1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2001
--------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
---------------------- -----------------------
Commission file number 0-538
AMPAL-AMERICAN ISRAEL CORPORATION
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New York 13-0435685
--------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1177 Avenue of the Americas, New York, New York 10036
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 782-2100
-----------------------------
--------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the issuer's Class A Stock, its
only authorized common stock, is 19,191,025 as of July 31, 2001.
2
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
Page
----
Part I Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Six Months Ended June 30.............................................. 2
Three Months Ended June 30............................................ 3
Consolidated Balance Sheets............................................. 4
Consolidated Statements of Cash Flows................................... 6
Consolidated Statements of Changes in Shareholders'
Equity................................................................ 8
Consolidated Statements of Comprehensive Income......................... 10
Notes to the Consolidated Financial Statements.......................... 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risks......................................................... 17
Part II Other Information....................................................... 18
1
3
ITEM 1. FINANCIAL STATEMENTS
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2001 2000
------------------------- ---- ----
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
REVENUES
Equity in earnings of affiliates ........... $ 2,298 $ 16,056
Interest ................................... 578 728
Real estate income ......................... 4,954 4,421
Realized and unrealized (losses) gains on
investments ............................. (2,051) 6,609
Gain on sale of real estate rental property 10,091 --
Other ...................................... 2,216 3,506
-------- --------
Total revenues ........................ 18,086 31,320
-------- --------
EXPENSES
Interest ................................... 7,324 6,025
Real estate expenses ....................... 5,035 3,768
Loss from impairment of investments ........ 3,153 3,500
Minority interests ......................... (1,233) (518)
Translation (gain) loss .................... (553) 737
Other ...................................... 4,227 3,950
-------- --------
Total expenses ........................ 17,953 17,462
-------- --------
Income before income taxes ................. 133 13,858
Provision for income taxes ................. 3,584 5,461
-------- --------
NET (LOSS) INCOME ..................... $ (3,451) $ 8,397
======== ========
Basic EPS
(Loss) earnings per Class A share ....... $ (.19) $ .44
Shares used in calculation (in thousands) 19,157 18,747
Diluted EPS
(Loss) earnings per Class A share ....... $ (.19) $ .38
Shares used in calculation (in thousands) 19,157 21,785
The accompanying notes are an integral part of the consolidated financial
statements.
2
4
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2001 2000
--------------------------- ---- ----
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
REVENUES
Equity in earnings of affiliates ........... $ 1,455 $ 13,190
Interest ................................... 363 354
Real estate income ......................... 1,831 2,248
Realized and unrealized (losses) gains on
investments .............................. (1,185) 3,366
Gain on sale of real estate rental property 2,120 --
Other ...................................... 1,657 1,407
-------- --------
Total revenues ........................ 6,241 20,565
-------- --------
EXPENSES
Interest ................................... 3,126 3,488
Real estate expenses ....................... 2,026 2,038
Loss from impairment of investments ........ 1,903 2,000
Minority interests ......................... (498) (590)
Translation loss (gain) .................... 289 (316)
Other ...................................... 2,076 1,928
-------- --------
Total expenses ........................ 8,922 8,548
-------- --------
(Loss) income before income taxes .......... (2,681) 12,017
Provision for income taxes ................. 1,130 4,782
-------- --------
NET (LOSS) INCOME ..................... $ (3,811) $ 7,235
======== ========
Basic EPS
(Loss) earnings per Class A share ....... $ (.20) $ .38
Shares used in calculation (in thousands) 19,170 18,981
Diluted EPS
(Loss) earnings per Class A share ....... $ (.20) $ .33
Shares used in calculation (in thousands) 19,170 21,916
The accompanying notes are an integral part of the consolidated financial
statements.
3
5
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS AS AT 2001 2000
------------ ---- ----
(Dollars in thousands) (Unaudited)
Cash and cash equivalents ............ $ 2,899 $ 5,842
Deposits, notes and loans receivable . 18,669 14,804
Investments .......................... 295,387 307,600
Real estate property, less accumulated
depreciation of $6,655 and $9,310 . 67,340 87,480
Other assets ......................... 21,540 30,902
-------- --------
TOTAL ASSETS ......................... $405,835 $446,628
======== ========
The accompanying notes are an integral part of the consolidated financial
statements
4
6
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND June 30, December 31,
SHAREHOLDERS' EQUITY AS AT 2001 2000
-------------------------- ---- ----
(Dollars in thousands) (Unaudited)
LIABILITIES
Notes and loans payable:
Related parties ............................... $ 7,114 $ 11,605
Others ........................................ 141,563 165,938
Debentures ....................................... 22,676 24,033
Accounts and income taxes payable, accrued
expenses and minority interests ............... 80,126 80,650
--------- ---------
Total liabilities ........................... 251,479 282,226
--------- ---------
SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock, $5
par value; authorized 189,287 shares; issued
152,127 and 156,401 shares; outstanding 148,777
and 153,051 shares ............................ 761 782
6-1/2% Cumulative Convertible Preferred Stock,
$5 par value; authorized 988,055 shares; issued
738,410 and 745,814 shares; outstanding 615,874
and 623,278 shares ............................ 3,692 3,729
Class A Stock, $1 par value; authorized
60,000,000 shares; issued 25,346,584 and
25,303,002 shares; outstanding 19,185,920
and 19,134,838 shares ......................... 25,346 25,303
Additional paid-in capital ....................... 58,227 58,194
Retained earnings ................................ 115,490 118,941
Treasury stock, at cost .......................... (33,238) (33,275)
Accumulated other comprehensive loss ............. (15,922) (9,272)
--------- ---------
Total shareholders' equity .................. 154,356 164,402
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....... $ 405,835 $ 446,628
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
5
7
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 2000
------------------------- ---- ----
(Dollars in thousands) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net (loss) income ............................ $ (3,451) $ 8,397
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Equity in earnings of affiliates ............ (2,298) (16,056)
Realized and unrealized losses (gains)
on investments ............................. 2,051 (6,609)
Gain on sale of real estate rental property . (10,091) --
Depreciation expense ........................ 1,151 859
Amortization expense ........................ 136 489
Loss from impairment of investments ......... 3,153 3,500
Translation (gain) loss ..................... (553) 737
Minority interests .......................... (1,233) (518)
Decrease in other assets ..................... 5,093 3,312
Increase in accounts and income taxes
payable, accrued expenses and minority
interests ................................... 3,995 6,973
Investments made in trading securities ....... -- (15,965)
Proceeds from sale of trading securities ..... 4,486 14,763
Dividends received from affiliates ........... 2,032 3,507
-------- --------
Net cash provided by operating activities ... 4,471 3,389
-------- --------
Cash flows from investing activities:
Deposits, notes and loans receivable collected 3,083 7,810
Deposits, notes and loans receivable granted . (7,277) (1,212)
Investments made in:
Available-for-sale securities ............... (1,256) (2,127)
Others ...................................... (9,316) (12,857)
Proceeds from sale of investments:
Available-for-sale securities ............... 2,800 --
Others ...................................... 137 1,134
Proceeds from sale of real estate property,
net of commissions and transfer taxes ....... 34,848 --
Return of capital by partnership ............. 120 722
Capital improvements ......................... (1,872) (10,497)
-------- --------
Net cash provided by (used in) investing
activities ................................. 21,267 (17,027)
-------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
6
8
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 2000
------------------------- ---- ----
(Dollars in thousands) (Unaudited) (Unaudited)
Cash flows from financing activities:
Notes and loans payable received:
Others ..................................... $ 7,309 $ 28,470
Notes and loans payable repaid:
Related parties ............................ (641) --
Others ..................................... (33,932) (10,363)
Proceeds from exercise of stock options ..... -- 759
Contribution to partnership by minority
interests .................................. 1,295 --
Debentures repaid ........................... (1,894) (6,402)
-------- --------
Net cash (used in) provided by financing
activities ................................ (27,863) 12,464
-------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................ (818) 406
-------- --------
Net decrease in cash and cash equivalents ...... (2,943) (768)
Cash and cash equivalents at beginning of
period ...................................... 5,842 7,409
-------- --------
Cash and cash equivalents at end of period ..... $ 2,899 $ 6,641
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest paid to others ..................... $ 9,130 $ 2,202
======== ========
Income taxes paid ........................... $ 2,213 $ 264
======== ========
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Issuance of stock for charitable contribution
and services .............................. $ 55 $ --
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
7
9
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001 2000
------------------------- ---- ----
(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
4% PREFERRED STOCK
Balance, beginning of year ................ $ 782 $ 829
Conversion of 4,274 and 4,263 shares into
Class A Stock .......................... (21) (21)
--------- ---------
Balance, end of period .................... $ 761 $ 808
========= =========
6-1/2% PREFERRED STOCK
Balance, beginning of year ................ $ 3,729 $ 4,459
Conversion of 7,404 and 131,821 shares into
Class A Stock .......................... (37) (659)
--------- ---------
Balance, end of period .................... $ 3,692 $ 3,800
========= =========
CLASS A STOCK
Balance, beginning of year ................ $ 25,303 $ 24,817
Issuance of shares upon conversion of
Preferred Stock ........................ 43 417
--------- ---------
Balance, end of period .................... $ 25,346 $ 25,234
========= =========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year ................ $ 58,194 $ 57,896
Conversion of Preferred Stock ............. 15 263
Issuance of additional shares ............. 18 --
Issuance of shares upon exercise of
stock options .......................... -- (1,518)
--------- ---------
Balance, end of period .................... $ 58,227 $ 56,641
========= =========
RETAINED EARNINGS
Balance, beginning of year ................ $ 118,941 $ 118,362
Net (loss) income ......................... (3,451) 8,397
--------- ---------
Balance, end of period .................... $ 115,490 $ 126,759
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
8
10
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001 2000
------------------------- ---- ----
(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
TREASURY STOCK
4% PREFERRED STOCK
Balance, end of period ......................... $ (84) $ (84)
-------- --------
6-1/2% PREFERRED STOCK
Balance, end of period ......................... (1,853) (1,853)
-------- --------
CLASS A STOCK
Balance, beginning of year - 6,168,164
and 6,528,181 shares, at cost ............... (31,338) (33,615)
Issuance of additional shares .................. 37 --
Issuance of shares upon exercise of 360,017
stock options ............................... -- 2,277
-------- --------
Balance, end of period - 6,160,664 and 6,168,164
shares, at cost ............................. (31,301) (31,338)
-------- --------
Balance, end of period ......................... $(33,238) $(33,275)
-------- --------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Cumulative translation adjustments:
Balance, beginning of year .................. $(17,217) $(17,676)
Foreign currency translation adjustment ..... (1,112) 263
-------- --------
Balance, end of period ...................... (18,329) (17,413)
-------- --------
Unrealized gain on marketable securities:
Balance, beginning of year .................. 7,945 3,699
Unrealized (loss) gain, net ................. (4,053) 13,639
Sale of available-for-sale securities ....... (1,485) --
-------- --------
Balance, end of period ...................... 2,407 17,338
-------- --------
Balance, end of period ......................... $(15,922) $ (75)
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
9
11
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2001 2000
------------------------- ---- ----
(Dollars in thousands) (Unaudited) (Unaudited)
Net (loss) income ............................ $ (3,451) $ 8,397
-------- --------
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments .. (1,112) 263
Unrealized (loss) gain on securities ...... (4,053) 13,639
-------- --------
Other comprehensive (loss) income ......... (5,165) 13,902
-------- --------
Comprehensive (loss) income ............... $ (8,616) $ 22,299
======== ========
Related tax benefit (expense) of other
comprehensive (loss) income:
Foreign currency translation adjustments .. $ 452 $ (4)
Unrealized (loss) gain on securities ...... $ 3,093 $ (7,670)
The accompanying notes are an integral part of the consolidated financial
statements.
10
12
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. As used in these financial statements, the term the "Company" refers to
Ampal-American Israel Corporation ("Ampal") and its consolidated
subsidiaries.
2. The December 31, 2000 consolidated balance sheet presented herein was
derived from the audited December 31, 2000 consolidated financial
statements of the Company.
Reference should be made to the Company's consolidated financial
statements for the year ended December 31, 2000 for a description of
the accounting policies, which have been continued without change.
Also, reference should be made to the notes to the Company's December
31, 2000 consolidated financial statements for additional details of
the Company's consolidated financial condition, results of operations
and cash flows. The details in those notes have not changed except as a
result of normal transactions in the interim. All adjustments (of a
normal recurring nature) which are, in the opinion of management,
necessary to a fair presentation of the results of the interim period
have been included.
3. Segment information presented below results primarily from operations
in Israel.
SIX MONTHS ENDED JUNE 30, 2001 2000
------------------------- ---- ----
(Dollars in thousands)
Revenues:
Finance ....................... $ 654 $ 10,273
Real estate ................... 15,045 4,421
Leisure-time .................. 850 795
Intercompany adjustments ...... (761) (225)
--------- ---------
Total .................... $ 15,788 $ 15,264
========= =========
Pretax Operating (Loss) Income:
Finance ....................... $ (11,861) $ (2,620)
Real estate ................... 8,410 (129)
Leisure-time .................. 53 33
--------- ---------
Total .................... $ (3,398) $ (2,716)
========= =========
Total Assets:
Finance ....................... $ 327,084* $ 361,145*
Real estate ................... 70,529 88,933
Leisure-time .................. 14,146 13,766
Intercompany adjustments ...... (5,924) (10,775)
--------- ---------
Total .................... $ 405,835 $ 453,069
========= =========
Corporate office expense is principally applicable to the financing
operation and has been charged to that segment above. Revenues exclude
equity in earnings of affiliates and pretax operating income excludes
equity in earnings of affiliates and minority interests.
The real estate segment consists of rental property owned in Israel and
the United States (see Note 5) and the operations of Am-Hal Ltd., the
Company's
11
13
wholly-owned subsidiary which owns and operates a chain of senior
citizens facilities located in Israel. The leisure-time segment
consists primarily of Coral World International Limited (marine parks
located around the world) and Country Club Kfar Saba (the company's
51%-owned subsidiary located in Israel).
*Includes an investment in MIRS Communications Ltd. of $111 million.
4. The following table summarizes securities that were outstanding during
the six months ended June 30, 2001 and 2000, but not included in the
calculations of diluted earnings per Class A share because such shares
are antidilutive.
(Shares in thousands) June 30,
--------
2001 2000
---- ----
Options .............. 3,106 2,375
4% Preferred Stock ... 151 --
6-1/2% Preferred Stock 620 --
5. On March 28, 2001, the Company concluded the sale of its interest in a
building located at 800 Second Avenue in New York City for $33 million
and recorded a pre-tax gain of approximately $8 million ($4.3 million
net of taxes). On May 2, 2001, the Company sold its real estate rental
property located in Bnei Brak, Israel and recorded a pre-tax gain of
approximately $2.1 million ($1.6 million net of taxes).
6. On July 27, 1998 a Tel Aviv District Court judge ruled in favor of
Yakhin Hakal Ltd., the manager and co-owner of Ampal's 50%-owned
affiliates, Etz Vanir Ltd. ("Etz Vanir") and Yakhin Mataim Ltd.
("Yakhin Mataim"). The judge's decision allowed Etz Vanir and Yakhin
Mataim to redeem debentures owned by Ampal for approximately $.8
million and to require Ampal to surrender all of its shares of Etz
Vanir and Yakhin Mataim for their par value, which is nominal. After
the redemption and surrender, Ampal will no longer have any interest in
Etz Vanir or Yakhin Mataim.
On October 15, 1998, Ampal filed an appeal with the High Court of
Appeals in Jerusalem. At the request of Ampal's attorneys, the Tel Aviv
District Court issued a stay of performance of the judgment until the
High Court of Appeals issues a final judgment.
On July 31, 2001, the registrar for the High Court of Appeals issued a
decision dismissing on technical grounds, Ampal's appeal in its dispute
with Yakhin Hakal. The registrar determined that Ampal had failed to
produce a guarantee for Yakhin Hakal's expenses in the appeal within
the required time. On August 7, 2001, Ampal appealed the dismissal. The
High Court of Appeals stayed the proceedings pending a final decision
in this new appeal and also decided to set a date for this appeal as
soon as possible. Ampal has been advised by the Israeli counsel
representing it in this case that Ampal has a very good chance of
winning this new appeal and having its original appeal reinstated and
decided on the merits.
7. In 2001, a claim was filed in the Jerusalem District Court against
Sonol, a wholly-owned subsidiary of Granite Hacarmel Investments Ltd.
("Granite"), its subsidiary company, Sprint Motors Ltd., and four
unrelated companies by customers who purchased fuel products in
filling stations, contending that the defendants charged an illegal
"service charge" over a period of many years. The plaintiffs have
requested the court to recognize their claim as a class action. The
amount of the claim is NIS. 5.30 and, should the court allow a class
action, it will total approximately NIS. 372 million (approximately $93
million). From the claim, it is not clear as to what is Sonol's and its
subsidiary's share of this amount. The company's management denies the
plaintiff's request and the claim which, in its opinion, have no real
basis.
12
14
In June 2001, a claim was filed by customers against Supergas
(Granite's wholly-owned consolidated subsidiary), alleging that the
defendant made illegal periodic charges to its customers. The plaintiff
applied to the Tel Aviv District Court to have the claim recognized as
a class action in a total amount of NIS. 125 million (approximately $31
million). The company's management, based on legal advice, is of the
opinion that the ultimate outcome of this case can not be evaluated at
this stage.
13
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Results of Operations
Six months ended June 30, 2001 compared to six months ended June 30, 2000:
Ampal-American Israel Corporation ("Ampal") and its subsidiaries (the "Company")
recorded a consolidated net loss of $3.5 million for the six months ended June
30, 2001, as compared to a net income of $8.4 million for the same period in
2000. The decrease in income is primarily attributable to the decrease in equity
in earnings of affiliates, unrealized losses on investments in 2001, as compared
to unrealized gains in 2000, lower other income, higher interest expense and a
higher effective income tax rate. These decreases in net income were partially
offset by the gain on sale of real estate rental property in 2001 and a
translation gain in 2001, as compared to a translation loss in 2000.
Equity in earnings of affiliates decreased to $2.3 million for the six months
ended June 30, 2001, from $16.1 million for the same period in 2000. The
decrease is primarily attributable to the decreased earnings of the Company's
50%-owned affiliate, Trinet Venture Capital Ltd. ("Trinet"), which recorded
unrealized gains on its investments in Smart Link Ltd., Netformx Ltd. and
Sim-Player.com Ltd. in 2000, and Ophir Holdings Ltd. ("Ophir Holdings"), the
Company's 42.5%-owned affiliate, which recorded an unrealized gain on a trading
security in 2000. There were no similar gains in 2001.
The Company recorded $3.6 million of unrealized losses on investments which are
classified as trading securities in the six-month period ended June 30, 2001, as
compared to $4.3 million of unrealized gains in the same period in 2000. The
unrealized losses recorded in 2001 are primarily attributable to the Company's
investment in shares of Zeevi Computers and Technology Ltd. ("Zeevi") and Bank
Leumi Le'Israel B.M., while the unrealized gains in 2000 are primarily
attributable to the Company's investment in shares of BreezeCOM
Ltd.("BreezeCOM"). At June 30, 2001 and December 31, 2000, the aggregate fair
value of trading securities amounted to approximately $15 million and $23.8
million, respectively.
In the six months ended June 30, 2001, the Company recorded $1.5 million of
gains on the sale of investments, which were primarily attributable to its
investment in Floware Wireless Systems Ltd. In the six months ended June 30,
2000, the Company recorded $2.3 million of gains on the sale of various
marketable securities.
On March 28, 2001, the Company concluded the sale of its interest in a building
located at 800 Second Avenue ("800 Second Avenue") in New York City for $33
million and recorded a pre-tax gain of approximately $8 million ($4.3 million
net of taxes). On May 2, 2001, the Company sold its real estate rental property
located in Bnei Brak, ("Bnei Brak") Israel and recorded a pre-tax gain of
approximately $2.1 million ($1.6 million net of taxes).
The increase in real estate income and expenses in the first half of 2001 as
compared to the same period in 2000 is attributable to the operations of Am-Hal
Ltd. ("Am-Hal"), the Company's wholly-owned subsidiary, which owns and operates
a chain of senior citizens facilities in Israel. In June 2000, Am-Hal opened its
second senior citizen facility which is located in Hod Hasharon, Israel.
14
16
The decrease in other income in the six months ended June 30, 2001, as compared
to the same period in 2000, is attributable to a dividend received from MIRS
Communications Ltd. ("Mirs") in 2000, which was not distributed by MIRS in 2001.
The Company recorded higher interest expense in the six months ended June 30,
2001, as compared to the same period in 2000, primarily as a result of interest
expense attributable to Am-Hal's operations.
In the six-month period ended June 30, 2001, the Company recorded a $3.2 million
loss from impairment of its investments in RealM Technologies Ltd.($1.25
million), Shiron Satellite Communications (1996) Ltd. ("Shiron") ($.9 million),
mPrest Technologies Ltd. ("mPrest") ($.75 million) and Babylon Ltd. ("Babylon")
($.25 million), while in the same period in 2000, the Company recorded a $3.5
million loss from impairment of its investment in M.D.F. Industries Ltd.
The Company recorded a translation gain of $.6 million in the six months ended
June 30, 2001, as compared to a translation loss of $.7 million in the same
period in 2000. The translation gain in 2001 is attributable to the devaluation
of the new Israeli shekel against the U.S. dollar in the six months ended June
30, 2001, while the translation loss in 2000 was primarily attributable to
foreign exchange forward contracts executed by the Company, which were
outstanding during the first half of 2000.
The increase in the effective income tax rate in 2001, as compared to 2000, is
attributable to state and local income taxes with respect to the gain on sale of
800 Second Avenue, losses of certain Israeli subsidiaries for which no tax
benefits are currently available and certain expenses which are not deductible
for income tax purposes.
Three months ended June 30, 2001 compared to three months ended June 30, 2000:
The consolidated net loss was $3.8 million for the three months ended June 30,
2001, as compared to net income of $7.2 million for the same period in 2000. The
decrease in income is primarily attributable to the decrease in equity in
earnings of affiliates, unrealized losses on investments in the second quarter
of 2001, as compared to unrealized gains on investments in 2000 and a higher
effective income tax rate. These decreases in net income were partially offset
by the gain on sale of real estate rental property in the second quarter of
2001.
Equity in earnings of affiliates decreased to $1.5 million for the three months
ended June 30, 2001, from $13.2 million for the same period in 2000. The
decrease is primarily attributable to the unrealized gains recorded by Trinet
and Ophir Holdings in 2000, and there were no similar gains in 2001.
The Company recorded $1.3 million of unrealized losses on investments which were
classified as trading securities in the three-month period ended June 30, 2001,
as compared to $3.1 million of unrealized gains in the same period in 2000. The
unrealized losses recorded in 2001 are primarily attributable to the Company's
investment in shares of Zeevi, while the unrealized gains in 2000 were primarily
attributable to the Company's investment in shares of BreezeCOM.
On May 2, 2001, the Company sold its real estate rental property located in Bnei
Brak and recorded a pre-tax gain of approximately $2.1 million ($1.6 million net
of taxes).
15
17
The decrease in real estate income in the second quarter of 2001, as compared to
the same period in 2000, is attributable to the sale of 800 Second Avenue and
Bnei Brak.
In the three-month period ended June 30, 2001, the Company recorded a $1.9
million loss from impairment of its investments in Shiron ($.9 million), mPrest
($.75 million) and Babylon ($.25 million), while in the same period in 2000, the
Company recorded a $2 million loss from impairment of its investment in M.D.F.
Industries Ltd.
The Company recorded a translation loss of $.3 million in the quarter ended June
30, 2001, as compared to a translation gain of $.3 million in the same period in
2000. The translation loss in 2001 is attributable to the revaluation of the new
Israeli shekel against the U.S. dollar in the three months ended June 30, 2001,
while the translation gain in the second quarter of 2000 was attributable to the
shekel's devaluation against the dollar during that period.
The increase in the effective income tax rate in 2001 as compared to 2000 is
attributable to losses of certain Israeli subsidiaries for which no tax benefits
are currently available.
Liquidity and Capital Resources
At June 30, 2001, cash and cash equivalents were $2.9 million, as compared with
$5.8 million at December 31, 2000. The decrease in cash and cash equivalents is
primarily attributable to the income tax payments in connection with the sale of
800 Second Avenue and to the repayment of short-term borrowings. The decrease in
notes and loans payable and real estate property are primarily attributable to
the sale of 800 Second Avenue. The increase in accumulated other comprehensive
loss is primarily attributable to the unrealized losses on the
available-for-sale securities.
On January 22, 2001, the Company made an additional investment of $1.5 million
in Enbaya Ltd., a developer of a 3D browser that enables fast viewing,
compression and streaming of 3D models, and increased its equity interest in the
company from 12.9% to 20.5%.
On February 23, 2001, the Company made an additional investment of $5 million in
XACCT, a leading provider of business infrastructure software for the
next-generation public network. The Company holds an approximate 16% equity
interest in XACCT.
On April 16, 2001, the Company made an additional investment of $1.7 million
(includes the conversion of a $.5 million loan) in ShellCase Ltd. ("ShellCase"),
a developer of chip-size packaging technology for semiconductors using a
wafer-level process. The Company holds an approximate 13.3% equity interest in
ShellCase.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS Nos.
141 and 142 titled "Business Combinations" and "Goodwill and Other Intangible
Assets", respectively. SFAS No 141, among other things, eliminates the pooling
of interests method of accounting for business acquisitions entered into after
June 30, 2001. SFAS No. 142 requires companies to use a fair-value approach to
determine whether there is an impairment of existing and future goodwill. These
statements are effective beginning January 1, 2002. The Company is in the
process of evaluating the SFAS Nos. 141 and 142 and the effect that they will
have on the Company's financial position, results of operations and cash flows.
16
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS AND SENSITIVITY ANALYSIS
The Company is exposed to various market risks, including changes in interest
rates, foreign currency rates and equity price changes. The following analysis
presents the hypothetical loss in earnings, cash flows and fair values of the
financial instruments which were held by the Company at June 30, 2001, and are
sensitive to the above market risks.
Interest Rate Risks
At June 30, 2001, the Company had financial assets totalling $20.6 million and
financial liabilities totalling $171.4 million. For fixed rate financial
instruments, interest rate changes affect the fair market value but do not
impact earnings or cash flows. Conversely, for variable rate financial
instruments, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors held
constant.
At June 30, 2001, the Company had fixed rate financial assets of $13.8 million
and variable rate financial assets of $6.8 million. Holding other variables
constant, a ten percent increase in interest rates would decrease the unrealized
fair value of the fixed financial assets by approximately $.1 million.
At June 30, 2001, the Company had fixed rate debt of $48.9 million and variable
rate debt of $122.5 million. A ten percent decrease in interest rates would
increase the unrealized fair value of the fixed rate debt by approximately $.3
million.
The net decrease in earnings for the next year resulting from a ten percent
interest rate increase would be approximately $.7 million, holding other
variables constant.
Exchange Rate Sensitivity Analysis
The Company's exchange rate exposure on its financial instruments results from
its investments and ongoing operations in Israel. To partially hedge this
exposure, the Company sometimes enters into various foreign exchange forward
purchase contracts. At June 30, 2001, the Company did not have any open foreign
exchange forward purchase contracts. Holding other variables constant, if there
were a ten percent devaluation of the foreign currency, the Company's cumulative
translation loss (reflected in the Company's accumulated other comprehensive
loss) would increase by $1.9 million. Conversely, if there were a 10%
revaluation of the foreign currency, the net decrease in earnings would be $2.7
million.
Equity Price Risk
The Company's investments at June 30, 2001 included marketable securities
(trading and available-for-sale) which are recorded at fair value of $42.5
million, including a net unrealized loss of $13.6 million. Those securities have
exposure to price risk. The estimated potential loss in fair value resulting
from a hypothetical 10% decrease in prices quoted by stock exchanges is
approximately $4.3 million.
17
19
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - On July 27, 1998 a Tel Aviv District Court judge
ruled in favor of Yakhin Hakal Ltd., the manager and co-owner of
Ampal's 50%-owned affiliates, Etz Vanir Ltd. ("Etz Vanir") and Yakhin
Mataim Ltd. ("Yakhin Mataim"). The judge's decision allowed Etz Vanir
and Yakhin Mataim to redeem debentures owned by Ampal for approximately
$.8 million and to require Ampal to surrender all of its shares of Etz
Vanir and Yakhin Mataim for their par value, which is nominal. After
the redemption and surrender, Ampal will no longer have any interest in
Etz Vanir or Yakhin Mataim.
On October 15, 1998, Ampal filed an appeal with the High Court of
Appeals in Jerusalem. At the request of Ampal's attorneys, the Tel Aviv
District Court issued a stay of performance of the judgment until the
High Court of Appeals issues a final judgment.
On July 31, 2001, the registrar for the High Court of Appeals issued a
decision dismissing on technical grounds, Ampal's appeal in its dispute
with Yakhin Hakal. The registrar determined that Ampal had failed to
produce a guarantee for Yakhin Hakal's expenses in the appeal within
the required time. On August 7, 2001, Ampal appealed the dismissal. The
High Court of Appeals stayed the proceedings pending a final decision
in this new appeal and also decided to set a date for this appeal as
soon as possible. Ampal has been advised by the Israeli counsel
representing it in this case that Ampal has a very good chance of
winning this new appeal and having its original appeal reinstated and
decided on the merits.
In 2001, a claim was filed in the Jerusalem District Court against
Sonol, a wholly-owned subsidiary of Granite Hacarmel Investments Ltd.
("Granite"), its subsidiary company, Sprint Motors Ltd., and four
unrelated companies by customers who purchased fuel products in filling
stations, contending that the defendants charged an illegal "service
charge" over a period of many years. The plaintiffs have requested the
court to recognize their claim as a class action. The amount of the
claim is NIS. 5.30 and, should the court allow a class action, it will
total approximately NIS. 372 million (approximately $93 million). From
the claim, it is not clear as to what is Sonol's and its subsidiary's
share of this amount. The company's management denies the plaintiff's
request and the claim which, in its opinion, have no real basis.
In June 2001, a claim was filed by customers against Supergas
(Granite's wholly-owned consolidated subsidiary), alleging that the
defendant made illegal periodic charges to its customers. The plaintiff
applied to the Tel Aviv District Court to have the claim recognized as
a class action in a total amount of NIS. 125 million (approximately $31
million). The company's management, based on legal advice, is of the
opinion that the ultimate outcome of this case can not be evaluated at
this stage.
Item 2. Changes in Securities and Use of Proceeds -- On March 1,2001 Ampal
(Israel) Ltd., a wholly-owned subsidiary of Ampal in Israel,
transferred 1,500 shares of Ampal's Class A Stock (which had a market
value at that time of approximately $9,000) to Coaching Ltd., an
Israeli company, as partial consideration for strategic consulting
services provided to Ampal (Israel) Ltd. in Israel. The issuance of
such shares to Coaching Ltd. was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) of such
Act and Regulation S promulgated pursuant to such Act.
Item 3. Defaults upon Senior Securities -- None.
18
20
Item 4. Submission of Matters to a Vote of Security Holders - On June 28,
2001, Ampal's shareholders held their annual meeting (the "Annual
Meeting"). At such meeting, the shareholders elected the following
individuals as directors by the following vote:
AUTHORITY
FOR WITHHELD
Michael Arnon 18,164,619 20,596
Benzion Benbassat 18,165,225 19,990
Yaacov Elinav 18,165,197 20,018
Kenneth L. Henderson 18,164,397 20,818
Hillel Peled 18,166,297 18,918
Daniel Steinmetz 17,763,642 421,573
Raz Steinmetz 17,765,332 419,883
Avi A. Vigder 18,165,025 20,190
Eliyahu Wagner 18,166,297 18,918
Item 5. Other Information - After the conclusion of the Annual Meeting,
Ampal's Board of Directors elected the following individuals to serve
as officers for the upcoming year:
Chairman of the Board: Daniel Steinmetz
President and Chief
Executive Officer: Raz Steinmetz
Vice President -
Finance and Treasurer: Shlomo Meichor
Vice President -
Accounting and Controller: Alla Kanter
Vice President -
Legal and Secretary: Niv Galanti
Assistant Controller: Harold Aronowitz
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 -- Schedule Setting Forth Computation of Earnings
per Share of Class A Stock.
(b) Reports on Form 8-K. None.
19
21
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMPAL-AMERICAN ISRAEL CORPORATION
By:/s/ Raz Steinmetz
---------------------------------------
Raz Steinmetz
President and
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Shlomo Meichor
---------------------------------------
Shlomo Meichor
Vice President - Finance
and Treasurer
(Principal Financial Officer)
By:/s/ Alla Kanter
---------------------------------------
Alla Kanter
Vice President - Accounting
and Controller
(Principal Accounting Officer)
Dated: August 14, 2001
20
22
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Exhibit Index
Exhibit No. Description
11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock............................. Page *
----------
* This exhibit was included in the copy of this report filed with the
Securities and Exchange Commission and is available upon request from
Ampal.
21