view of the topic described. |
| 1.3 |
Holding
stakes in shares of investee companies are rounded to the nearest percentage point, and
are current in proximity to the date of this report, unless otherwise indicated. Holding
stakes in shares of an investee company are calculated out of the total actual issued
share capital of said investee company, not accounting for potential dilution due to
exercise of options and other convertible securities issued by the investee company,
unless otherwise indicated. |
5
| 1.4 |
This
part refers to both men and women - the use of the masculine form is for purposes
of convenience only. |
| 1.5 |
Part
I of this report should be read along with its other parts, including the notes to the
financial statements. |
| 2. |
Corporate
operations and description of business development |
| 2.1 |
The
Company was incorporated in Israel as a private company in 1951. In 1959 the Company held
its initial public offering of its securities, and Company shares have been listed since
then for trading on the Stock Exchange and on AMEX. Current controlling shareholders in
the Company are CII and DIC, which hold, as of immediately prior to the publication date
of this report, 37.98% and 21.45% of the Company’s issued capital and voting rights,
respectively. |
| |
To
the best of the Company’s knowledge, CII and DIC have entered into a shareholders’ agreement
with regard to their holdings in the Company, dated February 1980. The aforementioned
shareholders’ agreement is valid for a 10-year term, and is automatically renewed
for a further 10-year term, unless any party informs the counter-party of its intent to
terminate the agreement, 6 months prior to term expiration. As of the Report Date, the
aforementioned agreement is effective through February 2010. According to the shareholders’ agreement,
CII and DIC shall cooperate in votes concerning appointment of directors to the Company’s
Board of Directors, consisting of an equal number of directors to each party; should a
material difference emerge in the parties’ holdings in the Company, the number of
directors shall be determined by negotiation in order to provide appropriate
representation to each party according to their pro rata holdings in the Company. The
agreement further stipulates that Clal Industries and Discount Investment Corporation
shall cooperate with regard to appointment of members to major committees of the Company’s
Board of Directors and with regard to approval of dividend distribution. Furthermore, to
the best of the Company’s knowledge, the aforementioned agreement also includes
commitments by the parties thereto to provide first right of refusal to each other in
case of a sale of shares by the other party (other than with regard to non-material sales
on the Stock Exchange). For details regarding holders of 5% or more of the Company’s
issued share capital or voting rights, see section 2.4 below. |
6
| 2.2 |
The
Company deals in the manufacture and sale of packaging paper, in the collection and
recycling of paper waste and in the marketing of office supplies through its
subsidiaries. The Company also holds several associated companies that deal in the
manufacture and marketing of fine paper, in the manufacture and marketing of household
paper products, hygiene products, disposable diapers and complementary kitchen products,
corrugated board containers and packaging for consumer goods. |
| 2.3 |
The
Company has two sectors of operation which are also reported as accounting sectors in its
consolidated financial statements – the paper & recycling sector and the office
supplies marketing sector. Group companies engaged in the paper & recycling sector
are AIPM Paper Industry and Amnir (wholly-owned subsidiaries of the Company); group
companies engaged in the office supplies marketing sector are Graffiti and Attar
(wholly-owned subsidiaries of the Company). For details regarding these two operating
sectors, see section 4 below. AIPM provides various services, including headquarter
services, to some of its subsidiaries and associated companies; for details see section
3.1.1(A) below. Note that in addition to Company operations via its subsidiaries in the
aforementioned operating sectors, the Company has investments in several associated
companies: Carmel, Hogla Kimberly; Mondi; Frenkel, KCTR and Cycle-Tec. For details of
associated companies’ operations, see section 22 below. |
| 2.4 |
To
the best of the Company’s knowledge, the following are details regarding holders of
5% or more of the Company’s issued share capital or voting rights, as of immediately
prior to the publication date of this report: |
7
| |
Share holder name
|
Quantity and share of holdings
of capital and of voting rights
|
| |
|
Number of shares
|
Rate (%)
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Clal Industries and Investments Ltd.(1) (2) |
|
|
| 1,921,861 |
|
| 37.98 |
% |
| |
| | |
| |
Discount Investment Corporation Ltd. | | |
| 1,085,761 |
|
| 21.45 |
% |
| |
| | |
| |
Clal Insurance Holdings Ltd.(3) | | |
| 223,495 |
|
| 4.42 |
% |
| |
| | |
| |
Public | | |
| |
|
| |
|
| |
| | |
| |
Total | | |
| 5,060,774 |
|
| 100 |
% |
| |
(1) |
CIIis
a public company. As of the date of this report, IDB Development Co., Ltd.
(hereinafter: “IDB Development”), a public company whose
shares are listed for trade on the Stock Exchange, holds 60.52% of Clal
Industries’ issued capital. To the best of the Company’s
knowledge, Clal Insurance Business Holding Ltd. (hereinafter: “Clal
Holdings”), a public company whose shares are listed for trade on
the Stock Exchange, which is controlled, as of the Report Date, by IDB
Development, holds 6.27% of Clal Industries’ issued capital. To the
best of the Company’s knowledge, Clal Holdings is an interested party
in Clal Industries, since it is controlled by IDB Development, the
controlling shareholder of Clal Industries. |
| |
To
the best of the Company’s knowledge, Epsilon holds 0.27% of CII’s issued
capital. To the best of the Company’s knowledge, Epsilon is an interested party in
Clal Industries, since it is a subsidiary of IDB Development, the controlling shareholder
of Clal Industries. |
| |
To
the best of the Company’s knowledge, IDB Holdings Co. Ltd. (hereinafter: “IDB
Holdings”) is the controlling shareholder of IDB Development, as it holds 75.27%
of the capital and 75.56% of the voting rights of IDB Development. |
| |
To
the best of the Company’s knowledge, IDB Holdings is a public company whose shares
are listed for trading on the Stock Exchange, and its controlling shareholders, as of the
prospectus date, are: |
| |
(a) |
Ganden
Holdings Ltd. (Ganden Holdings”), a private company
incorporated in Israel, which holds directly and via Ganden Investment IDB
Ltd. (“Ganden”), a private company incorporated in Israel
wholly owned by it (indirectly), 51.93% of the capital and voting rights
of IDB Holdings, as follows: Ganden holds 37.73% of the capital and voting
rights of IDB Holdings, and Ganden Holdings directly holds 7.15% of the
capital and 7.16% of the voting rights of IDB Holdings. Note also that
Shelly Bergman holds, via a wholly-owned private company incorporated in
Israel, 4.23% of the capital and voting rights of IDB Holdings. |
| |
(b) |
Manor
Holdings B.A., Ltd. (Manor Holdings”), a private company incorporated
in Israel, which holds directly and via Manor Investments – IDB Ltd.
(“Manor”), its subsidiary, a private company incorporated in
Israel, 12.31% of the capital and voting rights of IDB Holdings, as
follows: Manor holds 10.39% of the capital and voting rights of IDB
Holdings, and Manor Holdings directly holds 1.93% of the capital and
voting rights of IDB Holdings. |
| |
(c) |
Avraham
Livnat Ltd., a private company incorporated in Israel, holds directly and
via Avraham Livnat Investments (2002) Ltd. (“Livnat”), a
wholly-owned private company incorporated in Israel, 12.33% of capital and
voting rights of IDB Holdings, as follows: Livnat holds 10.34% of the
capital and voting rights of IDB Holdings, and Avraham Livnat Ltd.
directly holds 1.99% of capital and voting rights of IDB Holdings. |
| |
To
the best of the Company’s knowledge, Ganden, Manor and Livnat jointly hold, by
virtue of a shareholders’ agreement to which they are party with regard to their
holdings and shared control of IDB Holdings, effective through May 2023 (the “IDB
Shareholders’ Agreement”), 51.70% of the issued capital of IDB Holdings, as
follows: [a] Ganden – 31.02%; [b] Manor – 10.34%; and [c] Livnat – 10.34%. |
8
| |
The
IDB shareholders’ agreement includes, among other things, a pre-coordination
agreement on uniform voting at shareholder meetings of IDB Holdings; exercise of voting
power to achieve maximum representation of candidates supported by Ganden, Manor and
Livnat on the IDB Holdings Board of Directors as well as representation on the boards of
major subsidiaries; determination of persons holding office of Chairman of the Board and
Vice Chairmen in IDB Holdings and its major subsidiaries; non-disclosure of all matters
concerning the business of IDB Holdings and its investees; restrictions on transactions
in shares of IDB Holdings which form part of the controlling stake; setting up a
mechanism for right of first refusal, bring-along rights for the sale or transfer of IDB
Holdings shares and Ganden’s right to require Manor and Livnat to sell, concurrently
with the former, shares in the controlling stake to a third party, should certain
circumstances occur; agreement by Ganden, Manor and Livnat, among themselves, to make
their best efforts, subject to all legal provisions, to cause IDB Holdings to distribute
to its shareholders, annually, at least one half of the distributable annual income; and
for all investees of IDB Holdings to adopt a policy aimed at distributing to its
shareholders, annually, as dividend, one half or more of the distributable annual income,
provided that no significant damage is caused to cash flow or to plans approved and
adopted from time to time by their boards of directors; the right of each of Ganden,
Manor and Livnat to purchase surplus shares of IDB Holdings which are not part of the
controlling stake, subject to the requirement to offer the other parties to the IDB
Shareholders’Agreement to purchase a part thereof based on their pro rata holdings
in IDB Holdings; a commitment by Ganden, Manor and Livnat to avoid any action or
investment which may terminate or materially deteriorate terms of regulatory approvals or
permits granted to Ganden, Manor and Livnat, to IDB Holdings or to its investee companies. |
| |
The
aforementioned additional holdings in IDB Holdings, held by Ganden Holdings (14.2%), by
Ganden (6.71%), by Manor Holdings (1.93%), by Manor (0.05%), by Avraham Livnat Ltd.
(1.99%) and by Shelly Bergman, via its wholly-owned subsidiary (4.23%) – are
excluded from the “controlling stake” as defined in the IDB shareholders’ agreement. |
| |
In
addition, Manor holds 0.32% of IDB Development’s capital and voting rights, and
Shelly Bergman holds, via its wholly-owned subsidiary, 0.56% of IDB Development’s
capital and voting rights. |
| |
Furthermore,
to the best of the Company’s knowledge, other companies held or controlled, directly
or indirectly by IDB Holdings hold additional shares of IDB Holdings and/or IDB
Development at very low rates, including via shared equity funds held in trust. |
| |
To
the best of the Company’s knowledge, Ganden Holdings is a private company whose
controlling shareholders are Nochi Dankner, who holds, directly and via a company
controlled by him, 55.46% of the issued share capital and voting rights in Ganden
Holdings, and Shelly Bergman, who holds 12.55% of the issued share capital and voting
rights in Ganden Holdings; these controlling shareholders are deemed to jointly hold
68.01% of the issued share capital and voting rights in Ganden Holdings, inter alia, by
virtue of a cooperation and pre-coordination agreement between them. Nochi Dankner’s
control of Ganden Holdings is also based on an agreement signed or joined by all
shareholders of Ganden Holdings, whereby Nochi Dankner was granted, inter alia, veto
rights on Board of Directors and General Meetings of Ganden Holdings and its
subsidiaries. Note also that Nochi Dankner serves as Chairman of the Board of Directors
of IDB Holdings and of IDB Development, and as General Business Manager of IDB Holdings. |
| |
Hashkaa
Mutzlachat Ltd. (“Hashkaa Mutzlachat”), a company wholly owned by Mr.
Tzur Dabush, holds 1.69% of the issued capital and voting rights of Ganden Holdings; for
the sake of caution and in view of Tzur Dabush’ commitment towards Nochi Dankner to
vote all of the former’s shares in Ganden Holdings together with the latter, in
accordance with the voting and instructions of Nochi Dankner, Hashkaa Mutzlachat and Tzur
Dabush may, for as long as said commitment remains in force, be deemed to hold together
with Nochi Dankner means of control over Ganden Holdings, and may therefore also be
deemed to be controlling shareholders of Ganden Holdings. |
| |
Note
that, as far as the Company has been informed, Avraham Fisher, Director in the Company,
holds, directly and via a company controlled by his wife and himself, 9.02% of the share
capital and voting rights in Ganden Holdings; |
| |
To
the best of the Company’s knowledge, Manor is a company controlled by Itzhak Manor
and his wife, Ruth Manor. Yitzhak Manor and Ruth Manor, along with their four children
– Dori Manor, Tamar Manor Morel (member of the Company’s Board of Directors),
Michal Topaz and Sharon Vishnia – hold all of Manor’s shares via two private
companies – Manor Holdings and Euro Man Automotive Ltd. (“Euro Man”),
as follows: Ruth and Yitzhak Manor hold all shares of Manor Holdings, which holds 60% of
Manor’s shares; in addition, Ruth and Yitzhak Manor and their aforementioned
children hold all shares of Euro Man, which holds 40% of Manor shares, as follows: Ruth
Manor and Yitzhak Manor each hold 10% of Euro Man shares; Dori Manor, Tamar Manor Morel,
Michal Topaz and Sharon Vishnia each hold 20% of Euro Man shares. Note also that Yitzhak
Manor serves as Vice Chairman of the IDB Holdings Board of Directors and as member of the
IDB Development Board of Directors; Dori Manor serves as member of the Boards of
Directors of IDB Holdings and of IDB Development. |
9
| |
To
the best of the Company’s knowledge, Avraham Livnat Ltd. is a company controlled by
Avraham Livnat, which is wholly owned by Avraham Livnat and his three sons – Zeev
Livnat, Zvi Livnat and Shai Livnat – as follows: Avraham Livnat holds 75% of voting
rights in Avraham Livnat Ltd. and Zvi Livnat, Chairman of the Company’s Board of
Directors, holds 25% of voting rights in Avraham Livnat Ltd.; Zeev Livnat, Zvi Livnat and
Shai Livnat each hold 33.3% of the capital of Avraham Livnat Ltd. Note also that Zvi
Livnat serves as member of the Board of Directors and Deputy CEO of IDB Holdings, and as
Vice Chairman of the IDB Development Board of Directors; Shai Livnat serves as member of
the Board of Directors of IDB Development. |
| |
(2) |
To
the best of the Company’s knowledge, CII and DIC have an agreement,
effective through February 2010, relating to their holdings in the
Company, whereby they would cooperate on votes regarding appointment of
Company board members, appointment of representatives to major committees
of the Company’s Board of Directors and to approval of dividend
distribution. Furthermore, to the best of the Company’s knowledge,
the aforementioned agreement also includes commitments by the parties
thereto to provide first right of refusal to each other in case of a sale
of shares by the other party. For further details with regard to this
agreement, see section 2.1 below. |
| |
(3) |
Clal
Insurance Holdings Ltd. (hereinafter: Clal Holdings”), a public
company whose shares are listed for trading on the Stock Exchange, which
is controlled, as of the Report Date, by IDB Development Co. Ltd.
(hereinafter: “IDB Development”). To the best of the Company’s
knowledge, Clal Holdings is an interested party in the Company, since it
is controlled by IDB Development, the controlling shareholder of Clal
Industries. |
10
| 2.5 |
The
following diagram illustrates the Company's holdings in major Group companies: |
American Israeli
Paper Mills
Paper Industry
(1995) Ltd.
Graffiti Office
Supplies &
Paper
Marketing
Ltd.
Amnir
Recycling
Industries
Ltd.
Frenkel- CD
Ltd.
Attar Marketing
Office Supplies
Ltd.
49.9%
49.9%
36.21%
100%
American Israeli Paper Mills Ltd.(1)
(2)
100%
100%
Mondi
Business
Paper
Hadera Ltd.(3)
100%
27.85%
27.85%
KCTR
(Turkey)
Formerly -
Ovisan
100%
Cycle-Tec
Recycling
Technology Ltd.
30.18%
Carmel
Containers
System Ltd.(5)
Hogla-
Kimberly
Ltd.(4)
| |
(1) |
In
February 2007, the Company sold its holding in TMM Integrated Recycling
Industries Ltd. (43% of TMM’s issued share capital) and no longer
owns any shares of TMM. For details of the aforementioned sale of
holdings, see section 21.5 below. |
| |
(2) |
In
addition, the Company has the following holdings in inactive companies:
Integrated Energy Ltd.; Hadera Paper – Development and Infrastructure
Ltd.; AIPM Marketing (1992) Ltd.; Yavnir Trading Company Ltd.; Nir Oz
Investment Company Ltd.; and Dafnir Packaging Systems Ltd. |
| |
(3) |
Mondi
has four wholly-owned subsidiaries: Mondi Business Paper HaderaMarketing Ltd.;
Grafinir Paper Marketing Ltd.; Yavnir (1999) Ltd.; and Mitrani Paper
Marketing 2000 (1998) Ltd. |
| |
(4) |
In
addition to KCTR, Hogla-Kimberly has two other wholly-owned subsidiaries:
Hogla Kimberly Marketing Ltd. and Mollett Marketing Ltd. |
| |
(5) |
Carmel
has a wholly-owned subsidiary: Tri-Wall Containers (Israel) Ltd. |
11
| 2.6 |
Below
is information on Company holdings of subsidiaries and associated companies as of
the Report Date: |
| Company Name |
Sector of Operations |
Presentation of the
Company in the
financial statements of
Paper Mills |
Representatives
of Paper Mills
on the
Board of
Directors |
Holding share of
capital and voting
rights |
Fully diluted holding
rate of capital and
voting |
| American Israeli Paper Mills Paper Industry |
Paper and Recycling activity |
Consolidated subsidiary |
5 representatives out of 5 Board members |
100 |
100 |
| Amnir |
Paper and Recycling activity |
Consolidated subsidiary |
4 representatives out of 4 Board members |
100 |
100 |
| Graffiti Consolidated (Including Attar) |
Office Supplies Marketing |
Consolidated subsidiary |
5 representatives out of 5 Board members |
100 |
100 |
| Mondi |
Associated |
Associated |
3 representatives out of 6 Board members |
49.9 |
49.9 |
| Hogla Kimberly |
Associated |
Associated |
2 representatives out of 4 Board members |
49.9 |
49.9 |
| KCTR |
Associated |
Associated |
3 representatives out of 5 Board members |
49.9 |
49.9 |
| Carmel |
Associated |
Associated |
3 representatives out of 10 Board members |
36.21 |
36.21 |
| Cycle-Tec |
Associated |
Associated |
2 representatives out of 7 Board members |
30.18 |
30.18 |
| Frenkel |
Associated |
Associated |
3 representatives out of 8 Board members |
27.85 of capital |
27.85 of capital |
| 27.79 of voting rights |
27.79 of voting rights |
12
| 3. |
Changes
to the Corporation’s Business |
| 3.1 |
Changes
to Group structure |
| |
The
current Group structure is the result of acquisitions, investments in various companies
and business partnerships as described below: |
| 3.1.1.1 |
American
Israeli Paper Mills Paper Industry (1995) Ltd. – in 1995 the Company founded its
wholly-owned subsidiary, AIPM Paper Industry, to engage in production and sale of
packaging paper. In October 2007 the Company applied to the Income Tax Authority,
requesting to spin-off operations of provision of production services, described below,
which the Company provides to Group companies at the Company site in Hadera, to a new
company named Hadera Paper – Development and Infrastructure Ltd. The aforementioned
services include: engineering services, maintenance, supply of gas, electricity, steam,
fuel and water as well as transportation, cleaning, security and catering services. The
objective of this spin-off is to allow for higher efficiency of the aforementioned
operations and to allow in the future, subject to business opportunities and to Company
decisions on this issue, to consider introduction of strategic partners into AIPM Paper
Industry operations. For information on this matter, see section 19 below. |
| 3.1.1.2 |
Amnir
Recycling Industries Ltd. – In 1969, the Company established Amnir, a
wholly-owned subsidiary, engaged in paper waste collection. |
| 3.1.1.3 |
Graffiti
Office Supplies Marketing Ltd. – In 1993, the Company established Graffiti, a
wholly-owned subsidiary, engaged in office supplies marketing. |
13
| 3.1.1.4 |
Attar
Marketing Office Supplies Ltd. – In 1996, Graffiti established a wholly-owned
subsidiary, Attar, engaged in the office supplies activity. |
| 3.1.2.1 |
Carmel
Containers Systems Ltd. – In July 1992, the Company acquired 25% of the
outstanding shares of Carmel, a leading company in the field of manufacturing and
marketing paperboard packaging products for industry and agriculture. In Q2 of 2007,
Carmel bought back its shares from Ampal Ltd. and from another shareholder, so that
Company holdings of voting rights in Carmel grew from 26.25% (prior to the said share
buy-back) to 36.21% (as of December 31, 2007). Remaining major shareholders of Carmel, as
of the date of this report and to the best of the Company’s knowledge, are a third
party which is not an interested party in the Company, Craft Group (foreign shareholders)
which, to the best of the Company’s knowledge, holds 49.6% of the voting rights in
Carmel. For more details on Carmel’s operations, see section 22.4 below. |
| 3.1.2.2 |
Frenkel-
C.D. Ltd. – In January 2006, a transaction was completed wherein C.D. Packaging
Systems, Ltd. (at that time, 50% directly held by the Company and 50% by Carmel) acquired
the operations of Frenkel & Sons, Ltd. in consideration of the allocation of 44.3% of
the shares of the merged company, Frenkel – C.D. Ltd. Upon conclusion of the
aforementioned transaction, and as of the date of this report, the Company directly holds
27.85% of the issued capital of Frenkel, the merged company. In addition, the Company
indirectly holds 10.1% of Frenkel, via its holdings in Carmel, which holds 27.85% of
Frenkel’s issued capital. To the best of the Company’s knowledge, the other
shareholder of Frenkel is Frenkel & Sons Ltd., a third party which is not an
interested party in the Company (who holds, as of the Report Date, 44.29% of Frenkel).
Frenkel is engaged in design, production and marketing of consumer goods packaging. For
more details on Frenkel’s operations, see section 22.4.1 below. |
14
| 3.1.2.3 |
Hogla-Kimberly
Ltd. – Hogla-Kimberly was incorporated in 1963 as a wholly-owned subsidiary of
the Company, engaged in the consumer goods sector. In 1996, a foreign corporation,
Kimberly Clark Corporation (hereinafter: “KC”), a third party which is
not an interested party in the Company, acquired 49.9% of Hogla-Kimberly’s shares.
On March 31, 2000, KC increased its holding in Hogla-Kimberly to 50.1% of the latter’s
issued share capital. As a result, commencing in Q2 of 2000 Hogla-Kimberly Ltd. is no
longer consolidated within the Company’s financial statements, and the Company’s
share of the Hogla-Kimberly results (49.9%) is included in the company’s share of
profits of associated companies. Hogla-Kimberly manufactures and markets a wide variety
of home paper products, disposable diapers for babies, incontinence products, feminine
hygiene products and other products for the kitchen and for cleaning. For more details on
Hogla-Kimberly’s operations, see section 22.2 below. |
| 3.1.2.4 |
Kimberly-Clark
Tuketim Mallari Sanayi Ve Ticare A.S. (formerly: Ovisan) – In 1999,
Hogla-Kimberly acquired the Turkish company Kimberly-Clark Tuketim Mallari Sanayi Ve
Ticare A.S. (formerly: Ovisan), which produces and markets diapers, hygiene products and
home paper products in Turkey. As of the Report Date, Hogla-Kimberly holds 100% of KCTR’s
issued capital. For details of KCTR’s operations, see section 22.3 below. |
| 3.1.2.5 |
Mondi
Paper Hadera Ltd. – In February 2000, a transaction was completed between the
Company and the Austrian company, Neusiedler AG, a third party which is not an interested
party in the Company, whereby the latter acquired 50.1% of the Company’s operations
in the stationary and printing paper sector, which was spun-off prior to the transaction
and transferred to Mondi, which was established for this purpose (note that at that time,
Mondi was named Neusiedler Paper Hadera Ltd.) Upon conclusion of the aforementioned
transaction and as of the Report Date, the Company holds 49.9% of Mondi’s issued
capital. For details of Mondi’s operations, see section 22.1 below. |
15
| 3.1.2.6 |
TMM
and Amnir Industries and Environmental Services Ltd. – In 1998 the Company
transferred all paper waste collection operations from Amnir to Amnir Industries and
Environmental Services Ltd. (hereinafter: “Amnir Environment”), a
wholly-owned subsidiary. In July 1998, the Company entered into an agreement with
Compagnie Generale d’Enterprises Automobiles (hereinafter: “CGEA”)
to sell 51% of Amnir Environment shares. In March 2000, an agreement was signed by the
Company and CGEA, on the one hand, and TMM Integrated Recycling Industries Ltd.
(hereinafter: “TMM”) and its controlling shareholders, on the other
hand, whereby the Company and CGEA, via a jointly held company – Bartholome Holdings
Ltd. (hereinafter: “Bartholome”), acquired 62.5% of TMM’s share
capital from its controlling shareholders. Furthermore, pursuant to said agreement, Amnir
Environment and TMM were merged by way of allocation of 35.3% of the shares of the merged
company to shareholders of Amnir Environment. In early 2007, the Company sold to CGEA all
its holdings in Bartholome as well as the balance of its holdings in TMM, in conjunction
with a complete tender offer. From that date, the Company is no longer a shareholder of
TMM. For more details, see section 22.5 below. |
| 3.1.2.7 |
Cycle-Tec
Ltd. – In 1997 and 1998, Amnir acquired 20% and 10%, respectively, of the shares
of Cycle-Tec, which is engaged in the development of a process for producing composite
materials with a relative advantage of strength from paper waste (mainly newspapers) and
recycled plastic. As of December 31, 2007, Amnir holds 30.18% of Cycle-Tec shares. The
other shareholders of Cycle-Tec, as of the date of this report and to the best of the
Company’s knowledge, are third parties which are not interested parties in the
Company, and own shares in Cycle-Tec as follows: Private investors – 19.4%; founders
and employees – 37.8%; and the startup nursery – 12.6%. Cycle-Tec’s
operations are not material to the overall Group operations. |
16
| 3.2 |
Significant
changes in the management of the corporation’s business |
| |
In
early 2005, Mr. Avi Brenner assumed the office of CEO of the Company. Avi Brenner
succeeded Mr. Yaki Yerushalmi, who had served as Company CEO since 1990 and as Chairman
of the Company’s Board of Directors since 1999. In April 2006, Mr. Zvi Livnat was
appointed Chairman of the Company’s Board of Directors, following Mr. Yerushalmi’s
retirement from his office as Company Board Chairman. |
| |
As
mentioned above, the Company, via its subsidiaries, operates in two sectors, which are
reported in its financial statements as accounting segments: |
| 4.1 |
Paper
and Recycling – Company operations in this sector include the manufacture and
sale of packaging paper, used mainly as raw materials in the packaging industry
(corrugators). This operating sector also includes the paper collection and recycling
activities. Paper production is based mainly on recycled paper waste used as raw
material. The majority of production consists of fluting paper (incorporated in
corrugated board boxes as a wave between the outer and inner box walls). This paper is
produced by AIPM Paper Industry out of recycled paper waste, collected by Amnir from
various sources throughout Israel. Packaging paper is primarily intended for the
corrugated board industry, for the manufacture of board containers used as product
packaging. The corrugated board industry serves the following sectors: industry,
agriculture and the food and beverage industry. In order to service the above-mentioned
paper production operation, the Company manages a system of additional services for the
industry, including engineering services, ongoing maintenance to maintain manufacturing
continuity, steam and electricity generation, water supply, sewage treatment, etc. Other
services are also provided, including: spare part warehouse, catering and employee
transportation services, site security and cleaning. The aforementioned services are also
provided to the Company’s associated companies on Company premises in Hadera, in
exchange for cost reimbursement. With regard to the request to spin-off the above service
providing operation to a wholly-owned subsidiary of the Company, see section 3.1.1.1
below. |
17
| |
In
February 1989, AIPM was declared a monopoly in the manufacture and marketing of paper
rolls and sheets by the Israel Antitrust Authority. In July 1998, the declaration was
partially rescinded with regard to fine paper in rolls and sheets. The declaration has
not been rescinded with regard to packaging paper in rolls and sheets – for further
details see section 9.13.6 below. |
| 4.2 |
Office
supplies marketing – Company operations in this sector are carried out via
Graffiti and Attar (wholly-owned subsidiaries of the Company), including marketing of
office and paper supplies, primarily to the institutional and business markets, which
include: government offices, banks, HMOs and other businesses. The rate of technological
development of Israel’s business sector leads to increasing demand for
technology-based products, including office automation, printers, hardware, software and
consumables such as toners, inkjet cartridges, etc. Office supplies are often delivered
along with management of the customer’s relevant purchasing budget, thus allowing
Graffiti to assist in cost reduction for large enterprises. For further details on this
operating sector, see section 10 below. |
18
| 5. |
Equity
investments in the Company and transactions in its shares |
| 5.1 |
The
Company adopted two employee stock option plans in 2001 (a stock option plan for Group
employees and a stock option plan for senior Group officers), whereby 275,755 options
were granted to Group employees (at that time, assuming full exercise of all options into
company stock, these comprised 6.58% of the Company’s issued share capital). As of
the Report Date, all options granted in conjunction with the said plans have been
exercised or have expired. |
| 5.2 |
On
January 2, 2005, Miki Dorsman, at that time an interested party in the Company, who on
said date held 11.4% of Company shares, sold all his Company shares by means of an
off-stock exchange transaction, at a price reflecting a market capitalization of NIS 895
million (Mr. Dorsman sold 455,150 shares at NIS 224 each). |
| 5.3 |
In
2006, CII and DIC (interested parties in the corporation) purchased on the Stock
Exchange, on several occasions, a further 106,780 and 60,324 shares in the company,
respectively. |
| 5.4 |
In
November 2007, the Company allocated via private placement 1,012,585 ordinary shares of
NIS 0.01 par value (hereinafter: “ordinary shares”) which on the
allocation date comprised 20% of the Company’s issued share capital (hereinafter in
this section: “the shares”) in exchange for total investment of NIS 213
million (hereinafter in this section: “the raised amount”). About 60% of
the shares (607,551 shares) were allotted to the shareholders in the Company, Clal
Industries and Investments and Discount Investments (hereinafter: “the special
offerees”), in accordance with their pro-rata holdings in the Company, and 40%
of the shares (405,034 shares) were offered by way of a tender to institutional entities
and private entities (whose number did not exceed 35) (hereinafter in this section: “the
ordinary offerees”). The share price for ordinary offerees, determined by
auction, was NIS 210. Accordingly, the share price for special offerees, considering the
number of shares offered to special offerees, was set at NIS 211.05 (the auction share
price plus 0.5%). The Company paid the distributors a rate of 1.2% of the total
consideration received from institutional entities and private entities, that is, a sum
of NIS 1,020,686. The consideration received in respect of the allotment of the shares
offered as aforesaid, shall be used for the partial financing of the acquisition of the
new machine for the manufacture of packaging paper, as set forth in section 9.1.4.4
above. |
19
| 5.5 |
On
December 23, 2007, an agreement was signed (hereinafter in this section: “the
agreement”) with Prisma Capital Markets Ltd. (hereinafter: “the market maker”)
for making a market in Company shares. The market maker shall act as market maker in
Company shares, under the terms set forth in the agreement and subject to the Stock
Exchange bylaws and guidelines. The agreement is for a two-year term, and each party may
terminate the agreement after the first anniversary of its effective date, subject to
written 45-day advance notice. The Company has the right to extend the agreement for a
further one-year term by written notice no later than 15 days prior to the end of the
agreement term. In exchange for the market maker’s activity, the Company shall pay
the market maker a monthly payment which is not material to the Company. |
| 5.6 |
After
the Report Date, on January 14, 2008, the Company’s Board of Directors approved,
pursuant to approval by the Audit Committee, adoption of a compensation plan for senior
employees of the Company and/or its subsidiaries and/or associated companies, whereby up
to 285,750 share options, each of which is exercisable into one Company ordinary share of
NIS 0.01 par value, would be allocated to senior employees and officers of the Group,
including the Company CEO, which at the time of approval of said allocation comprised
5.65% of the Company’s issued share capital. For details of the aforementioned share
option plan and allocation, see section 12.4.5.1 below. |
20
| 5.7 |
Other
than options whose granting was decided as set forth in section 5.6 above, as of the
Report Date the Company’s capital includes no un-exercised options. |
| 6.1 |
Dividends
announced and distributed by the corporation over the past three years: |
| |
Below
are details of dividend distributions by the Company in 2007, 2006 and 2005: |
| Date |
Distribution amount |
Distribution type
(cash/other) |
Allowed / by court
approval |
| July 18, 2006 |
NIS 100.1 million (NIS 24.85 per share) |
Cash |
Allowed |
| January 10, 2006 |
NIS 50 million (NIS 12.494 per share) |
Cash |
Allowed |
| September 13, 2005 |
NIS 50.02 million (NIS 12.5 per share) |
Cash |
Allowed |
| 6.2 |
External
restrictions on capacity of the Corporation to distribute dividends and dividend
distribution policy |
21
| 6.2.1 |
Note
that, as of the Report Date, the Company has yet to adopt a specific dividend
distribution policy. Furthermore, as of the Report Date, the Company has yet to assume
any restrictions on dividend distribution. It is noted that dividends from distributable
profits from approved enterprises (alternative enterprises) are subject to extra taxes,
as specified in the Law for the Encouragement of Capital Investments. |
| 6.2.2 |
According
to Company bylaws, the Board of Directors may, subject to provisions of the Companies Law
on this issue, adopt a resolution with regard to dividend distribution. |
22
Chapter B– Other
Information
| 7. |
Financial
Information Regarding the Corporation’s Sectors of Operation |
| 7.1 |
Below
is data regarding financial information about the Company’s sectors of operation in
2007, 2006 and 2005: |
Year ended December 31, 2007
|
NIS thousands
|
Paper &
recycling
sector
|
Office Supplies
Marketing sector
|
Adjustments to
consolidated**
|
Consolidated
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1. Revenues* |
|
|
| |
|
| |
|
| |
|
| |
|
| a. External sector revenues | | |
| 464,653 |
|
| 118,997 |
|
| - |
|
| 583,650 |
|
| B. Revenues from other operating sectors | | |
| - |
|
| - |
|
| - |
|
| - |
|
| c. Total | | |
| 464,653 |
|
| 118,997 |
|
| - |
|
| 583,650 |
|
| 2. Costs* | | |
| a. Costs which | | |
| constitute revenues | | |
| of another sector | | |
| of the corporation | | |
| - |
|
| - |
|
| - |
|
| - |
|
| B. Other Costs | | |
| 389,717 |
|
| 118,564 |
|
| - |
|
| 508,281 |
|
| c. Total | | |
| 389,717 |
|
| 118,564 |
|
| - |
|
| 508,281 |
|
| 3. Operating Income | | |
| 74,936 |
|
| 433 |
|
| - |
|
| 75,396 |
|
| 4. Total assets as of December 31, 2007 | | |
| 630,435 |
|
| 63,509 |
|
| 625,123 |
|
| 1,319,067 |
|
| * |
Reflects
sales and costs associated with external entities. |
| ** |
Adjustments
are primarily for general assets not assigned to a specific operating sector (such as
investment in associated companies, cash etc.) |
23
Year ended December 31, 2006
|
NIS thousands
|
Paper &
recycling
sector
|
Office Supplies
Marketing sector
|
Adjustments to
consolidated**
|
Consolidated
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1. Revenues* |
|
|
| |
|
| |
|
| |
|
| |
|
| a. External sector revenues | | |
| 408,045 |
|
| 122,064 |
|
| - |
|
| 530,109 |
|
| B. Revenues from other operating sectors | | |
| - |
|
| - |
|
| - |
|
| - |
|
| c. Total | | |
| 408,045 |
|
| 122,064 |
|
| - |
|
| 530,109 |
|
| 2. Costs* | | |
| a. Costs which | | |
| constitute revenues | | |
| of another sector of | | |
| the corporation | | |
| - |
|
| - |
|
| - |
|
| - |
|
| B. Other Costs | | |
| 357,686 |
|
| 121,922 |
|
| - |
|
| 479,608 |
|
| c. Total | | |
| 357,686 |
|
| 121,922 |
|
| - |
|
| 479,608 |
|
| 3. Operating Income | | |
| 50,359 |
|
| 142 |
|
| - |
|
| 50,501 |
|
| 4. Total assets as of December 31, 2006 | | |
| 574,319 |
|
| 56,663 |
|
| 542,305 |
|
| 1,173,287 |
|
| * |
Reflects
sales and costs associated with external entities. |
| ** |
Adjustments
are primarily for general assets not assigned to a specific operating sector (such as
investment in associated companies, cash etc.) |
Year ended December 31, 2005
|
NIS thousands
|
Paper &
recycling
sector
|
Office Supplies
Marketing sector
|
Adjustments to
consolidated**
|
Consolidated
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1. Revenues* |
|
|
| |
|
| |
|
| |
|
| |
|
| a. External sector revenues | | |
| 368,884 |
|
| 113,577 |
|
| - |
|
| 482,461 |
|
| B. Revenues from other operating sectors | | |
| - |
|
| - |
|
| - |
|
| - |
|
| c. Total | | |
| 368,884 |
|
| 113,577 |
|
| - |
|
| 482,461 |
|
| 2. Costs* | | |
| a. Costs which | | |
| constitute revenues | | |
| of another sector of | | |
| the corporation | | |
| - |
|
| - |
|
| - |
|
| - |
|
| B. Other Costs | | |
| c. Total | | |
| 324,666 |
|
| 114,457 |
|
| - |
|
| 439,123 |
|
| 3. Operating Income | | |
| 44,218 |
|
| (880 |
) |
| - |
|
| 43,338 |
|
| 4. Total assets as of December 31, 2005 | | |
| 536,965 |
|
| 57,377 |
|
| 561,416 |
|
| 1,155,758 |
|
| * |
Reflects
sales and costs associated with external entities. |
| ** |
Adjustments
are primarily for general assets not assigned to a specific operating sector (such as
investment in associated companies, cash etc.) |
| 7.2 |
Developments
over the past three years |
| |
Below
are explanations of developments in data pertaining to financial information set forth in
section 7.1 above: |
| 7.2.1 |
The
year 2007 saw continued growth of Israel’s economy (4.7% growth over 2006), with
consistently high levels of demand for private consumption. Additionally, 2007 was
characterized by a continued raise in the value of the NIS over the Dollar, at a rate of
9%, coupled with an additional rise of 8.2% in 2006. |
24
| |
Positive
global trends in the paper industry, primarily in Europe due to reduced gap between
demand and supply of paper, impact the Group’s companies active in Israel. In
addition, the growth trend in developing markets, primarily in Asia, as reflected by
relatively high growth rates, is creating high demand for pulp and paper waste, as well
as for paper products. These demands cause a continued rise in the prices of inputs,
mostly fibers and chemicals which and at the same time (since the end of 2006) we are
seeing a considerable rise in paper prices both in white paper and in packaging paper.
These trends allow the companies in the group to raise prices in most of the paper
activities and paper products and compensate for the high input prices while improving
profitability. |
| |
Energy
prices (especially fuel), which in the first quarter of 2007 were at their lowest level
in two years, changed course in the second quarter of 2007 and returned to the high price
levels of 2006. The trend of increase in fuel prices which started in the second quarter
of 2007 and aggravated in the second half of 2007, boosted fuel prices by 40% compared to
fuel prices at the beginning of 2007. Furthermore, in 2007 electricity prices rose by an
average of 13% over 2006. Due to the Company’s gradual transfer to the use of
natural gas during Q4 of the year, in 2007 the Group cut NIS 12 million in energy costs.
These savings are primarily due to the move to steam generation using gas during Q4 of
2007. For energy cost cuts by the Company due to conversion of the boiler system to gas,
see section 8.11 below. |
| |
The
above information with regard to Company estimates of trends in the paper industry, the
rise in input prices and their impact on Company results is forward-looking information
as defined in the Israeli Securities Act, and merely consists of forecasts and estimates
by the Company which are not certain to materialize and are based on information
available to the Company as of the Report Date. These forecasts and estimates by the
Company may not materialize, in whole or in part, or may materialize in a manner
significantly different than that expected. The major factors which may impact them are
global prices for raw materials, changes in global supply and demand of paper products,
dependence on external factors, such as gas providers and flow of natural gas to Company
premises at Hadera, developments and changes in regulation of the operating sector and/or
occurrence of any of the risk factors set forth in section 9.16, 10.14 and 21 below. |
25
| 7.2.2 |
The
improvement in the results of operation in 2006 over 2005 in the paper and recycling
sector originated primarily from the following factors: (a) Increased sale prices,
required due to increased costs, especially the rise in energy prices (primarily fuel oil
used to generate steam), which have risen an average of 22% in 2006 over 2005, following
a 38% rise in energy prices in 2005 over 2004 (total cumulative rise in energy costs over
2005-2006 was 70%); (b) the recovery which started in 2006 in Europe’s paper
industry, which led to increased import prices of packaging paper, allowed for a
significant increase in sale prices over 2005 – though not yet fully compensating
for cumulative increased costs; (c) continued improvement in efficiency of the paper and
recycling sector also contributed to improved operating margin compared to 2005. |
| 7.2.3 |
Improved
operating results in 2006 over 2005 in the office supplies sector was reflected in an
improved operating margin due to sales growth and continued efficiency improvement of the
office supplies marketing sector. |
| 7.2.4 |
In
July 2006, the Israel Accounting Standards Board published Accounting Standard No. 29,
“Adoption of International Financial Reporting Standards” (IFRS) (hereinafter:
“Standard 29”). The standard stipulates that companies, which are subject to
the Israeli Securities Law, 1968 and are required to report pursuant to regulations
issued thereunder, shall draw up their financial statements under International Financial
Reporting Standards (IFRS) as of reporting periods commencing on January 1, 2008. The
implementation of IFRS includes numerous conceptual changes with respect to generally
accepted accounting principles in Israel. According to Standard 29, the Company is
required to include in a note to the financial statements as of December 31, 2007, a
balance sheet as of January 1, 2007 and as of December 31, 2007, a statement of income
for the year then ended and the Company’s total equity capital that have all been
prepared based on the recognition, measurement and presentation criteria of IFRS. For
more details on the move to IFRS, see Note 16 to the Company’s financial statements
as of December 31, 2007. |
26
| 8. |
The
General Environment and Impact of External Factors on the Company |
| 8.1 |
In
2007, the growth trend in Israel’s economy continued, maintaining high levels of
demand for private consumption, which led to higher demand for the Company’s
products. The growth trend in 2007 was accompanied by continued appreciation in the Stock
Exchange as well as volatility in the Dollar exchange rates against NIS and the Euro. The
NIS was appreciated against the Dollar by 9.0% in 2007, compared to 8.2% appreciation in
2006 and a 6.8% devaluation in 2005. For details of impact of exchange rate fluctuations,
see section 21.2.3 below. Inflation in 2007 amounted to 3.4%, compared to inflation of 0%
and 2.4% in 2006 and 2005, respectively. |
| 8.2 |
The
rate of technological development in Israel’s business sector has lead to increased
demand for technology-based products in the office supplies marketing sector which are
marketed by Graffiti, including office automation, printers, hardware, software and
consumables such as toners, inkjet cartridges, etc. Critical success factors in this
operating sector are: high levels of service, supported by complex logistics and cost
reduction due to improved procurement sources, mainly the shift to procurement from Asia
Pacific. |
27
| 8.3 |
Although
the Second Lebanon War in the summer of 2006 led to a certain slowdown in economic
activity during the war, the economy rapidly recovered and returned to the accelerated
growth rate that existed before the war. Some of the Group’s production facilities
were closed at times during the war, but this had no material impact on the Company. |
| 8.4 |
The
global trends in the paper sector – primarily in Europe – affect the Group
companies that are active in Israel. The growth trend in developing markets, primarily in
Asia, that is accompanied by high growth rates in Europe as well, is creating high demand
for pulp and paper waste, as well as for paper products. |
| 8.5 |
This
demand is causing a continues rise in input prices, primarily those of fibers and
chemicals, as well as (since late 2006) growth in paper prices. |
| 8.6 |
These
trends enabled Group companies to realize price hikes in most paper and paper products
sectors, thereby compensating for the high input prices, while improving profitability. |
| 8.7 |
Furthermore,
Group results continued to be impacted by high energy costs (mostly fuel oil prices).
Energy prices, which in Q1 of 2007 were at a two-year low, have reversed the trend in Q2
of 2007 and started to make their way back to the high price levels of 2006. The fuel
price increase trend, which started in Q2 of 2007, accelerated in late 2007. |
| 8.8 |
Fuel
prices rose by a cumulative 59% in the years 2006 and 2007 compared to 2005 (a decrease
of 6% in 2006 and a rise of 70% in 2007). Diesel oil prices rose by an average of 9%
compared to 2006. In 2006, diesel oil prices increased by 18% compared to 2005. |
28
| 8.9 |
As
part of the Companies efforts aimed at reduction of production costs and further
improvement in environmental protection, and along with the advancement in the
installation of natural gas pipes in Israel, the Company continued in 2007 to convert its
energy generation systems from fuel oil to natural gas. In Q4 of 2007, the Company
completed conversion of the energy generation plant at Hadera from using fuel oil to
using natural gas. Upon conversion to using natural gas instead of fuel oil, the Company
adapted the work environment to the use of natural gas, including issues concerning the
use of hazardous materials and work procedures. |
| 8.10 |
Conversion
of the energy generation plant at Hadera to using natural gas was delayed from the Company’s
original forecast (whereby use of natural gas would commence in Q2 of 2007), due to
delays in the completion of pipe installation at Company premises, which the relevant
authorities require for delivery of natural gas. |
| 8.11 |
The
transition from fuel oil to gas will enable significant savings in fuel costs for the
Group, in relation to the price of fuel oil that prevailed during Q3 of 2007, due to the
significant differences between the current price of fuel oil and the price of gas, and
according to Company may improve the Group’s competitiveness and profitability. The
affect of the savings on the Company’s net profits will reach NIS 25 million per
annum. |
29
| |
The
above information with regard to Company estimates of trends in the paper industry and
cost savings, the rising trend in paper and input prices, Company estimates with regard
to energy cost savings due to conversion of the generation system to gas and their impact
on Company results is forward-looking information as defined in the Israeli Securities
Act, and merely consists of forecasts and estimates by the Company which are not certain
to materialize and are based on information currently available to the Company as of the
Report Date. These forecasts and estimates by the Company may not materialize, in whole
or in part, or may materialize in a manner significantly different than that expected.
The major factors which may impact them are global prices for raw materials, changes to
global supply and demand of paper products, dependence on external factors, such as gas
providers and flow of natural gas to Company premises at Hadera, changes in fuel oil
prices, developments and changes in regulation of the operating sector and/or occurrence
of any of the risk factors set forth in sections 19.16, 10.14 and 21 below. |
30
Chapter C –
Business Description of the
Corporation by Activity
| 9. |
Paper
and Recycling Operating Activity |
| 9.1 |
General
information regarding the paper and recycling operating activity – |
| 9.1.1 |
The
Structure of the paper and recycling operating activity and changes thereto - |
| |
The
paper and recycling operations focus primarily on the manufacture and sale of packaging
paper, used as raw materials in the corrugated board industry as well as paper waste
collection and recycling. Production and sales of packaging paper is conducted by the
Company via its subsidiary, AIPM Paper Industry. Paper waste collection and recycling is
primarily conducted via the subsidiary Amnir. |
| |
Packaging
paper is intended, as mentioned, primarily for the corrugated cardboard industry, for the
manufacture of cardboard containers used for product packaging. The corrugated cardboard
industry serves the following sectors: Industry, agriculture and the food and beverage
industry. Consequently, the macro-economic variable that has the greatest impact on the
demand for packaging paper and the derived volume of waste collection is the level of
economic activity in the market and the export volumes of these sectors. |
| |
The
majority of production consists of fluting paper (incorporated in corrugated cardboard
boxes as a wave between the outer and inner box walls). This paper is produced from
recycled paper waste, collected from various sources throughout Israel. |
| |
Based
on internal Company estimates, consumption of all kinds of paper in Israel averaged 1
million tons in recent years. |
31
| |
The
average annual paper recycling in Israel in recent years amounted to 255 thousand tons.
The paper recycling rate, out of the total paper consumption in Israel, was 25%.
Accordingly, based on the aforementioned data there is apparent potential for growth in
paper production in Israel as an alternative to paper importing, as well as potential
growth in paper recycling due to the low recycling rate in Israel and potential growth in
paper production in Israel. With regard to acquisition of the new machine and potential
production increase using said machine, see section 9.1.4.4 below. Note that based on
data from the Confederation Of European Paper Industries (CEPI), the average annual rate
of paper recycling in recent years out of total paper consumption in Western Europe was
55% (compared to 25% in Israel). |
| |
As
support for the aforementioned paper production operations, the Company manages a set of
auxiliary services for Group company operations at the Hadera site (AIPM Paper Industry,
Amnir and associated companies – Mondi and Hogla-Kimberly). These services include
engineering services, current maintenance to maintain production continuity,
self-generation of steam, electricity (some of which is self-generated and some of which
is purchased from an external entity), water supply, sewage treatment etc. The Company
also provides additional services, including: spare part warehouse, catering and employee
transportation services, site security and cleaning. Note that these services are also
provided to the Company’s associated companies on Company premises in Hadera, in
exchange for cost reimbursement. For details regarding the Company’s application to
spin-off the above service providing operation to a wholly-owned subsidiary of the
Company, see section 3.1.1.1 below. |
| |
The
collection activity of raw materials for paper production (paper and cardboard waste) is
carried out by Amnir, which forms part of the activity. Amnir’s operations primarily
include: paper and cardboard collection, information security (shredding services at
customer premises or at Amnir premises) and production of paper products, which is not
material for Amnir. |
32
| |
Since
the supply of such raw materials is vital for production continuity, Amnir’s
operations in collecting such waste constitute a crucial step in the packaging paper
production process. |
| |
Amnir
collects paper waste from various sources around Israel, and as of the Report Date it
processes (sorting and compressing of paper waste) at its plants (in Hadera and Bnei
Brak) an average 210,000 tons of paper waste annually (wood-free paper, wood-based paper
and cardboard). About 60% of the paper waste dealt by Amnir is used for in-house
production of packaging paper by AIPM Paper Industry, and 40% of it is sold as raw
material to producers of tissue paper (Hogla-Kimberly (an associated company), Shaniv
Paper Industry Ltd., Panda Paper Mills (1997) Ltd. and White Paper Jerusalem (2000)
Ltd.). In addition to paper waste collection, Amnir also purchases paper waste from
various collectors as needed. |
| 9.1.2 |
Limitations,
Legislation, Regulations and Special Constraints applicable to the paper and
recycling operating activity - |
| |
Due
to the nature of the Company’s activity, it is subject to a range of regulatory
restrictions concerning environmental protection. For further details see section 9.13
below. |
| |
Furthermore,
in February 1989 AIPM was declared a monopoly in production and marketing of paper in
rolls and sheets by the Israel Antitrust Authority, by its authority pursuant to the
Israeli Antitrust Act, 1988 (hereinafter: “the Antitrust Act”); in July 1998
this declaration was partially rescinded with regard to fine paper in rolls and sheets.
The declaration has not been rescinded for packaging paper in rolls and sheets. For
restrictions applicable to the Company pursuant to the Antitrust Act, see section 9.13.6
below. |
33
| 9.1.3 |
Changes
to volume of operations in the paper and recycling activity and its profitability - |
| |
The
global paper industry is a historically a cyclical one, characterized by more profitable
years which lead to investment in the paper industry and expanded production capacity.
Therefore, in subsequent years there is excess supply, which causes a significant decline
in profitability for several years, until supply and demand are once again balanced. As a
result, and since this is a capital-intensive industry, the global paper industry
typically exports its extra production at relatively low prices at “cost plus”(i.e.
covering the variable cost plus a certain contribution toward fixed costs). |
| |
According
to Company estimates, the packaging paper market in Israel grew in 2007, 2006 and 2005 by
5%, 5% and 3%, respectively, due to growth in agricultural and industrial output. |
| 9.1.4 |
Developments
in the paper and recycling activity and changes to its customer profile - |
| 9.1.4.1 |
In
recent years, the trend among customers has been toward the use of paper made from
recycled fiber and away from using paper made of virgin fiber (purchased by customers
from imports) in order to reduce their production costs. Consequently, the demand for
company products, which are based on recycled fiber, has increased. The move to recycled
paper was made possible by the technological improvement which allowed recycled paper to
be used in production of paper with stronger qualities. Furthermore, in recent years
awareness of environmental protection issues has grown, which may lead to growth in the
paper recycling rate. For further details with regard to developments in the field of
environmental protection, see section 9.13 below. |
34
| 9.1.4.2 |
Following
a decline in packaging paper prices in 2005, prices in Europe increased significantly in
2006 and 2007 (due to the sharp increase in prices of energy, production and inputs as
well as to high demand as opposed to supply), leading to an increase in sales prices in
Israel as well. |
| 9.1.4.3 |
In
2007, supply of recycled packaging paper from Asia Pacific started reaching Israel. The
volume of packaging paper orginating from Asia Pacific is low and is at market price,
therefore at this stage it has no material impact on Group operations. |
| 9.1.4.4 |
In
recent years, the trend of market transition to thinner packaging paper which is
reinforced with starch of higher quality and purity levels continues. This paper was
developed overseas and is produced by modern machines built in recent years. The imported
paper competes with the Company’s products. This trend requires a change in the
range of paper produced by the Company, in order to allow it to face competition in this
operating activity. |
| |
As
part of the solution to this challenge, the Company’s Board of Directors approved,
on November 19, 2006 and on October 15, 2007, installation of a new packaging paper
production system, known as “Machine-8” (hereinafter: “the new
machine” or “Machine-8”), which will enable the Company to meet
growing demand in the local market, at a more competitive cost to the Company and with a
higher paper quality compared to competing imports. The cost of installation of the
entire system, as approved by the Board of Directors, including auxiliary investment in
the paper waste collection system (which is used as raw material) is NIS 690 million. The
Company estimates that the new machine will produce packaging paper out of paper and
cardboard waste, and will have an annual output capacity of 230 thousand tons. The new
machine will be installed at the Company’s facility in Hadera. The Company estimates
that following installation of the new machine and its operation, expected in 2009, and
retirement of one of the Company’s current production machines, the Company’s
output capacity of packaging paper will grow from 160 thousand tons annually as of the
Report Date, to 330 thousand tons annually. As at the date of the report, the Company had
signed the essential agreements for the purchase of the main equipment of the new paper
machine, and the Company is negotiating the signing of agreements with additional
suppliers and contractors required for the new paper machine. |
35
| |
Information
concerning the expected operation date of the new machine, advantages of the new machine
and increase in expected production capacity of the Company is forward-looking
information as defined in the Israeli Securities Act and merely consists of forecasts and
estimates by the Company which are not certain to materialize and are based on
information available to the Company as of the Report Date. The aforementioned Company
forecasts and estimates may not materialize, in whole or in part, or may differ from
current forecasts and estimates, due to multiple factors, including business
opportunities available to the Company, changes in demand in markets in which the Company
operates, global supply and cost of paper products, developments and changes to
regulation of the operating activity and/or materialization of any of the risk factors
set forth in section 9.16 and 21 below. |
| 9.1.5 |
Critical
success factors in the paper and recycling activity and changes therein - |
| |
Several
critical success factors may be indicated for Company operations in the paper and
recycling activity, which impact its operations: |
| 9.1.5.1 |
The
Condition of Israel’s Economy – Packaging paper is intended, as mentioned,
primarily for the corrugated cardboard industry, for the manufacture of cardboard
containers used as product packaging. The corrugated cardboard industry serves the
following sectors: industry, agriculture and the food and beverage industry. As a result,
extensive current economic activity has a positive material impact on demand for
packaging paper and on the extent of associated paper waste collection. |
36
| 9.1.5.2 |
Investment
in Necessary Production Equipment – The machines used in paper production are
very costly, both in terms of acquisition and maintenance cost. |
| 9.1.5.3 |
Local
Producer – In this operating activity, a local producer enjoys a significant
advantage over imports, as the former is able to ensure constant supply of the product,
at a relatively short lead time and at the size and quality required by customers,
thereby saving them the need to maintain large inventories. The Company is the only
packaging paper producer in Israel, and therefore enjoys an advantage in this operating
activity. |
| 9.1.5.4 |
Product
Quality and Customer Service – High product quality, availability and quality
customer service are important success factors in this operating activity. High level
quality and service contribute to preservation of existing customers and to maintaining
the number of customers. |
| 9.1.5.5 |
Reputation – Due
to the nature of this operating activity, reputation is a key success factor in this
activity. |
| 9.1.5.6 |
Landfill
Levy – Starting in July 2007, pursuant to the Cleanliness Law as set forth in
section 9.13.2 below, a landfill levy is charged to waste, ranging from NIS 10 per ton in
2007 up to NIS 50 per ton in 2011 and onwards. Enforcement of the Cleanliness Law may
increase the volume of waste collected for recycling, and may reduce collection costs. |
37
| |
Information
regarding increase in the paper wste collectionabove and waste collection cost reduction
is forward-looking information as defined in the Israeli Securities Act and merely
consists of forecasts and estimates by the Company which are not certain to materialize
and are based on information available to the Company as of the Report Date. Company
forecasts and estimates may not materialize, in whole or in part. Furthermore, actual
results may differ from current forecasts and estimates, due to multiple factors,
including developments and changes to regulation of the operating activity and/or
materialization of any of the risk factors set forth in section 9.16 and 21 below. |
| 9.1.6 |
Changes
to suppliers and raw materials for the paper and recycling operating activity |
| |
The
collection activity of raw materials for paper production (paper and board waste) is
carried out by Amnir, which forms part of the activity of operations. Since the supply of
such raw materials is vital for production continuity, Amnir’s operations in
collecting such waste constitutes a crucial step in the process. Other than paper and
cardboard waste collected by Amnir, another part of waste consumed by paper production
machines is paper waste purchased by AIPM Paper Industry from producers of corrugated
cardboard containers (waste created in the container production process by corrugator
customers and sold to the Company). |
| |
Amnir
collects paper waste from various sources throughout Israel. In 2007, 2006 and 2005,
Amnir collected paper waste (wood-free paper, wood-based paper and board) amounting to
162,313 tons, 141,018 tons and 139,701 tons, respectively. Over the past two years, Amnir
has processed an annual average of 210,000 tons of paper waste at its facilities
(including paper waste purchased by Amnir from other waste suppliers). In recent years,
waste purchased by Amnir from other waste suppliers amounted to 20%-30% of total waste
processed by Amnir. |
38
| |
As
mentioned, in addition to waste collection operations, Amnir also provides information
security services (shredding services at customer premises or at Amnir premises).
Information security and shredding services are provided by Amnir at customer premises
using 5 custom trucks and stationary shredders. Amnir also operates a national shredding
facility (for paper and magnetic media) at its facility in Hadera and also operates other
external shredding facilities. The shredded paper is collected by Amnir as paper waste. |
| |
As
part of its paper salvaging operations, Amnir produces and markets various paper and
packaging products, which are not material to its operations. |
| |
In
recent years, due to the utilization of the entire width of paper machines and improved
machine efficiency and speed, the output of the packaging paper machines has increased.
Due to growth in paper machine output, Amnir was required to expand its collection system
and purchasing of raw materials. The expected increase in paper production capacity due
to operation of the new packaging machine (Machine-8), as set forth in section 9.15
below, requires doubling, over the next few years, of the paper waste collection volume
to be used as raw material in production of packaging paper. Accordingly, in 2007 Amnir
started to increase the paper waste collection volume in preparation for increased paper
waste volumes as a first step towards installation of the new packaging paper machine. As
part of the said preparation, Amnir intends to take the following actions: intensify
collection operations with existing customers and development of new collection sources;
adaptation of Amnir’s organizational structure and re-organization in all operating
areas, including marketing, logistics, facilities, maintenance, purchasing etc.; review
of alternative site for Amnir’s Bnei Brak facility to receive and process the
necessary additional volume; accumulation of paper waste inventory pending operation of
the new machine; cooperation with local authorities on paper waste collection (including
cooperation on paper waste collection from apartment buildings); custom collection from
private customers, inter alia, by means of installation of collection containers; removal
of cardboard from streets; and marketing projects to increase awareness of waste
recycling. |
39
| |
In
2007, strong demand for newspaper and cardboard waste around the world (primarily in
Asia) led to higher paper waste prices globally as well as in Israel. |
| |
Starting
in July 2007, pursuant to the Cleanliness Law as set forth in section 9.13.2 below, a
landfill levy is charged to waste, ranging from NIS 10 per ton in 2007 up to NIS 50 per
ton in 2011 and onwards. Enforcement of the Cleanliness Law by collection of the
aforementioned levy may improve the paper waste collection capacity. |
| |
Information
regarding an increase in the Company’s production capacity and its paper waste
collection capacity is forward-looking information as defined in the Israeli Securities
Act and merely consists of forecasts and estimates by the Company which are not certain
to materialize and are based on information available to the Company as of the Report
Date. Company forecasts and estimates may not materialize, in whole or in part.
Furthermore, actual results may differ from current forecasts and estimates, due to
multiple factors, including business opportunities available to the Company, changes in
markets in which the Company operates, global demand, supply and cost of paper products,
developments and changes to regulation of the operating activity and/or materialization
of any of the risk factors set forth in section 9.16 and 21 below. |
40
| 9.1.7 |
Major
barriers to entry and exit in the paper and recycling activity and changes therein - |
| 9.1.7.1 |
There
are several barriers to entry for any company into the field of paper production: |
| |
A. |
Initial
Capital – The paper industry is, by nature, capital intensive
with heavy investment required in infrastructure and equipment (paper
machinery, paper waste processing systems and associated infrastructure);
therefore, entry into this operating activity requires significant initial
capital. Furthermore, even following the initial capital outlay, this
operating activity requires significant investment in equipment
maintenance. |
| |
B. |
Skilled
Staff – Manufacturing of products in this activity requires
professional, skilled staff. Any company starting out in this operating
activity is required to recruit appropriate staff, and a Company wishing
to operate in the activity may have difficulties in doing so. |
| |
C. |
Prolonged
Initial Market Penetration Periods – Penetrating into this
operating activity requires a long time, mainly due to significant
investments in installation of required equipment, staff training and the
importance of reputation in this activity. |
| |
D. |
Large
Enterprises – Due to the nature of operations in this activity,
including the extensive equipment and cost associated with its
acquisition, there is no room in this field for small companies running
limited operations. Such small companies face a challenge in facing the
extensive costs required for operation in this activity. |
| |
E. |
Local
Producer – In this operating activity, a local producer enjoys a
significant advantage over imports, as the former is able to ensure constant
supply of the product, at a relatively short lead time and at the size and
quality required by customers, thereby saving them the need to maintain
large inventories. The Company is the sole producer of packaging paper in
Israel. In most countries, the majority of production is sold to the local
market and only the excess, if any, is exported at competitive prices. |
41
| |
F. |
Few
Customers – This operating activity typically has a limited
number of customers. This fact, along with the competitive environment of
this operating activity, makes it difficult for companies to penetrate,
because customers are hard to engage as they often have long-term
relationships with paper producers and/or importers. |
| 9.1.7.2 |
Note
that the waste collection area has no material barriers to entry, since no material
capital investment or special licenses are required, and time to penetrate the market is
short. Furthermore, small players can operate in this area. |
| 9.1.8 |
Structure
of competition in the paper and recycling operating activity and changes thereto - |
| |
The
Company, via its subsidiary AIPM Paper Industry, is the sole producer of packaging paper
in Israel, and competes with self-imports by its customers. For the Company’s major
competitors from whom competing products are imported, see section 9.7 above. |
| |
In
the field of paper waste collection, competition is primarily from two companies – KMM
Recycling Facilities Ltd. and Tal-El Collection and Recycling Ltd. – which, to the
best of the Company’s knowledge, have recently intensified their activities. In
addition, there are small collectors of paper waste. For more details on competition for
paper waste collection, see section 9.7 below. |
42
| 9.2 |
Products
and services in the paper and recycling operating activity – |
| 9.2.1 |
Major
products and services – |
| 9.2.1.1 |
Packaging
Paper – The Company’s major operations in this activity are production and
sale of packaging paper, mainly from recycled fiber (paper waste collected for
recycling), which is part of the raw materials used in production of board containers by
the local corrugated cardboard industry in Israel, via its subsidiary, AIPM Paper
Industry. In order to service the above-mentioned paper production operation, the Company
manages a system of additional services for industry, including engineering services,
ongoing maintenance to maintain manufacturing continuity, steam and electricity
generation, water supply, sewage treatment, etc. The Company also provides additional
services, including: spare part warehouse, catering and employee transportation services,
site security and cleaning. The aforementioned services are also provided to the Company’s
associated companies on Company premises in Hadera, in exchange for cost reimbursement.
For details regarding the Company’s application to spin-off the above service
providing operation to a wholly-owned subsidiary of the Company, see section 3.1.1.1
below. |
| 9.2.1.2 |
Paper
Waste Collection – The Company, via its subsidiary Amnir, is engaged in
providing paper waste collection services to be used as raw material, mainly to the
Company’s packaging paper production facility, as described above (as of the Report
Date, 60% of waste collected by Amnir is used for production of packaging paper by AIPM
Paper Industry). The remaining waste collected by Amnir (an annual average of 40% of
total waste collected, as of the date of this report) is sold as raw material to
producers of tissue paper (Hogla-Kimberly – an associated company, Shaniv, Panda and
Jerusalem Paper). In addition to paper waste collection, Amnir also purchases paper waste
from various collectors as needed. Amnir sorts and compresses the paper waste collected
by it at its facilities, as described in section 9.9.2 below. Amnir also provides
information security services (shredding services), with the shredded waste used as raw
material for its operations. Furthermore, Amnir produces paper products which, as of the
date of this report, is not material for the operating activity. Note that, to the best
of the Company’s knowledge and based on its internal estimates, Amnir has a 65%
share of the paper waste collection market in Israel (excluding waste purchased from
other collectors, as set forth in section 9.1.6 above). |
43
| 9.2.1.3 |
Plastics – Production
of recycled raw material for the plastics industry at the Company’s facility in
Hadera. The Company recycles plastic waste from agricultural and industrial use, turning
it into raw material for the plastics industry (mostly pipes for construction). Company
revenues from this activity in 2007, 2006 and 2005 were less than 5% of total Company
sales, hence they are not material to the Company. |
| 9.2.2 |
Material
changes expected in the corporation's share and product mix - |
| |
The
Company’s Board of Directors approved, on November 19, 2006 and on October 15, 2007,
installation of a new packaging paper production system (Machine-8); for details of the
new machine, including Company estimates of its production capacity, see section 9.15
above. |
44
| 9.3 |
Distribution
of revenues and profitability of products and services in the packaging paper and
recycling operating activity – |
| |
The
following data shows distribution of revenues and profitability of products and services
in 2007, 2006 and 2005: |
NIS Millions
|
2007
|
2006
|
2005
|
|
Revenues
|
Share of
the
Company's
revenues
|
Revenues
|
Share of
the
Company's
revenues
|
Revenues
|
Share of
the
Company's
revenues
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales of packaging paper |
|
|
| 329.5 |
|
| 56 |
% |
| 280.2 |
|
| 53 |
% |
| 259.5 |
|
| 54 |
% |
| Sales of paper waste to others | | |
| 64.2 |
|
| 11 |
% |
| 63.6 |
|
| 12 |
% |
| 51.3 |
|
| 11 |
% |
|
2007
|
2006
|
2005
|
|
NIS
millions
|
In %
|
NIS
millions
|
In %
|
NIS
millions
|
In %
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit of paper and recycling activity |
|
|
| 109.9 |
|
| 24 |
% |
| 78.7 |
|
| 19 |
% |
| 69.8 |
|
| 19 |
% |
| 9.4 |
Customers
of the paper and recycling operating activity – |
| |
Recycled
packaging paper is primarily sold to 5 customers in Israel, who produce corrugated
cardboard and cardboard containers made from it (corrugators): Carmel (associated
company); Cargal Ltd.2; YMA 1990 Packaging Product Manufacturing Ltd.; Best
Carton Ltd.; and Orda-Print Industry Ltd. (hereinafter in this section: “the
customers”). The Company has no long-term agreements with the aforementioned
customers. To the best of the Company’s knowledge, the same applies to agreements
between these customers and the Company’s competitors. Contracting with each
customer refers to an annual volume of packaging paper to be delivered to the customer,
with the being price set in advance every quarter. |
2 As of the Report Date,
CII holds approximately 27% of Cargal Ltd.‘s share capital.
45
| |
Due
to the industry structure (one local producer and a limited number of customers), the
activity is dependent on each of the aforementioned customers, and termination of the
contract with any one of them may have a material negative impact on the Company’s
results. The aforementioned customers are long-standing customers of the Group, and have
been in business with the Company for many years; in fact, the Group successfully
maintains contracts with the customers over years by ensuring ongoing delivery and
service with a short lead time, which allows it to enjoy the benefit of a local supplier. |
| |
In
addition, AIPM Paper Industry exports packaging paper to various customers overseas
(mostly in Turkey, Greece and Egypt). In 2007, 2006 and 2005, revenues from packaging
paper sales to overseas customers amounted to NIS 47 million, NIS 48 million and NIS 43
million, respectively, accounting for 8%, 9% and 9% of total sales in the respective
years. |
| |
About
60% of the paper waste collected by Amnir is used for in-house production of packaging
paper by AIPM Paper Industry, and 40% of it is sold as raw material to producers of
tissue paper (Hogla-Kimberly (an associated company), Shaniv Paper Industry Ltd., Panda
Paper Mills (1997) Ltd. and White Paper Jerusalem (2000) Ltd.). Amnir has no dependence
on any individual customer, nor has it any long-term agreements with said customers.
Agreements are contracted for 1-year terms, specifying the quantity to be supplied to
each customer as well as the price. Most of the customers are long-standing customers of
the Group. |
46
| 9.4.3 |
Customer
Attributes – |
| |
In
the paper and recycling activity the Company has a single customer, Carmel (which is an
associated company), revenues from which exceed 10% of total Company revenues. Share of
revenues from this customer in the years 2007, 2006, 2005 from the Company’s
revenues consists of 15%, 14% and 15% respectively from the Company’s total revenues
in those periods. For further details with regard to Carmel, see section 22.4 below. |
Distribution of major activity of
operation sales by customer attributes:
Revenues In NIS Millions
|
2007
|
2006
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Local clients |
|
|
| 346 |
|
| 296 |
|
| 268 |
|
| Export customers | | |
| 47 |
|
| 48 |
|
| 43 |
|
| 9.5 |
Marketing
and distribution in the paper and recycling activity – |
| |
Marketing
and distribution are conducted directly by company employees opposite the customers. |
| |
Shipping
to customers is mostly via external shipping companies. Marine shipping companies are
engaged for exports. The Company has no exclusive agreements with any of the
aforementioned shipping companies. The Company also has no dependency on any of these
shipping companies. |
| 9.6 |
Order
backlog for the paper and recycling activity – |
| |
Product
delivery volumes are based on an overall annual forecast, determined and coordinated
between the Company and its customers. Ongoing supply is converted into orders, based on
a few days in advance or even less, so the Company has no order backlog. |
47
| |
The
packaging paper manufacturing plant operates according to a flexible production plan
which allows delivery of a customer order within 24-48 hours, at the quality specified in
the specifications. |
| 9.7 |
Competition
in the paper and recycling activity - |
| |
As
mentioned, AIPM Paper Industry is the sole producer in Israel of packaging paper, hence
the competition in the packaging paper business is against imports, made directly by
customers without any barriers. |
| |
Imports
into Israel include all paper types produced in Israel at different paper qualities,
depending on the supplier’s production machinery. |
| |
To
the best of the Company’s knowledge, its major competitors are the following foreign
vendors: Varel – Germany, Emin Leidlier – France, Saica – Spain, Hamburger
– Austria, SCA – Italy, Otor – France and Nine Dragons – China. |
| |
As
mentioned, the Group competes in this operating activity by ensuring ongoing delivery and
service with a short lead time, which affords it the benefits of a local supplier. |
| |
The
Company estimates, based on its internal estimates, that its market share as of the
Report Date in sales of packaging paper used as raw material for the corrugating industry
in Israel to be 35%. |
| |
In
collection of paper waste there are two major competitors operating throughout Israel
– KMM Recycling Facilities Ltd. and Tal-El Collection and Recycling Ltd. In
addition, there are many competitors with small a market share who mainly operate in a
limited geographical areas. |
48
| |
The
Company estimates, based on its internal estimates, that its market share as of the
Report Date in collection of paper waste (excluding purchasing of waste from other
collectors, as set forth in section 9.1.6 above) out of the total paper waste collected
in Israel to be 65%. |
| 9.8 |
Production
capacity in the paper and recycling activity - |
| |
The
Company’s packaging paper plant in Hadera includes two paper machines with a total
annual production capacity of 160,000 tons, producing packaging paper (fluting, test
liner and white liner) used as raw material by corrugators. These machines operate at
close to full capacity, hence the production capacity is almost fully utilized. |
| |
The
paper machines operate 24 hours a day, in 3 shifts (except for planned maintenance
stoppages). |
| |
As
mentioned in section 9.1.4.4 above, the Company’s Board of Directors approved an
investment in a project to install the Machine-8 on site at Hadera, with an annual
production capacity of some 230,000 tons. By the Company’s estimate, with the start
of operation of the new machine, planned for 2009, and along with the parallel
decommissioning of an existing machine of the Company, the Company’s annual
production capacity for packaging paper will increase from 160,000 tons at present, to
approximately 330,000 tons. For more details, see section 9.15 below. |
| |
Information
concerning the expected operation date of the new machine, advantages of the new machine
and increase in expected production capacity of the Company is forward-looking
information as defines in the Israeli Securities Act and merely consists of forecasts and
estimates by the Company which are not certain to materialize and are based on
information available to the Company as of the Report Date. |
49
| |
The
aforementioned Company forecasts and estimates may not materialize, in whole or in part,
or may differ from current forecasts and estimates, due to multiple factors, including
business opportunities available to the Company, changes in demand in markets in which
the Company operates, global supply and cost of paper products, developments and changes
to regulation of the operating activity and/or materialization of any of the risk factors
set forth in section 9.16 and 21 below. |
| |
Below
are machine production data (in thousands of tons) for 2007, 2006 and 2005: |
| |
2007 |
2006 |
2005 |
| Machine 1 |
62 |
59 |
56 |
| Machine 2 |
99 |
95 |
97 |
| Total |
161 |
154 |
153 |
| 9.8.2 |
Paper
Waste Collection – |
| |
Below
are data with regard to sorting and compressing output (in thousands of tons) of
collected raw material, primarily paper and board waste, compared to potential output
capacity in 2007, 2006 and 2005: |
| |
|
Actual output |
| |
Potential output
capacity
(As of the Report
Date) |
2007 |
2006 |
2005 |
| Bnei-Brak |
180 |
128 |
125 |
128 |
| Hadera |
105 |
83 |
78 |
64 |
| Total |
285 |
211 |
203 |
192 |
50
| 9.9 |
Fixed
assets, plant and equipment of paper and recycling operating activity |
| 9.9.1.1 |
Packaging
paper machines – The Hadera site has 2 packaging paper machines in operation at
close to full capacity, of about 160,000 tons annually. In order to expand packaging
paper production capacity (and improve its quality), which is currently insufficient to
meet all the needs of the domestic market, and in view of Company estimates that demand
for packaging paper produced from recycled fibers should grow significantly over the
coming years, the Company’s Board of Directors approved, on November 19, 2006 and on
October 15, 2007, the installation of a new packaging paper production system
(Machine-8); for further details see section 9.1.4(D) above. Concurrently with the
investment in the new machine, the Company will invest (in conjunction with the
aforementioned investment) in the expansion of the paper waste collection system to be
used as raw material for the new machine. For optional action to expand paper waste
collection, see section 9.1.6 above. |
| 9.9.1.2 |
Energy
center – As an auxiliary means of production, the Company site in Hadera
includes an energy center, providing steam used in the paper production process and about
half of the electricity consumed by paper machines operating on site. The energy center
includes boilers for steam production, a steam turbine for electricity generation
(providing on average 13 megawatt-hour, with maximum generation capacity of 18
megawatt-hour), as well as cooling water systems, compressed air systems, water
distilling systems, a cold water system and a control room for control of the entire
process. During periodic maintenance of the aforementioned steam turbine in October 2007,
a malfunction was discovered. As of the Report Date, due to this malfunction only up to 7
megawatt-hour is generated by an alternative turbine, and the malfunction is under
repair. The Company estimates the impact of said malfunction not to be material, since
the Company estimates, based on a letter received by the Company from its insurance
company in March 2008, that the majority of the loss would be covered by the insurance
company. |
51
| 9.9.1.2.1 |
Transition
to Natural Gas – In Q4 of 2007, the Company completed transition of the energy
system at its Hadera facility from using fuel oil to using natural gas. The use of
natural gas should significantly lower the cost of fuel, while also improving the amount
of emissions into the atmosphere. The Company has invested NIS 30 million in
infrastructure installation and conversion of existing equipment to use natural gas
instead of fuel oil. The Company estimates that the transition to natural gas should
yield, upon completion, further improvement of air quality and annual savings which would
improve net profit by NIS 25 million per full year of operation. Pursuant to the Company’s
agreement with Yam Tethys, as set forth in section 9.14.1 below, natural gas will be
supplied by the Yam Tethys partnership through mid-2011. Upon conversion to using natural
gas instead of fuel oil, the Company adapted its work environment to the use of natural
gas, including issues concerning use of hazardous materials and work procedures. |
| |
The
above information with regard to impact on the Company of the conversion to natural gas,
including references to cost savings and improvement of emissions into the air due to use
of Company machines, is forward-looking information as defined by the Israeli Securities
Act, which is based on Company estimates as of the Report Date. These estimates may not
materialize, in whole or in part, or may materialize differently due to, inter alia,
changes in cost of using natural gas, dependence on external factors, such as gas
providers and natural gas delivery to the Company facility in Hadera, as well as any of
the risk factors set forth in section 9.16 and 21 below. |
| |
For
details of the Company facility in Hadera, see section 11.1 below. |
52
| 9.9.2 |
Paper
Waste Collection |
| |
As
of the Report Date, for collection and processing of raw material collected (paper and
board waste), Amnir operates a fleet of 35 trucks of different types; 30 additional
trucks are operated by sub-contractors and by two plants, as follows: |
| 9.9.2.1 |
Amnir
facility at Hadera, including: plant for sorting, cleaning and pressing paper and
cardboard waste, where the principal fixed assets are: 2 presses, paper sorting system
and paper and magnetic media shredding system, as well as a paper salvage plant including
guillotines and printing, rolling and cutting machines. At the facility there is a
storage area for paper and cardboard waste. The area of the facility is 40,000 square
meters. For further details of the Company facility in Hadera, see section 11(A) below. |
| 9.9.2.2 |
Amnir
facility at Bnei-Brak: plant for sorting, cleaning and pressing paper and cardboard
waste, where the principal fixed assets include two presses and a sorting system. The
facility area is 3 acres and it includes open land and buildings. Part of the plot, about
0.6 acres in size, is leased by Amnir from a third party. The annual lease cost is NIS
90,000. The lease term is through July 2011. |
| |
Note
also that Amnir has bestowed several ongoing liens on its assets, to the benefit of the
State of Israel. |
| 9.10 |
Raw
materials and suppliers in the paper and recycling activity – |
| |
Paper
waste collection provides the main raw material for the paper and recycling operating
activity. The paper waste collection operation is deployed nationwide, collected or
purchased by Amnir from thousands of suppliers throughout the country and transferred on
a regular basis to processing plants at Bnei-Brak and Hadera. |
53
| |
Amnir
has no material dependence on any single supplier. |
| |
In
addition to collection of paper and board waste by Amnir and to purchase of paper waste
by Amnir from external suppliers, another part of the waste consumed by paper machines is
paper waste purchased from producers of corrugated board containers (waste created in the
container production process by corrugator customers and sold to the Company). |
| |
In
the paper and recycling activity there are purchasing contracts with suppliers for the
purchase of auxiliary materials such as chemicals, adhesives, felt, screens, etc. |
| |
Prices
are determined by negotiation with suppliers, accounting for market conditions and prices
of competing imports. |
| |
For
generation of steam and electricity required for operation of the paper machines, the
Company, prior to the conversion to gas completed in Q4 of 2007 as set forth in section
8.9 above, used to make mass purchases of fuel oil from fuel companies (since May 2005,
fuel oil has been purchased from “Delek”). Fuel oil prices are set based on the
price of fuel oil at the gates of Oil Refineries Ltd. |
| |
Total
fuel oil purchasing for this operating activity in 2007, 2006 and 2005 amounted to NIS 67
million, NIS 86 million and NIS 72 million, respectively. The share of fuel oil
purchasing, out of total cost of purchasing from suppliers in the paper and recycling
activity, amounted to 18%, 24% and 20% in 2005, 2006 and 2007, respectively. |
| |
In
July 2005, the Company signed an agreement with Yam Tethys Partnership to purchase
natural gas, which would replace fuel oil purchasing (as set forth in section 8.9 above,
in Q4 of 2007 the Company completed conversion of the energy generation system at its
facility in Hadera to use natural gas instead of fuel oil). As of the Report Date, the
Company is dependent on Yam Tethys for supply of natural gas, since the latter is
currently the sole supplier of natural gas in Israel. For more details on the
aforementioned agreement, see section 9.14.1 below. |
54
| 9.11.1 |
Raw
Material and Finished Goods Inventory Policy – |
| 9.11.1.1 |
Raw
material and finished goods inventory – The Company maintains operating
inventory of raw materials and finished goods equivalent to consumption and delivery over
2-3 weeks. |
| |
Over
the next two years, in preparation for the initial operation of the new paper machine,
the Company estimated it is expected (via Amnir) to accumulate raw material inventories
(paper waste) beyond its current needs as set forth above. For further details on said
estimates, see section 9.1.6 above. |
| |
Information
regarding inventory accumulation due to expected operation of the new machine is
forward-looking information, as defined by the Israeli Securities Act and merely consists
of forecasts and estimates by the Company which are not certain to materialize and are
based on information available to the Company as of the Report Date. The aforementioned
Company forecasts and estimates may not materialize, in whole or in part, or may differ
from current forecasts and estimates, due to multiple factors, including business
opportunities available to the Company, changes in demand in markets in which the Company
operates, global supply and cost of paper products and/or materialization of any of the
risk factors set forth in section 9.16 and 20 below. |
55
| 9.11.1.2 |
Maintenance
material inventory – The Company has an inventory of maintenance materials for
use with means of production, based on expected consumption volume and the need to
maintain continuous operation of the machines. |
| 9.11.2 |
Goods
return or replacement policy – |
| |
Goods
in this operating activity are sold as final sale to customers, and are returned in case
of a faulty product or due to a mismatch between order and delivery. When a customer
complains of a faulty or mismatching product, the complaint is reviewed and if correct,
the goods are returned and the customer is credited. Based on past experience, the volume
of returns is not material to total operation volume. |
| 9.11.3 |
Average
Credit Duration – |
| |
Below
are data regarding average credit duration and amount for suppliers and customers in
2007, 2006 and 2005: |
| |
|
31.12.07
|
31.12.06
|
31.12.05
|
| |
|
Average
credit
amount
|
Average
credit
days
|
Average
credit
amount
|
Average
credit
days
|
Average
credit
volume
|
Average
credit
days
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Accounts receivable |
|
|
| 139 |
|
| 96 |
|
| 129 |
|
| 102 |
|
| 112 |
|
| 93 |
|
| |
Accounts Payable | | |
| 79 |
|
| 83 |
|
| 70 |
|
| 84 |
|
| 58 |
|
| 77 |
|
56
| 9.12 |
Environmental
protection in the paper and recycling operating activity – |
| 9.12.1 |
Company
activities with regard to environmental protection are focused in three major areas:
treatment of sewage and quality of treated waste water, air quality and noise reduction. |
| |
The
business license for the main site at Hadera includes stipulations for sewage treatment,
treated waste water quality, air quality as well as waste and chemical treatment. For
further details see section 9.13.4 below. |
| |
The
Company discharges treated waste water, purified at the Company facility, into the Hadera
stream. Accordingly, the Company holds a permit to discharge treated waste water into the
Hadera stream; the permit was obtained from the Water Authority for 2007, and as of the
Report Date the Company is acting to renew the permit for 2008. This permit specifies,
inter alia, conditions regarding quality of treated waste water discharged into the
stream. The major part of the permit is implemented and a small part of it is under
discussion with the Water Authority. The company owns and operates a sewage treatment
facility covering some 5 acres next to its Hadera plant. The Company intends to promote
reduction in treated waste water discharged into the Hadera stream and improvement of its
quality, as well as partial reuse of such water at its Hadera facility. |
57
| |
In
its operation, the Company used hazardous materials and therefore it holds a Toxin Permit
from the Supervisor at the Ministry of Environmental Protection, effective through July
2008. |
| |
Furthermore,
the Company operates opposite the Gas Authority, and according the requirements set to
the Company. Upon conversion to using natural gas instead of fuel oil, the Company
adapted the work environment to use of natural gas, including issues concerning use of
hazardous materials and work procedures. |
| |
To
the best of the Company’s knowledge, the plant operates subject to the requirements
of the authorities, and in cases of deviation the company strives to correct them via
coordinated lines of action in cooperation with the authorities. |
| |
As
mentioned in section 8.9 above, the Company has converted its energy generation system,
previously based on fuel oil, to use natural gas; the objective of this conversion is to
cut costs and to further improve the quality of gas emissions into the environment. |
| |
Furthermore,
over the past two years the Company has been implementing a gradual plan to further
improve reduction of noise sources at the Company facility in Hadera. In 2007, a total of
NIS 1 million has been invested in implementation of said plan. |
| |
For
major legislation concerning environmental protection for this operating activity, see
section 9.13 below. |
| |
In
2000-2007, the Company has invested $15.9 million in projects intended for compliance
with environmental protection regulations, of which $4.4 million in 2007, including an
investment of $3.6 million in conversion of the energy system to natural gas instead of
fuel oil, as set forth in section 8.9 below, $250 thousand for noise reduction projects
at the Hadera facility, as well as investment in reuse of treated waste water at the
facility and improved reliability of the water and sewage treatment system. |
58
| |
In
November 2006, the Environmental Protection Ministry announced that, even though the
company plant at Hadera has made considerable investments in sewage treatment and
environmental protection issues, an investigation may be launched against it to review
deviations from certain emission standards into the air. Based on the opinion of its
legal advisors, the Company anticipates that the investigation will not materially impact
its operations. |
| |
Information
regarding Company estimates of the impact of said investigation on the Company is
forward-looking information, as defined by the Israeli Securities Act and merely consists
of forecasts and estimates by the Company which are not certain to materialize and are
based on information available to the Company as of the Report Date. The aforementioned
Company forecasts and estimates may not materialize, in whole or in part, or may differ
from current forecasts and estimates, due to multiple factors, including regulatory
changes and/or materialization of any of the risk factors set forth in section 9.16 and
21 below. |
| 9.12.2 |
The
Company anticipates that in 2008, total environmental expenses expected in the course of
normal Company business will amount to NIS 3.6 million. This amount refers to
environmental investment approved by the Company’s Board of Directors, as well as
on-going Company activities related to environmental protection. According to Company
estimates, these expenses are not expected to decline in coming years. |
59
| |
The
above information with regard to expected Company expenses related to environmental
protection, constitutes forward-looking information as defined in the Israeli Securities
Act, and merely consists of forecasts and estimates by the Company which are not certain
to materialize and are based on information available to the Company as of the Report
Date. These forecasts and estimates by the Company may not materialize, in whole or in
part, or may materialize in a manner significantly different than that expected. Major
factors which may impact this include dependence on external factors, developments and
changes to regulation of the operating activity and/or materialization of any of the risk
factors set forth in section 9.16 and 21 below. |
| 9.13 |
Restrictions
on and Supervision of Corporate Operations in the Paper and Recycling Activity - |
| 9.13.1 |
The
Recycling Act – |
| |
The
Waste Collection and Disposal for Recycling Act, 1993 and Waste Collection for Recycling
Regulations (Duty to Dispose of Waste for Recycling), 1998, require local authorities and
businesses to recycle waste at increasing rates, and allow the Company to offer services
and win tenders including recycling operations. Absence of supporting enforcement of the
Recycling Act limits the Company’s ability to expand collection of paper waste. |
| 9.13.2 |
The
Cleanliness Law |
| |
On
January 16, 2007, the Knesset (Israeli parliament) passed the Cleanliness Law (9th
Amendment), 2007 (hereinafter: “the Cleanliness Law”), which imposes a
landfill levy on waste. |
60
| |
In
accordance with the directives of the Cleanliness Law, a levy is to be placed upon waste
landfilling in the amount of NIS 10 per ton per year in 2007 and up to NIS 50 from 2011
onwards. The remains of waste sorting (that is, waste that was sorted at a transfer
station for treatment and recycling) will be charged a reduced landfilling levy of NIS
0.80 per ton in 2007, rising to NIS 4 per ton from 2011 and thereafter. |
| |
The
law is effective, as worded, starting on July 1, 2007. Enforcement of this law may
improve the Company’s paper waste collection capacity. |
| |
The
above information with regard to impact of the Cleanliness Law, constitutes
forward-looking information as defined in the Israeli Securities Act, and merely consists
of forecasts and estimates by the Company which are not certain to materialize and are
based on information available to the Company as of the Report Date. These forecasts and
estimates by the Company may not materialize, in whole or in part, or may materialize in
a manner significantly different than that expected. Major factors which may impact this
include developments and changes to regulation of the operating activity and/or
materialization of any of the risk factors set forth in section 9.16 and 20 below. |
| |
The
Company is subject to provisions of protective labor legislation, including the Work and
Rest Hours Act, 1951 (hereinafter in this section: “the Work Hours Act”).
The Work Hours Act regulates, inter alia, the number of permitted working hours and the
weekly rest to which all employees in Israel are entitled. According to the Act, the
weekly rest period for employees is 36 contiguous hours; for Jewish employees the weekly
rest must include Saturday, and for non-Jewish employees it must include a day of their
choice, either Friday, Saturday or Sunday. The Work Hours Act prohibits work of an
employee during the weekly rest period unless permitted by the Minister of Industry,
Trade and Labor; the Minister may permit such work during the weekly rest period, in
whole or in part, if convinced that work stoppage may impact national security, security
of body or property, or may significantly harm the economy, the work process or
satisfaction of vital public needs. Furthermore, the Weekly Rest Hours regulations (Shift
Work) (No. 2), 1952 stipulates that the weekly rest period for shift workers may be: (1)
In factories working three shifts – less than 36 contiguous hours, but no less than
25 contiguous hours; (2) in factories working two shifts – once every fortnight
– less than 36 contiguous hours, but no less than 25 contiguous hours. |
61
| |
The
Administrative and Legal Arrangements Ordinance, 1948 stipulates that provisions
concerning the weekly rest period in the Work Hours Act shall apply to Jewish holidays
for Jews, and for non-Jews – to their choice of Jewish holidays or holidays of their
denomination. On these rest days, the owner of a workshop shall not work at his workshop;
the owner of an industrial factory shall not work at his factory; and the owner of a shop
shall not conduct business in his shop. |
| |
As
of the Report Date, the Company is in full compliance with all provisions of the Work
Hours Act and regulations based there upon, and has obtained the permits required for its
operations. |
| 9.13.4 |
Business
Licenses – |
| |
AIPM’s
business license dated November 14, 2001 is contingent, inter alia, on existence of
systems for collection and transportation of waste water and ground water, transfer of
all industrial waste water to a waste water pre-treatment facility, installation and
operation of backup pumps, maintenance of bio-mass inventory and maintenance of a
malfunction log. The license is also contingent on filing reports with the Ministry of
Environmental Protection. To the best of the Company’s knowledge, it is in
compliance with all terms and conditions of said license. |
62
| 9.13.5 |
Natural
Gas Sector Law – |
| |
Pursuant
to provisions of the Natural Gas Sector Law, 2002 (hereinafter: “the Gas Law”),
the Natural Gas Authority was established in the Ministry of National Infrastructure,
with the objective to supervise license terms and tariffs associated with the natural gas
transportation, delivery and storage system. The Gas Law also stipulates certain
preferences for buying products made in Israel. Furthermore, in 2003 a Government
Corporation – “Israel Natural Gas Routes Ltd.” – (hereinafter: “Gas
Routes”) was established and charged with the creation of a natural gas
transportation infrastructure in Israel. The Company is one of the first industrial
facilities in Israel to connect to the natural gas system, and to convert to the use of
natural gas. The Company is connected to the maritime route of the natural gas
transportation system. For details of the Company’s agreement with Gas Routes, see
section 9.14.2 below. |
| |
In
February 1989, AIPM was declared a monopoly in the manufacture and marketing of paper
rolls and sheets by the Israel Antitrust Authority, by its authority pursuant to the
Israeli Antitrust Act, and in July 1998, the declaration was partially rescinded with
regard to fine paper in rolls and sheets. The declaration has not been rescinded for
packaging paper in rolls and sheets. Other than provisions of the Israeli Antitrust Act,
no special provisions for a monopoly holder were issued to the Company by the Antitrust
Supervisor. |
63
| |
The
Israeli Antitrust Act stipulates, inter alia, that a monopoly holder shall not abuse his
market position in such a manner as might restrict business competition or impact the
public, including by means of setting unfair prices; decrease or increase of the scope of
assets or services offered other than via fair competition; setting different contract
terms for similar transactions which may give an unfair advantage to certain customers or
suppliers over their competitors; setting terms for contracting with regard to the
monopoly asset or service, which by their nature or pursuant to common trading terms do
not apply to the subject of the contract. |
| |
Furthermore,
the Israeli Antitrust Act stipulates that should the Antitrust Supervisor deem that, due
to the existence of a monopoly or to the behavior of the monopoly holder, business
competition or the public are impacted – the Supervisor may issue instructions to
the monopoly holder with regard to steps the latter must take to avoid such impact.
Statutory means set forth in the Israeli Antitrust Act confer on the Supervisor, inter
alia, the right to appeal to the court for an order to divide the monopoly into two or
more business corporations. |
| |
Up
to the Report Date, declaration of the Company as a monopoly had no material impact on
its operations, profitability or financial standing. The Company is unable to estimate
the future impact of said declaration, including such case where the Company may be
issued special instructions by the Supervisor with regard to its operation as a monopoly,
on Company operations, profitability or financial standing. |
| |
The
Company is subject to legislation concerning work safety and health. The Work Safety
Ordinance (New Version), 1970 and regulations based there upon regulate issues of
employee health, safety and welfare. Furthermore, the Labor Supervision Organization Act,
1954 and regulations based there upon regulate issues of supervision of work safety,
safety committees, appointment of safety supervisors, safety programs, providing
information regarding risk and employee training. |
64
| |
The
Company places an emphasis on the matter of safety at work in general, and of the
employees in particular, by implementation of a proactive safety policy (for prevention
of the causes of accidents by full and current reporting, investigating cases of
near-accidents, drawing conclusions therefrom, while implementing the necessary
procedural and physical changes, in order to prevent the accidents themselves from
happening, to the extent possible). As of the Report Date, the Company is compliant with
all safety regulations set forth in this section. |
| |
The
company operates its major production facility at Hadera subject to the following
standards: ISO9001/2000– Quality Management, ISO14001 – Environmental
Protection and Israeli Standard 18001 – Safety. |
| |
Paper
and cardboard waste produced by Amnir is produced subject to international standards and
to the paper waste standard, which is updated every few years. In addition, Amnir is
recognized as an authorized service provider to the Ministry of Defense. |
| |
Furthermore,
Company operations at its facility are subject to provisions of product-related
standards, municipal laws (primarily business license) and globally accepted standards. |
65
| 9.14 |
Material
agreements in the paper and recycling operating activity – |
| 9.14.1 |
Agreement
with Yam Tethys Group – On July 29, 2005, a natural gas purchase agreement was
signed by the Company and partners of the Yam Tethys Group (Noble Energy Mediterranean
Ltd., Delek Drilling Limited Partnership, Avner Oil Exploration Limited Partnership and
Delek Investment and Assets Ltd.). The gas to be purchased pursuant to this agreement, is
intended to fulfill the Company’s requirements in the coming years for the operation
of its energy generation plants using cogeneration at the Hadera plant, that will be
converted to the use of natural gas, instead of the current use of fuel oil (as set forth
in section 8.9 above). Upon completion of the transportation pipeline and required
facilities on Company premises for the transition to the use of natural gas, gas delivery
started in August 2007 as per the agreement (hereinafter: “gas flow start date”).
Gas delivery is scheduled to end upon the earlier of: (1) 5 years from gas flow start
date, as set forth in the agreement; (2) completion of gas purchase amounting to 0.43
BCM; but no later than July 1, 2011. Based on Company estimates of natural gas
consumption during the agreement term, the total estimated financial value of this
transaction is $35 million over the entire term set forth above. As of the Report Date,
the Company is dependent on Yam Tethys for supply of natural gas, since the latter is
currently the sole supplier of natural gas in Israel. |
| |
Company
estimates of gas consumption during the term of its agreement with Yam Tethys and the
financial value of the transaction set forth above, is forward-looking information, as
defined by the Israeli Securities Act and merely consists of forecasts and estimates by
the Company which are not certain to materialize and are based on information available
to the Company as of the Report Date. The aforementioned Company forecasts and estimates
may not materialize, in whole or in part, or may differ from current forecasts and
estimates, due to multiple factors, including actual gas consumption, changes in markets
in which the Company operates and/or materialization of any of the risk factors set forth
in section 9.16 and 21 below. |
66
| 9.14.2 |
Agreement
with Israel Natural Gas Routes Ltd. - |
| |
For
transportation of natural gas to its facility in Hadera, on July 11, 2007 the Company
entered into an agreement with Gas Routes for a 6-year term, with optional extension for
a further 2-year term. The transportation agreement is worded as approved by the Natural
Gas Authority for transportation consumers, and is published on the website of the
Ministry of National Infrastructure, with commercial terms agreed individually by the
parties. The consideration, pursuant to the agreement, includes payment of a
non-recurring connection fee upon connection, based on actual cost of connection to the
Company’s facility, as well as monthly payments based on two components: (a) A fixed
amount for the gas volume ordered by the Company; (b) based on the actual gas volume
delivered to the facility. As of the Report Date, the Company is dependent on Gas Routes,
in the agreement the Company undertook to pay an set annual payment of NIS 2 million even
if it does not actually make use the aforesaid transportation services. For further
details, see section 9.16.2.2 below. |
| 9.14.3 |
Agreement
with EMG – In May 2007, a memorandum of understandings (hereinafter in this
section :“the MOU”) concerning the purchase of natural gas from Egypt
was signed by the Company and by East Mediterranean Gas Company (hereinafter: “EMG”),
intended to ensure continued gas supply to the Hadera facility after expiration of the
agreement with Yam Tethys Partnership, until the sooner of 15 years or consumption of the
entire gas volume to be specified in the agreement. The MOU grants the Company a
time-limited option to increase its purchase volume based on needs of the power plant
whose construction is currently being reviewed by the Company (for further details on the
power plant, see section 9.9.1.3 below). As of the Report Date, the annual purchase
volume from EMG is estimated at $10-$50 million, according to the actual purchase
quantity and price. Upon signing the detailed agreement, guarantees will be provided as
set forth in the MOU, whose total amount is based on one year’s worth of gas
purchasing. According to the MOU, the parties must sign a detailed agreement by end of
2007. As of the Report Date, the parties are in advanced negotiations to formulate the
final version of said detailed agreement. |
67
| |
Company
estimate with regard to the detailed agreement with EMG and the annual extent of
purchasing from EMG is forward-looking information, as defined by the Israeli Securities
Act and merely consists of forecasts and estimates by the Company which are not certain
to materialize and are based on information available to the Company as of the Report
Date. The aforementioned Company forecasts and estimates may not materialize, in whole or
in part, or may differ from current forecasts and estimates, due to multiple factors,
including material disagreements during negotiations and/or materialization of any of the
risk factors set forth in sections 9.16 and 21 below. |
| 9.15 |
Anticipated
development over the next year for the operating activity |
| |
As
set forth in section 9.1.4.4 above, the Company’s Board of Directors has approved
installation of a new packaging paper production system, known as “Machine-8",
which will allow the Company to meet rising demand on the domestic market, at a more
competitive cost to the Company and with higher paper quality compared to competing
imports. The Company estimates that the new machine will produce packaging paper out of
paper and cardboard waste, and would have an annual output capacity of 230 thousand tons.
Following installation of the new machine and its operation, expected during 2009, and
the decommission of one of the Company’s current machines, the Company estimates its
output capacity of packaging paper in 2009 will grow from 160 thousand tons annually as
of the Report Date, to 330 thousand tons annually. Purchase of the new paper packaging
machine requires doubling, over the coming years, of collection volume of paper waste to
serve as raw material for packaging paper production. Amnir is preparing to increase the
volume of waste collection in anticipation of the installation of the new packaging paper
machine, inter alia, by intensifying collection activity from existing customers and
development of new collection sources, adaptation of its organizational structure, review
of an alternative site for Amnir’s Bnei Brak facility and inventory accumulation.
For further information on the new machine and an estimate concerning an increase in raw
material volume, see section 9.1.6 below. |
68
| |
Information
concerning the expected operation date of the new machine, advantages of the new machine,
the increase in expected production capacity of the Company and preparations for
increased raw material volume is forward-looking information as defined in the Israeli
Securities Act and merely consists of forecasts and estimates by the Company which are
not certain to materialize and are based on information available to the Company as of
the Report Date. The aforementioned Company forecasts and estimates may not materialize,
in whole or in part, or may differ from current forecasts and estimates, due to multiple
factors, including business opportunities available to the Company, changes in demand in
markets in which the Company operates, global supply and cost of paper products and/or
materialization of any of the risk factors set forth in section 9.16 and 21 below. |
| 9.16 |
Risk
factors in the paper and recycling operating activity - |
| |
For
details of macro-economic risk factors, see section 21 below. |
69
| 9.16.1 |
Activity-Specific
Risk Factors – |
| |
Operations
in the paper and recycling activity are subject to regulation in various issues (for
further information see section 9.13 above). Changes in regulation may impact companies
operating in this operating activity, e.g. stricter environmental protection regulations
and government decisions concerning the raising of minimum wage.Furthermore,
non-enforcement of regulations concerning waste collection, in accordance with the
Cleanliness Law and the Recycling Act, may impact the Company’s capacity to increase
paper waste collection. |
| |
This
operating activity is competitive, with competition for production of packaging paper
coming from imported paper. There is also competition for raw material collection. There
are many collectors operating in Israel, of which two have significant market share, to
the best of the Company’s knowledge. |
| |
Increased
capacity of the paper machines, based on paper waste for recycled fiber, require an
increase of the paper collection volume to be used as raw material for production in the
paper production activity, and location of more extensive collection sources.
Furthermore, upon start of operation of Machine-8, the Company will require twice as much
paper waste. Absence of sufficient paper waste volume for production will impact the
Company’s capacity to produce sufficient packaging paper. |
70
| |
Absence
of enforcement of the Recycling Act, which mandates waste recycling, would make it more
difficult to obtain alternative sources for raw materials at a competitive cost.
Nevertheless, approval of the Cleanliness Law in January 2007, which imposes a landfill
levy on waste, may bring about, if effectively enforced, some improvement in the paper
waste collection capacity, according to Company estimates. For more details, see section
9.13.1 below. |
| |
The
requirements of the Ministry of Environmental Protection regarding this activity and its
facilities require the Company to allocate financial resources to this issue. These
requirements may expand and proliferate due to increasing awareness to environmental
protection, which may force the Company to allocate further financial resources
associated with this operating activity. |
| |
Furthermore,
since the Company is involved with the use of hazardous and toxic materials, it is
exposed to damage which may be caused by such materials, including health impact,
environmental impact, damage due to ignition of flammable materials etc. Hence the
Company is exposed to claims which may negatively impact the business results of the
operating activity as well as the Company’s reputation. |
| 9.16.1.5 |
Concentration
of Company operations in the operating activity – |
| |
Production
operations of this operating activity is concentrated in a limited number of sites.
Impact to one or more of the production and/or distribution sites may materially impact
the financial results of this operating activity. |
| |
Due
to the small number of clients for the finished product of packaging paper, the Company
is dependent on certain clients. However, thanks to the advantages of a local
manufacturer, the risk is estimated as minimal. |
71
| 9.16.2.1 |
Dependence
on gas supplier – |
| |
As
set forth in section 9.10 above, the Company’s operations in the paper and recycling
activity are dependent on its gas supplier, Yam Tethys, which is, as of the Report Date,
the sole natural gas supplier in Israel. Termination of the contract with said supplier
would require the Company to contract with an alternative overseas supplier or to convert
to the use of diesel, which is significantly more expensive than natural gas as of the
Report Date. Replacement of the supplier may involve material expenditures. For
information on the contract with Yam Tethys, see section 9.14.1 above. |
| 9.16.2.2 |
Dependence
on gas transporter |
| |
For
delivery of gas to the Company’s Hadera facility, it is dependent on Gas Routes,
which transports natural gas to the Hadera site via the maritime pipeline to Hadera and a
land pipeline to the Hadera facility. Termination of the contract with the gas
transporter may materially impact the operating activity. For information on the contract
with Gas Routes, see section 9.14.2 above. |
| |
The
Company is a monopoly in packaging paper in rolls and sheets, as defined in the Israeli
Antitrust Act (for information on declaration of the Company to be a monopoly, see
section 9.13.6 above), and is subject to laws applicable to a monopoly in Israel.
Statutory means set forth in the Israeli Antitrust Act confer on the Supervisor, inter
alia, the right to intervene on matters which may impact the public, including setting
business restrictions on the corporation, including price supervision. Such restrictions,
should they be enforced, may negatively impact results of the operating activity. |
72
| 9.16.3 |
Degree
of impact of the risk factors – |
| |
Following
below is a list of the risk factors and their degree of impact on the activity of
operations. For details of macro-economic risk factors, see section 21 below. |
| Risk Factors |
Degree of Impact |
| Major Impact |
Medium Impact |
Minor Impact |
Activity-related factors
|
|
— Competition
|
— Regulation
— Raw Materials
— Environmental protection
— Centralization of Company operations
— Clients
|
Special Factors
|
— Dependence on gas supplier.
— Dependence on gas transporter.
|
|
— Monopoly
|
73
| 10. |
Marketing
of Office Supplies Activity |
| 10.1 |
General
information on marketing of office supplies operations activity – |
| |
Graffiti
is a subsidiary company wholly-owned by the company. Graffiti has been one of the leading
companies in Israel in the area of comprehensive solutions in the office supplies
activity for over fifteen years, by way of direct supply to institutions and businesses. |
| |
Graffiti
offers its customers around Israel some 8,000 different items supported by a logistics
system including: two storage and distribution facilities (located in Rosh Haayin and in
Beer Sheva); a distribution fleet including distribution vehicles as well as customer
service and sales offices located in Be’er Sheva, Jerusalem and Rosh Haayin. |
| |
Graffiti
provides outsourcing services by delivering a wide range of office supply products, often
in conjunction with managing the customer’s applicable purchasing budget, thereby
assisting large organizations in reducing costs and increasing efficiency. At the end of
2004 a new business-to-business (B2B) web site was launched for online ordering, which
allows Graffiti customers to use this site for entering their orders, while managing and
supervising their purchasing budgets. This tool allows Graffiti to serve a wider variety
of customers with no significant increase in marketing costs. |
| |
Graffiti
does not itself manufacture office supplies, it purchases supplies from a large number of
suppliers (Hewlett Packard Ltd., Brother – Reshef Engineering Solutions Ltd., Xerox
Israel Ltd., Mondi, Hogla-Kimberly, Strauss-Elite Ltd., Afik Printing Products Ltd.,
Cannon-Karat Israel Ltd. and more), and markets these to its customers. Graffiti also
serves as the exclusive agent for international brand name products in the office
supplies activity, such as Artline (Sachihata Inc.) (hereinafter: “Artline),
Mitsubishi (Uni-Mitsubishi Pencil Co.) (hereinafter: “Mitsubishi), Max (Max Co.
Ltd.) (hereinafter: “Max), Schneider (Schneider Schreibgerate GmbH) (hereinafter:
“Schneider) and Fellowes (Fellowes Distribution Services B.V.) (hereinafter: “Fellows”). |
74
| |
The
rate of technological development of Israel’s business sector leads to increased
demand for technology-based products marketed by Graffiti, including office automation,
printers, hardware, software and consumables such as toners, inkjet cartridges, etc. |
| |
Critical
success factors in this operating activity are: a high level of service, supported by
complex logistics and cost reduction due to improved procurement sources, mainly the
shift to procurement from the Far East. |
| |
Graffiti
has many competitors in the marketing of office supplies activity. For details on
competition in this activity of operations, see section 10.7 below. |
| 10.2 |
Marketing
and distribution in the marketing of office supplies activity of operations - |
| |
The
main products in the office supplies and office automation activity sold by Graffiti
include, inter alia, office equipment, toner and inkjet cartridges, software, peripheral
equipment, computers, training and visual aids, filing systems, paper products, office
furniture as well as other office supplies such as food and cleaning products. Graffiti’s
subsidiary, Attar, deals in the sale and distribution of brands in the office supplies
activity. |
| |
Graffiti
advertises its products using a price catalog and promotional brochures sent to customers. |
| |
All
products marketed by Graffiti have competing products sold by many suppliers /
distributors. |
75
| 10.3 |
Revenues
Distribution and Product Profitability in marketing of office supplies activity of
operations – |
| |
The
following data shows distribution of revenues and profitability of products and services
in this activity of operations in 2007, 2006 and 2005: |
| |
|
2007
|
2006
|
2005
|
| |
|
Revenues
(Million NIS)
|
Percentage
of total
company
revenues
|
Revenues
(Million NIS)
|
Percentage
of total
company
revenues
|
Revenues
(Million NIS)
|
Percentage of
total company
revenues
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Office Supplies Marketing activity |
119 |
21% |
122.1 |
23% |
113.5 |
24% |
| |
|
2007
|
2006
|
2005
|
| |
|
Gross
profit
(Million
NIS)
|
Percentage
of Graffiti
turnover
|
Gross
profit
(Million
NIS)
|
Percentage
of Graffiti
turnover
|
Gross
profit
(Million
NIS)
|
Percentage
of Graffiti
turnover
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Office Supplies Marketing activity |
32.9 |
28% |
32.7 |
27% |
29.4 |
26% |
| 10.4 |
Customers
in the marketing of office supplies activity – |
| |
Graffiti
sells its products to thousands of diverse customers in the business and institutional
sector in Israel alone. Large local and national organizations number among Graffiti’s
customers (such as government ministries, banks, health funds and the like), with
thousands of employees, as well as small organizations with only a small number of
employees. |
76
| |
During
2007, 2006 and 2005, approximately 21%, 27% and 26% of Graffiti’s sales,
respectively, came from securing a variety of tenders, awarding Graffiti supply contracts
for periods of one to four years. Engagements made through tenders are by nature for a
limited time, according to the terms of the tender, and upon termination of the agreement
period, such engagements end. |
| |
During
2007, 2006 and 2005 there was no single customer that totaled 10% or more of the company’s
total revenues during those periods. Furthermore, as of the date of this report, Graffiti
is not dependent upon any single customer. |
| 10.5 |
Marketing
and distribution in marketing of office supplies activity of operations - |
| |
Graffiti’s
orders for products in this activity of operations come from a number of sources (field
sales personnel, telephone sales center, e-mail, fax, e-commerce website). All orders are
routed to the order processing system, which generates picking tasks for the coming days.
Once the orders have been picked, they are organized by delivery destination, and ordered
products are delivered the following morning. |
| |
During
2007, Graffiti began a sales campaign that included publication of advertisements in
daily newspapers. |
| |
Graffiti’s
distribution system is based on a fleet of trucks owned by the company, backed up by
external distribution contractors in cases of peak demand. |
| |
On
the matter of Attar’s being an exclusive agent for a number of suppliers in Israel,
see section 10.1 below. |
| 10.6 |
Order
backlog in the marketing of office supplies |
| |
There
is no order backlog in this activity of operations. Orders are handled within a short
time, usually by the day following the order. |
77
| 10.7 |
Competition
in the Office Supplies Marketing activity |
| 10.7.1 |
Competitive
conditions in the activity of operations - |
| |
There
are three dominant players in the activity of office supplies by direct supply to
institutions and businesses: Graffiti, Office Depot (Israel) Ltd., and Kravitz (1974)
Ltd., who mainly dominate the tender agreement sector of customers and the strategic
customers sector (such as banks and local authorities). In addition to these players,
there are also a large number of competitors in the business customer market holding
small market sectors, mainly active in smaller geographic areas. |
| |
Graffiti
cannot estimate its share of the market, as Graffiti markets a very large variety of
products in the area of office supplies, with the aim of providing comprehensive
solutions for supply of the various products in the office supplies activity. It is
therefore difficult to define the size of the relevant market. |
| 10.7.2 |
Names
of significant competitors in the activity of operations |
| |
Following
are the names of Graffiti’s major competitors in this activity of operations as to
the best knowledge of the Company: Kravitz (1974) Ltd., Office Depot (Israel) Ltd., Alpha
Beta Office Supply Marketing Ltd., Pythagoras (1986) Ltd., Arta Supplies for Art Graphics
and Office Ltd., Yavne Pitango 2000 (1994) Ltd., Lautman Rimon Ltd., and Pan Office
Supply Manufacture and Import Ltd. |
| 10.7.3 |
Methods
for dealing with competition – |
| |
Graffiti
deals with its competitors by maintaining high standards of quality and service. In
addition, the size and variety of Graffiti’s products also give it an advantage over
its competitors. |
78
| |
Graffiti
has an advanced sales and service center, providing fast turnaround times for its
customers. Graffiti has a computer-managed supply warehouse, and a large portion of it is
managed automatically. |
| |
Graffiti’s
sales during the second half of the calendar year are usually higher than the first half
of that same year, in light of the start of the school year and realization of annual
purchase budgets for institutions and businesses. During the second half of 2007, Graffiti’s
sales were approximately 10% higher than the first half of that same year, and the sales
during the second half of 2006 were approximately 5.6% higher than the first half of that
same year. |
| 10.9 |
Fixed
assets and installations in the marketing of office supplies activity - |
| |
Graffiti
leases buildings at three different sites. |
| |
The
first site is in Park Afek in Rosh Ha’ayin, with an area of approximately 5,350
square meters. About 120 meters of this area are sublet through October 2009. The lease
period for this site at Park Afek is four years (until 2011), and under the terms of the
lease, the lessor has the right to bring about the termination of the lease at the end of
2009, and at any time after that. Graffiti has an option to extend the lease period for
an additional two years. |
| |
Another
site is on Kanfei Nesharim Street in Jerusalem, with an area of approximately 600 square
meters. 150 meters of this area are sublet to a local tenant. The remainder of the site
serves as a store and warehouse. The lease period for this site is until October 2009. |
| |
The
third site is located in Be’er Sheva, and serves as a warehouse and sales center.
The area of the site totals approx. 1,140 square meters. The lease period at this site is
until December 2011. |
79
| |
Graffiti
also has a distribution fleet of about 20 vehicles as well as customer service and sales
offices located in Be’er Sheva, Jerusalem and Rosh Haayin. |
| 10.10 |
Suppliers
in the marketing of office supplies activity – |
| |
Graffiti
markets products purchased from a large number of suppliers, detailed in section 10.1
above, and has served as exclusive agent for a number of companies through its subsidiary
company, Attar since the latters establishment, as explained in section 10.1 above. |
| |
Graffiti
has contracts with major suppliers, covering issues such as: the level of service,
returns, repairs and the like. Agreements, as mentioned, are usually annual framework
agreements, and the quantity of the product actually ordered is determined according to
demand during that year. Regarding other suppliers, the purchase price is determined from
time to time in negotiations between the parties, and most of the categories of products
have at least two suppliers, allowing for an improvement of purchasing capability. |
| |
Graffiti
is not dependent upon any single supplier mentioned above. |
| |
Mondi,
one of the company’s associated companies, is Graffiti’s main supplier for
writing and printing paper in the marketing of office supplies activity. Graffiti engages
with Mondi under an annual framework agreement which sets out the commercial principles,
among other things, with regard to cost, linkage mechanism, bonus agreements and
participation in advertising, and the quantity is determined according to demand over the
year. Graffiti’s rate of purchase of writing and printing paper from Mondi during
2007, 2006 and 2005 was 23.4%, 29% and 26% of the total office supply purchases,
respectively. |
80
| 10.11.1 |
Inventory
and finished product holding policy - |
| |
The
level of inventories of finished products in the area of office supplies is operational,
and adapted to the period of supply and the need to maintain variety. On average,
inventory levels are about 2 months worth of expected delivery. |
| 10.11.2 |
Policy
concerning product return, replacement and warranty - |
| |
Goods
in this operating activity are sold as final sale to customers, and are returned in case
of a faulty product or due to a mismatch between order and delivery. When a customer
complains of a faulty or mismatching product, the complaint is reviewed and if correct,
the goods are returned and the customer is credited. The volume of returns is
insignificant in relation to the total volume of operations. |
| |
Graffiti
provides a warranty on the products it markets and sells according to the warranties
provided by the manufacturers of such product (if any). |
| 10.11.3 |
Average
credit duration – |
| |
Following
is data regarding the average period and scope of credit from suppliers and customers
during reporting periods over the years 2007, 2006 and 2005 are provided below: |
| |
|
31.12.07
|
31.12.06
|
31.12.05
|
| |
|
Average
volume of
credit in
NIS
millions
|
Average
credit
days
|
Average
credit
volume
in NIS M
|
Average
credit
days
|
Average
credit
volume
in NIS M
|
Average
credit days
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Accounts receivable |
39.5 |
101 |
38.2 |
97 |
36.6 |
100 |
| |
Accounts Payable |
27.8 |
117 |
25.3 |
110 |
22.6 |
110 |
81
| 10.12 |
Restrictions
on and Supervision of Corporate Operations in the Office Supplies Marketing
Activity – |
| |
Graffiti
is committed to the highest standards, and conforms with Israeli standards and with ISO
2000, 9001standards for distribution of office supplies to businesses and organizations.
Graffiti is an authorized supplier to the Ministry of Defense. Beyond the above, there
are no special restrictions on this activity of operations. |
| 10.13 |
Forecast
for developments in the activity of operations for the coming year - |
| |
The
company is studying the expansion of this activity of operations through purchase or
joint ventures with small suppliers of office supplies. The company is also studying and
focusing on creating strategic co-operations in order to improve Graffiti’s
operations base through purchase, sales methods and computerized support for Graffiti’s
information systems. |
| |
Said
information is considered forward looking information as defined in the Israeli
Securities Law, and constitutes forecasts and assessments on the part of the company, the
realization of which is not certain and based on information existing in the company as
of the date of the report. These forecasts and estimates by the Company may not
materialize, in whole or in part, or may materialize in a manner significantly different
than that expected. The major factors that could impact this are business opportunities
the company may have, dependence on external factors, changes in demand and supply,
developments and changes in regulation and/or realization of any of the risk factors
outlined in section 10.14 and 21 below. |
82
| 10.14 |
Risk
factors in the operations of the marketing of office supplies activity - |
| |
For
details of macro-economic risk factors, see section 21 below. |
| 10.14.1 |
Activity-Specific
Risk Factors |
| |
As
described above, operations in this activity are through the winning of large tenders for
defined and limited time periods. There is no certainty that the Company and/or
subsidiary companies will continue in the future to win tenders, as stated, and therefore
the scope of sales could drop substantially, which could adversely affect the activity of
operations’ profitability. |
| 10.14.1.2 |
Accounts
Receivable Credit Risks |
| |
Most
sales in this activity of operations are performed in Israel, and some of the sales are
performed without full collateral. The Company routinely studies the quality of its
customers so that it may determine if provisions must be made for doubtful debts, and the
amount thereof. The company estimates that the financial statements reflect appropriate
provisions for doubtful debt. |
| |
The
activity operates in a competitive market with a considerable degree of competition, in
this matter see section 10.7 above. The entry of new competitors and/or expansion of
existing competitors’ operations could detrimentally impact the company’s scope
of operations in this activity, as well as the financial outcome of the activity of
operations. |
83
| |
As
stated in section 10.1 above, Graffiti (via Attar) is the exclusive distributor of a
number of international brand name products in Israel, in the area of office equipment.
Should such aforesaid exclusivity be terminated, this could impact that activity of
operations. At the same time, in light of the fact that Graffiti is an exclusive agent of
a number of suppliers, it is Graffiti’s estimate that the aforesaid impact will not
be substantial. |
| 10.14.3 |
The
extent of impact of risk factors |
| |
Following
are the company’s estimates regarding the types and measure of the influence of the
aforesaid risk factors on the activity of operations. For details of macro-economic risk
factors, see section 21 below. |
| Risk Factors |
Degree of Impact |
| Major Impact |
Medium Impact |
Minor Impact |
Activity-related factors
|
— Competition
|
— Accounts Receivable Risks
— Tenders
|
|
| Special Factors |
|
|
— Exclusivity |
84
Chapter D –
ADDITIONAL INFORMATION
REGARDING THE COMPANY
| 11. |
Fixed
assets and facilities |
| |
Following
below are details regarding the fixed assets and facilities in use by the Company: |
| 11.1 |
The
main management offices and the central production and storage facilities of the company
are located in Hadera (hereinafter: “The Company’s Site”), on a
site covering 350,000 square meters (hereinafter: “The Site”), part of
which is owned by the company (about 274,000 square meters) and part (68,000 square
meters) is leased from the Israel Land Administration (hereinafter: “ILA”).
Pursuant to the leasing agreements, the leases end between the years 2012 and 2056. Some
of the leasing agreements involve discounting terms. |
| |
Part
of “The Site” is rented to associated companies that operate at “The Site”.
About 87,000 square meters of the property was acquired by the company in 2005 to be used
for future development of the company, at a price of $4.4 million. |
| 11.2 |
In
addition, the company leases an area of 25,000 square meters in Nahariya from the Israel
Land Administration, under a lease agreement until 2018, mostly of which is rented out to
an associated company (Hogla-Kimberly) that operates a paper manufacturing and processing
plant. Recently, the company acquired the contractual rights via a development agreement
in another area of 3,500 square meters in Nahariya, which will also be rented to
Hogla-Kimberly. Amnir, a subsidiary of the company, leases an area in Bnei-Brak of 9,000
square meters from the Israel Land Administration, which houses a plant for the
collection and recycling of paper and cardboard waste. |
85
| 11.3 |
Pursuant
to leasing agreements with the Tel-Aviv Municipality, the company leases an area of 7,600
square meters, effective until 2059, which in the past was used as the company’s
paper manufacturing plant. The company is examining the different possibilities for using
the land. Under the leasing agreement with the Tel-Aviv Municipality, the company has
undertaken to use building rights that were granted to it until September 2009. In case
the Company fails to use these rights, and if the above period is not extended, it might
constitute a violation of the agreement. |
| 11.4 |
On
December 31, 2006, the company sold its leasing rights to property of about 12,000 square
meters, on which there is a building that covers about 4,700 square meters, which is
registered to the Israeli Development Authority, and which is situated between the Ramat
Hachayal Industrial Zone and Kiryat Atidim in Tel-Aviv, to a third party which is not an
interested party in the company, for a sum of NIS 57 million plus VAT, including
land-betterment taxes that apply to the buyer, while the net proceeds to the company
before betterment tax were NIS 43 million. |
| 11.5 |
In
addition to the above, the Company’s subsidiaries and/or associated companies hold
and/or rent plants, offices, warehouses at different sites all over the country including
Rosh Ha’ayin, Afulah, Migdal Haemek, Caesarea, Carmiel, Holon, Haifa, Zrifin and
more. For more information on this matter, see section 9.9, 10.9 (above) and 22.1.10,
22.2.10, 22.4.11 (below). |
86
| 12.1 |
The
Company’s organizational structure : |
| |
The
following is a diagram of the organizational structure of the Company and its
subsidiaries true to the Date of the Report: |
Office Supplies Marketing
Marketing
(48)
Headquarters
(17)
Finance
(28)
Purchasing
& Logistics
(76)
Finance
(13)
Headquarters
&
miscellaneous
(10)
Manufac
turing
(481)
Purchasin
g &
Logistics
(57)
Marketing
(33)
IT
(39)
CEO and headquarters of the
Group (20)
Paper and Recycling
| |
The
Company’s most important and main resource is its human capital. The development of
human capital is a top priority for The Company, and it invests in training and seminars
for its employees, including designated training for specific positions. |
| |
The
group promotes a talent management process, under which, with respect to the managerial
positions, job definitions have been established, and annual feedbacks and performance
assessments were made for all members of management. The group has also adopted an MBO
management method, which includes personal goals and indices (KPI) for each manager. In
addition, a cross-organizational development process was carried out for middle
management in the operating division. |
| 12.2 |
Staff
employed according to areas of activity |
| |
As
of the reporting date, the company, through its subsidiaries, employed staff in two
different segments of operation: in the packaging and recycling paper segment – 655
employees, and in the office equipment segment – 147 employees. The total number of
employees employed by the company and its subsidiaries together is 822, 785 and 748 as of
December 31, 2007, 2006 and 2005, respectively. |
87
| 12.3 |
Employment
agreements |
| |
As
of the reporting date, employees of the company and its subsidiaries are employed under
two types of agreements. 272 employees are employed under collective agreements and
general extension orders in the field of industry that apply to them and 550 employees
are employed under personal contracts. |
| |
Collective
labor agreements |
| |
As
aforesaid, as of the reporting date, 272 of the employees of the company and its
subsidiaries are employed under a special collective agreement “Integrated Edition” (hereinafter
in this section: “The Agreement”), which consists of the collective agreement
signed in 1972 between Hadera Workers’ Council, the clerical union, the company’s
workers committee and the company, as well as renewals to the agreement that were signed
between the parties from time to time. The agreement is renewed with the parties’ consent
every two-three years. |
| |
The
agreement applies to all the employees that are employed by the company and its
subsidiaries during the signing of the agreement and future employees, except for
administrative workers, experts, teenagers, handicapped workers and day workers. |
| |
Once
a position becomes available or a new position is created, the company may issue an
in-house tender amongst its employees, thereby granting first priority to its own
workers. Every worker accepted for the job is considered a provisional worker for a
period of 24 months after which, according to management’s decision, a permanent
employee status is granted to him/her. In addition, the company may hire “temporary” employees
for a period of up to 12 months. |
88
| |
The
employees’ wages are determined based on a table of wages and seniority at the
company, which is updated in accordance with the agreements that apply to the company. In
addition, the employees are entitled to various benefits such as: a vocational study fund
and severance pay fund, incremental pay for work in shifts and for special calls of duty
and other benefits. |
| 12.3.1 |
Personal
labor agreements |
| |
As
aforesaid, as of the reporting date, 550 employees of the company and its subsidiaries
are employed under personal contracts. Personal employment contracts, under which some of
the company’s workers are employed, include the terms of employment, information on
employees’ related rights (such as: annual vacation and advanced notice), provisions
for pension funds and severance pay funds, as well as provisions for vocational study
funds. Pursuant to said employment contracts, the employees are paid a monthly salary
which increases from time to time by the amount of the cost-of-living increment, in
accordance with the agreement between the “Histadrut” (Israel’s Labor
Union) and the Manufacturers Association of Israel. Additional pay increments are added
to the salary on a personal basis and are subject to the company’s discretion. In
addition, in accordance with the personal contracts, the employee is entitled to one
bonus monthly salary per year (13th month salary), as well as to the reimbursement of
travel fare or a portion of his/her car expenses or alternatively, a company car provided
to the employee. |
| |
The
personal employment contracts also mostly include a non-competition clause in period as
determined as in those employment contracts. Also, according to the employments contracts
each party is entitled to terminate the contract by submitting a written notice mostly up
to three months in advance. |
89
| 12.4 |
Agreements
with senior officers |
| 12.4.1 |
Senior
management employees of the company are employed under personal contracts. For details on
personal employment contracts see section 12.3.1 above. |
| 12.4.2 |
Directors’remuneration |
| |
On
June 17, 2007, the general meeting of the company, following the approval of the board of
directors dated March 7, 2007, approved the annual bonus and participation bonus for the
company’s directors. The annual bonus for directors, including outside directors and
including directors that are controlling shareholders or family relations of controlling
shareholders, is NIS 40,000 while the meeting participation bonus is NIS 1,550. |
| 12.4.3 |
Letters
of indemnification |
| |
Pursuant
to the resolutions of the general meetings of the company dated June 21, 2006 and July
14, 2004, the company issued letters of indemnification to all the directors and officers
of the company, including directors that may be considered controlling shareholders in
the company (Mr. Zvika Livnat and Mr. Yizhak Manor), by virtue of being controlling
shareholders in IDB Holdings, which is an indirect controlling shareholders of the
company. For additional details see footnote 2 above. For details on the letter of
indemnification see section 17.1 below. |
90
| 12.4.4 |
Officers’liability
insurance |
| |
On
June 17, 2007, following the approval of the company’s audit committee board of
directors, the company’s shareholders meeting approved the company’s agreement
for the acquisition of an officers’ liability insurance policy for the period
commencing June 1, 2007 until May 31, 2008, and a premium payment in the amount of
$40,000. The policy was acquired from an insurance company, which is a company owned by a
controlling shareholder in the company. The policy is under market conditions and in
accordance with customary transactions of this type. According to the company’s
decision, said insurance policy will also apply to directors that might be considered
controlling shareholders in the company (The honorable gentlemen Zvika Livnat and
Yitzchak Manor). The amount of insurance coverage ($6 million) and premium under said
policy are identical to the amount of coverage and premium of previous policies for the
years 2006 and 2005. |
| 12.4.5 |
Employee
stock option plans |
| 12.4.5.1 |
Bonus
plan for employees in the group 2008 |
| |
A. |
Subsequent
to the balance sheet date, on January 14, 2008, following the approval of
the audit committee, the board of directors of the company approved a
bonus plan for senior employees in the company and/or in subsidiaries and/or
in associated companies of the company (hereinafter in this clause: “the
plan”), under which up to 285,750 option warrants (hereinafter in
this section: “Option Warrants”), each exercisable into
one ordinary share of the company, will be allotted to senior employees
and officers in the group, including the CEO of the company which, on the
date of approval of the allotment, accounted for 5.65% if the issued share
capital of the company. The offerees in the said plan are not interested
parties in the company, except for the CEO who is an interested party by
virtue of his position. Pursuant to the conditions of the said option
warrants, the offerees who will exercise the option warrants will not be
allocated all of the shares derived therefrom, but only a quantity of
shares that reflects the sum of the financial benefit that is inherent to
the option warrants at the exercise date only. As at the reported date,
the option warrants granted in the frame of the plan to senior employees
in the company and/or in subsidiaries were allocated. As at the reported
date, the option warrants granted in the frame of the plan to the CEO of
the Company and to senior employees in associated companies of the Company
have yet to be allocated. |
91
| |
The
sum of the expenses for the above allotment program is estimated at 27 million NIS. The
impact of the program on the combined financial statement is estimated at 22 million NIS. |
| |
The
option warrants are not registered for trading. The company has obtained approval from
the TASE and AMEX to list for trading the ordinary shares that will be allotted to the
offerees upon the exercise of the option warrants. |
| |
B. |
Vesting
period for the option warrants |
| |
The
option warrants may be exercised at the following dates, provided the offeree is employed
by the company and/or a subsidiary and/or an associated company, on that date: |
| |
1. |
Each
offeree shall be entitled to exercise one quarter of the amount of the option
warrants offered to him pursuant to the plan (hereinafter: “The First
Tranche”) at the end of one year from the determining date
(hereinafter: “The End of the Vesting Period of the First
Tranche”) and up to four years from the determining date. Subsequent
to the said four years, all the option warrants included in the First Tranche
and not yet exercised will expire and shall offer no rights whatsoever. |
| |
2. |
Each
offeree shall be entitled to exercise another (second) quarter of the amount of
the option warrants offered to him pursuant to the plan (hereinafter: “The
Second Tranche”) at the end of two years from the determining date
(hereinafter: “The End of the Vesting Period of the Second
Tranche”) and up to four years from the determining date. Subsequent
to the said four years, all the option warrants included in the Second Tranche
and not yet exercised will expire and shall offer no rights whatsoever. |
92
| |
3. |
Each
offeree shall be entitled to exercise another (third) quarter of the amount of
the option warrants offered to him pursuant to the plan (hereinafter: “The
Third Tranche”) at the end of three years from the determining date
(hereinafter: “The End of the Vesting Period of the Third Tranche”)
and up to five years from the determining date. Subsequent to the said four
years, all the option warrants included in the Third Tranche and not yet
exercised will expire and shall offer no rights whatsoever. |
| |
4. |
Each
offeree shall be entitled to exercise another (fourth) quarter of the amount of
the option warrants offered to him pursuant to the plan (hereinafter: “The
Fourth Tranche”) at the end of four years from the determining date
(hereinafter: “The End of the Vesting Period of the Fourth
Tranche”) and up to six years from the determining date. Subsequent to
the said six years, all the option warrants included in the Fourth Tranche and
not yet exercised will expire and shall offer no rights whatsoever. |
| |
C. |
Economic
value of the options |
| |
As
of the date of approval of the allotment as aforesaid (January 14, 2008), the economic
value of an option warrant was NIS 96.43. This economic value was computed using the
“Black and Scholes” formula taking into consideration the closing price of the
company’s shares on the stock exchange on January 13, 2008 (the last trading day
before the board of directors’ resolution), which was NIS 237.40 per share, while
the weekly standard deviation was 4.3%. The following assumptions were taken into
consideration in the calculation of the economic value: a. All the option warrants shall
be exercised on the last day of their exercise period; b. assuming the exercise of all
the option warrants and theoretically assuming the allotment of the maximum amount of
exercise shares. It is hereby clarified that pursuant to the plan, the maximum allowable
allotment, is only in the amount of the bonus; c. The computation of the economic value
does not take into account the fact that the option warrants will not be registered for
trading on the stock exchange, and does not take into account the restriction on the
options during the restriction periods set forth in the plan; d. the standard deviation
was computed in accordance with the weekly returns of an ordinary share of the company
for the six months ended on December 31, 2007; e. the annual discount rate for the option
warrants was set at 4.5%. |
93
| |
The
option warrants are allocated to the Offerees free of charge. |
| |
The
exercise price of each of the option warrants shall be NIS 223.965 per share. The
exercise price is determined according to the average closing price of an ordinary share
of the company on the stock exchange in the thirty (30) trading days preceding the date
of the board of directors’ decision on the approval of the plan (January 14, 2008),
after deducting 10% (hereinafter: “The Exercise Price”). |
| |
On
the exercise date the offerees will not be required to pay the exercise price and the
exercise price will only be used to determine the amount of the bonus and the amount of
exercise shares that will actually be allotted to the offerees, shall be calculated
according to the conditions of the remuneration plan. The payment that the Offerees will
actually make to the Company upon exercise of the options will only be equal to the level
of the par value of the shares actually allocated (or transferred) to them upon the
exercise. |
94
| |
Also,
the option plan includes further instructions regarding the price of exercising of the
option warrants, adjustments in cases of changes in equity and dividend payment and
entitlement to exercise the options in case termination of employment. |
| 12.4.5.2 |
Options
plan 2001 |
| |
In
2001 the board of directors of the company approved two option plans (an options plan for
employees in the group and an options plan for senior officers in the group). As of the
reporting date, the full amount of options allotted under said plan were exercised or
have expired. |
| 12.5 |
Extraordinary
transactions with officers or controlling shareholders |
| |
The
Articles of Association of the company includes a provision under which, subject to the
provisions of the Companies Law, a transaction of the company with an offer or
shareholder of the company or a transaction of the company with another person in which
the offer or shareholder of the company has a personal interest, and which are not
extraordinary transactions, shall be approved as follows: |
| |
A.
An engagement as aforesaid, in an extraordinary transaction, shall be
approved by the board of directors by the audit committee or by another organ
authorized thereto by the board of directors, whether by a specific decision or
in accordance with the directives of the board of directors, whether by a
general authorization, or by authorization for a certain type of transactions
or by authorization for a particular transaction. |
95
| |
B.
The approval of transaction that are extraordinary as stated in sub-section a
above, may be carried out by granting a general approval to a certain type of
transactions or by approving a particular transaction; |
| |
Subject
to the provisions of the Israeli Companies Law, a general notice given to the board of
directors by an officer or controlling shareholder in the company, concerning his
personal interest in a particular entity, while specifying his personal interest, shall
constitute disclosure by the officer or controlling shareholder, to the company, of said
personal interest, for the purpose of any engagement with an entity as aforesaid, in an
extraordinary transaction. |
| |
On
March 7, 2006, the board of directors of the company approved that the company’s
management is the authorized entity to approve extraordinary transactions by the company
with an officer or controlling shareholder or a transaction by the company with another
person, in which the officer or controlling shareholder in the company has a personal
interest, as stated in the above section. |
| |
The
company and/or its subsidiaries have several engagements with interested parties in the
company and/or with companies in which the interested parties in the company are
controlling shareholders therein, which are conducted in the course of ordinary business
under such conditions and at such prices which are not different from those acceptable in
the company with respect to its other clients and suppliers such as the purchasing and
leasing of equipment, cellular communications and insurance issues. |
96
| 13. |
Enforcement
procedure |
| |
On
August 8, 2007, the board of directors of the company adopted a plan that includes an
enforcement procedure concerning the duties of reporting in accordance with Israeli
securities laws and an enforcement procedure concerning the prohibition to use inside
information. The plan was approved in accordance with the company’s policy to
enhance transparency and ensure maximum control over the management of its business.
Under the plan, the company’s legal counsel was placed in charge of the enforcement
and execution of the plan. The plan includes two main procedures: One, an enforcement
procedure concerning the company’s duties of reporting under Israeli securities
laws. This procedure is designed to ensure that the company complies with all the
reporting duties applicable thereto (inter alia, the annual reports, quarterly reports
and immediate reports) and that it adequately reports the approval of transactions with
officers and controlling shareholders. Under this framework, the company approved the
establishment of a remuneration committee and to authorize it to approve the terms of
employment of officers, except for the CEO, which do not constitute unexceptional
transactions. The second procedure is an enforcement procedure concerning the prohibition
to use inside information. This procedure was designed to assist in ensuring the
existence of regulations that prohibit the use of inside information for the purpose of
trading in securities of the company. The procedure will help the company to reduce the
risks that arise from the use of inside information. Under this procedure, a person was
made responsible of inside information affairs, and is in charge of handling the issue.
Among other things, the procedure established different guidelines and limitations that
apply to “insiders” in the company (as they are defined in the procedure) in
connection with trades in securities of the company and regarding the provision of
information about the company. |
| |
The
company finances its activity from independent sources and bank loans. It should be noted
that the company has issued 2 series of bonds. In 1992, the company issued bonds to
institutional investors in the amount of NIS 48 million (hereinafter: “Bonds
Series 1”). The bonds bear an interest rate of 3.8% per annum while the
principal and interest are linked to the CPI. The balance of bonds as of December 31,
2007, in the amount of NIS 14.1 million, is repayable in two equal installments during
the month of June of each of the years 2008-2009. The bonds are not convertible to
company shares and are not registered for trading on the stock exchange. In December 2003
the company issued, by way of private placement bonds through a tender offer to
institutional investors in the amount of NIS 200 million (hereinafter: “Bonds
Series 2”). The bonds bear an interest rate of 5.65% per annum while the
principal and interest are linked to the CPI. The principal is repayable in seven equal
installments as of December 2007. The balance of the bonds, as of December 31, 2007, in
the amount of NIS 182 million is repayable in 6 equal annual installments during the
month of December of each of the years 2008-2013. The bonds are not convertible to
company shares and are not registered for trading on the stock exchange. |
97
| |
Below
are details regarding the volume of loans assumed by AIPM and the average interest paid
thereupon as at December 31, 2006 and 2005: |
| 31.12.2007 |
|
Sources of
Finance |
Actual Sum
(In NIS M) |
Average
Interest |
Payment Date |
| Short Term Loans |
Non-linked |
Banks |
143 |
4.7% |
|
| Long-Term Loans |
Linked to Prime |
Banks |
34 |
5.7% |
2012-2014 |
| Long-Term Loans Series 1 Debentures |
Index Linked |
Institutional Bodies |
14 |
3.8% |
Up to 2009 |
| Long-Term Loans Series 2 Debentures |
Index Linked |
Institutional Bodies |
182 |
5.65% |
Up to 2013 |
98
| 31.12.06 |
|
Sources of
Finance |
Actual Sum
(In NIS M) |
Average
Interest |
Payment Date |
| Short Term Loans |
Non-linked |
Banks |
203 |
5.9% |
|
| Long-Term Loans |
Linked to Prime |
Banks |
39 |
6.6% |
2012-2014 |
| Long-Term Loans Series 1 Debentures |
Index Linked |
Institutional bodies |
20 |
3.8% |
Up to 2009 |
| Long-Term Loans Series 2 Debentures |
Index Linked |
Institutional bodies |
207 |
5.65% |
Up to 2013 |
| 31.12.05 |
|
Sources of
Finance |
Actual Sum
(In NIS M) |
Average
Interest |
Payment Date |
| Short Term Loans |
Non-linked |
Banks |
93 |
4.5% |
|
| Long-Term Loans Series 1 Debentures |
Index Linked |
Institutional bodies |
27 |
3.8% |
Up to 2009 |
| Long-Term Loans Series 2 Debentures |
Index Linked |
Institutional bodies |
207 |
5.65% |
Up to 2013 |
| |
The
company has not committed to any financial covenants. As of the reporting date, the
company has a banking credit facility of NIS 366 million, of which, as of December 31,
2007, a sum of NIS 177 million has been used. |
| |
On-call
loans held by the Company are with a variable interest rate. An interest update is
carried out during the Bank of Israel’s change in interest rates. During the years
2007, 2006 and 2005 the average interest rate in respect of these loans was 4.3%-5.3%,
5.3%-6.3% and 4.3%-5.3%, respectively. |
| |
The
average interest rate close to the reporting date was 4.5%. |
99
| |
The
Company has liability towards Hogla-Kimberly in accordance a capital note was granted in
the amount of approximately NIS 33 million, for further details see Note 4 to the Company’s
financial reports dated December 31, 2007. |
| |
The
company has a credit rating for the Series I and Series II bonds issued by the company of
AA-/Stable. (The credit rating AA- was issued in December 2003 and was ratified in April
2006. In February 2008, the credit rating of said bonds was validated with a credit
outlook of AA-/Stable). |
| |
As
stated in section 9.1.4.4 above, on November 19, 2006, the board of directors of the
company approved the acquisition of a new machine which manufactures packaging paper. The
value of the entire transaction, which was approved by the board of directors, including
a related investment in a paper waste collection system (which is used as raw material)
is NIS 690 million. In addition to capital raised under the private placement in November
2007, as aforesaid in section 5.4, the company is examining several ways to raise the
funds required to complete the acquisition of the new machine, including by way of a
public offering of the company’s securities. |
| |
The
Company forms part of the I.D.B. Group and is influenced by the Israel Banking Supervisor’s
“Correct Banking Management Regulations”, which include amongst other things,
limits to the volume of loans an Israeli bank can issue to a single borrower; to a single
“borrowing group” (as this term is defined in the said regulations), and to the
six largest borrowers and “borrowing groups” at a bank corporation. I.D.B.
Development, its controlling shareholders and some of the companies held thereby, are
considered to be a single “borrowing group”. Under certain circumstances, this
can influence the AIPM Group’s ability to borrow additional sums from Israeli banks
as well as upon their ability to carry out certain business transactions in partnership
with entities that drew on the aforesaid credit. |
100
| 15.1 |
Tax
benefits arising from the (Israeli) Law for the Encouragement of Capital Investments -
1959 (hereinafter: “The Law”). |
| |
According
to the Law, the activity (hereinafter in this clause: “The
Factory”) was eligible for different tax benefits (primarily reduction of tax
rates) until 2003 by virtue of several of its production facilities being awarded
“Approved Enterprise” status. |
| |
During
the benefit period – Primarily 7 years starting with the year where taxable revenues
were first generated by the Approved Enterprise (and provided that the time limits set by
the law have not elapsed) – Company revenues derived from the “Approved
Enterprises” it owns is subject to reduced tax rates, or these revenues are
alternately tax exempt, as follows: |
| |
1) |
Corporate
Taxes at a 25% rate instead of the normal rate (see (d) below). |
| |
2) |
Tax
exemption for revenues from certain Approved Enterprises who have selected to
apply for the “alternative benefit track” (renouncing eligibility for
state-guaranteed loans in exchange for the tax exemption); this exemption is
for a four-year period, subsequent to which the revenues from said plants will
be eligible for the 25% tax rate for three years. |
| |
The
part eligible for tax rate benefits, out of the taxable revenues, is based on the ratio
of turnover associated with the Approved Enterprise and the total turnover of those
companies, and accounting for the ratio of Approved Enterprise assets to the total assets
of those companies; the turnover associated with the Approved Enterprise is generally
calculated as the increase in turnover over the “baseline” turnover specified
in the letter of approval. |
| |
The
benefit period for the activity’s Approved Enterprises ended at the end of 2003. |
101
| |
The
above benefits are contingent on meeting stipulations set by the Law, on regulations
based on the Law and by the letters of approval forming the base of investments made in
Approved Enterprises. Non-conformance with these stipulations may cause the benefits to
be revoked, in whole or in part, and benefit payments that were given to be reimbursed,
together with CPI linkage differences and interest. |
| 15.2 |
Measuring
results for tax purposes according to the (Israeli) Income Tax Act (Adjustments for
Inflation) – 1985 (hereinafter: “The Adjustment Act”) |
| |
According
to the Adjustment Act, results for tax purposes are measured on a real-term basis,
accounting for changes to the CPI. Companies operating in the activity are taxed subject
to this act. |
| 15.3 |
Industry
Promotion Act (Taxes) – 1969 |
| |
The
companies operating in the activity are “industrial companies” as defined in
the above act. The companies have claimed, under this status, depreciation at accelerated
rates for equipment used in industrial operations, as defined in the regulations based on
the adjustment act. |
| |
Under
this act, AIPM also files a consolidated statement for tax purposes, along with Amnir and
AIPM Paper Industries . |
| 15.4 |
Tax
rates applicable to revenues not derived from Approved Enterprises |
| |
The
company’s revenues (except for revenues derived from Approved Enterprises, see “a” above)
are taxed at normal corporate tax rates. Until Dec-31-2003 the applicable corporate tax
rate was 36%. In July 2004, Amendment no. 140 to the Income Tax Act was published,
stating that the normal corporate tax rate will be gradually decreased from 36% to 30%.
In August 2005 a further Amendment to the act (No. 147) was published, modifying the
corporate tax rates set in Amendment No. 140; subsequent to these modifications, the
applicable corporate tax rates for 2004 and thereafter are as follows: 2004 – 35%,
2005–34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26%, 2010
onwards – 25%. |
102
| |
As
a result of changes to said tax rates, the company has updated the deferred tax balances
in the years 2004 and 2005 (at those dates when the act was amended), accounting for the
anticipated tax rates in coming years. The effect of the change was reported in the
Statements of Income for those years. |
| |
The
companies operating in the paper and recycling area have finalized tax assessments
through Dec-31-2005. |
| 15.5 |
Carryover
Tax Losses |
| |
The
balance of carryforward losses of the joint companies, as of December 31, 2007, 2006 and
2005, amounts to NIS 24,334,000, NIS 24,036,000 and NIS 22,470,000, respectively. |
| |
According
to the Adjustment Act, carryover losses are linked to the CPI and may be utilized without
any time limits. |
| |
Graffiti
has tax assessments deemed final through Dec-31-2002. |
| |
For
additional details on this matter see Note 7 to the financial statement of the company as
of December 31, 2007. |
| |
For
details on the tax aspects in Turkey in connection with KCTR, see section 22.3.12 below. |
103
| |
The
company and its subsidiaries are insured by Clal Insurance Ltd., a company controlled by
IDB Development, under the insurance policies specified hereunder: (a) insurance of fire
damage and loss of profits (b) insurance of terror damage (c) insurance of mechanical (d)
insurance of employers’ liability (e) insurance of third party (f) insurance of
goods in transit (g) officers’ liability insurance (as detailed in section 12.4.5 below).
The policies are valid until the 31st of May 2008. The total annual insurance
premium of all the insurance policies set forth above in respect of the company and its
subsidiaries in 2007 was NIS 2-3 million. The company has additional insurance policies
in immaterial amounts, such mandatory insurance and comprehensive insurance for its
vehicles. According to the company’s estimation the insurance coverage of the
company is commensurate. |
104
| 17.1 |
Letters
of indemnification – Pursuant to the resolutions of the general meetings of the
company dated June 21, 2006 and July 14, 2004, the company issues letters of
indemnification to all the directors and officers of the company, including directors
that are considered controlling shareholders in the company (Mr. Zvika Livnat and Mr.
Itzhak Manor), as they may be from time to time. Under the letters of indemnification,
the company provides all the directors and officers therein, as they may be from time to
time, indemnification in advance, in accordance with the company’s Articles of
Association and the provisions of the Companies Law in respect of any liability or
expenses imposed on the officer in consequence of actions he has taken and/or will take
by virtue of being an officer of the company, which are related directly or indirectly,
to one or more of the type of events outlined in the letters of indemnification, such as:
(a) transactions and/or actions performed directly and/or indirectly in the course of the
group’s activity, including the transfer, provision, sale or acquisition of assets
or liabilities including securities or different rights, and including purchase offers of
any type or merger of the company with another entity as well as a transaction in
securities issued by the company, whether the company be a party to these transactions
and actions or not; (b) an offer, issuance and buy-back of securities by the company or
by the shareholders of the company, including, but without derogating from the generality
of the aforesaid, a public offering under a prospectus, a private offer or an offer by
another other way; (c) an event that arises from the company being a public company or
that arises from its shares being offered to the public or that arises from its shares
trading on the stock exchange in Israel or outside Israel; (d) events related to the
performance of investments by the company in any corporations, including before, during
and after the performance of the investment, and including actions carried out on behalf
of the company with a director, officer, employee or observer in the board of directors
of the corporation in which the investment is made; (e) an action in connection with the
issue of licenses and permits; (f) an action directly or indirectly related to
employer-employees relations in the company and to the company’s trade relations;
(g) an action in connection with reports or announcements submitted in accordance with
the law, or in accordance with the rules or guidelines of the stock exchanges in which
the company is traded or in accordance with the provisions of tax laws applicable to the
company; (h) the transfer of information required by law to interested companies in the
company; (i) actions in connection with voting rights in investee companies; (j) all the
transactions, actions and events set forth shall include the resolutions, agreements,
announcements, disclosure documents and reports related thereto, and any other matter
related to the aforesaid whether directly or indirectly, whether these transactions
and/or actions have been completed or not, for any reason whatsoever. |
105
| |
The
amount of indemnification pursuant to all the letters of indemnification that have been
provided and/or will be provided to the offers and employees of the company, shall not
exceed a cumulative sum equal to 25% of the company’s shareholders’ equity in
accordance with the last consolidated financial statements published prior to the actual
provision of indemnification. It is furthermore noted that, in the event where an officer
receives indemnification from the insurer of the officers’ insurance policy,
concerning the matter which is the subject of indemnification, the indemnification shall
amount to the difference between the amount of financial liability imposed on him and
legal expenses, and the amount received from the insurer in respect of the same matter,
provided the amount of indemnification to which the company has committed does not exceed
the maximum amount of indemnification |
| 17.2 |
Agreement
for the sale of holdings in TMM – in the beginning of 2007, the company
completed a transaction under which it sold to CGEA, pursuant to an agreement signed on
January 4, 2007, all its holdings in TMM directly (though a complete purchase offer) and
indirectly (under an agreement with CGEA for the sale of its holdings in Bartholome) for
a total consideration of $27 million, so that AIPM completely ceased to hold shares in
TMM. For additional details see section 22.5 below. |
| |
There
are no material legal proceedings, including requirements of government authorities,
against the company. Regarding legal proceedings that appear in the financial report ,
see note 9 in the financial statements of the company as of December 31, 2007
enclosed to this report. |
| 19. |
Business
Objectives and Strategy |
| |
AIPM,
together with its strategic partners in various fields (associated companies) aspires to
continue to develop its business both in Israel and abroad, while being rigorous about
its market leadership and innovation at the same time, and while constantly improving its
products and customer service. This is in addition to expanding its production capacity,
broadening its basket of products and its span of activity, while simultaneously
continuing to improve efficiency in all production cost components. |
106
| |
AIMP
examines from time to time, subject to business opportunities and the company’s
decisions on this subject, the inclusion of strategic partners for its activities that
are currently carried out by fully-owned subsidiaries. |
| |
As
part of the above mentioned measures, the Company is initiating steps to achieve synergy
between the Group’s companies in order to gain economies of scale for the Group and
gain more efficiency and cost cutting, including energy and raw materials costs. |
| |
The
company continues the implementation of cross-organizational plans: The talent management
plan, for the definition of key performance indicators and for the improvement of
performance, as well as plans for the development of middle management for operations.
For details see section 12.1 above. |
| |
In
addition, the company has adopted a plan for the implementation of work processes and
marketing approaches targeted on institutional markets, for the intensification of the
companies’ added value in client perception and the improvement loyalty premium and
price on the basis of differentiation of products and service. The plan is at various
stages of implementation in the group’s companies. In addition, the company has
adopted a Center Lining plan (which is also implemented at the global Kimberly-Clark) for
the improvement of production line, designed to enhance the operating performance. The
plan’s methodology creates a common basis for all the divisions that affect the
operation of machines, such as: maintenance, technology and operations, while
continuously measuring the variance of selected parameters, to create a process of
continuous improvement in quality and costs. The company continues to assimilate the
plans in all the group’s companies in order to exhaust the potential in the next few
years. |
107
| |
The
company performs a reorganization process in the purchasing department in order to save
the purchasing costs for the group. An annual purchasing work plan was prepared in 2006,
at the Group and Company level, including objectives and indexes. Moreover a process of
spend analysis has been launched at the Group, in order to define the main purchasing
categories and the potential for group savings,to improve the purchasing
infrastructure from the aspect of information systems for planning and control,
purchasing categories and the unification of items at the Group. Under the reorganization
in the purchasing department, the organization structure was also changed. |
| |
At
the same time, the company has been conducting marketing activity according to the B2B
client orientation, aimed at creating a business client focus based on the understanding
of the clients’ needs, their value to the company and their prioritization, to
create an advantage and differentiation in company solutions, which would enhance loyalty
and improve premiums relative to competitors. |
| |
The
company has also been implementing a pro-active approach with respect to safety and
management culture, under which employees should identify risks and take action to
prevent them, while the responsibility for the safe operation of the various tools lies
with all the staff. The purpose of this approach is to minimize safety events, increase
the information on risks and expand the cooperation between managers and staff on the
subject of safety, quality and other activities in the company. |
| |
These
actions, together with a focus on plans for saving costs and raising prices are designed
to contribute to further rationalization, reduce the effect of input price increases on
results and improve profitability. |
108
| |
As
stated in section 9.1.4.4 above, the company is setting up a new facility, according to
the Board of Director’s approval, for the manufacture of packaging paper (machine
8), that will allow the company to meet the growing demand of the domestic market, at a
more competitive cost to the company and with a higher paper quality relative to imports.
According to the Company, after the establishment of the new facility and its due
operation in 2009 and another machine’s lockout, there will be an increase in the
Company’s packaging paper’s production from 160 thousand tones a year to 330
thousand tones a year. Purchase of the new paper packaging machine requires doubling,
over the coming years, of collection volume of paper waste to serve as raw material for
packaging paper production. Accordingly, the company, through Amnir, is preparing to
increase the quantity of paper waste collection, which are currently being used for raw
material for the manufacturing of packing paper in the next few years, towards the
setting up of the new facility, among others, by expanding the collection of paper waste
among existing clients and developing new sources of collection, adapting the
organizational structure, examining an alternative site and accumulating inventory. |
| |
As
of the Report Date, the Company is reviewing and promoting installation of a power plant
intended to provide steam and electricity for the production system in Hadera, and to
sell excess electricity to the Israel Electric Company and/or to private customers. The
power plant, should it be installed, is planned to operate on land acquired for this
project adjacent to the Company facility in Hadera, and is to be operated by natural gas
to be supplied by EMG, pursuant to the agreement described in section 9.14.3 above.
Approval of the power plant project is delayed, inter alia, due to delayed publication of
arrangements and tariffs for sale of electricity to the grid. The anticipation to those
publications regarding the hedging to the manufacturers in this industry according to
Government’s decisions and regulations that followed (between the years 2002-2005).
The Company is examining also the construction of the power plant in stages. |
| |
The
above information regarding construction of the power plant constitutes forward-looking
information as defined in the Israeli Securities Act, based on company estimates as of
the Report Date. This estimate may not materialize, in whole or in part, or may
materialize differently due to, inter alia, changes to the Company’s work plan,
regulatory changes, market conditions, economic feasibility review, dependence on
external factors or any of the risk factors set forth in section 9.16 and 21 below. |
109
| |
In
the area of office equipment, the company’s goals are to continue the reinforcement
of Graffiti’s position as a market leader in direct supply of office equipment to
institutions and businesses in Israel (“One Stop Service”), while focusing on
expanding the range of products offered to existing clients, increasing the marketing
activity vis-à-vis potential clients and expanding the use of e-commerce site. |
| |
In
addition, as stated in section 9.12 above, the company plans to promote the means by
which to reduce the wastewater channeled to the Hadera River from the company’s site
and the reuse of some of this wastewater in the Hadera site. |
| |
The
company also continues its efforts to promote the processes of innovation in the group’s
companies by developing new products and through competitive differentiation. |
| |
The
company’s strategic goals as laid out above are based on the company’s
objectives and ambitions as of the reporting date and could change in accordance with the
relevant decisions made by the company. |
| |
Said
information is considered forward looking information as defined in the Securities Law,
and constitutes forecasts and assessments on the part of the company, the realization of
which is not certain and based on information existing in the company as of the date of
the report. These forecasts and estimates by the Company may not materialize, in whole or
in part, or may materialize in a manner significantly different than that expected. The
major factors that could impact this are business opportunities the company may have,
dependence on external factors, changes in demand and supply, developments and changes in
regulation and/or realization of any of the risk factors outlined in section 9.16, 10.14
and 21 below. |
110
| 20. |
Anticipated
development over the next year |
| |
As
part of the expansion of the manufacturing array of packaging paper, the company
anticipates that it will complete the acquisition of the new machine (Machine 8), as
mentioned in Section 9.1.4.4, above, in the course of the coming year. In addition to
capital raised under the private placement in November 2007, as aforesaid in section 5.4,
the company is examining several ways to raise the funds required to complete the
acquisition of the new machine, including by way of a public offering of the company’s
securities. |
| |
The
power plant project, that is intended to provide steam and electricity for the
manufacturing operations in Hadera and to sell surplus electricity to Israel Electric
Company and/or private customers, is being delayed, inter alia, due to delayed
publication of arrangements and tariffs for sale of electricity to the grid. The
expectations for these publications are based on the protection afforded to manufacturers
in industry, by virtue of government resolutions and regulations that followed (between
the years 2002-2005). The Company is also reviewing a multi-stage approach to
construction of the power plant. The station will be built on land that was acquired for
the project in proximity to the Company’s site in Hadera and its operation will be
based on natural gas that will be supplied from EMG, in accordance with the agreement, as
aforesaid in Section 9.14.3 above. |
| |
As
at the date of the report, the Company is formulating a multi-annual plan for social
responsibility that will be launched in 2008 and will empower the organization’s
operations in this area. The company is working to create ethical business growth that
will be sustainable and profitable and that will encompass assuming responsibility and
influence, inter alia, on the market environment (clients, suppliers, competitors,
authorities, etc.), the work environment, employee rights and safety, employee
development, investment plans in the community and employee volunteering. |
111
| |
The
company’s assessments regarding the expansion of the packaging paper manufacturing
array, the power plant project and the social responsibility project as mentioned above,
constitute forward-looking information, as defined by the Securities Law, based on
information held by the Company as at the date of the report. These estimations may not
materialize, in whole or in part, or even materialize in a manner essentially different
than expected. Major factors which may impact this include changes to market supply and
demand, changes to company plans, obtaining regulatory authorization and/or
materialization of any of the risk factors set forth in section 9.16, 10.14 and 21 below. |
| |
The
Company conducts periodical discussions regarding market risks and exposure to exchange
rate and interest rate fluctuations, with the participation of the relevant factors, so
as to reach decisions in this matter. The individual responsible for the implementation
of market risk management policy at the Company is Israel Eldar, the Company’s
Comptroller. |
| 21.2 |
Macro-Economic
Risk Factors |
| 21.2.1 |
Economic,
political and social situation |
| |
An
economic slowdown in Israel or globally and/or a deterioration of the political and
security situation in Israel and outside Israel could have an adverse effect on the
financial situation of the company and the group’s companies. In addition, these
circumstances could reduce the demand for the company’s products, and as a result
hurt sales, financial results and profitability. |
112
| |
Since
the Company possesses a significant surplus of liabilities linked to the CPI, especially
for the debentures that the Company had produced, for an overall amount of NIS 196
million, a high inflation rate could result in significant financial expenses. The
Company occasionally enters into hedging transactions to cover the said exposure on
account of the liabilities. A high inflation rate may also impact payroll expenses, which
are adjusted over time to changes in the consumer price index. |
| |
At
the beginning of 2008 the company entered into hedging transactions against increases in
the CPI, for a one-year period, in the amount of NIS 140 million, following previous
transactions made in December 2006 and in January 2007, and terminated at the end of 2007. |
| 21.2.3 |
Exposure
to Exchange Rate Fluctuations |
| |
The
Company and its consolidated subsidiaries and associated companies are exposed to risks
on account of changes in exchange rates, whether due to the import of raw materials and
finished goods, or due to exports to foreign markets. Changes in exchange rates of
various currencies against the NIS may erode profit margins and cash flows. |
| |
Approximately
half of the Company’s sales are denominated in US dollars, whereas a significant
share of its expenses and liabilities are in NIS. |
| |
In
September 2007 the company entered into dollar/Euro hedging transactions for periods of
up to four months, in the amount of NIS 13.4 million, terminated at the end of 2007. In
December 2007, the company entered into buy and sale transactions of Euro – NIS
options for up to one year period for 20 million Euro. |
113
| |
The
company is exposed to changes in interest rates, primarily in respect of bonds it has
issued in the amount of NIS 196 million, as of December 31, 2007. For details see section
14 above. |
| 21.3 |
Field-Specific
Risk Factors |
| |
For
details regarding field-specific risk factors, see Section 9.16.1 below for the packaging
paper and recycling activity and Section 10.14.1 below, for the office supplies marketing
activity. |
| 21.4.1 |
Accounts
Receivable Risks |
| |
Most
of the sales of the Company and its associated companies are made to many customers in
Israel, with some sales being made without full collateral. Exposure to accounts
receivable risk is generally limited due to the relatively large number of customers. The
companies constantly review customer quality to determine the necessary provision for
doubtful debts. The financial statements reflect appropriate provisions for doubtful debt. |
| 21.4.2 |
Group
of Borrowers |
| |
As
the company is part of the IDB Development Group, the group may be affected from the
directives of proper banking management of the Supervisor on Banks in Israel which, inter
alia, include restrictions on the amount of loans an Israeli bank may provide to a single
borrower and to a group of borrowers. IDB Holdings and some of the companies in the IDB
Group are considered as one group of borrowers. This may, under certain circumstances,
affect the company’s ability to borrow funds from an Israeli bank. |
114
| |
As
to the risk factors in each of the company’s fields of operation, see sections 9.16
and 10.14 below. |
| 21.5 |
The
extent of impact of risk factors |
| |
Following
below is a list of the Company’s risk factors and their influence upon the Company:
For details regarding the company’s assessment of the type and degree of influence
of the field-related risk factors, see Sections 9.16.1 and 10.14.1, above. |
| Risk Factors |
Degree of Impact |
| Major Impact |
Medium Impact |
Minor Impact |
| Macro-economic
factors
|
|
—
Economic, political and
social situation
—
Exposure to exchange eate
fluctuations
|
—
Interest risks
—
inflation
|
| Special Factors |
|
—
Accounts Receivable Risks
—
Group of Borrowers
|
|
| 22. |
Investments
in Associated Companies |
| |
Following
below is a description of the Company’s principal associated companies. The results
of operation of these companies are not consolidated in the Company’s financial
reports and are presented as part of “Investments in associated companies”section
in the company’s financial reports. |
115
| 22.1 |
Mondi
Hadera Paper Ltd. |
| |
Mondi
Hadera manufactures printing and writing paper, and sells imported paper, such as coated
paper and special paper, complementary to its product range. Additional details
concerning Mondi and its activities will be given below. |
| 22.1.1.1 |
Mondi
is a privately-held company established at the end of 1999 under the framework of a
transaction arranged between the company and an Austrian company Neusiedler AG, which, as
of the date of this report, belongs to the Mondi Holdings Group. Neusiedler AG changed
its name to Mondi Business Paper Ltd. (hereinafter: MBP). On February, 2000 , MBP
purchased 50.1% of the company’s activity in the area of writing and printing
papers, that was separated prior to the transaction and transferred to Mondi, which as
aforesaid, was established for this purpose. |
| |
Following
the transaction, as of the date of this report, Mondi’s shareholders are AIPM (which
holds about 49.9% of Mondi’s issued capital) and Neusiedler Holdings BV, a company
that belongs to the Mondi Holdings Group (which holds 50. 1% of Mondi’s issued
capital). |
| 22.1.1.2 |
The
main points of the agreement between AIPM and MBP According to agreements that were
signed by both parties (hereinafter: “The Agreement”) are as follows: |
116
| |
A. |
As
long as any one of the parties, AIPM or MBP, holds at least 49% of the capital
stock in Mondi, the number of directors each shareholder is entitled to appoint
will be identical. In accordance with the aforesaid and as of the date of this
report, Mondi’s Board of Directors has six directors, three appointed by
the Company and three appointed by MBP. The Board of Director’s decisions
are accepted by a majority vote. For investments up to $250,000 can be approved
by MBP’s appointed directors only. The chairman of the board of directors
is appointed from among the MBP directors, while the deputy chairman is
appointed from among the AIPM directors. The Board of Directors appoints the
CEO, the COO, Marketing Director and the CFO. |
| |
B. |
In
accordance with the Agreement, each of the parties has the right of first
refusal whenever one of the parties wishes to sell its holdings in Mondi,
subject to the aforesaid Agreement’s fixed terms. Should material events
take place as described in the Agreement (such as: intentional violation of
specific instructions in the Agreement), the other party will have the option
to purchase all of its holdings in Mondi. In addition, should certain events
take place as described in the Agreement (such as: an intentional violation of
the Agreement by the Company), the Company has granted MBP the option to sell
all of its holdings in Mondi to the Company. In the event the aforesaid option
is actualized, the sales price will be set in accordance to the estimation of
value,. However, Mondi’s value shall not be less than the sum stated in
the agreement. |
| |
C. |
MBP
was granted the option, unlimited by time and realizable at any time, by which
MBP will be allowed to sell its holdings in Mondi to the Company at a price 20%
lower than Mondi’s value. According to the Agreement, Mondi’s value
will be set according to a valuation that will not be less than the sum stated
in the agreement. According to oral understandings between the parties, MBP can
actualize the option only in the most exceptional cases, such as those that
paralyze production in Israel for long periods. It is the Company’s
estimation, the likelihood for such an occurrence is highly slim. |
117
| |
D. |
Mondi’s
management and operating system was set by MBP and in accordance with its
procedures. The process for constructing Mondi’s budget will be made in
accordance with MBP’s requirements. Technical and operational control is
performed by persons appointed by MBP. MBP is entitled to appoint Mondi’s
auditing CPA. |
| |
E. |
The
Agreement includes directives regarding decision making process in the Board of
Directors should the holdings of the two parties will decrease. |
| |
F. |
According
to the Agreement, all the decisions by the general assembly will be accepted
with a 75% majority. |
| |
G. |
In
accordance with the Agreement’s terms, the Company supplies Mondi with
various services such as infrastructure and maintenance services, as well as
leasing it real estate and buildings required for its activity. On its part,
MBP grants Mondi technical assistance, as well as assistance in marketing
Mondi’s products in Europe and the rest of the world, which during 2007
was not actually utilized by Mondi. The services provided by the shareholders,
as aforesaid, are given in lieu of payment that reflects market prices.
Furthermore, according to the Agreement and subject to the License Agreement
signed by Mondi and MBP, MBP will allow Mondi the use of its brand names in
exchange for covering the cost and without payment of royalties. |
| |
H. |
Pertaining
to the shareholders’ agreement concerning the limitations upon dividend
distributions by Mondi, see Paragraph 22.1.2 below. |
118
| |
I. |
In
addition, the Agreement includes non-competition sections between the parties,
in Mondi’s field of activity, in the time under the Agreement and an
additional period afterwards – all according to the terms set in the
Agreement. |
| |
J. |
The
Agreement shall be valid until the time that: (a) the shareholder’s entire
holdings in Mondi will be transferred; (b) a joint decision to terminate the
Agreement; (c) Mondi’s bankruptcy, insolvency or liquidation. |
| |
After
a period of 20 years, from November 1999, it is possible to terminate the Agreement by a
written notice beforehand. If the Agreement is not terminated after the 20 years as
aforesaid, the Agreement is renewed for additional periods of 10 years each time while it
can be terminated by a written notice 5 years beforehand. |
| 22.1.2 |
Dividend
distribution |
| |
Mondi
has not distributed dividend to its shareholders for the past three years. As of December
31, 2007, Mondi has earnings of NIS 62.7 million appropriate for distribution. |
| |
In
accordance with the agreement between Mondi’s shareholders, and with the lack of any
other decision, no dividend shall be distributed that will result in a drop in the equity
ratio to 30% or less than the total balance. Furthermore, in accordance with financial
criteria to which Mondi has obligated itself to some of the banks, a dividend shall not
be distributed that will result in a drop in the equity ratio to 22% or less. |
| 22.1.3 |
Financial
Information Regarding Mondi’s Activities of Operation |
| |
Below
is detailed data concerning Mondi’s financial information during the years 2007,
2006 and 2005 (in NIS million): |
119
| |
|
2007
|
2006
|
2005
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Revenues |
|
|
| 770.0 |
|
| 711.5 |
|
| 663.3 |
|
| |
Gross profit | | |
| 82.0 |
|
| 51.7 |
|
| 53.6 |
|
| |
Operating Income | | |
| 33.6 |
|
| 2.1 |
|
| 1.0 |
|
| |
|
|
|
|
| |
For
additional financial information regarding Mondi, please review the financial statement
attached to the report. |
| 22.1.4 |
The
economic environment and the impact of external factors on Mondi's operations |
| |
The
cost of pulp, which is the main raw material in the manufacture of paper, has continued
to rise during 2007 (at a rate of 12% in dollar terms against 2006), which is in addition
to the price-hikes during 2006 along with the rising costs for energy and chemicals which
considerably ground down Mondi’s profitability. However, as detailed below, the
ratio of demand and supply of paper worldwide during 2007, allowed for an increase in
sales prices for those types of products that Mondi sells. This constituted one of the
important reasons for Mondi’s return to profitability. |
| 22.1.5 |
Products
and Services |
| 22.1.5.1 |
Manufacturing
fine paper and printing papers |
| |
Mondi
is the only manufacturer in Israel of writing and printing paper. However, there are many
importers operating in the Israeli market who import writing and printing paper, mostly
from Europe. |
| |
The
annual scope of Mondi’s production of writing and printing paper totaled about 142
thousand tons in 2007 against about 133 thousand tons in 2006 and about 126 thousand tons
in 2005. The rise in manufacturing productivity derived from actualizing production goals
defined in Mondi’s construction project for its paper machine (below in this
chapter: “The Machine”) as carried out during 2005 whose aim was to improve
paper quality and increase the manufacturing capacity to at least 137 thousand tons (see
Paragraph 21.1.10 below). |
120
| |
Efficient
operation of the machine along with increasing its operating speed contributed to the
rise in Mondi’s production volume. Increasing production volume was another
significant factor in getting Mondi back to profitability in 2007. |
| |
During
2007, about 102.5 thousand tons of paper produced by Mondi was marketed in the local
market. The remainder of about 34 thousand tons was designated for direct export to
Egypt, Jordan and Turkey. During the years 2006-2007, Mondi broadened its direct export
to Middle Eastern markets until it cancelled export through MBP to Australia and the Far
East. In Mondi’s estimation, this trend will continue for the coming years and the
scope of Mondi’s export to Mid-East markets may even increase. |
| |
The
above information concerning moving Mondi’s direct export to Far East markets to
Middle Eastern ones and the possibility of broadening exports to Middle Eastern markets
constitutes forward-looking information as defined in the Israeli Securities Act, and
comprises forecasts and estimations alone whose actualization is not absolute and is
based upon Mondi’s existing information as of the date of this report. Mondi’s
forecasts and estimations may not actualize, in whole or in part, or even actualize in a
manner essentially different than expected. The major factors that could influence this
are dependent upon outside elements, changes in regulations in the area of activity,
changes in supply and demand, Mondi’s marketing success as well and/or the
actualization of one of the risk factors listed in paragraph 21.1.17 below. |
121
| |
In
2007 an increase of about 12 thousand tons in local sales was recorded (a rise of about
9.2%) against 2006. During 2006, an increase of 3.3 thousand tons against 2005 (a rise of
about 2.6%) was recorded. In 2005, a decrease of about 1,000 tons (about 0.9%) against
2004 was recorded. The growth in Mondi’s sales to the local market during the years
2007, 2006 and 2005 against the earlier year totaled about NIS 75 million, about NIS 29
million and about NIS 20 million, respectively. |
| |
In
the Middle Eastern direct export markets, an increase of 10 thousand tons was recorded in
2007 (about 44%) versus 2006. In 2006, there was an increase of 8.7 thousand tons (about
60.6%) against 2005. In 2005, a increase of about 5,200 tons (about 56%) against 2004 was
recorded. The growth in Mondi’s direct export sales during the years 2007, 2006 and
2005 against the earlier year totaled about NIS 43 million, about NIS 32 million and
about NIS 21 million, respectively. |
| |
In
2007, because of the redirection of exports from the Far East to the Middle East, Mondi
exported hardly anything through MBP (except for 650 tons). During 2006, exports via MBP
diminished by about 4 thousand tons against 2005 (about 20.1%). In 2005, exports through
MBP decreased by about 18 thousand tons against 2004 (47%). |
| 22.1.5.2 |
Sales
of imported paper – |
| |
As
mentioned above, Mondi compliments its basket of products by the importation of paper
from Europe (such as coated and special papers that it does not manufacture), the USA and
the Far East. In 2007, the annual scope of Mondi’s imports stood at about 43
thousand tons of paper, which are marketed only in the local market against 39 thousand
tons in 2006 and 47 thousand tons in 2005. |
122
| |
Amongst
Mondi’s suppliers are the Stora Enso company and the APP Group, who are its main
suppliers of different types of coated papers. The association with Stora Enso is on the
basis of commercial arrangements which are set up based on necessity. The association
with the APP Group is from July 2006 through a number of suppliers from China belonging
to the APP Group (one of the largest groups in the world in supply of coated papers
activity). The agreements with the APP Group, as aforesaid, is valid for a period of two
years, until June 2008, with an automatic extension for an additional year, except in the
event that any party to the agreement notifies beforehand that it does not wish to
continue the association. Under the aforesaid agreements, there exists an obligation on
Mondi’s part to purchase from suppliers in the APP Group, as aforesaid, an amount of
no less than about 15 thousand tons per year. |
| |
Mondi
markets its products to a wide range of customers in Israel as well as abroad. Mondi has
about 700 customers in Israel, the main ones being printing houses, paper wholesalers,
office machinery wholesalers, paper products manufacturers and end-users. Mondi markets
abroad to big wholesalers in the paper activity as well as to big printing houses and
manufacturers in Jordan. |
| |
As
of the Report Date, Mondi is not dependent upon any single customer or a group of
customers that might significantly influence its operations. Furthermore, as of the
Report Date Mondi does not have revenue from any single customer that constitutes more
than 10% of its total revenues. |
123
| 22.1.7 |
Marketing
and Distribution |
| |
Mondi
has a local distribution system which gives it the ability to market its products to a
variety of its customers operating within the Israeli market. During 2006 and 2007, Mondi
worked to expand its distribution set-up, and secured institutional tenders, including
the provision of distribution services to customers down to the end-user level. |
| |
Distribution
to Middle Eastern customers is carried out to the border points (to Egypt via the
Nitzanim Terminal and to Jordan via the Sheikh Hussein Bridge) while transportation from
these border points to the customers is done at the customers’ expense. |
| |
Mondi
distributes its products from three logistic sites throughout Israel. |
| |
The
largest and most central of Mondi’s sites is the Company’s site in Hadera, next
to Mondi’s production and finishing installations. Most of the imported paper is
also received at this site, and paper designated for exports is sent from there, by
transfer to containers sent off to the ports by truck. At the time of the report, about
135,000 tons annually are distributed (some of the imported paper is sent directly from
the port to the customer). This site serves Mondi largest customers throughout Israel. |
| |
The
second largest site is located in Holon, and products are distributed from this site to
Mondi customers in the Dan region and Jerusalem, to those customers who do not have the
capacity to take in large quantities of paper, or customers demanding an immediate level
of service. Distribution is performed from this site via trucks owned by Mondi, as well
as via trucks belonging to Mondi customers. |
124
| |
The
third site is located in Nesher, next to Haifa, and serves customers in the north. This
site operates in a manner identical to the Holon one, albeit on a smaller scale. |
| |
Mondi
sales are mostly sales from existing inventories, and are not performed by advance
orders. |
| |
As
of the date of the report, Mondi is not dependent upon any one marketing channel listed
above in this paragraph. |
| |
The
entry barriers to manufacturing writing and print papers are high due to the heavy
investments in paper machinery required for its production. On the other hand, Mondi is
exposed to competition from paper importers who do not come up against entrance barriers
to the Israeli market. As there are no restrictions, obstacles or customs imposed on
paper imported into Israel, Mondi must constantly maintain its advantages as a local
manufacturer, such as availability, flexibility, service and quality, in order to deal
with its competitors. |
| |
Mondi’s
main competitors are the following paper importers: Niris Ltd., Ronaimer Ltd., Allenper
Trade Ltd., Mei Hanahal Ltd. and BVR Ahvat Havered Ltd. By Mondi’s estimation, its
local market share is significant but it is unable to assess it. |
| 22.1.9 |
Manufacturing
Capacity |
| |
Under
Mondi’s proprietorship is a paper production machine for writing and printing
papers. As of the date of this report, it is in full production year round, 24 hours a
day, in 3 shifts. Furthermore, under Mondi’s ownership is machinery for processing
the aforesaid products which work at high production levels (about 55%) in 2-3 shifts as
needed. |
125
| 22.1.10 |
Fixed
Assets and Facilities |
| |
Mondi
leases most of its areas and the buildings used for production and storage in Hadera from
the Company. The leasing agreement is for a period of 24 years and 11 months beginning
November 1999. According to the agreement, each party can cancel the agreement by
advanced notice every 10 years, as well as to cancel leasing of parts of the leased
property by a year’s advanced notice. Furthermore, the distribution sites in Holon
and Nesher are leased to Mondi by third parties unconnected to Mondi. The lease agreement
for the Holon property is until the end of 2008 and the one in Nesher is until the end of
2009 while Mondi has the option to extend these agreements for an additional two years. |
| |
In
2005, Mondi performed construction on its paper machine in order to improve the quality
of paper and increase the production capacity by about 10,000 tons per year, to 137,000
tons. Mondi also invested in another cutting line (from rolls produced on the machine
into sheets and packages, and their packaging). These investments came to a total of
$11.9 million. In light of these heavy investments, Mondi’s routine investments
during 2006 and 2007 diminished to insignificant sums. Additional improvements were made
to the machine beyond the original aforesaid construction goal but by insignificant
amounts. During 2007, Mondi’s paper machine production output reached about 142
thousand tons. |
126
| |
Mondi’s
most important and main resource is its human capital. Mondi places at the top of its
objectives, the development of its human capital and invest efforts in worker training
and further education, including specific training for different appointments. |
| |
Mondi
also places an emphasis on the matter of safety at work in general, and of the employees
in particular, by implementation of a proactive safety policy (for prevention of the
causes of accidents by investigating cases of near-accidents, in order to prevent the
accidents themselves from happening, to the extent possible). |
| |
All
of Mondi’s employees are employed by AIPM and are subject to AIPM’s wage
agreements. According to the agreement between Mondi’s shareholders, Mondi’s
employees are on loan from AIPM and Mondi undertakes their employment costs. |
| |
Over
the last few years, Mondi implemented far-reaching cutbacks in manpower, as part of the
comprehensive streamlining process it implemented, and the work force was scaled back
from 359 employees in 2000 to 310 at the end of 2007. |
| |
The
employees are engaged under two types of agreements as of December 31, 2007: 219 workers
are employed under a collective agreement and 91 are employed under personal contracts. |
| |
Mondi
has an options program for its senior managers by which the annual bonus is set, among
others, in consideration of meeting objectives. Mondi’s CEO was allocated options in
2005 and 2006 under MBP Group’s managerial bonus plan. During the first quarter of
2008, approval was given for granting realizable stock options for AIPM’s regular
stock to a number of Mondi’s senior managers under AIPM’s bonus program for the
group’s senior employees. For details see Paragraph 5.6 above. |
127
| |
The
accounting expense entered for 2006 and 2007 due to granting options to employees who
were granted them after 2005, are insignificant for Mondi. |
| |
Mondi
is not dependent on any particular employee out of the company’s total employees. |
| 22.1.12 |
Raw
Materials and Suppliers |
| |
For
its operations, Mondi requires the raw materials listed below: |
| 22.1.12.1 |
Pulp – The
principal raw material used in the production of paper is pulp. Engagement for purchase
of pulp is performed in a centralized manner for Mondi and for MBP (the parent company)
and for other plants in Europe, allowing for a constant supply of pulp as well as
economies of scale. Under the annual negotiations that exist between MBP (in coordination
and in cooperation with the Mondi’s responsible officer) pulp suppliers, framework
agreements are made between them and MBP which obligate them to supply a certain amount
of pulp to the MBP Group (with Mondi included therein), These agreements do not set pulp
prices, which are set in a routine manner according to pulp’s global market prices
every month. Mondi pays the pulp’s price directly to the supplier and pays a
commission to MBP in order to cover its costs alone. Mondi purchases 110,000 tons of pulp
per year from three major sources, at a financial value of $73 million per year. All the
pulp is purchased overseas within the framework of long-term contracts, which include
mechanisms for price adjustment and suppliers’ undertakings to ensure the supply of
pulp from alternative sources in the event that the supplier cannot provide the agreed
quantity. There is a relative flexibility in the demand for types of pulp, with shifting
from one type of pulp to another, and as the world pulp market is quite a large one
relative to Mondi use, Mondi is in effect not dependent on any particular supplier or on
any particular type of pulp. If need be, it would be possible to purchase any type of
pulp in any quantity immediately on the free market. Mondi’s main pulp suppliers and
the amount of pulp purchases are: (1) International Forest Products Corp.(A supplier
based in the USA. The amount purchased from it comes to about 30% of total pulp
purchases); (2) Portucel–Empresa Produtora de Pasta e Papel, S.A. (A supplier based
in Portugal. The amount purchased from it comes to about 20% of total pulp purchases);
(3) Heinzel Zellstof Poels , A.G. (A supplier based in Austria. The amount purchased from
it comes to about 10% of total pulp purchases); (4) Soedra Cell International A.B. (A
supplier based in Sweden. The amount purchased from it comes to about 16% of total pulp
purchases); (5) Grupo Empresarial Ence S.A. (A supplier based in Spain. The amount
purchased from it comes to about 15% of total pulp purchases). |
128
| |
Mondi
is not dependent on any particular pulp supplier, not even on MBP, which centrally
executes pulp purchases for its subsidiaries. |
| 22.1.12.2 |
Coated
papers – Mondi imports coated papers mainly from the APP group and STORA ENSO.
Mondi has no dependency whatsoever on APP as the aforesaid paper supplier. For additional
details concerning the association with APP, see Paragraph 22.1.5.2 above |
| 22.1.12.3 |
PCC – Another
important raw material for the production of fine paper is PCC (Precipitated Calcium
Carbonate). During May 2005, an agreement was signed between Mondi and Swiss company Omya
International AG (hereinafter: “The Supplier”) for supplying PCC. In
accordance with the aforesaid agreement, the supplier setup a factory in Israel for
manufacturing PCC and began supplying it to Mondi in April 2006. The original agreement
was made for a period of 10 years and in 2007, the parties signed an agreement extending
it for another four years. The supplier is contesting the aforesaid extension period. In
September 2005, the agreement was transferred UniCrystal Shefaya, Ltd. (which changed its
name to Oumaya Shefaya, Ltd. The transferred agreement with the supplier reduced PCC’s
cost for Mondi both by the price reduction as well as the high technological efficiency
of the purchased product. Mondi does have a dependency on the aforesaid PCC supplier. |
129
| 22.1.12.4 |
Starch – Mondi
purchases starch from Galam Ltd. (hereinafter: “Galam”) for its paper
production. Mondi is dependent upon Galam since it is the only starch manufacturer in
Israel. The association with Galam is for a 10 year period and end sin 2010. Should Mondi’s
association with Galam be terminated, Mondi will be required to purchase its starch
through import, which could increase the purchase costs for starch from other suppliers
such as Mondi International. |
| |
In
2007, Mondi purchased pulp from International Forest Products Corp. for a total of NIS
86,310 thousand, which constitutes 11.4% of its total purchases from suppliers for that
year. |
| |
Mondi
is exposed to fluctuations in the price of pulp, used as the main raw material for the
production of paper. Unusual rises in the prices of pulp could harm profits, unless the
company can realize such rises in the sale price of its products. In 2006 there was a
sharp rise in the price of pulp, and a rise in sale prices only partially reflected this
rise in the price of pulp. However, during 2007, in parallel with the continuing trend of
rising pulp prices, Mondi succeeded in raising its sales prices. |
130
| |
The
company is also exposed to rises in the price of chemical inputs. Towards the end of
2006, starch prices (derived from corn prices) rose sharply by 20%. In 2007, starch
prices were only updated in October 2007 at 9%, which raised Mondi’s production
costs by NIS 0.4 million for the fourth quarter of 2007. Also, a further price rise of
another 12% was agreed upon in January 2008. It is Mondi’s estimation that this rise
will increase its production costs in 2008 by NIS 1.8 million. |
| |
The
above information, regarding the increase in manufacturing costs, is based on “future
estimates” (as defined in the Israeli Securities Act) and therefore constitutes but
as a forecast and limited assessment by Mondi and who’s occurrence is not certain
and based on present information by Mondi as of the report dates. These forecasts may not
occur, some or all and may realize in a fundamentally different manner. The main factors
that effect these forecasts are dependency on external elements, changes in supply and
demand in the market and/or realization of risk elements as described in paragraph
22.1.17 below. |
| |
Mondi
imports pulp and supplementary papers in foreign currency and has dollar-linked loans. As
a result, there is a risk arising from fluctuations in the exchange rate (for further
details of the aforesaid risk, see Paragraph 22.1.17.1 below). During 2008, Mondi began
to carry out hedging transactions to protect its exposure to negative US dollar cash
flows. |
| |
The
paper works, by nature, are also heavy energy consumers, and a global rise in the price
of energy, prior to transfer to gas, negatively effected Mondi’s profits. |
131
| |
As
of the date of this report, Mondi’s working capital, as a ratio of its sales, stands
upon 16.2%. In order to reduce the working capital, for operation needs, Mondi takes
holds a close controlling management policy of its working capital. |
| |
Mondi’s
inventory is managed by its logistics department. Stocking up purchased inventory of raw
materials, auxiliary materials and finished products is carried out from an aspect of
keeping minimal inventory levels, Mondi’s operational requirements as well as
business opportunities. |
| |
Mondi
has customer credit procedures. It continuously checks credit extended to its customers
through its financial department, and concerning their timely payments. As of December
31, 2007, the Company’s average number of credit days (in local and foreign markets)
stood at 89. Mondi has a credit insurance policy though MBP. |
| |
A
large part of the credit terms extended by suppliers is set by their agreements within
MBP Group’s collective agreements. As of December 31, 2007, the average number of
credit days extended by its suppliers stood at 112. |
| |
In
Mondi’s routine operations, there are no returns of merchandise above the amount
that is reasonable for its activities. All returned merchandise (following customer
complaints concerning quality or incompatibility with its requirements) is approved by
Mondi’s competent authorities. |
132
| |
Mondi
only utilizes bank credit lines. It does not have any non-bank credit sources (besides
supplier credit). |
| |
As
of December 31, 2007, Mondi has long-term loans to the extent of NIS 52.4 million. Of
this, NIS 14.4 million is to be paid during 2008. As of the date of this report, all the
loans are being repaid as required. |
| |
As
of the date of this report, Mondi has bank-approved credit lines totaling NIS 290 million
(these include the aforesaid long-term loans). It is Mondi’s estimation that these
credit lines will meet its expected requirements for the coming years. Mondi undertook
not to mortgage any assent without prior consent of the banks. |
| |
As
security for the said loans, Mondi undertook vis-à-vis the banks that the ratio of
equity to balance sheet total would be no less than 22%. As of the date of this report,
the Company meets this undertaking. |
| |
The
tax laws that are applicable to industrial corporations registered in Israel, apply to
Mondi. |
| |
Since
its foundation, final tax assessments have yet to be issued to Mondi. However, since the
Income Tax Authority has not submitted any assessments , under the law, the tax reports
submitted in respect of the period through 2003 are considered final tax assessments. As
of the reporting date, there is no open discussion or contestation with the income tax
authorities. |
133
| |
The
Industry Promotion Act (Taxes) 5729 – 1969 is applicable to Mondi and it is entitled
to accelerated depreciation on its investments. |
| |
As
of December 31, 2007, Mondi has, for income tax purposes, an accumulated loss of NIS 33
million. These losses are to be completely exploited during 2008. |
| |
In
this matter, see also Note 20 of Mondi’s financial reports for 2007 that have been
attached to the Company’s financial statements. |
| 22.1.16 |
Business
Objectives and Strategy As of the date of this report, Mondi’s main objectives
are: |
| 22.1.16.1 |
Expanding
the marketing of fine paper, with an increased focus on paper branded for office use
(A4). |
| 22.1.16.2 |
Focus
on local market activity and direct export markets to the Middle East – markets
wherein the company possesses logistical advantages. |
| 22.1.16.3 |
Expansion
of the paper machine’s production capacity, in accordance with the demands for Mondi
products, with the aim of expanding sales to the local market and export markets, and
reducing manufacturing costs per ton of paper, in order to create an advantage in a
competitive market. |
| 22.1.16.4 |
Competing
Mondi’s variety of papers marketed through the import of those that are not
worthwhile to produce on its paper machine. Expanding the aforesaid variety will complete
its basket of customer products and provide Mondi synergy with its clients. |
134
| 22.1.16.5 |
Building
and implementation of a marketing concept that positions the customer as the major asset
for Mondi, while building a system of activities and communication to support this
concept. |
| |
Mondi’s
strategic objectives as described above, are based upon its goals and aspirations as of
the date of this report and may change in accordance with the appropriate decisions. |
| |
The
aforesaid information constitutes forward-looking information as defined in the
Securities Act, based upon the Company’s estimations as of the date of this report
as well as the existing information that it has as of the date of this report. These
estimations may not materialize, in whole or in part, or even materialize in a manner
essentially different than expected. The major factors that could influence this are
changes in supply and demand, macro-economic factors, not meeting objectives and/or the
actualization of one of the risk factors listed in Paragraph 22.1.17 below. |
| 22.1.17.1 |
Macro-economic
risk factors |
| |
An
economic slowdown in the world market as well as an economic slowdown in the Israeli
market, can harm the demand for the type of products that Mondi produces or imports,
amplify the competition from imports and thus cause a decline in its sales and harm its
profitability. |
| |
A
high inflation rate may impact Mondi’s payroll expenses, which are adjusted over
time to changes in the consumer price index. |
135
| |
About
50% of sales to Mondi’s customers are in US dollars or linked to it while the
remainder is in NIS. A decline in the dollar can cause a fall in NIS-denominated sales
prices because of competing imports. Furthermore, the prices of pulp as well as the price
of additional raw materials, that constitutes a substantial of Mondi’s production
costs are also stated in US dollar terms. Accordingly, appreciable changes in the
exchange rate could affect Mondi’s results and profitability. |
| 22.1.17.2 |
Field-Specific
Risk Factors |
| |
Mondi
operates in a competitive market with an existing competition by imported paper. For
additional details, refer to Paragraph 21.1.8 above. |
| |
Pulp
is the main raw material in paper manufacture. Material price-hikes in pulp prices could
harm Mondi’s profitability. Furthermore, the Company has additional exposures to the
costs of chemical inputs such as starches, as well as the rising energy prices. |
| |
C.
Dependence on Energy Prices |
| |
Mondi’s
operations are dependent upon energy consumption. A rise in energy prices or material
delays in their supply could harm Mondi’s profitability. However, due to the
conversion to natural gas the effect of energy prices has significantly decreased. |
136
| |
D.
Accounts Receivable Risks |
| |
Most
of the activity sales are made in Israel, with some sales made without full collateral.
Accordingly, Mondi is exposed to the risk of receiving the full credit owed it by it
customers. Still, Mondi routinely examines customer quality as well as covering itself
with customer credit insurance. |
| 22.1.17.3 |
Special
Factors |
| |
Dependence
upon a single supplier |
| |
Mondi
has a dependence upon the single starch manufacturer in Israel, Galam, as well as a
dependence on the PCC supplier (Oumaya Shefaya, Ltd.). For additional details refer to
Paragraph 22.1.12 above. |
| 22.1.17.4 |
The
extent of impact of risk factors |
| |
Following
below is a list of the risk factor types and their influence upon the Company: |
| Risk Factors |
Degree of Impact |
| Major Impact |
Medium Impact |
Minor Impact |
| Macro-economic
factors
|
|
—
Economic slowdown
—
Exchange Rates
|
—
Inflation
—
Energy prices
|
| field-related
factors
|
—
Competition
—
Raw material prices
|
—
Accounts Receivable Risks
|
|
| Special Factors |
|
—
Dependence upon a single
supplier
|
|
137
| |
Hogla-Kimberly
is the leading company in the non-food disposable goods market in Israel. Hogla-Kimberly
manufactures and markets a wide variety of home paper products (tissue paper, paper
towels, napkins and wipes), disposable diapers for babies, wet wipes, incontinence
products (adult diapers), feminine hygiene productsand other products for the
kitchen and for cleaning. Hogla-Kimberly also sells reels of tissue paper to
manufacturers of home paper products. The operations of Hogla-Kimberly in Israel are also
conducted through wholly-owned subsidiaries – Hogla-Kimberly Marketing Ltd. and
Molett Marketing Ltd. |
| |
Moreover,
Hogla-Kimberly also operates in Turkey through a Turkish subsidiary – KIMBERLY-CLARK
TUKETIM MALLARI SANAYI VE TICARET A.S. , formerly – Ovisan, (hereinafter: “KCTR”),
that was acquired by Hogla-Kimberly in 1999. For details regarding KCTR, see Section
21.3, below. |
| |
Following
below is additional information regarding Hogla-Kimberly and its operations in Israel. |
138
| 22.2.1.1 |
Hogla-Kimberly
is a privately-held company that was established in 1963 as a wholly-owned subsidiary of
the company, for the purpose of engaging in operations in the disposable, non-food
consumer goods category. In 1996, Kimberly Clark Corporation (KC) (hereinafter: “Kimberly
Clark” or “KC”) acquired 49.9% of the issued share capital of
Hogla-Kimberly. On March 31, 2000, KC increased its holding in Hogla-Kimberly to 50.1% of
it’s issued share capital. As a result, Hogla-Kimberly Ltd. is no longer
consolidated within the Company’s financial statements since the second quarter of
2000, and the Company’s share of the Hogla-Kimberly results is included in the
company’s share of profits of associated companies. As at the date of the report, KC
holds 50. 1% of the issued share capital of Hogla-Kimberly, while the company holds 49.9%
of the issued share capital of Hogla-Kimberly. |
| |
The
Company has liability towards Hogla-Kimberly in accordance a capital note was granted in
the amount of approximately NIS 33 million, for further details see Note 4 to the Company’s
financial reports dated December 31, 2007. |
| 22.2.1.2 |
In
June 1996, an agreement was signed between the company and Kimberly Clark, the
shareholders of Hogla-Kimberly (hereinafter in this section: “The Agreement”),
whose key points are as follows: |
| |
A.
Pursuant to the agreement, four directors serve at Hogla-Kimberly, of which
two serve on behalf of the company and two on behalf of Kimberly Clark. The
chairman of the board of directors is appointed from among KC’s directors,
while the deputy chairman is appointed from among the Company’s directors.
Resolutions of the board of directors of Hogla-Kimberly must be passed
unanimously by the directors present, and the quorum required is at last two
directors, one from each party. |
139
| |
B.
Pursuant to the agreement, the following resolutions will require a resolution
on the part of the shareholders of Hogla-Kimberly: (1) Amendment of the
articles of association of Hogla-Kimberly and an increase in the registered
capital; (2) Selection of the auditing CPA that will be recommended by Kimberly
Clark; (3) Liquidation or discontinuation of part of the operations of
Hogla-Kimberly, acquisition of material new operations and a merger with a
party that is not a related party; |
| |
C.
The CEO of Hogla-Kimberly is appointed by Kimberly Clark, from an agreed-upon
list that was prepared by the Company and by Kimberly Clark. The CFO is
appointed with the recommendation of Kimberly Clark, subject to the approval of
the board of directors. Pursuant to the agreement, it was decided that in the
event of disagreement between the company and Kimberly Clark in certain issues,
such as: CEO wages, operating budget, etc. – these issues will be brought
to the general meeting and will be resolved by an ordinary majority of
shareholders. |
| |
D.
Pursuant to the agreement, the company provides Hogla-Kimberly with various
services such as maintenance services and infrastructure for the Hogla-Kimberly
plant in the Hadera site and also leases it real estate for its operations in
Hadera and in Nahariya. The company also provides Hogla-Kimberly with various
staff or headquarter services. Kimberly Clark provides Hogla-Kimberly – pursuant
to the agreement – with information, technological assistance and the
permission to use its international brands. The services provided by the
shareholders to Hogla-Kimberly that are not covered by the license agreement as
defined above, are provided for payment, based on market prices. |
140
| |
E.
Each party holds a right of first refusal in the event of sale of shares by
the other party. The agreement also grants the company an option, whereby in
the event that KC wishes to sell its shares to a third party, the company will
be able to buy back control (0.2% of the issued share capital of
Hogla-Kimberly) in return for the sum it received in 2000 for the sale of
control ($5 million). |
| |
F.
Pursuant to the company’s articles of association, decisions by the
general meeting will be made by a majority of 75% of those present. |
| |
G.
The shareholders agreed not to compete against each other (including their
subsidiaries) in the area of operation of Hogla-Kimberly in Israel, in the west
bank and in Gaza as detailed in the agreement, for as long as they hold the
shares of Hogla-Kimberly and for a period of five years after the sale of their
holdings in Hogla-Kimberly. |
| 22.2.1.3 |
As
part of an agreement signed between Hogla-Kimberly and Kimberly Clark in June 1996
(hereinafter in this section: “The license agreement”), Kimberly Clark
grants Hogla-Kimberly a license to use certain trademarks and technical services
associated with the manufacture of the products outlined in the license agreement.
According to the license, Hogla-Kimberly will assume responsibility for product liability
and shall indemnify Kimberly Clark for any breach and/or negligence associated with the
manufacture of such products. As of the Report Date, the aforementioned agreement is
effective through July 2008. |
141
| 22.2.2 |
Dividend
Distribution |
| |
Following
below are details regarding the distribution of dividend that Hogla-Kimberly has declared
and distributed in the past two years: |
| Date |
Distribution amount |
Distribution type
(cash/other) |
Permitted / by
court approval |
| May 9, 2005 |
NIS thousand 43,619 |
Cash |
Permitted distribution |
| December 19, 2006 |
NIS thousand 34,000 |
Cash |
Permitted distribution |
| |
Hogla-Kimberly
possesses accrued earnings originating from an “approved enterprise” (see
section 22.2.17 below) that were exempt of corporate taxes at the date of their creation.
In the event that dividend is distributed from the exempt revenues, Hogla-Kimberly shall
be liable for the corporate taxes from which it was exempt. As of December 31, 2007,
Hogla-Kimberly has distributable profits in the amount of NIS 148 million. Some of these
earnings originate from the approved enterprises of Hogla-Kimberly and/or its
subsidiaries and the distribution of these earnings may – in full or in part – be
liable for additional corporate taxes in the event of distribution, all in accordance
with the terms and plan of the relevant approved enterprise. |
| |
As
part of the Income Tax approval of the merger, for the purpose of framework simplifying
the structure of holdings at the Hogla-Kimberly Group (as detailed in Section 22.2.17
below), at Shikma Ltd. (a subsidiary that was merged into Hogla-Kimberly, as detailed in
Section 22.2.17 below) , a sum of NIS 101 million was capitalized, originating from its
equity earnings, as a result of the profits of an approved enterprise at Shikma. In the
event that this sum is distributed as dividend at Hogla-Kimberly, it shall be liable for
corporate taxes according to the Income Tax agreement. |
142
| 22.2.3 |
Financial
Information |
| |
Following
below are details regarding Hogla-Kimberly’s consolidate finances (including the
subsidiary in Turkey) of the years: 2007, 2006, 2005 (in NIS millions): |
|
2007
|
2006
|
2005
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income |
|
|
| 1,376 |
|
| 1,244 |
|
| 1,135 |
|
|
|
|
|
| gross profit | | |
| 407.3 |
|
| 360.3 |
|
| 314.3 |
|
|
|
|
|
| operating profit | | |
| 61.7 |
|
| 43.9 |
|
| 66.3 |
|
| |
For
additional financial information regarding Hogla-Kimberly, please review financial
statements attached to this report. |
| 22.2.4 |
Economic
surroundings and the influence of external factors on Hogla-Kimberly's activities |
| |
By
the very nature of most of the Hogla-Kimberly products being basic consumer goods, the
demand for its products in recent years has remained relatively stable, while recording a
moderate increase. Factors that can potentially, inter alia, affect the Hogla-Kimberly
results in the future are: (1) Escalating competition on the part of local manufacturers
and from imports, either through price competition or through the marketing of improved
products; (2) Strengthening retail chains and constant pressure on their part to erode
margins and expand private labels; (3) Rising prices of raw materials and finished goods
purchased by Hogla-Kimberly, either on account of rising global input prices, or the
devaluation of the NIS in relation to foreign currency; (4) Macro-economic factors that
affect the market characteristics wherein Hogla-Kimberly operates, such as lower demand
for consumer goods as a result of a global or domestic economic slowdown; (5) The
strength of the Hogla-Kimberly brands in relation to competing brands, including adverse
events related to the brands or the reputation of Hogla-Kimberly, whose occurrence may
harm consumer demand. |
143
| |
The
above information with regard to factors that may potentially impact the results of
Hogla-Kimberly in the future, constitutes forward-looking information as defined in the
Securities Act, and merely consists of forecasts and estimates by Hogla-Kimberly which
are not certain to materialize and are based on information available to Hogla-Kimberly
as of the Report Date. Hogla-Kimberly’s forecasts and estimates may not materialize,
all or in part, or may materialize in a way which is materially different than
anticipated. Major factors that may impact this include changes in market structure and
competition, dependence on external factors, developments and changes to regulation of
the operating sector and/or materialization of any of the risk factors set forth in
Section 22.2.22 below. |
| |
The
intensification of marketing activities and the strengthening of the Hogla-Kimberly
brands, together with the realization of price rises and effective streamlining programs
compensated for the sharp rise in the price of inputs (raw materials and energy) in 2006,
and served to improve the operating profit of Hogla-Kimberly. |
| |
In
the course of 2007, Hogla-Kimberly managed to successfully strengthen its leading brands
through marketing efforts and increased marketing expenses. Moreover, in 2007, through
focused sales efforts, Hogla-Kimberly managed to increase its quantitative sales by
expanding market share and recording a certain improvement in selling prices. The
quantitative growth in sales was assisted by the inclusion of Hogla-Kimberly’s
leading products as “loss leaders” (a leading product sold at an unprofitable
price for the chain in order to attract customers) at the retail marketing chains. On the
expense side, Hogla-Kimberly managed to significantly lower the cost of manufactured
products, by changing certain product specifications and by significantly improving the
output of some of its manufacturing plants. The results of these efforts by
Hogla-Kimberly served to compensate for the continuing trend of rising input prices,
primarily pulp fibers. As an imported of inputs and finished goods, in 2007,
Hogla-Kimberly enjoyed the revaluation of the NIS against the US dollar. All of these
actions served to improve the gross profit and operating income in 2007, as compared with
2006. |
144
| 22.2.5 |
Products
and Services |
| |
Hogla-Kimberly
manufactures and markets a wide variety of home paper products (tissue paper, paper
towels, napkins and wipes), disposable diapers for babies, wet wipes, incontinence
products (adult diapers), feminine hygiene productsand other products for the
kitchen and for cleaning. Hogla-Kimberly also sells reels of tissue paper to
manufacturers of home paper products. |
| |
Hogla-Kimberly
regularly upgrades a large part of its products on the basis of new technology and
supporting marketing operations in an ongoing manner. |
| |
The
two products that the revenues derived from them exceed 10% from Hogla-Kimberly’s
consolidated revenues (Israel and Turkey) are diapers and toilet paper. The consolidated
revenues (Israel and Turkey) of Hogla-Kimberly from diapers and toilet paper in 2007
accounted for NIS 496.35 and NIS 235.9 million, respectively, representing 36% and 17% of
the total Hogla-Kimberly consolidated revenues, respectively. The consolidated gross
profit of Hogla-Kimberly (Israel and Turkey) from the sale of diapers and toilet paper in
2007, amounted to NIS 147.8 and NIS 87.6, respectively, representing approximately 30%
and 37% of the gross profit of Hogla-Kimberly from diapers and toilet paper respectively. |
145
| |
Hogla-Kimberly
upgrades its products from time to time, in order to preserve innovation and leadership. |
| |
Hogla-Kimberly’s
client market is usually stable. Hogla-Kimberly operates nationwide and its products are
marketed and distributed extensively to clients throughout the country. |
| |
In
the years 2005-2007, Hogla-Kimberly sales to the food retail chains grew somewhat, at the
expense of sales to private and small stores. In the institutional market (serving
businesses such as: institutions, hospitals, offices, hotels and the like) there has been
a trend of consolidation over the past several years (merger of small competitors). As at
December 31, 2007, approximately 20% of Hogla-Kimberly sales were made to the
institutional market, while 80% of its sales were to the consumer market (including
retail chains). |
| |
All
the marketing chains and pharmacy chains number among Hogla-Kimberly’s customers.
Sales to the large marketing chain Supersal, a company controlled by a control owner of
the Company in 2007, amounted to NIS 211.9, representing 19% of Hogla-Kimberly’s
revenues. Hogla-Kimberly has no agreement with Supersal and the engagement with Supersal
is made from time to time according to an agreement regarding the commercial terms
between the parties. |
146
| |
Total
sales to the large pharm chain in 2007, amounted to NIS 128.4, representing 11% of
Hogla-Kimberly’s revenues. Total sales to the second-largest retail chain in 2007,
amounted to NIS 162.4, representing 14% of Hogla-Kimberly’s revenues. |
| |
Hogla-Kimberly
is not dependent upon any single client. |
| |
Hogla-Kimberly
is active in the Israeli retail market for quick consumer goods. |
| 22.2.7 |
Marketing
and Distribution |
| |
Hogla-Kimberly,
through its employees, operates a sales and distribution system based on the operation of
distribution warehouses, merchandise distribution trucks and a wide array of sales
personnel. |
| |
For
sales to the institutional market, extensive use is made of a separate Hogla-Kimberly
marketing system and a combination of distribution with operations on the home front.
Wholesalers are also used for distribution and customer service for smaller customers in
the market. |
| |
There
is no dependence on any particular wholesaler. |
| |
As
Hogla-Kimberly’s products are by nature “off-the-shelf products”, and of a
relatively large volume (diapers, toilet paper and the like), and because of the type of
customers, a constant supply to customers is required. |
147
| |
Hogla-Kimberly
operates in a very competitive environment with regard to the products manufactured on
the local market as well as against imported products. It should be noted that over the
last several years there has been an escalation of private labels, marketed by
distribution chains. |
| |
Nevertheless,
the operations of Hogla-Kimberly in the manufacture of paper products and diapers is
characterized by few competitors, especially in view of the elevated entrance barriers
that exist therein. These entrance barriers include inter alia, significant investments
in production facilities, investments in distribution infrastructure and frequent
investments in technological improvements. It should further be noted that although there
exists no limit on the import of paper products and diapers, other than tariffs on
imports from the Far East, due to the bulky nature of some of the products, local
production enjoys a significant economic advantage. |
| |
In
the past several years, competition has been escalating in the Hogla-Kimberly activity of
operations, primarily in paper products, originating from competitor activity to preserve
existing market share and capture new market share, coupled with the growth in the
quantity of imported products. |
| |
The
fierce competition that exists between clients (primarily marketing chains), that is
accompanied by price wars, also reflects on Hogla-Kimberly as a supplier of such products
and the pressure that is being brought to bear on the company to lower prices. |
148
| |
In
the activity of feminine hygiene products and disposable diapers, Hogla-Kimberly’s
main competitor is Procter and Gamble (P&G). In the activity of household paper
products, Hogla-Kimberly’s main competitors include Sano – Bruno’s Plants
Ltd. (hereinafter: “Sano”), Shaniv Paper Industries Ltd. (hereinafter:
“Shaniv”) and Kalir Chemicals – Production and Marketing Ltd.
(hereinafter: “Kalir”). It should be noted that as part of the
competition in the household paper products market to the Ultra-Orthodox activity, one of
the company’s competitors (Shaniv), shuts down its production on Saturdays (the
“sabbath”). This fact may constitute a certain advantage for this competitor in
that particular market. In the activity of paper products to the institutional market,
Hogla-Kimberly’s main competitors include Kalir and Sano. In the home cleaning aids
activity there are many competitors, and a large market share is held by private labels. |
| |
According
to the Nielsen Israel data Regarding the near-food activity, the following are the market
shares of Hogla-Kimberly in 2007, in those specific segments where Hogla-Kimberly is
active (the data constitute an average of the date for the 12 months of 2007): 65.7%
disposable diapers, 63.4% toilet paper, 54.6% facial tissues, 55.8% disposable paper
towels and 37.3% in feminine hygiene products. |
| |
Hogla-Kimberly
products are generally sold on a regular scale all year round, while during the Jewish
holiday season (Rosh Hashanah, Passover), there is a marginal increase in the scope of
sales beyond the ordinary monthly average. |
149
| 22.2.10 |
Manufacturing
Capacity, Fixed Assets and Facilities |
| 22.2.10.1 |
Hogla-Kimberly
Manufacturing Sites |
| |
The
production of household (tissue) paper and diapers is made by Hogla-Kimberly in three
production sites: |
| |
A. |
Manufacture
of household (tissue) paper – Hogla-Kimberly has two plants for
the production of household paper (tissue), in Hadera and in Nahariya,
with a total output capacity of 57 thousand tons per annum, operating at
full capacity and two paper product rolling systems with a capacity of 44
thousand tons per year. Hogla-Kimberly regularly invests in expanding the
output capacity for the purpose of supplying the demand for the said
products. |
| |
The
real estate of the paper manufacturing site at Hadera is leased to Hogla-Kimberly by the
company, according to a lease contract that is extended from time to time with the
consent of the parties. |
| |
The
real estate of the Hogla-Kimberly paper manufacturing site at Nahariya is leased to
Hogla-Kimberly by the company, through to the end of 2016. The lease agreement includes
two extension options for a total of nine additional years. |
| |
B. |
Diaper
manufacturing – Hogla-Kimberly has a diaper manufacturing plant
in Afula, with an output capacity of 400 million infant diapers per annum
plus 42 million adult incontinence diapers per annum – that also
operates at full capacity. In 2005, Hogla-Kimberly expanded the diaper
plant in Afula, by adding a diaper machine, for expanding its infant
diaper output capacity. These investments are intended to provide the
constantly growing demand on the local market. |
150
| |
The
real estate of the Hogla-Kimberly diaper plant in Afula is under lease from Israel land
Administration (ILA) by Hogla-Kimberly until 2023. |
| 22.2.10.2 |
Hogla-Kimberly
Distribution Sites |
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Hogla-Kimberly
has two distribution sites, in Tzrifin and in Haifa. |
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The
central Hogla-Kimberly distribution site and offices in Tzrifin are under lease until
2022. The Haifa distribution site is under lease until 2009. The leasing contracts of
these sites allow Hogla-Kimberly to shorten the leasing period at various points. |
| 22.2.10.3 |
Hogla-Kimberly’s
fixed assets consist primarily of machinery and equipment and 79 distribution trucks
(including trucks under operating leases). |
| 22.2.11 |
Research
and development |
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Hogla-Kimberly
does not invest in research and development. |
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Hogla-Kimberly
relies on the Kimberly Clark development centers and enjoys participation in the outcome
of the R&D efforts, marketing and sales know-how and new products, through
collaboration agreements and the license agreement with Kimberly Clark, as detailed in
Section 21.2.1.3, above. Hogla-Kimberly itself makes adjustments to adapt the products to
the Israeli market, for meeting Israeli standards and other adaptations to the local
manufacturing environment. |
| 22.2.12 |
Intangible
Assets |
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Hogla-Kimberly
possesses registered trademarks that serve it in its operations. Among these: Titulim,
Lily, Molett, Shmurat Teva, Nikol, Shikma and others. Hogla-Kimberly also has rights to
use Kimberly Clark Worldwide’s brand-name products in the local market, including:
Huggies, Kleenex, Kotex, Depend and others. In consideration of the right to use the said
products and for the transfer of know-how, Hogla-Kimberly pays royalties to Kimberly
Clark, amounting to a low, single-digit rate. |
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Hogla-Kimberly’s
main and most important resource is its human capital. The development of human capital
is a top priority for Hogla-Kimberly, and it invests in training and seminars for its
employees, including designated training for specific positions. |
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Hogla-Kimberly
also places an emphasis on the matter of safety at work in general, and of the employees
in particular, by implementation of a proactive safety policy (for prevention of the
causes of accidents by investigating cases of near-accidents, in order to prevent the
accidents themselves from happening, to the extent possible). |
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As
to the date of the report, Hogla-Kimberly numbers 1,057 employees in total in Israel. |
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The
employees are employed under two types of agreements as follows: |
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As
at the date of the report, 514 employees are employed under a collective labor agreement,
while 543 employees are employed under a personal contract. |
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Those
employed under the collective agreement gain the status of permanent (tenured) employees
at the end of a trial period ranging between 24 and 36 months. |
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Senior
executives of Hogla-Kimberly, including the CEO and the CEO of KCTR, were granted options
and/or restricted shares, pursuant to the senior employee compensation plan of Kimberly
Clark. In the first quarter of 2008, AIPM approved the granting of options exercisable
into ordinary shares of AIPM to several senior directors at Hogla-Kimberly, under a bonus
plan of AIPM for senior executives in the group. For details see section 5.6 above. |
| 22.2.14 |
Raw
Materials and Suppliers |
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Hogla-Kimberly’s
main raw materials are: |
| 22.2.14.1 |
Tissue
paper industry – Clean pulp and/or recycled fibers. The recycled fibers are
purchased from Amnir, while the pulp is imported from overseas, from three principal
suppliers: MARKRUZTRADING INTERNATIONAL, SODRA CELL (UK) and WILFRIED HEINZEL AG LTD.
The purchase of pulp from Markruz and Sodra is made under a framework agreement that
these suppliers possess with Kimberly Clark, while the purchase of pulp from Heinzel is
made on the basis of an independent agreement between Hogla-Kimberly and the supplier,
whereas in all of the said agreements, orders are made according to demand, at prices
agreed-upon between the parties. |
| 22.2.14.2 |
Diaper
Industry - Pulp for the diaper industry is imported from three international
suppliers: RAYONIER TRS HOLDINGS, WEYERHAEUSER S.A. and CENTRAL NATIONAL GOTTESMAN, while
the absorbent material (Super Absorbent Polymer – SAP) is purchased from several
international suppliers under framework Kimberly Clark agreements. In all of the said
agreements, orders are made according to demand, at prices agreed-upon between the
parties. |
153
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Other
raw materials are imported in part and partially purchased from local suppliers. |
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Hogla-Kimberly
has no dependence on any suppliers since with regard to the main raw materials there are
alternative sources, with inconsequential added cost. |
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Hogla-Kimberly
is assisted by Kimberly Clark’s central purchasing in the purchase process, mainly
in the purchase of commodities. |
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Alongside
the independent manufacturing of products, Hogla-Kimberly also purchases finished
products for marketing and distribution under its various brands. As at the date of the
report, the proportion of Hogla-Kimberly sales attributed to products it manufactures is
equal to 75%, while the proportion of sales attributed to finished products that it
purchases is equal to 25%. |
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Most
of the purchase of finished products for marketing and distribution is made from Kimberly
Clark group companies and includes certain types of disposable diapers, special paper
products and feminine hygiene products. In parallel, Hogla-Kimberly purchases finished
products from various suppliers according to its own specifications, including wet wipes,
various hygiene products and various kitchen aids that are sold under the Nikol brand,
including garbage bags, aluminum foil, nylon cling-wrap and more. |
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Hogla-Kimberly’s
exposure derives from fluctuations in the price of raw materials, mainly pulp, fluff and
absorbent materials (SAP), representing the main raw materials used for the production of
tissue paper and diapers, and for the imported products. Unusual rises in the cost of raw
materials and imported finished products could impair profitability. |
154
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Hogla-Kimberly
was exposed in a secondary manner to fluctuations in energy prices, reclining to natural
gas both in the process of paper production, and as the fuel for its fleet of
distribution trucks. Hogla-Kimberly is exposed to changes in the exchange rate of the
shekel, both vis-à-vis the dollar as well as the euro, via its import of goods and
raw materials. |
| 22.2.15.1 |
Accounts
Receivable |
| |
Hogla-Kimberly
sells its products under acceptable credit terms. In the consumer market, credit of 45
days is usually granted. In the institutional market, credit of 90 days is usually
granted. |
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Customer
credit is granted after examining the credit history of the client, the collateral and
the business information that exists at Hogla-Kimberly regarding the client. If
necessary, private customers are required to provide personal guarantees and/or bank
guarantees to secure their debt – all or in part – according to an assessment
of the credit risk. Starting in November 2007, Hogla-Kimberly acquired credit insurance
that covers several of its largest clients. with the maximum compensation being equal to
$7 million. |
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Hogla-Kimberly
makes purchases from most of its suppliers under open credit conditions. |
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Hogla-Kimberly
maintains an inventory of raw materials, goods in process (paper rolls before processing
into a final product), finished goods inventories and spare parts inventories. There
exists a well-defined inventory policy for each category. The inventory setting policy
takes into consideration the product’s supply time, shipment time, possible problems
in imports and ports, risk level of product shortages and the various demand levels.
Hogla-Kimberly maintains average inventories of 60 days. The Hogla-Kimberly inventories
are mostly stored at the Hogla-Kimberly warehouses, plants and distribution centers and
partially in leased external warehouses. |
155
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The
Primary Working Capital, i.e.: (account receivables, inventories and supplier credit), as
a percentage of sales, was equal to an average of 11.4% in 2007. |
| |
Most
of the Hogla-Kimberly operations are financed through the available cash flows. From time
to time, Hogla-Kimberly makes use of on-call bank credit. In the course of 2007,
Hogla-Kimberly’s total credit with banks was equal to an average of NIS 50 million,
with record highs that occasionally reached NIS 100 million. This credit is currently
obtained from three different banks. |
| |
For
the purpose of investments in fixed assets and strategic investments in the expansion of
operations, including operations in Turkey, Hogla-Kimberly also raises bank credit
occasionally. In the years 2006 and 2007, Hogla-Kimberly increased the raising of credit
from banks by NIS 43.8 million and NIS 15.46 million, respectively. |
| |
In
early January 2008, Hogla-Kimberly reached an agreement with one of the banks for the
receipt of loans totaling NIS 100 million, for four years, at an interest rate linked to
the prime rate on the NIS. For the purpose of securing this loan, Hogla-Kimberly
undertook to meet the following financial covenants: |
156
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1. |
Its
shareholders’ equity shall not fall below NIS 250 million or 25% of
total consolidated balance sheet. |
| |
2. |
The
shareholders, Kimberly Clark and/or AIPM, shall not together hold less than
51% of the issued share capital of Hogla-Kimberly and any means of control
therein. |
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Hogla-Kimberly
is considering engaging with the other banks with whom it is working under similar terms. |
| |
According
to the Hogla-Kimberly plans as at the date of the report, the sum of the said loan (NIS
100 million) will serve the company for its current operations, for investments in fixed
assets and strategic investments in expanding operations, including the operation in
Turkey, the conversion of loans originating in the existing daily bank credit (on-call)
and for investment in the expansion of its business operations. |
| |
Said
information regarding the loan objectives is considered forward looking information as
defined in the Securities Law, and constitutes forecasts and assessments on the part of
the company, the realization of which is not certain and based on information existing at
Hogla-Kimberly as of the date of the report. Hogla-Kimberly’s forecasts and
estimates may not materialize, all or in part, or may materialize in a way which is
materially different than anticipated. The main factors that could affect the aforesaid
are in the financing costs, and/or realization of any of the risk factors detailed in
Section 22.2.22 below. |
157
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Tax
laws applicable to any industrial incorporation in Israel apply to Hogla-Kimberly and its
subsidiaries in Israel. Hogla-Kimberly owns subsidiary companies overseas, subject to the
local taxation laws. KCTR of Turkey (see details below in Section 22.3.12) is the most
prominent among these. |
| |
Hogla-Kimberly
possesses final tax assessments up to and including 2003. The subsidiary Hogla-Kimberly
Marketing Ltd. has final tax assessments until 2004, while the subsidiary Mollett
Marketing Ltd. has final assessments until 2002. In 2006, Following an audit of
assessments for the years 2002-2003, Hogla-Kimberly recorded additional tax expenses of
approximately NIS 4 million for previous years. |
| |
Hogla-Kimberly
is an “Approved Enterprise” in light of its investment of NIS 97 million in
paper manufacturing plants at the Nahariya site, and diaper manufacture at the Afula
site. The principles of the letter of approval of the benefits according to the law for
the encouragement of capital investments are reflected by a tax exemption on part of the
earnings generated by the supplemental operations on account of the said plant. The
exemption is for a period of ten years, starting with the year when the bulk of the
investment was completed, i.e.- 2014. Hogla-Kimberly has no export restrictions for the
purpose of enjoying the benefits. |
158
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Hogla-Kimberly
decided in December 2005, to simplify the structure of holdings in the group. Therefore,
after receiving the approval of the income tax authorities, some of the Hogla-Kimberly
subsidiary companies were merged (Shikma Improvement of Individual Life and Rakefet
Marketing and Commercial Services) into Hogla-Kimberly Ltd. As part of the merger,
Hogla-Kimberly undertook to meet certain requirements that arise from the Merger Law and
the Income Tax requirements as part of a pre-ruling process. Hogla-Kimberly anticipates
no difficulties in meeting the said requirements. As part of the said merger, on December
30, 2005, H-K Overseas (Holland) B.V., a wholly-owned Dutch subsidiary of Hogla-Kimberly,
sold its holdings in KCTR to Shikma Improvement of Individual Life, for a total
consideration of NIS 70.8 million. As part of the merger process that was approved in
December 2005, Shikma’s holdings in KCTR were transferred to Hogla-Kimberly. |